Ladder Capital(US:LADR)2020-07-31 05:28Financial Data and Key Metrics Changes - For Q2 2020, the company reported core earnings of $12.8 million or $0.12 per share, excluding a $16.9 million COVID-related adjustment [8][33] - The undepreciated book value per share increased by $0.16 from the prior quarter to $14.17 per share [8] - The adjusted leverage ratio was reduced to 3.09 times, reflecting over $800 million of cash on hand [30] Business Line Data and Key Metrics Changes - The loan portfolio accounts for 44% of total assets, with over 150 loans averaging $19 million each, maintaining a 98% collection rate in July [16][17] - The securities portfolio was reduced by 22% or $424 million during the quarter, with a current valuation of $1.5 billion [22] - The real estate portfolio, predominantly triple net lease properties, reported a 100% collection rate in July [24] Market Data and Key Metrics Changes - The company reduced mark-to-market debt by $1.1 billion or 39%, and total debt outstanding was reduced by $727 million [11][30] - The company has limited exposure to hotel and retail loans, comprising only 14% and 8% of the balance sheet loan portfolio respectively [21] Company Strategy and Development Direction - The company aims to strengthen its balance sheet by increasing liquidity and reducing leverage, with over $750 million of unrestricted cash available [14][11] - The focus is on redeploying capital into commercial real estate investments and new loans, particularly in high-quality stabilized assets [12][13] - The company plans to monitor macroeconomic conditions and investment opportunities, seeking compelling risk-reward dynamics [26] Management's Comments on Operating Environment and Future Outlook - Management remains cautious but optimistic about future opportunities arising from the current crisis, expecting a severe recession lasting about a year [27][44] - The company anticipates a gradual return of condo lending on high-quality assets, which should enhance interest income [13] - Management acknowledges the uncertainty surrounding the economic recovery, influenced by factors such as government actions, job losses, and the pandemic's trajectory [43][44] Other Important Information - The company paid a dividend of $0.20 per share in Q2 [36] - The weighted average loan-to-value (LTV) ratio is 68%, indicating significant equity investment from borrowers [17] Q&A Session Summary Question: Dividend sustainability given core EPS below dividend level - Management is comfortable with the current dividend level and does not plan to adjust it despite current earnings [66] Question: Impact of occupancy rate drop in diversified real estate portfolio - Hotels and retail are the hardest hit, while industrial and apartments are performing well; management is optimistic about future occupancy recovery [71][72] Question: Outlook for transaction activity in the second half of the year - Management expects a cautious approach to deploying capital, with a focus on being a borrower rather than a lender in the current market [84] Question: Viability of the commercial mortgage re-business model - Management believes that levered returns need to settle around 7% to 8% for the model to remain viable, given current market conditions [120] Question: Implications of asset sales at 96% of par for credit profile - Management clarifies that asset sales were strategic and did not indicate distress; the company maintains a strong credit profile with significant cash reserves [124][126]