Ladder Capital Q2 2025 Earnings Report

Ladder Capital EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.22
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.31

Ladder Capital Revenue Results

• Actual Revenue: $56.26 million
• Expected Revenue: $58.57 million
• Beat/Miss: Missed by -$2.31 million
• YoY Revenue Growth: N/A

Ladder Capital Announcement Details

• Quarter: Q2 2025
• Date: 7/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 10:00AM ET

Ladder Capital (NYSE:LADR) operates as an internally-managed real estate investment trust in the United States. It operates through three segments: Loans, Securities, and Real Estate. The Loans segment originates conduit first mortgage loans that are secured by cash-flowing commercial real estate; and originates and invests in balance sheet first mortgage loans secured by commercial real estate properties that are undergoing transition, including lease-up, sell-out, and renovation or repositioning. It also invests in note purchase financings, subordinated debt, mezzanine debt, and other structured finance products related to commercial real estate. The Securities segment invests in commercial mortgage-backed securities, U.S. treasury and agency, corporate bonds, and equity securities. The Real Estate segment owns and invests in a portfolio of commercial and residential real estate properties, such as leased properties, office buildings, student housing portfolios, hotels, industrial buildings, shopping center, and condominium units. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2008 and is headquartered in New York, New York.

Ladder Capital Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: During the second quarter, Ladder achieved its long-standing goal of becoming an investment grade company with Moody’s (Baa3) and Fitch (BBB−) upgrades.
• Positive Sentiment: In June, Ladder issued its inaugural $500,000,000 five-year unsecured bond at a 5.5% coupon (167 bps spread), marking the tightest new-issuance spread in the company’s history and closing 5.5× oversubscribed.
• Positive Sentiment: As of June 30, Ladder held $1 billion in liquidity, including an undrawn $850 million revolver, and maintained 83% of its assets unencumbered for same-day financing flexibility.
• Positive Sentiment: Second-quarter distributable earnings were $30.9 million ($0.23 per share), delivering a 7.7% return on equity with modest adjusted leverage of 1.6×.
• Negative Sentiment: As of quarter end, five nonaccrual loans totaled $162.3 million (3.6% of assets), though management has set aside a $52 million CECL reserve to cover potential credit losses.

Presentation

[Operator]

Good morning and welcome to Ladder Capital Corp. Earnings Call for the Second Quarter of twenty twenty five. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended 06/30/2025. 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.

[Operator]

Today's call may include forward looking statements and projections, and we refer you to our most recent Form 10 ks 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 earnings supplement presentation, which is available in the Investor Relations section of our website.

[Operator]

We also refer you to our Form 10 ks 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.

[Pamela McCormack, Founder & President at Ladder Capital]

Good morning. During the second quarter, Ladder generated distributable earnings of $30,900,000 or $0.23 per share, generating a return on equity of 7.7% with modest adjusted leverage of just 1.6 times as of quarter end. The 2025 marked a significant milestone for Ladder, as we achieved our long standing goal of becoming an investment grade rated company with Moody's and Fitch upgrading Ladder to Baa3 and BBB- respectively. This accomplishment is the culmination of a thirteen year journey that began with our inaugural unsecured bond issuance and initial credit rating in 2012. The recent upgrades are a testament to Ladder's consistent record of prudent balance sheet and credit risk management, our disciplined approach to leverage, emphasizing unsecured debt and the strength and flexibility of our diversified business model focused on commercial real estate.

[Pamela McCormack, Founder & President at Ladder Capital]

In June, we successfully issued our inaugural $500,000,000 five year investment grade unsecured bond issuance with a fixed rate coupon of 5.5%, representing 167 basis point spread over the benchmark treasury, the tightest new issuance spread achieved in Ladder's history. The offering was met with exceptional demand with the order book surpassing 3,500,000,000 shortly after launch and closing at 5.5 times oversubscribed. This strong response underscores investor confidence in our platform and sets a benchmark for future issuance as we aim to become a consistent presence in the investment grade unsecured bond market. Enhanced liquidity. Pro form a for the offering, 74% of Ladder's debt consisted of unsecured corporate bonds, and 83% of our balance sheet assets remain unencumbered.

[Pamela McCormack, Founder & President at Ladder Capital]

As of June 30, Ladder had $1,000,000,000 in liquidity, including our $850,000,000 unsecured revolving credit facility that was fully undrawn. This facility provides same day liquidity at a highly competitive rate, which was reduced to sulfur plus 125 basis points following our upgrade. Subsequent to quarter end, we also redeemed the remaining $285,000,000 in unsecured bonds maturing in October. We remain highly liquid, positioning us well to deploy capital into new higher yielding investments. Second quarter and third quarter to date investment activity.

