Ladder Capital Corp — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Figures are unaudited; dollar amounts are in U.S. dollars. Ladder is a commercial real estate finance REIT focused on senior-secured lending, real estate securities and property ownership.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Interest income | $37.6 million | $62.1 million | $76.9 million | $134.7 million |
| Net interest income (expense) | $(7.6) million | $(6.3) million | $(14.3) million | $14.9 million |
| Net income (loss) | $10.5 million | $(5.2) million | $10.9 million | $(19.3) million |
| Class A diluted EPS | $0.08 | $(0.04) | $0.08 | $(0.19) |
| Dividends per share | $0.20 | $0.20 | $0.40 | $0.54 |
- Q2 other income was $48.2 million, including a $19.4 million gain on a retail property sale and $3.4 million of net loan-sale income; derivative transactions recorded a $3.8 million loss. The filing does not present a conventional total-revenue measure.
- For the six months, provision for loan losses was a $4.6 million release, versus $25.9 million of provision expense in the comparable 2020 period. Q2 included a $0.3 million release.
- Six-month operating cash flow was negative $9.7 million; investing activities provided $310.3 million and financing activities used $299.2 million. Cash, cash equivalents and restricted cash totaled $1.286 billion at quarter-end, including $1.170 billion of unrestricted cash and equivalents.
- Total assets were $5.617 billion, total equity $1.520 billion and debt obligations, net, $3.976 billion at June 30. Adjusted leverage, a company-defined non-GAAP measure, was 2.5x, unchanged from year-end 2020.
- Investment holdings included $2.495 billion of held-for-investment loans net of allowance, $59.2 million of loans held for sale, $719.2 million of real estate securities and $948.4 million of real estate. The loan allowance was $35.9 million.
Material changes versus comparable periods
- Q2 returned to GAAP profitability from a year-earlier loss. The principal drivers included the real estate sale gain and improved securities and loan-sale results; Q2 2020 had a $19.0 million debt-extinguishment gain that did not recur.
- First-half net income improved from a $19.3 million loss to $10.9 million of income. Lower loan-loss provisions, improved derivative and securities results, real estate sale gains and lower expenses contributed. Interest income fell $57.8 million, while interest expense fell $28.6 million.
- Average loan and securities portfolios were smaller than in the first half of 2020. At June 30, real estate securities were down to $719.2 million from $1.058 billion at year-end, while held-for-investment mortgage loans increased to $2.531 billion from $2.354 billion before allowance.
- Non-accrual loans, net of specific reserves, declined to $129.5 million from $175.0 million at year-end. Subsequent to quarter-end, one $12.1 million non-accrual loan was fully repaid, including accrued interest and fees.
Liquidity, financing and outlook
- Ladder paid down its $266.4 million revolving credit facility during Q2; no balance was outstanding at June 30, though the facility remained available. It reported $981.6 million of committed but unfunded loan repurchase capacity and $727.8 million of committed but unfunded securities repurchase capacity.
- Senior unsecured notes totaled approximately $2.1 billion. Ladder issued $650 million of 4.75% notes due 2029 in June; proceeds were for general corporate purposes, including loan pipeline funding and debt repayment. It redeemed its remaining $146.7 million of 2021 notes in January.
- Tuebor’s FHLB membership was terminated in February 2021, although $288 million of advances remained outstanding at quarter-end. The company expects scheduled paydowns to be funded by collateral amortization or sales and other financing; it cautions that further regulatory or FHLB action could adversely affect these advances.
- After quarter-end, on July 13, Ladder completed a public CLO that generated $498.2 million of gross proceeds and financed $607.5 million of loans at an 82% advance rate. The company retained an 18% subordinate and controlling interest.
- Management reported covenant compliance at June 30. Approximately $871.4 million of equity was restricted from dividends under debt covenants; roughly $2.1 billion of Tuebor member capital was also restricted from transfer without regulatory approval. Contractual debt payments due in the second half of 2021 were $631.1 million, although the filing says these obligations may be extended or refinanced.
- No quantitative earnings guidance is provided. Management says the continuing COVID-19 pandemic’s ultimate effects on revenue, profitability and financial position remain difficult to assess. It cites ongoing monitoring of borrowers, tenants and collateral, with renewed disruption, market liquidity, financing availability, interest rates, credit losses and property values among key risks.
- Unfunded loan commitments were $245.1 million, up from $148.8 million at year-end; they are contingent on borrower conditions and are not recorded as balance-sheet liabilities. Management noted COVID-related delays to construction, capital expenditure and leasing activity.
Important facts for investors to verify
- How much of reported profitability is repeatable: Q2 included a $19.4 million property-sale gain, and first-half results also reflect portfolio sales, market-sensitive derivative results and a loan-loss reserve release.
- The composition and subsequent performance of the $129.5 million non-accrual portfolio, collateral valuations and adequacy of the $35.9 million loan allowance.
- Liquidity and refinancing exposure around near-term contractual maturities, repo facility renewal and collateral/margin-call terms, as well as the remaining FHLB advances after membership termination.
- The terms and impact of the July CLO, including the retained subordinate interest and how the transaction changes funding costs and available liquidity.
- Reconcile the company-defined distributable earnings measure with GAAP results and cash generation: reported distributable earnings were $13.4 million for Q2 and $16.6 million for the first half; the six-month reconciliation includes a $16.9 million COVID-response transactional adjustment.