Q3 2023 Ladder Capital Corp Earnings Call
Yeah.
Speaker 1: transcript
Speaker 1: Good morning and welcome to the latter capital corpse earning call for the third quarter 2023. As a reminder, today's call is being recorded. This morning, the latter released its financial selves 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.
Good morning, and welcome to the ladder Capital Corp, 's earnings call for the third quarter 2023, as a reminder, today's call is being recorded.
This morning latter 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.
Speaker 1: transcript
Speaker 2: 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.
And 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, a ladder will discuss certain non-GAAP financial measures on this call.
Speaker 1: transcript
Speaker 3: We do not undertake any obligation to update our forward-looking statements or projections unless required by law.
Speaker 1: transcript
Speaker 4: In addition, the latter will discuss certain non-GAB financial measures on this call, which management believes are relevant to assessing the company's financial performance.
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 real.
Speaker 1: transcript
Speaker 5: 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 GAP.
Speaker 1: transcript
Speaker 6: These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the investor relations section of our website.
Patients 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 site on today's call at.
Speaker 1: transcript
Speaker 7: We also refer you to our form 10K and Erding Supplement presentation for definitions of certain metrics, which we may cite on today's call.
Speaker 1: transcript
Speaker 8: At this time, I'd like to turn the call over to Laddner's President, Pamela McCormick. Please go ahead.
At this time I'd like to turn the call over to Landers President Pamela Mccormack. Please go ahead.
Good morning.
Speaker 2: transcript
Speaker 9: We have pleased to provide an overview of Gladys' financial performance for the third quarter of 2023.
We are pleased to provide an overview of glad its financial performance for the third quarter of 2023.
Speaker 2: transcript
Speaker 10: During the quarter, let a generated distributable earnings of $39 million or $31 cents per share.
During the quarter ladder generated distributable earnings of $39 million or 31 cents per share.
Speaker 2: transcript
Speaker 11: 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.
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 one six times.
Speaker 2: transcript
Speaker 12: Our book value was remained steady, even as we continue to add to our Cecil Reserve to a current market environment.
Our book value has remained steady even as we continue to address these the reserve to align with the current market environment.
Speaker 2: transcript
Speaker 13: Our dividend also remains well supported by net interest margin and net rental.
Our dividend also remains well supported by net interest margin and net rental income.
Speaker 2: transcript
Speaker 14: We will endeavor to prioritize credit optimization in the upcoming quarters in order to continue to deliver these results.
We will endeavor to prioritize credit optimization in the upcoming quarters in order to continue to deliver these results.
Speaker 2: transcript
Speaker 15: 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.
We've consistently maintained robust liquidity with approximately $800 million in cash and cash equivalent this amount represents more than 14% of our total assets.
Speaker 2: transcript
Speaker 16: With our fully undrawn, unsecured revolver, our state-of-the-liquidity stands $1.1 billion.
With our fully undrawn unsecured revolver, our liquidity stands at $1 $1 billion.
Speaker 2: transcript
Speaker 17: The fourth thing that our leverage ratio stands up less than 1.0 times when excluding investment and unrestricted cash.
Worth mentioning that our leverage ratio stands at less than 1.0 times, when excluding investment grade securities and unrestricted cash.
Speaker 2: transcript
Speaker 18: Underscoring our commitment to prioritizing safety and prudence in the face of ongoing market uncertainties and the prevailing geopolitical land
Underscoring our commitment to prioritizing safety and prudent in the face of ongoing market uncertainties.
Prevailing geopolitical landscape.
Over 40% of our debt is comprised of unsecured corporate bonds.
Speaker 2: transcript
Speaker 19: Over 40% of our debt is comprised of unsecured corporate bonds, 55% of our assets are on encumbered, and 82% of these assets consist of first mortgage loans, investment grade securities, and cash and cash equivalent.
55% of our assets are unencumbered and 82% of these assets consist of first mortgage loan investment grade securities and cash and cash equivalents.
Speaker 2: transcript
Speaker 20: This composition significantly enhances the flexibility and liquidity of our balance sheet in comparison to traditional security funding sources.
This composition significantly enhances the flexibility and liquidity of our balance sheet in comparison to traditional secured funding sources.
Speaker 2: transcript
Speaker 21: Turning to our Bouncing Loan portfolio, it stands at $3.4 billion as a September 30th, and features the weighted average yields of 9.77% and an average loan size of $27 million.
Turning to our balance sheet loan portfolio. It stands at $3 $4 billion as of September 30th.
And featured a weighted features the weighted average yield of 977% and an average loan size of $27 million.
Speaker 2: transcript
Speaker 22: 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 addition.
We maintained 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 properties.
Speaker 2: transcript
Speaker 23: In the third quarter, we received loan repayments to $119 million.
In the third quarter, we received loan repayments totaling $119 million.
Speaker 2: transcript
Speaker 24: When combined with the year-to-date repayments for 2023 through September 30th, a total loan repayment reached $560 million.
When combined with a year to date repayments for 2023 through September 30th.
Our total loan repayments reached $560 million.
Speaker 2: transcript
Speaker 25: Our strategic emphasis on originating loans within the middle market with a smaller average loan size remains a key factor enhancing credit quality.
Our strategic emphasis on originating loans within the middle market with a smaller average loan size.
Remains a key factor enhancing credit quality.
Speaker 2: transcript
Speaker 26: As demonstrated in the past, these smaller loan sizes allow borrowers to access a broader array of capital sources for each.
As demonstrated in the past these smaller loan sizes allow borrowers to access a broader array of capital sources for repayment feed through refinancing or off itself and contributes to the resilience of our credit portfolio.
Speaker 2: transcript
Speaker 27: Be through refinancing or asset sales and contribute to the resilience of our credit portfolio.
Speaker 2: transcript
Speaker 28: During the quarter, we foreclosed on a mixed use loan that you put by four properties in Harlem, New York, with a combined carrying value of $31 million.
During the quarter, we foreclosed on a mixed use loans by four properties in Harlem, New York with a combined carrying value of $31 million.
Speaker 2: transcript
Speaker 29: The property is 89% occupied, and our plan moving forward is to actively work on stabilizing the multi-family and retail component of these apps.
The property is 89% occupied and our plan moving forward is to actively work on stabilizing the multifamily and retail components of these assets.
Speaker 2: transcript
Speaker 30: This action resolves a loan on non-accrual, reducing the balance from $88 to $58 million.
This action resolved a loan on non accrual, reducing the balance from $88 million to $58 million.
Speaker 2: transcript
Speaker 31: In the same quarter, we sold a hotel in San Diego, California, that we previously foreclosed on, resulting in a $800,000 gain.
In the same quarter, we sold a hotel in San Diego, California that we previously foreclosed on resulting in an $800000 gain.
Speaker 2: transcript
Speaker 32: This game was in addition to a $2 million game we recorded at the time of foreclosure in 2019.
This gain was in addition to a $2 million gain we recorded at the time of foreclosure in 2019.
Speaker 2: transcript
and resulted in an 18% return on equity from the time of initial adjustments to the point itself.
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.
Speaker 2: transcript
Subsequent quarter end, we concluded foreclosure proceedings on a $35 million multi-family loan located in Pittsburgh, Pennsylvania.
Speaker 2: transcript
The loan had previously been classified as non-accrual in the second quarter of 2020.
The loan had previously been classified as non accrual in the second quarter of 2023.
Speaker 2: transcript
property primarily consists of 174 newly constructed multi-family units that are 98% occupied. In addition to these units
The property primarily consists of 174 newly constructed multifamily units that are 98% occupied.
In addition to these units there some office and commercial space.
Speaker 2: transcript
and the property currently generates a solid in place capitalization rate of 7% at our base.
And the property currently generates a solid in place capitalization rate of 7% at our basis.
Speaker 2: transcript
Further, as poll will cover more detail, we increased our Cecil Reserve to align with our assessment of current marks conditions, but we did not identify specific impairments during the session.
Further as Paul will cover in more detail, we increased our seasonal reserve to align with our assessment of current market conditions, but we did not identify the specific impairments during the quarter.
Speaker 2: transcript
regarding our proactive management approach, to maintain ongoing communication with borrowers and closely monitor their business plans well ahead of any maturity.
Regarding our proactive asset management approach maintain ongoing communication with borrowers and closely monitor their business plan well ahead of any maturity date.
Speaker 2: transcript
We are paying special attention to pivotal milestones where a cappoon fuser may be needed.
We are paying special attention to pivotal milestone where capital infusion may be needed.
Speaker 2: transcript
And our ability to optimize asset value is bolstered by our expertise in real estate ownership and operations.
And our ability to optimize asset value is bolstered by our expertise real estate ownership and operations.
Turning to our securities portfolio.
Speaker 2: transcript
We've begun capitalizing on opportunities to expand this portfolio by acquiring additional $58 million of AAA CLO security.
We have begun capitalizing on opportunities to expand its portfolio by acquiring an additional $58 million of AAA CLO securities.
Speaker 2: transcript
which are presently offering highly attractive returns and a compelling, unlovered yield of approximately 7.68.
Which are personally offering highly attractive returns and a compelling unlevered yield of approximately 7.68%.
Speaker 2: transcript
A real estate portfolio remains the substantial contributed to distributed learning generating $16 million in net rental income.
Our real estate portfolio remains a substantial contributor to distributable earnings generating $16 million and net rental income this quarter.
Speaker 2: transcript
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.
In 2023, all three major rating agencies reaffirmed our credit ratings and two of these agencies maintained our rating at one notch below investment grade.
Speaker 2: transcript
This is an open-to-weir-be-achievement, especially in light of the disruptions of the commercial real estate.
This is a noteworthy achievement, especially in light of the disruption in the commercial real estate market.
Speaker 2: transcript
In conclusion, we are continuing to maintain a patient's stance, assured by the secure coverage of our evidence. Do the resilience of our credit portfolio? We also continue to maintain a high bar when it comes to reinvest.
In conclusion.
We are continuing to maintain a patient stance assured by the secure coverage of our dividend.
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 return once that transaction activity rebound.
Speaker 2: transcript
However, we are well-prepared to seize new investment opportunities that offer attractive risk-adjusted returns once that transaction activity rebounds.
Speaker 2: transcript
This readiness is supported by robust liquidity, prudent leverage, and the expertise of our season to originations team. With that...
The 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.
Speaker 3: transcript
Thank you, Pamela. In the third quarter, Laddock generated triple burnings of 39 million or 31 cents per share, driven by contributions from strong net interest margin and not mid-operating income, both of which benefit from our primarily fixed rate liability.
Thank you Pamela.
The third quarter ladder generated sugar borrowings of 39 million or 31 cents 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.
Speaker 3: transcript
$3.4 billion balance sheet loan portfolio, decreased in the third quarter, you did $119 million in proceeds receipts.
A $3 $4 billion balance sheet loan portfolio decreased in the third quarter, you did $119 million.
Proceeds received from loan pay downs.
Speaker 3: transcript
partially all set by $17 million from funding on one new loan.
Partially offset by $17 million from funding on one new loans and existing commitments.
Speaker 3: transcript
As previously mentioned before, it flows on a 30.5 million dollar loan collateralized by four mixed-use properties, producing our non-acrual loan balance.
As previously mentioned before close on a $35 million loan collateralized by or mixed use properties, reducing our non accrual loan balance.
In addition.
Speaker 3: transcript
We filled the previously four clothes on hotel properties for a zero-point eight million dollar game. In the third quarter, we increased our C-flow reserve by 7.5 million, bringing our general reserve to approximately 110 basis points of our loan.
We sold the previously foreclosed on hotel property as far as your point $8 million game.
The third quarter, we increased our Stifel reserve by $7 5 million, bringing our general reserves.
Approximately 110 basis points of our loan portfolio.
Speaker 3: transcript
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
The increase was driven by the current macro view of the state of the U S commercial real estate market and the overall global market conditions, including the increase in long term interest rates.
