Ladder Capital: Well Positioned For A Distressed Market

Ladder is a commercial mortgage REIT with a diversified portfolio designed to preserve capital and flexibility to take advantage of period market disruptions.  A few weeks ago CEO Brian Harris said (4Q19 conference call transcript):

Having just raised $750 million a few weeks ago, we have plenty of dry powder and we were deploying it today. And so we would never want to wish anything bad on anybody, but if we could see volatility like today for another week or so I think Ladder capital would do very well.

Since those comments LADR shares have fallen 57% (to mid-afternoon on 3/17).  The company is covered by several brokerage analysts and has been written up many times on Seeking Alpha so this quick note will just focus on whether Ladder is so vulnerable to the effects of the volatility that its CEO wished for?

Possible sources of risk relative to the company’s $6.7Bn in assets and $1.5Bn of equity at 12/31/19:

  • Ladder renewed an expiring shelf registration on 3/16/20 for At-the-Market issuance of new shares (LINK).  Some interpreted this to mean that Ladder must be in financial distress if it is raising capital under current market conditions.  However the filing simply renews an authorization filed last year under which zero shares were sold.  See Changes in Equity in the 2019 10-K:

LADR Changes in Equity

Ladder has not raised funds in a public equity offering since the sale of 5.8mm shares at $17.25 in November 2018 (LINK).  Prior to that Ladder did not raise equity since 2014.

  • Ladder has a diverse portfolio of senior mortgage loans, 11% of which are for retail sector and 11% to hotels, the areas of highest current risk.

LADR Loan port

The company made this comment about its hotel assets during the 4qcc:

LADR 4Q19cc -3

Ladder once had much more exposure to hotels (37% at 12/31/15), but risk is now much smaller.

  • Ladder holds $671mm (net of depreciation) of net lease real estate property, most  of which is “essential” retail.

LADR Net Lease Portfolio

  • Ladder originates loans that it plans to bundle into securitizations rather than holding for long-term investment, but disclosed that it was holding only $50mm at 2/27/20.

Ladder has abundant capital available to acquire bargains in the current market.

  • In January 2020 Ladder issued $750mm of new senior 2027 notes with a 4.25% yield (LINK)
  • Ladder holds a large amount of AAA-rated CMBS that have a modest yield, but provide excellent liquidity and portfolio management flexibility

LADR CMBS

  • During the 4Q19 conference call the company said: “As of February 27th, we had over $2.7 billion of unencumbered assets and over $800 million of liquidity available to fund new investments.”

During a panicky market in early 2016 Ladder’s share price fell to a low of $8.64, but the company delivered excellent operating results for that period as it shifted capital to acquire CMBS securities available at distressed prices.  Brian Harris commented on that quarter’s activity (LINK):

LADR 1Q16 cc

Rather than becoming a victim of current market conditions, Ladder appears to have positioned itself to take advantage of them (4Q19 cc on 2/27):

LADR 4Q19cc -2

LADR 4Q19cc

With a management team and a balance sheet well-prepared for a weak market, Ladder appears to be a bargain at a discount of over 50% to 12/31/19 undepreciated book value of $15.23/share.

Disclosure

At the time of publication I own shares of Ladder Capital.  This disclosure should not be interpreted as any recommendation regarding investment in those shares.  My holding could change at any time after publication.

2 thoughts on “Ladder Capital: Well Positioned For A Distressed Market

  1. Thank you for the article. LADR got their wish for a volatile market. It will be interesting to see how they do. I’ve owned this from time time and done very well. I luckily exited before all of the drop. I have a very small token position now, but considering entry at these levels. thanks again, very insightful

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    1. Thanks. AAA CMBS like those owned by LADR have fully recovered. The company should have some impairments on its loans and RE, but overall I think the market is not giving the company enough credit for the positive factors mentioned in my article.

      Like

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