LADDER CAPITAL CORP 2026 Q3 Earnings Call

Good morning, and thank you for joining us today. Ladder had a strong third quarter. We generated distributable earnings of $44.7 million, or $0.35 per share, with modest adjusted leverage of 2.5 times. Results included a $31 million gain on the sale of our largest net lease asset and office campus in Jacksonville, Florida. The sale provides another clear example of unlocking value above our cost basis in the real estate portfolio. We are executing the plan we laid out at the start of the year, and the quarter reflects it. Three things stand out this quarter. Book value increased, our loan portfolio is predominantly new vintage with limited legacy loans, and we're well-positioned for rising rates. Each one supports our earnings going forward. First, book value. Our undepreciated book value per share did not just hold steady this quarter, it went up, rising to $13.50 from $13.44, driven primarily by the gain on sale of the Jacksonville office campus.

That increase builds on book value that has held firm since the end of 2022, reflecting the strong credit performance of our portfolio. The Jacksonville sale, along with the full payoff of our largest legacy office loan in Miami during the second quarter, is the latest proof. Second, our loan portfolio is new vintage. Approximately 90% of our loans have been originated since late 2024. They were underwritten in a higher rate environment at conservative loan-to-values on reset bases. We believe that positions the portfolio well for today's rates and gives us room to keep growing it. Third, we are well-positioned for rising rates.

Over 50% of our debt is fixed rate, so as our floating rate assets reset higher, our income rises while the cost of that debt stays the same. As the only investment-grade-rated commercial mortgage REIT with senior secured assets and modest leverage, our model is cycle-tested. Ladder has been in business for 18 years, public for 13, and a bond issuer for 14. We are middle market by design. Our average loan size is about $30 million, and our average investment size is about $15 million. That granularity and diversification limit our exposure to any single asset, sponsor, or market. We believe it is one of the reasons our book value has remained stable, in addition to our clear alignment of interests with high insider ownership. Investment activity. During the third quarter, we stayed selective as rates rose.

We made $703 million of new investments, including $481 million of predominantly AAA-rated securities at attractive yields and seven new balance sheet loans totaling $222 million. Net of payoff sales and amortization, our combined loan and securities portfolios grew by approximately $570 million. Year to date, we have originated $1.4 billion in new loans, already matching our 2025 volume, and our loan portfolio has grown over 50% in the trailing 12 months. Balance sheet loans now make up approximately half of our total assets. Our goal is to keep growing that share over time, but we will stay flexible. When higher rates slow lending activity, as they began to in September, we will put capital to work where we see the best risk-adjusted returns. Brian will talk more about that.

That said, with ample liquidity and payoff expected to remain light in coming quarters, we are well-positioned to keep growing our loan portfolio without compromising on credit. Securities portfolio. During the third quarter, we acquired $481 million of primarily AAA-rated securities at attractive yields, and we continued buying into October. As of September 30th, our securities portfolio totaled $2.3 billion, representing 37% of total assets with a weighted average yield of 5.5%. The portfolio is 99% investment grade and 97% AAA rated with a weighted average duration of approximately three years. Because it is short duration, liquid, and largely floating rate, our securities portfolio earns attractive yields in today's market and gives us a ready source of capital to move into loans when they offer the best risk-adjusted returns. Real estate portfolio. Ladder has consistently produced real estate and other gains on top of our carry income, and Brian will discuss that track record in more detail.

As mentioned, this quarter, we completed the sale of our net lease office campus in Jacksonville, Florida. The sale contributed $31 million to distributable earnings and generated an 18% IRR over the life of the investment. We sold the property well above our carrying value, which highlights the value embedded in our real estate portfolio. Share repurchases. We believe our stock is undervalued. During the third quarter, we repurchased $8 million of stock at an average price of $9.38 per share, a 31% discount to our undepreciated book value of $13.50 per share. Repurchases at these levels are accretive to book value, and alongside loan growth and real estate gains, they remain one of the ways we create value for shareholders.

In closing, this quarter showed our plan at work. Our loan and securities portfolios grew. We realized a meaningful gain in our real estate portfolio, and our floating rate assets earned more while the cost of our fixed-rate debt stayed the same. Our plan for the coming quarters is unchanged. Grow our loan portfolio, deploy capital where we see the best risk-adjusted returns, and realize gains across our businesses, all with the credit discipline that has always defined Ladder. We believe these levers will drive higher earnings, support our dividend, and create long-term value. Finally, as promised, we have begun taking our story directly to shareholders, and we will continue those conversations in the coming months. Our message is simple: management and board own 13% of Ladder and are collectively our largest shareholder group. So we are focused on the same things you are: protecting principal, growing earnings, and building long-term value.

With that, I will turn the call over to Paul.

Thank you, Pamela McCormack. Good morning. During the third quarter, Ladder generated distributable earnings of $44.7 million, or $0.35 per share. Excluding a realized loan loss previously reserved for, our third quarter earnings were $0.38 per share. Our balance sheet remains strong. We maintain modest leverage and a resilient investment-grade capital structure, with unsecured debt representing 69% of our total debt at an attractive cost of capital. As of quarter end, our adjusted leverage ratio was 2.5 times, and we maintained robust liquidity of $784 million, including same-day capacity on our unsecured revolver. In addition, we held $1.2 billion of unencumbered, primarily AAA securities. Our $1.25 billion unsecured corporate revolver continues to be a valuable asset, allowing for funding flexibility with same-day liquidity, driving our ability to execute our capital deployment strategy.

Alongside of our revolver, our access to the investment-grade unsecured corporate bond market allows us to fund our growth with long-term fixed-rate unsecured debt. We have been monitoring the markets closely and expect the unsecured debt market to continue to be a meaningful source of capital for Ladder. As Pamela McCormack mentioned, rising rates this quarter highlighted the benefit of how we finance our balance sheet. As of September 30th, 57% of our debt was fixed rate, primarily unsecured corporate bonds with a weighted average coupon of 5.3%. This is complemented by 92%, or $4.8 billion of our interest-earning assets being floating rate. Based on our balance sheet as of quarter end, we estimate that each 25-basis-point increase in SOFR adds approximately one penny per share per quarter to our distributable earnings. Our unencumbered asset pool represented 73% of total assets as of quarter end, September 30th.

88% of this pool is comprised of first mortgage loans, investment-grade securities, and unrestricted cash. As of September 30, Ladder's undepreciated book value per share was $13.50, which is net of $0.35 per share of CECL reserve established. In the third quarter, we repurchased $8.2 million of common stock, or 871,000 shares, at a weighted average share price of $9.38. Year to date in 2026, we've repurchased $29.6 million of common stock, or 3 million shares, at a weighted average price of $9.89 per share. As of September 30, $83.8 million remains outstanding on Ladder's stock repurchase program. Overall, we continue to believe in our book value and will seek to continue to opportunistically utilize our buyback program while our stock is trading at a meaningful discount. In the third quarter, Ladder declared a $0.23 per share dividend, which was paid on October 15, 2026.

Going forward, we believe our largely floating rate asset base, fixed-rate debt, and continued loan growth will support a durable dividend. Turning to credit quality. As of September 30, we had two loans on nonaccrual with a combined carrying value of $61 million. The first, with a carrying value of $51 million, is collateralized by a hotel in Los Angeles, California. The second is collateralized by an office property in Minneapolis, Minnesota. We expect to take ownership of that property in the fourth quarter. In anticipation, we charge off $3.5 million of existing CECL allowance associated with that loan, bringing our carrying value to $9.9 million, or $67 per square foot.