Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ladder Capital Corp (LADR, Financial) generated distributable earnings of $40.4 million or $0.31 per share, yielding a return on equity of 10.2%.
- Successfully priced a $500 million, 7-year unsecured corporate bond offering, resulting in positive rating actions from all three rating agencies.
- Increased liquidity to $1.9 billion, with $1.6 billion in cash and cash equivalents, enhancing financial flexibility.
- Achieved a stable book value while providing a healthy return on equity to shareholders of over 10%.
- No specific impairments identified during the quarter, with a modest increase in the General CECL Reserve to $54 million, deemed sufficient to cover potential loan losses.
Negative Points
- Loan portfolio saw limited future funding commitments totaling $94 million, indicating potential constraints on growth.
- Increased concentration in office loans to 34% from 31%, raising concerns about exposure to a struggling sector.
- Despite ample liquidity, originations were subdued, suggesting a competitive market with limited deal flow.
- The commercial real estate market remains uncertain, with continued wide credit spreads in CMBS and commercial real estate CLOs.
- The company remains one notch away from an investment-grade rating, with the current market backdrop in commercial real estate posing a hurdle.
Q & A Highlights
Q: Can you provide an update on the investment pipeline and focus on new loan investments?
A: Pamela McCormack, President: We are actively looking at loans and waiting for the right opportunities to deploy our capital. We expect to see some momentum in the third quarter and hope for significant ramp-up in the fourth quarter. Brian Harris, CEO, added that they do not plan on getting into construction lending but see demand in other areas, particularly in the CMBS and CLO markets.
Q: Given the strong dividend coverage, what are the considerations for potentially increasing the dividend?
A: Brian Harris, CEO: Higher dividends will follow higher earnings. With our current cash holdings and low leverage, we have substantial earnings power. As we move through the downturn and into an expansion phase, we will consider raising the dividend.
Q: How will the expected lower interest rates impact the commercial real estate market and Ladder's competitive position?
A: Brian Harris, CEO: Lower rates will likely increase transaction volume, bringing more equity into the market and creating new loan opportunities. This will be beneficial for Ladder as it will increase demand for our lending services.
Q: Are you concerned about the increased concentration in office properties within your loan portfolio?
A: Brian Harris, CEO: While office properties are a significant part of our portfolio, we are confident in our underwriting and the quality of our assets. We have been proactive in managing these loans and believe our CECL reserve is sufficient to cover potential losses.
Q: What are the next steps or hurdles for achieving an investment-grade rating?
A: Pamela McCormack, President: We have met the objective tests for an investment-grade rating. The main hurdle now is the market backdrop in commercial real estate. We are hopeful that with continued strong performance and market stabilization, we will achieve an investment-grade rating with our next issuance.
Q: Will activity on the conduit side of the business remain muted in the near term?
A: Brian Harris, CEO: Likely, yes. The CMBS business will pick up when the yield curve steepens. Until then, we will focus on acquiring securities with attractive yields.
Q: What savings do you expect from achieving an investment-grade rating?
A: Brian Harris, CEO: Initially, the savings might not be substantial, but over time, we expect to save around 200-300 basis points. Pamela McCormack, President, added that achieving an investment-grade rating will also help attract traditional equity REIT investors.
Q: Are you considering making a significant acquisition given the current market conditions?
A: Brian Harris, CEO: Ladder is not interested in making a splashy acquisition. We prefer to focus on generating attractive returns safely. We see opportunities in the $70-90 million loan space, which is currently underserved.
Q: Do you see opportunities in the secondary market for senior loans from banks?
A: Brian Harris, CEO: While there are opportunities, we prefer the safety and attractive returns of AAA securities. We are monitoring the market and will consider opportunities that align with our risk profile.
Q: How do you feel about the office market, particularly in New York City?
A: Brian Harris, CEO: We believe the office market in New York City is improving, particularly in areas like the Plaza District. We are confident in our investments and see long-term potential in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
