Good afternoon, and welcome to Ladder Capital Corp.'s Earnings Call for the Fourth Quarter of 2022. As a reminder, today's call is being recorded. This afternoon, Ladder released its financial results for the quarter and year-ended December 31, 2022. 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. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.

Good evening. We are pleased to report that Ladder generated distributable earnings of $38.9 million or $0.31 per share, reflecting an after-tax return on equity of 10.2% for the fourth quarter of 2022. Undepreciated book value grew to $13.66 per share. And as of December 31, our same-day liquidity from cash, cash equivalents and our undrawn unsecured revolver was over $900 million. As of December 31, our adjusted leverage ratio was 1.9x and 1.1x net of cash and securities. For the full year 2022, Ladder generated distributable earnings of $148.4 million or $1.16 per share, representing a 9.7% after-tax return on equity. We are further pleased to report that after raising our quarterly dividend by a cumulative 15% over the course of 2022, our dividend remains well covered with carry from net interest margin and net rental income. In 2022, we originated $1.2 billion of balance sheet loans, two-thirds of which were either multifamily or manufactured housing, with our multifamily originations focused on newly-constructed properties. As of December 31, our total balance sheet loan portfolio had a weighted average spread of 4.25% on floating rate loans and a weighted average coupon of 8.25%. While loan originations slowed due to a lack of a transaction activity, we have strong liquidity to deploy into this product as activity returns. As of December 31, 40% of our loan portfolio was comprised of loans on multi-family or manufactured housing and 82% of the portfolio was comprised of post-COVID loans that reflect conservatively reset valuations with newly-capitalized business plans and substantial reserves in place. Only approximately 6% of our loans have a final maturity in 2023 and all of our floating rate loans have interest rate caps in place. We continue to focus on dollars per foot or basis lending on smaller middle-market loans and…

Thank you, Pamela. As discussed in the fourth quarter, Ladder generated distributable earnings of $38.9million or $0.31 per share; and for 2022, Ladder generated $148.4 million, or $1.16 per share. Our three segments performed well during the fourth quarter and in 2022. Our net interest margin rose steadily as benchmark interest rates increased and we benefited from our liability structure, of which approximately 50% is fixed rate. The $1.6 billion of unsecured corporate bonds that anchor our capital structure at an overall weighted average maturity of approximately 4.7 years, with the nearest maturity in October 2025 and provide an attractive fixed rate cost of capital at a 4.7% average coupon. Our $3.9 billion balance sheet loan portfolio was primarily floating rate, diverse in terms of collateral and geography with our primary asset class focused on multi-family assets. As Pamela discussed, 82% of the portfolio is made up of 2021 and 2022 vintage loans. During the fourth quarter, balance sheet loan origination was $38 million related to one multifamily loan. We received loan payoff proceeds of $180 million and acquired one office property in Houston, Texas via foreclosure with a carrying value of $10 million or a basis of approximately $50 per square foot. Additionally, as Pamela mentioned, subsequent to year-end, we received $28 million of proceeds from two office loans that paid off at par. During the fourth quarter, we increased the general portion of our CECL reserve by $2.4 million or 15% driven by the current market outlook. Overall, we believe that the granularity and the diversity of our positions with limited exposure to any single sponsor, market, or asset serves as a credit enhancement to our portfolio. Our $900 million real estate segment also continues to perform well and in 2022 market year in which we demonstrated the…

Thanks, Paul. I'll start with a few highlights from 2022 that show how our preparation for higher short-term rates enabled us to execute our business plan throughout the year. We expected the Fed to aggressively raise short-term rates, and in less than 12 months, they raised the Fed funds rate by 450 basis points. Since we had over $2 billion of fixed rate liabilities, including $1.6 billion of unsecured corporate bonds, the increase in our interest income outpaced increases in our interest expense. In the fourth quarter of 2022, our net interest income was $37.3 million. That's 3.5x our net interest income in the fourth quarter of 2021. We believe the Fed will continue raising rates in the first half of this year and we will benefit further from those actions. If they then hold peak funds rate where it is, as they say they will, we should benefit from higher net interest income throughout the rest of this year and into 2024. Because our weighted average maturity on our fixed-rate corporate bonds is about 4.7 years, we should be able to enjoy strong net interest income for several years as long as the Fed doesn't completely reverse their recent rate increases. Since we ended 2022 with $609 million in cash and undrawn $324 million revolver and an adjusted debt-to-equity ratio below 2x, we have plenty of earnings power as we make new investments in the quarters ahead in market conditions exhibiting the highest mortgage interest rates in many years. As mentioned earlier, many investors are trying to sort out what is going on in the office sector in the United States today. Clearly, certain cities are having more trouble than others and I'm happy to discuss those macro issues in Q&A, but I'd like to briefly address how Ladder…

[Operator Instructions] Our first question is from Steve Delaney with JMP Securities. Please proceed.

