Notes to Consolidated Financial Statements
1. ORGANIZATION AND OPERATIONS
Ladder Capital Corp is an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. Ladder Capital Corp, as the general partner of Ladder Capital Finance Holdings LLLP (“LCFH,” “Predecessor” or the “Operating Partnership”), operates the Ladder Capital business through LCFH and its subsidiaries. As of
March 31, 2017
, Ladder Capital Corp has a
71.4%
economic interest in LCFH and controls the management of LCFH as a result of its ability to appoint its board members. Accordingly, Ladder Capital Corp consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners (as defined below). In addition, Ladder Capital Corp, through certain subsidiaries which are treated as taxable REIT subsidiaries (each a “TRS”), is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and such indirect U.S. federal, state and local income taxes, there are no material differences between Ladder Capital Corp’s consolidated financial statements and LCFH’s consolidated financial statements.
The IPO Transactions
Ladder Capital Corp was formed as a Delaware corporation on May 21, 2013. The Company conducted an initial public offering (“IPO”) which closed on February 11, 2014. The Company used the net proceeds from the IPO to purchase newly issued limited partnership units (“LP Units”) from LCFH. In connection with the IPO, Ladder Capital Corp also became a holding corporation and the general partner of, and obtained a controlling interest in, LCFH. Ladder Capital Corp’s only business is to act as the general partner of LCFH, and, as such, Ladder Capital Corp indirectly operates and controls all of the business and affairs of LCFH and its subsidiaries through its ability to appoint the LCFH board. The proceeds received by LCFH in connection with the sale of the LP Units have been and will be used for loan origination and related real estate business lines and for general corporate purposes.
Ladder Capital Corp consolidates the financial results of LCFH and its subsidiaries. The ownership interest of certain existing owners of LCFH, who owned LP Units and an equivalent number of shares of Ladder Capital Corp Class B common stock as of the completion of the IPO (the “Continuing LCFH Limited Partners”) and continue to hold equivalent units in the Series of LCFH (as described below) and Ladder Capital Corp Class B common stock, is reflected as a noncontrolling interest in Ladder Capital Corp’s consolidated financial statements.
Immediately prior to the closing of the IPO on February 11, 2014, LCFH effectuated certain transactions intended to simplify its capital structure (the “Reorganization Transactions”). Prior to the Reorganization Transactions, LCFH’s capital structure consisted of
three
different classes of membership interests (Series A and Series B Participating Preferred Units and Class A Common Units), each of which had different capital accounts. The net effect of the Reorganization Transactions was to convert the multiple-class structure into LP Units, a single new class of units in LCFH, and an equal number of shares of Class B common stock of Ladder Capital Corp. The conversion of all of the different classes of LCFH occurred in accordance with conversion ratios for each class of outstanding units based upon the liquidation value of LCFH, as if it had been liquidated upon the IPO, with such value determined by the
$17.00
price per share of Class A common stock sold in the IPO. The distribution of LP Units per class of outstanding units was determined pursuant to the distribution provisions set forth in LCFH’s amended and restated Limited Liability Limited Partnership Agreement (the “Amended and Restated LLLP Agreement”). In addition, in connection with the IPO, certain of LCFH’s existing investors (the “Exchanging Existing Owners”) received
33,672,192
shares of Ladder Capital Corp Class A common stock in lieu of any or all LP Units and shares of Ladder Capital Corp Class B common stock that would otherwise have been issued to such existing investors in the Reorganization Transactions, which resulted in Ladder Capital Corp, or a wholly-owned subsidiary of Ladder Capital Corp, owning
one
LP Unit for each share of Class A Common Stock so issued to the Exchanging Existing Owners.
The IPO resulted in the issuance by Ladder Capital Corp of
15,237,500
shares of Class A common stock to the public, including
1,987,500
shares of Class A common stock offered as a result of the exercise of the underwriters’ over-allotment option, and net proceeds to Ladder Capital Corp of
$238.5 million
(after deducting fees and expenses associated with the IPO). In addition, in connection with the IPO, the Company granted
1,687,513
shares of restricted Class A common stock to members of management, certain directors and certain employees. As a result, the equivalent number of LP Units were issued by LCFH to Ladder Capital Corp.
Pursuant to the Amended and Restated LLLP Agreement, and subject to the applicable minimum retained ownership requirements and certain other restrictions, including notice requirements, from time to time, Continuing LCFH Limited Partners (or certain transferees thereof) had the right to exchange their LP Units for shares of Ladder Capital Corp’s Class A common stock on a
one
-for-
one
basis.
As a result of the Company’s acquisition of LP Units of LCFH and LCFH’s election under Section 754 of the Internal Revenue Code of 1986, as amended (the “Code”), the Company expects to benefit from depreciation and other tax deductions reflecting LCFH’s tax basis for its assets. Those deductions will be allocated to the Company and will be taken into account in reporting the Company’s taxable income.
As a result of the transactions described above, at the time of the IPO:
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Ladder Capital Corp became the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business. Accordingly, Ladder Capital Corp had a
51.0%
economic interest in LCFH (which has since increased), and Ladder Capital Corp has a majority voting interest and controls the management of LCFH;
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50,597,205
shares of Ladder Capital Corp’s Class A common stock were outstanding (comprised of
15,237,500
shares issued to the investors in the IPO,
33,672,192
shares issued to the Exchanging Existing Owners and
1,687,513
shares issued to certain directors, officers, and employees in connection with the IPO), and
48,537,414
shares of Ladder Capital Corp’s Class B common stock were outstanding. Class B common stock has no economic interest but rather voting interest in the Company. At the time of the IPO,
99,134,619
LP Units of LCFH were outstanding, of which
50,597,205
LP Units were held by Ladder Capital Corp and its subsidiaries and
48,537,414
units were held by the Continuing LCFH Limited Partners; and
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LP Units became exchangeable on a
one
-for-
one
basis for shares of Ladder Capital Corp Class A common stock. In connection with an exchange, a corresponding number of shares of Ladder Capital Corp Class B common stock were required to be provided and canceled. LP units and Ladder Capital Corp Class B common stock could not be legally separated. However, the exchange of LP Units for shares of Ladder Capital Corp Class A common stock would not affect the exchanging owners’ voting power since the votes represented by the canceled shares of Ladder Capital Corp Class B common stock would be replaced with the votes represented by the shares of Class A common stock for which such LP Units were exchanged.
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The Company accounted for the Reorganization Transactions as an exchange between entities under common control and recorded the net assets and shareholders’ equity of the contributed entities at historical cost.
The Reorganization Transactions and the IPO are collectively referred to as the “IPO Transactions.”
The REIT Structuring Transactions
In anticipation of the Company’s election to be subject to tax as a REIT under the Internal Revenue Code of 1986 (the “Code”) beginning with its 2015 taxable year (the “REIT Election”), we effected an internal realignment as of December 31, 2014 that we believe permits us to operate as a REIT, subject to the risk factors described in the Annual Report (see “Risk Factors—Risks Related to Our Taxation as a REIT”). As part of this realignment, LCFH and certain of its wholly-owned subsidiaries were serialized in order to segregate our REIT-qualified assets and income from our non-REIT-qualified assets and income. Pursuant to such serialization, all assets and liabilities of LCFH and each such subsidiary were identified as TRS assets and liabilities (e.g., our conduit securitization and condominium sales businesses) and REIT assets and liabilities (e.g., balance sheet loans, real estate and most securities), and were allocated on our internal books and records into two pools within LCFH or such subsidiary, Series TRS and Series REIT (collectively, the “Series”), respectively.
In connection with this serialization, the Amended and Restated LLLP Agreement was amended and restated, effective as of December 5, 2014 and again as of December 31, 2014 (the “Third Amended and Restated LLLP Agreement”). Pursuant to the Third Amended and Restated LLLP Agreement, as of December 31, 2014:
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all assets and liabilities of LCFH were allocated on LCFH’s internal books and records to either Series REIT or Series TRS of LCFH;
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the Company serves as general partner of LCFH and of Series REIT of LCFH;
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LC TRS I LLC (“LC TRS I”), a Delaware limited liability company wholly-owned by Series REIT of LCFH, serves as the general partner of Series TRS of LCFH;
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each outstanding LP Unit was exchanged for one Series REIT limited partnership unit (“Series REIT LP Unit”), which is entitled to receive profits and losses derived from REIT assets and liabilities, and one Series TRS limited partnership unit (“Series TRS LP Unit”), which is entitled to receive profits and losses derived from TRS assets and liabilities (Series REIT LP Units and Series TRS LP Units are collectively referred to as “Series Units”);
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as a result, Ladder Capital Corp owned, directly and indirectly, an aggregate of
51.9%
of Series REIT of LCFH, and, through such ownership, the right to receive
51.9%
of the profits and distributions of Series TRS;
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the limited partners of LCFH owned the remaining
48.1%
of each of Series REIT and Series TRS of LCFH;
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Series REIT of LCFH, in turn, owns, directly or indirectly,
100%
of the REIT series of each of its serialized subsidiaries as well as certain wholly-owned REIT subsidiaries;
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Series TRS of LCFH owns, directly or indirectly,
100%
of the TRS series of each of its serialized subsidiaries, as well as certain wholly-owned TRSs;
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Series TRS LP Units are exchangeable for an equal number of shares (“TRS Shares”) of LC TRS I (a “TRS Exchange”);
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in order to effect the exchange of Series Units for shares of Class A common stock of the Company on a one-for-one basis (the “Class A Exchange”), holders are required to surrender (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit, and (iii) either one Series TRS LP Unit or one TRS Share; and
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Series REIT and Series TRS have separate boards, officers, books and records, bank accounts, and tax identification numbers.
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Each Series of LCFH also signed a separate joinder agreement, agreeing, effective as of 11:59:59 pm on December 31, 2014 (the “Effective Time”), to assume and pay when due (i) any and all liabilities of LCFH incurred or accrued by LCFH as of the Effective Time and (ii) any and all obligations of LCFH arising under contracts, bonds, notes, guarantees, leases or other agreements to which LCFH was a party as of the Effective Time (collectively, the “Agreements”), regardless of whether such obligations arise under the applicable Agreement at, prior to, or after the Effective Time, in each case, with the same force and effect as if each Series had been a signatory to such Agreements on the date thereof.
Also in connection with the REIT Election, the Company’s certificate of incorporation was amended and restated, effective as of February 27, 2015, following approval by our shareholders (the “Charter Amendment”), to, among other things, impose ownership limitations and transfer restrictions to facilitate our compliance with the REIT requirements. To qualify as a REIT under the Code, our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year (other than the first year for which an election to be a REIT has been made). Also, not more than 50% of the value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer “individuals” (as defined to include certain entities such as private foundations) during the last half of a taxable year (other than the first taxable year for which an election to be a REIT has been made). Finally, a person actually or constructively owning 10% or more of the vote or value of the outstanding shares of our capital stock could lead to a level of affiliation between the Company and one or more of its tenants that could disqualify our revenues from the affiliated tenants and possibly jeopardize or otherwise adversely impact our qualification as a REIT.
To facilitate satisfaction of these requirements for qualification as a REIT, the Charter Amendment contains provisions restricting the ownership and transfer of shares of all classes or series of our capital stock. Including ownership limitations in a REIT’s charter is the most effective mechanism to monitor compliance with the above-described provisions of the Code. The Charter Amendment provides that, subject to certain exceptions and the constructive ownership rules, no person may own, or be deemed to own by virtue of the attribution provisions of the Code, in excess of (i)
9.8%
in value of the outstanding shares of all classes or series of our capital stock or (ii)
9.8%
in value or number (whichever is more restrictive) of the outstanding shares of any class of our common stock.
In addition, our Tax Receivable Agreement with the Continuing LCFH Limited Partners (the “TRA Members”) was amended and restated in connection with our REIT Election, effective as of December 31, 2014 (the “TRA Amendment”), in order to preserve a portion of the potential tax benefits currently existing under the Tax Receivable Agreement that would otherwise be reduced in connection with our REIT Election. The TRA Amendment provides that, in lieu of the existing tax benefit payments under the Tax Receivable Agreement for the 2015 taxable year and beyond, LC TRS I will pay to the TRA Members
85%
of the amount of the benefits, if any, that LC TRS I realizes or under certain circumstances (such as a change of control) is deemed to realize as a result of (i) the increases in tax basis resulting from the TRS Exchanges by the TRA Members, (ii) any incremental tax basis adjustments attributable to payments made pursuant to the TRA Amendment, and (iii) any deemed interest deductions arising from payments made by LC TRS I under the TRA Amendment. Under the TRA Amendment, LC TRS I may benefit from the remaining
15%
of cash savings in income tax that it realizes, which is in the same proportion realized by the Company under the existing Tax Receivable Agreement. The purpose of the TRA Amendment was to preserve the benefits of the Tax Receivable Agreement to the extent possible in a REIT, although, as a result, the amount of payments made to the TRA Members under the TRA Amendment is expected to be less than would be made under the prior Tax Receivable Agreement. The TRA Amendment continues to share such benefits in the same proportions and otherwise has substantially the same terms and provisions as the prior Tax Receivable Agreement. See
Note 2
and
Note 15
for further discussion of the Tax Receivable Agreement.
As of March 4, 2015, the Company made the necessary TRS and check-the-box elections and elected to be taxed as a REIT on its tax return for the year ended December 31, 2015, filed in September 2016.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Principles of Combination and Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim periods presented in this report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016, which are included in the Company’s Annual Report, as certain disclosures would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The interim consolidated financial statements have been prepared, without audit, and do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with GAAP.
The consolidated financial statements include the Company’s accounts and those of its subsidiaries which are majority-owned and/or controlled by the Company and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated. The consolidated financial statements of the Company are comprised of the consolidation of LCFH and its wholly-owned and majority owned subsidiaries, prior to the IPO Transactions, and the consolidated financial statements of Ladder Capital Corp, subsequent to the IPO Transactions.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 810 — Consolidation
(“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE.
Noncontrolling interests in consolidated subsidiaries are defined as “the portion of the equity (net assets) in the subsidiaries not attributable, directly or indirectly, to a parent.” Noncontrolling interests are presented as a separate component of capital in the consolidated balance sheets. In addition, the presentation of net income attributes earnings to shareholders/unitholders (controlling interest) and noncontrolling interests.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, the Company chose to “opt out” of such extended transition period, and as a result, it will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that the Company’s decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
The Company could remain an “emerging growth company” for up to five years from the date of the IPO, or until the earliest of (i) the last day of the first fiscal year in which its annual gross revenues exceed $1.07 billion; (ii) the date that the Company becomes a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of its common stock that is held by nonaffiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; or (iii) the date on which the Company has issued more than $1 billion in nonconvertible debt during the preceding three-year period.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of resulting changes are reflected in the consolidated financial statements in the period the changes are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to the following:
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valuation of real estate securities;
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allocation of purchase price for acquired real estate;
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impairment, and useful lives, of real estate;
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useful lives of intangible assets;
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valuation of derivative instruments;
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valuation of deferred tax asset;
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amounts payable pursuant to the Tax Receivable Agreement;
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determination of effective yield for recognition of interest income;
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adequacy of provision for loan losses;
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determination of other than temporary impairment of real estate securities and investments in unconsolidated joint ventures;
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certain estimates and assumptions used in the accrual of incentive compensation and calculation of the fair value of equity compensation issued to employees;
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determination of the effective tax rate for income tax provision; and
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certain estimates and assumptions used in the allocation of revenue and expenses for our segment reporting.
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Cash and Cash Equivalents
The Company considers all investments with original maturities of three months or less, at the time of acquisition, to be cash equivalents. The Company maintains cash accounts at several financial institutions, which are insured up to a maximum of
$250,000
per account as of
March 31, 2017
and
December 31, 2016
. At
March 31, 2017
and
December 31, 2016
, and at various times during the years, the balances exceeded the insured limits.
Restricted Cash
Restricted cash is comprised of accounts the Company maintains with brokers to facilitate financial derivative and repurchase agreement transactions in support of its loan and securities investments and risk management activities. Based on the value of the positions in these accounts and the associated margin requirements, the Company may be required to deposit additional cash into these broker accounts. The cash collateral held by broker is considered restricted cash. Restricted cash also includes tenant security deposits, deposits related to real estate sales and acquisitions and required escrow balances on credit facilities. Prior to January 1, 2017, these amounts were previously recorded in other assets on the Company’s consolidated balance sheets. Prior period amounts have been reclassified to conform to current period presentation.
Investments in Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. The Company applies the equity method by initially recording these investments at cost, as investments in unconsolidated joint ventures, subsequently adjusted for equity in earnings and cash contributions and distributions. The outside basis portion of the Company’s joint ventures is amortized over the anticipated useful lives of the underlying ventures’ tangible and intangible assets acquired and liabilities assumed. Generally, the Company would discontinue applying the equity method when the investment (and any advances) is reduced to zero and would not provide for additional losses unless the Company has guaranteed obligations of the venture or is otherwise committed to providing further financial support for the investee. If the venture subsequently generates income, the Company only recognizes its share of such income to the extent it exceeds its share of previously unrecognized losses. The Company classifies distributions received from it investments in unconsolidated joint ventures using the nature of the distribution approach.
On a periodic basis, management assesses whether there are any indicators that the value of the Company’s investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management’s estimate of the value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. The Company’s estimates of value for each investment (particularly in commercial real estate joint ventures) are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and operating costs. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the values estimated by management in its impairment analyses may not be realized, and actual losses or impairment may be realized in the future. See
Note 6, Investment in Unconsolidated Joint Ventures
.
Out-of-Period Adjustments
During the first quarter of 2017, the Company recorded an out-of-period adjustment to reduce depreciation expense of
$0.8 million
, related to prior periods. The Company has concluded that this adjustment is not material to the financial position or results of operations for the three months ended March 31, 2017, or any prior periods; accordingly, the Company recorded the related adjustment in the three month period ended March 31, 2017.
During the first quarter of 2016, the Company had recorded the following out-of-period adjustments to correct errors from prior periods: (i) additional deferred financing cost amortization of
$0.5 million
relating to 2015; (ii) additional taxes of
$1.2 million
representing additional state taxes relating to 2015 and (iii) additional return on equity of
$0.9 million
from the Company’s investment in an unconsolidated joint venture predominately relating to prior years. The Company has concluded that these adjustments were not material to the financial position or results of operations for the current period or any prior periods, accordingly, the Company recorded the related adjustments in the three month period ended March 31, 2016.
Recently Adopted Accounting Pronouncements
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. For a public company, ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted in any interim or annual period. The Company elected to early adopt ASU 2016-15 effective January 1, 2017. The adoption did not have a material effect on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU 2016-17,
Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control
(“ASU 2016-17”). ASU 2016-17 changes how a reporting entity that is a decision maker should consider indirect interests in a VIE held through an entity under common control. If a decision maker must evaluate whether it is the primary beneficiary of a VIE, it will only need to consider its proportionate indirect interest in the VIE held through a common control party. ASU 2016-17 amends ASU 2015-02, which the Company adopted on January 1, 2016, and which currently directs the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. ASU 2016-17 is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company adopted this update in the quarter ended March 31, 2017. The adoption did not have a material effect on the Company’s consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”). ASU 2016-18 requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-the period and end-of-period total amounts shown on the statement of cash flows. For a public company, ASU 2016-18 is effective for annual reporting periods, beginning after December 15, 2017, including interim periods within that reporting period. The Company elected to early adopt ASU 2016-18 effective January 1, 2017 and the amendment was applied on a retrospective basis for all periods presented. As a result of the adoption, the Company no longer presents the change within restricted cash in the consolidated statements of cash flows.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14,
Deferral of the Effective Date
(“ASU 2015-14”), which amends ASU 2014-09. As a result, the effective date for the amendments contained in ASU 2014-09 will be the first quarter of fiscal year 2018, with early adoption permitted in the first quarter of fiscal year 2017. The FASB allows two adoption methods under ASU 2014-09. Under the full retrospective method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the modified retrospective method, a company will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous rules. The Company continues to evaluate the available adoption methods and has not yet selected which transition method it will apply. The Company believes the effects on its existing accounting policies will be associated with its non-leasing revenue components, specifically the amount, timing and presentation of tenant expense reimbursements revenue. The Company is also currently evaluating the impact to the amount and timing of historical real estate sales and associated gain recognition. The Company continues to evaluate other areas of the standard and is currently assessing the impact on its consolidated financial statements. The Company expects to adopt this update beginning January 1, 2018.
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(“ASU 2016-08”). This update provides clarifying guidance regarding the application of ASU 2014-09 when another party, along with the reporting entity, is involved in providing a good or a service to a customer. In these circumstances, an entity is required to determine whether the nature of its promise is to provide that good or service to the customer (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
(“ASU 2016-10”), which clarifies the identification of performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-11,
Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Issues Task Force (“EITF”) Meeting (SEC Update)
(“ASU 2016-11”), which rescinds SEC paragraphs pursuant to SEC staff announcements. These rescissions include changes to topics pertaining to accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
(“ASU 2016-12”), which provides clarifying guidance in certain narrow areas and adds some practical expedients. The effective dates for these ASUs are the same as the effective date for ASU No. 2014-09, for annual and interim periods beginning after December 15, 2017. The Company is reviewing its policies and processes to ensure compliance with the requirements in these updates.
