Financial
Highlights
GAAP disclosures for the second quarter:
- GAAP Income before Taxes of $12.0
million and Diluted EPS of $0.13
- After-Tax GAAP Return on Average
Equity of 3.9%
- GAAP Book Value per Share of $13.10
at June 30, 2017
Core (non-GAAP) disclosures for the second quarter:
- Core Earnings of $51.2 million and
Core EPS of $0.42
- After-Tax Core Return on Average
Equity of 12.6%
- Undepreciated Book Value per Share
of $14.33 at June 30, 2017
Operating and financing statistics for the second
quarter:
- Declared a second quarter dividend
of $0.30/share of Class A common stock paid on July 3,
2017
- Originated and purchased a total of
$692.2 million of commercial mortgage loans, including $284.6
million of mortgage loans held for sale and $407.6 million of
mortgage loans held for investment, and made $178.1 million of net
leased and other equity investments
- Successfully executed the initial
"Ladder-Only" CMBS issuance by securitizing a $625.7 million
multi-borrower pool of commercial mortgage loans
Ladder Capital Corp (NYSE:LADR) (“we,” “Ladder,” or the
“Company”) today announced operating results for the quarter ended
June 30, 2017. GAAP Income/(loss) before taxes for the three
and six months ended June 30, 2017 was $12.0 million and $30.2
million, respectively, compared to $1.6 million and $(10.7) million
for the three and six months ended June 30, 2016. The increase
in GAAP income before taxes compared to prior-year periods is due
to a smaller loss from hedging results, reflecting the impact of
declining swap rates in 2016. The Diluted EPS for the three and six
months ended June 30, 2017 was $0.13 and $0.31, respectively,
compared to $0.05 and $(0.05) for the three and six months ended
June 30, 2016, respectively. After-tax GAAP return on average
equity was 3.9% in the second quarter of 2017.
Core Earnings, a non-GAAP financial measure, was $51.2 million
for the second quarter of 2017, compared to $30.9 million earned in
the second quarter of 2016. For the six months ended June 30,
2017, Core Earnings was $82.7 million compared to $69.1 million for
the comparable period in 2016. The increase in Core Earnings
compared to prior-year periods is due primarily to higher volumes
and profit margins on sales and transfers of loans. We believe Core
Earnings, which adjusts GAAP income before taxes for certain
non-cash expenses, unrecognized derivative results, and the
economic gains on securitization transactions not recognized for
GAAP accounting for which risk has substantially transferred, is
useful in evaluating our earnings from operations across reporting
periods. Core EPS, a non-GAAP financial measure, was $0.42 for the
second quarter of 2017 and $0.73 for the six months ended
June 30, 2017, compared to $0.32 and $0.70 for the three and
six months ended June 30, 2016, respectively.
On June 29, 2017, we transferred our interests in $625.7 million
of loans to the LCCM 2017-LC26 securitization trust. The assets
transferred to the trust were comprised of interests in 34 loans to
third parties with a combined outstanding face amount of $549.0
million and a combined carrying value of $547.7 million as well as
23 intercompany loans secured by certain of our real estate assets
with a combined principal balance of $76.7 million (which had not
previously been recognized for accounting purposes because they
eliminated in consolidation). As discussed below, this transaction
does not qualify for sale accounting and instead will be treated as
a secured financing.
In connection with this transaction, pursuant to the 5% risk
retention requirements of the Dodd-Frank Act, we retained a $12.9
million restricted “vertical interest" of approximately 2% in each
class of securities issued by the trust and sold a 3% restricted
"horizontal interest" in the form of 98% of the controlling classes
(excluding the 2% interest in the vertical interest) to a “Third
Party Purchaser” (“TPP”), which must be held by the TPP for at
least five years.
Transfer restrictions placed on the TPP, imposed by the risk
retention rules of the Dodd-Frank Act, precluded sale accounting
for the $547.7 million in carrying value of the securitized third
party loans discussed above. Accordingly, we continue to recognize
$599.5 million of mortgage loans transferred but not considered
sold on our consolidated balance sheets, which also includes one
non-controlling loan interest with an outstanding face amount of
$52.3 million and a carrying value of $51.8 million that was
previously transferred to a third party for which the controlling
portion was transferred to the LCCM 2017-LC26 securitization trust.
In connection with these transfer restrictions placed on the TPP,
we also recognized a liability for transfers not considered sales
of $632.1 million. The liability includes $580.0 million which is
equal to the loan sale proceeds of $655.6 million (net of issue
costs) less the portion of the issued securities that we purchased
in the LCCM 2017-LC26 securitization transaction. This portion of
the liability is effectively a non-recourse borrowing secured by
these securitized third party loans and our real estate collateral
pledged under the previously unrecognized intercompany loans. The
liability also includes $52.1 million for the net proceeds from the
transfer of the non-participating loan interest to a third party
discussed above, which also precluded sale accounting on the
original transaction.
