Ladder Capital Corp. (NYSE: LADR) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with fiscal 2021. This is an annual filing, not a standalone fourth-quarter report.
Business context
Ladder is an internally managed REIT focused on U.S. commercial real estate finance. Its principal activities are originating senior first-mortgage loans, owning and operating commercial real estate, and investing mainly in investment-grade securities backed by commercial mortgages. At year-end, its portfolio included $3.9 billion of loans, $587.5 million of securities, and $700.1 million of real estate.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Interest income | $293.5 million | $176.1 million |
| Interest expense | $195.6 million | $182.9 million |
| Net interest income | $97.9 million | $(6.9) million |
| Provision for (release of) loan losses | $3.7 million provision | $8.7 million release |
| Total other income | $251.1 million | $181.7 million |
| Income before taxes | $170.2 million | $57.8 million |
| Net income | $165.3 million | $56.9 million |
| Net income attributable to Class A shareholders | $142.2 million | $56.5 million |
| Diluted EPS | $1.13 | $0.45 |
| Distributable earnings (non-GAAP) | $148.4 million | $61.3 million |
| Cash from operating activities | $106.7 million | $79.7 million |
- Balance sheet: Total assets were $5.95 billion, total equity $1.53 billion, and debt obligations, net, $4.25 billion at December 31, 2022. Cash and cash equivalents were $609.1 million; an additional $50.5 million was restricted cash.
- Liquidity: Ladder reported $2.9 billion of unencumbered assets, including $609.1 million of cash, $1.7 billion of loans, and $97.5 million of securities. Its $323.9 million revolving facility was undrawn; committed loan repurchase facilities had $683.1 million of unused capacity.
- Debt: Debt included $1.63 billion of senior unsecured notes, $1.06 billion of CLO debt, $847.9 million of repurchase borrowings, $498.0 million of real-estate mortgage financing, and $213.0 million of FHLB advances. Management generally targets debt-to-equity of approximately 3.0:1.0 or below; reported debt divided by year-end equity was approximately 2.8x.
- Loan portfolio and credit: Held-for-investment mortgage loans had a weighted-average yield of 8.85%, up from 5.65% at year-end 2021. The allowance for credit losses was $20.8 million on loan receivables, with another $0.7 million for unfunded commitments. Loans on non-accrual totaled $53.8 million, down from $80.2 million.
- Cash uses and distributions: Financing activities used $150.2 million, including $107.0 million of cash dividends. Declared dividends totaled $0.88 per share for 2022, versus $0.80 for 2021. Unfunded loan commitments were $321.8 million.
Material changes versus 2021
- Net interest income improved by $104.8 million, from a loss of $6.9 million to income of $97.9 million. Management attributed the increase mainly to higher benchmark rates on floating-rate assets and higher average loan investments; higher financing costs partly offset the benefit.
- Net income attributable to Class A shareholders rose to $142.2 million from $56.5 million. The 2022 result included $116.0 million of realized gains on sales of eight real-estate investments, compared with $55.8 million of gains in 2021.
- Distributable earnings increased to $148.4 million from $61.3 million. It is a non-GAAP measure and should not be treated as GAAP income, cash flow, or REIT taxable income.
- Loan originations and funding were $1.3 billion, down from $2.5 billion in 2021; repayments were $0.9 billion. The securities portfolio declined by $115.8 million, while real-estate sale proceeds increased to $310.5 million.
- Cash, cash equivalents and restricted cash increased by $38.1 million in 2022, versus a $662.7 million decrease in 2021. Total debt obligations, net, were relatively stable year over year.
- The credit-loss provision shifted from an $8.7 million release in 2021 to a $3.7 million provision in 2022, reflecting adverse macroeconomic assumptions and portfolio growth.
Outlook, commentary, risks and unusual items
- The filing gives no specific earnings, origination, or dividend guidance. Management said it was actively managing liquidity and operations amid rising rates and potential recessionary conditions.
- Interest-rate sensitivity analysis estimated that a 100-basis-point increase would raise projected 12-month net income by $27.3 million, while a 100-basis-point decrease would reduce it by $27.0 million, subject to rate floors and hedging assumptions.
- LIBOR transition remained a significant execution issue at year-end: $2.3 billion of floating-rate loans and $1.3 billion of floating-rate debt were LIBOR-linked. Ladder expected to complete loan conversions to Term SOFR in the second quarter of 2023 and transition remaining debt before LIBOR phase-out.
- Key risks include commercial-property valuation and borrower refinancing, credit losses and non-accruals, rising funding costs, leverage and refinancing needs, repurchase-agreement margin calls, concentration in commercial real estate, and potentially reduced property demand in some office markets. Market illiquidity could impair asset sales or collateral values.
- Other notable items: Ladder repurchased 783,599 shares for $7.9 million during 2022 and had $46.7 million remaining under its buyback authorization at year-end. The auditor issued an unqualified opinion on the financial statements and internal controls; management also reported effective internal control over financial reporting.
Important facts for investors to verify
- How much 2022 earnings and distributable earnings depended on property-sale gains, and how repeatable those gains are.
- Whether higher loan yields continue to outpace increases in borrowing costs, and the effect of rate changes on borrowers, collateral values, and refinancing.
- The status of LIBOR-to-SOFR conversion across loans, debt, securities, and derivatives, including any economic mismatches.
- Credit performance of the $53.8 million of non-accrual loans, the adequacy of the $21.5 million total allowance, and the funding likelihood of $321.8 million in commitments.
- Near-term debt maturities, renewal of financing capacity, covenant headroom, and exposure to collateral margin calls.
- Cash available for distributions after debt service and investment needs; distributable earnings is not equivalent to REIT taxable income or available cash.