[Pamela McCormack, Founder & President at Ladder Capital]

During the second quarter and through July 23, we made over $1,000,000,000 of investments, including acquiring over $600,000,000 in AAA rated securities at a weighted average unlevered yield of 6.1%. As of June 30, our securities portfolio totaled $2,000,000,000 representing 44% of total assets, and our loan portfolio totaled $1,600,000,000 representing 36% of total assets. Loan origination activity remained relatively flat in the second quarter. We received $191,000,000 in loan payoffs, largely offset by $173,000,000 in new loan originations at a weighted average spread of 400 basis points. Following quarter end through July 23, we originated an additional $188,000,000 in new loans, bringing total year to date origination activity to $690,000,000 Additionally, we have another $325,000,000 of new loans currently under application.

[Pamela McCormack, Founder & President at Ladder Capital]

The majority of our loans originated in pipeline are secured by multifamily properties, reflecting continued demand in this sector. In addition, during the second quarter, we sold a $64,000,000 conduit loan generating a healthy gain and illustrating that conduit lending remains a complementary part of our diversified model, and we are well positioned to participate in when market conditions warrant. We continue to focus on middle market lending, particularly light transitional assets, with an average loan size of 25,000,000 to $30,000,000 The granularity and diversity of our portfolio, reflected in an average investment size across all investment products of less than $15,000,000 enhances our credit profile by minimizing concentration risk to any specific borrower, geography, asset type or product across the commercial real estate space. Consistent carry income from our real estate portfolio. Our $936,000,000 real estate portfolio generated $15,100,000 in net operating income during the second quarter.

[Pamela McCormack, Founder & President at Ladder Capital]

The portfolio primarily consists of net lease properties with long term leases to investment grade rated tenants and continues to generate stable income. 2025 outlook. Our recent credit rating upgrades and successful bond issuance have already started to reduce our cost of debt capital. We saw spreads tighten on our June bond issuance, and we would anticipate continued tightening as we become more widely recognized in the investment grade bond community. As Brian will allude to shortly, we also anticipate that our equity valuation will begin to reflect this shift.

[Pamela McCormack, Founder & President at Ladder Capital]

As an investment grade issuer, we believe we should increasingly be compared to a broader set of high quality peers, including equity REITs, rather than solely within the commercial mortgage REIT space. We believe this can help lower our cost of equity capital over time as the market gains a deeper appreciation for our senior secured investment strategy and investment grade capital structure. With over 11% inside our ownership, management and the Board are highly aligned with all stakeholders. We remain well positioned with strong liquidity and a conservative balance sheet to continue to deploy capital into new opportunities as they arise with a focus on delivering strong and stable returns to shareholders. With that, I'll turn the call over to Paul.

[Paul Miceli, CFO at Ladder Capital]

Thank you, Pamela. In the second quarter of twenty twenty five, Ladder generated $30,900,000 of distributable earnings or $0.23 per share of distributable EPS, achieving a return on average equity of 7.7%. As Pamela discussed, the second quarter marked a milestone in Ladder's history with our upgrade to investment grade from Moody's and Fitch followed by our inaugural investment grade rated bond issuance, a $500,000,000 five year issuance priced at a coupon of 5.5% in June and settled in July. Subsequent to quarter end, we called the remaining $285,000,000 of our twenty twenty five bonds that were maturing in October. The new bond offering further strengthened our balance sheet, and we are pleased that the bonds have traded well in the secondary market since their issuance.

[Paul Miceli, CFO at Ladder Capital]

Pro form a for the issuance and redemption of our 2025 maturity in July, dollars 2,200,000,000.0 or 74% of our debt is comprised of unsecured corporate bonds across four issuances with a weighted average remaining maturity of over four years and an attractive weighted average fixed coupon rate of 5.3%. Our next maturity is now 2027. As of 06/30/2025, Ladder's liquidity was $1,000,000,000 comprised of cash and cash equivalents and our $850,000,000 unsecured revolver, which remains undrawn. As Pablo discussed, cost of the facility automatically reduced by 45 basis points down to sulfur plus 125 basis points on achieving our investment grade ratings. This reduced cost makes using the facility to finance our operations an attractive option on a fully unsecured basis.

[Paul Miceli, CFO at Ladder Capital]

In the second quarter, we also called our FL3 CLO as it continued to amortize. Total gross leverage was 1.9 times as of quarter end, below our target range of between two and three times. Overall, Ladder's balance sheet remains strong with room to grow leverage as we deploy our capital. As of 06/30/2025, our unencumbered asset pool stood at $3,700,000,000 or 83% of total assets. 88% of this unencumbered asset pool is comprised of first mortgage loans, securities and unrestricted cash and cash equivalents.