Portfolio Overview
The following table summarizes the book value of our investment
portfolio as of the following dates ($ in thousands):
June 30, 2017 December 31,
2016 Loans Conduit first mortgage loans $
200,726 3.2 % $ 357,882 6.4 % Balance sheet first mortgage loans:
Balance sheet first mortgage loans 2,465,540 39.7 % 1,832,626 32.9
% Other commercial real estate-related loans 161,192 2.6 % 167,469
3.0 % Mortgage loans transferred but not considered sold 599,513
9.6 % — — % Provision for loan losses (4,000 ) (0.1 )% (4,000 )
(0.1 )% Total loans 3,422,971 55.0 % 2,353,977 42.2 %
Securities CMBS investments 1,357,316 21.8 % 2,043,566 36.6
% U.S. Agency Securities investments 50,229 0.8 % 57,381
1.1 % Total securities 1,407,545 22.6 % 2,100,947 37.7 %
Real Estate Real estate and related lease intangibles, net
1,006,286 16.2 % 822,338 14.7 % Total real estate
1,006,286 16.2 % 822,338 14.7 %
Other Investments
Investments in unconsolidated joint ventures 34,520 0.6 % 34,025
0.6 % FHLB stock 77,915 1.3 % 77,915 1.4 % Total
other investments 112,435 1.9 % 111,940 2.0 % Total
investments 5,949,237 95.7 % 5,389,202 96.6 % Cash, cash
equivalents and restricted cash 155,485 2.5 % 64,017 1.1 % Other
assets 113,402 1.8 % 125,118 2.3 %
Total
assets $ 6,218,124 100.0 %
$ 5,578,337 100.0 %
Note: CMBS investments and U.S. Agency Securities are carried at
fair value.
Liquidity and Capital
Resources
On May 1, 2017, we amended one of our loan repurchase facilities
to extend the final maturity date by one year. The following table
summarizes our debt obligations as of the following dates ($ in
thousands):
June 30, 2017 December 31,
2016 Committed loan repurchase facilities $ 848,562 $
567,163 Committed securities repurchase facility 107,965 228,317
Uncommitted securities repurchase facilities 193,078 311,705
Total repurchase facilities 1,149,605 1,107,185 Revolving credit
facility 100,000 25,000 Mortgage loan financing 588,359 590,106
Participation financing - mortgage loan receivable 3,834 —
Borrowings from the FHLB 1,400,500 1,660,000 Senior unsecured
notes(1) 756,503 559,847 Total secured and unsecured debt
obligations 3,998,801 3,942,138 Liability for transfers not
considered sales(2) 632,130 —
Total debt obligations
$ 4,630,931 $ 3,942,138
(1) Presented net of unamortized debt issuance costs of $9.7
million and $4.0 million at June 30, 2017 and
December 31, 2016, respectively.
(2) Presented not of unamortized debt issuance costs of $4.9
million as of June 30, 2017.
Conference Call and
Webcast
We will host a conference call on Wednesday, August 2, 2017 at
5:00 p.m. Eastern Time to discuss second quarter 2017 results. The
conference call can be accessed by dialing (877) 407-4018 domestic
or (201) 689-8471 international. Individuals who dial in will be
asked to identify themselves and their affiliations. For those
unable to participate, an audio replay will be available from 8:00
p.m. Eastern Time on Wednesday, August 2, 2017 through midnight
Wednesday, August 16, 2017. To access the replay, please call (844)
512-2921 domestic or (412) 317-6671 international, access code
13666089. The conference call will also be webcast though a link on
Ladder Capital Corp’s Investor Relations website at
ir.laddercapital.com. A web-based archive of the conference call
will also be available at the above website.
Ladder Capital Corp
Consolidated Balance Sheets
(Dollars in Thousands)
June 30, 2017
December 31, 2016
(Unaudited)
Assets Cash and cash equivalents $ 58,225 $ 44,615
Restricted cash 97,260 44,813 Mortgage loan receivables held for
investment, net, at amortized cost: Mortgage loans held by
consolidated subsidiaries 2,626,732 2,000,095 Mortgage loans
transferred but not considered sold 599,513 — Provision for loan
losses (4,000 ) (4,000 ) Mortgage loan receivables held for sale
200,726 357,882 Real estate securities, available-for-sale
1,407,545 2,100,947 Real estate and related lease intangibles, net
1,006,286 822,338 Investments in unconsolidated joint ventures
34,520 34,025 FHLB stock 77,915 77,915 Derivative instruments 4,554
5,018 Due from brokers 26,443 10 Accrued interest receivable 26,486
24,439 Other assets 55,919 70,240
Total assets
$ 6,218,124 $ 5,578,337
Liabilities and Equity Liabilities Debt obligations,
net: Secured and unsecured debt obligations $ 3,998,801 $ 3,942,138
Liability for transfers not considered sales 632,130 — Due to
brokers 1,661 394 Derivative instruments 4,276 3,446 Amount payable
pursuant to tax receivable agreement 2,438 2,520 Dividends payable
1,308 24,682 Accrued expenses 54,230 66,597 Other liabilities
55,604 29,006
Total liabilities
4,750,448 4,068,783 Commitments and
contingencies — —
Equity Class A common stock, par value
$0.001 per share, 600,000,000 shares authorized; 88,091,272 and
