Q4 2024 Ladder Capital Corp Earnings Call
Okay.
Good morning, and welcome to ladder Capital Corp earnings call for the fourth quarter of 2020 for us.
Today's call is being recorded.
Good morning water released its financial results for the quarter and year ended December 31, 2024 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.
You to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections we.
We do not undertake any obligation to update our forward looking statements or projections unless required by law.
Mission later will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance.
The company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
These measures are reconciled to GAAP figures in our earnings supplement presentation, which is available in the Investor Relations section of our website.
We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics would be made on today's call at this time.
I'd like to turn the call over to lottery President Pamela Mccormack.
Pamela McCormack: Good morning, we are pleased with flattish performance in the fourth quarter and full year of 'twenty 'twenty four during the fourth quarter ladder generated distributable earnings of $33 $6 million or 27 cents per share.
Return on equity of eight 9%.
Pamela McCormack: For the full year distributable earnings totaled $153 $9 million delivering a nine 9% return on equity well.
Pamela McCormack: While maintaining low leverage robust liquidity and stable book value.
Pamela McCormack: In 'twenty 'twenty four flattish conservative business model reinforced its position as a leading middle market focused commercial real estate finance REIT supported by the highest credit ratings in the sector.
Pamela McCormack: Our disciplined credit underwriting delivered strong results, despite a challenging macroeconomic environment.
Pamela McCormack: In addition, we believe the proactive steps, we took to enhance our capital structure over the course of the year should position <unk> well for potential investment grade rated ratings.
Pamela McCormack: Our key achievements in 'twenty 'twenty four include.
Pamela McCormack: Strong financial performance in 2024, we delivered strong earnings attractive net interest margins healthy loan repayments and consistent net operating income from our real estate portfolio.
Pamela McCormack: Additionally, our credit underwriting expertise and conservative investment approach enabled us to maintain steady book value setting us apart in the commercial mortgage REIT space.
Pamela McCormack: Despite a period of rapidly rising interest rates, we successfully navigated the challenges and resumed originating loans by year end as the fed began lowering interest rates and transaction volumes began to pick up.
Pamela McCormack: Enhance liquidity and credit capacity.
Pamela McCormack: As Paul will cover in more detail, we recently extended and Upsized, our unsecured corporate revolving credit facility from $324 million to $850 million.
Pamela McCormack: And secured an accordion to further upsize the facility to $1.25 billion.
All at a reduced cost.
Pamela McCormack: This transaction marks a key milestone in light of ongoing efforts to streamline our balance sheet and transition to primarily using unsecured debt to finance our operations.
Pamela McCormack: As of December 31st 2024.
Pamela McCormack: $2.2 billion in liquidity.
Pamela McCormack: Including $1.3 billion or approximately 27% of total assets comprised of cash and cash equivalents.
Pamela McCormack: Adjusted leverage remained modest at 1.4 times with 77% of our asset base unencumbered and 65% of ladders debt comprised of unsecured corporate bonds.
Pamela McCormack: Enhanced credit ratings.
Pamela McCormack: In conjunction with a $500 million unsecured bond issuance completed in July of 'twenty 'twenty four bladder received a positive outlook from both Moody's and Fitch rate lot of just one notch below investment grade.
Pamela McCormack: Well S&P upgraded our credit rating by one notch.
Pamela McCormack: These achievements should move us closer to our goal of becoming an investment grade company, which we expect will strengthen our market position lower funding costs.
Pamela McCormack: Track the broader base of investors.
Pamela McCormack: Loan portfolio overview.
Pamela McCormack: As of December 31, 2020 for our loan portfolio stood at $1 $6 billion.
Pamela McCormack: Presenting 33% of total assets.
Pamela McCormack: The weighted average yield of nine 3% and minimal future funding commitments of only $35 million.
Pamela McCormack: In the fourth quarter, our loan portfolio continued to pay down as we received $575 million in loan pay offs include.
Including the full payoff of a 11 loans.
Pamela McCormack: For the full year 2024.
Pamela McCormack: Ladder received $1 $7 billion in proceeds from loan payoffs across 61 loan positions.
Pamela McCormack: This represents the highest annual payoffs and a lot of history underscoring the strength and consistency of the middle market lending strategy.
Pamela McCormack: In Q4, we originated six loans totaling $129 million, primarily focusing on multifamily and industrial properties.
