Yahoo Finance Ladder Capital Corp (NYSE:LADR) Q1 2024 Earnings Call Transcript
Ladder Capital Corp (NYSE:LADR) Q1 2024 Earnings Call Transcript April 25, 2024
Ladder Capital Corp beats earnings expectations. Reported EPS is $0.33, expectations were $0.31. Ladder Capital Corp isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Ladder Capital Corp's Earnings Call for the First Quarter of 2024. As a reminder, today's call is being recorded. This morning, Ladder released its financial results for the quarter ended March 31, 2024. Before the call begins, I'd like to call your attention to the customary Safe Harbor disclosure in our earnings release regarding forward-looking statements. Today's call may include forward-looking statements and projections, and we refer you to our most recent Form 10-K for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law.
In addition, Ladder will discuss certain non-GAAP financial measures on this call, which management believes are relevant to assessing the Company's financial performance. The Company's presentation of this information is not intended to be considered in isolation, or as a substitute for the financial information presented in accordance with GAAP. These measures are reconciled to GAAP figures in our earnings supplemental presentation, which is available in the Investor Relations section of our website. We also refer you to our Form 10-K and earnings supplement presentation for definitions of certain metrics, which we may cite on today's call. At this time, I'd like to turn the call over to Ladder's President, Pamela McCormack.
Pamela McCormack: Good morning. We are pleased to provide an overview of Ladder's performance for the first quarter of 2024. Ladder generated distributable earnings of $42.3 million, or $0.33 per share, resulting in a 10.8% return on equity. As of March 31, $1.2 billion or 23% of our $5.3 billion balance sheet was comprised of cash and cash equivalents. During the first quarter, we increased liquidity over $1.5 billion up from $950 million last year. We reduced adjusted leverage to 1.5x down from 1.8x a year-ago. We received approximately $400 million of payoffs in our loan and securities portfolio, including the full payoff of 15 balance sheet loans totaling $320 million. These payoffs represent the highest dollar amount of payoffs received since the first quarter of 2022.
Following the end of the quarter, another five loans totaling $111 million paid off, bringing Ladder's total loan payoffs over the last 12 months to over $1 billion across 48 loans. In February, we celebrated our 10th anniversary as a public company and we are proud to note that we have not wavered from our commitment to our core objective, striving for the highest possible return on equity while prioritizing principle preservation and employing modest leverage. This discipline strategy supported by our diversified capital structure has supported Ladder with stability and flexibility across market fluctuations. At the end of the first quarter, our balance sheet loan portfolio totaled $2.8 billion with a weighted average yield of 9.42% and limited future funding commitments totaling $128 million.
Our earnings for the first quarter included a $1.5 million or 3.7% gain from contributing approximately $40 million of fixed rate loans to a recent CMBS securitization and providing Ladder with 10-year non-recourse financing on five triple net leased real estate assets. In addition, we have been pivoting back to offense. Our originators are actively quoting new investments and we are pleased to be back in the process of closing new loans under application. Given the historically high returns on equity generated by Ladder's conduit business, we are looking forward to capitalizing on opportunities presented by a steepening or at least uninverted yield curve, which is when this business works best. As forecasted during our fourth quarter earnings call, we successfully concluded foreclosure proceedings on a newly renovated Class A multifamily portfolio in Los Angeles, California.
We own the asset consisting of 28 units at a basis of $14 million or $500,000 per unit. Since assuming ownership in February, we successfully completed all renovations, obtained a certificate of occupancy for the property and commenced leasing. We expect to lease the property destabilization by the fall. Also, in the first quarter, we placed two multi-family loans, totaling $72.8 million on non-accrual. The first is a $60.8 million loan secured by a portfolio of recently constructed apartment buildings in Manhattan, New York. The loan defaulted after the mezzanine lender who made a $13.2 million loan behind our position failed to cure. Our current exposure for this loan stands at approximately $385,000 per unit. The second loan is a $12 million loan collateralized by a 56-unit multifamily portfolio in the San Fernando Valley of California.