[Paul Miceli, CFO at Ladder Capital]

As of 06/30/2025, Ladder's undepreciated book value per share was $13.68 which is net of $0.41 per share of CECL general reserve established. In the second quarter of twenty twenty five, we repurchased $6,600,000 of common stock or 635,000 shares at a weighted average price of $10.4 per share. As of 06/30/2025, 93,400,000.0 remains outstanding on Ladder's stock repurchase program. In the second quarter, Ladder declared a $0.23 per share dividend, which was paid on 07/15/2025. As Pamela discussed our performance in detail, I will highlight a few additional points regarding the performance of each of our segments in the second quarter.

[Paul Miceli, CFO at Ladder Capital]

As of 06/30/2025, our loan portfolio totaled $1,600,000,000 with a weighted average yield of approximately 9%. As of 06/30/2025, we had five loans on nonaccrual totaling $162,300,000 representing 3.6% of total assets. During the quarter, we added $150,000,000 loan to nonaccrual, collateralized by a multifamily asset for which we are pursuing foreclosure. Our CECL reserve was $52,000,000 or $0.41 per share as previously mentioned. We believe this reserve level is adequate to cover any potential losses in our loan portfolio, including consideration of the continued macroeconomic shifts ongoing in the global economy.

[Paul Miceli, CFO at Ladder Capital]

As of 06/30/2025, the carrying value of our securities portfolio was $2,000,000,000 up 82% from the end of last year, with a weighted average yield of 5.9% as we further rotated capital out of T bills and into AAA securities while our loan pipeline continues to close. As of 06/30/2025, 99% of the securities portfolio was investment grade rated, with 97% being AAA rated. 81% of the portfolio of almost entirely AAA securities is unencumbered and readily financeable, providing additional source of potential liquidity, complementing our $1,000,000,000 of same day liquidity. Our $936,000,000 real estate segment continued to generate stable net operating income in the second quarter of twenty twenty five. The portfolio includes 149 net leased properties of primarily investment grade rated credits committed to long term leases with a weighted average remaining lease term of over seven years.

[Paul Miceli, CFO at Ladder Capital]

Portfolio now includes an office property in Carmel, Indiana, which we foreclosed on during the quarter at a basis of $112 per square foot. Property is 82% occupied and generates an over 11% return on our equity on an unlevered basis. For further details on our second quarter twenty twenty five operating results, please refer to our earnings supplement, which is available on our website and Ladder's quarterly report on Form 10 Q, which we expect to file in the coming days. With that, I will turn the call over to Brian.

[Brian Harris, Founder & CEO at Ladder Capital]

Thanks, Paul. While our second quarter highlights included achieving investment grade status, a goal we have communicated to investors for years, the most meaningful impact will be the long standing improvement in our cost of funds. Just twelve months ago, we issued a $500,000,000 seven year unsecured corporate bond at 7% interest rate and a spread of plus two seventy five basis points at the time. By comparison, our second quarter five year issuance of the same size, 500,000,000, now with investment grade ratings executed at a spread of 167 basis points and an interest rate of 5.5%, over 100 basis points tighter than last year. With fixed income investors welcoming us into the investment grade capital markets, a market that is not only four times larger than the high yield market, but also deeper, more liquid and more consistently accessible across market cycles, we have established an optimized financial foundation for Ladder.

[Brian Harris, Founder & CEO at Ladder Capital]

Building on this momentum, we are now focused on the next phase of our long term plan, increasing our stock price. As the only current investment grade mortgage REIT in the country, we have created something new on the investment landscape for equity investors. This unique position requires us to be thoughtful about how we are perceived and compared given our in between placement between non investment grade mortgage REITs that use significant leverage and investment grade property REITs that use limited secured debt and low leverage, but have a first loss exposure through direct real estate ownership. Ladder distinguishes itself from the investment grade property REITs with senior secured exposure at a higher attachment point supported by a granular and diverse investment portfolio with an average size of $15,000,000 These factors provide enhanced liquidity, downside protection and risk diversification. And we think that when we point out to income oriented investors that the assets owned by Ladder, primarily first mortgage loans and AAA securities, they will understand that our assets are a lot safer than the assets held by investment grade property REITs.

[Brian Harris, Founder & CEO at Ladder Capital]

Historically, investors have grouped us with both internally and externally managed commercial mortgage REITs. However, our consistent defensive book value per share has earned us strong investor regard as reflected in our relatively lower dividend yield. Unlike our peers in the CRE mortgage space, who primarily rely on CLO issuance, term loan B financings and short term repo debt, Ladder stands apart by financing our business with 74% fixed rate longer term unsecured corporate borrowings and maintaining a much lower overall leverage profile. As investors continue to reassess our comp set, it is increasingly clear that our business model and risk profile align more closely with investment grade property REITs, companies that typically offer dividend yields in the 4% to 5% range, issue unsecured corporate debt and maintain lower leverage. We believe the reason property REITs trade with lower dividend yields is largely due to the stability and predictability of their revenues as well as their strong total return profiles over time.

