Ladder Capital Corp — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. Ladder is an internally managed REIT focused on commercial real estate finance, investing primarily in senior-secured mortgage loans, commercial mortgage-backed securities (CMBS), and commercial real estate.
Financial performance and position
| Metric | FY 2020 / Dec. 31, 2020 | Prior comparable period |
|---|---|---|
| Interest income | $239.8 million | $330.2 million in FY 2019 |
| Interest expense | $227.5 million | $204.4 million in FY 2019 |
| Net interest income | $12.4 million | $125.9 million in FY 2019 |
| Loan-loss provision | $18.3 million | $2.6 million in FY 2019 |
| Income (loss) before taxes | $(19.2) million | $139.6 million in FY 2019 |
| Net income (loss) | $(9.5) million | $137.0 million in FY 2019 |
| Net income (loss) attributable to Class A shareholders; diluted EPS | $(14.4) million; $(0.13) | $122.6 million; $1.15 in FY 2019 |
| Distributable earnings, non-GAAP | $68.3 million | $190.6 million in FY 2019 |
| Operating cash flow | $111.9 million | $183.2 million in FY 2019 |
| Total assets | $5.88 billion | $6.67 billion at year-end 2019 |
| Total debt, net | $4.21 billion | $4.86 billion at year-end 2019 |
| Total equity | $1.55 billion | $1.64 billion at year-end 2019 |
| Cash and cash equivalents; restricted cash | $1.254 billion; $29.9 million | $58.2 million; $297.6 million at year-end 2019 |
| Adjusted leverage, non-GAAP | 2.5x | 3.0x at year-end 2019 |
| Dividend per Class A share | $0.94 | $1.36 in FY 2019 |
The filing does not present a single consolidated revenue line or a comparable consolidated profit margin. Interest income and other-income components are reported separately.
Business, portfolio and liquidity
- At year-end, the portfolio included $2.34 billion of loans, $1.06 billion of securities, and $985.3 million of real estate. Unrestricted cash was approximately $1.25 billion; total cash, cash equivalents and restricted cash were $1.28 billion.
- The loan portfolio’s weighted-average LTV at origination was 67.4% for balance-sheet first mortgages. The allowance for credit losses was $41.5 million; loans on non-accrual status had a reported carrying value of $175.0 million, net of asset-specific reserves.
- Debt included $1.60 billion of senior unsecured notes, $820.8 million of repurchase facilities, $766.1 million of real-estate mortgage financing, $288.0 million of FHLB advances, $276.5 million of CLO debt, $266.4 million on the revolving facility, and $192.6 million under a secured financing facility.
- Committed loan repurchase facilities had $1.3 billion of additional capacity; the committed securities facility had $638.4 million available. Management reported compliance with debt covenants at year-end and said liquidity and operating resources were expected to support operations for more than one year from the filing date.
- Operating cash flow was $111.9 million; investing activities provided $1.54 billion, primarily from loan repayments and sales of securities and loans; financing activities used $725.7 million, including debt repayments and dividends.
Material changes and unusual items
- Net interest income fell $113.5 million year over year as loan and securities balances contracted, LIBOR declined, and interest expense increased. The provision for loan losses rose $15.7 million year over year. Adoption of CECL on January 1, 2020 reduced equity by $5.8 million and introduced an expected-loss reserve approach.
- COVID-19 prompted management to raise liquidity, reduce mark-to-market financing, limit new investments, and cut the quarterly dividend from $0.34 to $0.20 beginning in 2020’s second quarter. Loan originations were $566.5 million, versus $2.4 billion in 2019; management also reported substantial loan and securities sales and repayments.
- FY 2020 included a $32.1 million gain on real-estate sales and a $22.3 million gain on debt extinguishment, alongside a $12.4 million realized securities loss and a $15.3 million net derivative loss. Management identified $34.5 million of COVID-related transaction losses and costs, partly offset by $19.0 million of gains on discounted corporate-debt repurchases and $1.5 million of accelerated premium amortization.
- Q4 2020 net loss was $11.6 million, or $0.10 per diluted share, compared with net income of $45.5 million, or $0.37 per diluted share, in Q4 2019.
- Management described vaccine progress and economic reopening as supportive, but noted continuing uncertainty and structural risks, including technology-driven changes in office and retail use. No numerical earnings or investment guidance was provided.
- Subsequent events: Ladder redeemed its remaining $146.7 million principal of 5.875% 2021 Notes in January 2021 for $150.9 million including accrued interest. Paul J. Miceli was announced as CFO effective March 1, 2021, succeeding Marc Fox.
Outlook, risks and controls
Key risks include ongoing pandemic effects on borrower cash flows and property values, especially hospitality and some retail; loan delinquencies, forbearance and refinancing risk; estimate uncertainty in collateral values and credit-loss reserves; fair-value and liquidity volatility in securities; repurchase-agreement margin calls and financing access; leverage and debt maturities; and the transition away from LIBOR. Ladder reported that it had met margin calls during the market disruption and subsequently received the margin back. It had cured a temporary first-quarter leverage-covenant breach during the contractual cure period.
The FHLB captive-insurer subsidiary could no longer initiate new advances after February 19, 2021 under the applicable rule; existing advances could remain until maturity. The company also disclosed REIT qualification and Investment Company Act exemption requirements, restrictions on transferring captive-insurer capital, and $148.8 million of unfunded loan commitments. Management and the auditor concluded internal control over financial reporting was effective; the auditor issued an unqualified opinion. The audit identified critical matters involving asset-specific loan-loss valuation and fair value of assets acquired through foreclosure. The filing reported no material litigation matters.
Important facts for investors to verify
- Performance and recovery of the $175.0 million non-accrual loan balance, the $41.5 million allowance, and collateral values supporting impaired loans.
- Whether cash generation and asset repayments can sustain liquidity, debt service, and distributions as financing capacity and maturities evolve.
- The quality and sustainability of distributable earnings, including its non-GAAP adjustments, versus GAAP losses and operating cash flow.
- Exposure to hospitality and retail property stress, borrower forbearance, and the pace of loan originations and securitizations.
- Execution of the 2021 Notes redemption, FHLB funding transition, and LIBOR fallback provisions across assets, debt and derivatives.