Unknown Executive: Good morning, and welcome to the Ladder Capital Corp's earning call for the third quarter 2023. As a reminder, today's call is being recorded. This morning, Ladder released its financial selves for the quarter ended September 30th, 2023.
Speaker 3: transcript
We continue to believe that the credit quality of our loan portfolio benefits from overall diversity and collateral type and geography and granularity with limited exposure to any single sponsor or model.
We continue to believe that the credit quality of our loan portfolio benefits from overall diversity and collateral type and geography, and granularity with limited exposure to any single sponsor or market.
Unknown Executive: 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 10k 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.
Speaker 3: transcript
Our $800,000,000,000 real estate segment continues to perform well and provides stable net operating income to our
$888 million real estate segment continues to perform well and provide stable net operating income to our earnings.
Speaker 3: transcript
And as of September 30th, the carrying value of our securities portfolio was 477 million.
And as of September 30 of the carrying value of our securities portfolio was $477 million.
Speaker 3: transcript
and prize of 99% investment grade rated securities, of which 83% of a triple-erad.
Comprised of 99% investment grade rated securities of which 83% of our AAA rating.
Speaker 3: transcript
worth noting that as of September 30th, 2023, 70% of our securities portfolio was unencumbered and readily connected.
Worth, noting that as of September 30 of 2023, 70% of our securities portfolio was unencumbered at readily financeable.
Unknown Executive: In addition, Ladder will discuss certain non gab financial measures on this call, which of 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 gap. These measures are reconciled to gap figures in our earnings supplement presentation, which is available in the investor relations section of our website. We also refer you to our form 10k and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call.
Speaker 3: transcript
which is in addition to the $1.1 billion of same-day liquidity we've been paying.
This is in addition to the $1 $1 billion of same day liquidity, we've been Chan.
Blatter same day liquidity simply represents cash and cash equivalents of 780 $798 million, plus our undrawn corporate revolver and $324 million.
Speaker 3: transcript
Biodes same data liquidity simply represents cash and cash equivalents of seven hundred and eight seven hundred and ninety eight million dollars plus our unsold corporate revolver three hundred twenty four nine dollars
With a maturity in 2027.
Speaker 3: transcript
As of September 30th, 2023, our adjusted leverage ratio was 1.6 times down from prior quarters. We continue to deliver our balance sheet all the while producing steady earnests.
As of September 30 of 2023, our adjusted leverage ratio was one six times down from prior quarters, we continued to Delever, our balance sheet, all the while producing steady earnings.
Speaker 3: transcript
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.
Unsecured corporate bonds remain an anchor to our capital structure with 1.6 billion outstanding was 41% of our debt with a weighted average maturity of four years and at attractive fixed rates cost of capital at four 7% average coupons.
Pamela McCormack: At this time, I'd like to turn the call over to Ladder's president, Pamela McCormick. Please go ahead. 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 at $39 million or $31 cents 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.
Speaker 3: transcript
The third quarter, we repurchased 5.3 million in principle over on secure bonds at 81.6% a par, generating 0.9 million in gains from the retirement debt.
In the third quarter, we repurchased $5 3 million in principal of our unsecured bonds at 81, 6% of par.
Generating 0.9 billion in gains from the retirement of debt.
Speaker 3: transcript
Through September 30th, in 2023, we've repurchased 67 million in principal of unsecured bonds at 83.4% of par generating 10.6 million.
Through September 30th.
In 2023, we've repurchased 67 million in principal of unsecured bonds at 83, 4% of par generating $10 6 million of cash.
Pamela McCormack: Our book value has remained steady, even as we continue to add to our Cecil Reserve to align with the current market environment. Our dividend also remains well supported by net interest margin and net rental income. We will endeavour 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 equivalent. This amount represents more than 14% of our total assets.
As of September 30th or unencumbered asset posted a 3.0 billion.
Speaker 3: transcript
As of September 30th, our unencumbered asset pulls to the 3.0 billion. 415.
Well, it's 55% of our balance sheet.
Speaker 3: transcript
Over 80% of this unencumbered asset pool was comprised of the first mortgage loan security than cash and cash
Over 80% of it is 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 continued to provide louder with strong financial flexibility.
Speaker 3: transcript
We believe our liquidity position in large pool of high quality, uncomfort assets continue to provide latter with strong financial flexibility.
Speaker 3: transcript
As Tom will discuss as reflected in our corporate credit rating one notch from investment grade two or three rating agencies with all three rating agencies reaffirming our credit rating in 2023.
Pamela McCormack: With our fully undrawn, unsecured revolver, our state of liquidity stands $1.1 billion. If 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 equivalent.
Speaker 3: transcript
The third quarter ladder repurchased 19,000 shares of common stock at an average purchase price of $10.33 per share. In year to date, we have repurchased 2.5 million of our common stock at a weighted average price of $9.22.
In the third quarter ladder repurchased 19000 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, that's $44 million remaining capacity as of September 32023.
Speaker 3: transcript
are shared by that program authorization of $50 million that's 44 million of remaining capacity as of September 30th.
Speaker 3: transcript
Ladders underappreciated book value per share was $13.77 at quarter end. It is on 126.9 million shares outstanding as of September 30. Let's panel discuss remains stable.
Ladders Unappreciated book value per share was $13 77 at quarter end.
He founded $126 9 million shares outstanding as of September 30th.
Pablo discussed remains stable.
Speaker 3: transcript
Finally, our dividend is well covered. And then the third quarter ladder declared a 23 cent per shared dividend, which was paid on October 16, 2023.
Finally, our dividend is well covered.
Pamela McCormack: This composition significantly enhances the flexibility and liquidity of our balance sheet in comparison to traditional security funding sources. Turning to our balance sheet loan portfolio, it stands at $3.4 billion as a September 30th, and features the 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 properties.
Third quarter ladder declared a <unk> 23 per share dividend, which was paid on October 16 2023.
Speaker 3: transcript
For more details on our third quarter operating results, please refer to our any supplements which develop on our website, as well as our 10Q. With that, I will turn the call over to...
For more details on our third quarter operating results. Please refer to our earnings supplement which is available on our website as well as our 10-Q with that I'll turn the call over to Brian.
Thanks, Paul.
Speaker 4: transcript
The third quarter saw interest rates generally third higher to levels not seen in a very long time, but latter's performance was impressive. Now having delivered double digit ROEs over each of the last four quarters.
The third quarter. So interest rates generally served higher to levels not seen in a very long time, but ladders performance was impressive now having delivered double digit <unk> over each of the last four quarters, our distributable earnings over the first three quarters of this year were $128 million.
Speaker 4: transcript
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.
Pamela McCormack: In the third quarter, we received loan repayments totaling $119 million. When combined with the year-to-date repayments for 2023 through September 30, a total loan repayment reached $560 million. Our strategic emphasis on originating loans within the middle market with a smaller average loan size remains a key factor in enhancing credit quality. As demonstrated in the past, these smaller loan sizes allow borrowers to access a broader array of capital sources for repayment, be it through refinancing or asset sale and contribute to the resilience of our credit portfolio.
19% increased from the $110 million over the same period in 2022.
Speaker 4: transcript
This was accomplished with the modest use of leverage, a smaller acid base, and while keeping our liquidity levels quite high.
This was accomplished with the modest use of leverage a smaller asset base and while keeping our liquidity level is quite high.
Speaker 4: transcript
Notably, today we hold over $800 million of P-bills maturing in less than three months with an average yield to maturity of 5.45%.
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%.
Speaker 4: transcript
During the quarter, we began reallocating capital from cash and tea bills into CLO triple A rated security.
During the quarter, we began reallocating capital Fantastic T bells into CLO AAA rated securities.
Pamela McCormack: During the quarter, we foreclosed on a mixed-use loan featured 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 multi-family and retail component of these assets. This action resolved a loan on non-accrual, reducing the balance from $88 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.
Speaker 4: transcript
acquiring a modest $58 million of them in the quarter, but we expect to grow this position in the quarters ahead.
Acquiring a modest $58 million up then in the quarter, but we expect to grow this position in the quarters ahead.
Speaker 4: transcript
The A-classes of new commercial real estate CLOs receive an unlevered 7.75% return in today's market.
The age classes of new commercial real estate CLO receive an unlevered, 775% return in today's market.
Speaker 4: transcript
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 borrowers.
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.
Pamela McCormack: 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 Quotarad, we concluded foreclosure proceedings on a $35 million multi-family 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 multi-family units that are 98% occupied.
Speaker 4: transcript
We think the 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.
Speaker 4: transcript
As mentioned earlier, we received $119 million in loan pay-offs in the third quarter. And in the first few weeks of October , we have received an additional $52 million of pay-offs after three more balance sheet loans paid off.
As mentioned earlier, we received $119 million in loan payoffs in the third quarter and then the first few weeks of October and we have received an additional $52 million of pay offs. After three more balance sheet loans paid off.
Speaker 4: transcript
Consequently, our liquidity has increased further since the end of the third quarter.
Consequently, our liquidity has increased further since the end of the third quarter.
Oh.
Pamela McCormack: 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 poll will cover in more detail, we increased our seasonal reserve to align with our assessment of current marks conditions, but we did not identify any specific impairments during the quarter. Regarding our proactive asset management approach, we maintain ongoing communication with borrowers and closely monitored their business plans well ahead of any maturity date.
Speaker 4: transcript
Fred has been holding up nicely for the most part, but we're seeing some delays on loan payoffs, as lenders have become quite cautious before loan refinancing is closed.
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.
Speaker 4: transcript
On going negotiations for loan extensions are regular current of these days, but so far it seems that most sponsors can, will and must contribute more equity to maintain ownership in their assets.
Ongoing negotiations for loan extensions are regular currency. These days, but so far it seems that most sponsors can will and must contribute more equity to maintain ownership and their assets.
Speaker 4: transcript
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.
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.
Pamela McCormack: 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've begun capitalizing an opportunity to expand this portfolio by acquiring additional $58 million of AAA COLO securities, which are presently offering highly attractive returns and a compelling, unlevered yield of approximately 7.68%. Our real estate portfolio remains substantial, contributed to distributable earnings, generating $16 million in net rental income this quarter.
Speaker 4: transcript
If the 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 supporters of our dividend.
If the 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.
Speaker 4: transcript
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.
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.
Speaker 4: transcript
Switching topics, we get asked a lot about how changes to the funding model that regional banks will impact ladder given how many commercial real estate loans are refinanced in this part of the banking sector.
Switching topics, we get asked a lot about how changes to the funding models that regional banks will impact ladder, given how many commercial real estate loans are refinanced in this part of the banking sector.
Pamela McCormack: 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 an important achievement, especially in light of the disruptions in the commercial real estate.
Speaker 4: transcript
The answer, we believe, is that short term, some loans that 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 answer we believe is that short term some loans on our balance sheet and may have challenges and refinancing but in the longer term if regional banks get smaller hold more capital and have diminished lending capability.
Pamela McCormack: Mark. In conclusion, we are continuing to maintain a patient's stance assured by the secure coverage of our dividend. Through the resilience of our credit portfolio, we also continue to maintain a high bar when it comes to reinvestments.
Pamela McCormack: However, we are well prepared to seize new investment opportunities that offer attractive risk-adjustive returns once that transaction activity rebounds.
Speaker 4: transcript
The positive impact to alternative lenders like us should be very positive.
The positive impact to alternative lenders like us should be very positive.
Speaker 4: transcript
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.
The last few years have seen plenty of turbulence brought on by global pandemic near zero interest rates, followed by the highest rates seen them for a decade.
Along with heightened tensions with China, Russia, and chaos in the Middle East.
Speaker 4: transcript
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.
Paul Miceli: This readiness is supported by robust liquidity, prudent leverage, and the expertise of our season to originations teams. With that, I'll turn the call over to Paul. Thank you, Pamela. In the third quarter, Ladder generated trivial burdens of $39 million or $31 cents per share, driven by contributions from strong and interest margin and not made operating income, both of which benefit from our primarily fixed rate liability structure. A $3.4 billion balance sheet loan portfolio decreased in the third quarter due to $119 million in proceeds received from loan paydowns.