In December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
(“ASU 2016-20”). The amendments in this ASU affect the guidance in ASU 2014-09, which is not yet effective. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date
, defers the effective date of ASU 2014-09 by one year.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU 2016-01”). The update provides guidance to improve certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard is effective for public companies for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption by public companies for fiscal year or interim period financial statements that have not yet been issued or, by all other entities, that have not yet been made available for issuance of this guidance, is permitted as of the beginning of the fiscal year of adoption, under certain restrictions. The Company is required to apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The guidance related to equity securities without readily determinable fair values should be applied prospectively to equity investments that exist at the date of adoption. The Company anticipates adopting this update in the quarter ending March 31, 2018 and is currently evaluating the impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
("ASU 2016-02"), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sale-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous lease standard,
Leases (Topic 840)
. The standard is effective for the Company on January 1, 2019, with an early adoption permitted. The Company continues to evaluate the effect the adoption of ASU 2016-02 will have on the Company's financial position and/or results of operations. The Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is the lessee, primarily for the Company's corporate headquarters and regional offices, the Company
will measure the present value of the future lease payments and recognize a right-of-use asset and corresponding lease liability on its balance sheet
.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). The guidance changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company must apply the amendments in this update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently assessing the impact of this standard on the consolidated financial statements. In general, the allowance for credit losses is expected to increase when changing from an incurred loss to expected loss methodology. The models and methodologies that are currently used in estimating the allowance for credit losses are being evaluated to identify the changes necessary to meet the requirements of the new standard.
In January 2017, the FASB issued ASU 2017-04,
Intangibles—Goodwill and Other (Topic 350)
(“ASU 2017-04”). The ASU simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2019 with early adoption permitted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements when adopted.
In February 2017, the FASB issued ASU 2017-05,
Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)
(“ASU 2017-05”). Subtopic 610-20 was issued as part of the new revenue standard. It provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. The new guidance defines “in substance nonfinancial assets,” unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing sales of real estate, removes exceptions to the financial asset derecognition model, and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The amendments are effective for annual periods beginning after December 15, 2017 with early adoption permitted. Transition can use either the full retrospective approach or the modified retrospective approach. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements when adopted.
In March 2017, the FASB issued ASU 2017-08,
Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20)
(“ASU 2017-08”). The ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements when adopted.
Any new accounting standards, not disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
3. MORTGAGE LOAN RECEIVABLES
March 31, 2017
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Face Amount
|
|
Carrying
Value
|
|
Weighted
Average
Yield (1)
|
|
Remaining
Maturity
(years)
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan receivables held for investment, at amortized cost
|
$
|
2,317,221
|
|
|
$
|
2,304,093
|
|
|
6.93
|
%
|
|
1.70
|
|
Provision for loan losses
|
N/A
|
|
|
(4,000
|
)
|
|
|
|
|
|
Total mortgage loan receivables held for investment, at amortized cost
|
2,317,221
|
|
|
2,300,093
|
|
|
|
|
|
|
Mortgage loan receivables held for sale
|
520,679
|
|
|
516,582
|
|
|
5.06
|
%
|
|
7.71
|
|
Total
|
$
|
2,837,900
|
|
|
$
|
2,816,675
|
|
|
6.59
|
%
|
|
2.81
|
(1)
March 31, 2017
London Interbank Offered Rate (“LIBOR”) rates are used to calculate weighted average yield for floating rate loans.
As of
March 31, 2017
,
$459.2 million
, or
19.9%
, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and
$1.8 billion
, or
80.1%
, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, some of which include interest rate floors. As of
March 31, 2017
,
$516.6 million
, or
100.0%
, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.
December 31, 2016
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Face Amount
|
|
Carrying
Value
|
|
Weighted
Average
Yield (1)
|
|
Remaining
Maturity
(years)
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan receivables held for investment, at amortized cost
|
$
|
2,011,309
|
|
|
$
|
2,000,095
|
|
|
7.17
|
%
|
|
1.66
|
|
Provision for loan losses
|
N/A
|
|
|
(4,000
|
)
|
|
|
|
|
|
Total mortgage loan receivables held for investment, at amortized cost
|
2,011,309
|
|
|
1,996,095
|
|
|
|
|
|
|
Mortgage loan receivables held for sale
|
360,518
|
|
|
357,882
|
|
|
4.20
|
%
|
|
4.55
|
|
Total
|
2,371,827
|
|
|
2,353,977
|
|
|
6.73
|
%
|
|
2.10
|
(1)
December 31, 2016
LIBOR rates are used to calculate weighted average yield for floating rate loans.
As of
December 31, 2016
,
$205.4 million
, or
10.3%
, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and
$1.8 billion
, or
89.7%
, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, some of which include interest rate floors. As of
December 31, 2016
,
$360.5 million
, or
100%
, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.
The following table summarizes mortgage loan receivables by loan type ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Outstanding
Face Amount
|
|
Carrying
Value
|
|
Outstanding
Face Amount
|
|
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan receivables held for investment, at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
$
|
2,149,727
|
|
|
$
|
2,137,383
|
|
|
$
|
1,843,006
|
|
|
$
|
1,832,626
|
|
|
Mezzanine loans
|
167,494
|
|
|
166,710
|
|
|
168,303
|
|
|
167,469
|
|
|
Total mortgage loan receivables held for investment, at amortized cost
|
2,317,221
|
|
|
2,304,093
|
|
|
2,011,309
|
|
|
2,000,095
|
|
|
Mortgage loan receivables held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage loans
|
520,679
|
|
|
516,582
|
|
|
360,518
|
|
|
357,882
|
|
|
Total mortgage loan receivables held for sale
|
520,679
|
|
|
516,582
|
|
|
360,518
|
|
|
357,882
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
N/A
|
|
|
(4,000
|
)
|
|
N/A
|
|
|
(4,000
|
)
|
|
Total
|
$
|
2,837,900
|
|
|
$
|
2,816,675
|
|
|
$
|
2,371,827
|
|
|
$
|
2,353,977
|
|
For the
three months ended
March 31, 2017
and
2016
, the activity in our loan portfolio was as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
receivables held
for investment, at
amortized cost (1)
|
|
Mortgage loan
receivables held
for sale
|
|
|
|
|
|
|
Balance, December 31, 2016
|
$
|
1,996,095
|
|
|
$
|
357,882
|
|
|
Origination of mortgage loan receivables
|
249,829
|
|
|
279,898
|
|
|
Repayment of mortgage loan receivables
|
(68,251
|
)
|
|
(247
|
)
|
|
Realized gain on sale of mortgage loan receivables(2)
|
—
|
|
|
(999
|
)
|
|
Transfer between held for investment and held for sale(3)
|
119,952
|
|
|
(119,952
|
)
|
|
Accretion/amortization of discount, premium and other fees
|
2,468
|
|
|
—
|
|
|
Balance, March 31, 2017
|
$
|
2,300,093
|
|
|
$
|
516,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan
receivables held
for investment, at
amortized cost (1)
|
|
Mortgage loan
receivables held
for sale
|
|
|
|
|
|
|
Balance, December 31, 2015
|
$
|
1,738,645
|
|
|
$
|
571,764
|
|
|
Origination of mortgage loan receivables
|
49,735
|
|
|
91,027
|
|
|
Repayment of mortgage loan receivables
|
(218,410
|
)
|
|
(524
|
)
|
|
Proceeds from sales of mortgage loan receivables
|
—
|
|
|
(316,766
|
)
|
|
Realized gain on sale of mortgage loan receivables
|
—
|
|
|
7,830
|
|
|
Accretion/amortization of discount, premium and other fees
|
3,013
|
|
|
—
|
|
|
Loan loss provision
|
(150
|
)
|
|
—
|
|
|
Balance, March 31, 2016
|
$
|
1,572,833
|
|
|
$
|
353,331
|
|
(1)
Includes provision for loan losses of
$4.0 million
and
$3.9 million
as of
March 31, 2017
and
2016
, respectively.
(2)
Includes
$1.0 million
of realized losses on loans recorded as other than temporary impairments related to lower of cost or market adjustments for the
three months ended
March 31, 2017
.
|
|
|
|
(3)
|
During the
three months ended
March 31, 2017
, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, at amortized cost, a loan with an outstanding face amount of
$120.0 million
, a book value of
$120.0 million
(fair value at date of reclassification) and a remaining maturity of
3 years
. The loan had been recorded at lower of cost or market prior to its reclassification. The discount to fair value is the result of an increase in market interest rates since the loan’s origination and not a deterioration in credit of the borrower or collateral coverage and the Company expects to collect all amounts due under the loan. The transfer has been reflected as a non-cash item on the consolidated statement of cash flows for the
three months ended
March 31, 2017
.
|
During the
three months ended
March 31, 2017
, the transfers of financial assets via sales of loans were treated as sales in accordance with ASC Topic 860
—
Transfers and Servicing, with the exception of
two
assets with a combined book value of
$56.1 million
in which the Company retains effective control that would preclude sales accounting. The transfers are considered nonrecourse secured borrowings in which the assets remain on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds of
$56.1 million
are recognized in debt obligations. During the
three months ended
March 31, 2016
, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860
—
Transfers and Servicing.
At
March 31, 2017
and
December 31, 2016
, there was
$0.5 million
and
$0.6 million
, respectively, of unamortized discounts included in our mortgage loan receivables held for investment, at amortized cost, on our consolidated balance sheets.
The Company evaluates each of its loans for potential losses at least quarterly. Its loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data. As a result of this analysis, the Company has concluded that
none
of its loans are individually impaired as of
March 31, 2017
and
December 31, 2016
.
However, based on the inherent risks shared among the loans as a group, it is probable that the loans had incurred an impairment due to common characteristics and inherent risks in the portfolio. Therefore, the Company has recorded a reserve, based on a targeted percentage level which it seeks to maintain over the life of the portfolio, as disclosed in the tables below. Historically, the Company has not incurred losses on any originated loans.
As of
March 31, 2017
,
two
of the Company’s loans, which were originated simultaneously as part of a single transaction, and had a carrying value of
$26.9 million
, were in default. The borrower is currently in bankruptcy court; however, the Company determined that
no
impairment was necessary and continues to accrue interest on these loans because the loans’ collateral value was in excess of the outstanding balances and pursue its legal remedies. As of
March 31, 2017
, accrued but unpaid interest totaled
$1.9 million
, which included
$1.8 million
of default interest. As of
December 31, 2016
, the same
two
loans mentioned above were in default. As of
December 31, 2016
, accrued but unpaid interest totaled
$3.5 million
, which included
$2.2 million
of default interest.
As of
March 31, 2017
and
December 31, 2016
there were
no
loans on non-accrual status.
Provision for Loan Losses
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Provision for loan losses at beginning of period
|
$
|
4,000
|
|
|
$
|
3,700
|
|
|
Provision for loan losses
|
—
|
|
|
150
|
|
|
Provision for loan losses at end of period
|
$
|
4,000
|
|
|
$
|
3,850
|
|
4. REAL ESTATE SECURITIES
Commercial mortgage backed securities (“CMBS”), CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities and Government National Mortgage Association (“GNMA”) permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at
March 31, 2017
and
December 31, 2016
($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Weighted Average
|
|
Asset Type
|
|
Outstanding
Face Amount
|
|
Amortized
Cost Basis
|
|
Gains
|
|
Losses
|
|
Carrying
Value
|
|
# of
Securities
|
|
Rating (1)
|
|
Coupon %
|
|
Yield %
|
|
Remaining
Duration
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(2)
|
|
$
|
1,306,653
|
|
|
$
|
1,323,369
|
|
|
$
|
7,909
|
|
|
$
|
(6,028
|
)
|
|
$
|
1,325,250
|
|
|
128
|
|
|
AAA
|
|
3.18
|
%
|
|
2.72
|
%
|
|
3.38
|
|
CMBS interest-only(2)
|
|
7,801,370
|
|
(3)
|
316,486
|
|
|
4,749
|
|
|
(370
|
)
|
|
320,865
|
|
|
59
|
|
|
AAA
|
|
1.01
|
%
|
|
3.58
|
%
|
|
3.04
|
|
GNMA interest-only(4)
|
|
457,597
|
|
(3)
|
17,640
|
|
|
196
|
|
|
(2,211
|
)
|
|
15,625
|
|
|
17
|
|
|
AA+
|
|
0.72
|
%
|
|
4.47
|
%
|
|
4.37
|
|
Agency securities(2)
|
|
760
|
|
|
786
|
|
|
—
|
|
|
(15
|
)
|
|
771
|
|
|
2
|
|
|
AA+
|
|
2.88
|
%
|
|
1.90
|
%
|
|
3.35
|
|
GNMA permanent securities(2)
|
|
38,029
|
|
|
38,836
|
|
|
879
|
|
|
(246
|
)
|
|
39,469
|
|
|
9
|
|
|
AA+
|
|
4.08
|
%
|
|
3.69
|
%
|
|
5.81
|
|
Total
|
|
$
|
9,604,409
|
|
|
$
|
1,697,117
|
|
|
$
|
13,733
|
|
|
$
|
(8,870
|
)
|
|
$
|
1,701,980
|
|
|
215
|
|
|
|
|
1.31
|
%
|
|
2.92
|
%
|
|
3.38
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
Weighted Average
|
|
Asset Type
|
|
Outstanding
Face Amount
|
|
Amortized
Cost Basis
|
|
Gains
|
|
Losses
|
|
Carrying
Value
|
|
# of
Securities
|
|
Rating (1)
|
|
Coupon %
|
|
Yield %
|
|
Remaining
Duration
(years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(2)
|
|
$
|
1,676,680
|
|
|
$
|
1,698,616
|
|
|
$
|
10,880
|
|
|
$
|
(8,101
|
)
|
|
$
|
1,701,395
|
|
|
131
|
|
|
AAA
|
|
3.26
|
%
|
|
2.81
|
%
|
|
3.55
|
|
CMBS interest-only(2)
|
|
8,160,458
|
|
(3)
|
343,438
|
|
|
1,273
|
|
|
(2,540
|
)
|
|
342,171
|
|
|
60
|
|
|
AAA
|
|
0.87
|
%
|
|
3.45
|
%
|
|
2.99
|
|
GNMA interest-only(4)
|
|
478,577
|
|
(3)
|
18,994
|
|
|
159
|
|
|
(2,332
|
)
|
|
16,821
|
|
|
17
|
|
|
AA+
|
|
0.73
|
%
|
|
4.19
|
%
|
|
4.44
|
|
Agency securities(2)
|
|
774
|
|
|
802
|
|
|
—
|
|
|
(22
|
)
|
|
780
|
|
|
2
|
|
|
AA+
|
|
2.90
|
%
|
|
1.29
|
%
|
|
3.27
|
|
GNMA permanent securities(2)
|
|
38,327
|
|
|
39,144
|
|
|
882
|
|
|
(246
|
)
|
|
39,780
|
|
|
9
|
|
|
AA+
|
|
4.09
|
%
|
|
3.80
|
%
|
|
10.30
|
|
Total
|
|
$
|
10,354,816
|
|
|
$
|
2,100,994
|
|
|
$
|
13,194
|
|
|
$
|
(13,241
|
)
|
|
$
|
2,100,947
|
|
|
219
|
|
|
|
|
1.27
|
%
|
|
2.94
|
%
|
|
3.60
|
|
|
|
|
(1)
|
Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time.
|
|
|
|
|
(2)
|
CMBS, CMBS interest-only securities, Agency securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
|
|
|
|
|
(3)
|
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
|
|
|
|
|
(4)
|
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815.
|
The following is a breakdown of the carrying value of the Company’s securities by remaining maturity based upon expected cash flows at
March 31, 2017
and
2016
($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Within 1 year
|
|
1-5 years
|
|
5-10 years
|
|
After 10 years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
|
$
|
74,889
|
|
|
$
|
1,008,680
|
|
|
$
|
241,681
|
|
|
$
|
—
|
|
|
$
|
1,325,250
|
|
|
CMBS interest-only(1)
|
|
1,128
|
|
|
319,737
|
|
|
—
|
|
|
—
|
|
|
320,865
|
|
|
GNMA interest-only(2)
|
|
172
|
|
|
14,691
|
|
|
713
|
|
|
49
|
|
|
15,625
|
|
|
Agency securities(1)
|
|
—
|
|
|
771
|
|
|
—
|
|
|
—
|
|
|
771
|
|
|
GNMA permanent securities(1)
|
|
1,593
|
|
|
2,086
|
|
|
35,790
|
|
|
—
|
|
|
39,469
|
|
|
Total
|
|
$
|
77,782
|
|
|
$
|
1,345,965
|
|
|
$
|
278,184
|
|
|
$
|
49
|
|
|
$
|
1,701,980
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Type
|
|
Within 1 year
|
|
1-5 years
|
|
5-10 years
|
|
After 10 years
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
|
$
|
132,730
|
|
|
$
|
1,156,026
|
|
|
$
|
412,639
|
|
|
$
|
—
|
|
|
$
|
1,701,395
|
|
|
CMBS interest-only(1)
|
|
11,188
|
|
|
330,983
|
|
|
—
|
|
|
—
|
|
|
342,171
|
|
|
GNMA interest-only(2)
|
|
—
|
|
|
15,914
|
|
|
724
|
|
|
183
|
|
|
16,821
|
|
|
Agency securities(1)
|
|
—
|
|
|
780
|
|
|
—
|
|
|
—
|
|
|
780
|
|
|
GNMA permanent securities(1)
|
|
—
|
|
|
4,488
|
|
|
27,675
|
|
|
7,617
|
|
|
39,780
|
|
|
Total
|
|
$
|
143,918
|
|
|
$
|
1,508,191
|
|
|
$
|
441,038
|
|
|
$
|
7,800
|
|
|
$
|
2,100,947
|
|
|
|
|
|
(1)
|
CMBS, CMBS interest-only securities, Agency securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
|
|
|
|
|
(2)
|
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
|
There were
$0.4 million
and
$0.6 million
realized losses on securities recorded as other than temporary impairments for the
three months ended
March 31, 2017
and
2016
, respectively. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. Consideration is given to (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of recovery in fair value of the security, and (iii) the Company’s intent to sell the security and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. The Company has no intention to sell the securities before recovery of its amortized cost basis. For cash flow statement purposes, all receipts of interest from interest-only real estate securities are treated as part of cash flows from operations.
5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET
The following tables present additional detail related to our real estate portfolio ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
Land
|
$
|
144,085
|
|
|
$
|
143,286
|
|
|
Building
|
645,535
|
|
|
646,372
|
|
|
In-place leases and other intangibles
|
155,160
|
|
|
154,687
|
|
|
Less: Accumulated depreciation and amortization
|
(130,427
|
)
|
|
(122,007
|
)
|
|
Real estate and related lease intangibles, net
|
$
|
814,353
|
|
|
$
|
822,338
|
|
|
|
|
|
|
|
Below market lease intangibles, net (other liabilities)
|
$
|
(16,428
|
)
|
|
$
|
(16,506
|
)
|
The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
Depreciation expense (1)
|
$
|
5,720
|
|
|
$
|
6,104
|
|
|
Amortization expense
|
2,849
|
|
|
3,693
|
|
|
Total real estate depreciation and amortization expense
|
$
|
8,569
|
|
|
$
|
9,797
|
|
|
|
|
|
(1)
|
Depreciation expense on the consolidated statements of income also includes
$23 thousand
and
$5 thousand
of depreciation on corporate fixed assets for the
three months ended
March 31, 2017
and
2016
, respectively.
|
The Company’s intangible assets are comprised of in-place leases, favorable leases compared to market leases and other intangibles. At
March 31, 2017
, gross intangible assets totaled
$155.2 million
with total accumulated amortization of
$51.2 million
, resulting in net intangible assets of
$104.0 million
, including
$6.8 million
of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. At
December 31, 2016
, gross intangible assets totaled
$154.7 million
with total accumulated amortization of
$48.1 million
, resulting in net intangible assets of
$106.6 million
, including
$7.0 million
of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. For the
three months ended
March 31, 2017
and
2016
, the Company recorded a net increase (reduction) in operating lease income of
$(0.3) million
and
$0.4 million
, respectively, for amortization of above market lease intangibles acquired. For the
three months ended
March 31, 2017
and
2016
, the Company recorded a net increase (reduction) in operating lease income of
$0.3 million
and
$(0.4) million
, respectively, for amortization of below market lease intangibles acquired.