Pamela McCormack: Since quarter end, our pipeline has continued to build to over $250 million with an ongoing focus on new acquisitions with basis resets, along with select refinancing and recapitalization transactions for new adventures properties in lease up.
Pamela McCormack: Our in house asset management capabilities enabled us to continue to drive values through direct sales and capital investments.
Pamela McCormack: In 'twenty 'twenty, four we opportunistically divested own real estate.
Pamela McCormack: We sold four multifamily properties acquired through foreclosure, realizing $2 $7 million in aggregate gains.
Pamela McCormack: Clothing, a multifamily property in Texas, we sold during the fourth quarter for $1 3 million dollar gain above our $9 $7 million carrying value.
Pamela McCormack: Consistent carry income from our real estate portfolio.
Pamela McCormack: Our $904 million real estate portfolio generated $13 $2 million net rental income during the fourth quarter.
Pamela McCormack: And $56 $3 million for the full year 'twenty 'twenty four.
Pamela McCormack: The portfolio, primarily consist of net lease properties with long term leases to investment grade rated tenants and.
Pamela McCormack: In addition, we sold five net leased properties generating $2 million in gains to distributable earnings.
Pamela McCormack: Growing securities portfolio.
Pamela McCormack: During the fourth quarter, we purchased $295 million of AAA rated securities at a weighted average unlevered yield of six 2%.
Pamela McCormack: By year end, our portfolio totaled totaled $1.1 billion with a weighted average unlevered yield of 6% primarily comprised of AAA rated securities.
Pamela McCormack: This unlevered portfolio provides ladder with enhanced liquidity and stability without mark to market exposure.
Pamela McCormack: 2025 outlook.
Pamela McCormack: In conclusion, 2024 showcase the strength of waters conservative approach and differentiated capital structure.
Pamela McCormack: As transaction volumes were bound valuation clarity improves and commercial real estate market stabilized, we are well positioned to deploy our substantial liquidity prudently.
Pamela McCormack: Entering 2025 with optimism, we're prepared to capitalize on opportunities in a recovering market, while maintaining our disciplined approach to risk and growth.
Paul: With that I'll turn the call over to Paul.
Speaker Change: Thank you Pamela in the fourth quarter of 2020 for ladder generated $33 6 million of distributable earnings were 27 cents per share attributable EPS.
Paul: Our return on average equity of eight or 9%.
For 2020 for distributable earnings totaled 150, 349 million or $1.21 per share attributable EPS, achieving a nine 9% return on average equity.
Paul: Our 2024 earnings were driven by net interest income on loans Securities and cash alongside stable net operating income from our real estate portfolio delivering a strong return on equity.
Paul: This performance was achieved while delevering, our balance sheet, maintaining steady book value and dividend coverage and preserving a significant cash balance, allowing us to adopt an offensive strategy by the fourth quarter of 2024.
Paul: As of December 31, 2024, ladders balance sheet was comprised 27% cash and cash equivalents totaling $1 $3 billion with $2 $2 billion of total liquidity.
Paul: As Tom will discuss we further fortified ladders balance sheet through the upsize of our unsecured revolver to $850 million and over $2 six times increase including a reduced interest rate to sulfur plus 170 basis points with a further reduction of silver plus 125 basis points on achieving an investment.
Paul: <unk> credit ratings from two rating agencies.
Paul: We are pleased with this outcome and deeply appreciate the strong support from our 10 Bank Syndicate.
Paul: We extend our gratitude to our banking partners.
Paul: As of December 31st 2024, our adjusted leverage ratio was 1.4 times with the total gross leverage ratio of 2.0 times, which trended down in 2024, as we delever our balance sheet.
The large liquidity position.
Paul: Overall in 2024, we paid down over $1 $1 billion in secured debt and issued $500 million in unsecured bonds due in 2031.
Paul: As of December 31, 2024, 65% of our debt was comprised of unsecured corporate bonds with a weighted average remaining maturity of three seven years at an attractive weighted average fixed rate coupon of five 2%.
Paul: In the fourth quarter of 2024, we repurchased $26 million in principal value of our 2025 bonds bonds.
Paul: Which mature in October.
Paul: Of which 296 million in principal remains outstanding.
Paul: In 2024, both Moody's and Fitch placed that are on positive outlook and Moody's upgraded and the unmatched the rating on our bonds to be a one aligning our bonds with our corporate credit rating one notch below investment grade.