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.
Speaker 4: transcript
We expect the turbulence to continue for a bit longer until the Fed has convinced that the further rate hikes they're thinking about are no longer necessary.
We expect the turbulence to continue for a bit longer until the fed is convinced that the further rate hikes, there thinking about are no longer necessary.
Speaker 4: transcript
And to 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 fix some questions.
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.
Paul Miceli: Partially, all set 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 filled the previously foreclosed on hotel properties for a $0.8 million dollar game. In the third quarter, we increased our CFO reserve by $7.5 million, bringing our general reserve to approximately 110 basis points of our loan portfolio.
Thank you we will now be conducting a question and answer session.
Speaker 3: transcript
If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your...
If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
Speaker 3: transcript
You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.
Press Star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Paul Miceli: The increase was driven by the current macro view of the state of the U.S, 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 and geography and granularity with limited exposure to any single sponsor or market. Our $800.8 million real estate segment continues to perform well and provides stable net operating income to our earnings.
Speaker 4: transcript
Thank you. Our first question is from Sarah Marcom with BTIG. Please proceed with your question.
Thank you. Our first question is from Sarah Arc home with BTG. Please proceed with your question.
Speaker 5: transcript
Here everyone, thanks for taking the question. So during the last conference called, 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 take out financing markets have changed, at least over the previous quarter.
Hey, everyone. Thanks for taking the question. So during the last conference call. You know you mentioned that regional banks for 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.
Paul Miceli: 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 triply rated. Fourth 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 maintained. Latter, same-day liquidity simply represents cash and cash equivalence of $798 million, plus our unzero and corporate revolver, $324 million for the maturity in 2027.
Sure. Thanks, Sarah.
Yeah.
Speaker 4: transcript
I would say that it's more of the same. You know, the regional banks are still lending. I would also indicate that when you used to be given a closing date by a bar or who asked you for a pay off 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.
I would say that it's more of the same you know 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 where.
Speaker 4: transcript
Back up a couple of weeks now and we're asked for short term extensions, you know, just to accomplish the Refine and I just think it's a heightened level of detail the Analysis at this point so like whereas you might not have had an a stopper from a small tenant that requiring it now So so a lot of tea is getting crossed and eyes getting dotted and I think it's it's slowing the process not stopping it Although obviously some banks I think have just changed that criteria with the lower capital base
Whereas for short term extensions you know just to accomplish the refi.
Paul Miceli: As of September 30th, 2023, our adjusted leverage ratio was 1.6 times down from prior quarters. We continue to deliver our balance sheet all the while producing steady earnings. Unsecured corporate bonds were made 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 attractive six-rate cost capital at 4.7% average coupon. In the third quarter, we repurchased $5.3 million in principle of our unsecured bonds at 81.6% apart, generating 0.9 million in gains from the retirement debt.
Refi and I, just think it's a heightened level of detail.
All of this at this point, so like whereas you might not have had an estoppel from a small tenant that requiring it now so it's a lot of Ts getting crossed and i's are getting done it and I think it's it's slowing the process not stopping it. Although obviously some banks I think have just changed that criteria with a lower capital base.
Speaker 4: transcript
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, some of them are having some difficulties now. They're inventories. And so 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. But there is a lot of capital around and on the sidelines. It's rather expensive. And I think.
But private credit is still out there I think that a lot of the names that you know, we typically deal with in the world of CLO and transitional bond.
Transitional lending.
Some of them are having some difficulties now with their inventories and so there are some new names popping up and I think I indicated in our last call. Some of the names I've never heard of but there's a lot of capital around and on the sidelines.
Paul Miceli: Through September 30th, in 2023, we repurchased $67 million in principle of unsecured bonds at 83.4%[inaudible] of Games. As of September 30th, our unencumbered asset pool split into 3.0 billion, well 55% of our balance sheet. Over 80% of this unencumbered asset pool was comprised of the first mortgage zone security and cash and cash equivalents. We believe our liquidity position in large pool of high quality, unencumbered assets continued to provide ladder with strong financial flexibility.
It's rather expensive and and I think many borrowers coming up on maturity days believes that the existing lender is their best opportunity to get.
Speaker 4: transcript
Many borrowers coming up on maturity dates believe that the existing lender is their best opportunity to get through a whatever refinancing or an extension. Because they know the asset at that point, they're obviously not gonna fall down if they say they'll do it. But so I would say no real change other than a little bit more ticking and tying before the actual wires are sent.
Get through 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.
So I would say no real change other than a little bit more ticking and tying before the actual wires are saying.
Paul Miceli: And as Pamela discussed is reflected in our corporate credit rating that is one national investment grade in two of three rating agencies, with all three rating agencies reaffirming our credit rating in 2023. In the third quarter ladder, we purchased 19,000 shares of common stock at an average purchase price of $10.33 per share. In the year to date, we have repurchased 2.5 million of our common stock at a weighted average price of $9.22 per share.
Okay. Thanks, and then you you touched on this in your prepared remarks, Brian but you know you guys are still running with very strong liquidity and low leverage I was hoping you could comment a bit more on you know why you're running with so much cash.
Speaker 5: transcript
And then you touched on this in your prepared remark friend, but you know, you guys are still running with very strong liquidity and low leverage. I was hoping you could comment a bit more on, you know, why you're running with so much cash.
Paul Miceli: Our shared by-back program authorization of $50 million, that's 44 million of remaining capacity as of September 30th, 2023. Ladder's under-appreciated book value per share was $13.77 at quarter end, based on 126.9 million shares offstanding as of September 30th. That's Pamela discussed to remain stable. Finally, our dividend is well covered and in the third quarter ladder declared a 23 cent per share dividend, which was paid on October 16th, 2023.
Speaker 5: transcript
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, you know, could we start to see some more allocation towards maybe CRE equity? You know, 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, you know, defense of equity.
I understand there's high yields on cash right now and you did buy some securities in some of your cap stock during the quarter I guess should we expect more of the same in the next quarter or.
Could we start to see some more allocation towards maybe CRT equity you know you you've already kind of touched on on loan origination, but just curious if a high cash balance has anything to do with with covenants or just you know defensive positioning.
Paul Miceli: For more details on our third quarter operating results, please refer to our earnings supplements, which is available on our website as well as our 10 cute.
Speaker 4: transcript
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...
Sure.
Nothing to do with covenants, we are massively covering all of our covenants at this point and in fact, I think our fixed cost coverage is exceedingly high relative to you know.
Brian Harris: 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.
Speaker 4: transcript
Sheetingly high relative to what's called for in the space.
What what's called for in this space, whereas I think a lot of organizations that fund floating rate loans with floating rate liabilities their fixed cost coverage, if I have actually gotten below covenants and are asking for waivers, but not the case for that the only reason we're holding so much cash is because loans keep.
Speaker 4: transcript
Whereas I think a lot of organizations that fund floating rate loans with floating rate liabilities, their fixed cost coverage have actually
Speaker 4: transcript
gotten below covenants when they're asking for, you know, waivers.
Brian Harris: Our distributable earnings over the first three quarters of this year were $128 million, a 17 percent increase from the $110 million over the same period in 2022. This was accomplished with the modest use of leverage, a smaller affid base, and while keeping our liquidity levels quite high. Notably, today we hold over $800 million of p-bills, maturing in less than three months, with an average yield to maturity of 5.45 percent. During the quarter, we began reallocating capital from cash and T-bills into CLO AAA rated security, acquiring a modest $58 million of them in the quarter, but we expect to grow this position in the quarters ahead.
Speaker 4: transcript
But in that case for that said the only reason we're holding so much cash is because loans keep paying off at a pace that exceeds our investment abilities.
Paying off at a pace that exceeds our our investment abilities theres plenty of cheap things out there and but a lot of it is has got some problems to it.
Speaker 4: transcript
There's plenty of cheap things out there, but a lot of it has got some problems to it.
Speaker 4: transcript
So we would love to be buying more CLO AAAs. The A-classes on these new deals are really very, very attractive.
So we would love to be buying more CLO AAA is the age classes on these new deals are really very very attractive. Although there have been a couple of deals that we stayed away from because they say look like kitchen sink deals and where a little uncomfortable with it. Unfortunately I normally would say I would expect this volume to pick up but I'm not sure.
Speaker 4: transcript
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 and into the fourth quarter
Sure It will given where rates are if it does we will continue to acquire and have continued acquiring securities and into the fourth quarter and as much as I'd like to tell you that you know will 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.
Speaker 4: transcript
And as much as I'd like to tell you that, you know, will probably be a net.
Brian Harris: The A-classes of new commercial real estate CLOs receive an delivered 7.75 percent 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 percent, causing many borrowers to hold off on borrowing.
Speaker 4: transcript
investor with money going into investments rather than coming back to us in the first three weeks of October We took another 52 million and payoffs so Country club problem perhaps and You know, it doesn't yet remember the differential between a T bill now and around five and a half percent and where you can possibly lend money Hopefully you call it nine nine and a half
Another 52 million in pay offs, so country club problem, perhaps and you know it doesn't you have to remember the differential between a T. Bill now at around five 5% and where you can possibly lend money safely at call. It nine nine and a half.
Brian Harris: 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 pay off in the third quarter, and in the first few weeks of October, we have received an additional $52 million of pay off after three more balance sheet loans paid off.
Speaker 4: transcript
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.
It's not such a huge difference and and because we use very little leverage. It's it's really doesn't it doesn't impact us too much but we're pretty comfortable that we'll be able to continue picking up.
Speaker 4: transcript
assets and you're starting to see some assets change hands with lenders or 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 investments side
And you're starting to see some assets change hands with lenders or 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 values continue to drop.
Brian Harris: Consequently, our liquidity has increased further since the end of the third quarter. Fred is holding up nicely for the most part, but we are seeing some delays on loan pay off, as lenders have become quite cautious before loan refinancing is closed. On going negotiations for loan extensions, our regular current of these days, but so far it seems that most sponsors can, will and must contribute more equity to maintain ownership in their assets.
Speaker 4: transcript
Mainly because of the continuation in our opinion that values continue to drop.
Speaker 4: transcript
although as we said on the column you know dropping at a lower rate at this point the pace of deterioration is slowing down which kind of has to happen so i kind of feel like we're getting near the end of this credit cycle and uh... that should uh... both well for us and and uh... the liquidity that we carry
Although as I sat 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 kind of 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, Brad.
Brian Harris: As rates have risen, property values naturally sell, and while we don't think the price deterioration is over, we do think the pace of depreciation is slow. If the 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 supporters of our dividends. 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.
Thank you. Our next question is from Jade Rahmani with <unk>. Please proceed with your question.
Speaker 3: transcript
Thank you. Our next question is from Jade Romani with KBW. Please proceed with your question.
Yeah.
Thank you very much.
Speaker 6: transcript
One of the ask first about Ladders Current Capital Structure and Capital Package within a stable environment, assumption.
Wanted to ask first about ladders current capital structure and capital package within a stable environment assumption, what cash balance do you think would be reasonable to hold.
Speaker 6: transcript
What cash balance do you think would be reasonable to hold? And if you executed on that, what are we, do you think the company could optimally generate?
And if you executed on that what are we do you think the company can optimally generate.
Yeah.
Uh huh.
Brian Harris: Switching topics, we get asked a lot about how changes to the 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 that 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.
Speaker 4: transcript
Well, the first question is pretty easy. Usually about $100 million we like to have around. We'll take it down to 50 often, so that's not a hard rule, but around $100 million we like keeping local.
Well the first question is pretty easy.
Usually about $100 million, we like to have around we will take it down to 50, often so that's not a hard rule, but around $100 million, we like keeping local if if and there's.
Speaker 4: transcript
If there's normal conditions prevailing.
There is just normal conditions prevailing.
Speaker 4: transcript
But the kind of ROE, if we were to take it down to $100 million, if it all depends on what kind of leverage is, if we were to go to three to one leverage, that would add close to $3 billion in inventory.