[Brian Harris, Founder & CEO at Ladder Capital]

While we may not trade at the same yields as property REITs today, given the senior secured nature and higher attachment point of our assets, our total return proposition driven by our highly liquid and secure asset base should be very compelling to shareholders. We believe this will be ultimately reflected in our valuation as the market continues to recognize our differentiated profile. On the equity side, we think we appeal to investors focused on a stay rich strategy rather than a get rich strategy with an emphasis on capital preservation and attractive dividend payments, which we intend to grow in the years ahead. We will try to reach out to family offices and retail banking experts and make a purposeful and targeted marketing push towards this group of wealthy investors. We have not previously highlighted this next phase of our long term plan, but we do so now following the upgrade because adoption of a new comp set for Ladder is not only credible, it's quite likely.

[Brian Harris, Founder & CEO at Ladder Capital]

I want to thank the investors who supported us in our inaugural investment grade issuance as well as the Ladder management team who worked for years to reach this milestone. Our focus is now on protecting our new ratings and growing earnings through deploying capital into new investments at a time of generally higher interest rates, now with a lower cost of capital than most other lenders in the commercial real estate space. Our future appears bright. Current market conditions have produced some very attractive investment opportunities and we are taking full advantage of those situations. In the April, markets were roiled by volatility after tariff announcements were made.

[Brian Harris, Founder & CEO at Ladder Capital]

This volatility caused credit spreads to widen and at Ladder, we purchased $6.00 $5,000,000 of securities in the second quarter. In the current quarter, volatility has been much lower and with very little new supply coming to market this summer, we see much tighter credit spreads and we are selectively selling some of our inventory of securities as we now favor mortgage loan origination to QSIP acquisitions. Looking ahead, we remain constructive on the broader market environment. While volatility and uncertainty persist, we believe our investment grade status, strong liquidity and disciplined approach toward credit positions us to capitalize opportunities and deliver attractive risk adjusted returns to our stakeholders. We can now take some questions.

[Operator]

Thank you. We will now conduct a question and answer session. And session. Our first question comes from Randy Bennett with B. Riley. Please proceed.

[Randy Binner, Managing Director at B.Riley Securities]

Hey, thanks. I'll pick up at the end there on the CMBS. Do you think that because there's less volume in the market and the selling activity you mentioned, is that would that be getting that portfolio kind of flat for this quarter would be or is it more just kind of selective selling there?

[Brian Harris, Founder & CEO at Ladder Capital]

Are you talking about the, securities portfolio?

[Randy Binner, Managing Director at B.Riley Securities]

Yes. Securities and the securities portfolio, the CMBS.

[Brian Harris, Founder & CEO at Ladder Capital]

Yeah. No. We're, they're up generally, especially given the volatility of of, April when the quarter first started. But, so we we did buy quite a few in there, and we've kind of think they're at fair value now, which would indicate that we think we're up a bit. But it is a two year floating rate triple a, so it doesn't have a lot of price volatility.

[Brian Harris, Founder & CEO at Ladder Capital]

But, it's definitely on feels good on the positive side of things. We have been selling selectively, because well, we bought a lot in a short period of time, and I think it's largely it's a nice carry trade. But on the other hand, I think we're trying to while we went from T bills into securities, we're already underway moving from securities into loans. So there's no slap on the portfolio. It's not that we don't like it.

[Brian Harris, Founder & CEO at Ladder Capital]

It's simply, it has always been designed to be a source of liquidity as the loan book builds.

[Randy Binner, Managing Director at B.Riley Securities]

Okay. That's helpful. And then just kind of related on the loan portfolio, you mentioned the pipeline of, I think, you said $300,000,000 plus, mostly multifamily focused. Can you just give us any color on the kind of convertibility of that pipeline into the book and just how conversations are going in the market, kind of the market dynamic there now that, the macro environment has stabilized?

[Brian Harris, Founder & CEO at Ladder Capital]

Sure. Well, you noticed that we actually had a dip in loan origination volume this quarter, but we've already written more loans in the third quarter than we did in the entire second quarter in the first three weeks. So a lot of that had to do with timing. Towards the end of the quarter, if things had fallen into June, these numbers would be a lot higher. But as a result, of them have now pushed.

[Brian Harris, Founder & CEO at Ladder Capital]

The one thing we're noticing across the board in our loan origination activities is oftentimes there are certain pockets of multifamily where rents are falling. So that can cause some concerns during due diligence if the loan is of the higher levered port, you know, idea. But I would also say that I think hotel sector in in the big cities is particularly, you know, concerning right now as far as big, you know, a a source of loan originations. However, I I would really say for the most part, I don't know exactly why, but but closings take longer than they used to. And as a result of that, it's it's I think it's a reliable I think we have $325,000,000 under application.