Paul: I think S&P upgraded our credit rating in 2024 as well.
Paul: We believe the rating agencies recognize letters long track record of disciplined and prudent manager of capital.
Paul: Demonstrated since the inception of our business and specifically since we received our first credit rating over 12 years ago.
Paul: We believe that his business model as an internally managed company with an unwavering focus on three investment strategies within commercial real estate, coupled with our focus on financing with unsecured debt at a modest leverage level.
Paul: Position us well for achieving our long held strategic goal of becoming an investment grade credit.
Paul: We continue to believe in investment grade credit rating will open later up to broader opportunities for growth.
Paul: Along with access to the investment grade capital markets with the goal of achieving a more attractive cost of capital and enhance return on equity to shareholders over time.
Tom: As Tom will discuss our <unk>.
Paul: Three segments performed well in 2024.
Paul: Our loan portfolio pay down meaningfully in 2024 and closed the year with $1 $6 billion with a $1.6 billion balance with a nine 3% yield.
Paul: But it is mid market lending focus and flexible balance sheet helped us achieve a 50% reduction of our loan portfolio through payoffs generating meaningful liquidity and allowing for us to pivot and focus on origination and the bridge and conduit lending space.
Paul: In 2020 for ladder originated $145 million of loans across seven positions. The majority of which was originated in the fourth quarter.
Paul: We're hopeful originations will outpace payoffs in the coming quarters.
As of December 31, 2024, we had two loans totaling $77 million on non accrual, including the addition of a $16 million alone in the fourth quarter collateralized by two residential and retail mixed use properties in New York City.
Paul: No specific impairments were identified in the fourth quarter and our general people reserve remained at $52 million unchanged from the prior quarter.
Paul: We continue to hold this level of reserve given the continued macroeconomic shifts that persist in the global economy.
Paul: We believe this reserve levels are adequate to cover any potential loss in our loan portfolio.
Paul: As of December 31, 2020 for the carrying value of our securities portfolio was $1 $1 billion.
Paul: In 2024, we rotated capital into AAA securities and more than doubled our holdings as our loan book continued to pay off par, we geared up for new lending opportunities by the fourth quarter.
Paul: As of December 31, 2024, 98% of the Securities portfolio was investment grade rated with 91% being AAA really read it.
Paul: The entire portfolio of predominantly AAA securities is unlevered and readily financeable, providing additional source of potential liquidity complementing the $2 $2 billion of same day liquidity, we maintain.
Paul: $904 million real estate segment continued to generate stable net operating income in 2020 four.
Paul: Portfolio includes 150 net leased properties, primarily investment grade credits I mean, it's a long term leases with an average remaining lease term of seven six years.
Pamela McCormack: Pamela discussed in 'twenty 'twenty four we executed the sale of four multifamily assets previously foreclosed on.
Pamela McCormack: The sales proceeds of $43 $6 million generated a net gain of $2 7 million for distributable earnings.
Pamela McCormack: Further we sold six net lease properties in 'twenty 'twenty four for $57 $4 million of proceeds generating $6 $8 million of games for distributable earnings and $22 $3 million of net gain for GAAP, which included the recapture of previously recorded depreciation and amortization expense.
Pamela McCormack: As of December 31, 2024, unencumbered as opposed to the $3 $8 billion or 77% of total assets.
Pamela McCormack: 81% of this unencumbered asset pool was comprised of first mortgage loans securities.
Pamela McCormack: Our strict cash and cash equivalents.
Pamela McCormack: Overall.
Pamela McCormack: We believe our significant liquidity position, which includes our recently upsized revolving credit facility large pool of high quality unencumbered assets and best in class capital structure, one notch below investment grade position ladder with strong financial flexibility ready access to capital as we focus on deployment within our three segments and places like that.
Pamela McCormack: As of December 31st 2024 letters Unappreciated book value per share was $13 88, which is net of the 41 cents per share of Cecil General Reserve established.
Pamela McCormack: In the fourth quarter of 2024, we repurchased $6 million or 532000 shares of our common stock at a weighted average price of $11 27 per share.
Pamela McCormack: For the year ended December 31st 2024, we repurchased $8 million of our common stock or 711000 shares at a weighted average price of $11.31 per share.
