Thank you for standing by. This is the conference operator. Welcome to the Ladder Capital Corp. Third Quarter 2020 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Michelle Wallach, Chief Compliance Officer and Senior Regulatory Counsel. Please go ahead.

Thank you and good afternoon everyone. We continue to wish that all of you listening and your families are well and remains safe. Turning to our earnings call for the Third Quarter 2020, with me this afternoon are Brian Harris, our company's Chief Executive Officer, Pamela McCormack, our President and Marc Fox, our Chief Financial Officer. Brian, Pamela and Marc will share their comments about the third quarter, what they are currently seeing in the fourth quarter and we will then open up the call to questions. This afternoon, we released our financial results for the three and nine months ended September 30th 2020. The earnings release is available in the Investors Relations section of the company's website and our quarterly report on Form 10-Q will be filed with the SEC later this week. Before the call begins, I'd like to remind everyone that this call may include forward-looking statements. Actual results may differ materially from those expressed or implied on this call and we do not undertake any duty to update these statements. I refer you to our most recent Form 10-K and Form 10-Q for a description of some of the risks that may affect our results. We'll also refer to certain non-GAAP measures on this call. Additional information, including a reconciliation of these non-GAAP measures to the most comparable GAAP measures is available on our website, ir.laddercapital.com and in our earnings release with that I'll turn the call over to our President Pamela McCormack.

Thank you, Michelle and good afternoon, everyone. For the third quarter, Ladder produced core earnings of $19.7 million or $0.16 per share. Our undepreciated book value per share increased by $0.18 from the prior quarter to $14.35 per share. We continue to increase liquidity and reduce leverage and ended the quarter with unrestricted cash balance of $876 million and an adjusted debt-to-equity ratio, net of cash of 2.34 times. As of today, our unrestricted cash balance stands at over $940 million. Our liquidity position continues to be among the best in our sector. We have focused on building liquidity and book value while we wait for the results of next week's election, further clarity on of a stimulus package and a more expansive reopening of the economy. With clarity on these issues nearing closer, our large cash position and modest leverage that leaves us both well positioned and well capitalized to begin to take advantage of the investment opportunities we expect to arise as a consequence of this crisis. In the meantime, I'm pleased to report that we have an average collection rate of 98% for interest in rents across our loan and real estate portfolios in the quarter. In addition, no specific loan loss provisions were required. Our overall rate includes 100% collections from our substantial portfolio of net leased properties which has performed particularly well during the crisis. October collections have been similarly strong across all of our business lines. The credit quality and liquidity of our balance sheet loan portfolio with further evidenced as a portfolio pay down by more than 21% or $739 million from loan pay-offs and sales over the second and third quarters. During the third quarter loan repayments totaled $223 million including 2 hotel loans and we sold a $7 million note at…

Thank you, Pamela. The liquidity and capital strengthening actions taken over the last few months allowed Ladder to focus on managing its portfolio of investments and working to reduce its cost of funds. In that regard Ladder continue to de-lever its balance sheet. By September 30, our adjusted leverage ratio was reduced to 2.91 times. Net of unrestricted cash, Ladders adjusted leverage ratio was 2.34 times. During the course of the third quarter total debt was reduced by $239 million, including a $91 million reduction of financing against our securities portfolio. In paying down debt, we continue to intentionally target secured borrowings that was subject to mark to market provisions. For the 3 months ended September 30, we paid down an additional $27 million of loan repo debt resulting in a balance, at quarter end of $354 million. Ladder also repurchased $36 million of our corporate bonds in Q3 bringing repurchases over the past 2 quarters to $175 million. In addition, we bought back 124,000 shares of Class A common stock at an average price of $7.21 per share during the quarter. We saw this is an attractive opportunity to acquire our stock at a substantial discount to undepreciated book value or almost any other measure of the net asset value of our company. These transactions were funded with cash inflows from a combination of sources. Balance sheet loan repayments and sales during the quarter totaled $236 million dollars. $60 million of conduit loans was securitized, sales and amortization of securities yielded an additional $76 million, and sales of real estate generated $64 million of cash including $12 million of core gains. In terms of assets our loan portfolio totaled $2.7 billion at September 30 of which 96% were first mortgages with a weighted average loan to value ratio of…

