Ladder Capital Corp

LADR Details

Ladder Capital Corp (NYSE: LADR) is a leading mortgage real estate investment trust (REIT) in the US. The company invests in a diverse portfolio of senior secured commercial real estate and real estate-related assets. Its investment activities include originating senior first mortgage fixed and floating rate loans collateralized by commercial real estate with flexible loan structures, investing in investment-grade securities secured by first mortgage loans on commercial real estate, and owning and operating commercial real estate, including net-leased commercial properties. The company has USD 5.4 billion of total assets, including USD 2.8 billion of unencumbered asset pool as of March 31, 2021.

USD 650.0 Million Senior Notes Offering: On June 09, 2021, the company announced the pricing of a private offering of USD 650.0 million aggregate principal amount of 4.75% senior notes due 2029 to be offered to qualified institutional buyers. The company will use the proceeds from the offering for general corporate purposes, including funding the pipeline of new loans, investing in its core business lines, and repaying its indebtedness. The offering is expected to close on June 23, 2021.

Q1FY21 Results: During Q1FY21 (ending March 31, 2021), the company’s interest expense outweighed interest income, resulting in a net interest expense of USD 6.69 million, as opposed to a net interest income of USD 21.19 million in Q1FY20, owing to the decrease in LADR’s security and loan portfolio due to lower prevailing LIBOR rates during the quarter. Net income for Q1FY21 was USD 0.43 million vs net loss of USD 14.06 million reported in Q1FY20. Distributable EPS was USD 0.04 during the quarter, down from USD 0.26 in the year-ago period. LADR’s debt obligations were USD 3.77 billion as of March 31, 2021, lower than USD 4.21 billion reported at FY20 end.

Key Risks: The company’s operations are concentrated in one economic sector (commercial real estate), which makes it highly susceptible to the risk of economic downturns. A decline in the real estate values can reduce the origination of new mortgage and real estate-related loans as borrowers generally use appreciation in the value of their existing properties to support the investment in additional properties. In addition, declining real estate values also increase the probability of losses on loans in the event of default because the value of LADR’s collateral may not be sufficient to cover the loan costs.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LADR Daily Technical Chart

Stock Recommendation: LADR stock surged 18.75% and 61.18% in the past 6 and 9 months, respectively, and is currently close to the higher band of the 52-week range of USD 6.33 to USD 12.65. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 44.02. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 9.88. Considering the significant uptick in the stock price in the past 9 months, pressure on distributable EPS, high leverage, and current valuation, we recommend an “Avoid” rating on the stock at the current price of USD 11.64, down 1.29% as of June 29, 2021, at 2:12 PM ET. Though management has demonstrated a commitment to reducing leverage, the impact of its efforts to expand the distributable earnings base is yet to be determined.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.