Pamela McCormack: As of December 31, 2024, 67 $6 million remains outstanding on letters current stock repurchase program.
Pamela McCormack: Finally in 2024, our dividend remain well covered and in the fourth quarter ladder declared a <unk> 23 cents per share dividend, which was paid on January 15 2025.
Pamela McCormack: For details on our fourth quarter and full year 2024 operating results. Please refer to our earnings supplement which is available on our website.
Pamela McCormack: <unk> annual report on Form 10-K, which we expect to file in the coming days.
Brian: With that I will turn the call over to Brian.
Brian: Thanks, Paul.
Speaker Change: We believe ladders middle market by design lending model was on full display during 2024.
Speaker Change: Smaller loan sizes enabled us to diversify our sponsor and geographic exposure and enabled our borrowers to have a relatively easier time refinancing loans coming due last year.
Speaker Change: We also took some big steps to further strengthen our liability set having issued a $500 million unsecured corporate bond that closed in July followed by an upsizing of our revolver to $850 million in December these.
Speaker Change: These events and a generally difficult year for commercial real estate investors enabled ladder to be a bright spot as our liquidity position sort throughout the year as loans paid off well, we were very modestly levered throughout the year.
Speaker Change: After March 2023, when the regional Bank funding model was disrupted and pushed to the breaking point for certain banks that failed we heard the expression stay alive until 'twenty five as it became harder for sponsors to refinance loans coming due.
Speaker Change: By early 2024, the industry seem to think the fed was going to cut short term interest rates six to eight times in response to a slowing economy and tame inflation figures.
Speaker Change: Except the fed never went beyond 100 basis points of rate cuts during all of 2024.
Speaker Change: I bring up these past events to highlight that most of our sponsors on loans coming due in 2024 did not see the need to stay alive until 'twenty five and they paid off $1 $7 billion of our loans with $1.1 billion of the total received in the second half of the year.
Speaker Change: As cash proceeds from loan payoffs outpaced new originations, we purchased $911 million of AAA rated securities over the last seven months, including January 25 at a weighted average unlevered yield of 6.48%.
Speaker Change: We believe these yields are attractive from a historical perspective and also added to interest income the day. After we acquired most of them.
It takes 60 to 90 days to close alone after we receive an application and while our pipeline of loans under application. Currently stands at just over 250 million. It is growing at a rapid rate and we believe that new loan originations will soon outpace loans paying off.
Speaker Change: To fund new loan investments, we will first move cash out of our T bills, earning an average of 4.32%. Additionally, we have the option to sell or finance some of our securities, which could provide up to $1 billion of additional liquidity to support continued loan growth in our pipeline.
Speaker Change: Yeah.
Speaker Change: While we expect our loan inventory to build throughout 2025. This will take some time, but we expect it to be readily observable from the second quarter on while the lag from application to loan closing takes awhile. There are plenty of good alternatives available to us, including additional securities to manage the lag from the loan origination process.
Speaker Change: Overall, we plan to migrate our capital into higher concentrations of balance sheet loans and out of short term T bills and securities. We intend to accomplish all of this while maintaining low leverage with high amounts of liquidity and investing in the highest quality assets. We can find that we believe present optimal risk free.
Speaker Change: Ward relationships for our shareholders.
Speaker Change: We look forward to replenishing, our asset base with higher interest rates in place, we have limited upcoming loan maturities with plenty of room to add new investments and grow our balance sheet.
Speaker Change: <unk> has a differentiated business model with a long track record of allocating investment dollars among securities loans, and real estate and primarily funded by longer term unsecured corporate and non mark to market debt with low leverage.
Speaker Change: As Paul discussed, we've been buying back stock and paying down debt with excess liquidity and we plan to continue with this strategy when market conditions present us with opportunities to enhance shareholder value.
Speaker Change: We've waited a long time to be in the position. We are in today armed with large amounts of liquidity and low leverage and a relatively high interest rate environment. We are therefore optimistic that 2025 will be a very strong year for ladder.
Speaker Change: To take this time now to thank everybody for tuning in on this call and to thank our employees for 2024 and the effort they put forth.
Speaker Change: I'll turn it back over to the operator.
Speaker Change: Thank you Don if he would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey one moment, while we poll for questions.
Speaker Change: Our first question is from Jade Rahmani me with Cape VW. Please proceed.
Jade Rahmani: Thank you very much.