Thank you, Marc. In the third quarter, we continue to strengthen our balance sheet and raise our liquidity profile. We began this somewhat defensive stance back in March when the virus took hold in the US and cause elevated volatility in the capital markets. Since our next call we'll be until late February. I wanted to expand on what Pamela and more detailed into what we're seeing so far in October. With additional loans that paid off in October our restricted cash has risen to over $940 million as of today. We are exceptionally liquid and have one of the best liquidity profiles in the sector. As the investment landscape becomes more clear we're happy to be sitting with such a large cash position after the progress we've made in deleveraging the company. While our cash holdings are dampening earnings in the short term, we are extremely well positioned to take advantage of longer-term opportunities in lending on and owning real estate as our economy recovers and a medical solutions for the current health problem emerging, hopefully in the next 3 to 6 months. Despite the challenges facing commercial real estate, if we continue to see our loan portfolio refinance at what appears to be a fairly normal rate. While apartments and industrial assets are the easiest property types to refinance or sell we are impressed to see some retail office and even hotel loans also taking advantage of today's low interest rates and refinancing. We are also happy to realize significant value through the sales of our real estate portfolio this quarter that resulted in meaningful gains, we continue to see this segment of our business as a stable source of recurring earnings with occasional but substantial contributions from gain on sale. We said on our last call that…

Thank you. [Operator Instructions] Our first question is from [indiscernible]. Please go ahead.

Hey everyone, thanks for taking the questions. So my first question is kind of, even when the stock is trading on book value, I guess it's just high level what do you kind of think the market is sort of missing here and do you think about bridging that gap. Just a few quarters of stable book value performance are looking to put capital to work and grow the dividend, any color you can provide would be helpful.

Sure. Thank you for asking. This is Brian. I think that if there is a couple of things that happened. First of all, obviously as a whole sector got checked pretty hard when the original COVID shock took place in the middle of March, we got caught up in a discussion about securities and leverage at that point that frankly we never should have been in. I don't know why the market had that discussion about us in any event, I think that we were taken down a little harder than a lot of our competitors in the set. So when you're trading at a deep discount to to book value, like we are at this point, we decided that we would put it back seat to earnings and we would worry more about liquidity because that seem to be what one of the concern was and frankly with the pandemic going on, that's a playbook we haven't really figured out in our careers in the past. So it helped to with interest rates falling precipitously, it didn't make any sense to go out and do a whole lot of lending at very low rates anyway. So I think it's a several step process. The first was to stabilize our bond portfolio. And I mean, the corporate bond portfolio, at the bonds that we have outstanding, which fell in some cases down to $0.60 on the dollar back in March or April. Those we acquired $175 million worth of those, I would point out that's not something that somebody would do, if they were having a liquidity problem because those bonds are not due for quite a while and they also represented tremendous of value, especially versus anything else we could have been investing in. So we feel like we…

Thanks a lot, Brian. That's a lot of really good color. So moving over to credit you mentioned 98% of collections. I was just wondering, how does that look on the hotel and retail loans and any other color you can or trends you can provide on the above property types? Would be, would be appreciated.

I'll point that's a Pamela, if that's okay?

Yes, I may ask Rob for help on the breakdown of the hotel, specifically, but our 98% collection rate was across the portfolio, including loans and also the real estate portfolio with a 100% collection on our triple net leases. Rob, do you have the specific breakdown on hotels? It's really I think just was one hotel.

Yes, it was an excess of 95% payment by cash flow or equity contributions, and then one hotel was delinquent.

Got you. And can you provide a little bit, any color on the hotel?

Hotel.

Hi, Rob.

Go ahead, sir. I'm sorry.

Got ahead.

It was Miami hotel that is a $45 million position and we're in the process of foreclosure we are also listing it for sale.