The following table presents expected amortization expense during the next five years and thereafter related to the acquired in-place lease intangibles for property owned as of
March 31, 2017
($ in thousands):
|
|
|
|
|
|
|
|
|
Period Ending December 31,
|
|
Amount
|
|
|
|
|
|
2017 (last 9 months)
|
|
$
|
8,964
|
|
|
2018
|
|
7,650
|
|
|
2019
|
|
7,650
|
|
|
2020
|
|
7,650
|
|
|
2021
|
|
6,824
|
|
|
Thereafter
|
|
65,270
|
|
|
Total
|
|
$
|
104,008
|
|
There were
$0.6 million
and
$0.7 million
of unbilled rent receivables included in other assets on the consolidated balance sheets as of
March 31, 2017
and
December 31, 2016
, respectively.
There was unencumbered real estate of
$63.1 million
and
$70.3 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases or rent escalations under other leases from tenants) at
March 31, 2017
($ in thousands):
|
|
|
|
|
|
|
|
|
Period Ending December 31,
|
|
Amount
|
|
|
|
|
|
2017 (last 9 months)
|
|
$
|
55,786
|
|
|
2018
|
|
70,931
|
|
|
2019
|
|
65,911
|
|
|
2020
|
|
62,574
|
|
|
2021
|
|
59,407
|
|
|
Thereafter
|
|
505,373
|
|
|
Total
|
|
$
|
819,982
|
|
Acquisitions
During the
three months ended
March 31, 2017
, the Company acquired the following properties ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition Date
|
|
Type
|
|
Primary Location(s)
|
|
Purchase Price
|
|
Ownership Interest (1)
|
|
|
|
|
|
|
|
|
|
|
|
February 2017
|
|
Net Lease
|
|
Carmi, IL
|
|
$
|
1,411
|
|
|
100.0%
|
|
February 2017
|
|
Net Lease
|
|
Peoria, IL
|
|
1,183
|
|
|
100.0%
|
|
March 2017
|
|
Net Lease
|
|
Ridgedale, MO
|
|
1,298
|
|
|
100.0%
|
|
Total
|
|
|
|
$
|
3,892
|
|
|
|
(1) Properties were consolidated as of acquisition date.
On October 1, 2016, the Company early adopted Accounting Standards Update (“ASU”) 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”). As a result of this adoption, acquisitions of real estate do not meet the revised definition of a business and are treated as asset acquisitions rather than business combinations. The measurement of assets and liabilities acquired will no longer be recorded at fair value and the Company will now allocate purchase consideration based on relative fair values. Real estate acquisition costs are no longer expensed as incurred and will now be capitalized as a component of the cost of the assets acquired.
The purchase prices were allocated to the net assets acquired, which also include asset acquisitions occurring on or after October 1, 2016, during the
three months ended
March 31, 2017
, as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
Land
|
|
$
|
744
|
|
|
Building
|
|
2,777
|
|
|
Intangibles
|
|
559
|
|
|
Below Market Lease Intangibles
|
|
(188
|
)
|
|
Total purchase price
|
|
$
|
3,892
|
|
The weighted average amortization period for intangible assets acquired during the
three months ended
March 31, 2017
was
34.2
years. The Company recorded
$35,946
in revenues and
$35,946
in earnings (losses) from its
2017
acquisitions for the
three months ended
March 31, 2017
, which are included in our consolidated statements of income.
No
properties were acquired during the
three months ended
March 31, 2016
.
Sales
The Company sold the following properties during the
three months ended
March 31, 2017
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Date
|
|
Type
|
|
Primary Location(s)
|
|
Net Sales Proceeds
|
|
Net Book Value
|
|
Realized Gain/(Loss)
|
|
Properties
|
|
Units Sold
|
|
Units Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various
|
|
Condominium
|
|
Las Vegas, NV
|
|
$
|
4,200
|
|
|
$
|
2,320
|
|
|
$
|
1,880
|
|
|
—
|
|
|
12
|
|
|
47
|
|
|
Various
|
|
Condominium
|
|
Miami, FL
|
|
2,125
|
|
|
1,674
|
|
|
451
|
|
|
—
|
|
|
6
|
|
|
82
|
|
|
Totals
|
|
|
|
|
|
$
|
6,325
|
|
|
$
|
3,994
|
|
|
$
|
2,331
|
|
|
|
|
|
|
|
The Company sold the following properties during the
three months ended
March 31, 2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Date
|
|
Type
|
|
Primary Location(s)
|
|
Net Sales Proceeds
|
|
Net Book Value
|
|
Realized Gain/(Loss)
|
|
Properties
|
|
Units Sold
|
|
Units Remaining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 2016
|
|
Net Lease
|
|
Rockland, MA
|
|
$
|
7,922
|
|
|
$
|
7,211
|
|
|
$
|
711
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Various
|
|
Condominium
|
|
Las Vegas, NV
|
|
8,404
|
|
|
4,417
|
|
|
3,987
|
|
|
—
|
|
|
17
|
|
|
115
|
|
|
Various
|
|
Condominium
|
|
Miami, FL
|
|
5,963
|
|
|
4,566
|
|
|
1,397
|
|
|
—
|
|
|
21
|
|
|
132
|
|
|
Totals
|
|
|
|
|
|
$
|
22,289
|
|
|
$
|
16,194
|
|
|
$
|
6,095
|
|
|
|
|
|
|
|
Real Estate Sold or Classified as Held for Sale
On January 1, 2014, the Company early adopted ASU 2014-08,
Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
, and as the properties sold or classified as real estate held for sale in the
three months ended
March 31, 2017
and
2016
did not represent a strategic shift (as the Company is not entirely exiting markets or property types), they have not been reflected as part of discontinued operations.
6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of
March 31, 2017
, the Company had an aggregate investment of
$34.2 million
in its equity method joint ventures with unaffiliated third parties.
Included in the Company’s investments in unconsolidated joint ventures as of
March 31, 2017
is
one
unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture is primarily established to develop real estate property for long-term investment and was deemed to be a VIE primarily based on the fact there are disproportionate voting and economic rights within the joint venture. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has shared control of this entity along with the entity’s partner and therefore does not have controlling financial interests in this VIE. The Company’s aggregate investment in this VIE was
$30.2 million
. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this VIE that it was not previously contractually required to provide. In general, future costs of development not financed through a third party will be funded with capital contributions from the Company and its outside partner in accordance with their respective ownership percentages.
The following is a summary of the Company’s investments in unconsolidated joint ventures, which we account for using the equity method, as of
March 31, 2017
and
December 31, 2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Ladder Capital Realty Income Partnership I LP
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Grace Lake JV, LLC
|
|
3,958
|
|
|
3,719
|
|
|
24 Second Avenue Holdings LLC
|
|
30,227
|
|
|
30,306
|
|
|
Investment in unconsolidated joint ventures
|
|
$
|
34,185
|
|
|
$
|
34,025
|
|
The following is a summary of the Company’s allocated earnings (losses) based on its ownership interests from investment in unconsolidated joint ventures for the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Entity
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Ladder Capital Realty Income Partnership I LP
|
|
$
|
—
|
|
|
$
|
892
|
|
|
Grace Lake JV, LLC
|
|
238
|
|
|
225
|
|
|
24 Second Avenue Holdings LLC
|
|
(312
|
)
|
|
(323
|
)
|
|
Earnings (loss) from investment in unconsolidated joint ventures
|
|
$
|
(74
|
)
|
|
$
|
794
|
|
Ladder Capital Realty Income Partnership I LP
On April 15, 2011, the Company entered into a limited partnership agreement, becoming the general partner and acquiring a
10%
limited partnership interest in LCRIP I to invest in first mortgage loans held for investment and acted as general partner and manager to LCRIP I. The Company accounted for its interest in LCRIP I using the equity method of accounting, as it exerted significant influence but the unrelated limited partners had substantive participating rights, as well as kick-out rights. During the quarter ended June 30, 2015, the last loan held by LCRIP I was repaid. The term of the partnership expired on April 15, 2016. At that time, LCRIP I made distributions to the partners in the aggregate amounts determined by the general partner in accordance with the Limited Partnership Agreement. Simultaneously with the execution of the LCRIP I Partnership Agreement, the Company was engaged as the manager of LCRIP I and was entitled to a fee based upon the average net equity invested in LCRIP I, which was subject to a fee reduction in the event average net equity invested in LCRIP I exceeded
$100.0 million
. As discussed in “Out-of-Period Adjustments” in
Note 2. Significant Accounting Policies
, during the first quarter of 2016, the Company recorded an additional return on equity of
$0.9 million
in this investment in unconsolidated joint venture predominately relating to prior years. During the
three months ended
March 31, 2017
, the Company recorded
no
management fees. During the
three months ended
March 31, 2016
, the Company recorded
$6,905
in management fees, which is reflected in fee and other income in the consolidated statements of income.
Grace Lake JV, LLC
In connection with the origination of a loan in April 2012, the Company received a
25%
equity kicker with the right to convert upon a capital event. On March 22, 2013, the loan was refinanced, and the Company converted its interest into a
25%
limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”), which holds an investment in an office building complex. After taking into account the preferred return of
8.25%
and the return of all equity remaining in the property to the Company’s operating partner, the Company is entitled to
25%
of the distribution of all excess cash flows and all disposition proceeds upon any sale. The Company is not legally required to provide any future funding to Grace Lake JV. The Company accounts for its interest in Grace Lake JV using the equity method of accounting, as it has a
25%
investment, compared to the
75%
investment of its operating partner and does not control the entity.
24 Second Avenue Holdings LLC
On
August 7, 2015
, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an operating partner to invest in a ground-up condominium construction and development project located at 24 Second Avenue, New York, NY. The Company accounts for its interest in 24 Second Avenue using the equity method of accounting as its joint venture partner is the managing member of 24 Second Avenue and has substantive participating rights. The Company contributed
$31.1 million
for a
73.8%
interest, with the operating partner holding the remaining
26.2%
interest. The Company is entitled to income allocations and distributions based upon its membership interest of
73.8%
until the Company achieves a
1.70
x profit multiple, after which, ultimately, income is allocated and distributed
50%
to the Company and
50%
to the operating partner. During the
three months ended
March 31, 2017
and
2016
, the Company recorded
$0.3 million
and
$0.3 million
, respectively, in
expenses
, which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. The Company capitalizes interest related to the cost of its investment, as 24 Second Avenue has activities in progress necessary to construct and ultimately sell condominium units. During the
three months ended
March 31, 2017
and
2016
, the Company capitalized
$0.2 million
and
$0.2 million
, respectively, of interest expense, using a weighted average interest rate, which is recorded in investment in unconsolidated joint ventures in the consolidated balance sheets. As of
March 31, 2017
and
December 31, 2016
, 24 Second Avenue had
$24.7 million
and
$21.6 million
, respectively, of loans payable. As of
March 31, 2017
, the existing building has been demolished and we are anticipating completion in 2018. Our operating partner entered into a construction loan in the amount of
$50.5 million
to fund the project. As of
March 31, 2017
, draws of
$24.7 million
have been taken against the construction loan. The Company has
no
remaining capital commitment to our operating partner.
Combined Summary Financial Information for Unconsolidated Joint Ventures
The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of
March 31, 2017
and
December 31, 2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
140,905
|
|
|
$
|
138,298
|
|
|
Total liabilities
|
|
97,068
|
|
|
94,964
|
|
|
Partners’/members’ capital
|
|
$
|
43,837
|
|
|
$
|
43,334
|
|
The following is a summary of the combined results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,791
|
|
|
$
|
4,237
|
|
|
Total expenses
|
|
5,798
|
|
|
4,416
|
|
|
Net income (loss)
|
|
$
|
(2,007
|
)
|
|
$
|
(179
|
)
|
7. DEBT OBLIGATIONS, NET
The details of the Company’s debt obligations at
March 31, 2017
and
December 31, 2016
are as follows ($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Obligations
|
|
Committed Financing
|
|
Debt Obligations Outstanding
|
|
Committed but Unfunded
|
|
Interest Rate at March 31, 2017(1)
|
|
Current Term Maturity
|
|
Remaining Extension Options
|
|
Eligible Collateral
|
|
Carrying Amount of Collateral
|
|
Fair Value of Collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed Loan Repurchase Facility
|
|
$
|
600,000
|
|
|
$
|
311,312
|
|
|
$
|
288,688
|
|
|
2.66% - 3.41%
|
|
10/30/2018
|
|
(2)
|
|
(3)
|
|
$
|
453,843
|
|
|
$
|
461,210
|
|
|
|
Committed Loan Repurchase Facility
|
|
450,000
|
|
|
137,324
|
|
|
312,676
|
|
|
3.08% - 3.90%
|
|
5/24/2017
|
|
(4)
|
|
(3)
|
|
241,974
|
|
|
244,538
|
|
|
|
Committed Loan Repurchase Facility
|
|
300,000
|
|
|
151,257
|
|
|
148,743
|
|
|
3.08% - 4.16%
|
|
4/9/2018
|
|
(5)
|
|
(6)
|
|
299,156
|
|
|
306,986
|
|
|
|
Committed Loan Repurchase Facility
|
|
100,000
|
|
|
34,369
|
|
|
65,631
|
|
|
3.16% - 3.41%
|
|
6/28/2019
|
|
—
|
|
(3)
|
|
46,186
|
|
|
46,491
|
|
|
|
Committed Loan Repurchase Facility
|
|
200,000
|
|
|
50,732
|
|
|
149,268
|
|
|
3.13% - 3.88%
|
|
2/29/2020
|
|
(7)
|
|
(3)
|
|
69,422
|
|
|
75,291
|
|
(8)
|
|
Total Committed Loan Repurchase Facilities
|
|
1,650,000
|
|
|
684,994
|
|
|
965,006
|
|
|
|
|
|
|
|
|
|
|
1,110,581
|
|
|
1,134,516
|
|
|
|
Committed Securities Repurchase Facility
|
|
400,000
|
|
|
115,000
|
|
|
285,000
|
|
|
1.10% - 2.12%
|
|
7/1/2018
|
|
N/A
|
|
(9)
|
|
213,238
|
|
|
213,238
|
|
|
|
Uncommitted Securities Repurchase Facility
|
|
N/A (9)
|
|
239,361
|
|
|
N/A (10)
|
|
1.10% - 2.57%
|
|
4/2017 - 6/2017
|
|
N/A
|
|
(9)
|
|
279,764
|
|
|
279,764
|
|
|
|
Total Repurchase Facilities
|
|
2,050,000
|
|
|
1,039,355
|
|
|
1,250,006
|
|
|
|
|
|
|
|
|
|
|
1,603,583
|
|
|
1,627,518
|
|
|
|
Revolving Credit Facility
|
|
168,520
|
|
|
168,000
|
|
|
520
|
|
|
6.5%
|
|
2/11/2018
|
|
(11)
|
|
N/A (12)
|
|
N/A (12)
|
|
N/A (12)
|
|
|
Mortgage Loan Financing
|
|
589,217
|
|
|
589,217
|
|
|
—
|
|
|
4.25% - 6.75%
|
|
2018 - 2026
|
|
N/A
|
|
(13)
|
|
749,677
|
|
|
875,725
|
|
(14)
|
|
Mortgage Loan Receivable Financing
|
|
57,038
|
|
|
57,038
|
|
|
—
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
N/A
|
|
|
|
Borrowings from the FHLB
|
|
2,000,000
|
|
|
1,475,500
|
|
|
524,500
|
|
|
0.57% - 2.74%
|
|
2017 - 2024
|
|
N/A
|
|
(14)
|
|
1,921,263
|
|
|
1,930,137
|
|
|
|
Senior Unsecured Notes
|
|
1,057,732
|
|
|
1,048,576
|
|
(16)
|
—
|
|
|
5.250% - 7.375%
|
|
2017 - 2022
|
|
N/A
|
|
N/A (17)
|
|
N/A (17)
|
|
|
N/A (17)
|
|
|
|
Total Debt Obligations
|
|
$
|
5,922,507
|
|
|
$
|
4,377,686
|
|
|
$
|
1,775,026
|
|
|
|
|
|
|
|
|
|
|
$
|
4,274,523
|
|
|
$
|
4,433,380
|
|
|
|
|
|
|
(1)
|
March 31, 2017
LIBOR rates are used to calculate interest rates for floating rate debt.
|
|
|
|
|
(2)
|
Three
additional
12
-month periods at Company’s option. No new advances are permitted after the initial maturity date, or if the lender consents, October 30, 2019, the initial extended maturity date.
|
|
|
|
|
(3)
|
First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
|
|
|
|
|
(4)
|
Three
additional
12
-month periods at Company’s option.
|
|
|
|
|
(5)
|
Two
additional
364
-day periods at Company’s option and
one
additional
364
-day period with Bank’s consent.
|
|
|
|
|
(6)
|
First mortgage and mezzanine commercial real estate loans. It does not include the real estate collateralizing such loans.
|
|
|
|
|
(7)
|
One
additional
12
-month extension period and
two
additional
6
-month extension periods at Company’s option.
|
|
|
|
|
(8)
|
Includes
$5.1 million
of loans made to consolidated subsidiaries.
|
|
|
|
|
(9)
|
Commercial real estate securities. It does not include the real estate collateralizing such securities.
|
|
|
|
|
(10)
|
Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
|
|
|
|
|
(11)
|
Three
additional
12
-month extension periods at Company’s option.
|
|
|
|
|
(12)
|
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
|
|
|
|
|
(14)
|
Using undepreciated carrying value of commercial real estate to approximate fair value.
|
|
|
|
|
(15)
|
First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
|
|
|
|
|
(16)
|
Presented net of unamortized debt issuance costs of
$9.2 million
at
March 31, 2017
. Pursuant to their terms, the Company had called for prepayment of the 2017 Notes at par (plus any accrued and unpaid interest to the redemption date) with an outstanding principal balance of
$291.5 million
. The Company remitted the payment amount to the Trustee on March 31, 2017 and the 2017 Notes were repaid on April 3, 2017. The amount held by the Trustee was reflected in other assets on the Company’s consolidated balance sheets as of
March 31, 2017
.
|
|
|
|
|
(17)
|
The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Obligations
|
|
Committed Financing
|
|
Debt Obligations Outstanding
|
|
Committed but Unfunded
|
|
Interest Rate at December 31, 2016(1)
|
|
Current Term Maturity
|
|
Remaining Extension Options
|
|
Eligible Collateral
|
|
Carrying Amount of Collateral
|
|
Fair Value of Collateral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committed Loan Repurchase Facility
|
|
$
|
600,000
|
|
|
$
|
183,604
|
|
|
$
|
416,396
|
|
|
2.45% - 3.27%
|
|
10/30/2018
|
|
(2)
|
|
(3)
|
|
$
|
292,628
|
|
|
$
|
293,618
|
|
|
|
Committed Loan Repurchase Facility
|
|
450,000
|
|
|
184,158
|
|
|
265,842
|
|
|
2.95% - 3.70%
|
|
5/24/2017
|
|
(4)
|
|
(3)
|
|
286,848
|
|
|
288,267
|
|
|
|
Committed Loan Repurchase Facility
|
|
400,000
|
|
|
100,979
|
|
|
299,021
|
|
|
2.95% - 3.99%
|
|
4/9/2017
|
|
(5)
|
|
(6)
|
|
235,878
|
|
|
236,696
|
|
|
|
Committed Loan Repurchase Facility
|
|
100,000
|
|
|
27,132
|
|
|
72,868
|
|
|
2.90% - 3.13%
|
|
6/28/2019
|
|
—
|
|
(3)
|
|
36,166
|
|
|
36,410
|
|
|
|
Committed Loan Repurchase Facility
|
|
100,000
|
|
|
71,290
|
|
|
28,710
|
|
|
2.93% - 3.68%
|
|
8/2/2019
|
|
(7)
|
|
(3)
|
|
110,271
|
|
|
110,897
|
|
|
|
Total Committed Loan Repurchase Facilities
|
|
1,650,000
|
|
|
567,163
|
|
|
1,082,837
|
|
|
|
|
|
|
|
|
|
|
961,791
|
|
|
965,888
|
|
|
|
Committed Securities Repurchase Facility
|
|
400,000
|
|
|
228,317
|
|
|
171,683
|
|
|
1.00% - 2.59%
|
|
7/1/2018
|
|
N/A
|
|
(8)
|
|
272,402
|
|
|
272,402
|
|
|
|
Uncommitted Securities Repurchase Facility
|
|
N/A (9)
|
|
311,705
|
|
|
N/A (9)
|
|
1.00% - 2.41%
|
|
1/2017 - 3/2017
|
|
N/A
|
|
(8)
|
|
368,638
|
|
|
368,638
|
|
|
|
Total Repurchase Facilities
|
|
2,050,000
|
|
|
1,107,185
|
|
|
1,254,520
|
|
|
|
|
|
|
|
|
|
|
1,602,831
|
|
|
1,606,928
|
|
|
|
Revolving Credit Facility
|
|
143,000
|
|
|
25,000
|
|
|
118,000
|
|
|
3.16%
|
|
2/11/2017
|
|
(10)
|
|
N/A (11)
|
|
N/A (11)
|
|
N/A (11)
|
|
|
Mortgage Loan Financing
|
|
590,106
|
|
|
590,106
|
|
|
—
|
|
|
4.25% - 6.75%
|
|
2018 - 2026
|
|
N/A
|
|
(12)
|
|
757,468
|
|
|
875,160
|
|
(13)
|
|
Borrowings from the FHLB
|
|
1,998,931
|
|
|
1,660,000
|
|
|
338,931
|
|
|
0.43% - 2.74%
|
|
2017 - 2024
|
|
N/A
|
|
(14)
|
|
2,162,779
|
|
|
2,167,017
|
|
|
|
Senior Unsecured Notes
|
|
563,872
|
|
|
559,847
|
|
(15)
|
—
|
|
|
5.875% - 7.375%
|
|
2017 - 2021
|
|
N/A
|
|
N/A (16)
|
|
N/A (16)
|
|
|
N/A (16)
|
|
|
|
Total Debt Obligations
|
|
$
|
5,345,909
|
|
|
$
|
3,942,138
|
|
|
$
|
1,711,451
|
|
|
|
|
|
|
|
|
|
|
$
|
4,523,078
|
|
|
$
|
4,649,105
|
|
|
|
|
|
|
(1)
|
December 31, 2016
LIBOR rates are used to calculate interest rates for floating rate debt.