Speaker Change: I wanted to ask about the C N BS conduit business for.
Speaker Change: The market's MBS issuance was up about 100% in 'twenty 'twenty four ladder competes probably more than most mortgage Reits with regional banks. Therefore, do you see an opportunity to increase C N BS conduit originations meaningfully.
Speaker Change: As banks still have been pulling back and yet are more willing to let loans come to maturity now.
Speaker Change: Thanks, James It's Brian Yeah, I think so the there's a shortage of fixed income investments, which is causing a great tightening to be going on in credit spreads almost everywhere that business in the conduit and securitization works better when the yield curve is steeper so while we're no longer inverted.
Speaker Change: After being that way for years, yeah, it's improving I would say, but we're not there yet.
Speaker Change: <unk>.
Speaker Change: I think you know when we take a look at where when we reversed things as to what break evens are on loans that we could be making on a five or a 10 year fixed rate basis.
Speaker Change:
Speaker Change: It's not terribly attractive it's not that it's not attractive at all its just that there are the other investments we make seem to be a more profitable our allocation of our capital. So I wouldn't expect us to come out too strong in the very near future. However, as the curve steepens, you'll see us waiting in there a little bit more.
Speaker Change: Sure.
Speaker Change: Thank you very much and then just on the diesel and reserve in dollars. There was unchanged. There was no new provisioning, which means that the reserve level increased quite meaningfully.
Speaker Change: Are you planning to maintain it at that level or do you see the potential for releasing some of those reserves with the significant repayments that have been received.
Speaker Change: Well I think yes. It is a higher percentage at this point and what you did leave it there because all the potential problems that we see as possible you know need for ore reserves, they're still there are those one off the loans that paid off however.
Speaker Change: However, the.
Speaker Change: The loans that did pay off obviously the denominator is getting smaller so I think we're well covered I don't think we'll get through all of that in the last column, it's a little hard to gauge as to where what.
Speaker Change: What quarter, you know things could start changing but I don't really see it increasing unless something that we're not expecting happens in the economy and in our inventory.
Speaker Change: I think it's far more likely probability that towards yeah. At some point will probably be releasing reserves back in but I don't see that number going up.
Speaker Change: Thank you very much.
Speaker Change: Our next question is from.
Speaker Change: Tom Catherwood with B P. I G. Please proceed.
Speaker Change: Thank you and good morning, everybody.
Speaker Change: Brian I appreciate the detail on originations and the lag between applications and closings.
Speaker Change: On the origination front, we're hearing of yields tightening somewhat especially for multifamily.
Speaker Change: Kind of two parts, a or are you seeing that as well and then b how is it impacting your pipeline and the types of properties that youre willing to lend on.
Speaker Change: Okay.
Speaker Change: Credit spreads are tightening I don't think interest rates are the actual rate on the loans that people are paying is that near 7% and that's not that's not very low relative to our recent past so gotta be a little cautious around when we talk about credit spreads tightening and interest rates.
Speaker Change: Ah yes.
Speaker Change: At prevailing in the mortgage market. So I think the borrowing world would like to hope that that was the new administration and some of the comments made today by the Treasury Secretary that.
That rates might be coming down on the 10 year I personally don't see that because of the deficit situation in the U S as in and how they're going to have to issue to pay their interest at this point, so I as far as property type scale, yes multifamily is definitely the tightest are obviously the safest because people have to live somewhere.
Speaker Change: Hum.
Speaker Change: You know for US I don't think we ever redline anything other than high crime that is something we try to avoid because it's very difficult to come back from a criminal reputation and an in any building or any neighborhood.
Speaker Change: I, we're not overly.
Speaker Change: Targeting multifamily we seem to be writing more multifamily and industrial but I think that's a condition of stability not necessarily where we're preferences things. If a retailer comes in that we happen to like or or if an office building comes down that we happen to like we won't put a number on it and you know we won't sacrifice credit at any rate but.
Speaker Change: If the ASP it looks to be recalibrated into today's market, it's been sure where were happy to lend on it.
Speaker Change: Don't see office spreads terribly.
Speaker Change: Tighter at all in fact, I'm not even sure I would say that it's a reasonable thought that you can refinance and office building. So that is a bit of an outlier right. Now. Although you are seeing some very large see SaaS deals getting done I think Brian Park is in the market right now Metlife building is coming down the pipe. So it. So this is improving our theirs.