72,681,218 shares issued and 86,050,681 and 71,586,170 shares
outstanding 87 72 Class B common stock, par value $0.001 per share,
100,000,000 shares authorized; 24,697,293 and 38,002,344 shares
issued and outstanding 25 38 Additional paid-in capital 1,199,905
992,307 Treasury stock, 2,040,591 and 1,095,048 shares, at cost
(24,501 ) (11,244 ) Retained Earnings/(Dividends in Excess of
Earnings) (54,871 ) (11,148 ) Accumulated other comprehensive
income (loss) 6,268 1,365
Total shareholders’
equity 1,126,913 971,390 Noncontrolling interest
in operating partnership 330,238 533,246 Noncontrolling interest in
consolidated joint ventures 10,525 4,918
Total
equity 1,467,676 1,509,554
Total liabilities and equity $ 6,218,124
$ 5,578,337
Ladder Capital Corp
Consolidated Statements of
Income
(Dollars in Thousands, Except Per Share
and Dividend Data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June
30, 2017 2016 2017
2016 Net interest income Interest
income $ 66,136 $ 55,766 $ 123,647 $ 115,366 Interest expense
35,604 28,402 67,019 57,938
Net
interest income 30,532 27,364 56,628
57,428 Provision for loan losses — 150 —
300
Net interest income after provision for loan
losses 30,532 27,214 56,628 57,128
Other income Operating lease income 22,187 19,085
41,816 38,379 Tenant recoveries 1,159 1,324 2,739 2,659 Sale of
loans, net — 2,795 (999 ) 10,625 Realized gain (loss) on securities
7,132 2,971 12,494 2,398 Unrealized gain (loss) on Agency
interest-only securities 299 (584 ) 457 76 Realized gain on sale of
real estate, net 2,232 4,873 4,563 10,968 Fee and other income
4,574 6,181 9,040 9,156 Net result from derivative transactions
(16,022 ) (24,642 ) (18,003 ) (75,504 ) Earnings (loss) from
investment in unconsolidated joint ventures 10 (168 ) (63 ) 626
Gain (loss) on extinguishment of debt — — (54 ) 5,382
Total other income 21,571 11,835
51,990 4,765 Costs and
expenses Salaries and employee benefits 14,489 13,432 30,531
26,047 Operating expenses 5,829 4,713 11,308 11,008 Real estate
operating expenses 8,056 9,133 15,510 14,852 Fee expense 1,621 873
2,314 1,603 Depreciation and amortization 10,125 9,254
18,717 19,057
Total costs and expenses
40,120 37,405 78,380
72,567 Income (loss) before taxes
11,983 1,644 30,238 (10,674 )
Income tax expense (benefit) (1,449 ) (2,301 ) (2,824 ) (3,174 )
Net income (loss) 13,432 3,945 33,062
(7,500 ) Net (income) loss attributable to
noncontrolling interest in consolidated joint ventures (77 ) (235 )
(398 ) (2 ) Net (income) loss attributable to noncontrolling
interest in operating partnership (2,693 ) (908 ) (8,531 ) 4,765
Net income (loss) attributable to Class A common
shareholders $ 10,662 $
2,802 $ 24,133 $
(2,737 ) Earnings per share: Basic $
0.13 $ 0.05 $ 0.32 $ (0.05 ) Diluted $ 0.13 $ 0.05 $ 0.31 $ (0.05 )
Weighted average shares outstanding: Basic 80,108,431
61,170,006 76,510,201 60,383,447 Diluted 110,055,308 61,976,962
109,693,706 60,383,447
Dividends per share of Class A
common stock: $ 0.300 $ 0.275 $
0.600
$ 0.550
Non-GAAP Financial
Measures
We present Core Earnings, Core EPS, and After-Tax Core Return on
Average Equity (“After-Tax Core ROAE”), which are non-GAAP
financial measures, as supplemental measures of our performance. We
believe Core Earnings, Core EPS and After-Tax Core ROAE assist
investors in comparing our performance across reporting periods on
a consistent basis by excluding non-cash expenses and unrecognized
results from derivatives and Agency interest-only securities, which
we believe makes comparisons across reporting periods more relevant
by eliminating timing differences related to changes in the values
of assets and derivatives. In addition, we use Core Earnings, Core
EPS and After-Tax Core ROAE: (i) to evaluate our earnings from
operations and (ii) because management believes that they may be
useful performance measures for us. Core Earnings is also used as a
factor in determining the annual incentive compensation of our
senior managers and other employees.
We consider the Class A common shareholders of the Company and
limited partners of Ladder Capital Finance Holdings LLLP other than
Ladder Capital Corp (“Continuing LCFH Limited Partners”) to have
fundamentally equivalent interests in our pre-tax earnings and net
income. Accordingly, for purposes of computing Core Earnings, Core
EPS and After-Tax Core ROAE, we start with pre-tax earnings or net
income and adjust for other noncontrolling interest in consolidated
joint ventures but we do not adjust for amounts attributable to
noncontrolling interest held by Continuing LCFH Limited Partners.
Similarly, when calculating Undepreciated book value per share we
include Total shareholders' equity and the noncontrolling interest
held by Continuing LCFH Limited Partners, but exclude
noncontrolling interest in consolidated joint ventures.