|
|
|
|
|
(2)
|
Three
additional
12
-month periods at Company’s option. No new advances are permitted after the initial maturity date, or if the lender consents, October 30, 2019, the initial extended maturity date.
|
|
|
|
|
(3)
|
First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.
|
|
|
|
|
(4)
|
Three
additional
12
-month periods at Company’s option.
|
|
|
|
|
(5)
|
Two
additional
364
-day periods at Company’s option.
|
|
|
|
|
(6)
|
First mortgage and mezzanine commercial real estate loans. It does not include the real estate collateralizing such loans.
|
|
|
|
|
(7)
|
One
additional
12
-month extension period and
two
additional
6
-month extension periods at Company’s option.
|
|
|
|
|
(8)
|
Commercial real estate securities. It does not include the real estate collateralizing such securities.
|
|
|
|
|
(9)
|
Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.
|
|
|
|
|
(10)
|
Two
additional
12
-month extension periods at Company’s option.
|
|
|
|
|
(11)
|
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries.
|
|
|
|
|
(13)
|
Using undepreciated carrying value of commercial real estate to approximate fair value.
|
|
|
|
|
(14)
|
First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities.
|
|
|
|
|
(15)
|
Presented net of unamortized debt issuance costs of
$4.0 million
at
December 31, 2016
.
|
|
|
|
|
(16)
|
The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.
|
Committed Loan and Securities Repurchase Facilities
The Company has entered into multiple committed master repurchase agreements in order to finance its lending activities. The Company has entered into
five
committed master repurchase agreements, as outlined in the
March 31, 2017
table above, totaling
$1.7 billion
of credit capacity. Assets pledged as collateral under these facilities are limited to whole mortgage loans or participation interests in mortgage loans collateralized by first liens on commercial properties and mezzanine debt. The Company also has a term master repurchase agreement with a major U.S. bank to finance CMBS totaling
$400.0 million
. The Company’s repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum leverage ratios. The Company believes it was in compliance with all covenants as of
March 31, 2017
and
December 31, 2016
.
The Company has the option to extend some of the current facilities subject to a number of conditions, including satisfaction of certain notice requirements, no event of default exists, and no margin deficit exists, all as defined in the repurchase facility agreements. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, to be exercised on a good faith basis, and have the right to require additional collateral, a full and/or partial repayment of the facilities (margin call), or a reduction in unused availability under the facilities, sufficient to rebalance the facilities if the estimated market value of the included collateral declines.
On April 19, 2016, the Company entered into an amendment to its committed loan repurchase facility with one of its multiple major banking institutions, adding
two
one
-year extension options and extending the maximum term of such facility to May 24, 2020.
On May 26, 2016, the Company entered into an amendment to its committed repurchase facility with a major banking institution to memorialize the replacement of the servicer under such facility.
On June 27, 2016, the Company executed an amendment and extension of one of its credit facilities with a major banking institution, with an effective date of July 1, 2016, providing for, among other things, the extension of the maximum term of the facility to July 1, 2018 and increasing the maximum funding capacity to
$400.0 million
.
On June 28, 2016, the Company entered into a committed loan repurchase facility with a major banking institution with total capacity of
$100.0 million
and a final maturity date of June 28, 2019.
On August 3, 2016, the Company executed a committed loan repurchase facility with a major banking institution with total capacity of
$100.0 million
and an initial maturity date of August 2, 2019, with
one
twelve
-month extension period, followed by
two
six
-month extension periods. In connection with the execution of this new facility, the Company terminated its existing committed loan repurchase facility with total capacity of
$35.0 million
.
On November 9, 2016, the Company entered into an amendment to its committed repurchase facility with a major banking institution to, among other things, extend the initial term to October 30, 2018 and add three (
3
) additional one year extension options to the term thereof, provided that the Company will not be permitted to obtain advances under such facility after October 30, 2018, or if the lender thereunder consents, October 30, 2019.
On February 22, 2017, the Company exercised a one year extension option on one of its committed loan repurchase facilities. In connection with this extension, the Company elected to reduce the maximum capacity of the facility to
$300.0 million
. In addition, on March 21, 2017, the Company amended this committed loan repurchase facility to, among other things, add
one
additional
364
-day extension period at Company’s option and
one
additional
364
-day extension period permitted with lender’s consent.
On March 1, 2017, the Company executed an amendment and extension of one of its credit facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to February 28, 2022 and increasing the maximum funding capacity to
$200.0 million
.
As of
March 31, 2017
, we had repurchase agreements with
nine
counterparties, with total debt obligations outstanding of
$1.0 billion
. As of
March 31, 2017
,
three
counterparties,
Deutsche Bank, J.P. Morgan and Wells Fargo
, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than
$74.1 million
, or
5%
of our total equity. As of
March 31, 2017
, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was
36.1%
. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.
Revolving Credit Facility
On February 11, 2014, the Company entered into a revolving credit facility (the “Revolving Credit Facility”), which was subsequently amended on February 26, 2016, March 1, 2017 and March 23, 2017, to add additional banks to our syndicate, add
two
additional one-year extension options and increase its maximum funding capacity. The Revolving Credit Facility provides for an aggregate maximum borrowing amount of
$168.5 million
, including a
$25.0 million
sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. The Revolving Credit Facility has a
three
-year maturity, which may be extended by
four
12
-month periods subject to the satisfaction of customary conditions, including the absence of default. Interest on the Revolving Credit Facility is one-month LIBOR plus
3.50%
per annum payable monthly in arrears.
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. The Company’s ability to borrow under the Revolving Credit Facility is dependent on, among other things, LCFH’s compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.
Debt Issuance Costs
As discussed in
Note 2, Significant Accounting Policies
in the Annual Report, the Company considers its committed loan master repurchase facilities and Revolving Credit Facility to be revolving debt arrangements. As such, the Company continues to defer and present costs associated with these facilities as an asset, subsequently amortizing those costs ratably over the term of each revolving debt arrangement. As of
March 31, 2017
and
December 31, 2016
, the amount of unamortized costs relating to such facilities are
$5.5 million
and
$4.9 million
, respectively, and are included in other assets in the consolidated balance sheets.
Uncommitted Securities Repurchase Facilities
The Company has also entered into multiple master repurchase agreements with several counterparties collateralized by real estate securities. The borrowings under these agreements have typical advance rates between
70%
and
95%
of the fair value of collateral.
Mortgage Loan Financing
During the
three months ended
March 31, 2017
, the Company did
not
execute any term debt agreements to finance properties in its real estate portfolio. During the
three months ended
March 31, 2016
, the Company executed
4
term debt agreements to finance properties in its real estate portfolio. These nonrecourse debt agreements provide for fixed rate financing at rates, ranging from
4.25%
to
6.75%
, maturing between
2018 - 2026
as of
March 31, 2017
. These loans have carrying amounts of
$589.2 million
and
$590.1 million
, net of unamortized premiums of
$5.3 million
and
$5.6 million
at
March 31, 2017
and
December 31, 2016
, respectively, representing proceeds received upon financing greater than the contractual amounts due under these agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. The Company recorded
$0.2 million
and
$0.2 million
of premium amortization, which decreased interest expense, for the
three months ended
March 31, 2017
and
2016
, respectively. The loans are collateralized by real estate and related lease intangibles, net, of
$749.7 million
and
$757.5 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
Mortgage Loan Receivable Financing (Nonrecourse)
During the three months ended
March 31, 2017
, the transfers of financial assets via sales of loans were treated as sales in accordance with ASC Topic 860
—
Transfers and Servicing, with the exception of
two
assets, with a combined book value of
$56.1 million
in which the Company retains effective control that would preclude sales accounting. The transfers are considered nonrecourse secured borrowings in which the assets remain on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds of
$56.1 million
are recognized in debt obligations. During the
three months ended
March 31, 2016
, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860
—
Transfers and Servicing.
Borrowings from the Federal Home Loan Bank (“FHLB”)
On July 11, 2012, Tuebor Captive Insurance Company LLC (“Tuebor”), a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. On January 13, 2017, Tuebor’s advance limit was updated to the lowest of
$2.0 billion
,
40%
of Tuebor’s total assets or
150%
of the Company’s total equity.
As of
March 31, 2017
, Tuebor had
$1.5 billion
of borrowings outstanding (with an additional
$524.5 million
of committed term financing available from the FHLB), with terms of overnight to
seven years
(with a weighted average of
2.6 years
), interest rates of
0.57%
to
2.74%
(with a weighted average of
1.24%
), and advance rates of
57.8%
to
95.2%
of the collateral. As of
March 31, 2017
, collateral for the borrowings was comprised of
$1.2 billion
of CMBS and U.S. Agency Securities and
$761.0 million
of first mortgage commercial real estate loans.
As of
December 31, 2016
, Tuebor had
$1.7 billion
of borrowings outstanding (with an additional
$338.9 million
of committed term financing available from the FHLB), with terms of overnight to
seven years
(with a weighted average of
2.4 years
), interest rates of
0.43%
to
2.74%
(with a weighted average of
1.12%
), and advance rates of
49.6%
to
95.2%
of the collateral. As of
December 31, 2016
, collateral for the borrowings was comprised of
$1.4 billion
of CMBS and U.S. Agency Securities and
$724.0 million
of first mortgage commercial real estate loans.
Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, approximately
$324.3 million
of the member’s capital was restricted from transfer to Tuebor’s parent without prior approval of state insurance regulators at
March 31, 2017
.
Effective February 19, 2016, the Federal Housing Finance Agency (the “FHFA’’), regulator of the FHLB, adopted a final rule amending its regulation regarding the eligibility of captive insurance companies for FHLB membership. According to the final rule, Ladder’s captive insurance company subsidiary, Tuebor may remain as a member of the FHLB through February 19, 2021 (the “Transition Period”). During the Transition Period, Tuebor is eligible to continue to draw new additional advances, extend the maturities of existing advances, and pay off outstanding advances on the same terms as non-captive insurance company FHLB members with the following two exceptions:
|
|
|
|
1.
|
New advances (including any existing advances that are extended during the Transition Period) will have maturity dates on or before February 19, 2021; and
|
|
|
|
|
2.
|
The FHLB will make new advances to Tuebor subject to a requirement that Tuebor’s total outstanding advances do not exceed
40%
of Tuebor’s total assets.
|
Tuebor has executed new advances since the effective date of the new rule in the ordinary course of business.
FHLB advances amounted to
33.7%
of the Company’s outstanding debt obligations as of
March 31, 2017
. The Company does not anticipate that the FHFA’s final regulation will materially impact its operations as it will continue to access FHLB advances during the five-year Transition Period.
There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s membership in the FHLB and continuing access to new or existing advances prior to February 19, 2021.
Senior Unsecured Notes
LCFH issued the 2022 Notes, the 2021 Notes and the 2017 Notes (each as defined below, and collectively, the “Notes”) with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a
100%
owned finance subsidiary of Series TRS of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company is the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business. As of
March 31, 2017
, the Company has a
71.4%
economic and voting interest in LCFH and controls the management of LCFH as a result of its ability to appoint board members. Accordingly, the Company consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners. In addition, the Company, through certain subsidiaries which are treated as TRSs, is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and federal, state and local income taxes, there are no material differences between the Company’s consolidated financial statements and LCFH’s consolidated financial statements.
Unamortized debt issuance costs of
$9.2 million
and
$4.0 million
are included in senior unsecured notes as of
March 31, 2017
and
December 31, 2016
, respectively, in accordance with GAAP.
2017 Notes
On September 19, 2012, LCFH issued
$325.0 million
in aggregate principal amount of
7.375%
senior notes due October 1, 2017 (the “2017 Notes”). The 2017 Notes required interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on September 19, 2012. The 2017 Notes were unsecured and subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after April 1, 2017, the 2017 Notes were redeemable at the option of the Company, in whole or in part, upon not less than
30
nor more than
60
days’ notice, without penalty. On November 5, 2014, the board of directors authorized the Company to make up to
$325.0 million
in repurchases of the 2017 Notes from time to time without further approval.
On December 17, 2014, the Company retired
$5.4 million
of principal of the 2017 Notes for a repurchase price of
$5.6 million
recognizing a
$0.2 million
loss on extinguishment of debt. During the year ended December 31, 2016, the Company retired
$21.9 million
of principal of the 2017 Notes for a repurchase price of
$21.4 million
, recognizing a
$0.3 million
net gain on extinguishment of debt after recognizing
$(0.2) million
of unamortized debt issuance costs associated with the retired debt. During the three months ended March 31, 2017, the Company retired
$6.1 million
of principal of the 2017 Notes for a repurchase price of
$6.2 million
, recognizing a
$0.1 million
net loss on extinguishment of debt after recognizing
$22,847
of unamortized debt issuance costs associated with the retired debt. As of
March 31, 2017
, the remaining
$291.5 million
in aggregate principal amount of the 2017 Notes was due October 2, 2017.
On March 1, 2017, the Company delivered a notice of conditional full redemption to holders of the 2017 Notes, pursuant to which the Company redeemed all outstanding 2017 Notes at
100%
of the principal amount thereof (plus any accrued and unpaid interest to the redemption date) as of April 1, 2017. The redemption was conditional on the completion by the Company of a senior notes offering with gross proceeds of not less than
$500 million
. The Company’s offering of the 2022 Notes, described below, satisfied this condition. On
April 3, 2017
, the Company repaid the remaining
$291.5 million
in aggregate principal amount of the 2017 Notes (including accrued and unpaid interest as of that date).
2021 Notes
On August 1, 2014, LCFH issued
$300.0 million
in aggregate principal amount of
5.875%
senior notes due August 1, 2021 (the “2021 Notes”). The 2021 Notes require interest payments semi-annually in cash in arrears on February 1 and August 1 of each year, beginning on February 1, 2015. The 2021 Notes will mature on August 1, 2021. The 2021 Notes are unsecured and are subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after August 1, 2020, the 2021 Notes are redeemable at the option of the Company, in whole or in part, upon not less than
30
nor more than
60
days’ notice, without penalty. On February 24, 2016, the board of directors authorized the Company to make up to
$100.0 million
in repurchases of the 2021 Notes from time to time without further approval.
During the year ended December 31, 2016, the Company retired
$33.8 million
of principal of the 2021 Notes for a repurchase price of
$28.2 million
, recognizing a
$5.1 million
net gain on extinguishment of debt after recognizing
$(0.4) million
of unamortized debt issuance costs associated with the retired debt. As of
March 31, 2017
, the remaining
$266.2 million
in aggregate principal amount of the 2021 Notes is due August 1, 2021.
2022 Notes
On March 16, 2017, LCFH issued
$500.0 million
in aggregate principal amount of
5.250%
senior notes due March 15, 2022 (the “2022 Notes”). The 2022 Notes require interest payments semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The 2022 Notes will mature on March 15, 2022. The 2022 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. At any time on or after September 15, 2021, the 2022 Notes are redeemable at the option of the Company, in whole or in part, upon not less than
15
nor more than
60
days’ notice, without penalty.
Combined Maturity of Debt Obligations
The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands):
|
|
|
|
|
|
|
|
|
Period ending December 31,
|
|
Borrowings by
Maturity (1)
|
|
|
|
|
|
|
2017 (last 9 months)(2)
|
|
$
|
1,312,542
|
|
|
2018
|
|
806,468
|
|
|
2019
|
|
313,298
|
|
|
2020
|
|
113,801
|
|
|
2021
|
|
362,941
|
|
|
Thereafter
|
|
1,472,447
|
|
|
Subtotal
|
|
$
|
4,381,497
|
|
|
Debt issuance costs included in senior unsecured notes
|
|
(9,156
|
)
|
|
Premiums included in mortgage loan financing
|
|
5,345
|
|
|
Total
|
|
4,377,686
|
|
|
|
|
|
(1)
|
Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for
2017
include
$1.0 billion
relating to debt obligations that are subject to existing Company controlled extension options for
one
or more additional one-year periods or could be refinanced by other existing facilities as of
March 31, 2017
.
|
|
|
|
|
(2)
|
Amount includes
$291.5 million
of 2017 Notes. The Company had remitted the payment amount to the Trustee on March 31, 2017 and the 2017 Notes were repaid on April 3, 2017. The amount held by the Trustee was reflected in other assets on the Company’s consolidated balance sheets as of
March 31, 2017
.
|
The Company’s debt facilities are subject to covenants which require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately
$899.4 million
of the total equity is restricted from payment as a dividend by the Company at
March 31, 2017
.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is based upon market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.
Fair Value Summary Table
The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at
March 31, 2017
and
December 31, 2016
are as follows ($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Outstanding
Face Amount
|
|
Amortized
Cost Basis
|
|
Fair Value
|
|
Fair Value Method
|
|
Yield
%
|
|
Remaining
Maturity/Duration (years)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
$
|
1,306,653
|
|
|
$
|
1,323,369
|
|
|
$
|
1,325,250
|
|
|
Internal model, third-party inputs
|
|
2.72
|
%
|
|
3.38
|
|
CMBS interest-only(1)
|
7,801,370
|
|
(2)
|
316,486
|
|
|
320,865
|
|
|
Internal model, third-party inputs
|
|
3.58
|
%
|
|
3.04
|
|
GNMA interest-only(3)
|
457,597
|
|
(2)
|
17,640
|
|
|
15,625
|
|
|
Internal model, third-party inputs
|
|
4.47
|
%
|
|
4.37
|
|
Agency securities(1)
|
760
|
|
|
786
|
|
|
771
|
|
|
Internal model, third-party inputs
|
|
1.90
|
%
|
|
3.35
|
|
GNMA permanent securities(1)
|
38,029
|
|
|
38,836
|
|
|
39,469
|
|
|
Internal model, third-party inputs
|
|
3.69
|
%
|
|
5.81
|
|
Mortgage loan receivables held for investment, at amortized cost
|
2,317,221
|
|
|
2,300,093
|
|
|
2,321,245
|
|
|
Discounted Cash Flow(4)
|
|
6.93
|
%
|
|
1.70
|
|
Mortgage loan receivables held for sale
|
520,679
|
|
|
516,582
|
|
|
585,212
|
|
|
Internal model, third-party inputs(5)
|
|
5.06
|
%
|
|
7.71
|
|
FHLB stock(6)
|
77,915
|
|
|
77,915
|
|
|
77,915
|
|
|
(6)
|
|
4.25
|
%
|
|
N/A
|
|
Nonhedge derivatives(1)(7)
|
97,100
|
|
|
N/A
|
|
|
108
|
|
|
Counterparty quotations
|
|
N/A
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements - short-term
|
549,892
|
|
|
549,892
|
|
|
549,892
|
|
|
Discounted Cash Flow(8)
|
|
2.28
|
%
|
|
0.12
|
|
Repurchase agreements - long-term
|
489,464
|
|
|
489,464
|
|
|
489,464
|
|
|
Discounted Cash Flow(9)
|
|
2.34
|
%
|
|
1.56
|
|
Revolving credit facility
|
168,000
|
|
|
168,000
|
|
|
168,000
|
|
|
Discounted Cash Flow(10)
|
|
6.50
|
%
|
|
1.87
|
|
Mortgage loan financing
|
589,152
|
|
|
589,217
|
|
|
594,012
|
|
|
Discounted Cash Flow(9)
|
|
4.85
|
%
|
|
6.90
|
|
Mortgage loan receivable financing
|
57,038
|
|
|
57,038
|
|
|
57,038
|
|
|
Sales Proceeds
|
|
N/A
|
|
|
N/A
|
|
Borrowings from the FHLB
|
1,475,500
|
|
|
1,475,500
|
|
|
1,476,686
|
|
|
Discounted Cash Flow
|
|
1.24
|
%
|
|
2.64
|
|
Senior unsecured notes
|
1,057,732
|
|
|
1,048,576
|
|
|
1,064,144
|
|
|
Broker quotations, pricing services
|
|
5.99
|
%
|
|
3.57
|
|
Nonhedge derivatives(1)(7)
|
1,001,200
|
|
|
N/A
|
|
|
4,207
|
|
|
Counterparty quotations
|
|
N/A
|
|
|
1.23
|
|
|
|
|
(1)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
|
|
|
|
|
(2)
|
Represents notional outstanding balance of underlying collateral.
|
|
|
|
|
(3)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
|
|
|
|
|
(4)
|
Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (
30 days
) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
|
|
|
|
|
(5)
|
Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
|
|
|
|
|
(6)
|
Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
|
|
|
|
|
(7)
|
The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
|
|
|
|
|
(8)
|
Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
|
|
|
|
|
(9)
|
For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
|
|
|
|
|
(10)
|
Fair value for borrowings under the revolving credit facility is estimated to approximate carrying amount primarily due to the short interest rate reset risk (
30 days
) of the financings and the high credit quality of the assets collateralizing these positions.