Speaker Change: No there is no doubt about it the defroster Zhong.
Speaker Change: And I suspect that we will start the weighting into.
Speaker Change: Some other product types and in a more meaningful way, but I do think we are still a little bit hesitant around very large cities.
Speaker Change: Where are.
Speaker Change: They were having problems with their capital flight, where a lot of rich people are leaving and also to the extent that they havent got their prime under control. So you know where we're going to continue to avoid downtown L. A and.
Speaker Change: No need to name the cities, but you know we.
Speaker Change: We are happy to write loans and in what I call. The flyover States where are you know very few people actually go in the Midwest, we happen to like those economies are doing pretty well.
Speaker Change: Appreciate those thoughts, Brian maybe sticking with.
Speaker Change: The borrower profiles in your pipeline are you seeing borrowers.
Speaker Change: Borrowers that maybe last year would have likely done five year fixed rate loans now looking for transitional floating rate loans to provide more flexibility or is that kind of not a trend that you that you've seen crop up yet.
Speaker Change: We have seen that I would say two to some extent in that I think borrowers have been through something here, especially longtime owners of real estate.
Speaker Change: And sometimes especially the generational wealth families that have owned real estate for many many years there they're requiring cash in on refinances and they're also having to spend a lot of money on operating expenses, which they weren't used to spending over the last couple of decades.
Speaker Change: I do think whats, causing it is not necessarily spreads I think that there's people gravitating towards the floating rate and five year part of the world because they want to sell the property and.
Speaker Change: Not because they necessarily think interest rates are going to go lower.
Speaker Change: At a point, where they can get a short extension from a bank having said that I think we are very clear we actually quoted a few and have a few on our balance sheet now where we've written some one and two year fixed rate loans that are fully pre payable and we provide that at slightly higher rates than the than what a conduit or floating rate loan would be but the reason why is theres no prepayment.
Speaker Change: T or a lockout, so we simply make the coupon plus.
Speaker Change: The fees, we charge to originate the loan and I think you'll see that picking up more more so than in the in the year ahead.
Speaker Change: Yeah.
Speaker Change: Got it I appreciate the answers that's it for me thanks, everyone.
Speaker Change: As a reminder to star one on your telephone keypad, if he would like to ask a question. Our next question is from Steve Delaney with citizens JMP. Please proceed.
Steve DeLaney: Thanks, Mike Good morning, everyone. Congratulations on a great close to 2024.
Steve DeLaney: Just looking back over the last two years with all the volatility that we've had in the market from all corners.
Steve DeLaney: The most remarkable thing that I noticed is that you've been able.
Despite the already problems etcetera to maintain our book value per share in the neighborhood of 13 70 over the last two years and I don't think you have any peers that have been able to do that so I think jumps off the page to me, it's just a great accomplishment and we Gotta go forward.
Steve DeLaney: And now operate in the new 2025.
Steve DeLaney: The one thing that has as you play.
Steve DeLaney: Play more games that your loan book has dropped from about $3 9 billion at the end of 'twenty two to about $1 6 billion pretty significant reduction in direct lending I guess my question is.
Steve DeLaney: And you do a lot of things but in.
Steve DeLaney: In my mind, I see direct lending as you're sort of the heart and soul your core competency.
Steve DeLaney: For all commercial mortgage REIT can you in 2025 do you think that you can grow your loan book by as much as $1 billion and it's.
Steve DeLaney: Right what would you expect your average return on equity on the loans you might make in 2025. So a two part question can you do a billion debt and what would you expect to earn on that thank you.
Steve DeLaney: Okay. Thanks, safe and yes, we have noticed that book value. In fact, Pamela has a chart that she sent around to the whole group of people kind of demonstrating that and we were quite proud of it and obviously, we got paid back.
Steve DeLaney: A better rate than a lot of other people did but obviously some of that comes with something else in that as he said the loan portfolio has dropped quite a bit what's what's interesting is if you parse out the drop in in $3 nine down to $1 6 billion. So we are probably one of the most unlevered companies in the space are providing and ask.
Steve DeLaney: Reflected in our dividend, which is I think it's one of the lowest in the space, but hmm right now I think we would like to tell you that with a sofa or at 4.3% I think I might have that right at.
