IPO Report: Ladder Capital (LADR)

Ladder Capital ($LADR) is a commercial finance company.

13 other companies are scheduled to IPO this week.  The full IPO calendar is available at IPOpremium.com

LADR scheduled a $225 million IPO with a market capitalization of $1.7 billion at a price range midpoint of $17 for Thursday, February 6, 2014, on the NYSE.

Manager, Joint managers: Deutsche Bank Securities, Citigroup, Wells Fargo Securities, BofA Merrill Lynch, J.P. Morgan

Co-Managers: FBR Capital Markets, JMP Securities, Keefe Bruyette Woods
SEC Documents

Overview

A commercial finance company, LADR conducts its business through three major business lines: commercial mortgage lending, investments in securities secured by first mortgage loans, and investments in selected net leased and other commercial real estate assets.

However,

• Banks are expected to be more competitive in the commercial lending business article here
• “Banks cut jobs as mortgage boom ends” article here

Conclusion
LADR’s income results for the nine months ended Sept ’13 don’t make any sense. 

For example, for the nine months ended September ’13 total pre-tax income was $167 million.  Income from sale of loans was $141 million, ‘Other income’ was $219 million – which leads to the question ‘what business are they in?’  And it’s not up to the reader to figure it out.

The price-to-book ratio is 1.3 and the adjusted P/E ratio is 16.3 for the nine months ended September ’13, but there is no expected dividend.

The IPO rating on LADR is neutral to negative.

Business

LADR is a leading commercial real estate finance company with a proprietary loan origination platform and an established national footprint.

As a non-bank operating company, LADR believes that it is well-positioned to benefit from the opportunities arising from the diminished supply of commercial real estate debt capital and the substantial demand for new financings in the sector.

LADR believes its comprehensive, fully-integrated in-house infrastructure, access to a diverse array of committed financing sources and highly experienced management team of industry veterans will allow it to continue to prudently grow its business as LADR endeavors to capitalize on profitable opportunities in various market conditions.

Three businss lines
LADR conduct its business through three major business lines: commercial mortgage lending, investments in securities secured by first mortgage loans, and investments in selected net leased and other commercial real estate assets.

LADR a holding not operating company
Following the offering, Ladder Capital Corp will be a holding company and its sole material asset will be a controlling equity interest in LCFH.

Through its ability to appoint the board of LCFH, Ladder Capital Corp will indirectly operate and control all of the business and affairs and consolidate the financial results of LCFH and its subsidiaries.

Dividend policy
No dividends planned

Competition

The commercial real estate finance markets are highly competitive. LADR faces competition for lending and investment opportunities from a variety of institutional lenders and investors and many other market participants, including specialty finance companies, REITs, commercial banks and thrift institutions, investment banks, insurance companies, hedge funds and other financial institutions.

Many of these competitors enjoy competitive advantages over LADR, including greater name recognition, established lending relationships with customers, financial resources, and access to capital.

LADR competes on the basis of relationships, product offering, loan structure, terms, pricing and customer service. Its success depends on its ability to maintain and capitalize on relationships with borrowers and brokers, offer attractive loan products, remain competitive in pricing and terms, and provide superior service.

5% stockholders

Entities affiliated with GI Partners  20.6%

Entities affiliated with TowerBrook  19.4%

GP09 Ladder Holdings, Inc.  13.5%

OCP LCF Investment, Inc.  6.7%

Brian Harris and a Harris Trust  5.2%      

Use of proceeds

LADR expects to net $206.7 million from its IPO. Proceeds are allocated as follows:

to purchase newly-issued LP Units from LCFH.

The proceeds received by LCFH in connection with the sale of newly issued LP Units will be used to grow LADR’s loan origination and related commercial real estate business lines, and for general corporate purposes.  

Although specific assets have not yet been identified, assuming that the proceeds of the offering are applied consistently with its asset allocation as of September 30, 2013, LADR would invest $41.8 million in its loan origination business line to make additional commercial real estate loans, $118.8 million in securities secured by first mortgage loans and $46.1 million in net leased and other commercial real estate assets.

Actual allocation of the proceeds of the offering will ultimately be determined by management’s assessment of the long-term prospects of the business and real estate markets and individual evaluation of investment opportunities.