Ladder Capital Corp — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 6, 2021. Ladder is an internally managed REIT focused on commercial real estate lending, securities and property ownership. Unless stated otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Interest income | $39.3 million | $72.6 million |
| Interest expense | $46.0 million | $51.4 million |
| Net interest income (expense) | $(6.7) million | $21.2 million |
| Loan-loss provision (release) | $(4.3) million release | $26.6 million provision |
| Total other income | $33.2 million | $29.0 million |
| Total costs and expenses | $31.1 million | $42.2 million |
| Net income (loss) | $0.4 million | $(14.1) million |
| Net income (loss) attributable to Class A shareholders | $0.2 million | $(15.7) million |
| Basic and diluted EPS | Reported as $0.00 per share (rounded) | $(0.15) per share |
| Distributable earnings (non-GAAP) | $3.2 million | $30.9 million |
| Dividends per Class A share | $0.20 | $0.34 |
Operating cash flow was $(43.6) million; investing cash flow was $688.7 million; and financing cash flow was $(477.4) million. Cash, cash equivalents and restricted cash increased $167.8 million to $1.452 billion, including $1.306 billion of unrestricted cash and cash equivalents and $146.4 million of restricted cash.
At March 31, total assets were $5.406 billion and total equity was $1.531 billion. Balance-sheet debt obligations, net, were $3.768 billion, versus $4.210 billion at December 31, 2020. Adjusted leverage, a non-GAAP measure excluding consolidated CLO debt, was 2.3x, down from 2.5x. Approximately $871 million of equity was restricted from dividend payment under debt covenants.
The portfolio included $2.043 billion of loans, $764.1 million of real estate securities and $977.0 million of real estate. Held-for-investment mortgage loans had a $36.2 million allowance for credit losses; loans on non-accrual status had a carrying value of $130.6 million.
Material changes versus the prior comparable period
- Net income improved by $14.5 million from a year-ago loss, but distributable earnings fell by $27.6 million to $3.2 million.
- Interest income declined $33.3 million, reflecting a smaller average loan and securities portfolio and lower prevailing LIBOR. The average loan portfolio fell to $2.2 billion from $3.4 billion, and average securities to $0.8 billion from $1.9 billion.
- The $4.3 million credit-reserve release contrasted with a $26.6 million provision in Q1 2020; management attributed the release mainly to improved macroeconomic assumptions. The allowance balance declined to $36.2 million from $41.5 million at year-end.
- Derivative results improved by $20.2 million, from a $15.4 million loss to a $4.8 million gain. Costs and expenses fell $11.1 million, including lower compensation expense.
- Investing activity included $329.1 million of securities sales and $394.4 million of loan repayments. The securities portfolio declined $294.2 million during the quarter.
- The company redeemed its remaining 5.875% senior notes due 2021, approximately $146.7 million of principal, at par in January. Debt net of discounts and issuance costs declined $442.0 million from year-end.
Outlook, management commentary and risks
- The filing gives no specific earnings or revenue guidance. Management said the pandemic’s ultimate effect on results and financial position remained difficult to assess; employees largely continued working remotely.
- Management reported improved liquidity and financing conditions: securities-repurchase pricing improved as market liquidity returned, and Ladder reduced securities-repurchase financing by $227.3 million in Q1. The company said its financing actions had significantly reduced exposure to mark-to-market financing. It reported more than $1.3 billion of unrestricted cash as of April 30, 2021.
- COVID-19 remains a material credit and property risk, particularly for hospitality and retail borrowers. Management cited requests for deferrals or forbearance and slower construction, capital expenditure and leasing activity. It reported 100% rent collection on net-leased properties and approximately 97.7% on diversified commercial properties in Q1.
- At March 31, hotel and retail loans represented approximately 14.2% and 11.3% of the loan portfolio, respectively. Management reported a 68.8% weighted-average LTV for the loan portfolio, while noting that collateral values and borrower repayment capacity can still deteriorate.
- Unfunded loan commitments were $140.1 million, down from $148.8 million at year-end. Funding depends on borrower covenants and other conditions; pandemic-related delays could affect the timing.
- Funding and liquidity risks include short-term repurchase financing, collateral-value-driven margin calls, debt maturities and covenant restrictions. The company reported compliance with its covenants at March 31. FHLB membership of its subsidiary was terminated in February 2021; $288 million of advances remained outstanding, with maturities extending through 2024 and future paydowns dependent on collateral amortization or sales and other financing sources.
- Other notable credit exposures included five loans on non-accrual status with a combined carrying value of $79.7 million, in addition to two impaired mixed-use loans with a combined carrying value of $24.2 million. A Miami hotel acquired through foreclosure for $43.8 million was sold in February for the same amount.
Important facts for investors to verify
- Whether portfolio collections, non-accrual balances and credit reserves continue to improve, especially for hospitality and retail collateral.
- The sustainability of distributable earnings and the $0.20 quarterly dividend relative to taxable income, cash generation and REIT distribution requirements; distributable earnings is non-GAAP and is not equivalent to taxable income or operating cash flow.
- Liquidity and refinancing capacity as debt matures, including the 2022 senior notes and short-term repurchase agreements, and any related collateral or covenant requirements.
- Whether the reported securities gains, derivative results and reserve release reflect recurring performance or quarter-specific market and accounting effects.
- Potential changes in property values, borrower business plans, unfunded commitment requirements and the continuing economic effects of COVID-19.