Got you. That is helpful commentary. Thank you so much for taking my questions.

Sure. The next question is to Steve Delaney with JMP Securities. Please go ahead. Sorry, please go ahead.

Hi, good evening, everyone. And I applaud your discipline and patience. I don't think that I could could could match that given, given what you've been through, but great job to be sitting where you are with the opportunities. To that end, and I understand Brian your comments about rates. I think it's been a lot of we've that seen the tenure back up pretty well over the last month. But it seems to me, when you look at the opportunities out there to start deploying the capital. It would seem that CMBS conduit lending at this point in time with the what I expect will be of a pretty good wave of interest in refinancing into fixed rate paper might be a great place for you to go. I learned a long time ago from Marc not to trust CMA. But it sounds like margins in the third quarter were very attractive and if you could just share your thoughts about where you would rank conduit lending on the list of things that over the next couple of months, you guys might look to step up. Thank you.

Sure. I, if I look across our product metrics and even securities bridge loans conduit and cash now is an investment, I guess, and real estate sell you the truth. I think I'd like real estate best right now because. Okay. Don't particularly care to be lending at these low rates but might be a fine idea to be borrowing at these low rates, especially with inflation around the corner. As you know, we have a real estate portfolio. And as we begin to look at refinancing our portfolio that's now heading to the part of its life where the mortgages are actually maturing. We should be refinancing into lower rate transactions there. So that'll be a position of earnings to. But as far as the conduit goes conduit is a little bit tricky. Yes, it is a very high ROE business, it's one that we're very comfortable in, my concerns right now regarding that are not really around the arbitrage associated with making alone and selling it. It is the aggregation process of getting a bunch of people together, who also have loans and the aggregation process can take quite a bit longer. And in addition to that, then you may wind up with a very prickly BP Spire. We're in a unique position, because if we ever wanted to, we buy those BPs and we can do our own securitization and just hang onto our BPs, but I would say right now given the margins for a 4% or 4.5% loaners are quite high. However, the aggregation period is also quite high and most of the banks are making loans in the 50% to 55% LTV area with a three handle on rates and I am a little bit concerned when I think about inflation in the Fed…

Think I would -- I was just going to add one thing, I think it's a great illustration of Ladder when we do participate in the securitization market we only make loans. We'd be willing to hold ourselves. We don't do it to distribute we just take advantage in the district, the distribution ability and as Brian said earlier, while we have the ability in the cash-rate loans. I think you're going to see, we're going to see vintage matters, and when when we feel the timing is right and therefore the risk adjusted what we just looking at what's getting done right now in the pricing doesn't seem to justify not waiting to see what happens with some of the volatility that will likely to be clarified over the next few weeks if not months.

Sure, makes sense. I know there are a lot of people in the queue. So I'll leave it there. Thank you for your comments.

Thank you.

Thanks.

The next question is from Charlie Arestia with JP Morgan. Please go ahead.

Sure. The 3 assets, one was a warehouse that had an enormous amount of improvement in the Atlanta area, it was, we had purchased in a couple of years ago from Zurich a coffee cup maker and I guess they decided to stop doing cold beverages, but they put a whole lot of stainless steel into a building and then decide that it needed. We purchased it with a partner and we felt that amount of equipment would probably be useful if we found the right buyer and 2 years later, admittedly 6 months of a pandemic float some things down but we sold to a user, we bought it for $25 million we sold for $41 million and our take there was, aside from the lending side and some other parts, but it was almost $10 million of the so that was the lion's share of the gain. The other 2 are interesting, we had a 10 31 party approach us and said they wanted to they needed to buy something in the triple net space so we showed them a list of many assets that we own and they picked on that they knew pretty well and it was a New York asset, it was a BJ's Wholesale Club. And so that's sold and they assume the mortgage debt. And I think we had on that for about 5 years, and they were they just assume that debt. And the last one was an interesting one in that it was a, hotel. It was a limited service hotel that we had foreclosed on and put up for sale and versus our our level of ownership, We, it was actually a positive moneymaker. I've long said I don't understand why people don't put properties up for sale before they go into default, but they still don't. And so we wound up foreclosing on that. We also foreclosed on another hotel from the same borrower and that hotel is also under contract now, and it hasn't closed yet but if it does close then we'll let you know about that next quarter. Does that answer any further details you need it.

