Executive Summary / Key Takeaways

• Ladder Capital Corp (NYSE:LADR) has achieved a pivotal transformation, securing investment-grade credit ratings from Moody's and Fitch in Q2 2025, a culmination of a 13-year strategic journey. This milestone significantly lowers its cost of debt and expands access to a deeper, more stable capital base.
• The company is strategically pivoting towards aggressive loan portfolio growth, anticipating over $1 billion in new originations by year-end 2025 and aiming for a $1 billion to $2 billion net increase in assets, driven by a robust pipeline and attractive spreads.
• Ladder's diversified "multi-cylinder" business model across loans, securities, and real estate, coupled with its credit-centric underwriting, provides operational flexibility and superior risk management, contributing to a remarkably stable book value per share.
• Management expects a re-rating of LADR's equity valuation, positioning it more akin to investment-grade property REITs (with lower dividend yields) rather than traditional commercial mortgage REITs, emphasizing capital preservation and attractive, stable dividend payments.
• While macroeconomic uncertainty and commercial real estate challenges persist, Ladder's strong liquidity ($879 million as of Q3 2025), modest adjusted leverage (1.7x), and sophisticated credit loss modeling position it to capitalize on market opportunities and deliver enhanced shareholder returns.

The Investment-Grade Transformation: A New Era for Ladder Capital

Ladder Capital Corp, a prominent internally-managed real estate investment trust, stands at a pivotal juncture, having successfully executed a long-term strategy to achieve investment-grade credit ratings. Founded in October 2008, Ladder has consistently focused on originating and investing in a diverse portfolio of senior secured commercial real estate and real estate-related assets. This disciplined approach culminated in May 2025 with Fitch Ratings assigning a 'BBB-' and Moody's Ratings a 'Baa3' issuer rating, marking a significant validation of its prudent balance sheet and credit risk management. This transformation is not merely a symbolic achievement; it fundamentally reshapes Ladder's competitive landscape and financial flexibility.

Ladder's business model is characterized by its "multi-cylinder" approach, encompassing three core segments: Loans, Securities, and Real Estate. This diversification allows for opportunistic capital allocation across varying market conditions. A key operational differentiator lies in its sophisticated credit-centric underwriting, supported by a third-party current expected credit loss (CECL) model. This econometric tool integrates probability of default (PD) and loss given default (LGD) models with loan-level data, collateral valuations, and forward-looking macroeconomic variables to produce life-of-loan expected losses. This analytical rigor enhances Ladder's ability to discern credit quality, manage risk effectively, and preserve capital, a tangible benefit reflected in its remarkably stable book value per share over recent years.

In the broader commercial real estate finance market, Ladder operates among a diverse set of competitors, including other mortgage REITs like Starwood Property Trust (STWD), Blackstone Mortgage Trust (BXMT), Arbor Realty Trust (ABR), and KKR Real Estate Finance Trust (KREF), as well as traditional banks and private equity firms. Ladder distinguishes itself as the only current investment-grade mortgage REIT in the country, a unique position that sets it apart from peers who often rely on more volatile funding sources like CLO issuance, Term Loan B financings, and short-term repo debt. Ladder's commitment to financing its business predominantly with fixed-rate, longer-term unsecured corporate borrowings (75% of debt as of Q3 2025) and maintaining a much lower overall leverage profile (1.7x adjusted leverage) provides a significant competitive advantage in terms of funding stability and cost. This robust capital structure, combined with its granular and diverse investment portfolio (average size of $15 million), positions Ladder with senior secured exposure at a higher attachment point, offering enhanced liquidity, downside protection, and risk diversification.

Financial Performance and Strategic Deployment

Ladder's financial performance in the third quarter of 2025 underscored the benefits of its disciplined strategy. The company generated distributable earnings of $32.1 million, or $0.25 per share, achieving an 8.3% return on equity. This was driven by a significant acceleration in loan origination activity, with $511 million of new loans across 17 transactions at a weighted average spread of 279 basis points – the highest quarterly origination volume in over three years. The loan portfolio subsequently grew by approximately $354 million to $1.9 billion, now representing 40% of total assets. Year-to-date in 2025, Ladder has originated over $1 billion in new loans.