But the kind of ROE if we were to take it down to $100 million. If we it all depends on what kind of leverage is if we were to go to three to one leverage that would add close to $1 billion $3 billion in inventory.
Brian Harris: 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 thinking about 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.
Speaker 4: transcript
which employing some for some leverage. If we didn't employ any leverage at all, we would be able to drop a billion dollars worth of assets to the bottom line. And if you call that 80 million dollars gets there, without any real change, what are you giving up the five and a half on the T-build?
<unk>, which we are employing some for some leverage if we didn't employ any leverage at all we would be able to drop one.
$1 billion worth of assets to the bottom line and if you call that 8% $880 million gets there without any real change other thing, but you're giving up the five and a half on the T bills.
Unknown Executive: Operator, we can now fix some questions. Thank you.
Speaker 4: transcript
We think double digit ROE is very attainable. Right now, despite the fact that we're carrying a lot of cash, there are plenty of opportunities for us. Our corporate bonds, because of the surge in interest rates in September look very attractive to us.
Hum.
Double digit ROE is very attainable.
Right now despite the fact that we're carrying a lot of cash there are plenty of opportunities for us.
Our corporate bonds because of the surge in interest rates in September look very attractive to us.
Speaker 4: transcript
Our sock looks very cheap to us also. And we'd like to, everything is on. We would love to write bridge loans, we'd love to own securities, we'd love to own real estate. And real estate might be creeping into the picture here. But those transactions take a while, as you can imagine.
Our stock looks very cheap to US also and you know we'd like to everything is on our we would love to write bridge loans, we'd love to own securities, we'd love to own real estate.
Real estate might be creeping into the picture here, but yeah. Those those transactions take a while as you can imagine but securities don't take very long at all which is one of the reasons, we're gravitating in that direction, because you're effectively getting almost 50% subordination on across pool of assets. Many of the new CLO deals are static which we.
Unknown Executive: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your liners in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. One moment, please, while we pull for questions.
Unknown Executive: Thank you.
Speaker 4: transcript
But, um, security don't take very long at all, which is one of the reasons that we're gravitating in that direction, because...
Speaker 4: transcript
You're effectively getting almost 50% subordination on a cross pool of the assets. Many of the new CLO deals are static, which we prefer, because you know the universe you're dealing with. So there is no attempt on our part to be holding unusual amounts of liquidity. It is simply patience, and our capital structure allows us to do that.
Prefer.
Because you know the university of dealing with so it isn't a there is no attempt on our part to be holding unusual amounts of liquidity.
Sarah Barcomb: Our first question is from Sarah Marcom with BTIG. Please quickly read your question. Here, everyone, thanks for taking the question. So during the last conference called, 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 take out financing markets have changed, at least over the I would say that it's more of the same.
It is simply patience and our <unk>.
Capital structure allows that patience, because even with the diminished asset base.
Speaker 4: transcript
because even with a diminished asset base during times like this, I think it calls for extra liquidity, extra caution and extra... And look...
Sarah Barcomb: You know, the regional banks are still lending. I would also indicate that when you used to be given a closing date by a bar or who asked you for a pay off 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 asked for short term extended.
And during times like this I think it calls for extra liquidity extra caution and and extra and lower leverage. So that's that part is just endemic to us whether it's in our DNA to keep leverage down and keep liquidity up but I will admit this is pretty excessive right now.
Speaker 4: transcript
So that part is just endemic to us. It's in our DNA to keep leverage down and keep liquidity up. But I will admit, this is pretty excessive right now.
Speaker 4: transcript
But it isn't because of anything we're doing on purpose. We're not trying to show you we have a lot of liquidity in fact.
But it isn't because of anything we're doing on purpose. We're not trying to show you. We have a lot of liquidity in fact, we're a little surprised the market hasnt rewarded it a little bit more although we do have one of the lowest dividend yields in the space, but we began moving out of cash and securities last quarter and I think we'll continue doing that in the fourth quarter, but in a market.
Speaker 4: transcript
We're a little surprised the market hasn't rewarded it a little bit more Although we do have one of the lowest dividend yields in the space, but we began moving out of cash and securities last quarter And I think we'll continue doing that in the fourth quarter
Speaker 4: transcript
But in a market like this, you don't really mind pay off, because I think that's the, credit quality is a question in a market like this and so far where we're doing well.
Like this you don't really mind pay offs, because I think that that's you know credit quality has a question.
In a market like this and so far where we're doing well.
Speaker 2: transcript
is it for a date? I just want to go ahead. When Brian says $100 million of cash, that's comfort level. It's supported by a $324 million unsecured line that we could draw at any.
Right.
When Brian says $100 million of cash that comfort level is supported by a $324 million unsecured line that we could draw at any time.
Unknown Executive: [inaudible] state of a state of a state of a state of a state of a state of a state of a state of a state of a state of a state of a state[inaudible] state of a state of a state of a state of a state of a state of a state of a state Thanks, Frank. Thank you.
Okay.
Speaker 6: transcript
Okay, on the IG front investment grade, is that still the company's?
Okay.
I G front investment grade is that still the companies.
Speaker 6: transcript
number one strategic priority, or is that just aspirational?
Number one strategic priority.
Or is that just aspirational.
And.
Speaker 6: transcript
in achieving investment grade, you know, what are the main pitfalls? What would you have to give up?
In achieving investment grade you know what are the main pit.
Pitfalls, what would you have to give up.
Pamela you want to take that one.
Speaker 2: transcript
Yeah, I mean, we are absolutely still committed to trying to become an investment grade company. We'll always be balancing that against the cost of funds and our ROA. But for us, it has been a pretty objective. We have to get to 50% of our debt is on secure debt versus the 41% today. So not a terrible stretch.
Yeah, I mean, we are absolutely still committed to trying to become an investment grade company will always be balancing that against the cost the cost of funds and our ROA, but for US. It has been a pretty objective we have to get to 50% of our debt.
As unsecured debt versus the 41% today, so not a terrible stretch.
Speaker 2: transcript
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, you know, we're a slightly smaller, leaner company today with a three to 400 million dollars of asset, but, you know, all of our other, all of our debt levels, our cash liquidity is higher, low leverage, higher percentage of non-marked market debt.
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 slightly smaller leaner company today, with a $3 million to $400 million lots of assets, but.
All of our other all of our debt levels, our cash liquidity is higher lower leverage higher percentage of non mark to market that.
Speaker 2: transcript
larger amount of on- and comfort assets. We're well positioned to do it when the market allows.
Larger amount of unencumbered assets, where we're well positioned to do it when the market allows it.
Speaker 2: transcript
at a price that's a credo to latter and we think it'll be a real different year for later in the space i think it is i personally and the big fan of it and think there is um... a space in the market for high single digit low double digit investment grade company with primarily senior security assets we pretty much run the company that way today anyway and the only thing that
At a price that's accretive to ladder and we think it'll be a real differentiator for ladder in this space I think there is a 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 secured assets, we pretty much run the company that way today anyway.
Yeah, and the only thing I would add Jay is.
Speaker 4: transcript
you know what we began the process uh... perhaps that it was an aspirational gold years and years ago but uh... given where we are now uh... we've kind of uh... almost gotten there in that we're at over i think over forty percent of our liabilities are on secured right now we still maintain firmly that if that if there was ever proof that that having not secured
You know we began the process perhaps out of that it was an aspirational goal and 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 if there was ever proof that that's having an unsecured term debt is a is a winner not a loser in the business as it has been proven right here.
Speaker 4: transcript
term debt is a winner not a loser in the business, it has been proven right here.
Speaker 4: transcript
Although admittedly we were paying higher prices than a lot of others when live war was at 12 basis points.
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 inside our owners do well, yeah, 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 <unk>.
Speaker 4: transcript
But taking the long view as inside our owners do, we feel pretty comfortable with it. We still think it's the right strategy.
Speaker 4: transcript
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, you know, unsecured that's not true.
Secured 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 rigid and SF keeping unsecured debt outstanding.
Just one note on one further note, where we have $3 billion more than half of our assets right now 55% of our unencumbered, it's really meaningful and I think not just it positions. The company I think one of the big questions right now when you're looking at credit is no one wants to be a forced seller in this market I can't even begin to describe the.
Speaker 2: transcript
Does one note on one further 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, I think one of the big questions right now when you're looking at credit is no one wants to be a fourth 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.
Ability, we have on the balance sheet right now to be patient when we need today.
Thank you very much.
Speaker 7: transcript
Our next question is from Steve Delaney with JMP Security. Please proceed with your question.
Thank you. Our next question is from Steve Delaney with JMP Securities. Please proceed with your question.
Speaker 8: transcript
Good morning, everyone, and congrats on another strong quarter in what is obviously a very tough environment.
Good morning, everyone and congrats on another strong quarter in what is obviously, a very tough environment.
Speaker 8: transcript
I'm curious where you guys stand currently on required distributions of retaxable income. You know, it's-
I'm curious where you guys stand currently on.
Required distributions of REIT 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 versus your dividend and I realize that taxable is oh.
Speaker 8: transcript
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 realize that taxable is a different calculation for sure. So if you guys could comment on that, I'd appreciate it.
It's a different calculation for sure. So if you guys could comment on that I'd appreciate it.
Okay.
Speaker 3: transcript
Hey Steve, this is Paul. So for 2023, no, we don't anticipate a special dividend, but it's something we're monitoring carefully as we get into 2024.
Hey, Steve This is Paul So say 2023 no we.
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.
Your your.
Speaker 8: transcript
It sounds like if you continue to put up good earnings and you don't do anything with it, maybe that would be an option next year. Of course, you can always just boost the regular quarterly pay.
It sounds like if you continue to put up good earnings and you don't do anything with it but maybe that would be an option next year of course, you can always just boost the Ah you know the regular quarterly payout so.
Speaker 2: transcript
I think about the same thing. I think you should just assume that the board will regularly consider the dividend every quarter.
Thanks, Steve I think you should just assume that the board will regularly consider the dividend every quarter.
Speaker 8: transcript
Sure. And obviously, just from what we said, and think about it as an investor or an analyst, a lot more return and utility in boosting the regular than a special. People have short memories and they forget those special dividends. You probably only do it when you have to do it.
Sure and obviously just from where we sit and think about it as an investor and analyst lot more return and utility and boosting the regular than a special people people have short memories and they forget those special dividends.
Jade Rahmani: Our next question is from Jade Rahmani with KBW. Please proceed with your question. Thank you very much.
Brian Harris: I 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 are we, do you think the company could optimally generate? Well, the first question is pretty easy. Usually about $100 million, we like to have around. We'll take it down to 50 often so that's not a hard rule, but around $100 million, we like keeping local.
Are you would probably only do it when you have to do it.
Speaker 8: transcript
I'm just looking forward to get to a better place in 2024, you've talked a lot about.
I'm just looking forward.
To get to a better place and 2024.
You've talked a lot about.
Speaker 8: transcript
you know willing to be more offensive um... brine what are what's the a lot of reasons that got us in the place we are now and unbelievable rate increases and wrap it increases in rate is certainly one of those things i think the most disruptive looking out the next year what would be the top one or two things
Willing to be more offensive.
Brian what are what's the.
A lot of reasons that got us into place. We are now and you know unbelievable rate increases.
Our rapid increases in rates is certainly one of those things I think probably the most disruptive but looking out to next year, what would be the top one or two things in the macro financial regulatory complex. What does this market really need to kind of get back to.
Brian Harris: If there's just normal conditions prevailing, but the kind of ROE, if we were to take it down to $100 million, it all depends on what kind of leverage is. If we were to go to three to one leverage, that would add close to $3 billion in inventory, which employing some for some leverage. If we didn't employ any leverage at all, we would be able to drop a billion dollars worth of assets to the bottom line.
Speaker 8: transcript
in the macro financial regulatory complex.
Speaker 8: transcript
What does this market really need to kind of get back to some sense of normalcy?
Some sense of normalcy.
In terms of risk return.