Steve DeLaney: At 300 over that would get you to seven 3% unlevered throw in a point each year for fees, maybe or even a half point cut that gets you to seven eight maybe eight in a quarter. So that's the unlevered return that we would be targeting that said most loans that we're writing and not 300 over or is there more in the 275 area, but as <unk>.
Steve DeLaney: Right is that we think they will then those spreads will tighten them. If they don't just go up one for one and if rates fall those spreads will widen so the yield that I think we're targeting on an unlevered basis is probably something you know eight and a half now when you get paid off on a 1 billion.
Worth of loans that are yielding 9% if you put the money into a money market fund, you'll get about 4% right and it says ultimately you lose 500 basis points of net interest margin by holding cash instead of the loans by taking the stop in and understanding the time delay and application.
Steve DeLaney: Two closing.
Steve DeLaney: And taking a comfortable place to go and there are two T bills at 432, and AAA securities floating rate, which we can get the business is picking up so theres more CLO is going on right now.
Steve DeLaney: So for instance in 2025 just in the month of January we have so far this year, we purchased $228 million of AAA Securities and the average spread there is $1 40, the credit spread and the average yield is $5 78, and that's interesting because you say, you're a 140 spread and I'm telling you.
Steve DeLaney: That we're trying to write loans of 300 over about half of what a AAA is yielding to you. So because those spreads are still relatively high and keep in mind, if I just add that $228 million to what we bought in the third and fourth quarters of this year, we've actually purchased about $950 million of securities and the average.
Steve DeLaney: The yield on those is 646, so we don't go from nine to zero or knowing to four on the net interest margin. We go from nine to six and a half and then we'll hold there for a little while until we find attractive ways to deploy that capital into higher yielding loans, but I think what you're seeing right now at ladder.
Steve DeLaney: Is we went from the alright lets make sure we were good on credit we told people when we weren't let's make sure. We are OK checked that box because we just got paid a lot back in in a year.
Steve DeLaney: Earnings push downward a little bit but benefited by the fact that short term interest rates are quite high the perfect still rather flat and.
Steve DeLaney: We will be moved youre going to start to see us move out of securities and T bills and into loans.
Steve DeLaney: Do we add $1 billion I can't imagine we work.
Steve DeLaney: I think we will add 1 billion.
Steve DeLaney: And in the in 2000 2040 illustrate this.
Steve DeLaney: We originated I think it was $128 million in the fourth quarter and very small amount in the second quarter, but the first and third quarters, we didn't originate any loans, that's not going to happen again, and I suspect that 128 million in the fourth quarter. We that we will dwarf that number going forward and when I say, we've got $250 million under App right.
Steve DeLaney: Now that that number could double in two weeks and probably well because where we're beginning to the world is waking up and brokers and borrowers are starting to notice that ladder is holding a lot of capital and any kind of has a very flexible and balance sheet, where we can do a lot of different things because we're not the whole.
Steve DeLaney: Into the securitization market or in the repo market, both of which we rarely rarely visit anymore. We've got some clo's outstanding two that have been paying off rapidly. So we could call one of those so I would tell you for their tail end of February we're probably going to cut some expenses on the interest side and pay some things off.
Steve DeLaney: We will continue to acquire securities as long as they're in this neighborhood, but our preference and our push right now under Adam snipers origination group is to add bridge loans in the 275, ideally 300 area and right now there's a little too much pressure on that for me to tell you we're going to do 300, it's probably going to look like 275.
Steve DeLaney: So, but but good normal recoveries and a cycle turn you know gather cash harvest your loan portfolio, then moving to security, so you're not earning zero, while you're shopping for new loans, and then Oh never ever compromise the credit side of the business at any price.
Steve DeLaney: And you keep your you get your principal back and we're gonna be ahead of 90% of the competitors. So we'll focus that and we're not overly concerned about how fast that happens. These assets. We don't have to figure out where we can write loans today, we have to figure out where they can pay us off in two to three years.
Steve DeLaney: And that's a slight detail that a lot of people overlook, but I'm pretty comfortable with our ability to do this I love the position. We're in right now we have access to every debt market out there. Some of them are quite inexpensive right now we could probably borrow more right now, but we obviously don't need any additional cash and the only thing staring at US is we got a little less than.
Steve DeLaney: $300 million coming due at the end of October.
Steve DeLaney: In the corporate bond market, which we already have covered if we want.