Core Earnings
We define Core Earnings as income before taxes adjusted for (i)
real estate depreciation and amortization, (ii) the impact of
derivative gains and losses related to the hedging of assets on our
balance sheet as of the end of the specified accounting period,
(iii) unrealized gains/(losses) related to our investments in
Agency interest-only securities, (iv) economic gains on
securitization transactions not recognized for GAAP accounting for
which risk has substantially transferred during the period and the
exclusion of resultant GAAP recognition of the related economics
during the subsequent period, (v) non-cash stock-based compensation
and (vi) certain one-time transactional items.
For Core Earnings, we include adjustments for economic gains on
securitization transactions not recognized for GAAP accounting for
which risk has substantially transferred during the period and
exclusion of resultant GAAP recognition of the related economics
during the subsequent periods. This adjustment is reflected in Core
Earnings when there is a true risk transfer on the mortgage loan
transfer and settlement. Historically, this has represented the
impact of economic gains on (discounts) on intercompany loans
secured by our own real estate which we had not previously
recognized because they were eliminated in consolidation. In
addition, beginning in June 2017, this includes economic gains for
the impact of mortgage loans transferred but not considered sold
for accounting purposes merely because of transfer restrictions put
on the third party purchasers (“TPP”) of a portion of the
securities issued by the securitization trust pursuant to the risk
retention requirements of the Dodd Frank Act. Conversely, if the
economic risk was not substantially transferred, no adjustments to
net income would be made relating to those transactions for core
earnings purposes. Management believes recognizing these amounts
for core earnings purposes in the period of transfer of economic
risk is a reasonable supplemental measure of our performance.
We do not designate derivatives as hedges to qualify for hedge
accounting and therefore any net payments under, or fluctuations in
the fair value of, our derivatives are recognized currently in our
income statement. However, fluctuations in the fair value of the
related assets are not included in our income statement. We
consider the gain or loss on our hedging positions related to
assets that we still own as of the reporting date to be “open
hedging positions.” While recognized for GAAP purposes, we exclude
the results on the hedges from Core Earnings until the related
asset is sold and the hedge position is considered “closed,”
whereupon they would then be included in Core Earnings in that
period. These are reflected as “Adjustments for unrecognized
derivative results” for purposes of computing Core Earnings for the
period. We believe that excluding these specifically identified
gains and losses associated with the open hedging positions adjusts
for timing differences between when we recognize changes in the
fair values of our assets and changes in the fair value of the
derivatives used to hedge such assets.
Our investments in Agency interest-only securities are recorded
at fair value with changes in fair value recorded in current period
earnings. We believe that excluding these specifically identified
gains and losses associated with the Agency interest-only
securities adjusts for timing differences between when we recognize
changes in the fair values of our assets. Set forth below is an
unaudited reconciliation of net income to after-tax Core Earnings
($ in thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017
2016 2017 2016
Net income (loss) $ 13,432 $ 3,945 $ 33,062 $ (7,500 )
Income tax expense (benefit) (1,449 ) (2,301 ) (2,824 ) (3,174 )
Income (loss) before taxes
11,983
1,644 30,238 (10,674 ) Net (income) loss attributable to
noncontrolling interest in consolidated joint ventures and
operating partnership (GAAP) (1) (85 ) (248 ) (414 ) (16 ) Our
share of real estate depreciation, amortization and gain
adjustments (2) 9,503 8,020 17,298 16,325 Adjustments for
unrecognized derivative results (3) 721 16,124 (1,212 ) 55,472
Unrealized (gain) loss on Agency IO securities (299 ) 584 (457 )
(76 ) Adjustment for economic gain on securitization transactions
not recognized for GAAP for which risk has substantially
transferred, net of reversal/amortization (4) 28,223 (220 ) 27,996
(255 ) Non-cash stock-based compensation
1,146
4,978 9,295 8,308 Core Earnings 51,192
30,882 82,744 69,084 Core estimated corporate tax benefit (expense)
(5) (4,812 ) 4,077
(2,677
) 5,805
After-tax Core Earnings $
46,380 $ 34,959 $
80,067
$ 74,889
(1) Includes $8 thousand and $16 thousand of net income
attributable to noncontrolling interest in consolidated joint
ventures which are included in net (income) loss attributable to
noncontrolling interest in operating partnership on the
consolidated statements of income for the three and six months
ended June 30, 2017, respectively. Includes $13 thousand of
net income attributable to noncontrolling interest in consolidated
joint ventures which are included in net (income) loss attributable
to noncontrolling interest in operating partnership on the
consolidated statements of income for the three and six months
ended June 30, 2016.
(2) The following is a reconciliation of GAAP depreciation and
amortization to our share of real estate depreciation, amortization
and gain adjustments presented in the computation of Core Earnings
in the preceding table ($ in thousands):
Three Months Ended June 30, Six Months
Ended June 30, 2017 2016 2017
2016 Total GAAP depreciation and amortization
$ 10,125 $ 9,254 $ 18,717 $ 19,057 Less: Depreciation and
amortization related to non-rental property fixed assets (23 ) (52
) (47 ) (57 ) Less: Non-controlling interest in consolidated joint
ventures’ share of accumulated depreciation and amortization (122 )
(532 ) (496 ) (1,205 ) Our share of real estate depreciation and
amortization 9,980 8,670 18,174 17,795 Realized gain from
accumulated depreciation and amortization on real estate sold (see
below) (480 ) (657 ) (882 ) (1,481 ) Less: Non-controlling interest
in consolidated joint ventures’ share of accumulated depreciation
and amortization on real estate sold 3 7 6 11
Our share of accumulated depreciation and amortization on
real estate sold (477 ) (650 ) (876 ) (1,470 )
Our share of real estate depreciation, amortization and
gain adjustments $ 9,503 $
8,020 $ 17,298 $
16,325
GAAP gains/losses on sales of real estate include the effects of
previously recognized real estate depreciation and amortization.