Thanks. Good evening, everyone, and congrats on a great close to 2022. Boy, that was very thorough. I had a few questions jotted down, but I just heard – I already heard the answer. One thing you didn't talk about, Brian, we're seeing some signs and just early green shoots, I guess, of better activity or interest in the CMBS CLO market and I know your investment portfolio is not huge, and it's also short duration. But can you comment on whether you feel your CRE securities portfolio has seen any improvement in value thus far in 2023? Thanks.

Sure, Steve, and thank you. Yes, it has - the markets, as I said, at the end of really '21 or through '22, credit spreads blew out really, I think, in the mortgage sector because of the Fed just being a constant seller of mortgage-backed securities and that shocked the market a bit and drove spreads wider. So even the short duration book that we own would have – if we had sold, it would have been down a few points. So we did have some paper mark-to-market losses there and they have recovered largely and I'll also add, too. While I wouldn't say they're quite at par at this point, but they're probably near 98.5%, 99%. And in addition to that, regardless of what happened with prices, we got $185 million in payoffs, which was about 25% of that book in the year 2022. So that's one of the reasons to that. We're pretty comfortable we're not ever going to take that loss on a mark-to-market basis because those assets are just so well secured. The biggest problem with them if we wanted to create liquidity today, which we certainly don't need to, is that their spread to LIBOR is not competitive with the spread to LIBOR of new origination loans today. However, most of them have like 80% subordination, which also doesn't – compares very favorably to anything today. I don't think you could buy a book of 2018 and 2019 CLO AAAs like we have today. So we may have to wait a little bit longer but if we ever did need to come up with liquidity, we could and again, they're only one year loan, so there's a limit to just how bad it can get and even if the Fed continues to sell. But there is – I think that the lack of supply for a very long period of time there. It's really starting to show up, and that's why bids are coming in. The Fed is still a seller, but at the end of the year, most of the portfolio managers rebalance their portfolio. And I think the fixed income guys got a lot of allocations going into January and January always is a strong month for whatever reason. I think that there's new allocations and things just optically look very cheap. So I think people are jumping on them now. And you are also seeing that in the government market. The 10-year is a very easy sale. You saw the auction yesterday, it was great. The 30-year auction today was very messy. So it's sort of that duration. It's not too far out on the curve, but it's far enough that people feel like it's going to be an acceptable return. Clearly, the market thinks rates are going to be low over the next 10 years.

Yes. Thank you so much for the comments.

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

Thank you very much. What do you make of the current stock valuation for Ladder, in particular, given the lower-than-peer leverage and the strong outlook based on rates? Also, do you think you would consider stepping up your pace of stock buyback and how are you feeling about the dividend relative to the strong level of earnings you posted?

Okay. I'll try to keep those in order. And if I don't, please remind me at the end. First of all, the stock price, a little bit discouraging at times because when I sat down and I began to write the year-end review, I basically said, “Okay what did we do in 2022?” We absolutely nailed the Fed correctly. We have the lowest – we went from the highest cost of funds because of our corporate debt at the lowest cost of funds in the space. We have it for years to come, whereas you're seeing a lot of other ways of raising money taking place in the space. And I think it's a real differentiator for us this year. Our income – our top line income went through the roof because, again, our interest income was going up, but our interest expense was not really going up very quickly at all. So the whole plan worked, and our credit acumen did well. We didn't have too much difficulty there. And for all of that, getting it right, the stock dropped from, I think it was, $11.90 something at the end of last year to a high 10 number or $10.99 this year. So, you really can't fight to tape it is what it is. It was a tough year for all investors last year. And some parts of the stock market, I think the S&P was down 18%. Then of course, it was up 20%. So you try not to look at that too much. But we're doing what we can do and controlling what we can control and sometimes, you get caught up in a little bit of narrative where you just get caught up in the whole market swings. So we're not put off by it. We…

Stock buyback.

Oh, stock buybacks. We buy those periodically. Our ROE is very good right now. And while we didn't pull off a lot of transactions in the fourth quarter, I think that had more to do with the rate shock that took place in the market and you're seeing it everywhere. It's not just here. There is just not a lot of transactions going on. We are still seeing people trying to get financing to buy an apartment complex at a two cap, thinking they're going to double the rents. So that story is just not taking hold of us. So we're going to have to wait until the market absorbs the reality that rates are just going to be higher. I am of the opinion that you've seen the lowest rates in your life and I don't think rates are going to go straight up to like Jimmy Carter days, but I also don't think they're going to be returning to 0 either. My opinion is that 10-year is too low at 360, but I don't trade government bonds. So I would say if the stock takes any kind of a softening, which it does periodically, we're happy to step right in and buy it as long as it looks like a pretty good investment for us and don't overlook the bonds also. Occasionally, if interest rates go up quite a bit or the high-yield market gets wider in spread, those also present unique opportunities, too. So we keep our eyes open. We watch it every day. We don't check it on Fridays. And if it looks cheap, we step right in as long as the compliance window is open.