[Brian Harris, Founder & CEO at Ladder Capital]

I would quick thumb in the air tell you, you know, probably $2.75 of that will close. But the harder question would be when will it close? And you would think at the July, you would be closing those at the end of in September in all likelihood. I'd be hard pressed to make that bet just yet because things, as I said, it's very similar to before the pandemic, except you have to add thirty days to it. And and I'm not sure why I don't have that answer.

[Brian Harris, Founder & CEO at Ladder Capital]

But, the things are just taking longer, and I think it might be just, people are being more cautious on the lending side.

[Randy Binner, Managing Director at B.Riley Securities]

Alright. That's great. Appreciate the color. Thank you.

[Brian Harris, Founder & CEO at Ladder Capital]

Sure.

[Operator]

The next question comes from Jade Rahmani with KBW. Please proceed.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hi. Thanks very much. Does the IG rating open you up to different investments than you previously might have considered? Perhaps they might be lower yielding investments or perhaps there's a broader set of equity, property investments you might make?

[Brian Harris, Founder & CEO at Ladder Capital]

I don't think it's changing our desires or activities on the investment side, but it clearly is making them more profitable. I realize the stock market is a forward looking instrument, but we've with a 2,100,000,000.0 or $2,200,000,000 corporate bond portfolio, we've effectively lowered that rate by 150 basis points, you know, you're getting another, you know, I don't know, dollars 30,000,000 to the bottom line over time. Obviously, it doesn't happen right now because we've got bonds outstanding that will need to be, refi. But, so I think a lot of lenders are really pushing and competing right now to try to add spread and loan volume, but there's another way to add to earnings and that is to curtail expenses. Now not in the form of layoffs around here, but by cutting our interest expense, we think that our income should drift higher here with the similar types of risks on the balance sheet.

[Brian Harris, Founder & CEO at Ladder Capital]

It's just a lot easier, for us and there's a lot less. You know, you're you can finance anything you buy. And so will it is it I think that underneath your question is you're asking me, does that mean with our low cost of funds, we're now gonna go out and buy a bunch of b pieces because that is what companies like ours have done in the past. When they see they've got a fixed rate cost of funds regardless of what they buy, we're not gonna do that. We, you know, we have a stay at home mentality.

[Brian Harris, Founder & CEO at Ladder Capital]

We will do what we're good at, and that is discerning credit that is likely to pay us off on time without a lawyer in the room. And, we've been pretty adept at that. We're gonna stick with it. But you could could we start moving into double As instead of triple As? Yeah.

[Brian Harris, Founder & CEO at Ladder Capital]

That's possible. But I don't see us, you know, going for higher octane, investments in the mezzanine world.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Was thinking more along the lines of, you know, light very lightly transitional or stabilized commercial real estate and maybe even fixed rate loans?

[Brian Harris, Founder & CEO at Ladder Capital]

Oh, yeah. Sure. I mean, the curve is, it's flattened out a bit more, but the the the fixed rate loan business will pick up around here as the curve steepens, and I suspect it will. We haven't really been terribly active in fixed rate securitizations, but we were somewhat active in this quarter. But we contributed one loan that was 10% of a deal.

[Brian Harris, Founder & CEO at Ladder Capital]

So we're kinda knocking the rust off that playbook, and, I think that that should turn into a very high ROE, category. But the reality is you're you're dealing with assets that have depreciated in value. So that that's a little harder to start writing ten year, loans unless that that, cash flow appears to be quite stable. And, so you just said, if you take a look at just mortgage backed securities issuance, it's down dramatically. And, so as a result of that, as we said, ties in together with our one product and forms another because there's no supply coming till July.

[Brian Harris, Founder & CEO at Ladder Capital]

I I mean, September, really. And because a lot of the CLO issuances really had loans from 02/2018, '19, and '20 that were just called in a previous deal. So half of the pool that went into the new CLOs is from old CLOs. So there's just not a lot of production going on. And because of that lack of supply, you know, we expect spreads to continue to tighten.

[Brian Harris, Founder & CEO at Ladder Capital]

And, we will be at this point, at least on the security side, we'll be selling into it. We'll still buy things on a anytime there's an interruption in the market with volatility. But, generally, we're looking to sell securities, take small gains, and and redeploy into loans, and other.

[Pamela McCormack, Founder & President at Ladder Capital]

The only thing I would add, Jade, is listen. We we love that we can be very agnostic towards what we originate. You know, we're not beholden to the CLO market, the lenders. We we feel really good about our credit skills, and I think at this point, we can make the loans we like. We we tend to prefer like transitional loans, but we have a lot of flexibility in our capital structure to originate the type of loans with the type of terms that we want without regard to lender constraints with this unsecured capital.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Thanks. And lastly, on the net lease portfolio, I think Paul mentioned seven year or slightly over weighted average lease duration. Can you talk about if you're thinking about growing that book and if managing to a certain wall is important to how you view that portfolio?

