Price Is What You Pay, Value Is What You Get
- The reduced overhang and increased liquidity has given Ladder substantially more shelf space and investor appeal.
- Price and value are not always one and the same, and it’s clear that the price of Ladder shares is widely disconnected.
- I am maintaining a BUY on Ladder and I am inclined to increase my exposure after the Q1-18 results.
My first article on Ladder Capital (LADR) was almost three years ago (May 22, 2015) in which I initiated a BUY at $17.88 per share. Over the years, I have written 18 articles on LADR and one stands out. On February 25, 2016 I wrote:
“LADR is truly a dirt-cheap REIT. While shares have been impacted by the two primary forces referenced in this article – risk retention and spread widening – the business model is sound. The balance sheet is in great shape, and the experienced management team appears to be managing risk (a higher-ROI business requires expertise).”
Recognizing that LADR was oversold, I stepped on the gas pedal, and even titled my article, “There’s Cheap And There’s Truly Dirt-Cheap.” That was over two years ago, and you can imagine, a lot has happened, notably, shares have grown by over 33%.
The most noteworthy news with Ladder has been the company’s increased investor base and enhanced trading volume:
Much of Ladder’s overhang “then” was the fact that Ladder’s top 4 pre-IPO holders held around 51% of the shares, and “now” that has been reduced to around 10%. As you can see below, the reduced overhand and increased liquidity has given Ladder substantially more shelf space and investor appeal.
One shareholder, Related Companies, was hoping it could gain more shelf space by purchasing all of Ladder’s shares. In January 2018, I explained that Ladder had “received an unsolicited non-binding proposal letter from Related Fund Management, LLC, proposing to acquire all of the outstanding shares of Ladder for $15 per share through a two-step tender offer and merger process, subject to certain conditions.”
Related had previously paid $14.00 per share (around $80 million) and at the time of that announcement, Justin Metz, Managing Principal of Related Fund Management, said: “Ladder’s strong and seasoned management teamoperates a disciplined and differentiated mortgage-focused lending platform and we believe the Company is undervalued by the public marketplace. The ability to acquire a significant stake, as well as join the Board, makes this investment an ideal fit for Related Fund Management and we look forward to a long-term partnership with Ladder.”
News of the Related offer caused Ladder shares to spike (to over $15.00), until a 13-D filing surfaced, in which Related withdrew its offer and Ladder refused to provide more information to boost the bid. You may recall that I provided my own NAV for Ladder back in February in which I explained, “the true value of LADR, based on my analysis, is $19.91 per share.”
To the best of my knowledge, Related is still a shareholder in Ladder, and one of the board seats is occupied by a Related employee. Thus, while the $15.00 Related offer may not have been in the cards, there’s always another day. This reminds me of Warren Buffett’s famous words:
“Price is what you pay, value is what you get”
That implies that price and value are not always one and the same, and it’s clear that the price of Ladder shares is widely disconnected, at least based on my NAV analysis and the latest earnings results…