Very much. Thanks, Brian. And if I could just get one more question, I apologize. You guys mentioned I think it was last quarter. That's, there are some new fund, private debt funds that have been stood up to take advantage of some of the more distressed opportunities probably in some of the more being down markets and property types as that pays kept it up this quarter. And is that really changing the competitive environment loans or not really an area that you guys are focused on.

I mean we're focused in, it's a little hard to say because, for one thing, we're all sitting in different buildings and cities. But I think that there has been a lot of money raised, and I think there was anticipation that there was going to be a tremendous amount of asset transfers is taking place. I just don't agree that there is going to be that many assets transferring with LIBOR at 14 basis points and banks with unbelievable amount of capital in their balance sheets. I think it's about 70 trillion dollars now inside of banks, but it might, I think that if I had to just throw some Kentucky windage at it, I think they break too much money given, given what the opportunity is, now the opportunity could grow quite a bit more, we'll see. But with the Fed getting involved and the possibility of fiscal stimulus. I think it could be a lot of money sitting around for quite a while. So I do think that many things that will take place now will take place because someone is under stress, it doesn't have to be a bank,it doesn't have to be a borrower, it could be and it could be a financing line going against the lender and could become problematic. So, I do think it's, it's a pickers market. I don't think you can say categorically, this is a sector I'm going to dump money into. I think the low hanging fruit for the securities business where Marc shook out a lot of triple B and single A paper at astonishing low prices. Those have all recovered. I do think there is some hotel paper that you could still buy. I think most people think the Four Seasons in Maui will actually open one day. and I think that of the Boca resort we'll probably open the Diplomat Hotel. So there is some of these single asset deals that are floating around that. Yes, but they are not trading $0.70 on the dollar they trading at $0.92 or $0.93 on the dollar. So that's really the extent of that retail, you have to be very careful, there is an entire swap of real estate, that in retail that frankly is it's uninvestable because it's not needed anymore. So, I don't think you just dive in there. I think you have to be very careful around what things are with the demographics and traffic counts look like, I don't think retail is dead, but there is, we had too much retail when Kmart went bankrupt. We certainly have too much retail now.

Thanks very much.

Sure.

[Operator Instructions] Qur next question is from Jade Rahmani with KBW. Please go ahead.

Hi there, thanks for taking the questions. And this year from all of you I had to dial in late, so I just wanted to ask, given where the stock is trading how attractive is buying back stock at this point considering. I think the company has got the largest liquidity position in the commercial mortgage REIT space coupled with its encumbered asset base coupled with its very high mix of non-mark to market financing and the unsecured debt that was issued earlier this year. So at 51% so how you're looking at potential share repurchases.

How will inject a little humor here I would tell you that some of our competitors have called us a SPAC because another one informed me that he thought we have more cash than Boeing on hand and, but the reality is we, there is no reason not to, right now we are not forcing things to pay off. I mean, the loans are just paying off because they are 2 years old, and this is the amount of pay off that we tend to get every quarter. We're a little surprised we saw 3 hotels refinance in the last quarter so that was a bit of a surprise, but as far as our stock goes I you saw us purchase and I answered a question earlier about what are the three stages of recovery when your stock gets cut in half like that, is a humbling moment, but it's also an opportunity to, to try to take care of things that you can control in your four walls without involve or inviting a borrower or bank into the picture. So I think the stock is ridiculously cheap and we own quite a bit of it internally so we know all about the shareholder experience, we thought it was important that because there was a market perception that we felt was unfounded but it was still there that there was a liquidity conversation going on with our name in the middle of it, so we address that first and we picked up $175 million of our corporate bonds and we will pick up a lot more of them if they are available at prices that we feel are too low especially relative to other things we can do. We began to buy our stock back we did not want to start buying our stock back at a time when our bonds were trading at very low rates, because we felt like that would be a little tone deaf to the bond holders of the world. And so we've largely repair that situation even though I still think they're trading the bonds are trading behind some competitors. I don't think we should be behind, but and now the stock does look extraordinarily cheap, I would say so I don't know where the stock will be tomorrow or today and it moved up a little bit, I think that the level sector did, but it is a very attractive purchase right now and I think we have about $38 million left on our authorization at this point. So, we will make use of that if the stock continues to sit in these 55% of book value area.