[Brian Harris, Founder & CEO at Ladder Capital]

It's nice to manage to a certain term lease, and I guess we inadvertently target longer leases when we can. But what really drives our desire to participate participate and acquire assets in that business is, the cost of funds versus the cap rate that you're buying it at. So it's a it's a financially engineered product. And, you know, I think the where people get a little caught in that business is when they just buy the credit instead of the asset. And so we're very discerning in the dollars per foot exposure, which I believe is the best thing you can do to keep your losses to a minimum if there's a problem.

[Brian Harris, Founder & CEO at Ladder Capital]

So, otherwise, you'll you could wind up with Walgreens at $708,100 dollars a foot, and, they may be closing them in some of these cities. So we're pretty cautious. We own some Dollar Generals, as you know. We typically bought one out of three Dollar Generals that were shown to us at the same cap rate. You know, we really focused on areas where there was low crime, you know, reasonable population and an expectation oftentimes moving from the shopping center across the street into a freestanding building that we own.

[Brian Harris, Founder & CEO at Ladder Capital]

So I I think that our interest in that business will pick up when the cap rates and the financing rates are rather different. The differential there is what drives the ROE. But you are seeing some others, like, begin to buy portfolios of those things. I we we saw that portfolio that traded recently and but I so I don't I don't really see the arbitrage at this point as far as, you know, a big book of it. But it does work in a REIT from the depreciation standpoint and the steadiness of the income.

[Brian Harris, Founder & CEO at Ladder Capital]

So we're certainly not against acquiring more. But right now, cap rates are wide, but so are financing costs. So, if financing costs go down as we expect them to, I yeah. We might very well start buying some more triple net.

[Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Thanks a lot.

[Brian Harris, Founder & CEO at Ladder Capital]

Yep.

[Operator]

The next question comes from John Nicodemus with BTIG. Please proceed.

[John Nickodemus, VP - Equity Research at BTIG]

Hi. Good morning, everyone. We saw leverage stay fairly stable this quarter, especially when considering your redemption of the remaining twenty twenty five unsecured notes. Just curious on the team's current thoughts on a ramp there at the ladders achieved the investment grade rating. Thanks.

[Brian Harris, Founder & CEO at Ladder Capital]

John, if you don't mind, broke up a little at the end. What was the last sentence?

[John Nickodemus, VP - Equity Research at BTIG]

Yep. Just your thoughts on a ramp on leverage now that, Ladder's achieved the investment grade rating. Sorry about that.

[Brian Harris, Founder & CEO at Ladder Capital]

It's okay.

[Pamela McCormack, Founder & President at Ladder Capital]

This is Pamela. We we fully intend to say with since inception, we've been two to three times. It's consistent with the rating agency parameters for investment grade. I think I'll say it again.

[Pamela McCormack, Founder & President at Ladder Capital]

At the only thing changing at Ladder is the composition of leverage. We've always run the company. In fact, we've had some of the highest ROE in the space year after year with our two to three times leverage. We're just going from where we have historically funded ourselves two thirds secured and one third unsecured. We're now funding ourselves two thirds unsecured, one third secured.

[Pamela McCormack, Founder & President at Ladder Capital]

And candidly, as our spreads I know Brian and myself, all three of us spent a lot of time talking about the potential for tightening in the cost of our funds. As the cost of funds tighten in the unsecured space, it could become very compelling to fund Ladder, you know, almost entirely on unsecured debt because the cost of capital, is is tightening to a point where it's competitive and in some cases advantageous to other sources of capital. So I think you should just think about us today as two thirds secure unsecured, one third secured with the same leverage we've always had. And I think the only reason you see light leverage is we've been slow to redeploy out of, Brian said, treasuries into securities and now into loans. As we fully deploy the balance sheet, we'll just get back to a use of normal leverage at the, you know, call it two and three quarters.

[Brian Harris, Founder & CEO at Ladder Capital]

Yeah. By the way, in the quarter, we, and possibly into the leaking into the third quarter, we paid off the $25,285,000,000. But we also paid off the, only other CLO we had outstanding. And that was really and interestingly enough, I think it was about 45% office loans when we paid it off. But, the reason that we did that was because the payoff pace was pretty brisk, and our cost of funds was getting into the mid 2 hundreds with an advance rate of around 50% because the AAA port portion of that CLO was paying off so rapidly.