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Outstanding
Face Amount
|
|
Amortized
Cost Basis
|
|
Fair Value
|
|
Fair Value Method
|
|
Yield
%
|
|
Remaining
Maturity/Duration (years)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
$
|
1,676,680
|
|
|
$
|
1,698,276
|
|
|
$
|
1,701,395
|
|
|
Internal model, third-party inputs
|
|
2.81
|
%
|
|
3.55
|
|
CMBS interest-only(1)
|
8,160,458
|
|
(2)
|
343,534
|
|
|
342,171
|
|
|
Internal model, third-party inputs
|
|
3.45
|
%
|
|
2.99
|
|
GNMA interest-only(3)
|
478,577
|
|
(2)
|
18,994
|
|
|
16,821
|
|
|
Internal model, third-party inputs
|
|
4.19
|
%
|
|
4.44
|
|
Agency securities(1)
|
774
|
|
|
802
|
|
|
780
|
|
|
Internal model, third-party inputs
|
|
1.29
|
%
|
|
3.27
|
|
GNMA permanent securities(1)
|
38,327
|
|
|
39,145
|
|
|
39,780
|
|
|
Internal model, third-party inputs
|
|
3.80
|
%
|
|
10.30
|
|
Mortgage loan receivables held for investment, at amortized cost
|
2,011,309
|
|
|
1,996,095
|
|
|
2,014,973
|
|
|
Discounted Cash Flow(4)
|
|
7.17
|
%
|
|
1.66
|
|
Mortgage loan receivables held for sale
|
360,518
|
|
|
357,882
|
|
|
359,897
|
|
|
Internal model, third-party inputs(5)
|
|
4.20
|
%
|
|
4.55
|
|
FHLB stock(6)
|
77,915
|
|
|
77,915
|
|
|
77,915
|
|
|
(6)
|
|
4.25
|
%
|
|
N/A
|
|
Nonhedge derivatives(1)(7)
|
847,000
|
|
|
N/A
|
|
|
5,018
|
|
|
Counterparty quotations
|
|
N/A
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements - short-term
|
629,430
|
|
|
629,430
|
|
|
629,430
|
|
|
Discounted Cash Flow(8)
|
|
2.10
|
%
|
|
0.18
|
|
Repurchase agreements - long-term
|
477,756
|
|
|
477,756
|
|
|
477,756
|
|
|
Discounted Cash Flow(9)
|
|
2.00
|
%
|
|
1.70
|
|
Revolving credit facility
|
25,000
|
|
|
25,000
|
|
|
25,000
|
|
|
Discounted Cash Flow(10)
|
|
3.16
|
%
|
|
0.12
|
|
Mortgage loan financing
|
589,152
|
|
|
590,106
|
|
|
595,778
|
|
|
Discounted Cash Flow(9)
|
|
4.85
|
%
|
|
7.15
|
|
Borrowings from the FHLB
|
1,660,000
|
|
|
1,660,000
|
|
|
1,662,178
|
|
|
Discounted Cash Flow
|
|
1.12
|
%
|
|
2.42
|
|
Senior unsecured notes
|
563,872
|
|
|
559,847
|
|
|
550,562
|
|
|
Broker quotations, pricing services
|
|
6.67
|
%
|
|
2.81
|
|
Nonhedge derivatives(1)(7)
|
100,400
|
|
|
N/A
|
|
|
3,446
|
|
|
Counterparty quotations
|
|
N/A
|
|
|
3.21
|
|
|
|
|
(1)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
|
|
|
|
|
(2)
|
Represents notional outstanding balance of underlying collateral.
|
|
|
|
|
(3)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
|
|
|
|
|
(4)
|
Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (
30 days
) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
|
|
|
|
|
(5)
|
Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.
|
|
|
|
|
(6)
|
Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par.
|
|
|
|
|
(7)
|
The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
|
|
|
|
|
(8)
|
Fair value for repurchase agreement liabilities is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
|
|
|
|
|
(9)
|
For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions.
|
|
|
|
|
(10)
|
Fair value for borrowings under the revolving credit facility is estimated to approximate carrying amount primarily due to the short interest rate reset risk (
30 days
) of the financings and the high credit quality of the assets collateralizing these positions.
|
The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at
March 31, 2017
and
2016
($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition
|
|
Outstanding Face
Amount
|
|
Fair Value
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
|
$
|
1,306,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,325,250
|
|
|
$
|
1,325,250
|
|
|
CMBS interest-only(1)
|
|
7,801,370
|
|
(2)
|
—
|
|
|
—
|
|
|
320,865
|
|
|
320,865
|
|
|
GNMA interest-only(3)
|
|
457,597
|
|
(2)
|
—
|
|
|
—
|
|
|
15,625
|
|
|
15,625
|
|
|
Agency securities(1)
|
|
760
|
|
|
—
|
|
|
—
|
|
|
771
|
|
|
771
|
|
|
GNMA permanent securities(1)
|
|
38,029
|
|
|
—
|
|
|
—
|
|
|
39,469
|
|
|
39,469
|
|
|
Nonhedge derivatives(4)
|
|
97,100
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
108
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
1,701,980
|
|
|
$
|
1,702,088
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Nonhedge derivatives(4)
|
|
1,001,200
|
|
|
$
|
—
|
|
|
$
|
4,207
|
|
|
$
|
—
|
|
|
$
|
4,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition
|
|
Outstanding Face
Amount
|
|
Fair Value
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan receivable held for investment
|
|
$
|
2,317,221
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,321,245
|
|
|
$
|
2,321,245
|
|
|
Mortgage loan receivable held for sale
|
|
520,679
|
|
|
—
|
|
|
—
|
|
|
585,212
|
|
|
585,212
|
|
|
FHLB stock
|
|
77,915
|
|
|
—
|
|
|
—
|
|
|
77,915
|
|
|
77,915
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,984,372
|
|
|
$
|
2,984,372
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Repurchase agreements - short-term
|
|
549,892
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
549,892
|
|
|
$
|
549,892
|
|
|
Repurchase agreements - long-term
|
|
489,464
|
|
|
—
|
|
|
—
|
|
|
489,464
|
|
|
489,464
|
|
|
Revolving credit facility
|
|
168,000
|
|
|
—
|
|
|
—
|
|
|
168,000
|
|
|
168,000
|
|
|
Mortgage loan financing
|
|
589,152
|
|
|
—
|
|
|
—
|
|
|
594,012
|
|
|
594,012
|
|
|
Mortgage loan receivable financing
|
|
57,038
|
|
|
—
|
|
|
—
|
|
|
57,038
|
|
|
57,038
|
|
|
Borrowings from the FHLB
|
|
1,475,500
|
|
|
—
|
|
|
—
|
|
|
1,476,686
|
|
|
1,476,686
|
|
|
Senior unsecured notes
|
|
1,057,732
|
|
|
—
|
|
|
—
|
|
|
1,064,144
|
|
|
1,064,144
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,399,236
|
|
|
$
|
4,399,236
|
|
|
|
|
|
(1)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
|
|
|
|
|
(2)
|
Represents notional outstanding balance of underlying collateral.
|
|
|
|
|
(3)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
|
|
|
|
|
(4)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition
|
|
Outstanding Face
Amount
|
|
Fair Value
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS(1)
|
|
$
|
1,676,680
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,701,395
|
|
|
$
|
1,701,395
|
|
|
CMBS interest-only(1)
|
|
8,160,458
|
|
(2)
|
—
|
|
|
—
|
|
|
342,171
|
|
|
342,171
|
|
|
GNMA interest-only(3)
|
|
478,577
|
|
(2)
|
—
|
|
|
—
|
|
|
16,821
|
|
|
16,821
|
|
|
Agency securities(1)
|
|
774
|
|
|
—
|
|
|
—
|
|
|
780
|
|
|
780
|
|
|
GNMA permanent securities(1)
|
|
38,327
|
|
|
—
|
|
|
—
|
|
|
39,780
|
|
|
39,780
|
|
|
Nonhedge derivatives(4)
|
|
847,000
|
|
|
—
|
|
|
5,018
|
|
|
—
|
|
|
5,018
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
5,018
|
|
|
$
|
2,100,947
|
|
|
$
|
2,105,965
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Nonhedge derivatives(4)
|
|
100,400
|
|
|
—
|
|
|
3,446
|
|
|
—
|
|
|
3,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition
|
|
Outstanding Face
Amount
|
|
Fair Value
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loan receivables held for investment, at amortized cost
|
|
2,011,309
|
|
|
—
|
|
|
—
|
|
|
2,014,973
|
|
|
2,014,973
|
|
|
Mortgage loan receivables held for sale
|
|
360,518
|
|
|
—
|
|
|
—
|
|
|
359,897
|
|
|
359,897
|
|
|
FHLB stock
|
|
77,915
|
|
|
—
|
|
|
—
|
|
|
77,915
|
|
|
77,915
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,452,785
|
|
|
$
|
2,452,785
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
Repurchase agreements - short-term
|
|
629,430
|
|
|
—
|
|
|
|
|
|
629,430
|
|
|
629,430
|
|
|
Repurchase agreements - long-term
|
|
477,756
|
|
|
—
|
|
|
—
|
|
|
477,756
|
|
|
477,756
|
|
|
Revolving credit facility
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
25,000
|
|
|
Mortgage loan financing
|
|
589,152
|
|
|
—
|
|
|
—
|
|
|
595,778
|
|
|
595,778
|
|
|
Mortgage loan receivable financing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Borrowings from the FHLB
|
|
1,660,000
|
|
|
—
|
|
|
—
|
|
|
1,662,178
|
|
|
1,662,178
|
|
|
Senior unsecured notes
|
|
563,872
|
|
|
—
|
|
|
—
|
|
|
550,562
|
|
|
550,562
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,940,704
|
|
|
$
|
3,940,704
|
|
|
|
|
|
(1)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity.
|
|
|
|
|
(2)
|
Represents notional outstanding balance of underlying collateral.
|
|
|
|
|
(3)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings.
|
|
|
|
|
(4)
|
Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts.
|
The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
2,100,947
|
|
|
$
|
2,407,217
|
|
|
Transfer from level 2
|
|
—
|
|
|
—
|
|
|
Purchases
|
|
45,726
|
|
|
227,758
|
|
|
Sales
|
|
(361,323
|
)
|
|
(15,477
|
)
|
|
Paydowns/maturities
|
|
(74,285
|
)
|
|
(36,136
|
)
|
|
Amortization of premium/discount
|
|
(19,357
|
)
|
|
(18,958
|
)
|
|
Unrealized gain/(loss)
|
|
4,911
|
|
|
34,459
|
|
|
Realized gain/(loss) on sale
|
|
5,361
|
|
|
11
|
|
|
Balance at March 31,
|
|
$
|
1,701,980
|
|
|
$
|
2,598,874
|
|
The following is quantitative information about significant unobservable inputs in our Level 3 measurements for those assets and liabilities measured at fair value on a recurring basis ($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Carrying Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Minimum
|
|
Weighted Average
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS (1)
|
|
$
|
1,325,250
|
|
|
Discounted cash flow
|
|
Yield (4)
|
|
1.41
|
%
|
|
2.79
|
%
|
|
8.62
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
0.10
|
|
|
3.65
|
|
|
7.99
|
|
|
CMBS interest-only (1)
|
|
320,865
|
|
(2)
|
Discounted cash flow
|
|
Yield (4)
|
|
2.62
|
%
|
|
3.52
|
%
|
|
4.24
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
0.75
|
|
|
3.03
|
|
|
4.22
|
|
|
|
|
|
|
|
|
Prepayment speed (CPY)(5)
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
|
GNMA interest-only (3)
|
|
15,625
|
|
(2)
|
Discounted cash flow
|
|
Yield (4)
|
|
3.84
|
%
|
|
8.28
|
%
|
|
50.65
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
0.26
|
|
|
2.35
|
|
|
5.21
|
|
|
|
|
|
|
|
|
Prepayment speed (CPJ)(5)
|
|
5.00
|
|
|
13.33
|
|
|
35.00
|
|
|
Agency securities (1)
|
|
771
|
|
|
Discounted cash flow
|
|
Yield (4)
|
|
1.4
|
%
|
|
2.06
|
%
|
|
2.43
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
0.00
|
|
|
3.47
|
|
|
5.38
|
|
|
GNMA permanent securities (1)
|
|
39,469
|
|
|
Discounted cash flow
|
|
Yield (4)
|
|
2.73
|
%
|
|
3.63
|
%
|
|
6.37
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
1.74
|
|
|
6.12
|
|
|
6.47
|
|
|
Total
|
|
$
|
1,701,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
|
|
|
|
|
(2)
|
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
|
|
|
|
|
(3)
|
The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.
|
Sensitivity of the Fair Value to Changes in the Unobservable Inputs
|
|
|
|
(4)
|
Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
|
|
|
|
|
(5)
|
Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instrument
|
|
Carrying Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Minimum
|
|
Weighted Average
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS (1)
|
|
$
|
1,701,395
|
|
|
Discounted cash flow
|
|
Yield (3)
|
|
1.35
|
%
|
|
2.87
|
%
|
|
9.18
|
%
|
|
|
|
|
|
|
|
Duration (years)(4)
|
|
0.04
|
|
|
3.55
|
|
|
9.01
|
|
|
CMBS interest-only (1)
|
|
342,171
|
|
(2)
|
Discounted cash flow
|
|
Yield (3)
|
|
2.84
|
%
|
|
4.04
|
%
|
|
4.8
|
%
|
|
|
|
|
|
|
|
Duration (years)(4)
|
|
0.00
|
|
|
2.99
|
|
|
4.37
|
|
|
|
|
|
|
|
|
Prepayment speed (CPY)(4)
|
|
100.00
|
|
|
100.00
|
|
|
100.00
|
|
|
GNMA interest-only (3)
|
|
16,821
|
|
(2)
|
Discounted cash flow
|
|
Yield (4)
|
|
0.87
|
%
|
|
7.22
|
%
|
|
48.64
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
1.69
|
|
|
4.44
|
|
|
20.66
|
|
|
|
|
|
|
|
|
Prepayment speed (CPJ)(5)
|
|
5.00
|
|
|
13.80
|
|
|
35.00
|
|
|
Agency securities (1)
|
|
780
|
|
|
Discounted cash flow
|
|
Yield (4)
|
|
1.4
|
%
|
|
2.17
|
%
|
|
2.63
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
2.61
|
|
|
3.27
|
|
|
4.39
|
|
|
GNMA permanent securities (1)
|
|
39,780
|
|
|
Discounted cash flow
|
|
Yield (4)
|
|
2.63
|
%
|
|
3.65
|
%
|
|
6.92
|
%
|
|
|
|
|
|
|
|
Duration (years)(5)
|
|
1.92
|
|
|
10.30
|
|
|
15.66
|
|
|
Total
|
|
$
|
2,100,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
CMBS, CMBS interest-only securities, GNMA construction securities, and GNMA permanent securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income.
|
|
|
|
|
(2)
|
Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
|
Sensitivity of the Fair Value to Changes in the Unobservable Inputs
|
|
|
|
(3)
|
Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement.
|
|
|
|
|
(4)
|
Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question.
|
9. DERIVATIVE INSTRUMENTS
The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of
March 31, 2017
and
December 31, 2016
($ in thousands):
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Remaining
Maturity
(years)
|
|
Contract Type
|
|
Notional
|
|
Asset(1)
|
|
Liability(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year Swap
|
|
$
|
482,600
|
|
|
$
|
1
|
|
|
$
|
3,051
|
|
|
0.25
|
|
10-year Swap
|
|
419,500
|
|
|
15
|
|
|
3,106
|
|
|
0.25
|
|
5-year U.S. Treasury Note
|
|
21,500
|
|
|
—
|
|
|
34
|
|
|
0.25
|
|
10-year U.S. Treasury Note Ultra
|
|
3,200
|
|
|
—
|
|
|
25
|
|
|
0.25
|
|
Variation Margin
|
|
—
|
|
|
—
|
|
|
(5,104
|
)
|
|
|
|
Total futures
|
|
926,800
|
|
|
16
|
|
|
1,112
|
|
|
|
|
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Month LIBOR(2)
|
|
50,000
|
|
|
—
|
|
|
2,618
|
|
|
3.47
|
|
Credit derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBX
|
|
10,000
|
|
|
5
|
|
|
—
|
|
|
4.85
|
|
CDX
|
|
33,500
|
|
|
—
|
|
|
477
|
|
|
1.72
|
|
S&P 500 Put Options
|
|
78,000
|
|
|
87
|
|
|
—
|
|
|
0.21
|
|
Total credit derivatives
|
|
121,500
|
|
|
92
|
|
|
477
|
|
|
|
|
Total derivatives
|
|
$
|
1,098,300
|
|
|
$
|
108
|
|
|
$
|
4,207
|
|
|
|
(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
(2) The Company is paying fixed interest rates on these swaps.
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Remaining
Maturity
(years)
|
|
Contract Type
|
|
Notional
|
|
Asset(1)
|
|
Liability(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year Swap
|
|
602,200
|
|
|
3,210
|
|
|
2
|
|
|
0.25
|
|
10-year Swap
|
|
226,700
|
|
|
1,674
|
|
|
266
|
|
|
0.25
|
|
5-year U.S. Treasury Note
|
|
21,800
|
|
|
93
|
|
|
—
|
|
|
0.25
|
|
10-year U.S. Treasury Note
|
|
3,200
|
|
|
38
|
|
|
—
|
|
|
0.25
|
|
Total futures
|
|
853,900
|
|
|
5,015
|
|
|
268
|
|
|
|
|
Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Month LIBOR(2)
|
|
50,000
|
|
|
—
|
|
|
2,697
|
|
|
3.72
|
|
Credit Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBX
|
|
10,000
|
|
|
3
|
|
|
—
|
|
|
5.08
|
|
CDX
|
|
33,500
|
|
|
—
|
|
|
481
|
|
|
1.97
|
|
Total credit derivatives
|
|
43,500
|
|
|
3
|
|
|
481
|
|
|
|
|
Total derivatives
|
|
$
|
947,400
|
|
|
$
|
5,018
|
|
|
$
|
3,446
|
|
|
|
(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
(2) The Company is paying fixed interest rates on these swaps.
The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of operations for the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Unrealized
Gain/(Loss)
|
|
Realized
Gain/(Loss)
|
|
Net Result
from
Derivative
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
Contract Type
|
|
|
|
|
|
|
Futures
|
$
|
(5,844
|
)
|
|
$
|
4,043
|
|
|
$
|
(1,801
|
)
|
|
Swaps
|
301
|
|
|
(279
|
)
|
|
22
|
|
|
Credit Derivatives
|
(106
|
)
|
|
(96
|
)
|
|
(202
|
)
|
|
Total
|
$
|
(5,649
|
)
|
|
$
|
3,668
|
|
|
$
|
(1,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
Unrealized
Gain/(Loss)
|
|
Realized
Gain/(Loss)
|
|
Net Result
from
Derivative
Transactions
|
|
|
|
|
|
|
|
|
|
|
|
Contract Type
|
|
|
|
|
|
|
Futures
|
$
|
(8,564
|
)
|
|
$
|
(40,797
|
)
|
|
$
|
(49,361
|
)
|
|
Swaps
|
(1,078
|
)
|
|
(338
|
)
|
|
(1,416
|
)
|
|
Credit Derivatives
|
12
|
|
|
(97
|
)
|
|
(85
|
)
|
|
Total
|
$
|
(9,630
|
)
|
|
$
|
(41,232
|
)
|
|
$
|
(50,862
|
)
|
The Company’s counterparties held
$18.2 million
and
$11.3 million
of cash margin as collateral for derivatives as of
March 31, 2017
and
December 31, 2016
, respectively, which is included in restricted cash in the consolidated balance sheets.