For purposes of Core Earnings, our share of real estate
depreciation and amortization is eliminated and, accordingly, the
resultant gain/losses also must be adjusted. Following is a
reconciliation of the related consolidated GAAP amounts to the
amounts reflected in Core Earnings:
Three Months Ended June 30, Six
Months Ended June 30, 2017 2016
2017 2016 GAAP realized gain on sale of
real estate, net $ 2,232 $ 4,873 $ 4,563 $ 10,968 Adjusted
gain/loss on sale of real estate for purposes of Core Earnings
(1,755 ) (4,223 ) (3,687 ) (9,498 )
Our share of accumulated
depreciation and amortization on real estate sold $
477 $ 650 $ 876
$ 1,470
(3) The following is a reconciliation of GAAP net results from
derivative transactions to our unrecognized derivative result
presented in the computation of Core Earnings in the preceding
table ($ in thousands):
Three Months Ended June 30, Six
Months Ended June 30, 2017 2016
2017 2016 Net results from derivative
transactions $ (16,022 ) $ (24,642 ) $ (18,003 ) $ (75,504 )
Hedging interest expense 5,395 7,163 $ 9,123 $ 14,584 Hedging
realized result 9,906 1,355 10,092 5,448
Adjustments for unrecognized derivative results
$ (721 ) $ (16,124 )
$ 1,212 $ (55,472 )
(4) We reflected in Core Earnings, an economic gain of $28.5
million for the three and six months ended June 30, 2017,
primarily relating to the LCCM 2017-LC26 securitization
transaction. This is offset by amortization of discounts in prior
securitizations of intercompany debt.
(5) Core estimated corporate tax benefit (expense) based on
effective tax rate applied to Core Earnings generated by the
activity within our taxable REIT subsidiary.
Core EPS
Core EPS is defined as after-tax Core Earnings divided by the
adjusted weighted average diluted shares outstanding during the
period. The adjusted weighted average diluted shares outstanding is
defined as the GAAP weighted average diluted shares outstanding,
adjusted for shares issuable upon conversion of all Class B shares,
if excluded from the GAAP measure because they would have an
anti-dilutive effect. The inclusion of shares issuable upon
conversion of Class B shares is consistent with the inclusion of
income attributable to noncontrolling interest in operating
partnership in Core Earnings and after-tax Core Earnings.
Set forth below is an unaudited reconciliation of weighted
average diluted shares outstanding to adjusted weighted average
diluted shares outstanding (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2017 2016 2017 2016
Weighted average diluted shares outstanding 110,055 61,977
109,694 60,383 Weighted average shares issuable to converted Class
B shareholders — 46,446 — 46,895
Adjusted
weighted average diluted shares outstanding 110,055
108,423 109,694 107,278
Set forth below is an unaudited computation of Core EPS ($ in
thousands, except per share date):
Three Months Ended June 30, Six
Months Ended June 30, 2017 2016
2017 2016 After-Tax Core Earnings $
46,380 $
34,959
$
80,067
$ 74,889 Adjusted weighted average diluted shares outstanding
110,055 108,423 109,694 107,278
Core
EPS $ 0.42 $ 0.32
$ 0.73 $ 0.70
After-Tax Core ROAE
After-Tax Core ROAE is presented on an annualized basis and is
defined as After-Tax Core Earnings divided by the average Total
shareholders' equity and Noncontrolling interest in operating
partnership during the period. The inclusion of Noncontrolling
interest in operating partnership is consistent with the inclusion
of income attributable to noncontrolling interest in operating
partnership in After-Tax Core Earnings. Set forth below is an
unaudited computation of After-Tax Core ROAE ($ in thousands):
Three Months Ended June 30, Six
Months Ended June 30, 2017 2016
2017 2016 After-Tax Core Earnings $
46,380 $
34,959
$
80,067
$ 74,889 Average shareholders' equity and NCI in operating
partnership 1,466,612 1,478,170 1,478,484
1,480,645
After-Tax Core ROAE 12.6 %
9.5 % 10.8 % 10.1 %
Income from sales of securitized loans, net of hedging
We present income from sales of securitized loans, net of
hedging, a non-GAAP financial measure, as a supplemental measure of
the performance of our loan securitization business. Income from
sales of securitized loans, net is a key component of our results.
