Good afternoon, and welcome to Ladder Capital Corp's Earnings Call for the Fourth Quarter and Full Year 2021. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter and year ended December 31, 2021. 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 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, Ladder 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 supplemental presentation, which is available in the Investor Relations section of our website. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Thank you and good evening everyone. For the fourth quarter, Ladder generated distributable earnings of $27.7 million, or $0.21 per share. For the full year 2021, Ladder generated distributable earnings of $61.3 million, or $0.49 per share. In addition to having another quarter of strong loan originations, our earnings were supplemented by gains from our conduit securitization and real estate equity businesses. After initially emphasizing raising liquidity and reducing leverage earlier in the year, we began making new loans again in March of 2021. We ended the year by having originated a total of $2.9 billion of loans, including a record 92 balance sheet loans, totaling $2.7 billion resulting in the highest annual production of Ladder's balance sheet loans in Ladder's history. The growth in our portfolio led to strong earnings momentum over the course of the year and we are pleased with the risk-reward profile of the resulting portfolio, which continues to reflect our rigorous credit standards and return expectations. As of December 31, over 65% of our $3.5 billion balance sheet loan portfolio was comprised of post-COVID originated loans with fresh valuations and business plans. The composition of the portfolio remains consistent and continues to be primarily comprised of lightly transitional loans with a weighted average loan-to-value of 67%. In the fourth quarter, Ladder originated $1.3 billion of loans, including 43 balance sheet loans, totaling $1.2 billion with a weighted average loan-to-value of 64% and a weighted average coupon of 4.43%. Approximately one third of our balance sheet loan originations were made to repeat Ladder borrowers. Since the start of the new year, we closed an additional $300 million of new loans and we continue to have a strong pipeline of additional loans under application. In our conduit business, we securitized or sold $131 million of loans during…

Thank you, Pamela. As Pamela discussed in the fourth quarter, Ladder generated distributable earnings of $27.7 million or $0.21 per share. Originations and pipelines remain very strong, and were accompanied by a CLO that generated $566 million of gross proceeds during the quarter. The CLO financing is a managed deal with a 78% advance rate on $729 million of collateral contributed. The CLO has a weighted average interest cost of LIBOR plus 165 basis points and provides for a two-year reinvestment period and has an expected average duration of approximately four years. This type of match-funded, nonrecourse, non-mark-to-market financing complements our strategy of utilizing long-term unsecured corporate bonds to finance our business. Overall, 2021 saw significant and successful capital markets offerings in both the corporate unsecured bond market and the managed CLO market, which are further solidified and lengthen our liability structure while simultaneously reducing our use of mark-to-market financing as we continue to move towards our investment-grade rated goal. End of December 31, we had total liquidity of over $800 million and approximately 88% of our capital structure, was comprised of equity, unsecured bonds and nonrecourse nonmark-to-market debt. Our nearest bond maturity is in October of 2025. Our three segments continued to perform well during the fourth quarter, and Ladder is well positioned as we head into 2022. Our $3.5 billion balance sheet loan portfolio is 91% floating rate diverse in terms of collateral and geography with less than a two-year weighted average remaining maturity. During the fourth quarter, loan origination activity outpaced payoffs as we added $751 million in balance sheet loans. Our balance sheet loan portfolio continues to perform well and the general portion of our CECL reserve decreased to 34 basis points as two thirds of our balance sheet loan portfolio as of December 31 was…

Thanks, Paul. We're pretty happy with the results of the fourth quarter and the earnings momentum that's been established quarter-over-quarter in 2021. As we restarted our lending activities in March of 2021, we knew that all we had to do was invest our large cash position into earning assets using modest leverage our earnings per share would increase and rising dividend coverage would follow. We originated $2.9 billion in loans in 2021, and that pace of originations continued into January of 2022 when we originated over $300 million of new loans. I'd also like to mention that so far in 2022, we received $76 million in payoffs on two hotel loans that we modified in 2020 and deferring some interest until maturity and all deferred interest and exit fees were collected. Our pace of origination should moderate somewhat as markets have reacted to Central Banks pivoting into a decidedly more hawkish tone in recent weeks, along with higher interest rates. At Ladder, we have been waiting for this turn towards higher rates as inflation has taken on a more structural than transitory field in the last few months. By balancing our differentiated liability structure between a larger component of unsecured fixed rate corporate borrowings and a combination of floating rate CLO and a minor component of short-term repo debt, we have positioned Ladder to let the Fed do some of the work for us in the coming year. We expect that our floating-rate balance sheet loans will produce more income as short-term rates rise while our average interest costs stay relatively fixed. If short-term rates move up by 100 basis points, we project our net interest income to increase annually by approximately $0.16 per share. If they rise by 200 basis points, we project net interest income to increase annually…

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Tim Hayes of BTIG. Please proceed with your question.