Our current exposure for this loan stands at approximately $215,000 per unit. A receiver has been appointed as we pursue foreclosure to take titles to the assets and complete the business plan for renovations and lease up at the market rent. As Paul will address in more detail, there were no specific impairments identified during the quarter. We modestly increased our general CECL reserve to align with our assessment of current market conditions. We continue to believe that we are adequately reserved for any potential losses. We've often stated in the past that we distinguish between a default and a loss. Ladder's Senior Management Team and Board collectively own over 11% of the company effectively making us Ladder's largest shareholder. In full alignment with our stakeholders, our goal is to protect our investments by promptly addressing default and seeking the best long-term value for the company.
With robust capitalization and extensive real estate experience, we remain well positioned to navigate challenges such as market downturns or assets depreciation, while executing the necessary business plans to optimize the properties value. Regarding our securities and real estate portfolios, we ended the first quarter with a $467 million securities portfolio, primarily consisting of AAA securities earning an unlevered yield of 6.84%. Our $963 million real estate portfolio is mainly comprised of net leased properties with long-term leases to investment-grade credits and contributed $14.4 million in net rental income in the first quarter. The strength of our balance sheet and stability of our dividend are consistently reflected in our credit ratings from all three rating agencies with two of the agencies rating Ladder just one notch below investment-grade.
It is worth noting that Ladder's two longer dated unsecured bond issuances, which totaled $1.24 billion and comprise approximately one-third of our total debt outstanding have an average remaining tenor of four years and a weighted average coupon of 4.5%, a rate that is lower than the entire current U.S. Treasury curve. We remain committed to financing our operations to the corporate unsecured bond market and stand prepared to issue new unsecured bonds when we believe the cost of capital is favorable. In conclusion, armed with ample dry powder, conservative leverage and a well-covered dividend, we are primed to go on offense as 2024 unfolds. With that, I'll turn the call over to Paul.
Paul Miceli: Thank you, Pamela. In the first quarter of 2024, Ladder generated $42.3 million of distributable earnings or $0.33 of distributable EPS for a return on average equity of 10.8%. Earnings in the first quarter continue to be driven by strong net interest income from our loan and securities portfolios and stable net operating income from our real estate portfolio. Our balance sheet remains strong as the commercial real estate market continues to reset. As Pamela discussed, as of March 31, 2024, Ladder remains highly liquid with $1.2 billion of cash and cash equivalents or 23% of our balance sheet as our cash position continued its increase since year-end. In addition, our $324 million unsecured revolver remains fully undrawn.
The increase in cash was primarily driven by a healthy rate of loan payoffs in the first quarter, which totaled $357 million. Our loan portfolio totaled $2.8 billion as of quarter end across 100 balance sheet loans, representing 52% of our total assets. We did not record any specific impairments in the first quarter. However, we did increase our CECL reserve by $5.8 million, bringing our general reserve to $49 million or approximately 175 basis points of our loan portfolio. The increase was driven by the continued uncertainty in the State of the U.S. commercial real estate market and overall global market conditions. Our $963 million real estate segment continues to generate stable net operating income and includes 156 net leased properties, representing approximately 70% of the segment.
Our net lease tenants are strong credits, primarily investment-grade rated and committed to long-term leases with an average remaining lease term of approximately nine years. As we have historically demonstrated, we have a long track record at Ladder maximizing the value of assets we own and operate. This skill set as a current owner and operator of real estate combined with the strength and flexibility of our balance sheet, provide Ladder a solid foundation from which to successfully manage our owned real estate assets. As of March 31, the carrying value of our securities portfolio was $467 million. 99% of the portfolio was investment-grade rated with 84% being AAA rated, and over 76% of the portfolio was unencumbered and readily financeable, finding an additional source of potential liquidity, complimenting the $1.5 billion of same-day liquidity we had as of quarter end.