Futures
Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a Futures Commission Merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted, but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.
The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.
Credit Risk-Related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain a provision whereby, if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives. As of
March 31, 2017
and
December 31, 2016
, the Company was in compliance with these requirements and not in default on its indebtedness. As of
March 31, 2017
and
December 31, 2016
, there was
$4.2 million
and
$6.2 million
of cash collateral held by the derivative counterparties for these derivatives, respectively, included in restricted cash in the consolidated statements of financial condition. No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.
10. OFFSETTING ASSETS AND LIABILITIES
The following tables present both gross information and net information about derivatives and other instruments eligible for offset in the statement of financial position as of
March 31, 2017
and
December 31, 2016
. The Company’s accounting policy is to record derivative asset and liability positions on a gross basis, therefore, the following tables present the gross derivative asset and liability positions recorded on the balance sheets, while also disclosing the eligible amounts of financial instruments and cash collateral to the extent those amounts could offset the gross amount of derivative asset and liability positions. The actual amounts of collateral posted by or received from counterparties may be in excess than the amounts disclosed in the following tables as the following only disclose amounts eligible to be offset to the extent of the recorded gross derivative positions.
As of
March 31, 2017
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of
recognized assets
|
|
Gross amounts
offset in the
balance sheet
|
|
Net amounts of
assets presented
in the balance
sheet
|
|
Gross amounts not offset in the
balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial
instruments
|
|
Cash collateral
received/(posted)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
Total
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
108
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
108
|
|
(1) Included in restricted cash on consolidated balance sheets.
As of
March 31, 2017
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of
recognized
liabilities
|
|
Gross amounts
offset in the
balance sheet
|
|
Net amounts of
liabilities
presented in the
balance sheet
|
|
Gross amounts not offset in the
balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial
instruments
collateral
|
|
Cash collateral
posted/(received)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
4,207
|
|
|
$
|
—
|
|
|
$
|
4,207
|
|
|
$
|
—
|
|
|
$
|
4,207
|
|
|
$
|
—
|
|
|
Repurchase agreements
|
|
1,039,355
|
|
|
—
|
|
|
1,039,355
|
|
|
1,039,355
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
1,043,562
|
|
|
$
|
—
|
|
|
$
|
1,043,562
|
|
|
$
|
1,039,355
|
|
|
$
|
4,207
|
|
|
$
|
—
|
|
(1) Included in restricted cash on consolidated balance sheets.
As of
December 31, 2016
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of
recognized assets
|
|
Gross amounts
offset in the
balance sheet
|
|
Net amounts of
assets presented
in the balance
sheet
|
|
Gross amounts not offset in the
balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial
instruments
|
|
Cash collateral
received/(posted)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
5,018
|
|
|
$
|
—
|
|
|
$
|
5,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,018
|
|
|
Total
|
|
$
|
5,018
|
|
|
$
|
—
|
|
|
$
|
5,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,018
|
|
(1) Included in restricted cash on consolidated balance sheets.
As of
December 31, 2016
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross amounts of
recognized
liabilities
|
|
Gross amounts
offset in the
balance sheet
|
|
Net amounts of
liabilities
presented in the
balance sheet
|
|
Gross amounts not offset in the
balance sheet
|
|
Net amount
|
|
|
|
|
|
Financial
instruments
collateral
|
|
Cash collateral
posted/(received)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
3,446
|
|
|
$
|
—
|
|
|
$
|
3,446
|
|
|
$
|
—
|
|
|
$
|
3,446
|
|
|
$
|
—
|
|
|
Repurchase agreements
|
|
1,107,185
|
|
|
—
|
|
|
1,107,185
|
|
|
1,107,185
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
1,110,631
|
|
|
$
|
—
|
|
|
$
|
1,110,631
|
|
|
$
|
1,107,185
|
|
|
$
|
3,446
|
|
|
$
|
—
|
|
(1) Included in restricted cash on consolidated balance sheets.
Master netting agreements that the Company has entered into with its derivative and repurchase agreement counterparties allow for netting of the same transaction, in the same currency, on the same date. Assets, liabilities, and collateral subject to master netting agreements as of
March 31, 2017
and
December 31, 2016
are disclosed in the tables above. The Company does not present its derivative and repurchase agreements net on the consolidated financial statements as it has elected gross presentation.
11. EQUITY STRUCTURE AND ACCOUNTS
A description of the IPO Transactions is included in
Note 1
. In addition, a description of the distribution policies of, and accounting for, the predecessor capital structure is included later in this Note.
Subsequent to the IPO Transactions, the Company has
two
classes of common stock, Class A and Class B, which are described as follows:
Class A Common Stock
Voting Rights
Holders of shares of Class A common stock are entitled to
one
vote per share on all matters to be voted upon by the shareholders. The holders of Class A common stock do not have cumulative voting rights in the election of directors.
Dividend Rights
Subject to the rights of the holders of any preferred stock that may be outstanding and any contractual or statutory restrictions, holders of Class A common stock are entitled to receive equally and ratably, share for share, dividends as may be declared by the board of directors out of funds legally available to pay dividends. Dividends upon Class A common stock may be declared by the board of directors at any regular or special meeting and may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds available for dividends, such sums as the board of directors deems proper as reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any of the Company’s property, or for any proper purpose, and the board of directors may modify or abolish any such reserve.
Liquidation Rights
Upon liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the shareholders after payment of liabilities and the liquidation preference of any outstanding shares of preferred stock.
Other Matters
The shares of Class A common stock have no preemptive or conversion rights and are not subject to further calls or assessment by the Company. There are no redemption or sinking fund provisions applicable to the Class A common stock. All outstanding shares of Class A common stock are fully paid and non-assessable.
Allocation of Income and Loss
Income and losses are allocated among the shareholders based upon the number of shares outstanding.
Class B Common Stock
Voting Rights
Holders of shares of Class B common stock are entitled to
one
vote for each share held of record by such holder and all matters submitted to a vote of shareholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law.
No Dividend or Liquidation Rights
Holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of Ladder Capital Corp.
Exchange for Class A Common Stock
As part of the REIT Structuring Transactions described in
Note 1
, and pursuant to the Third Amended and Restated LLLP Agreement of LCFH, the Continuing LCFH Limited Partners may from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications.
During the
three months ended
March 31, 2017
,
6,790,121
Series REIT LP Units and
6,790,121
Series TRS LP Units were collectively exchanged for
6,790,121
shares of Class A common stock and
6,790,121
shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.
Stock Repurchases
On October 30, 2014, the board of directors authorized the Company to repurchase up to
$50.0 million
of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. During the
three months ended
March 31, 2017
, the Company repurchased
no
shares of Class A common stock. During the
three months ended
March 31, 2016
, the Company repurchased
424,317
shares of Class A common stock at an average of
$10.96
per share for a total aggregate purchase price of
$4.7 million
. All repurchased shares are recorded in treasury stock at cost. As of
March 31, 2017
, the Company has a remaining amount available for repurchase of
$44.4 million
, which represents
3.9%
in the aggregate of its outstanding Class A common stock, based on the closing price of
$14.44
per share on such date.
The following table is a summary of the Company’s repurchase activity of its Class A common stock during the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount(1)
|
|
|
|
|
|
|
|
Authorizations remaining as of December 31, 2016
|
|
|
|
$
|
44,353
|
|
|
Additional authorizations
|
|
|
|
—
|
|
|
Repurchases paid
|
|
—
|
|
|
—
|
|
|
Repurchases unsettled
|
|
|
|
—
|
|
|
Authorizations remaining as of March 31, 2017
|
|
|
|
$
|
44,353
|
|
(1)
Amount excludes commissions paid associated with share repurchases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount(1)
|
|
|
|
|
|
|
|
Authorizations remaining as of December 31, 2015
|
|
|
|
$
|
49,006
|
|
|
Additional authorizations
|
|
|
|
—
|
|
|
Repurchases paid
|
|
424,317
|
|
|
(4,653
|
)
|
|
Repurchases unsettled
|
|
|
|
—
|
|
|
Authorizations remaining as of March 31, 2016
|
|
|
|
$
|
44,353
|
|
(1)
Amount excludes commissions paid associated with share repurchases.
Dividends
In order for the Company to maintain its qualification as a REIT under the Code, it must annually distribute at least 90% of its taxable income. The Company has paid and in the future intends to declare regular quarterly distributions to its shareholders in an amount approximating the REIT’s net taxable income.
Consistent with the Company’s Private Letter Ruling, it may, subject to a cash/stock election by its shareholders, pay a portion of its dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit its ability to retain earnings and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, the Company’s future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of the Company’s board of directors. Generally, the Company expects its distributions to be taxable as ordinary dividends to its shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital or a capital gain. The Company believes that its significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to its shareholders and servicing our debt obligations.
The following table presents dividends declared (on a per share basis) of Class A common stock for the
three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend per Share
|
|
|
|
|
|
March 1, 2017
|
|
$
|
0.300
|
|
|
Total
|
|
$
|
0.300
|
|
|
|
|
|
|
March 1, 2016
|
|
$
|
0.275
|
|
|
Total
|
|
$
|
0.275
|
|
Stock Dividend and Distribution of Accumulated Earnings and Profits
In order to qualify as a REIT the Company must annually distribute at least 90% of its taxable income. In addition, the Company was required to make a one-time distribution of its undistributed accumulated earnings and profits attributable to taxable periods ending prior to January 1, 2015 (the “E&P Distribution”). The E&P Distribution requirement was
$48.3 million
or
$0.90
per share. Pursuant to the terms of an IRS private letter ruling (the “Private Letter Ruling”), the Company elected, subject to the cash/stock election by its shareholders described below, to pay its fourth quarter 2015 and 2016 dividends in a mix of cash and stock and have such dividends be treated as a taxable distribution to its shareholders for U.S. federal income tax purposes.
In order to comply with the Private Letter Ruling, shareholders had the option to elect to receive the fourth quarter 2015 and 2016 dividends in all cash (a “Cash Election”), or all shares of Ladder’s Class A common stock (a “Share Election”). Shareholders who did not return an election form, or who otherwise failed to properly complete an election form, were deemed to have made a Share Election. The total amount of cash paid to all shareholders was limited to a maximum of 20% of the total value of each of the fourth quarter 2015 and 2016 dividends (the “Cash Amount”). The aggregate amount of the dividends owed to shareholders who made Cash Elections exceeded the Cash Amount, and accordingly, the Cash Amount was prorated among such shareholders, with the remaining portion of the fourth quarter 2015 or 2016 dividend, as applicable, paid to such shareholders in shares of Ladder’s Class A common stock plus cash in lieu of any fractional shares. Shareholders making Stock Elections received the full amount of the dividend in shares of Ladder’s Class A common stock plus cash in lieu of any fractional shares. The Company believes that the total value of its 2015 dividends was sufficient to fully distribute its 2015 taxable income and its accumulated earnings and profits. The Company believes that the total value of its 2016 dividends was sufficient to fully distribute its 2016 taxable income.
On
January 24, 2017
, the Company paid an aggregate of
$20.8 million
in cash to its Class A shareholders, accrued for dividends payable on unvested restricted stock and unvested options with dividend equivalent rights of
$0.7 million
and issued
815,819
shares of its Class A common stock, equivalent to
$11.5 million
, in connection with the fourth quarter
2016
dividend totaling
$0.46
per share. The total number of shares of Class A common stock distributed pursuant to the fourth quarter
2016
dividend was determined based on shareholder elections and the volume weighted average price of
$14.06
per share of Class A common stock on the New York Stock Exchange for the three trading days after
January 12, 2017
, the date that election forms were due. The Company also issued
432,314
shares of its Class B common stock and each of Series REIT and Series TRS of LCFH issued
1,248,133
of their respective Series LP units corresponding to the aggregate number of Class A and Class B shares issued by the Company. The Company believes that the total value of its
2017
dividend was sufficient to fully distribute its
2017
taxable income.
Changes in Accumulated Other Comprehensive Income
The following table presents changes in accumulated other comprehensive income related to the cumulative difference between the fair market value and the amortized cost basis of securities classified as available for sale for the
three months ended
March 31, 2017
and
2016
($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Other Comprehensive Income of Noncontrolling Interests
|
|
Total Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
1,365
|
|
|
$
|
761
|
|
|
$
|
2,126
|
|
|
Other comprehensive income (loss)
|
|
3,117
|
|
|
1,634
|
|
|
4,751
|
|
|
Exchange of noncontrolling interest for common stock
|
|
403
|
|
|
(403
|
)
|
|
—
|
|
|
Rebalancing of ownership percentage between Company and Operating Partnership
|
|
(51
|
)
|
|
51
|
|
|
—
|
|
|
March 31, 2017
|
|
$
|
4,834
|
|
|
$
|
2,043
|
|
|
$
|
6,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Accumulated Other Comprehensive Income of Noncontrolling Interests
|
|
Total Accumulated Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
$
|
(3,556
|
)
|
|
$
|
(2,839
|
)
|
|
$
|
(6,395
|
)
|
|
Other comprehensive income (loss)
|
|
19,467
|
|
|
14,916
|
|
|
34,383
|
|
|
Exchange of noncontrolling interest for common stock
|
|
(122
|
)
|
|
122
|
|
|
—
|
|
|
Rebalancing of ownership percentage between Company and Operating Partnership
|
|
350
|
|
|
(350
|
)
|
|
—
|
|
|
March 31, 2016
|
|
$
|
16,139
|
|
|
$
|
11,849
|
|
|
$
|
27,988
|
|
Capitalized Offering Costs
As described in
Note 1
, the Company completed an IPO of its Class A Common Stock on February 11, 2014. Costs directly attributable to the Company’s IPO of
$20.5 million
were capitalized and charged against the proceeds of the IPO once completed.
12. NONCONTROLLING INTERESTS
Pursuant to ASC 810,
Consolidation
, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary), while the parent retains its controlling interest in its subsidiary, should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of reorganization transactions which caused changes in ownership percentages between the Company’s Class A shareholders and the noncontrolling interests in the Operating Partnership that occurred during the
three months ended
March 31, 2017
, the Company has
decreased
noncontrolling interests in the Operating Partnership and
increased
additional paid-in capital and accumulated other comprehensive income in the Company’s shareholders’ equity by
$4.2 million
as of
March 31, 2017
. Upon the adoption of ASU 2015-02, which amended ASC 810,
Consolidation,
in the quarter ended March 31, 2016, the Operating Partnership is now determined to be a VIE, however, since the Company was previously consolidating the Operating Partnership, the adoption of ASU 2015-02 had no material impact on the Company’s consolidated financial statements.
There are two main types of noncontrolling interest reflected in the Company’s consolidated financial statements (i) noncontrolling interest in the operating partnership and (ii) noncontrolling interest in consolidated joint ventures.
Noncontrolling Interest in the Operating Partnership
As more fully described in
Note 1
, certain of the predecessor equity owners continue to own interests in the operating partnership as modified by the IPO Transactions. These interests were subsequently further modified by the REIT Structuring Transactions (also described in
Note 1
). These interests, along with the Class B shares held by these investors, are exchangeable for Class A shares of the Company. The roll-forward of the Operating Partnership’s LP Units follow the Class B common stock of the Company as disclosed in the consolidated statements of changes in equity.
Distributions to Noncontrolling Interest in the Operating Partnership
Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and available liquidity as determined by the board of directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to make quarterly distributions to each of its partners (including the Company) at least equal to such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in LCFH’s Third Amended and Restated LLLP Agreement) for each partner as the product of (x) the U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to such partner in respect of the Series REIT LP Units and Series TRS LP Units held by such partner and (y) the highest marginal blended U.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing in New York, NY, taking into account, for U.S. federal income tax purposes, the deductibility of state and local taxes; provided that Series TRS of LCFH may take into account, in determining the amount of tax distributions to holders of Series TRS LP Units, the amount of any distributions each such holder received from Series REIT of LCFH in excess of tax distributions. In addition, to the extent the Company requires an additional distribution from the Series of LCFH in excess of its quarterly tax distribution in order to pay its quarterly cash dividend, the Series of LCFH will be required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis.
Allocation of Income and Loss
Income and losses and comprehensive income are allocated among the partners in a manner to reflect as closely as possible the amount each partner would be distributed under the Third Amended and Restated LLLP Agreement upon liquidation of the Operating Partnership’s assets.
Noncontrolling Interest in Unconsolidated Joint Ventures
The Company consolidates
seven
ventures in which there are other noncontrolling investors, which own between
1.2%
-
22.5%
of such ventures. These ventures hold investments in
eight
office buildings,
one
warehouse,
one
shopping center and a condominium project. The Company makes distributions and allocates income from these ventures to the noncontrolling interests in accordance with the terms of the respective governing agreements.
13. EARNINGS PER SHARE
The Company’s net income (loss) and weighted average shares outstanding for the
three months ended
March 31, 2017
and
2016
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands except share amounts)
|
|
For the Three Months Ended March 31, 2017
|
|
For the Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
Basic Net income (loss) available for Class A common shareholders
|
|
$
|
13,470
|
|
|
$
|
(5,539
|
)
|
|
Diluted Net income (loss) available for Class A common shareholders
|
|
$
|
19,280
|
|
|
$
|
(5,539
|
)
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
Basic
|
|
72,871,990
|
|
|
59,596,889
|
|
|
Diluted
|
|
109,334,847
|
|
|
59,596,889
|
|
The calculation of basic and diluted net income (loss) per share amounts for the
three months ended
March 31, 2017
and
2016
are described and presented below.
Basic Net Income (Loss) per Share
Numerator:
utilizes net income (loss) available for Class A common shareholders for the
three months ended
March 31, 2017
and
2016
, respectively.
Denominator:
utilizes the weighted average shares of Class A common stock for the
three months ended
March 31, 2017
and
2016
, respectively.
Diluted Net Income (Loss) per Share
Numerator:
utilizes net income (loss) available for Class A common shareholders for the
three months ended
March 31, 2017
and
2016
, respectively, for the basic net income (loss) per share calculation described above, adding net income (loss) amounts attributable to the noncontrolling interest in the Operating Partnership using the as-if converted method for the Class B common shareholders while adjusting for additional corporate income tax expense (benefit) for the described net income (loss) add-back.
Denominator:
utilizes the weighted average number of shares of Class A common stock for the
three months ended
March 31, 2017
and
2016
, respectively, for the basic net income (loss) per share calculation described above adding the dilutive effect of shares issuable relating to Operating Partnership exchangeable interests and the incremental shares of unvested Class A restricted stock using the treasury method.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands except share amounts)
|
|
For the Three Months Ended March 31, 2017
|
|
For the Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Per Share of Class A Common Stock
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net income (loss) attributable to Class A common shareholders
|
|
$
|
13,470
|
|
|
$
|
(5,539
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average number of shares of Class A common stock outstanding
|
|
72,871,990
|
|
|
59,596,889
|
|
|
Basic net income (loss) per share of Class A common stock
|
|
$
|
0.18
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
Diluted Net Income (Loss) Per Share of Class A Common Stock
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net income (loss) attributable to Class A common shareholders
|
|
$
|
13,470
|
|
|
$
|
(5,539
|
)
|
|
Add (deduct) - dilutive effect of:
|
|
|
|
|
|
|
|
Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss)
|
|
5,838
|
|
|
—
|
|
|
Additional corporate tax (expense) benefit
|
|
(28
|
)
|
|
—
|
|
|
Diluted net income (loss) attributable to Class A common shareholders
|
|
$
|
19,280
|
|
|
$
|
(5,539
|
)
|
|
Denominator:
|
|
|
|
|
|
Basic weighted average number of shares of Class A common stock outstanding
|
|
72,871,990
|
|
|
59,596,889
|
|
|
Add - dilutive effect of:
|
|
|
|
|
|
|
|
Shares issuable relating to converted Class B common shareholders
|
|
36,340,717
|
|
|
—
|
|
|
Incremental shares of unvested Class A restricted stock
|
|
122,140
|
|
|
—
|
|
|
Diluted weighted average number of shares of Class A common stock outstanding
|
|
109,334,847
|
|
|
59,596,889
|
|
|
Diluted net income (loss) per share of Class A common stock
|
|
$
|
0.18
|
|
|
$
|
(0.09
|
)
|
For the
three months ended
March 31, 2016
, shares issuable relating to converted Class B common shareholders and incremental shares of unvested Class A restricted stock are excluded from the calculation of diluted EPS as the inclusion of such potential common shares in the calculation would be anti-dilutive.
The shares of Class B common stock do not share in the earnings of Ladder Capital Corp and are, therefore, not participating securities. Accordingly, basic and diluted net income (loss) per share of Class B common stock has not been presented, although the assumed conversion of Class B common stock has been included in the presented diluted net income (loss) per share of Class A common stock.