Hey, good evening guys. First question, since you ended with kind of the comments around the pace of real estate sales, Brian, and the embedded value there, I would love to just kind of harp on that a little bit. Are you seeing a softening in bids for your net lease assets, now that there’s obviously a much more – much higher expectations for rates over the course of the year? Or when you say that you expect that to curtail in the back half of the year, is that just kind of your estimate? Or are you seeing that already? And then if you could just talk about the types of assets that you did sell this past quarter if that’s part of a bigger pool, a bigger portfolio of more that you think you can harvest in the near-term? And just any comments around the embedded value that you think is there.

Sure, Tim. Thanks. First of all, no softening in bid levels or interest in the net lease arena that we own today. However, I do expect it to soften a little bit only because of naturally with rates going higher in order to finance these things, you’ll be borrowing at higher rates. Interestingly enough, though, in almost all – when we first started selling some of our real estate assets, they were generally sold to people who had 1031 exchanges, where a guy was the first and the last name, and he wanted to get to avoid a tax payment. Whereas the publicly traded REITs would not usually buy these assets. And the reason why it wasn’t because they were not good assets, they just don’t like to assume CMBS debt and many of our assets have CMBS net, all assumable. And they also don’t – the prepayment penalties were pretty high. Interestingly enough, they – the public companies, I think they’ve rallied quite a bit. So their dividends are quite a bit lower than they used to be. And as a result of that, they are now absorbing and literally paying the prepayment penalties for us to retire some of our CMBS debt. So what you’re seeing in these gains on sale with our triple net properties are the net gains after expenses are taken out for prepayment penalties and things like that. The other thing I did was we wanted to see really what was our real estate portfolio worth, because it’s a little bit of a niche business, and it does very well at certain times. And then at other times, it’s not always so interesting, but it usually does very well in a low inflationary environment. And with our long-term leases, we’ve been able to sell…

Yes. That’s really granular helpful information Brian, I appreciate it. So it sounds like clearly a lot of embedded value in this portfolio and you are proving it out. It seems like your appetite to continue doing that is still pretty high. I guess, I’m just curious like obviously for the rating agencies like to see you guys have that sticky income and how that portfolios finance is nice too. Are you okay with continuing the harvest you’ve gained and let that portfolio kind of runoff to be a smaller percentage of the overall business? Like where do we see that going over time assuming that the bids are there?

We don’t try to figure out where interest rates are going over a 10 year period of time. We go into each of these investments with a view as to what we think they should yield over time. And when we begin to exceed those gains that we were planning for, we’ll start to win on back a little bit and sell some of them. There’s no wholesale sale. I will tell you though, the sale that iStar conducted of their net lease portfolio, certainly caught my eye and a few of our shareholders have even indicated to us perhaps, if we thought we could replace it in, we do think we can replace it by the way. Perhaps we should sell our entire portfolio or else put it off balance sheet in a net lease REIT that we manage externally. So these are all scenarios that we occasionally look through. But we haven’t made any decisions in that regard just yet. But for the most part net lease properties are best – in our opinion, our best purchase when you have a fairly steep yield curve and that’s been a long time since we’ve seen that I do expect to see more of that going forward. And I think that a lot of their net lease REITs don’t use a lot of mortgage financing, so they don’t really – they’re not impacted by the yield curve, but we are, because as you know, we’ll write a CMBS loan into a trust. And then we’ll take – we target double-digit returns for the next 10 years. And then when the loan comes due we usually have another 10 years behind it. And at that point, we’ll make a decision to sell, blend and extend if we want to talk to the operator. But this all breaks down if you have bad credits in those pools. So, we are very, very meticulous about who we will purchase 10-year assets from. And we focus on, as Pamela said, the necessity-based retailers. And listen, there’s always a time for a necessity-based retailer, but rarely has been a time where the wholesale clubs and the grocery stores have done better than in the last couple of years.

Right. Right. Well if I could just rephrase my last question in different way, because not saying you’re going to sell your net lease portfolio, but it sounds like you are potentially open to the idea and you’re obviously also rotating capital out of the CMBS portfolio in due loans, like are you later than historically than with diversified commercial real estate investment company, but are you okay with going more towards kind of like a pure-play lending platform with maybe conduit on the side. Is that something – not saying it’s going to happen, but like would you be okay transitioning more to that model than where you’re at today?