Since our loans sold into securitizations to date are comprised of
long-term fixed-rate loans, the result of hedging those exposures
prior to securitization represents a substantial portion of our
securitization profitability. Therefore, we view these two
components of our profitability together when assessing the
performance of this business activity and find it a meaningful
measure of our performance as a whole. When evaluating the
performance of our sale of loans into securitization business, we
generally consider the income from sales of securitized loans, net,
in conjunction with other income statement items that are directly
related to such securitization transactions, including portions of
the realized net result from derivative transactions that are
specifically related to hedges on the securitized or sold loans,
which we reflect as hedge gain/(loss) related to loans securitized,
a non-GAAP financial measure, in the table below.
Set forth below is an unaudited reconciliation of income from
sale of securitized loans, net to income from sale of loans, net as
reported in our consolidated financial statements included herein
and an unaudited reconciliation of hedge gain/(loss) relating to
loans securitized to net results from derivative transactions as
reported in our consolidated financial statements ($ in thousands
except for number of loans and securitizations):
Three Months Ended June
30, Six Months Ended June 30, 2017(1)
2016(2) 2017(1) 2016
Number of loans 57 — 57 26 Face amount of loans sold into
securitizations $ 625,653 $ — $ 625,653 $ 249,156 Number of
securitizations 1 — 1 2 Income from sales of securitized
loans, net (3) $ — $ — $ — $ 7,545 Hedge gain/(loss) related to
loans securitized (4) (7,720 ) — (7,720 ) (3,808 )
Income
from sales of securitized loans, net of hedging $
(7,720 ) $ — $ (7,720
) $ 3,737 Adjustment for economic gain on
securitization transactions not recognized for GAAP for which risk
has substantially transferred 28,461 — 28,461
—
Core gain on sale of securitized loans $
20,741 $ — $
20,741 $ 3,737
(1) On June 29, 2017, we transferred our interests in $625.7
million of loans to the LCCM 2017-LC26 securitization trust. The
assets transferred to the trust were comprised of interests in 34
loans to third parties with a combined outstanding face amount of
$549.0 million and a combined carrying value of $547.7 million as
well as 23 intercompany loans secured by certain of our real estate
assets with a combined principal balance of $76.7 million (which
had not previously been recognized for accounting purposes because
they eliminated in consolidation). In connection with this
transaction, pursuant to the 5% risk retention requirement of the
Dodd-Frank Act, we retained a $12.9 million restricted “vertical
interest" of approximately 2% in each class of securities issued by
the trust and sold a 3% restricted "horizontal interest" in the
form of 98% of the controlling classes (excluding the 2% included
in the vertical interest) to a “Third Party Purchaser” (“TPP”),
which must be held by the TPP for at least five years. Transfer
restrictions placed on the TPP, imposed by the risk retention rules
of the Dodd-Frank Act, precluded sale accounting for these loans.
Accordingly, we continue to recognize these loans to third parties
transferred in the transaction on our consolidated balance sheets.
In connection with this transaction, we recognized a liability of
$580.0 million which is equal to the loan sale proceeds of $655.6
million (net of issue costs) less the issued securities that we
purchased. This liability is effectively a non-recourse borrowing
secured by these securitized third party loans and our real estate
collateral pledged under the previously unrecognized intercompany
loans.
(2) There were no securitization transactions completed in the
three months ended June 30, 2016.
(3) The following is a reconciliation of the non-GAAP financial
measure of income from sales of securitized loans, net to income
from sale of loans, net, which is the closest GAAP measure, as
reported in our consolidated financial statements ($ in
thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017
2016 2017 2016 Income from sales
of loans, net $ — $ 2,795 $ (999 ) $
10,625
Unrealized losses on loans recorded as other than temporary
impairments related to lower of cost or market adjustments
—
— 999 — (Income) loss from sale of loans (non-securitized), net
—
— —
(3,080
)
Income from sales of securitized loans, net $
— $ 2,795 $ —
$
7,545
(4) The following is a reconciliation of the non-GAAP financial
measure of hedge gain/(loss) related to loans securitized to net
results from derivative transactions, which is the closest GAAP
measure, as reported in our consolidated financial statements ($ in
thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017
2016 2017 2016 Net results from
derivative transactions $ (16,022 ) $ (24,642 ) $ (18,003 ) $
(75,504 ) Hedge gain/(loss) related to lending and securities
positions 8,302 23,872 11,432 70,641 Hedge gain/(loss) related to
loans (non-securitized) — 770 (1,149 ) 1,055
Hedge gain/(loss) related to loans securitized $
(7,720 ) $ — $
(7,720 ) $ (3,808 )
Undepreciated book value per share
We present undepreciated book value per share, which is a
non-GAAP financial measure, as a supplemental measure of our
financial condition. We believe undepreciated book value per share
assists investors in comparing our financial condition across
reporting periods on a consistent basis by excluding accumulated
depreciation on real estate, which implicitly assumes that the
value of our real estate diminishes in value predictably over time,
whereas real estate values have historically risen or fallen with
market conditions.
We consider the Class A common shareholders of the Company and
Continuing LCFH Limited Partners to have fundamentally equivalent
interests in our pre-tax earnings and net income. Accordingly, when
calculating Undepreciated book value per share we include Total
shareholders' equity and the noncontrolling interest held by
Continuing LCFH Limited Partners but exclude noncontrolling
interest in consolidated joint ventures.
