Ladder Capital Corp — Q1 2024 Form 10-Q
Business context and reporting period. Ladder is an internally managed REIT focused on commercial real estate finance, with loans, securities and real estate segments. This unaudited report covers the three months ended March 31, 2024; comparisons below use Q1 2023 unless otherwise stated. Dollar amounts are in U.S. dollars.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Interest income | $95.9 million | $103.8 million | Down $7.9 million |
| Interest expense | $58.8 million | $60.7 million | Down $2.0 million |
| Net interest income | $37.1 million | $43.0 million | Down $5.9 million |
| Provision for loan losses | $5.8 million | $4.7 million | Up $1.0 million |
| Net income | $16.4 million | $22.2 million | Down $5.8 million |
| Net income attributable to Class A shareholders | $16.6 million | $22.4 million | Down $5.8 million |
| Diluted EPS | $0.13 | $0.18 | Down $0.05 |
| Distributable earnings (non-GAAP) | $42.3 million | $40.0 million | Up $2.3 million |
The filing does not provide a clear consolidated revenue total or a conventional net interest margin figure. Real estate operating income was $23.9 million, versus $23.2 million. Other income included a $4.0 million net gain on derivatives, compared with a $2.2 million loss; the prior-year quarter included a $9.2 million debt-extinguishment gain, versus $0.2 million in Q1 2024. Distributable earnings is a company-defined non-GAAP measure, not a substitute for GAAP income or operating cash flow.
Financial position, cash flow and liquidity
- At March 31, 2024, total assets were $5.32 billion, debt obligations net were $3.67 billion, and total equity was $1.52 billion. At December 31, 2023, these were $5.51 billion, $3.78 billion and $1.53 billion, respectively.
- Cash and cash equivalents were $1.22 billion; restricted cash was $12.3 million. The company reported $3.0 billion of unencumbered assets, including $1.2 billion of cash, $0.9 billion of loans, $354.4 million of securities and $172.4 million of real estate.
- Operating cash flow was negative $20.4 million, versus positive $111.4 million in Q1 2023. Investing activities provided $337.1 million and financing activities used $160.2 million; cash, cash equivalents and restricted cash increased $156.5 million.
- Debt included $1.56 billion of senior unsecured notes, $1.05 billion of CLO debt, $488.9 million of repurchase borrowings, $478.8 million of mortgage financing and $90.0 million of FHLB borrowings. The $323.9 million revolving facility was undrawn and available.
- Management reported compliance with debt covenants. The company generally seeks a debt-to-equity ratio of approximately 3.0:1 or below; the filing does not state the actual ratio in this excerpt. About $871.4 million of equity was restricted from distribution by financing covenants, and about $843.9 million of Tuebor capital was restricted from transfer without regulatory approval.
- The company declared a quarterly dividend of $0.23 per share. After quarter-end, the board authorized up to $75 million of Class A share repurchases.
Material changes and portfolio developments
- Mortgage loans held for investment fell to $2.80 billion from $3.16 billion at year-end, largely reflecting net loan paydowns of $357.1 million. Securities declined to $466.8 million from $485.5 million.
- Average loan investments were lower year over year, contributing to reduced interest income. The company cited net loan payoffs as the principal driver. Borrowing costs also remained higher: the reported weighted average rate on borrowings against mortgage loans was 7.2%, compared with 6.5% a year earlier.
- The loan-loss allowance for mortgage receivables rose to $49.1 million from $43.2 million at year-end; total CECL allowance, including unfunded commitments, was $49.7 million. Management attributed the increase mainly to adverse CRE macroeconomic conditions.
- Two multifamily loans totaling $72.8 million were on non-accrual at quarter-end, compared with one loan of $14.5 million at year-end. Management said no asset-specific reserve was required for these loans.
- Ladder acquired a three-property Los Angeles multifamily portfolio through foreclosure, recording it at $14.1 million fair value; no foreclosure gain or loss was recognized. The company reported 156 net-leased properties, fully leased, and collected 100% of rent on them during the quarter; it collected 99% on its diversified properties.
Outlook, risks and contingencies
- The filing gives no specific earnings, origination or dividend guidance. Management says it is actively managing liquidity and operations amid the interest-rate environment and potential recessionary conditions, and expects to fund obligations and future investment needs using cash, repayments, financing capacity, asset sales or potential debt and equity issuance.
- Key exposures include CRE credit deterioration and collateral-value declines, borrower refinancing risk, higher or volatile interest rates, funding availability and cost, and possible repo margin calls or reductions in lending capacity. A 100-basis-point rate decline was estimated to reduce projected 12-month net income by $24.7 million; a 100-basis-point increase was estimated to raise it by $25.2 million. Estimated portfolio value moves in the opposite direction.
- Unfunded loan commitments were $128.1 million, down from $204.0 million at year-end. They are conditional and may or may not be funded; 61% relate to specified borrower milestones. The filing’s contractual obligations table separately reports $50.4 million of other funding obligations and excludes $77.9 million of future commitments dependent on “good news” events.
- One loan repurchase facility scheduled to mature within 30 days after quarter-end was amended after quarter-end to extend maturity by two years. The company reported no material litigation or material risk-factor changes, and no defaults or covenant breaches.
- Forward-looking statements are subject to the risks described in the filing, including CRE market conditions, rates, financing access, credit performance, collateral values, liquidity, regulatory and REIT requirements, and geopolitical and economic uncertainty.
Important facts for investors to verify
- Whether the two non-accrual multifamily loans remain recoverable at carrying value and whether CRE conditions require additional reserves.
- Loan repayment and origination trends, portfolio concentration and refinancing outcomes, particularly as average loan balances decline.
- Availability, pricing, covenants and maturity extensions for secured financing, alongside the practical accessibility of reported cash and unencumbered assets.
- How much of the $128.1 million in unfunded commitments is ultimately funded and whether borrower milestones are achieved.
- The sustainability of GAAP earnings and the $0.23 dividend relative to operating cash flow; assess non-GAAP distributable earnings separately from GAAP income.
- The impact of interest-rate and collateral-value movements on earnings, asset values, hedge results and potential lender margin requirements.