Ladder Capital Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited; amounts below are in U.S. dollars. Ladder is an internally managed REIT focused on commercial real estate lending and investments, real estate ownership and commercial mortgage securities.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Interest income | $65.3M | $37.6M | $121.5M | $76.9M |
| Interest expense | $42.7M | $45.2M | $89.7M | $91.2M |
| Net interest income | $22.6M | $(7.6)M | $31.7M | $(14.3)M |
| Net income | $43.2M | $10.5M | $62.4M | $10.9M |
| Net income attributable to Class A shareholders | $35.0M | $10.3M | $54.1M | $10.5M |
| Diluted EPS | $0.28 | $0.08 | $0.43 | $0.08 |
- Q2 results included $28.6M of realized gains on real estate sales, $2.7M of net derivative gains and a $1.0M loan-loss provision release. The six-month real estate sale gain was $57.7M.
- Non-GAAP distributable earnings were $43.7M for Q2 and $31.5M for Q1. The filing cautions that this measure is not a substitute for GAAP earnings or operating cash flow.
- Real estate operating income was $28.6M for Q2 and $55.0M for the first half. The filing does not provide a clear consolidated revenue or margin measure.
- Declared dividends were $0.22 per share for Q2; $0.42 per share was declared during the first half.
Financial position, cash flow and portfolio
- At June 30, total assets were $5.84B, total equity $1.51B and debt obligations, net, $4.21B. Assets included $4.02B of loans, $617.1M of real estate securities and $788.3M of real estate.
- Cash and cash equivalents were $217.4M, with another $65.6M restricted. Unencumbered assets included $2.0B of loans, $151.2M of securities and $82.2M of real estate; management described its total unencumbered asset pool as approximately $2.8B.
- First-half operating cash flow was $13.9M; investing cash use was $253.0M and financing cash use was $99.6M. Cash, cash equivalents and restricted cash declined $338.6M to $282.9M, primarily reflecting loan originations, repayments of borrowings, dividends and share-related payments.
- Mortgage loans held for investment grew to $4.00B carrying value from $3.55B at year-end. The portfolio’s weighted-average yield was 6.06%; 89.5% of its outstanding face amount was floating-rate, and 99.7% of those floating-rate loans had interest-rate floors.
- The loan-loss allowance was $17.0M for loans and $17.7M including unfunded commitments, versus $32.2M total at year-end. Non-accrual loans were $54.4M, down from $80.2M at year-end. A repayment of previously impaired loans generated a $3.1M reserve recovery; the period also included $14.4M of charge-offs.
- Real estate securities declined to $617.1M from $703.3M at year-end. First-half available-for-sale securities losses reduced other comprehensive income by $13.7M.
Changes, outlook and risks
- Compared with Q2 2021, net interest income turned positive as the loan portfolio expanded and interest income rose; management attributed the increase to net originations and higher benchmark rates. First-half net income attributable to shareholders increased to $54.1M from $10.5M.
- Higher real estate sale gains and derivative results also contributed to the year-over-year improvement. Compensation and employee benefits rose $27.3M in the first half, primarily due to the timing and vesting of equity awards. These items make reported earnings sensitive to transaction timing and compensation patterns.
- The Company repaid its remaining Secured Financing Facility borrowings in May. At June 30, it had $459.1M drawn on committed loan repurchase facilities, $10.0M on a committed securities facility, $179.2M on uncommitted securities facilities, and no revolver borrowings. Management reported compliance with debt covenants.
- Repo lenders can require additional collateral or repayment if collateral values fall; uncommitted facilities may not remain available. Rising rates, wider credit spreads, weaker commercial property values, refinancing challenges, borrower defaults and reduced market liquidity could affect earnings, collateral values and funding access. Management cited inflation, rising rates, COVID-19 impacts, supply-chain disruption and recession risk.
- $407.2M of unfunded loan commitments remained at June 30, 52% conditional on specified “good news” events. Certain commitments may be funded over the next three years, subject to borrower and other conditions. Approximately $871.4M of equity was restricted from dividend payment by debt covenants, and approximately $1.2B of subsidiary Tuebor capital was restricted from transfer without regulatory approval.
- No quantified earnings or dividend guidance was provided. Subsequent to quarter-end, the July 27 amendment increased the revolver maximum to $323.9M, changed pricing to one-month Term SOFR plus 2.50%, and provided a July 2023 maturity with four one-year extension options. The board also authorized a new $50M share-repurchase program.
Key facts investors should verify
- How much of reported earnings and distributable earnings depends on real estate dispositions, derivative results and other timing-sensitive items.
- Loan credit quality, collateral values, non-accrual balances, charge-offs and the adequacy of CECL reserves under changing macroeconomic assumptions.
- Liquidity available after considering restricted cash and capital, unfunded loan commitments, debt maturities and potential repo margin calls.
- The sensitivity of net interest income and asset values to rate changes, including LIBOR-to-SOFR transition and the effectiveness of hedging.
- The terms and availability of financing facilities, covenant headroom, and the effect of the post-quarter-end revolver amendment and share-buyback authorization.