[Brian Harris, Founder & CEO at Ladder Capital]

So that's more more secured debt gone. And we actually of the $500,000,000 we took $285,000,000 into the twenty five million s, and I think it was $130,000,000 into the CLO. So it was really just a refinance exercise mostly.

[John Nickodemus, VP - Equity Research at BTIG]

Great. Thanks so much, Dan, and Brian. Appreciate the answer. Then other one from me, glad to hear the conduit loans come up for the second straight call. Just wanted to hear any more detail on the team, how you're all thinking about that as we get into the second half of the year and and just that sort of being a composition of the, team strategy. Thank you.

[Brian Harris, Founder & CEO at Ladder Capital]

You're welcome. I'd love to do a lot more in the conduit business. Right now, the curve is not terribly steep, but certainly steeper and way better than inverted. So we're and leaning in that direction. It is a very profitable business.

[Brian Harris, Founder & CEO at Ladder Capital]

It is a little supply constrained. One of the reasons that we contributed a $64,000,000 loan into the the pool was the pool wasn't big enough, without us. And, so we put that loan in, and ultimately, I think it was part of it was 10% of the actual deal. If if a deal is 650,000,000 in a conduit, that's a that's a rather small deal. So again, I think that the mortgage backed securities business is rather plagued by a lack of supply.

[Brian Harris, Founder & CEO at Ladder Capital]

And, I think that will go on for a while here unless, rates begin to fall as, again, I'm a believer the Fed will start moving rates down toward the end of the year.

[John Nickodemus, VP - Equity Research at BTIG]

Great. Thank you so much for the color.

[Pamela McCormack, Founder & President at Ladder Capital]

Thank you.

[Operator]

The next question comes from Chris Muller with Citizens. Please proceed.

[Chris Muller, Director - Equity Research at Citizens JMP]

Hey guys, thanks for taking the question and congrats on a solid quarter here. So it's nice to see you guys making new bridge loans and it looks like that momentum is continuing into the third quarter. So I wanted to ask, do you guys have any expectations for net portfolio growth in the back half of the year? And is there a target portfolio size that you guys are looking to grow to? And then just one piggyback on that one is, what do levered returns look like on new loans today versus historically?

[Brian Harris, Founder & CEO at Ladder Capital]

I think when you set long term volume goals, they should be prepared to be shredded at a moment's notice with the amount of volatility that's in these economies lately. But, I I think we'll probably write a billion dollars in loans, between here and the end of the year. But if we don't, we don't. And, as I said, it isn't so much that there's not necessarily demand for for products that we know, for loans. But if you think about it, these loans come from two places.

[Brian Harris, Founder & CEO at Ladder Capital]

One comes from the refinance world. That world is largely interrupted right now, because there's a lot of over leverage in the system from the near near term, last few years. And the second place is the acquisition, business, which I actually think acquisition loans today, I think they're always safer than refis, but, the acquisition pipeline of transactions taking place is picking up, and I think that's why you're seeing our business pick up. And that should continue, and people are accepting the new prices at this point. We are seeing DPOs take place.

[Brian Harris, Founder & CEO at Ladder Capital]

We're seeing lenders help with seller financing. We're seeing, equity being infused into the transaction, a cash in refi, if you will. So, it's a healthy market, but I I think it's still a little bit over leveraged because of, the post pandemic world, and it'll take a little time to work that out. And, so the office sector is doing way better than it was. I wouldn't say it's doing great, but it's doing better certainly than it was.

[Brian Harris, Founder & CEO at Ladder Capital]

And the multifamily sector, I think, yeah, we're starting to see some some signs of plateaus on rents. Not everywhere, but in in some places, there's a been been a bit of overbuilding. So we are seeing some rent reductions quarter over quarter in some properties. But I wanna illustrate here. I wanna make absolutely certain what I'm saying is right.

[Brian Harris, Founder & CEO at Ladder Capital]

I don't expect rents to fall dramatically. I do expect them to dip, but I don't think it's gonna turn into anything like what happened, in the office sector after the pandemic.

[Pamela McCormack, Founder & President at Ladder Capital]

I would just close that by adding, we do expect portfolio growth. We have limited payoffs just given our vintage and the high, high volume of payoffs we've had over the last year. We have muted payoffs for the rest of the year. So I do expect you'll see portfolio growth for sure.

[Chris Muller, Director - Equity Research at Citizens JMP]

Got it. And then just how do levered returns look like on new loans today versus historically?

[Brian Harris, Founder & CEO at Ladder Capital]

9% unlevered versus probably well, historically, tell me where the where LIBOR is or where SOFR is. You know, they were much lower than that, you know, five, six years ago. But these are healthy margins right now. Spreads are rather tight, but rates are rather high. So that's actually a comfortable spot for a lender.