Okay. And just to put a finer point on it. You look at you know Starwood Property Trust. I believe that they're going to report a cash number, somewhere in that $700-$800 million range you look at be FMT just reported there in the, if I recall correctly, somewhere in the $400 to $500 million range and you know about those companies have a much higher cap than Ladder. So is there something negative either in the portfolio or in the outlook that you are seeing, perhaps it's your experience through multiple cycles or something else that investors need to be cognizant of as to why the company should hold that much cash.

Well the company does not intend to continue holding that much cash, as I said we have always set up the Company with a liberal use of unsecured corporate debt. So that was something we planned on six years ago and we kept doing it and we were very well rewarded for that in January when we borrow $750 million unsecured. That factor skipped investors in March when people were concerned about a margin call of about $100 million, which was nothing, it wasn't. I don't want to sound like the president thing, it's a peanut compared to our position, but it was a big margin call but it was something we certainly had. And two year AAA bonds just don't move around that much. So, I think the probably the frustration on my end, probably the stubbornness on my end is I am fairly convinced, Ladder clearly looks different than a lot of other competitors, right? One is, we have an extraordinary amount of cash. Two, we use way more corporate debt than anybody else. Three, we have less repo debt than anybody else. We have way more securities than anyone else. We have much more triple net on real estate than any of the mortgage REITs, not the triple net REITs. But those. So, we have clearly pulled away and differentiated on purpose. We always assumed having seen up and down many difficult markets, you need to be able to turn cash off leaving the building. So we've always avoided construction loans. We have very little in the way of future advances as I think somebody said it was 8% of our outstanding loan balance. I think it's $200 odd million dollars and we clearly have enough to handle that. Right now. So we don't have any threats…

I just want to jump in and I wanna say one thing.

Go ahead.

I've been with Brian, I'm turning 50 so I think since I was 30. And so I'm a little bit of a disciple in that regard, but what I will say is, I remember when we open the doors in 2008 with the private equity guys and they were begging us to make loans, make loans, make loans and we were sitting on a lot of cash we had raised, over $611 million back without placement agent in 2008. And Brian was very patient, had us set up to become a borrow, we're buying securities and they said they don't pay people to invest in securities. And exercising enormous patience, because at that time, really I think we did our first securitization with JPMorgan in 2010, just to show you the timeline. And we were very patient about making loans until we felt like the market was right. We're not incapable, we're not afraid, we are intentionally,purposely waiting for what we think is a better risk adjusted return. We are waiting to pounce we've been ready and I think that while Brian is and it hurts me to hear him capitulate on the securities because we do, we're not ignorant to what the market thinks of it, but I will go out long on this public call and say, I think investors will be looking for us to do that again at the end of this, when you get to the other side of this and a couple of years from now and you see the limited losses due to the AAA nature of that portfolio. I think it was a really smart decision.

Yes I've always thought that the you know pairing the Securities business with the CMBS conduit business with the bridge lending business made a lot of sense, provided the management team has the skill set to to trade those 3 sectors and then find opportunistic opportunities in the equity. So I've always been a fan of Ladder's business model. The issue now is, I've started my job in 2007 and the first mortgage read I look that was NRF and they were one of the only ones to start buying back their stock and buying back their debt at cents on the dollar, and it created an upward trajectory and book value that allows the company to eventually reinstated the dividend, grow dividends get investors confidence back and they rallied tremendously. So, looking at the stock at $7.40-it would take a very low for the company to get back to above book value to be able to accretively issue equity and grow and when stocks are at that position you worry that it's a self-fulfilling prophecy where event investors assume that there is eventually going to be dilutive equity issuance of some kind. So that's why I think this point deserves a lot of consideration for management so I guess ahead.