Thank you very much. On the originations post-COVID, it seems like the bulk occurred in 2021 through mid-2022, arguably before the valuation correction really ensued. So, some of those deals may have been done at the peak of the market, especially in multifamily, the lowest cap rate sector. How do you feel about the risk there? It doesn't seem like there will be credit issues in multifamily this year. Certainly, that could unfold in 2024 and there is also huge supply coming in multifamily. So curious for your thoughts on that sector.

Well, we – and I am going to get too deep in the weeds. But at the end of 2021, every CLO lender in the space was originating any multifamily they could find at LIBOR plus 300 and we thought that was crazy. There was no differentiation between quality. Were you entering the crime problem out in the garden-style apartment in a rough city or were you making a loan a brand-new property in Jersey City? And so what we did, and we talked about this, I am not sure you remember it, but we stopped chasing multi-family loans, and we did other types of loans that were less favored but they were much wider in spread. We really got into the multifamily side of things after 2021 when those – at the end of 2021, everybody thought spreads were widening just because it was year-end. We didn't believe that. We thought it was the Fed starting to sell mortgages and they were going to keep going wider. So at that point, they – most of the lenders had abandoned the multifamily sector because they had done CLOs, where the effective rate of return on their equity piece with 85% leverage was 6% whereas the AAAs, were trading well with yields well north of that. So, we began – I remember the day it happened. We were funding a transaction, and the borrower was buying an interest rate cap and the cap cost six points. And I said, wow, we're charging one point and they are paying $6 per cap. So we introduced in an attempt -- it's been my experience that when things get a little out of joint, you're always going with higher quality. So we knew that sponsors were hating the interest rate cap because the cost…

Thanks very much for the color. I appreciate it.

[Operator Instructions] Our next question is from Eric Hagen with BTIG. Please proceed.

This is Sarah Barcomb on for Eric. Thanks for taking the call. So, in the fourth quarter, you had slightly lower origination volumes with that one multi-family loan. I was hoping you could contextualize that a bit and talk about how you approached underwriting that loan, as well as any other deals that you might have taken a look at that didn't cross the finish line

That loan was a multi-family in the Southeast. It was brand new and it had been under app for a while. And I think for whatever reason, documentation-wise, it took a while to get printed and when we closed on that loan, that building was fully leased. I was a little surprised the sponsor wanted to even take a floating rate loan. So that property is a brand-new property. It's in Georgia, and it is fully leased already. So that was – there was no special approach there. That's kind of where you're hoping to exit when you write a bridge loan. A lot of other assets we had under application, as rates were rising, we were requiring higher debt yields at exit and it gets tougher. So, where a 6% debt yield used to be the exit cap year and a half years, two years ago, we were moving them up to 7.5% and 8%. So simply, I think what happened isn't so much that people didn't want to fund new loans. They were just so used to aggressive underwriting, which might have been appropriate at certain times, but it didn't look like it was going to continue. So we actually did see some assets where rents were falling while we were underwriting. One of the things we do keep an eye on during the underwriting process is we literally watch some leased properties at units one by one and we're very sensitive if all of a sudden, they signed 5 leases at lower rents than they've been in the last 12 months. So we saw some of that also.

Okay. Great. And so you talked about in terms of the equity investment sales, I believe there were three during the quarter and you talked about how one of them was one of your largest office assets. Can you talk – I might have missed it, but can you talk about the other two sales during the quarter and maybe give some color around cap rates there or any details you can share there?

Well, yes, I am going to talk to the math of my head, but I know them. One that we sold was in Virginia. It was11 office buildings, suburban office buildings for $118 million and that obviously was the price we had paid for them, although there was a large GAAP gain associated with them there. I think we sold that at a 6.8% cap. And so, then, so that's the one you knew about. The other two, one was we had owned a residential new development on the lower east side of Manhattan and we had one penthouse left to go, and we sold that for $8 million. I don't know what the cap rate is, I apologize. That's just residential condos. So that was just one, and the only thing we own in that building now is one retail condo at dollars per foot that are far lower than we've been selling out the residential properties at. So we're pretty comfortable there. Although retail in New York City is a little tough right now because for various reasons, but we think that will get straightened out eventually there. And the other property we sold was a wholesale club, and we sold it to another REIT, who likes that credit. It's a BJ's Wholesale Club. And I think we made about 35% versus our basis on that, which is consistent with where we've been selling BJs. We owned about 11 of them at one point. I think we have five left now. So those were the three asset sales.

Great. Thank you. That’s it for me.

You are welcome.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

I just want to wrap up. This is always an interesting year-end call because we'll be back on the phone in another month, I think, or 1.5 months. But just want to say thanks. Ladder really came full circle after the pandemic, and we're off to a great start this year. We are in the right position with very low cost of funds, and we are really looking forward to a very differentiated and successful year. So, thank you for those who stayed with us, and thanks for always asking the right questions on these calls. Good night.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.