Ladder's same-day liquidity simply represents unrestricted cash and cash equivalents of over $1.2 billion, plus our undrawn unsecured corporate revolver capacity of $324 million. As discussed in our prior call in the first quarter of 2024, we extended our corporate revolver with our nine bank syndicate to a new five-year term out to 2029. The facility carries an attractive interest rate of SOFR plus 250 basis points on an unsecured basis with potential rate reductions upon achievement of investment grade ratings. We believe this enhancement demonstrates the strength of our capital structure as well as Ladder's longstanding relationship with these financial institutions. As of March 31, 2024, our adjusted leverage ratio is 1.5x and has continued to trend down as we delevered our balance sheet while producing steady earnings, strong dividend coverage, and an attractive double-digit return on equity in the first quarter of 2024.
Unsecured corporate bonds remain the foundation of our capital structure with $1.6 billion outstanding or 43% of our total debt, a weighted average remaining maturity of nearly four years, and an attractive fixed rate coupon of 4.7%. In the first quarter of 2024, we repurchased $2 million in principle of our unsecured bonds at 90% of par, generating $0.2 million of gains from the retirement of debt. As Pamela discussed, we remain committed to the corporate unsecured bond market as our primary source of financing and prepared to issue new unsecured bonds when we believe the cost of capital is favorable. As of March 31, our unencumbered asset pool stood at $3.0 billion or 57% of our balance sheet. 81% of this unencumbered asset pool is comprised of first mortgage loans, securities and unrestricted cash and cash equivalents.
Our significant liquidity position in large pool of high-quality unencumbered assets continued to provide Ladder with strong financial flexibility. We believe this is reflected in our corporate credit ratings, which are one notch below investment-grade from two of three rating agencies. Ladder's undepreciated book value per share was $13.68 as of March 31, 2024 with 127.9 million shares outstanding. In the first quarter of 2024, we repurchased $647,000 of our common stock at a weighted average price of $10.78 per share. Subsequent to quarter end, in April, Ladder's Board of Directors approved an increase to Ladder share buyback authorization to $75 million. Finally, our dividend remains well covered and in the first quarter, Ladder declared a $0.23 per share dividends, which was paid on April 15, 2024.
For details on our first quarter 2024 operating results, please refer to our earnings supplement, which is available on our website and our quarterly report on Form 10-Q, which we expect to file on the coming days. With that, I will turn the call over to Brian.
Brian Harris: Thanks, Paul. During the first quarter, Ladder continued to successfully navigate our business through the current credit cycle, accompanied by continuing tension in the Middle East, rising interest rates, persistent inflation, and constant revisions to predictions of what the Fed will do next. With regard to interest rate changes, we have not been significantly impacted due to the nature of our fixed rate liabilities that are termed out for years and our general low leverage approach to managing our business. During the quarter, we are pleased to have reentered the loan securitization business, which we had been absent from for years. We are hopeful that we will continue to contribute loans to conduit deals in the quarters ahead, as this has historically been a high ROE business for us at Ladder.
We also restarted our loan origination business and we expect if market volatility and interest rates improve even marginally, our pace of loan closings should pick up in the quarters ahead. As 2024 began, in just the first four months, we've received loan payoffs or paydowns, totaling $468 million with another $76 million in securities payoffs. We've received return of principle of approximately $544 million year-to-date. That pace of payoffs in a rather low leverage company creates more liquidity at a time where new investments can be made at the highest interest rates in over a decade. Last week, the big banks reported that they were largely easing up on additional loan loss reserves because they believe that potential problems are limited and manageable.
From Ladder's perspective, we generally feel the same way and believe we are adequately reserved for potential problems we foresee. While always cautious, we believe the lending market is falling out and borrowers are beginning to accept that rates will simply be higher for a while and they will need to plan accordingly as the era of free money seems to have come to an end. Armed with strong liquidity and a disciplined credit model, we look forward to the rest of 2024. We can now take some questions.
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