Ladder Capital Corp. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 11, 2022. Although the request identifies “2021 Q4,” this is an annual filing. Ladder is an internally managed REIT focused on commercial real estate lending, securities, and property ownership.
Financial performance and position
| Metric | FY 2021 / Dec. 31, 2021 | Prior comparable period |
|---|---|---|
| Net income (loss) | $56.9 million; diluted EPS $0.45 | FY 2020 net loss of $9.5 million; diluted EPS $(0.13) |
| Distributable earnings (non-GAAP) | $61.3 million | $51.3 million |
| Net interest income | $(6.9) million | $12.4 million |
| Net interest income after loan-loss provision/release | $1.9 million | $(5.9) million |
| Operating cash flow | $79.7 million | $111.9 million |
| Cash, cash equivalents and restricted cash | $621.5 million, including $548.7 million unrestricted | $1.284 billion |
| Total assets / total equity | $5.851 billion / $1.514 billion | $5.881 billion / $1.548 billion |
| Debt obligations, net | $4.220 billion | $4.210 billion |
| Class A dividends per share | $0.80 | $0.94 |
At year-end, the investment portfolio included $3.522 billion of loans net of allowance, $703.3 million of securities, and $890.9 million of real estate. Debt-to-equity was approximately 2.8x, based on reported debt and total equity. Ladder reported $2.8 billion of unencumbered assets, including $0.5 billion of unencumbered cash. No conventional operating margin is provided; the filing does not provide a clear consolidated revenue total.
Material changes versus FY 2020
- Net income improved by $66.4 million, driven principally by higher gains on real estate sales, improved derivative and securities results, a loan-loss reserve release, and lower expenses. FY 2021 income included $55.8 million of net gains on real estate sales.
- Net interest income declined by $19.2 million to a loss of $6.9 million. Interest income fell $63.8 million, partly offset by a $44.5 million decrease in interest expense; smaller average loan and securities portfolios and the timing of investment deployment contributed.
- The company released $8.7 million of loan-loss reserves in 2021, versus an $18.3 million provision in 2020. The allowance declined to $31.8 million from $41.5 million.
- Loan originations and funding rose to $2.5 billion from $566.5 million. The balance-sheet loan portfolio grew to $3.5 billion; securities declined to $703.3 million from $1.06 billion.
- Cash and restricted cash decreased by $662.7 million, as liquidity held during the pandemic was redeployed into investments. Operating cash flow was lower year over year.
Liquidity, financing, and risks
- Debt obligations, net were $4.220 billion. Major components included $1.631 billion of senior unsecured notes, $1.055 billion of CLO debt, $693.8 million of mortgage financing, $444.6 million of repurchase facilities, and $263.0 million of FHLB borrowings.
- During 2021, Ladder issued $650 million of 4.75% notes due 2029 and redeemed its remaining 2021 and 2022 notes. It completed two non-recourse, non-mark-to-market CLOs, with $1.1 billion of CLO debt outstanding at year-end. The company reported compliance with its debt covenants.
- Committed loan repurchase facilities had $1.0 billion of additional capacity available at year-end; the revolving facility had no outstanding borrowings. The filing describes extension options, but facility maturity terms vary and should be checked against the applicable agreements.
- Unfunded loan commitments were $390.1 million, up from $148.8 million. Funding is conditional, and 52% is tied to specified “good news” events. These commitments are off balance sheet.
- Loans on non-accrual status had a carrying value of $80.2 million, down from $175.0 million. Hotels and retail represented 8.1% and 6.9% of the loan portfolio, respectively; hotels and retail represented 10% and 44% of owned real estate. Management said most net-lease properties were necessity-based and reported rent collection of 100% for those properties and 98% for diversified properties in Q4 2021.
- Key exposures include commercial real estate credit and valuation risk, property and tenant performance, COVID-19 effects, inflation and operating-cost pressure, refinancing and liquidity needs, leverage and potential margin calls, and the transition from LIBOR to replacement rates. At year-end, $3.3 billion of floating-rate loans and $1.9 billion of floating-rate debt referenced LIBOR. Ladder said it was implementing fallback provisions and beginning to originate loans using SOFR-based rates.
- Management’s modeled sensitivity to a 100-basis-point rate increase showed a projected $20.4 million increase in 12-month net income and a $3.5 million decline in portfolio value; a 100-basis-point decrease showed a $1.1 million decline in net income and a $3.8 million increase in portfolio value. Estimates are subject to stated assumptions and rate floors.
Outlook, contingencies, and unusual items
The filing gives no quantitative earnings or investment guidance. Management described ongoing monitoring of borrower and property performance and continued uncertainty around the pandemic’s effects. It expects to fund future investments, commitments, expenses, debt service, and REIT distributions through cash, repayments, asset sales, securitizations, and available financing. The board determines future dividends; the filing does not assure future payment levels.
Notable items include the substantial contribution of property-sale gains to 2021 results, foreclosures of two hotel properties during 2021, and the reserve release tied largely to improved macroeconomic assumptions. The auditor issued an unqualified opinion on the financial statements and internal controls; critical audit matters concerned valuation of asset-specific loan-loss provisions and foreclosed real estate. The company reported no material litigation and no unresolved SEC staff comments.
Important facts for investors to verify
- Reconcile the improvement in GAAP earnings with negative net interest income and the contribution from property-sale gains; compare distributable earnings with GAAP results and cash available for distributions.
- Review the composition, collateral valuations, maturities, refinancing prospects, and recovery assumptions for the $80.2 million of non-accrual loans and the $31.8 million allowance.
- Assess funding and potential draws on the $390.1 million of unfunded commitments alongside unrestricted cash, unencumbered assets, and near-term debt maturities.
- Confirm current terms and extensions of repurchase and revolving facilities, the status and runoff of FHLB advances, and covenant headroom; evaluate exposure to margin calls and secured-creditor priority.
- Monitor the LIBOR-to-SOFR transition for assets, borrowings, and derivatives, including fallback language and possible basis mismatches.
- Check subsequent dividend declarations and REIT distribution requirements; FY 2021 dividends were $0.80 per share versus $0.94 in FY 2020.