Speaker 4: transcript
I think it's the Fed and I think they will get to this point. I think the Fed will get to a point where they indicate they're going to stop.
Oh, I think if the fed and I think they will get to this point I think the fed will get to a point, where they indicate they're going to stop raising rates that will be that they don't have to cut rates, but they have to stop raising rates and that'll be a big step in the right direction and I think a lot of asset classes will go up in value as a result of that right now there's a lot.
Speaker 4: transcript
That will be the, they don't have to cut rates, but they have to stop raising rates. And that'll be a big step in the right direction. And I think a lot of asset classes will go up in value as a result of that. Right now, there's a lot of headline asset classes that would make you think.
Brian Harris: And if you call that 80 million dollars, gets there without any real change. But you're giving up the 5.5 on the T-bills. We think double digit ROE is very attainable. Right now, despite the fact that we're carrying a lot of cash, there are plenty of opportunities for us. Our corporate bonds because of the surge in interest rates in September look very attractive to us. Our stock looks very cheap to us also.
Headline asset classes that would make you think things are going okay. But this is pretty this is the third year of a difficult a fixed income investment environment and fixed income investors arent, usually losing money three years in a row, but this time. They are so if nothing else I mean, I think the bond investor or has it been whipsawed around it.
Speaker 4: transcript
you know things are going okay but you know this is pretty different third year of a difficult fixed income investment environment and uh... fixed income investors aren't usually losing money three years in a row but this time they are so i if nothing else i mean i think the the bond investor has been whips thought around he's been told to buy duration because rates will be getting cut i've never really seen more economist forecasting rate cuts before the end of a rate cycle or or recession even arrived
He's been told to buy duration because rates will be getting cut.
Never really seen more economist forecasting rate cuts before the end of a rate cycle or a recession. Even arrives so there's been a lot of information and opinions, which change rapidly no shortage of changed opinions at the fed So I think a little stability around it's not going to get worse would go a long way right now.
Brian Harris: Everything is on. We would love to write bridge loans, we'd love to own securities, we'd love to own real estate. And real estate might be creeping into the picture here. But those transactions take a while, as you can imagine. But securities don't take very long at all, which is one of the reasons we're gravitating in that direction because you're effectively getting almost 50% subordination on a cross pool of assets. Many of the new CLO deals are static, which we prefer, because you know the university you're dealing with.
Speaker 4: transcript
So, there's been a lot of information and opinions which changed rapidly, no shortage of changed opinions at the Fed.
Speaker 4: transcript
So I think a little stability around it's not going to get worse would go a long way right now. And I think you kind of see this even in the real estate side where like for instance, I hit a point with San Francisco where I said, can I possibly hear anything about San Francisco that would make me think
And I think you kind of see this even in the real estate side, where like for instance, I hit a point with San Francisco, where I said can I, possibly hear anything about San Francisco that would make me think it's worse and you you hit a point, where you just can't and and then things you've all of a sudden you start looking at some headlines and theyre getting better a little a little bit better here and there.
Speaker 4: transcript
And you hit a point where you just can't, and then all of a sudden you start looking at some headlines, and they're getting better, a little bit better here and there. The AI complex out in Hayes Valley is doing pretty well. It's really, the first thing is, as they say, when you're digging a hole, put the shovel down, I think it's that mentality of, okay, the worst is over.
Brian Harris: So it isn't, there is no attempt on our part to be holding unusual amounts of liquidity. It is simply patience. And our capital structure allows that patience because even with a diminished asset base during times like this, I think it calls for extra liquidity, extra caution and extra and lower leverage. So that part is just endemic to us. It's an RDNA to keep leverage down and keep liquidity up, but I will admit this is pretty excessive right now.
AI complex Outen Hayes Valley is doing pretty well. So so it's really the first thing is as I say when you're when you're digging a hole you know put to.
Shovel down.
It's I think it's that mentality of its okay. The worst is over and I don't think we feel that way just yet although the worst is almost over it's probably comfortable obviously what would really move. This thing around is if you took a 100 basis points off the tenure.
Speaker 4: transcript
And I don't think we feel that way just yet. Although the worst is almost over, it's probably comfortable. Obviously what would really move this thing around is if you took 100 basis points off the 10.
Speaker 4: transcript
That that would certainly do it right now. I think primarily what we're dealing with is a fed induced
That would certainly do it right now I think primarily what we're dealing with is a fed induced <unk>.
Brian Harris: But it isn't because of anything we're doing on purpose. We're not trying to show you we have a lot of liquidity. In fact, we're a little surprised the market hasn't rewarded a little bit more although we do have one of the lowest dividend yields in the space. But we began moving out of cash and securities last quarter and I think we'll continue doing that in the fourth quarter. But in a market like this, you don't really mind payoffs because I think that's the credit quality is a question in a market like this and so far we're doing well. When Brian says $100 million of cash, that's comfort level is supported by a $324 million unsecured line that we could draw it at any time. Okay.
Speaker 4: transcript
You know, commercial real estate recession, they did it on purpose.
Commercial real estate recession, they did it on purpose and it isn't just supply and demand it's carrying costs are gigantic and it's unfortunate when you see property owners, who actually executed their business plan pretty well and on time and then they have to go buy a cap that cost millions of dollars because just two years.
Speaker 4: transcript
And it isn't just supply and demand, it's carrying costs are gigantic.
Speaker 4: transcript
And it's unfortunate when you see property owners who actually executed their business plan pretty well and on time and then they have to go by a cap that costs millions of dollars.
Speaker 4: transcript
because just two years ago, you know, cat rates cost almost nothing. I'll say also though that, you know, one of the reasons we might have been just holding off a bit.
Go cap.
Cap rates cost almost nothing I'll say also though that if you know one of the reasons, we might have been just holding off a bit on the aggressiveness side as we wrote a $1 billion worth of loans in the fourth quarter of 2021 and since we write a lot of short loans. We're now in the fourth quarter of 'twenty three so we're getting a pretty.
Speaker 4: transcript
on the aggressiveness side is we wrote a billion dollars worth of loans in the fourth quarter of 2021
Speaker 4: transcript
And since we write a lot of short loans, we're now in the fourth quarter of 23. So we're getting a pretty good report card and sense as to, okay, how did we do? Are we as good at credit as we say we are?
Good report card and sense is to okay. How did we do a really good credit as we say we are and we feel pretty good that once we start you may see payoffs pick up here, because we're coming up to that two year period, where borrowers are going to have to re up a cap, maybe some reserves and put up more equity.
Pamela McCormack: 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?
Speaker 4: transcript
And we feel pretty good. So once we start, you may see payoffs pick up here.
Speaker 4: transcript
because we're coming up to that two-year period where borrowers are going to have to re-up.
Speaker 4: transcript
A cap, maybe some reserves, and put up more equity. So I think that...
Pamela McCormack: Pamela, you want to take that one? Yeah. I mean, we are absolutely still committed to trying to become an investment grade company. We'll always be balancing that against the cost of funds and our ROA. But for us, it has been a pretty objective. We have to get to 50% of our debt is unsecured debt versus the 41% today. So, not a terrible stretch. And we continue to think it will be a big differentiator for Ladder.
So I think that because we wrote a lot of loans. After the pandemic effectively ended the leverage is a little lower in our operation as well as the loan balances being smaller so I think that's one of the reasons, we're seeing more more payoffs spent a lot of others, but and I expect that to continue so this cash pile could go higher but.
Speaker 4: transcript
Because we wrote a lot of loans after the pandemic effectively ended, the leverage is a little lower in our operation as well as the loan balance is being smaller.
Speaker 4: transcript
So I think that's one of the reasons we're seeing more payoffs than a lot of others. But, and I expect that to continue. So this cash pile could go higher, but, you know, there's no-
Yeah, there's nothing in the system right now that would indicate that we have too much cash how are we need to suddenly get rid of it we're easily covering our dividend. We expect that to continue we'd love to get to a point, where do you think the credit cycle is over and then we can start looking at that dividend proactively and and sharing profits.
Speaker 4: transcript
In the system right now that would indicate that we have too much cash or we need to suddenly get rid of it. We're easily covering our dividend. We expect that to continue. We'd love to get to a point where we think the credit cycle is over and then we can start looking at that dividend proactively and sharing profits. You know, there's other ways we can get money to shareholders through stock as well as bond buyback.
Pamela McCormack: And if you look at just the way we run the company today, you know, we're a slightly smaller, leaner company today with a $3 to $400 million but all of our debt levels, our cash liquidity is higher, lower leverage, higher percentage of non-marked 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 will be a real differentiator for Ladder in the space.
You know theres other ways, we can get money to shareholders through stock as well as bond buybacks. So we like where we are played for higher rates thought they were coming and they're here, so but and probably the lesson learned is because interest rates were low for so long a lot of.
Speaker 4: transcript
So we like where we are, you know, played for higher rates, thought they were coming, and they're here. So but and probably the lesson learned is because interest rates were low for so long, a lot of property owners really should have taken some steps to protect themselves against higher rates.
Pamela McCormack: I think there's an eye, personally, and the 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 secured assets. We pretty much run the company that way today, anyway.
Property owners really should have taken some steps to protect themselves against higher rates because the insurance cost of that was quite low just 24 months ago and I'm sure. If we get in another cycle in our lifetimes, where this happens that that will be a lesson that comes back on to the the blackboard for people.
Speaker 4: transcript
because the insurance cost of that was quite low just 24 months ago. And, you know, I'm sure if we get in another cycle in our lifetimes where this happens, that will be a lesson that comes back onto the blackboard for people. Thanks Brian .
Brian Harris: The only thing I would add, Jade, is, you know, we began the process perhaps that it was an aspirational gold years and years ago. But given where we are now, we've kind of almost gotten there in that we're at, I think over 40% of our liabilities are unsecured right now. We still maintain firmly that if there was ever proof that having an unsecured term debt is a winner or not a loser in the business, it has been proven right here.
Thanks, Brian I appreciate all that color.
Sure.
Okay.
Thank you. Our next question is from Matthew Howlett with B Riley Securities. Please proceed with your question.
Speaker 7: transcript
Thank you. Our next question is from Matthew Howlett with B Riley Security. Please proceed with your question.
Speaker 6: transcript
Oh, hey, thanks. Good morning. Thanks for taking my question. Hey, Brian , I mean, look, you pointed out, yeah, 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. And I think you're below $110 out of net of cash, XT, securities.
Thanks. Good morning, Thanks for taking my question, Hey, Brian I mean, like you pointed out you've got plenty of excess capital. The balance sheet is in terrific shape, you have a high class problem, where you're getting read more repayments what in your mind.
Brian Harris: Although admittedly we were paying higher prices than a lot of others when live war was at 12 basis points. But taking the long view as inside our owners 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 ridgesness of keeping, you know, unsecured debt outstanding.
Thank you below 110 out net of cash equity securities, which see.
Speaker 6: transcript
what's the well what's the argument against really getting a more aggressive on the share by back you'll open market purchase it dutch tenders uh... is it is it the opportunity cost you want to wait for what you know what could be opportunities real estate probably getting high twenty percent of the president's securities obviously lying back to me your to corporate
Whats the argument against really getting more aggressive on the share buyback.
Open market purchases Dutch tenders is.
Is it is it the opportunity cost you want to wait for what.
What could be opportunities in real estate, you're probably getting high 20% leverage ratio securities.
Obviously buying back some of your corporate Debbie.
Speaker 6: transcript
What would be, you know, it just seems that the IR analysis is, you know, 20 plus percent on buybacks.
What would be.
It seems with the IR analysis is 20 plus percent on buying back stock at these levels.
Pamela McCormack: There's one note on one further 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. I think one of the big questions right now when you're looking at credit is no one wants to be a fourth 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 today.
Yeah, I don't have a cogent argument against buying stock back at these levels. So there's no resistance to it and but it's it's and I want to stress is that there is a lot of opportunities right now. Despite the fact that we seem to be hesitant in cash around.
