Ladder Capital(LADR) - 2019 Q2 - Quarterly Report

Report Overview Company Information Ladder Capital Corp filed its Form 10-Q for the quarterly period ended June 30, 2019 - Report Type: Quarterly Report on Form 10-Q for the period ended June 30, 2019[2] - Company Name: Ladder Capital Corp (Commission file number: 001-36299)[2] Shares Outstanding as of July 29, 2019 | Class | Outstanding Shares | | :--- | :--- | | Class A common stock, $0.001 par value | 107,574,439 | | Class B common stock, $0.001 par value | 12,158,933 | Cautionary Statement Regarding Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties affecting future results - The report includes forward-looking statements concerning future results, strategy, and operations, identified by words like "anticipate," "expect," "believe," and "will"[10] - Key risks that could cause actual results to differ from forward-looking statements include general economic conditions, changes in the real estate market, interest rate volatility, financing availability, and the company's ability to maintain its REIT qualification[11] PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements show total assets of $6.41 billion and Q2 net income of $32.2 million Consolidated Balance Sheets Total assets grew to $6.41 billion, driven by an increase in real estate securities Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $6,406,775 | $6,272,872 | | Mortgage loan receivables held for investment, net | $3,101,357 | $3,300,490 | | Real estate securities | $1,788,415 | $1,410,126 | | Real estate and related lease intangibles, net | $984,377 | $998,022 | | Total Liabilities | $4,758,701 | $4,629,237 | | Debt obligations, net | $4,613,088 | $4,452,574 | | Total Equity | $1,648,074 | $1,643,635 | Consolidated Statements of Income Q2 net income attributable to Class A shareholders decreased to $32.2 million, or $0.30 per share Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $32,953 | $36,813 | $68,171 | $70,307 | | Total Other Income (Loss) | $43,708 | $46,381 | $76,856 | $130,714 | | Net Income (Loss) Attributable to Class A Shareholders | $32,244 | $38,406 | $54,419 | $89,281 | | Diluted EPS | $0.30 | $0.40 | $0.51 | $0.93 | Consolidated Statements of Cash Flows Net cash from operations was $132.5 million for the first six months of 2019 Consolidated Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $132,545 | $173,606 | | Net cash used in investing activities | ($49,378) | ($480,471) | | Net cash provided by financing activities | $33,816 | $218,921 | | Net increase (decrease) in cash | $116,983 | ($87,944) | Notes to Consolidated Financial Statements Notes detail the REIT structure, accounting policies, and segment assets for loans, securities, and real estate - The company operates as an internally-managed REIT and conducts its business through Ladder Capital Finance Holdings LLLP (LCFH), in which it holds an 89.8% economic interest as of June 30, 2019[44] - The company adopted ASC Topic 842 (Leases) on January 1, 2019, resulting in the initial recognition of a $3.5 million lease liability and a $3.3 million right-of-use asset[59][67] - The company has three reportable segments: loans, securities, and real estate, which held total assets of $3.2 billion, $1.8 billion, and $1.0 billion, respectively, as of June 30, 2019[371][372] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance across its three business lines, noting a decrease in Q2 net income Overview The company is an internally-managed REIT with $6.4 billion in assets across three business segments - The company operates through three business lines: loans, securities, and real estate investments[385] - The company has a diversified financing strategy, including $1.2 billion of unsecured debt and $3.5 billion of secured debt as of June 30, 2019[389][391] Key Financial Metrics as of June 30, 2019 | Metric | Value | | :--- | :--- | | Total Assets | $6.4 billion | | Total Equity | $1.6 billion | | Loan Portfolio | $3.2 billion | | Securities Portfolio | $1.8 billion | | Real Estate Portfolio | $1.0 billion | Our Businesses The investment portfolio is diversified across loans (50.0%), securities (28.0%), and real estate (15.4%) - The balance sheet loan portfolio consists of 147 first mortgage loans with an aggregate book value of $3.0 billion and a weighted average LTV of 70.1% at origination[399] - The CMBS investment portfolio totaled $1.7 billion, with 100% rated