Yes. I think so. I don’t think there’s anything wrong with our model today. And oftentimes, we talk to people who are, for whatever reason, inquisitive enough to bring it up. But I think there is a possibility that our multifaceted approach has been a little too complicated. Whereas I see some of the monolines, even though you got to be very careful in those monoline businesses when you’re – because when it’s not time to buy them, you have to keep buying them, and that’s never a great idea. But I’m not against, I don’t think anybody on the team is against it, moving more towards a balance sheet, recurring earnings, sustainable cash flow model. The conduit will always be something that we are parachuting to here and then because of the inherently high ROE and little use of capital, frankly. But everything is for sale. We own a fairly hefty real estate portfolio still. Would we sell the whole thing, sure we would. On the other hand, I tend to think we are moving towards an environment where if the curve doesn’t steep-in we’re going into a recession, if the 10-year doesn’t get moving. And in that environment, we’d probably – in a flat environment, we would hang on to those net lease assets in a rising rate environment. I think we would just soon sell them and replace them with other loans other assets we can buy. Because we think we can find them. The fact that we have and acquired a lot in the recent past is not a statement as to we can’t. It’s a statement as to the conditions don’t seem right.

Got it. Got it. Well I appreciate the comment, it was very interesting and in depths and I’ll back in the queue for now.

Our next question is from Jade Rahmani of KBW. Please proceed with your question.

Thanks very much. Just while we’re on subject on the overall commercial real estate owned portfolio is the debt transferrable and how easy it is – is it to refinance, because another option would be to just increase the leverage since you have these unrealized gains in those portfolios rather than selling the asset at that right?

That's a good question because we have actually rolled some of them over and refinanced them. And in nearly all instances, they turn into a cash out refi and many instances would because of the cap compression that's taken place over the last 10 years with a rather stagnant low real estate environment. We almost have no basis in some of the assets. So when we do that, so sure, we tend to target a double-digit rate of return over the long term, and we think we can manage that. And if we think we can find new ones that do that, so sometimes it's helpful to take gains and harvest 25%, 30% increases in valuation and then go do it again. However, if we were to stop selling them because we won't sell them at a price we don't like. But if we were to stop selling them, then we could easily – yes, just look in all likelihood, put them into a lower rate refinance where there's cash out because the valuations have increased. The valuations are what they are. We don't control that, but by virtue of the fact that we've been selling them at hefty gains, we would expect the appraisals to do the same thing. But it's always hard to say goodbye to a double-digit rate of return. But yes, sometimes it's time to let them go and do it again where you think you might have a better ROE situation. It's important in those environment, have to remember the leases are getting shorter, not longer. And the companies are doing quite well, in fact specific market cap rate on Dollar General and BJs, and the several of the companies we own has tripled in many cases. So they're much stronger credit. So we're not really in a credit conversation anymore, at least not now. But with rates expected to rise and lease term is getting shorter, I would expect there to be some view towards perhaps we'll sell them. But if we were to refinance them, it's gotten a lot cheaper to refinance them now because rates have gone up. I know that seems weird, but because the prepayment penalties have come down so much because of the 10-year movement in the defeasance calculations.

Okay. Thank you for that. It seems like most of the nonbank lenders in particular, but the overall lending market was pretty gang, but there's the last two quarters. Some of that momentum seems to have continued this quarter, maybe it will slow with all the volatility. But CMBS has significantly lagged. So I guess, the two questions would be, one, what are your thoughts around the [indiscernible] in the originations? But then why do you think that took place? But then why also do you think CMBS was such a laggard? And thanks so much.

Sure. I would love taking in the reverse order. I think CMBS has been lagging. The answer to both questions is the pandemic, but with different reasons why. The tenure sign off on a 10-year CMBS loan, generally need 12 months – trailing 12-month cash flows from tenants that are in occupancy and paying rent. And there was such an interruption in who's in an office building. And I can remember underwriting loans where we would write a loan on an office building and you go and see the office building out in Indianapolis, and there is no one in it. So that presents a problem to a lender on a 10-year loan, whereas under normal times and circumstances, of course, you show up is bustling and people are downstairs ordering breakfast and then you get the stock-hold from the CEO and you just go on. So I think CMBS was burdened by two things. One, it was tough to get a fix on trailing 12. But as you can imagine, with everybody staying home, the apartment market did very well. So it wasn't hard to find 10-year loans in the apartment market. However, the apartment market is dominated by Fannie and Freddie. So as a result of that, the CMBS business suffered. And the second thing that hurt the CMBS business is the flat yield curve with a 10-year – right now, even, let's say it's 2% and you sell AAA 90 over. If you get a 2.9% and you just saw an inflation print of 7.5%, I think. So that's always a dangerous thing to be holding, a long-term piece of paper that might go upside down on you on funding, not because anything is wrong just because spreads have moved out and rates are moving higher. Not…

Thanks very much for taking the questions.