We define undepreciated book value per share as the sum of total
shareholders' equity, noncontrolling interest in operating
partnership, and our share of accumulated real estate depreciation
and amortization, divided by the total Class A and Class B shares
outstanding. Set forth below is an unaudited reconciliation of
total shareholders' equity to undepreciated book value, and an
unaudited computation of undepreciated book value per share ($ in
thousands except per share date):
June 30, 2017 December 31,
2016 Total shareholders' equity $ 1,126,913 $ 971,390
Noncontrolling interest in operating partnership 330,238 533,246
Our share of accumulated real estate depreciation and amortization
(1) 129,976 112,606 Undepreciated book value 1,587,127
1,617,242 Class A shares outstanding 86,051 71,586 Class B shares
outstanding 24,697 38,002 Total shares outstanding 110,748
109,588
GAAP book value per share $ 13.10
$ 13.57 Undepreciated book value per share
$ 14.33 $ 14.76
(1) The following is a reconciliation of GAAP accumulated real
estate depreciation and amortization to our share of accumulated
real estate depreciation and amortization presented in the
computation of undepreciated book value per share in the preceding
table ($ in thousands):
June 30, 2017 December 31,
2016 GAAP accumulated real estate depreciation and
amortization $ 140,295 $ 122,007 Less: Noncontrolling interest in
consolidated joint ventures' share of accumulated real estate
depreciation and amortization (10,319 ) (9,401 )
Our share of
accumulated real estate depreciation and amortization $
129,976 $ 112,606
Core gain on sale of loans
We present core gain on sale of loans, which is a non-GAAP
financial measure, as a supplemental measure of our performance. We
define core gain on sale of loans as income from sales of loans,
and the economic gains on the transfer of loans not considered sold
for accounting purposes, net of the realized hedging result related
to the hedging of loans sold or transferred. We believe core gain
on sale of loans assists investors in comparing our performance
across reporting periods on a consistent basis by eliminating
timing differences related to changes in values of assets and
derivatives.
Set forth below is an unaudited reconciliation of GAAP sale of
loans, net to core gain on sale of loans ($ in thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017 2016
2017 2016 GAAP sale of loans, net $ — $
2,795 $ (999 ) $ 10,625 Adjustment for economic gain on
securitization transactions not recognized for GAAP for which risk
has substantially transferred $ 28,461 $ — $ 28,461 $ — Hedging
gain/(loss) related to loans securitized and other loan activity
(7,720 ) (770 ) (5,572 ) (4,863 )
Core gain on sale of loans
$ 20,741 $ 2,025 $
21,890 $ 5,762
(1) For core gain on sale of loans, we include adjustments for
economic gains on securitization transactions not recognized for
GAAP accounting. Beginning June 30, 2017, this includes
economic gains for the impact of mortgage loans transferred but not
considered sold for accounting purposes merely because of transfer
restrictions put on the third party purchasers (“TPP”) pursuant to
the risk retention requirements of the Dodd Frank Act. Management
believes recognizing these amounts for core purposes in the period
of economic transfer of risk is a reasonable supplemental measure
of our performance.
Core gain on sale of securities
We present core gain on sale of securities, which is a non-GAAP
financial measure, as a supplemental measure of our performance. We
define core gain on sale of loans as income from sales of
securities net of the realized hedging result related to the
hedging of securities sold. We believe core gain on sale of
securities assists investors in comparing our performance across
reporting periods on a consistent basis by eliminating timing
differences related to changes in values of assets and
derivatives.
Set forth below is an unaudited reconciliation of GAAP realized
gain (loss) on securities to core gain on sale of securities ($ in
thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017 2016
2017 2016 GAAP realized gain (loss) on
securities $ 7,132 $ 2,971 $ 12,494 $ 2,398 Plus: Other than
temporary impairment, net of hedging 373 — 373 584 Hedging realized
result - security sales (2,186 ) (585 ) (4,520 ) (585 )
Core
gain on sales of securities $ 5,319
$ 2,386 $ 8,347 $
2,397
Net rental income
We present net rental income, which is a non-GAAP financial
measure, as a supplemental measure of our performance. We define
net rental income as the total of operating lease income and tenant
recoveries, less real estate operating expenses, all of which are
disclosed on our consolidated statements of income. We present net
rental income as a measure of the recurring income from our real
estate investments before non-recurring items such as gains on sale
or fee income, which we believe assists investors in analyzing our
performance across reporting periods.
For the three and six months ended June 30, 2017 and 2016,
net rental income was as follows ($ in thousands):
Three Months Ended June 30,
Six Months Ended June 30, 2017 2016
2017 2016 Operating lease income 22,187
19,085
41,816
38,379 Plus: Tenant recoveries 1,159 1,324
2,739
2,659 Less: Real estate operating expenses (8,056 ) (9,133 )
(15,510 ) (14,852 )
Net rental income $ 15,290
$ 11,276 $ 29,045
$ 26,186
Adjusted leverage
We present adjusted leverage, which is a non-GAAP financial
measure, as a supplemental measure of our performance. We define
adjusted leverage as the ratio of debt obligations, net of deferred
financing costs, adjusted for liabilities for transfers not
considered sales under GAAP on loans that we consider sold for
purposes of core earnings calculations. We believe adjusted
leverage assists investors in comparing our leverage across
reporting periods on a consistent basis by excluding non-recourse
debt related to loans transferred but not considered sold.