14. STOCK BASED COMPENSATION PLANS
2014 Omnibus Incentive Plan
In connection with the IPO Transactions, the 2014 Ladder Capital Corp Omnibus Incentive Equity Plan (the “2014 Omnibus Incentive Plan”) was adopted by the board of directors on February 11, 2014, and provides certain members of management, employees and directors of the Company or its affiliates with additional incentives including grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards.
2015 Annual Restricted Stock Awards and Annual Option Awards
Members of management are eligible to receive annual restricted stock awards (the “Annual Restricted Stock Awards”) and annual option awards (the “Annual Option Awards”) based on the performance of the Company. On
February 18, 2015
, Annual Restricted Stock Awards were granted to our executive officers (each, a “Management Grantee”) with an aggregate value of
$12.6 million
which represents
688,400
shares of restricted Class A common stock in connection with 2014 compensation.
Fifty percent
of each restricted stock award granted is subject to time-based vesting criteria, and the remaining
50%
of each restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to the Management Grantees will generally vest in
three
installments on each of the first three anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in
three
equal installments on December 31 of each of 2015, 2016 and 2017 if the Company achieves a return on equity, based on Core Earnings divided by the Company’s average book value of equity, equal to or greater than 8% for such year (the “Performance Target”) for those years. If the Company misses the Performance Target during either the first or second calendar year but meets the Performance Target for a subsequent year during the
three
-year performance period and the Company’s return on equity for such subsequent year and any years for which it missed its Performance Target equals or exceeds the compounded return on equity of
8%
, based on Core Earnings divided by the Company’s average book value of equity, the performance-vesting restricted stock which failed to vest because the Company previously missed its Performance Target will vest on the last day of such subsequent year (the “Catch-Up Provision”). If the term “Core Earnings” is no longer used in the Company’s SEC filings and approved by the compensation committee, then the Performance Target will be calculated using such other pre-tax performance measurement defined in the Company’s SEC filings, as determined by the compensation committee. The Company met the Performance Target for the years ended December 31, 2016 and 2015.
The Company has elected to recognize the compensation expense related to the time-based vesting portion of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the
February 18, 2015
Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
|
|
|
|
1.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to Brian Harris will be expensed
1/2
each year, for
two years
, on an annual basis in advance of the Harris Retirement Eligibility Date, as described below.
|
|
|
|
|
2.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris, will be expensed
1/3
each year, for
three years
on an annual basis following such grant.
|
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
On February 18, 2015, Annual Stock Option Awards were granted to Management Grantees with an aggregate grant date fair value of
$1.4 million
, which represents
670,256
shares of Class A common stock subject to the Annual Stock Option Awards. The stock option awards are subject to time-based vesting criteria only and vest in three equal installments on February 18 of each of 2016, 2017 and 2018, subject to continued employment until the applicable vesting date. Upon termination of a Management Grantee’s employment or service due to death, disability, termination by the Company without Cause or termination by the Management Grantee for Good Reason (each, as defined in the 2014 Omnibus Incentive Plan), the respective Management Grantee’s option awards will accelerate and vest in full. The actual grant date fair values of the Annual Option Awards granted to our Management Grantees were computed in accordance with FASB ASC Topic 718 using the Black Scholes model based on the following assumptions: (1) risk-free rate of
1.79%
; (2) dividend yield of
5.3%
; (3) expected life of
six
years; and (4) volatility of
24.0%
.
On
February 18, 2015
, members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of
$0.1 million
, representing
7,962
shares of restricted Class A common stock, which will vest in full on the
first
anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to directors will be expensed
in full
on an annual basis following such grant.
Upon a change in control (as defined in the respective award agreements), all restricted stock and option awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without Cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
On February 11, 2017 (the “Harris Retirement Eligibility Date”), all outstanding Annual Restricted Stock Awards, including the time-vesting portion and the performance-vesting portion, and all outstanding Annual Option Awards granted to Mr. Harris became fully vested, and any Annual Restricted Stock Awards and Annual Option Awards granted after the Harris Retirement Eligibility Date will be fully vested at grant. For other Management Grantees, upon the first date that is on or after February 11, 2019, where the sum of the individual’s age and the individual’s number of full, completed years of employment with us or our subsidiaries is equal to or greater than 60 (the “Executive Retirement Eligibility Date”). The Executive Retirement Eligibility Date for Pamela McCormack is December 8, 2019 (the “McCormack Retirement Eligibility Date”). For Management Grantees other than Harris and McCormack, the Executive Retirement Eligibility Date is February 11, 2019), the time-vesting portion of the Annual Restricted Stock Awards and the Annual Option Awards will become fully vested, and the time-vesting portion of any Annual Restricted Stock Awards and Annual Option Awards granted after the Executive Retirement Eligibility Date will be fully vested at grant. Upon the occurrence of the Executive Retirement Eligibility Date, the performance-vesting portion of such Management Grantee’s Annual Restricted Stock Awards will remain outstanding for the performance period and will vest to the extent we meet the Performance Target, including via the Catch-Up Provision described above, regardless of continued employment with us our subsidiaries following the Executive Retirement Eligibility Date.
On
June 10, 2015
, a new member of the board of directors received an Annual Restricted Stock Award with a grant date fair value of
$0.1 million
, representing
4,223
shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed
1/3
each year, for
three years
on an annual basis following such grant.
2016 Annual Restricted Stock Awards and Annual Option Awards
On
February 18, 2016
, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of
$9.1 million
which represents
793,598
shares of restricted Class A common stock in connection with 2015 compensation. These awards are subject to the same terms and conditions as the 2015 Annual Restricted Stock Awards, except that the relevant vesting periods begin in 2016, rather than in 2015. The Company met the Performance Target for the year ended December 31, 2016.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the
February 18, 2016
Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
|
|
|
|
1.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to Brian Harris was expensed
in full
on
February 11, 2017
, the Harris Retirement Eligibility Date.
|
|
|
|
|
2.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris, will be expensed
1/3
each year, for
three years
on an annual basis following such grant.
|
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
On
February 18, 2016
, Annual Stock Option Awards were granted to Management Grantees with an aggregate grant date fair value of
$1.0 million
, which represents
289,326
shares of Class A common stock subject to the Annual Stock Option Awards. The stock option awards are subject to the same terms and conditions as those granted in 2015 except that the vesting period commenced in 2016 and the 2016 stock option awards included dividend equivalent rights. The actual grant date fair values of the Annual Option Awards granted to our Management Grantees were computed in accordance with FASB ASC Topic 718 using the Black Scholes model based on the following assumptions: (1) risk-free rate of
1.5%
; (2) dividend yield of
9.8%
; (3) expected life of
six
years; and (4) volatility of
48.0%
.
On
February 18, 2016
, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of
$0.1 million
, representing
12,636
shares of restricted Class A common stock, which will vest in full on the
first
anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to directors will be expensed
in full
on an annual basis following such grant. These grants are subject to the same terms and conditions as those made in 2015 except that the vesting period commenced in 2016.
The 2016 awards are subject to the same change in control and retirement provisions that are described above.
2017 Annual Restricted Stock Awards
On
February 18, 2017
, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of
$0.2 million
, representing
16,245
shares of restricted Class A common stock, which will vest
in full
on the
first
anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one-year vesting period.
For 2016 performance, management received solely stock-based incentive equity. On
February 18, 2017
, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of
$10.2 million
which represents
736,461
shares of restricted Class A common stock in connection with 2016 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees,
fifty percent
of each restricted stock award granted is subject to time-based vesting criteria, and the remaining
50%
of each restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in
three
installments on each of the first three anniversaries of the date of grant, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in
three
equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2017, 2018 and 2019, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the
February 18, 2017
Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
|
|
|
|
1.
|
Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date.
|
|
|
|
|
2.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed
1/3
each year, for
three years
, on an annual basis in advance of the McCormack Retirement Eligibility Date.
|
|
|
|
|
3.
|
Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris and Ms. McCormack, will be expensed
1/3
each year, for
three years
, on an annual basis in advance of the Executive Retirement Eligibility Date.
|
Accruals of compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
Upon a change in control (as defined in the respective award agreements), all restricted stock and option awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without Cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
On
February 18, 2017
, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of
$0.6 million
which represents
40,000
shares of restricted Class A common stock in connection with 2016 compensation.
Fifty percent
of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining
50%
of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in
three
installments on each of the first three anniversaries of June 1, 2017, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in
three
equal installments on June 1 of each of 2018, 2019 and 2020 (subject to the performance target being achieved). The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the February 18, 2017 Restricted Stock Awards to Non-Management Grantees shall be recognized 1/3 for the period February 18, 2017 through June 1, 2018, 1/3 for the period June 2, 2018 through June 1, 2019 and 1/3 for the period June 2, 2019 through June 1, 2020.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
On
March 3, 2017
, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of
$75,616
, representing
5,130
shares of restricted Class A common stock, which will vest in
three
equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed
1/3
each year, for
three years
on an annual basis following such grant.
Other 2017 Restricted Stock Awards
On
January 24, 2017
, Management Grantees received a Restricted Stock Award with a grant date fair value of
$30,455
, representing
2,191
shares of restricted Class A common stock. These shares represent stock dividends paid on the number of shares subject to the 2016 options (had such shares been outstanding) and vest with the time-vesting 2016 options they are associated with, subject to the Retirement Eligibility Date of the respective member of management. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On February 18, 2017, a new employee of the Company received a Restricted Stock Award with a grant date fair value of
$0.4 million
, representing
28,881
shares of restricted Class A common stock, which will vest in
two
equal installments on each of the first
two
anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On February 18, 2017, Management Grantees received cash of
$1.0 million
and a Stock Award with a grant date fair value of
$48,475
, representing
3,500
shares of Class A common stock, intended to represent dividends in type and amount that the 2015 stock option grant to management would have received had such options had dividend equivalent rights since grant. This grant also provides for future dividend equivalents that vest according to the vesting schedule of the 2015 stock option grant. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
Summary of Restricted Stock and Stock Option Expense and Shares/Options Nonvested/Outstanding
A summary of the grants is presented below ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
|
|
Number
of Shares/Options
|
|
Weighted
Average
Fair Value
|
|
Number
of Shares
|
|
Weighted
Average
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Grants - Class A Common Stock (restricted)
|
832,408
|
|
|
$
|
11,616
|
|
|
793,598
|
|
|
$
|
9,118
|
|
|
Grants - Class A Common Stock (restricted) dividends
|
15,560
|
|
|
216
|
|
|
166,934
|
|
|
1,908
|
|
|
Stock Options
|
—
|
|
|
—
|
|
|
380,949
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization to compensation expense
|
|
|
|
|
|
|
|
|
Ladder compensation expense
|
|
|
|
(7,254
|
)
|
|
|
|
|
(3,464
|
)
|
|
Total amortization to compensation expense
|
|
|
|
$
|
(7,254
|
)
|
|
|
|
|
$
|
(3,464
|
)
|
The table below presents the number of unvested shares and outstanding stock options at
March 31, 2017
and changes during
2017
of the (i) Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Stock Options
|
|
|
|
|
|
|
Nonvested/Outstanding at December 31, 2016
|
1,475,865
|
|
|
982,135
|
|
|
Granted
|
847,968
|
|
|
—
|
|
|
Exercised
|
|
|
—
|
|
|
Vested
|
(1,423,934
|
)
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Expired
|
|
|
—
|
|
|
Nonvested/Outstanding at March 31, 2017
|
899,899
|
|
|
982,135
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017
|
|
|
752,017
|
|
At
March 31, 2017
there was
$10.5 million
of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to
39 months
, with a weighted-average remaining vesting period of
25.3 months
.
Phantom Equity Investment Plan
LCFH maintains a Phantom Equity Investment Plan, effective on June 30, 2011 (the “Phantom Equity Plan”) in which certain eligible employees of LCFH, LCF and their subsidiaries participate. On July 3, 2014, the Board of Directors froze the Phantom Equity Plan, as further described below. The Phantom Equity Plan is an annual deferred compensation plan pursuant to which participants could elect, or in some cases, non-management participants could be required, depending upon the participant’s specific level of compensation, to defer all or a portion of their annual cash performance-based bonuses as elective or mandatory contributions. Generally, if a participant’s total compensation was in excess of a certain threshold, a portion of such participant’s annual bonus, was required to be deferred into the Phantom Equity Plan. Otherwise, amounts could be deferred into the Phantom Equity Plan at the election of the participant, so long as such election was timely made in accordance with the terms and procedures of the Phantom Equity Plan.
In the event that a participant elected to (or was required to) defer a portion of his or her compensation pursuant to the Phantom Equity Plan, such amount was not paid to the participant and was instead credited to such participant’s notional account under the Phantom Equity Plan. Prior to the closing of our IPO, such amounts were invested, on a phantom basis, in the Series B Participating Preferred Units issued by LCFH until such amounts were eventually paid to the participant pursuant to the Phantom Equity Plan. Following our IPO, as described below, such amounts were invested on a phantom basis in shares of the Company’s Class A common stock. Mandatory contributions are subject to one-third vesting over a three year period following the applicable Phantom Equity Plan year in which the related compensation was earned. Elective contributions were immediately vested upon contribution. Unvested amounts are generally forfeited upon the participant’s involuntary termination for cause, a voluntary termination for which the participant’s employer would have grounds to terminate the participant for cause or a voluntary termination within one year of which the participant obtains employment with a financial services organization.
The date that the amounts deferred into the Phantom Equity Plan are paid to a participant depends upon whether such deferral is a mandatory deferral or an elective deferral. Elective deferrals are paid upon the earliest to occur of (1) a change in control (as defined in the Phantom Equity Plan), (2) the end of the participant’s employment, or (3) December 31, 2017. The vested amounts of the mandatory contributions are paid upon the first to occur of (A) a change in control and (B) the first to occur of (x) December 31, 2017 or (y) the date of payment of the annual bonus payments following December 31 of the third calendar year following the applicable plan year to which the underlying deferred annual bonus relates. The Company could elect to make, and did make, payments pursuant to the Phantom Equity Plan in the form of cash in an amount equal to the then fair market value of such shares of the Company’s Class A common stock (or, prior to our IPO, the Series B Participating Preferred Units), and on May 14, 2014, the Compensation Committee made a global election to make all payments pursuant to the Phantom Equity Plan in the form of cash. Mandatory contributions that were paid at the time specified in clause 2(B) above were made in cash.
Upon the closing of our IPO, each participant in the Phantom Equity Plan had his or her notional interest in LCFH’s Series B Participating Preferred Units converted into a notional interest in the Company’s Class A common stock, which notional conversion was based on the issuance price of our Class A common stock at the time of the IPO. On July 3, 2014, the board of directors froze the Phantom Equity Plan, effective as of such date, so that there will neither be future participants in the Phantom Equity Plan nor additional amounts contributed to any accounts outstanding under the Phantom Equity Plan. Amounts previously outstanding under the Phantom Equity Plan will be paid in accordance with their original payment terms, including limiting payment to the dates and events specified above. In connection with freezing the Phantom Equity Plan, the board of directors also updated the definition of fair market value for purposes of measuring the value of its Class A Common Stock, to provide that, generally, such value would be the closing price of such stock on the principal national securities exchange on which it is then traded.
As of
March 31, 2017
, there are
274,285
phantom units outstanding, all of which are vested, resulting in a liability of
$4.4 million
, which is included in accrued expenses on the consolidated balance sheets. As of
December 31, 2016
, there are
373,871
phantom units outstanding, all of which are vested, resulting in a liability of
$6.1 million
, which is included in accrued expenses on the consolidated balance sheets.
Ladder Capital Corp Deferred Compensation Plan
On July 3, 2014, the Company adopted a new, nonqualified deferred compensation plan, which was amended and restated on March 17, 2015 (the “2014 Deferred Compensation Plan”), in which certain eligible employees participate. Pursuant to the 2014 Deferred Compensation Plan, participants may elect, or in some cases non-management participants may be required, to defer all or a portion of their annual cash performance-based bonuses into the 2014 Deferred Compensation Plan. Generally, if a participant’s total compensation is in excess of a certain threshold, a portion of a participant’s performance-based annual bonus is required to be deferred into the 2014 Deferred Compensation Plan. Otherwise, a portion of the participant’s annual bonus may be deferred into the 2014 Deferred Compensation Plan at the election of the participant, so long as such elections are timely made in accordance with the terms and procedures of the 2014 Deferred Compensation Plan.
In the event that a participant elects to (or is required to) defer a portion of his or her compensation pursuant to the 2014 Deferred Compensation Plan, such amount is not paid to the participant and is instead credited to such participant’s notional account under the 2014 Deferred Compensation Plan. Such amounts are then invested on a phantom basis in Class A common stock of the Company, or the phantom units, and a participant’s account is credited with any dividends or other distributions received by holders of Class A common stock of the Company, which are subject to the same vesting and payment conditions as the applicable contributions. Elective contributions are immediately vested upon contribution. Mandatory contributions are subject to
one-third
vesting over a
three
-year period on a straight-line basis following the applicable year in which the related compensation was earned.
If a participant’s employment with the Company is terminated by the Company other than for cause and such termination is within six months following a change in control (each, as defined in the 2014 Deferred Compensation Plan), then the participant will fully vest in his or her unvested account balances. Furthermore, the unvested account balances will fully vest in the event of the participant’s death, disability, retirement (as defined in the 2014 Deferred Compensation Plan) or in the event of certain hostile takeovers of the board of directors of the Company. In the event that a participant’s employment is terminated by the Company other than for cause, the participant will vest in the portion of the participant’s account that would have vested had the participant remained employed through the end of the year in which such termination occurs, subject to, in such case or in the case of retirement, the participant’s timely execution of a general release of claims in favor of the Company. Unvested amounts are otherwise generally forfeited upon the participant’s resignation or termination of employment, and vested mandatory contributions are generally forfeited upon the participant’s termination for cause.
Amounts deferred into the 2014 Deferred Compensation Plan are paid upon the earliest to occur of (1) a change in control, (2) within
sixty
(
60
) days following the end of the participant’s employment with the Company, or (3) the date of payment of the annual bonus payments following December 31 of the third calendar year following the applicable year to which the underlying deferred annual compensation relates. Payment is made in cash equal to the fair market value of the number of phantom units credited to a participant’s account, provided that, if the participant’s termination was by the Company for cause or was a voluntary resignation other than on account of such participant’s retirement, the amount paid is based on the lowest fair market value of a share of Class A common stock during the forty-five day period following such termination of employment.
The amount of the final cash payment may be more or less than the amount initially deferred into the 2014 Deferred Compensation Plan, depending upon the change in the value of the Class A common stock of the Company during such period.
As of
March 31, 2017
, there are
354,638
phantom units outstanding, of which
226,465
are unvested, resulting in a liability of
$3.8 million
, which is included in accrued expenses on the consolidated balance sheets. As of
December 31, 2016
, there are
273,709
phantom units outstanding, of which
134,281
are unvested, resulting in a liability of
$3.6 million
, which is included in accrued expenses on the consolidated balance sheets.
Bonus Payments
On
February 8, 2017
, the board of directors of Ladder Capital Corp approved
2017
bonus payments to employees, including officers, totaling
$39.5 million
, which included
$10.2 million
of equity based compensation. The bonuses were accrued for as of
December 31, 2017
and paid to employees in full on
February 21, 2017
. On
February 10, 2016
, the board of directors of Ladder Capital Corp approved
2016
bonus payments to employees, including officers, totaling
$46.8 million
, which included
$10.3 million
of equity based compensation. The bonuses were accrued for as of
March 31, 2016
and paid to employees in full on
February 17, 2016
. During the
three months ended
March 31, 2017
and
2016
, the Company recorded compensation expense of
$3.1 million
and
$4.7 million
, respectively, related to bonuses.
15. INCOME TAXES
Prior to February 11, 2014, the Company had not been subject to U.S. federal income taxes as the predecessor entity was a Limited Liability Limited Partnership (“LLLP”), but had been subject to the New York City Unincorporated Business Tax (“NYC UBT”). As a result of the IPO, a portion of the Company’s income was subject to U.S. federal, state and local corporate income taxes and taxed at the prevailing corporate tax rates in addition to being subject to NYC UBT. Because the Company is operating as a REIT effective January 1, 2015, the Company’s income will generally no longer be subject to U.S. federal, state and local corporate income taxes other than as described below.
Certain of the Company’s subsidiaries have elected to be treated as TRSs. TRSs permit the Company to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, the Company will continue to maintain its qualification as a REIT. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in TRSs. Current income tax expense (benefit) was
$2.2 million
and
$1.1 million
for the
three months ended
March 31, 2017
and
March 31, 2016
, respectively.