The company's strategic pivot is evident in its capital allocation. Following substantial loan payoffs in 2024 (over $1.7 billion), Ladder initially deployed capital into AAA-rated securities, purchasing $911 million in the latter half of 2024 and January 2025. This provided a liquid "parking spot" for capital, earning an average unlevered yield of 6.48%. As of September 30, 2025, the securities portfolio totaled $1.9 billion, with 99% rated investment-grade and 96% AAA-rated, offering a weighted average yield of 5.7%. However, management's stated intention is to migrate this capital into higher-yielding loans, leveraging its lower cost of funds.

The Real Estate segment, comprising a $960 million portfolio primarily of net lease properties, continued to deliver stable net operating income of $15.1 million in Q3 2025. These properties, 100% leased with a weighted average remaining lease term of 7 years, provide a consistent income stream. Ladder's approach to its real estate assets is opportunistic; while prepared to hold them, properties are considered for sale if attractive bids emerge, with a target sale price established at acquisition.

Liquidity remains a core strength, with $879 million available as of Q3 2025, including $49 million in cash and $830 million of undrawn capacity on its unsecured revolving credit facility. This facility, upsized to $850 million in January 2025 and with an accordion to $1.3 billion, now bears interest at Term SOFR plus 125 basis points following the investment-grade upgrades. The successful issuance of a $500 million 5-year investment-grade unsecured bond at a 5.5% coupon in June 2025, met with strong demand, further solidified Ladder's financial foundation.

Outlook, Guidance, and Risk Considerations

Management's outlook for Ladder Capital is decidedly optimistic, projecting continued growth and enhanced profitability. The company expects fourth-quarter 2025 loan originations to exceed third-quarter production, with a goal to increase the loan portfolio by at least $1 billion, potentially reaching $3.4 billion. This expansion is anticipated to contribute to a 3% to 4% increase in profit margin, with new loans targeting an unlevered return of approximately 8.5%. The strategy involves a deliberate migration of capital from short-term T-bills and securities into higher-yielding balance sheet loans.

A key assumption underpinning this growth is the expected steepening of the yield curve. Management anticipates the Federal Reserve will cut short-term rates in the near term, potentially by 75 to 100 basis points, while longer-term rates may rise due to government deficits and inflation. This environment is expected to be particularly supportive of Ladder's conduit securitization business, which historically offers the highest return on equity and is poised for a more meaningful contribution to earnings.

Despite the positive outlook, Ladder acknowledges persistent macroeconomic uncertainty in commercial real estate. Risks include potential market disruptions, liquidity challenges, and credit risk, as evidenced by the $122.92 million in non-accrual loans as of September 30, 2025. While the CECL reserve of $52.14 million is deemed adequate, it reflects ongoing macroeconomic shifts. Specific concerns remain around certain segments of the office market, particularly in large cities, and some pockets of multifamily where rents are experiencing dips. However, Ladder's "middle market by design" lending model, focusing on smaller, diversified loans, aims to mitigate these risks by enhancing sponsor and geographic exposure. The company's adherence to financial covenants and its ability to flexibly deploy capital across its diversified asset base provide a robust defense against market volatility.

Conclusion

Ladder Capital Corp has successfully navigated a complex commercial real estate landscape to emerge as an investment-grade rated entity, a testament to its disciplined strategy and robust operational framework. This hard-earned status significantly enhances its financial flexibility, lowering its cost of capital and opening doors to a broader investor base. The company is now strategically positioned for a period of accelerated loan growth, leveraging its strong liquidity and credit-centric underwriting to capitalize on attractive investment opportunities.

The core investment thesis for LADR hinges on its ability to translate its superior capital structure into sustained earnings growth and a re-rating of its equity valuation. By emphasizing capital preservation, stable dividends, and a strategic shift towards higher-yielding loan originations, Ladder aims to align its market perception with investment-grade property REITs. While challenges in the commercial real estate sector persist, Ladder's diversified business model, sophisticated risk management, and proactive capital deployment strategy provide a compelling narrative for discerning investors seeking stable returns and long-term value creation.