Set forth below is an unaudited computation of adjusted leverage
($ in thousands):
June 30, 2017 December 31, 2016
GAAP debt obligations, net $
4,630,931
$ 3,942,138 Less: Liability for transfers not considered sales
(632,130 ) (1) — Plus: Other debt obligations associated with
transfers not considered sales 76,717 (2) — Adjusted debt
obligations
4,075,518
3,942,138 GAAP equity 1,467,676 1,509,554
Adjusted leverage 2.8 2.6
(1) As discussed above, in connection with the June 29, 2017
LCCM 2017-LC26 securitization that did not receive sale accounting
treatment, we recognized a liability for transfers not considered
sales of $632.1 million that are considered financing for
accounting purposes, but should be excluded from debt obligations
for adjusted leverage calculation purposes.
(2) As discussed above, on June 29, 2017, we transferred to the
LCCM 2017-LC26 securitization trust our interests in 23
intercompany loans secured by certain of our real estate assets
with a combined principal balance of $76.7 million. Since the risk
retention rules of the Dodd-Frank Act precluded sale accounting for
this securitization, the principal balance of the intercompany
loans is excluded from Other debt obligations on our consolidated
balance sheets. These loans are effectively non-recourse borrowings
on our real estate properties and should be included as debt
obligations for adjusted leverage calculation purposes.
Non-GAAP Measures -
Limitations
Our non-GAAP financial measures have limitations as analytical
tools. Some of these limitations are:
- Core Earnings, Core EPS and After-Tax
Core ROAE do not reflect the impact of certain cash charges
resulting from matters we consider not to be indicative of our
ongoing operations and are not necessarily indicative of cash
necessary to fund cash needs;
- Core EPS and After-Tax Core ROAE are
based on a non-GAAP estimate of Ladder’s effective tax rate,
including the impact of Unincorporated Business Tax and the impact
of Ladder's election to be taxed as a REIT effective January 1,
2015, assuming the conversion of all shares of Class B common stock
into shares of Class A common stock. Ladder’s actual tax rate may
differ materially from this estimate;
- Undepreciated book value per share
excludes accumulated real estate depreciation and amortization and
may not reflect an accurate measure of the value of our real
estate; and
- other companies in our industry may
calculate non-GAAP financial measures differently than we do,
limiting their usefulness as comparative measures.
Because of these limitations, our non-GAAP financial measures
should not be considered in isolation or as a substitute for net
income (loss) attributable to shareholders, earnings per share or
book value per share, or any other performance measures calculated
in accordance with GAAP. Our non-GAAP financial measures should not
be considered an alternative to cash flows from operations as a
measure of our liquidity. Undepreciated book value per share should
not be considered a measure of the value of our assets upon an
orderly liquidation of the Company.
In the future, we may incur gains and losses that are the same
as or similar to some of the adjustments in this presentation. Our
presentation of non-GAAP financial measures should not be construed
as an inference that our future results will be unaffected by
unusual or non-recurring items.
For additional information about our non-GAAP financial
measures, please refer to the disclosures available on our website
or in our Quarterly Report on Form 10-Q.
About Ladder
Ladder is an internally-managed real estate investment trust
that is a leader in commercial real estate finance. Ladder
originates and invests in a diverse portfolio of commercial real
estate and real estate-related assets, focusing on senior secured
assets. Ladder’s investment activities include: (i) direct
origination of commercial real estate first mortgage loans; (ii)
investments in investment grade securities secured by first
mortgage loans on commercial real estate; and (iii) investments in
net leased and other commercial real estate equity. Founded in
2008, Ladder is run by a highly experienced management team with
extensive expertise in all aspects of the commercial real estate
industry, including origination, credit, underwriting, structuring,
capital markets and asset management. Led by Brian Harris, the
Company’s Chief Executive Officer, Ladder is headquartered in New
York City and has branches in Los Angeles and Boca Raton.
Forward-Looking Statements
Certain statements in this release may constitute
“forward-looking” statements. These statements are based on
management’s current opinions, expectations, beliefs, plans,
objectives, assumptions or projections regarding future events or
future results. These forward-looking statements are only
predictions, not historical fact, and involve certain risks and
uncertainties, as well as assumptions. Actual results, levels of
activity, performance, achievements and events could differ
materially from those stated, anticipated or implied by such
forward-looking statements. While Ladder believes that its
assumptions are reasonable, it is very difficult to predict the
impact of known factors, and, of course, it is impossible to
anticipate all factors that could affect actual results. There are
a number of risks and uncertainties that could cause actual results
to differ materially from forward-looking statements made herein
including, most prominently, the risks discussed under the heading
“Risk Factors” in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2016, as well as its consolidated
financial statements, related notes, and other financial
information appearing therein, and its other filings with the U.S.
Securities and Exchange Commission. Such forward-looking statements
are made only as of the date of this release. Ladder expressly
disclaims any obligation or undertaking to release any updates or
revisions to any forward-looking statements contained herein to
reflect any change in its expectations with regard thereto or
changes in events, conditions, or circumstances on which any such
statement is based.
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