As of
March 31, 2017
and
December 31, 2016
, the Company’s net deferred tax assets were
$4.8 million
and
$2.1 million
, respectively, and are included in other assets in the Company’s consolidated balance sheets. Deferred income tax expense (benefit) included within the provision for income taxes was
$(3.6) million
and
$(2.0) million
for the
three months ended
March 31, 2017
and
March 31, 2016
, respectively. The Company believes it is more likely than not that the net deferred tax assets will be realized in the future. Realization of the net deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences. The amount of net deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
As of
March 31, 2017
, the Company has a deferred tax asset of
$6.0 million
relating to capital losses which it may only use to offset capital gains. These tax attributes will expire if unused in 2020. As the realization of these assets are not more likely than not before their expiration, the Company has provided a full valuation allowance against this deferred tax asset.
The Company’s tax returns are subject to audit by taxing authorities. Generally, as of
March 31, 2017
, the tax years 2013, 2014, 2015 and 2016 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. The Company acquired certain corporate entities in the IPO Reorganization Transactions. The related acquisition agreements provided an indemnification to the Company by the transferor of any amounts due for any potential tax liabilities owed by these entities for tax years prior to their acquisition. During the three months ended September 30, 2016, management proposed a settlement pertaining to a New York State tax audit for these corporate entities for the years 2010-2012 (which are now wholly owned). As a result of the settlement, management recorded income tax expense in the amount of
$3.3 million
and a corresponding payable to the State of New York. The settlement was finalized during the three months ended December 31, 2016. Pursuant to the indemnification, Management expected to recover such amounts and, accordingly, recorded fee and other income in the amount of
$3.3 million
as well as a corresponding receivable from the indemnity counterparties. As of
March 31, 2017
, the Company had recovered all amounts owed by the indemnity counterparties related to the 2010-2012 audit. The IRS and New York State have recently begun routine audits of the Company’s U.S. federal and state income tax returns for tax year 2014 and 2013-2015 respectively. The Company does not expect the audit to result in any material changes to the Company’s financial position. The Company does not expect tax expense to have an impact on either short or long-term liquidity or capital needs.
Under U.S. GAAP, a tax benefit related to an income tax position may be recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. As of
March 31, 2017
and
December 31, 2016
, the Company’s unrecognized tax benefit is a liability for
$0.8 million
and is included in the accrued expenses in the Company’s consolidated balance sheets. This unrecognized tax benefit, if recognized, would have a favorable impact on our effective income tax rate in future periods. As of
March 31, 2017
, the Company has
no
t recognized any interest or penalties related to uncertain tax positions. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months.
Tax Receivable Agreement
Upon consummation of the IPO, the Company entered into a Tax Receivable Agreement with the Continuing LCFH Limited Partners. Under the Tax Receivable Agreement the Company generally is required to pay to those Continuing LCFH Limited Partners that exchange their interests in LCFH and Class B shares of the Company for Class A shares of the Company,
85%
of the applicable cash savings, if any, in U.S. federal, state and local income tax that the Company realizes (or is deemed to realize in certain circumstances) as a result of (i) the increase in tax basis in its proportionate share of LCFH’s assets that is attributable to the Company as a result of the exchanges and (ii) payments under the Tax Receivable Agreement, including any tax benefits related to imputed interest deemed to be paid by the Company as a result of such agreement. The Company may make future payments under the Tax Receivable Agreement if the tax benefits are realized. We would then benefit from the remaining
15%
of cash savings in income tax that we realize. For purposes of the Tax Receivable Agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase to the tax basis of the assets of LCFH as a result of the exchanges and had we not entered into the Tax Receivable Agreement.
Payments to a Continuing LCFH Limited Partner under the Tax Receivable Agreement are triggered by each exchange and are payable annually commencing following the Company’s filing of its income tax return for the year of such exchange. The timing of the payments may be subject to certain contingencies, including the Company having sufficient taxable income to utilize all of the tax benefits defined in the Tax Receivable Agreement.
As of
March 31, 2017
and
December 31, 2016
, pursuant to the Tax Receivable Agreement, the Company recorded a liability of
$2.3 million
and
$2.5 million
, respectively, included in amount payable pursuant to tax receivable agreement in the consolidated balance sheets for Continuing LCFH Limited Partners. The amount and timing of any payments may vary based on a number of factors, including the absence of any material change in the relevant tax law, the Company continuing to earn sufficient taxable income to realize all tax benefits, and assuming no additional exchanges that are subject to the Tax Receivable Agreement. Depending upon the outcome of these factors, the Company may be obligated to make substantial payments pursuant to the Tax Receivable Agreement. The actual payment amounts may differ from these estimated amounts, as the liability will reflect changes in prevailing tax rates, the actual benefit the Company realizes on its annual income tax returns, and any additional exchanges.
To determine the current amount of the payments due, the Company estimates the amount of the Tax Receivable Agreement payments that will be made within twelve months of the balance sheet date. As described in
Note 1
above, the Tax Receivable Agreement was amended and restated in connection with our REIT Election, effective as of December 31, 2014, in order to preserve a portion of the potential tax benefits currently existing under the Tax Receivable Agreement that would otherwise be reduced in connection with our REIT Election. The purpose of the TRA Amendment was to preserve the benefits of the Tax Receivable Agreement to the extent possible in a REIT, although, as a result, the amount of payments made to the TRA Members under the TRA Amendment is expected to be less than the amount that would have been paid under the original Tax Receivable Agreement. The TRA Amendment continues to share such benefits in the same proportions and otherwise has substantially the same terms and provisions as the prior Tax Receivable Agreement.
16. RELATED PARTY TRANSACTIONS
Ladder Select Bond Fund
On October 18, 2016, Ladder Capital Asset Management LLC (“LCAM”), a subsidiary of the Company and a registered investment adviser, launched the Ladder Select Bond Fund (the “Fund”), a mutual fund. In addition, on October 18, 2016, the Company made a
$10.0 million
investment in the Fund, which is included in other assets in the consolidated balance sheets. As of
March 31, 2017
, members of senior management have also invested
$1.6 million
in aggregate in the Fund, since inception. LCAM earns a
0.75%
fee on assets under management, which may be reduced for expenses incurred in excess of the Fund’s expense cap of
0.95%
.
Commercial Real Estate Loans
From time to time, the Company may provide commercial real estate loans to entities affiliated with certain of our directors, officers or large shareholders who are, as part of their ordinary course of business, commercial real estate investors. These loans are made in the ordinary course of the Company’s business on the same terms and conditions as would be offered to any other borrower of similar type and standing on a similar property.
On May 20, 2015, the Company provided a
$25.0 million
,
9.0%
fixed rate, approximately one year, interest-only mezzanine loan, to Halletts Investors LLC (“Borrower”), an entity affiliated with Douglas Durst, one of the Company’s directors and chairman of The Durst Organization. The loan, which was approved by the Audit Committee and Risk and Underwriting Committee in accordance with the Company’s policies regarding related party transactions, was secured by Borrower’s ownership interest in Durst Halletts Member LLC (“Guarantor”). Borrower and Guarantor indirectly own a controlling interest in the three entities that collectively own approximately
9.66
acres of undeveloped land located along the East River waterfront on Hallets Point Peninsula in Astoria Queens, New York. Douglas Durst and members of his family, including trusts for which Douglas Durst is a trustee, have a controlling interest in Borrower and Guarantor. The loan matured on and was repaid in full as of June 3, 2016. For the
three months ended
March 31, 2016
, the Company earned
$0.6 million
in interest income related to this loan.
On March 13, 2017, Related Reserve IV LLC, an affiliate of Related Fund Management LLC (the “B Participation Holder”), purchased a
$4.0 million
subordinate participation interest (the “B Participation Interest”) in the up to
$136.5 million
mortgage loan (the “Loan”) secured by the Conrad hotels and condominiums in Fort Lauderdale, Florida from a subsidiary of the Company. The B Participation Interest earns interest at an annual rate of
17%
, with the Company’s participation interest (the “A Participation Interest”) receiving the balance of all interest paid under the Loan. Upon an event of default under the Loan, all receipts will be applied to the payment of interest and principal on the Company’s share of the principal balance before the B Participation Holder receives any sums. The Company retains all control over the administration and servicing of the whole loan, except that upon the occurrence of certain Loan defaults and other events, the B Participation Holder will have the option to trigger a buy-sell option, whereupon the Company shall have the right to either repurchase the B Participation Interest at par or sell the A Participation Interest to the B Participation Holder at par plus exit fees that would have been payable upon a borrower repayment. Because the participation interest was not pari passu and effective control continued to reside with the retained portions of the loans the transfers of any portion of this loan asset is considered a nonrecourse secured borrowing in which the full loan asset remains on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds are recognized as debt obligations. For the
three months ended
March 31, 2017
, the Company incurred
$35,944
in interest expense related to this loan which is included in accrued expenses on the Company’s consolidated balance sheets.
Stockholders Agreement
On March 3, 2017, Ladder, Related and certain pre-IPO stockholders of Ladder, including affiliates of TowerBrook Capital Partners, L.P. and GI Partners L.P., closed a purchase by Related of
$80.0 million
of Ladder’s Class A common stock from the pre-IPO stockholders. As part of the closing of the transaction, Ladder and Related entered into a Stockholders Agreement, dated as of March 3, 2017, pursuant to which Jonathan Bilzin resigned from the Board, and all committees thereof, and Ladder appointed Richard O’Toole to replace Mr. Bilzin as a Class II Director on Ladder’s Board, each effective as of March 3, 2017. Pursuant to the Stockholders Agreement, Ladder granted to Related a right of first offer with respect to certain horizontal risk retention investments in which Ladder intends to retain an interest and Related agreed to certain standstill provisions.
17. COMMITMENTS AND CONTINGENCIES
Leases
The Company entered into an operating lease for its previous primary office space, which commenced on January 5, 2009 and expired on May 30, 2015. Subsequent to entering into this leasing arrangement, the office space was subleased to a third party. Income received on the subleased office space was recorded in other income on the consolidated statements of income. In 2011, the Company entered into a lease for its primary office space, which commenced on October 1, 2011 and expires on January 31, 2022 with
no
extension option. In 2012, the Company entered into a lease for secondary office space. The lease commenced on May 15, 2012 and would have expired on May 14, 2015 with
no
extension option. This lease was amended, however, on October 2, 2014, extending the expiration date from May 14, 2015 to May 14, 2018. The Company recorded
$0.3 million
and
$0.3 million
, of rental expense for the
three months ended
March 31, 2017
and
2016
, respectively, which is included in operating expenses in the consolidated statements of income.
The following is a schedule of future minimum rental payments required under the above operating leases ($ in thousands):
|
|
|
|
|
|
|
|
|
Period Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
2017 (last 9 months)
|
|
$
|
942
|
|
|
2018
|
|
1,206
|
|
|
2019
|
|
1,180
|
|
|
2020
|
|
1,180
|
|
|
2021
|
|
1,180
|
|
|
Thereafter
|
|
99
|
|
|
Total
|
|
$
|
5,787
|
|
Unfunded Loan Commitments
As of
March 31, 2017
, the Company’s off-balance sheet arrangements consisted of
$123.7 million
of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing, at rates to be determined at the time of funding, which consisted of
$123.7 million
to provide additional first mortgage loan financing. As of
December 31, 2016
, the Company’s off-balance sheet arrangements consisted of
$147.7 million
of unfunded commitments of mortgage loan receivables held for investment, at rates to be determined at the time of funding, which was composed of
$146.3 million
to provide additional first mortgage loan financing and
$1.4 million
to provide additional mezzanine loan financing. Such commitments are subject to our loan borrowers’ satisfaction of certain financial and nonfinancial covenants and may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring. These commitments are not reflected on the consolidated balance sheets.
18. SEGMENT REPORTING
The Company has determined that it has
three
reportable segments based on how the chief operating decision maker reviews and manages the business. These reportable segments include loans, securities, and real estate. The loans segment includes mortgage loan receivables held for investment (balance sheet loans) and mortgage loan receivables held for sale (conduit loans). The securities segment is composed of all of the Company’s activities related to commercial real estate securities, which include investments in CMBS and U.S. Agency Securities. The real estate segment includes net leased properties, office buildings, a warehouse and condominium units. Corporate/other includes the Company’s investments in joint ventures, other asset management activities and operating expenses.
The Company evaluates performance based on the following financial measures for each segment ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Securities
|
|
Real
Estate(1)
|
|
Corporate/Other(2)
|
|
Company
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
44,297
|
|
|
$
|
13,208
|
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
57,512
|
|
|
Interest expense
|
(6,253
|
)
|
|
(1,853
|
)
|
|
(6,550
|
)
|
|
(16,759
|
)
|
|
(31,415
|
)
|
|
Net interest income (expense)
|
38,044
|
|
|
11,355
|
|
|
(6,547
|
)
|
|
(16,755
|
)
|
|
26,097
|
|
|
Provision for loan losses
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net interest income (expense) after provision for loan losses
|
38,044
|
|
|
11,355
|
|
|
(6,547
|
)
|
|
(16,755
|
)
|
|
26,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
—
|
|
|
—
|
|
|
19,630
|
|
|
—
|
|
|
19,630
|
|
|
Tenant recoveries
|
—
|
|
|
—
|
|
|
1,579
|
|
|
—
|
|
|
1,579
|
|
|
Sale of loans, net
|
(999
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(999
|
)
|
|
Realized gain on securities
|
—
|
|
|
5,361
|
|
|
—
|
|
|
—
|
|
|
5,361
|
|
|
Unrealized gain (loss) on Agency interest-only securities
|
—
|
|
|
159
|
|
|
—
|
|
|
—
|
|
|
159
|
|
|
Realized gain (loss) on sale of real estate, net
|
—
|
|
|
—
|
|
|
2,331
|
|
|
—
|
|
|
2,331
|
|
|
Fee and other income
|
1,621
|
|
|
—
|
|
|
1,973
|
|
|
872
|
|
|
4,466
|
|
|
Net result from derivative transactions
|
(1,681
|
)
|
|
(300
|
)
|
|
—
|
|
|
—
|
|
|
(1,981
|
)
|
|
Earnings (loss) from investment in unconsolidated joint ventures
|
—
|
|
|
—
|
|
|
(74
|
)
|
|
—
|
|
|
(74
|
)
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
(54
|
)
|
|
Total other income (expense)
|
(1,059
|
)
|
|
5,220
|
|
|
25,439
|
|
|
818
|
|
|
30,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
(1,000
|
)
|
|
—
|
|
|
—
|
|
|
(15,042
|
)
|
|
(16,042
|
)
|
|
Operating expenses
|
43
|
|
|
—
|
|
|
—
|
|
|
(5,522
|
)
|
|
(5,479
|
)
|
|
Real estate operating expenses
|
—
|
|
|
—
|
|
|
(7,473
|
)
|
|
—
|
|
|
(7,473
|
)
|
|
Real estate acquisition costs
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
19
|
|
|
Fee expense
|
(535
|
)
|
|
(94
|
)
|
|
(64
|
)
|
|
—
|
|
|
(693
|
)
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
(8,569
|
)
|
|
(23
|
)
|
|
(8,592
|
)
|
|
Total costs and expenses
|
(1,492
|
)
|
|
(94
|
)
|
|
(16,087
|
)
|
|
(20,587
|
)
|
|
(38,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
1,375
|
|
|
1,375
|
|
|
Segment profit (loss)
|
$
|
35,493
|
|
|
$
|
16,481
|
|
|
$
|
2,805
|
|
|
$
|
(35,149
|
)
|
|
$
|
19,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of March 31, 2017
|
$
|
2,816,675
|
|
|
$
|
1,701,980
|
|
|
$
|
848,538
|
|
|
$
|
574,429
|
|
|
$
|
5,941,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
Securities
|
|
Real
Estate(1)
|
|
Corporate/Other(2)
|
|
Company
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
41,328
|
|
|
$
|
18,256
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
59,601
|
|
|
Interest expense
|
(6,151
|
)
|
|
(1,970
|
)
|
|
(6,195
|
)
|
|
(15,220
|
)
|
|
(29,536
|
)
|
|
Net interest income (expense)
|
35,177
|
|
|
16,286
|
|
|
(6,195
|
)
|
|
(15,203
|
)
|
|
30,065
|
|
|
Provision for loan losses
|
(150
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(150
|
)
|
|
Net interest income (expense) after provision for loan losses
|
35,027
|
|
|
16,286
|
|
|
(6,195
|
)
|
|
(15,203
|
)
|
|
29,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease income
|
—
|
|
|
—
|
|
|
19,294
|
|
|
—
|
|
|
19,294
|
|
|
Tenant recoveries
|
—
|
|
|
—
|
|
|
1,335
|
|
|
—
|
|
|
1,335
|
|
|
Sale of loans, net
|
7,830
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,830
|
|
|
Realized gain on securities
|
—
|
|
|
(573
|
)
|
|
—
|
|
|
—
|
|
|
(573
|
)
|
|
Unrealized gain (loss) on Agency interest-only securities
|
—
|
|
|
660
|
|
|
—
|
|
|
—
|
|
|
660
|
|
|
Realized gain on sale of real estate, net
|
641
|
|
|
—
|
|
|
5,454
|
|
|
—
|
|
|
6,095
|
|
|
Fee and other income
|
1,805
|
|
|
—
|
|
|
342
|
|
|
828
|
|
|
2,975
|
|
|
Net result from derivative transactions
|
(16,125
|
)
|
|
(34,737
|
)
|
|
—
|
|
|
—
|
|
|
(50,862
|
)
|
|
Earnings from investment in unconsolidated joint ventures
|
—
|
|
|
—
|
|
|
(98
|
)
|
|
892
|
|
|
794
|
|
|
Gain (loss) on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
5,382
|
|
|
5,382
|
|
|
Total other income
|
(5,849
|
)
|
|
(34,650
|
)
|
|
26,327
|
|
|
7,102
|
|
|
(7,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
(1,500
|
)
|
|
—
|
|
|
—
|
|
|
(11,115
|
)
|
|
(12,615
|
)
|
|
Operating expenses
|
—
|
|
|
—
|
|
|
(422
|
)
|
|
(5,873
|
)
|
|
(6,295
|
)
|
|
Real estate operating expenses
|
—
|
|
|
—
|
|
|
(5,719
|
)
|
|
—
|
|
|
(5,719
|
)
|
|
Fee expense
|
(436
|
)
|
|
—
|
|
|
(114
|
)
|
|
(181
|
)
|
|
(731
|
)
|
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
(9,797
|
)
|
|
(5
|
)
|
|
(9,802
|
)
|
|
Total costs and expenses
|
(1,936
|
)
|
|
—
|
|
|
(16,052
|
)
|
|
(17,174
|
)
|
|
(35,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
873
|
|
|
873
|
|
|
Segment profit (loss)
|
$
|
27,242
|
|
|
$
|
(18,364
|
)
|
|
$
|
4,080
|
|
|
$
|
(24,402
|
)
|
|
$
|
(11,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31, 2016
|
$
|
2,353,977
|
|
|
$
|
2,100,947
|
|
|
$
|
856,363
|
|
|
$
|
267,050
|
|
|
$
|
5,578,337
|
|
|
|
|
|
(1)
|
Includes the Company’s investment in unconsolidated joint ventures that held real estate of
$34.2 million
and
$34.0 million
as of
March 31, 2017
and
December 31, 2016
, respectively
|
|
|
|
|
(2)
|
Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This caption also includes the Company’s investment in unconsolidated joint ventures and strategic investments that are not related to the other reportable segments above, including the Company’s investment in FHLB stock of
$77.9 million
as of
March 31, 2017
and
December 31, 2016
, the Company’s deferred tax asset of
$4.8 million
and
$2.1 million
as of
March 31, 2017
and
December 31, 2016
, respectively and the Company’s senior unsecured notes of
$1.0 billion
and
$559.8 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
|
19. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of the financial statements and determined that the following disclosure is necessary:
Senior Unsecured Notes
2017 Notes
On March 1, 2017, the Company delivered a notice of conditional full redemption to holders of the 2017 Notes, pursuant to which the Company redeemed all outstanding 2017 Notes at
100%
of the principal amount thereof (plus any accrued and unpaid interest to the redemption date) on April 1, 2017. The redemption was conditional on the completion by the Company of a senior notes offering with gross proceeds of not less than
$500 million
. The Company’s offering of the 2022 Notes, described in
Note 7, Debt Obligations, Net
, satisfied this condition. On
April 3, 2017
, the Company redeemed the remaining
$291.5 million
in aggregate principal amount of the 2017 Notes (including accrued and unpaid interest as of that date). The Company remitted the payment amount to the Trustee on March 31, 2017 and the 2017 Notes were repaid on April 3, 2017. The amount held by the Trustee was reflected in other assets on the Company’s consolidated balance sheets as of
March 31, 2017
.
Committed Loan Repurchase Facility
On
May 1, 2017
, the Company executed an amendment to one of its credit facilities with a major banking institution to, among other things, extend the maximum term an additional year to
May 24, 2021
.