I would also I would add that in the products that you mentioned there the that one does inform the other. So, if you were making conduit loans and you think you don't own Securities. Okay. You can tell yourself that story, but yes you do in fact you own AAAs all the way down to the BPX until you securitize those assets and if you're having trouble selling those AAAs when you do your conduit transaction you probably shouldn't be buying a lot more on the security side, usually we get a fair heads up when the markets are softening because we have a securities portfolio that informs us on how aggressively should or should not be around the conduit business at any given time. So as we said, one, they're really just different versions of the same things. All of these products including owning real estate is really just comes down to cash flows associated real or future with real estate and you ought to be able to figure out, each of them. If we do I will say that one of the problems we ran into was that I kick myself for not fully appreciating, is that pandemic started in the last 2 weeks at the end of the quarter. And well, I really do think that our corporate bond exposure actually hedges our business, because for the very same reason that our stock fell, because there was a perception that we might have a leverage problem in a 2-year AAA portfolio, our corporate bonds also fell. And that is the first time in my life, I have not been able to take advantage of that situation and the reason why is because we were in a closed window period for our securities. This is what happens…

And sorry, just a quick credit question if you, Pamela or Rob wants to answer this, but what's the total percentage of loans on non-accrual, either as a percentage. I guess as a percentage of the loan portfolio

So we had our pre-COVID, we really only had one loan default Marc can give you the stats but we had one loan default post-COVID that you may have not been on the call time but Rob went through earlier, it's a hotel in Miami. A $45 million hotel that's really the only post-COVID loan default. The other ones. I mean we were talking about the structural issue we had the 2 assets in Austin, Texas that defaulted post-COVID, but that's really Partnership related issues versus asset level issues

And the total was the total total number 3 had sorry 3% of assets okay.

That's better than most of the peers and also better than Wells Fargo and some of the major banks that have reported so, kudos to you guys and you still getting loan repayments, which is also a positive

Thank you. One point on that Jade, when you think about us generally in terms of both loan payments and those kind of issues on default, we have our weighted average duration on our balance sheet loan is 1.1 years. It's really hard to hide anything, if you can really kick the can down the road with a final maturity date like that. So I think what you see true to Ladder is we take the same approach is everybody, but our loans are coming due fast and furious, with the 1.1 weighted average duration

Jade, I, just a follow-up on that, and you're looking at us with the large cash balance, we've built up large cash balance in part because of what Pamela just said we have loans that are maturing all the time. We're doing relatively, our loans roughly 2 years on average, before we reconnect them, so the time to maturity, is a fraction of what it is with our, the peers in our space, who are more likely in the 4 to 5 year range. We have a lot more loans that are maturing in a limited period of time. The second thing is, is the future funding obligations Brian mentioned that what we do, we were able if we were able to shut off flow of cash out of our company. The, our competitors you, you look at our competitive peers looking to magnitude of future funding obligations. They had. And you can do it on any scale you want and any percentage or what, what you will is that, is the numerous due to funding obligations compared to that, that means we have a lot of cash going as well out of the door. So all this combined with the fact that we have securities that amortize, leads you to a point, leads you to a point, where you say you're going to see a lot of cash flow and use a lot of capital at any given point in time.

Great. Well, I appreciate all that then. Thanks so much for taking the questions.

Thanks Jade

Concludes the question-and-answer session. I will now turn the conference back over to Brian Harris for closing remarks.

I just want to say thanks everybody, we're looking forward to more productive year next year with hopefully we'll have managed our way out of this COVID situation, I think we will. I feel very good about where we are relative to where we were six months ago. So I look forward to it. We won't speak to you again until late February. But there is an our chance that we'll do an early release of earnings, if the timing works right. Okay, so thanks very much. Talk to you soon.

This concludes today's conference call. Thank you for participating and have a pleasant day.