investment grade and 86.7% rated AAA/Aaa[406] Investment Portfolio Composition (June 30, 2019) | Segment | Carrying Value (in thousands) | % of Total Assets | | :--- | :--- | :--- | | Total Loans | $3,213,334 | 50.0% | | Total Securities | $1,788,415 | 28.0% | | Total Real Estate | $984,377 | 15.4% | | Other Investments | $119,370 | 1.9% | Results of Operations Q2 2019 net income decreased by $6.2 million year-over-year, driven by lower interest income and derivative losses - Q2 2019 net income attributable to Class A shareholders fell to $32.2 million from $38.4 million in Q2 2018[438] - Key drivers for the Q2 2019 decline were a $3.9 million decrease in net interest income and a $22.5 million negative change in net results from derivative transactions[440] - H1 2019 net income attributable to Class A shareholders decreased to $54.4 million from $89.3 million in H1 2018, primarily due to a $53.9 million decrease in total other income[475][481] Liquidity and Capital Resources The company maintains diverse liquidity sources to manage its $4.6 billion in total debt obligations - Primary liquidity sources include cash, operating cash flow, repurchase agreements, CLOs, revolving credit facilities, and proceeds from asset sales and capital issuance[514] - As of June 30, 2019, the company had unrestricted cash of $126.5 million and unencumbered assets including $1.1 billion in loans and $301.6 million in securities[521] Debt Obligations Summary (in thousands) | Debt Type | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total repurchase facilities | $1,267,371 | $663,685 | | Mortgage loan financing | $734,652 | $743,902 | | CLO debt | $263,216 | $601,543 | | Borrowings from the FHLB | $1,191,449 | $1,286,000 | | Senior unsecured notes | $1,156,400 | $1,154,991 | | Total debt obligations, net | $4,613,088 | $4,452,574 | Reconciliation of Non-GAAP Financial Measures Non-GAAP measures show Q2 2019 Core Earnings of $51.0 million and an Adjusted Leverage ratio of 2.6x - Adjusted leverage was 2.6x at June 30, 2019, compared to 2.3x at December 31, 2018, a metric that excludes non-recourse CLO debt from total debt obligations[605] Core Earnings Reconciliation (in thousands) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Income (loss) before taxes | $38,292 | $44,140 | $59,970 | $115,841 | | Adjustments (net) | $12,663 | $6,292 | $37,887 | ($1,603) | | Core earnings | $50,955 | $50,432 | $97,857 | $114,238 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to interest rate, market value, liquidity, and credit risks - The company's primary market risk is interest rate risk, which it manages through hedging instruments like interest rate swaps and futures[610] - Other significant risks include market value risk on securities, liquidity risk from market disruptions, credit risk on investments, and risks related to the real estate sector[612][614][615][617] Interest Rate Sensitivity Analysis (as of June 30, 2019) | Change in Interest Rate | Projected Change in Net Income (12-months) | Projected Change in Portfolio Value | | :--- | :--- | :--- | | Decrease by 1.00% | ($10,127 thousand) | $15,077 thousand | | Increase by 1.00% | $19,045 thousand | ($14,523 thousand) | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[624] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2019[625] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company states it is not presently a party to any material litigation matters[627] Item 1A. Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to the risk factors from the Annual Report were reported for the three months ended June 30, 2019[628] Item 2. Unregistered Sales of Securities and Use of Proceeds The company exchanged LP units for common stock and repurchased shares under its buyback program - In H1 2019, 1,139,411 Series REIT and TRS LP Units were exchanged for 1,139,411 shares of Class A common stock[629] - In Q2 2019, the company repurchased 40,065 shares of Class A common stock for an aggregate price of $0.6 million[630] - As of June 30, 2019, $41.1 million remained available for repurchase under the authorized stock repurchase program[633] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[634] Item 6. Exhibits This section lists all exhibits filed with the report, including required certifications - Exhibits filed include Sarbanes-Oxley Section 302 and 906 certifications from the CEO and CFO, and XBRL interactive data files[639]