Speaker 4: transcript
Yeah, I don't have a cogent argument against spying stock back at these levels. So there's no resistance to it. And I want to stress this that there's a lot of opportunities right now, despite the fact that we seem to be husband and cash around. We're not seeing enough opportunities, at least on the non-cuset side of things.
Unknown Executive: Thank you very much.
We're not we're just not seeing enough opportunities at least on the non CUSIP 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 5% and hold on to cash, but the securities out of the eight classes.
Speaker 4: transcript
Yeah, you can buy treasury bonds and that's a fine place to park for a little while if you want to make 5.5% and hold on to cash, but securities, the A-classes in the CLOs are still the best game.
In the CLO is 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.
Unknown Executive: Thank you.
Speaker 4: transcript
We could move over to conduit, but those have duration and hedging right now is very expensive, so I don't see that happening.
Steven DeLaney: Our next question is from Steve DeLaney with JMP Security. Please proceed with your question. Good morning everyone and congrats on another strong quarter and what is obviously a very tough environment. I'm curious where you guys stand currently on required distributions of retaxable income. You know at some point 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 shoot dividend and I realize that taxable is a different calculation for sure. So if you guys could comment on that I'd appreciate it. Steve, this is Paul. So hey, 2023.
Speaker 4: transcript
We are starting to look at real estate. Caperees have backed up and we
We are starting to look at real estate cap rates have backed up and.
Paul Miceli: 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 you're you're 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 you know the regular quarterly payout. So I think you should just assume that the board will regularly consider the dividend every quarter.
Speaker 4: transcript
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 triple net lease stuff is getting pretty cheap also right now.
We might get 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 the Triple net lease stuff is getting pretty cheap also right now so there's no and I just want to stress that you know when you're in a restaurant and they tell you here's 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.
Speaker 4: transcript
So there's no and I just want to stress that, you know, when you're in a restaurant and they tell you here's 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.
Speaker 4: transcript
And so while I don't have any objection to buying stockback, we do it during open window periods.
Objection to get.
Buying stock back we do it during the open window periods and.
Speaker 4: transcript
Unfortunately, a lot of open window periods are not available when the end of quarter of the come and things get particularly interesting on the volatility side.
Unfortunately, a lot of open window periods are not available when when the end of quarter as common things get particularly interesting on the volatility side, but.
Speaker 4: transcript
But again, patients, nothing wrong with it. We can buy our bonds back and generate big returns very quickly there, but do you 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 a repurchase program, yes, it's cheap, but it has to get really cheap and then we act. And I think
Again patients nothing wrong with it.
We can buy our bonds back and generate big returns very quickly there and de lever the company, but getting 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 our repurchase program.
Paul Miceli: Sure, and obviously just more we said and think about it as an investor and analyst lot more return and utility and boosting the regular than a special people people have short memories and they forget those special dividends. So I you probably only do it when you have to do it and just looking forward you know to get to a better place in 2024 you talked a lot about you know willing to be more offensive.
Yes, it's cheap, but it has to get really cheap and then then we act and I think.
Speaker 4: transcript
you know paul red the the levels that we've been buying our stock back up right here uh... so it if all things you know we're not going to communicate all of those policies and an earnings call but if we were to get off the phone now and the you know the window was open yet we probably start acquiring some stock here and and certainly would be looking at some of those bonds not all of them but uh... certainly lots of them
Paul read the levels that we've been buying our stock back that right here.
So if all things were 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 yet 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.
Paul Miceli: Brian, what are a lot of reasons that got us in the place we are now and you know unbelievable rate increases and rapid increases in rates is certainly one of those things. I think probably the most disruptive but looking out the next year what would be 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?
Speaker 4: transcript
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 yeah, 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 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 yeah. We we kind of balance all of those at one time around do we want to become an <unk> company do we want to maintain liquidity are we at all concerned.
You know 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 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.
Speaker 4: transcript
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.
Paul Miceli: Well I think it's the Fed and I think they will get to this point I think the Fed will get to a point where they indicate they're going to stop raising rates. That will be the same they don't have to cut rates but they have to stop raising rates and that'll be a big step in the right direction and I think a lot of asset classes will go up and value as a result of that right now there's a lot of headline asset classes that would make you think things are going okay but you know this is a pretty different year of a difficult fixed income investment environment and fixed income investors aren't usually losing money three years in a row but this time they are.
Really because they've just gotten silly.
Speaker 4: transcript
But, you know, 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 by stock without bonds and you'll rarely see us just by bonds without stock because, you know, we're rather respectful of both sides of that investor line.
But we like having them out there and we're happy to support them, we like our investors in those spaces and you will rarely see us just by stock without bonds in your old rarely see us just buy bonds without stock because we're rather respectful of both sides of that Investor line.
Speaker 6: transcript
makes total sense. I know you've been by a match like I figure I asked a question because you guys are in a unique position to be able to do it aggressively. And look, the buy-back to debt here at 80 cents is terrific. I mean, it looks like you're buying what the 29's and the 27's. Am I saying that's what you're sort of primarily buying back?
It makes total sense I know you've been buying back stock I figure eight.
I asked the question because you know you guys are in a unique position to be able to do it aggressively and look the buying back the debt at 80 cents is terrific I mean, it looks like youre buying what the 20 nines in the.
Paul Miceli: So if nothing else I mean I think the bond investor has been whipsawed around he's been told to buy duration because rates will be getting cut. I've never really seen more economist forecasting rate cuts before the end of a rate cycle or recession even arrives. So there's been a lot of information and opinions which change rapidly no shortage of change opinions at the Fed. So I think a little stability around it's not going to get worse would go a long way right now.
20 Sevens.
Is that am I, saying is that what you're sort of primarily buying back.
Speaker 4: transcript
That's what we were looking. I mean, there weren't many repurchases last quarter, but yeah, that's where we were. You know, we have a number for each of those three bonds every morning and we pass that over to the traders and you know, if they come up at those prices, we buy them. So we do have a price for the 25 also, but given that it matures in two years, you can imagine it's a higher price.
That's what we were looking I mean, there weren't many repurchases last quarter, but yes, that's where we were.
We have a number for each of those three bonds every morning, and we pass that over to the traders.
If they come up at those prices, we buy them. So we do have a price for the 25 also but given that it matures in two years you can imagine it's a higher price.
Paul Miceli: And I think you kind of see this even in the real estate side where like for instance I hit a point with San Francisco where I said can I possibly hear anything about San Francisco that would make me think it's worse. And you hit a point where you just can't and and then things you all of a sudden you start looking at some headlines and they're getting better a little bit better here and there the AI complex out and Hayes Valley is doing pretty well.
So there is no they are all <unk>.
Speaker 4: transcript
So there are all investments that were interested in. And the oddly, the reason the short bond is the higher price isn't just because it's short, it's also the highest rate.
Investments that were interested in and the oddly the reason the short bond is the higher price isn't just because it's short. It's also the highest rate. So when the 2020 fives pay off we're actually got kind of.
Speaker 4: transcript
So when the 2025s pay off, we're actually gonna, the average rate of our corporates is gonna fall to four and a half percent. Right. So, you know, it's extraordinarily cheap capital. The entire complex is below the treasury curve at this point.
The average rate of our corporate is going to fall to four 5% right. So.
Paul Miceli: So it's really the first thing is as I say when you're when you're digging a whole you know put the shovel down I think it's that mentality of it's okay the worst is over. And I don't think we feel that way just yet although the worst is almost over is probably comfortable. Obviously what would really move this thing around is if you took a hundred basis points off the tenure that would certainly do it.
It's extraordinarily cheap capital the entire complex is below the treasury curve at this point. So again don't look to take them off the market because but the pace of investment has not been what we would have anticipated and I think that goes back to what Steve said earlier, it's not just rates higher its the pace at which.
Speaker 4: transcript
So again, don't look to take them off the market because but the pace of investment has not been what we would have anticipated. And I think that goes back to what Steve said earlier. The it's not just rates higher. It's the pace at which they got there. I mean, there are rate shocks, you know, reverberating through the system. If you call it, I think you guys all follow the residential space also. And if you saw the givebacks and book value, it was unbelievable.
They got there.
I mean, there are rate shocks reverberating through the system. If you call out I think you guys. All follow the residential space also and if you saw the give backs and book value. It was unbelievable and so Ah patients.
Paul Miceli: And right now I think primarily what we're dealing with is a Fed induced. Just, you know, commercial real estate recession. They did it on purpose. And it isn't just supply and demand. It's carrying costs they're gigantic. And it's unfortunate when you see property owners who actually executed their business plan pretty well and on time. And then they have to go buy a cap that costs millions of dollars because just two years ago, you know, cap rates cost almost nothing.
Speaker 4: transcript
And so, you know, patience. I don't think the train's leaving the station here. I don't think that we are in danger of others doing better than us in the near term, because we just have a lot of capital. But on the other hand, when you look out at the company...
Patients I don't think the train is leaving the station here I don't think that we are in danger of others doing better than us in the near term because we just have a lot of capital, but on the other hand, when I when you look out at the company.
Speaker 4: transcript
and you say, well, yeah, the market cap of the company is $1.2 billion and they have $850 million in cash with no debt coming due and less than 1-0 coverage, you just sit there and shake your head and say, how is that? Now, I respect the fact that we have the lowest dividend in the space.
And you say well the market cap of the company is $1 $2 billion and they have $850 million in cash.
Paul Miceli: I'll say also though that, you know, one of the reasons we might have been just holding on a bit on the aggressiveness side is we wrote a billion dollars worth of loans in the fourth quarter of 2021. And since we write a lot of short loans, we're now in the fourth quarter of 23. So we're getting a pretty good report card and sense as to okay, how did we do? Are we as good at credit as we say we are?
With no debt coming due in less than one hour coverage you just sit there and shake your head and say how how is that.
You know where is no I respect the fact that we have the lowest dividend in this space.
Speaker 4: transcript
But the reality is just the earnings power of the company with no leverage in tons of liquidity and access to low corporate debt. It is an attractive outlook, at least from where we sit right now.
But.
The reality is just the earnings power of the company with no leverage and tons of liquidity and access to low corporate debt. It is an attractive.
Paul Miceli: And we feel pretty good. So once we start that you may see payoffs pick up here because we're coming up to that two-year period where borrowers are going to have to, you know, re-up a cap, maybe some reserves and put up more equity. So I think that because we wrote a lot of loans after the pandemic effectively ended, the leverage is a little lower in our operation as well as the loan balance is being smaller.
Outlook or at least from where we sit right now.
Speaker 6: transcript
yeah and uh... on that many i noticed you know you have that non-recourse yellow financing what was that trade in and it's sometimes we see companies going to re-purchase that own debt you know triple a's in below that less attractive and buying you know new issue triple a's uh... or could you move down the credits you know and by if you feel really good about the credit their your c-roll is to go by some of the double a single a that part of the many more
Yeah and on the menu I noticed you have that nonrecourse CLO financing, but where does that trade in.
Sometimes we see companies wanting to repurchase that one that you would triple Asian below is that less attractive than buying new issue Triple A's.
Could you move down the credits.
If you feel really good about the credit because they're close.
Paul Miceli: So I think that's one of the reasons we're seeing more payoffs than a lot of others. But, and I expect that to continue. So this cash pile could go higher. But, you know, there's nothing in the system right now that would indicate that we have too much cash or we need to suddenly get rid of it. We're easily covering our dividend. We expect that to continue.
Close to go buy somebody like double interestingly is that part of the media.
Speaker 4: transcript
Absolutely, we own one of our triple bees and it's entirety. We're not going to default on it, so it was very cheap. 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 <expletive> , but no, we're happy to buy those, and they are attractive.
Absolutely we own one of our triple BS in its entirety.
Where 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.
Brian Harris: We'd love to get to a point where we think the credit cycle is over and then we can start looking at that dividend proactively and and sharing profits. You know, there's other ways we can get money to shareholders through stock as well as bond buybacks. So we like where we are, you know, played for higher rates, thought they were coming and they're here. So, but and probably the lesson learned is because interest rates were low for so long, a lot of property owners really should have taken some steps to protect themselves against higher rates because the insurance cost of that was quite low just 24 months ago.