Steve DeLaney: And with that upsizing of the revolver to $825 million, we really don't have to keep a lot of cash on hand anymore. So we're really looking for full deployment here and you can do some math on if you add $3 billion to your balance sheet and a net spread of 200 basis points.
Steve DeLaney: You you you start, adding some numbers up meaningfully here and that that's what I think we're looking forward to.
Steve DeLaney: Thanks, Thanks for all that color just to be clear about 8% yield bridge loan yield.
We would move up to low double digits, when you put a little leverage on it depending on the nature of the leverage right now.
Steve DeLaney: Correct and by the way I'd also note to the $950 million of Securities. We purchased they have right. Now these are AAA us they have a six almost six 5% yield if we put leverage on that that goes to 11.
Steve DeLaney: So and ret easily financeable and so we may not just sell the amount they owe spreads continue to tighten our triple as at 140, which is where we've been buying them in the in 2025 that those are still quite wide, they're not they're not as wide as they were in 2022, where well see all of those are being originated at two.
Steve DeLaney: 25 on Triple S, but they're still pretty attractive I suspect that triple a spreads on CLO, we'll probably get down around $1 15 $1 25.
Steve DeLaney: Thanks for the color.
Steve DeLaney: Mhm.
Steve DeLaney: Our final question is a follow up from gene from Miami with BW. Please proceed.
Steve DeLaney: Thank you very much wanted to ask a strategic question given the high cash balance when you look at the commercial mortgage REIT space. The three names that have traded at material premiums to book value, where starwood due to its diversification <unk> due to its scale and Arbor, which is due to the agency.
Steve DeLaney: The servicing business and I was wondering on the agency servicing business, which is in multifamily do you see any opportunity to partner with adapt lender stay of Walker and Dunlop there could be a lot of potential value creation, if ladder, where two co originate loans and participate in the downstream servicing economic.
Steve DeLaney: Thanks.
Speaker Change: <unk> has established a relationship with <unk> curious if that's something you think is reasonable to.
Steve DeLaney: Pursue.
Steve DeLaney: It's reasonable to pursue it we don't have anything like that underway right now and I do see you you're seeing I think that M and T thing that you saw it with somebody that's a tie up there were quite a few that's going on a couple of months ago I Havent heard of too many recently, but I suspect.
Steve DeLaney: There, there's a lot of money moving into the private capital market right now and some of them a lot of it is moving it's not like the big banks are making loans anymore, they're kind of just.
Steve DeLaney: Making the introductions isn't going to the rating agencies and then let the market tell borrower where the rates are.
Steve DeLaney: But I do think when we have been approached by some parties who are flushed.
Steve DeLaney: Flushed with cash think real estate is an opportunity a little hard to figure out how to get in a team in place when there's losses in a lot of places right. Now. So we are getting a little bit of attention where people would probably like to see us do a sidecar with them, where we manage some funds for them.
Steve DeLaney: Where we each own part of it and I suspect that'll come more from the insurance side, rather than from the servicing side, but we're open to suggestions and if we appear to be a little less interested in that then than perhaps you might think we would be I mean, that's that's very good.
Steve DeLaney: Income inside of a REIT.
Steve DeLaney: But I would say that given the amount of capital we've got right now.
Steve DeLaney: It's a little hard pressed to do anything other than something that's very attractive to our shares and our shareholders. So I suspect if we get through about $2 billion of new originations than that probably will become a little more interesting and right now we really do like the tar and the the investment environment that we're in.
And we're fortunate to have all this capital I don't think we want to start exporting our expertise or our capital to up to a third party, but I do think you could see us with an insurance company along the lines of what some of our competitors do I think Apollo has an insurance company they invest benefit street does too but.
Steve DeLaney: But if so we'd be happy to do something like that but we are not underway and any discussions on that right now.
Speaker Change: Thanks, a lot.
Speaker Change: We have reached the end of our question and answer session I would like to turn the call back over to Brian Harris for closing remarks.
Speaker Change: Just thanks for listening in its been a while since we've spoken to our investors on the on the equity side.
Speaker Change: And we look forward to the year ahead, we're already coming out of the chute are in very good order and I think that these numbers of origination that we're looking at will go up dramatically and in the year ahead. So get on the train with US and we appreciate having you and thanks again for a fruitful.
Speaker Change: 24.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Speaker Change: Okay.
Speaker Change: Okay.
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