[Brian Harris, Founder & CEO at Ladder Capital]

And, so I I don't really expect volatility to continue. And if rates do fall, I think you could see spreads widen, unless there is massive supply constraint, which I think in the beginning, we're going to see that in in June, July and August. But, I don't think we're going to see that through year end. I I think at some point, the the the equal balances on both sides will start to level out.

[Chris Muller, Director - Equity Research at Citizens JMP]

Got it. That's helpful. And then, the other one for me. So it's great to see you guys finally get that investment grade bond rating. It's well deserved.

[Chris Muller, Director - Equity Research at Citizens JMP]

And sounds like, Brian, from your comments that the bond coupon, had you not gotten that rating on the new issuance, would have been somewhere around 6.5%. Is that the right way to think about the benefit on the cost of fund side?

[Brian Harris, Founder & CEO at Ladder Capital]

Yeah. I think so. Maybe a little more than that, because I gave the one example of twelve months apart from seven but, yeah, of course, you got treasury curve movement. But, you know, there's a couple of competitors of ours who, sometimes borrow money too, and we tend to trade in tandem with them. Oftentimes, I think we're about 25 tighter than than where they issue.

[Brian Harris, Founder & CEO at Ladder Capital]

But in this case, I think we've now left that field, and and we're now gonna be sounding more like what the the yields that property REITs that our investment grade pay. And, it'll take a little while, but so but doesn't seem like it's gonna be a a hard conversion because, you know, the lower leverage is nice. And and if you take a look at us against commercial mortgage REITs, our dividend seems rather low. But if you compare us to property REITs, our our dividend appears astronomically high. And since, I think we look more like property REITs that are investment grade than that use little leverage much more so than, we look like commercial mortgage REITs who use a lot of leverage and and are not investment grade. So

[Pamela McCormack, Founder & President at Ladder Capital]

also think you see more tightening in that space quickly. We issued at $1.67 spread and quickly saw that tighten down into the low 1 fifties if it was as low as $1.51. So I think the the potential for tightening in the investment grade space as you become a more frequent issuer and they understand the credit story and we redeploy it to higher yielding investments, you're gonna see that momentum as well.

[Brian Harris, Founder & CEO at Ladder Capital]

And as as Pamela mentioned, I think in her her script, I I would not be surprised if if we do fund this company entirely on, unsecured corporate debt. And in fact, even though we just issued a $500,000,000 transaction issuance, we we paid off other debts with it. We could very well see another, issuance come out of us before the end of the year. It's because volatility is pretty calm right now and rates are attractive and our spreads are tightening. We're still much wider than the property rates.

[Brian Harris, Founder & CEO at Ladder Capital]

So we you know, I'm kinda playing the the waiting game to see if we can't drift down to where they are. And, but I I suspect you might very well see us issue another bond before year end, and it'll be longer than five years.

[Pamela McCormack, Founder & President at Ladder Capital]

And just wanna add one thing. With the one of the benchmarks that people were looking to for us when we were with investors is if you look at our unsecured, on revolver from the banks at $1.25 over, that's sort of a benchmark of where we think we should trade to. And I know there's a little bit of a, you know, new issue tax for a new issue in the space, but that is a benchmark that we're all looking at, as we as we continue to issue.

[Chris Muller, Director - Equity Research at Citizens JMP]

Got it. That's all very helpful. Thank you very much for the comments.

[Operator]

Thank you. At this time, I would like to turn the call back over to Mr. Brian Harris for closing comments.

[Brian Harris, Founder & CEO at Ladder Capital]

Closing comments just to include, thank you, for all who participated in getting us into the end zone on the investment grade rating. And, just as a quick aside, I just wanna mention that there was a lot of ink spilled over the last six or seven years about a couple of loans that we made to the Trump Organization at, Trump Tower, a 100,000,000 and also 40 Wall for a 160,000,000. I do wanna point out that both of those loans paid off. And, so despite all of the media frenzy about how there was gonna be imminent danger there, I did wanna let you know since you won't find it on the front page of a of a newspaper that the the Trump Organization paid off 40 Wall at the June. And so this doesn't really impact us on this call because we we don't own those loans.

[Brian Harris, Founder & CEO at Ladder Capital]

And but I did wanna at least come back around and indicate to you while office buildings of 9 figures loan sizes are very hard to refinance, we we picked two that did refinance without any problem. And and I think that's it. Thank you, and, we'll see you next quarter.

[Operator]

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

Participants

Executives

• Pamela McCormack, Founder & President
• Paul Miceli, CFO

Analysts

• Brian Harris, Founder & CEO at Ladder Capital
• Randy Binner, Managing Director at B.Riley Securities
• Jade Rahmani, Managing Director at Keefe, Bruyette & Woods (KBW)
• John Nickodemus, VP - Equity Research at BTIG
• Chris Muller, Director - Equity Research at Citizens JMP