So, it's a little bit of a logistical pain and they ask but.
No we were happy to buy those and they are attractive.
Speaker 4: transcript
We oftentimes will tell you what a class in a CLO leverage return looks like in the mid-20s right now. But when we buy them, we hardly ever use leverage. You know, we just keep the seven and three quarters, but we also know despite the 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 oftentimes will tell you what our a class in a CLO levered return looks like and if it is in the mid Twenty's 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 despite that we have over $800 million of cash we could also sell their securities and get that cash too. So the liquidity picture is extraordinary and we're very interested in making investments and but so far.
Speaker 4: transcript
We're very interested in making investments, but so far.
We're still dealing what it looks like in most cases in the lending side youre dealing with somebody else's headache.
Speaker 4: transcript
We're still dealing with what it looks like on most cases in the lending side. You're dealing with somebody else's headache. You know, it's a bridge loan that somebody else doesn't want to extend and the bar doesn't want to put up more money and he doesn't want to put a cap on it.
Brian Harris: And, you know, I'm sure if we get in another cycle in our lifetimes where this happens, that will be a lesson that comes back onto the blackboard for people. Thanks Brian, I appreciate all that color. Thank you.
It's a bridge loan that somebody else doesn't want to extend in the borrower doesn't want to put up more money and he doesn't want to put a cap on it and and ultimately the soft hands, we will get forced from the table and you'll be dealing with.
Speaker 4: transcript
and ultimately the soft hands will get forced from the table.
Speaker 4: transcript
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.
Matthew Howlett: Our next question is from Matthew Howlett with B Riley. Please proceed with your question. Oh, hey, thanks. Good morning. Thanks for taking my question. Hey, Brian, I mean, look, you pointed out you got plenty of access capital to balance sheets and terrific shape. You have a high class problem where you're getting more repayments. And you, I think you're below one one oh out net a cash XC securities. What's the, what's the argument against really getting a more aggressive on the share buyback, you know, open market purchases, Dutch tenders.
New investors with capital letter, 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 is just what you brought up geography in the West Coast I mean, we talked about New York, a while back and it you've seen you're open to.
Speaker 9: transcript
Gotcha. And just last question, just for you, brought up geography in the West Coast. I mean, we talked about New York, you know, while back and you seemed open to, you know, going in there. Any market you just, you know, wouldn't go into or something that you're thinking kind of intuitive, that you'd go into, just, just care sure, we've been insightful on that side of it. And I appreciate the question.
Going in there in any market.
Matthew Howlett: Is it the opportunity cost you want to wait for what, you know, what could be opportunities in real estate, you're probably getting a high 20% leverage on securities. You're obviously buying back some of your corporate damage. What would be, you know, it just seems to be our analysis is, you know, 20 plus percent of my back stock at these levels. Yeah, I don't have a cogent argument against buying stock back at these levels.
We can go into ore or something that youre thinking counterintuitive that you would go into just 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 for decades, and every time I said I wouldn't make a loan and Hartford. The following weekend made alone in Hartford.
Speaker 4: transcript
Sure, I've listened 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.
And it really goes to the adage of note no bad assets just bad prices.
Speaker 4: transcript
So, and when we opened ladder, you know, the financial collapse was taking place in the residential side and nothing was getting hit harder than Detroit, you know, in the auto companies. And we became one of the largest lenders in Michigan. And so, I wouldn't say there's...
And when we opened ladder.
Financial collapse was taking place in the residential side and nothing was getting hit harder than Detroit.
Matthew Howlett: So there's no resistance to it. And, but it is, and I want to stress this that, you know, there's a lot of opportunities right now, despite the fact that we seem to be husband and cash around. We're not, we're just not seeing enough opportunities, at least on the non-cuset 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 half percent and hold on a cash, but the securities that the eight classes are in the ceilos are still the best game in town.
On the auto companies and we became one of the largest lenders in Michigan and so yeah I wouldn't say there is <unk>.
Speaker 4: transcript
cities we will not lend in, 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.
Cities, we will not London, but the.
The prices may very well be getting down to where they are interesting but.
Realistically I don't imagine that we're going to run into a whole lot of investment opportunities in Portland, Minneapolis right.
Philadelphia, Washington D. C is an utter disaster.
Speaker 4: transcript
Washington DC is an utter disaster.
Matthew Howlett: 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 the triple net lease stuff is getting pretty cheap off though right now.
Speaker 4: transcript
Yes, and some of the hot markets are even 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.
Yes, and some of the hot markets or even rolling over you saw raw often today was in the news is 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.
Speaker 4: transcript
So, you just have to keep an eye on the local picture and, you know, you could easily, like when I, for instance, you know, 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. It's not. So, I would say a short answer to your question is no red lines, but realistically kind of hard to lend in certain cities, given what's going on, especially, by the way, tax breaks.
You could easily.
For instance, you say Portland downtown Portland is what I mean, if you just crossed one of those many bridges in Portland, it's not nearly as bad and it's it's a quarter mile away. Its not so our I would say it's short answer to your question is no red lines.
Matthew Howlett: So there's no, and I just want to stress that, you know, when you're in a restaurant and they tell you here's 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 buying stock back, we do it during open window periods and unfortunately a lot of open window periods are not available when when the end of quarter of the come and things get particularly interesting on the volatility side.
Realistically kind of hard to lend in certain cities, given what's going on especially by the way taxes taxes are going to be comment on 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 and it's just a it's gonna have.
Speaker 4: transcript
taxes are going to become an objective discussion in our world pretty soon because for whatever reason municipalities keep raising taxes as if real estate values are going up and and it's just uh... it's gonna probably be the final punch in the face you know to uh... existing holders of real estate that'll do it it's uh...
<unk> be the final punch in the face you know to existing holders of real estate that its a.
Matthew Howlett: But again, patients, nothing wrong with it. We can buy our bonds back and generate big returns very quickly there and but deliver 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 a repurchase program. Yes, it's cheap, but it has to get really cheap and then then we act and, you know, I think, you know, Paul read the levels that we've been buying our stock back up right here.
Speaker 4: transcript
You can't tack your way out of the problem. I just don't see it and they're going to try and it'll make values even lower and then it'll probably turn. Makes it...
You cant tax your way out of the problem I, just don't see it and theyre going to try and it'll make values, even lower and then it will probably turn.
It makes total sense and thanks for all the color.
Sure.
Speaker 7: transcript
As a reminder, if you'd like to ask a question, please press Star 1 on your telephone key.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker 7: transcript
Our next question is from Stephen Loss with Raymond James. Please proceed with your question.
Our next question is from Stephen laws with Raymond James. Please proceed with your question.
Speaker 10: transcript
Hi, good morning. Brian , you've covered a lot. I had one more question. I wanted to touch on floors. You know, it's been existing for a fully or really low weighted average floor. Now, where are there any new original nations or where you take those in any mods or extensions? And if it's not moving higher, given kind of the fixed rate debt that was a benefit on the rates increasing, any consideration to buying your own floors to kind of lock in that spread or protect against the rollover rates ho?
Matthew Howlett: So if all things, you know, we're not going to communicate all of those policies and an earnings call, but if we were to get off the phone now and the window was open, yeah, we probably start acquiring some stock here and certainly we'll 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.
Hi, good morning.
Brian you've covered a lot I had one more question I wanted to touch on floors within the existing portfolio really low weighted average floor, where there isn't any new originations or where are you taking those mods are extensions and if its not moving higher given kind of the fixed rate debt that was a benefit on the rates.
Creasing any consideration to buying your own floors to kind of lock in that spread or protect against the rollover rates impacting.
Matthew Howlett: We can do things internally here ourselves. But yeah, 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? You know, if anything should get much worse and you know, 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.
Portfolio returns.
Speaker 4: transcript
Yeah, 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've 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.
Yeah, I would say the floor is we're looking at I'll quota right, Florida. That's just the way I think as opposed to a sofa floor.
But usually when we send apps and we since many yeah. They they say something along the lines of nine nine and a quarter on the rate floor, the Florida don't really matter right now because the actual index is up so high so fast.
Matthew Howlett: 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 you know, 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 by stock without bonds and you'll rarely see us just by bonds without stock because we're rather respectful of both sides of that investor line.
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 $1 million and I can give that to you.
Speaker 4: transcript
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. Moe is a little little learer 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 it is part of the calculus now it's more on the borrower side of things I'm always a little nearer one borrowers don't want to have a cap because ultimately all of that means that 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.
Matthew Howlett: Makes total sense. I know you've been bi-mastic. I asked a question because you guys are in a unique position to be able to do it aggressively. And look, the bi-mack the debt here at 80 cents is terrific. It looks like you're buying what the 29's and the 27's. Am I saying that's what you're sort of primarily buying back? Yes, I mean there weren't many repurchases last quarter, but yeah, that's where we were.
Speaker 4: transcript
So, you know, 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 know, I.
Because it does protect the borrower as well as the lender. So I think when you get to the point where they are.
Speaker 4: transcript
You're seeing borrowers now wanting to switch to fixed rates so that they don't have to acquire a cap and also they understand what their risks are, you know, as far as where rates could go. But, you know, that hasn't happened too often with us, although I think it is happening in a few other places.
Youre seeing borrowers now wanting to switch to fixed rates. 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 yeah.
Matthew Howlett: We have a number for each of those three bonds every morning and we pass that over to the traders and if they come up at those prices, we buy them. So we do have a price for the 25 also, but given that it but yours in two years, you can imagine it's a higher price. So there's no there are all investments that were interested in and the oddly the reason the short bond is the higher price isn't just because it's also the highest rate.
It Hasnt happened too often with us although I think it is happening and a few other places.
Speaker 2: transcript
I know it's just sad that we are increasing the floors on modifications generally.
Brian I would just add that we are.
Greasing the floors on modifications.
Generally.
Speaker 10: transcript
Are you getting those close to market rate or how far below kind of spot so for those fours?
Are you getting those close to market rate or how far below kind of spot so for for.
Are those floors.
Speaker 2: transcript
A lot of it feels dependent but pretty close to market rate on most
A lot of it still dependent but pretty close to market rate on most of them.
Matthew Howlett: So when the 2025's pay off, we're actually going to the average rate of our corporate is going to fall to four and a half percent. So it's extraordinarily cheap capital. The entire complex is below the treasury curve at this point. So again, don't look to take them off the market because the pace of investment has not been what we would have anticipated. And I think that goes back to what Steve said earlier.
Speaker 4: transcript
Great. Thanks, Pam. I'm off. Thanks, Brian . So, what's cash flow you have, too? You know, if some of our assets, especially on the office side that are actually quite well occupied with rents that have gone up, there's a lot of cash flow. It's just hard to ask if they're refinanced today.
Great. Thanks, Pam I think Brian much cash flow you have to.
Some of our assets, especially on the office side that are actually quite well occupied with rents that have gone up there's a lot of cash flow.
It's just hard assets or refinance today.
Great I appreciate the comments this morning.
Yes.
Matthew Howlett: It's not just rates higher. It's the pace at which they got there. I mean, there are rate shocks, you know, reverberating through the system. If you call it, I think you guys all follow the residential space also and if you saw the givebacks and book value, it was unbelievable. And so, you know, we patients, I don't think the trains leaving the station here. I don't think that we are in danger of others doing better than us in the near term because we just have a lot of capital.
Thank you. Our next question is from Jade Rahmani with <unk>. Please proceed with your question.
Speaker 7: transcript
Thank you. Our next question is from Jay Nirmani with KBW. Please proceed with your question.
Speaker 6: transcript
Thanks very much. Multi-family is showing some softness in areas, a little bit of dip and occupancy, and some markets like Phoenix with negative rent growth. With the portfolio at 36% multi-family, and you mentioned the billion of originations 4Q21, how are you feeling about the outlook in multi-family credit?
