Ladder Capital Corp — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Ladder is an internally managed REIT focused on commercial real estate lending, securities, and property ownership and operations.
Financial results and position
| Metric | Q1 2022 | Comparable period |
|---|---|---|
| Interest income | $56.2 million | $39.3 million in Q1 2021 |
| Net interest income | $9.2 million | $(6.7) million in Q1 2021 |
| Net income | $19.2 million | $0.4 million in Q1 2021 |
| Net income attributable to Class A shareholders; diluted EPS | $19.0 million; $0.15 | $0.2 million; less than $0.01 in Q1 2021 |
| Distributable earnings, non-GAAP | $31.5 million | $3.2 million in Q1 2021; $27.7 million in Q4 2021 |
| Operating cash flow | $(30.0) million | $(43.6) million in Q1 2021 |
| Cash, cash equivalents and restricted cash | $495.2 million | $621.5 million at Dec. 31, 2021 |
| Total assets; total equity | $6.0 billion; $1.5 billion | $5.9 billion; $1.5 billion at Dec. 31, 2021 |
| Debt obligations, net | $4.34 billion | $4.22 billion at Dec. 31, 2021 |
Net interest income after loan-loss provision was $8.3 million, versus a $2.4 million loss in Q1 2021. The provision was $0.9 million in Q1 2022, compared with a $4.3 million reserve release in Q1 2021. The filing does not provide a single consolidated operating-margin measure.
Investments totaled $5.40 billion: loans of $3.88 billion, real estate securities of $662.9 million, and real estate of $848.3 million. Unrestricted cash was $431.8 million. The company reported $2.8 billion of unencumbered assets; separately, it reported $0.9 billion of remaining committed loan-repurchase capacity and no borrowings on its $266.4 million revolving credit facility. The quarterly dividend declared was $0.20 per share.
Changes and notable items
- Year-over-year net income improved by $18.7 million, reflecting higher net interest income, loan growth, and other income. The comparison also includes $29.2 million of gains from two real estate sales in 2022.
- Compared with Q4 2021, net income fell from $27.1 million to $19.2 million. Q1 included $29.2 million of real estate-sale gains, while compensation expense rose to $29.9 million, primarily due to timing of annual stock-based compensation. Stock-based compensation was $20.4 million versus $5.3 million in Q1 2021.
- Loan originations and funding were $703.4 million, offset by $349.9 million of principal repayments. The loan portfolio grew from $3.55 billion at year-end to $3.86 billion, before allowance.
- Real estate securities declined to $662.9 million from $703.3 million; the filing reports a $6.6 million unrealized loss on available-for-sale securities in other comprehensive income.
- Cash, cash equivalents and restricted cash declined by $126.3 million during the quarter. Investing cash outflow was $171.9 million, principally reflecting loan originations, partly offset by repayments and property-sale proceeds.
Outlook, risks and contingencies
- No specific earnings or operating guidance is provided. Management says it is actively managing liquidity and operations amid market conditions, including inflation, rising interest rates, the ongoing emergence from COVID-19, supply-chain pressures, and geopolitical uncertainty.
- Credit exposure includes $79.9 million of loans on non-accrual status and a $33.1 million total CECL allowance, including $32.3 million for mortgage loans. The allowance increased during the quarter, primarily with loan portfolio growth.
- Unfunded mortgage-loan commitments were $409.7 million, up from $390.1 million at year-end. Funding depends on borrower conditions and other circumstances; 52% is tied to specified “good news” events.
- Floating-rate assets and liabilities, changing borrowing costs, property values, credit spreads, market liquidity, and potential collateral calls are material risks. Management’s interest-rate sensitivity analysis estimates that a 100-basis-point increase would raise projected 12-month net income by $24.2 million, while a 100-basis-point decrease would reduce it by $8.4 million; these estimates are subject to rate floors and assumptions.
- Debt facilities contain financial covenants and may permit lenders to demand additional collateral or repayment if collateral values decline. The company reported compliance with its covenants at March 31, 2022. Some subsidiary capital and company equity are restricted from transfer or dividend without approvals or subject to financing restrictions.
- The company is implementing LIBOR fallback provisions; at quarter-end, 82.1% of floating-rate loans and 84.9% of floating-rate debt were indexed to LIBOR, with the remainder indexed to Term SOFR. No material litigation or material risk-factor changes were reported.
Important facts for investors to verify
- Whether loan growth sustains net interest income as yields and financing costs change, and how the LIBOR-to-SOFR transition affects asset-liability spreads.
- Performance and collateral values for the $79.9 million non-accrual loan balance, and whether the $33.1 million CECL allowance remains adequate under changing economic assumptions.
- Cash availability after the quarter’s decline, committed financing access, and the timing and funding needs of $409.7 million in unfunded loan commitments.
- How much of reported earnings and distributable earnings depends on property-sale gains, derivative results, and non-cash compensation adjustments.
- Near-term secured-debt maturities, lender collateral and margin-call terms, and restrictions on transferring subsidiary capital or paying dividends.