Sure.

[Operator Instructions] Our next question is from Steve Delaney of JMP Securities. Proceed with your questions.

Thanks and congratulations, everyone, on a great close to a comeback year. And Brian, I just checked my screen, the two years at 161 up 26. So...

If you walk away for five minutes today.

You can't – you got to stay glued to the screen then through a bond guy. Wanted to just ask a couple of quick things; Cash $549 million, down about $200 million from $750 million at $930 million. So what would be sort of the minimum level? I know it fluctuates day-to-day and week-to-week, but as far as sort of a target, maybe ask it this way. $550 million, is some of that excess cash? And if so how much. Okay. That's – yes. So may be...

Yes, I think I know where you're going here. So what's the carry rate, what do you want to go home every night with. In general, I think we generally say about $100 million. I personally think that number is probably a little high and it probably comes out often when we say $100 million because we still own about $700 million in securities. However, and I do expect our securities portfolio to become much smaller as time zones, they're paying off very rapidly right now. They're in that part of the – these are the A classes from CLOs from 2019.

Sure.

So those are kind of taking care of themselves. If we need to sell them for capital, we certainly will that we have no problem with that. The collateral is in excellent shape. But – we also have a $250 million revolver that's not drawn. You don't want to draw the revolver and for any reason other than a short-term reason. But so I'll tell you, I'm pretty – with a lighter securities book, I would be comfortable with $50 million to $75 million, although I believe we generally think $100 million is like the overnight minimum that will go on with.

Yes, that's helpful. Thank you. Rates, I mean, they've obviously broken out, but volatility scares everybody. It scared the stock market, and it looked to me just in the last week or so that the credit markets – that the fixed income credit markets are responding in the last week. We don't see what you see on your screen, but it appeared that new issue AAA – 10-year AAAs widened by about 10 basis points on CMBS. I talked to a couple of people this week that did CLOs in the last two or three weeks, and they said, Thank God, I'm glad I got my deal done because what I'm hearing now is bankers are saying we're not taking anybody out. So I'm just curious, you hear all this chatter all day long. And has this – what impact has this rapid move higher in rates. It was volatility a month ago now; it's just 1 direction, right? So where do you see credit reacting to this rate move? Thank you.

I think the two things that are driving the investor wider on credit spreads in the long-term fixed rate market. So that's the conduit or the VIX. It's been comfortably above 20% now for quite a while, and it was in the 30s for a little while. Those are pretty near panic levels of 30. So that naturally causes people either to not bid at all because there's too much volatility around to widen out their price. So that's one. That's just general volatility. The second, and by the way there's plenty of reasons to be volatile, too. I can go through a litany of them at this point, but it doesn't surprise me at all that people are a tad nervous. When you think about what's going on and the virus is only one of those things on a list of about seven. And the second part is the CLO market. The CLO market is simply oversupplied. And there were too many LIBOR-based loans trying to be sold to a rather large investor base, but large in dollars, not large in name there. So about five or six big accounts that if you're going to try to do a $1.5 billion CLO, you're going to need them in that transaction. And if they're not there, it's going to be a problem. So I think that they were inundated. There were too many deals going on. They couldn't catch up with them fast enough. And so they kind of gravitated towards the apartment loans, the ones that have the highest degree of apartments in them. That is what you would expect – and they've driven levels wider. I think there's a deal in the market today where the A class is at 175 over. We did a CLO in June,…

Yes, that's great color. I had not realized, but I heard this last week about that the CLO market is a mile deep, but maybe 100 yards wide. And exactly what you were saying about the five or six guys. Thank you so much for the comments and again great a quarter and wrap up on the year. Thank you.

Sure.

We have reached the end of the question-and-answer session. I will now turn the call back over to Brian Harris for closing remarks.

Just thank you, everybody, on a very interesting day in the markets. We are fortunate to be positioned not just to do well with a rising rate environment, but to do exceptionally well. And I think we haven't earned anything on that yet, but I think that we're about to. So I look forward to talking to you all again in April and you to believe the pundits today. There should be another 50 basis points on the Fed funds rate at that time. So we look forward to it, see how we did. Talk to you soon. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.