Thanks, very much multifamily is showing some softness in an areas a little bit of a dip in occupancy and some markets like Phoenix with negative rent growth with the portfolio at 36% multifamily and you mentioned the 1 billion of originations four to 'twenty. One how are you feeling.
Matthew Howlett: But on the other hand, when you look out at the company and you say, well, yeah, the market cap of the company is $1.2 billion and they have $850 million in cash with no debt coming due and less than 1.0 coverage. You just sit there and shake your head and say, you know, how is that? You know, where is now? I respect the fact that we have the lowest dividend in the space.
And about the outlook and multifamily credit.
Speaker 4: transcript
I think multi-family got too expensive. I think we were vocal about that. We didn't think a three-cap was a great idea. Even if you thought rents might double, it still has turned into a bad idea because rates have outpaced.
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've 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 I would like to own a home that simply.
Speaker 4: transcript
the red growth and when you throw in the op-axing increases, you're pretty much blew the thing up.
Matthew Howlett: But the reality is just the earnings power of the company with no leverage in tons of liquidity and access to low corporate debt. It is an attractive outlook, or at least from where we sit right now. And on that menu, I notice, you know, you have that non-recourse COLO financing. Where does that trade? I mean, sometimes we see companies going to repurchase that own debt, you know, even AAAs and below. Is that less attractive than buying, you know, new issue AAAs?
Speaker 4: transcript
So I feel okay about Maltese 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 I would like to own at home that simply can.
Camp.
Speaker 4: transcript
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.
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.
Speaker 4: transcript
And so we're constructive on it. And I think we made the first move in that direction to show consistency here. Back in 21 in the fourth quarter, we noticed, and you may even recall me saying it on an earnings call, that some of the caps were just becoming incredibly expensive.
So we're constructive on it and I think we made the first move in that direction to show consistency here.
Matthew Howlett: Or could you move down the credits? You know, if you feel really good about the credit because they're your COLOs to go buy some of the like AA or single A, is that part of the menu? Absolutely. We own one of our triple Bs and it's 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.
<unk> in 'twenty, one in the fourth quarter, we noticed and you may even 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 the rehab story of 19 seventies Garden style.
Speaker 4: transcript
And so when we saw that we got a little concerned about the
Speaker 4: transcript
the rehab story of 1970s garden style apartment and you know we're gonna paint it.
Cartman and we're gonna painted changed the windows in rents double.
Matthew Howlett: But, you know, no, we're happy to buy those and they are attractive. We oftentimes will tell you what a class and a COLO leverage return looks like and it's in the mid 20s right now. But when we buy them, we hardly ever use leverage. You know, we just keep the seven and three quarters, but we also know despite the we have over 800 million in cash, we can also sell those securities and get cash too.
Speaker 4: transcript
changed 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...
What we've focused on and you might remember we moved over to her to avoid the cost of the cap on new originations, we wrote fixed rate loans, but they had points end points out and they were two year loans. So those fixed rate loans are coming at.
Speaker 4: transcript
uh... at latter and uh... they appear to be doing pretty well uh... and that we were very comfortable that
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 it was a little bit of seasoning. Those rents are still going higher in most cases and if we do have to get caught whether it was lending decision that.
Matthew Howlett: So the liquidity picture is extraordinary and we're very interested in making investments and but so far we're still dealing with what it looks like and most cases in the lending side, you're dealing with somebody else's headache. You know, it's a bridge loan that somebody else doesn't want to extend and the bar doesn't want to put up more money and he doesn't want to put a cap on it. And ultimately, these soft hands will get forced from the table and you'll be dealing with, you know, new investors with capital letter taking lower leverage and putting up bigger reserves.
Speaker 4: transcript
Fanny 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 it, with a landing 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 one inflation was really taking off.
Didn't go as planned we would much rather own a brand new apartment building. That's just been built in 2021.
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.
Speaker 4: transcript
So what happened was a lot of the transactions that required a lot of lumber and steel and all kinds of commodities.
Matthew Howlett: And, you know, we're kind of getting to that point in the cycle, I think. Gotcha. Last question, you brought up geography in the West Coast. We talked about New York while back and you seem open to going in there. Any market you wouldn't go into, or something that you're thinking counterintuitive, that you would go into, just be sure 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.
Speaker 4: transcript
Um, prices began getting away from the, from the developer, whereas the brand new construction that simply had to be leased up, the costs were over.
Prices began getting away from the from the developer, whereas the brand new construction that simply has to be leased up the costs were over.
Speaker 4: transcript
So yeah, we're very comfortable with the book. We actually have hundreds of millions of dollars in fixed rate multi-family 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 five to five and a half percent.
So yeah, 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 rents the rates will be going much higher because most of those are around five to five 5%.
Matthew Howlett: And it really goes to the adage of, you know, 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, you know, in 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.
Speaker 6: transcript
Okay. I'll 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, scale needs to increase. And yet, with the aspirations for IG, you need to maintain lots of unencumbered assets and a high unsecured debt ratio. So buying a mortgage rate would put that at risk.
Okay.
I'll follow up offline with that the other big question I know everyone's fixated on liquidity, but scale.
It really put ladder and a different playing field scale needs to increase and yet with the aspirations for IAG you need to maintain lots of unencumbered assets and our 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 owner.
Speaker 6: transcript
To me the answer would be, therefore, real estate ownership. Whether it be portfolios or maybe buying a net lease company. What are your-
Ownership.
Matthew Howlett: But, you know, 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 even 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 know, you could ease like when, for instance, you say Portland, well, downtown Portland is what I mean.
Whether it be portfolios or maybe buying a net lease company what are your thoughts on that.
Speaker 4: transcript
Yeah, I think you're probably right. On the other hand, if I saw a mortgage read that had just dropped 20% of its book value in 90 days, that
Yeah, I think you're probably right.
On the other hand, if if I saw a mortgage REIT.
Had just dropped 20% of its book value of 90 days.
Speaker 4: transcript
Prices change things, too. And we may very well move in a direction that.
Prices change things too.
And there we may very well move in a direction that doesn't help us in the <unk> arena, because we're just not there yet, but I think if we ever do try to and make a move to become an investment grade credit and I think we will it will be obvious will go out and we will do a large issuance unsecured.
Speaker 4: transcript
doesn't help us in the IG arena because we're just not there yet. But I think if we ever do try to and make a move to become an investment great credit, and I think we will, it will be obvious. We'll go out and we'll do a large issue in Sun Secured.
Matthew Howlett: If you just cross one of those many bridges in Portland, it's not nearly as bad, and it's a quarter mile away. It's not. So, I would say a short answer to your question is no red lines, but realistically 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 growing up.
Speaker 4: transcript
And we'll do that at a time where the rate that we're going to pay is going to make some 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,
And we'll do that at a time, where the rates that we're gonna pay is going to make some 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 rates with deteriorating assets.
Speaker 4: transcript
Yeah, I'd rather start over in a new building, you know, on a net least side. And 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, okay.
Yeah, I'd, rather start over in a new building.
On a net lease side, and we have quite a bit and at least here in but theyre not quite as wide as they'll need to be if they're going to be financed and but I think they'll get there.
Matthew Howlett: And it's just, it's going to probably be the final punch in the face, you know, to existing holders of real estate. You can't tack your way out of the problem. I just don't see it, and they're going to try, and it'll make values even lower, and then it'll probably turn. Makes total sense. Thanks for all the color. Okay. As a reminder, if you'd like to ask a question, please press star one on your telephone. Keep that.
Thank you.
Yes.
Speaker 7: transcript
Thank you. There are no further questions with this time. I'd like to hand the floor back over to Brian Harris, Bernie Povink.
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.
Speaker 4: transcript
Well, thank you for tuning in on our first daytime call. And hopefully this will work a little bit easier for everybody. And hope we're going to continue that. But thanks for tuning in. And thanks for staying with us. And future looks bright. We feel good about it. Thanks.
Well, thank you for tuning in on.
Our first day time call and hopefully.
Unknown Executive: Our next question is from Stephen Laws with Raymond James. Please proceed with your question. Hi, good morning. Brian, you've covered a lot. I've had one more question. I wanted to touch on on floors. You know, it's been existing for a fully low-weighted average floor. Where is any new originations or where he takes those in any mods or extensions?
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 and future looks bright and we feel good about it.
Brian Harris: And if it's not moving higher, given kind of the fixed rate debt that was a benefit on the rates increasing, any consideration to buying your own floors to kind of lock in that spread or protect against the roll over rates impacting portfolio return. Yeah, 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 spent many, they say something along the lines of 9, 9 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.
Yes.
Speaker 7: transcript
This concludes today's conference. We made disconnect your lines at this time. Thank you for your participation.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
Brian Harris: 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, more little later when borrowers don't want to have a cap because ultimately all that means that you're just going to pay that rate over time instead of all at once.
Brian Harris: 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 rates 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.
Pamela McCormack: 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 those floors? A lot of it feels dependent but pretty close to market rate on most of them. Great. Thanks, Pam. Thanks, Brian.
Unknown Executive: Let's cash flow you have too. You know if some of our assets especially on the office side that are actually quite well occupied with rents that have gone up, there's a lot of cash flow. It's just hard to ask if you're refinanced today. Great. Appreciate the comments this morning. Yep. Thank you.
Jade Rahmani: Our next question is from Jay Germani 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. But the portfolio at 36% multi-family and you mentioned the billion of originations 4Q21. How are you feeling about the outlook in multi-family credit? I think multi-family got too expensive. I think we were vocal about that that we didn't think a three cap was a great idea.
Jade Rahmani: 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 off-ex increases, you pretty much blew the thing up. So I feel okay about multi-s 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 I would like to own a home that simply can't for a myriad of reasons.
Jade Rahmani: 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 21 in the fourth quarter, we noticed, and you may even recall me saying it on an earnings call, that some of the caps were just becoming incredibly expensive.
Jade Rahmani: And so when we saw that, we got a little concerned about the rehab story of a 1970s garden-style apartment. And you know, we're going to paint it and 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 six straight loans, but they had points in points out and they were two-year loans.
Jade Rahmani: So those fixed straight loans are coming at latter, 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, you know, those rents are still going higher in most cases. And if we do have to get caught with a landing decision that didn't go as planned, we would much rather own a brand new apartment building that's just been built in 2021.
Jade Rahmani: The other thing that 2021 originations on brand new buildings did was this is one 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. The prices began getting away from the developer. Whereas the brand new construction that simply had to be leased up, the costs were over. So yeah, we're very comfortable with the book. We actually have hundreds of millions of dollars in fixed rate multi-family 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 five to five and a half percent.
Brian Harris: Okay. I'll 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 scale needs to increase. And yet with the aspirations for IG, you need to maintain lots of unencumbered assets and a high unsecured debt ratio. So buying a mortgage rate, you know, would would put that at risk. So to me, the answer was to be, therefore, real estate ownership, whether it be portfolios or maybe buying a net lease company, what are your thoughts on that?
Brian Harris: Yeah, I think you're probably right. On the other hand, if I saw a mortgage rate that had just dropped 20% of its book of value in 90 days, you know, that crisis changed things too. And there, you know, 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 and make a move to become an investment great credit, and I think we will, it will be obvious.
Brian Harris: We'll go out and we'll do a large issue in Sun Secured, and we'll do that at a time where the rate that we're going to pay is going to make some sense relative to where we can lend money or buy assets. So your things are right there. I think certainly given the leverage that goes with some mortgage rates and especially mortgage rates with deteriorating assets, yeah, I'd rather start over in a new building, you know, on a net lease side. And 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 they'll get there.
Unknown Executive: Thank you.
Unknown Executive: There are no further questions with this time.
Brian Harris: I'd like to hand the floor back over to Brian Harris, any closing comments? Well, thank you for tuning in on our first daytime call. And hopefully this will work a little bit easier for everybody. And hope we're going to continue that. But thanks for tuning in, and thanks for staying with us. And, you know, future looks bright. We feel good about it. Thanks.
Unknown Executive: This concludes today's conference. We made disconnect your lines at this time. Thank you for your participation.