Financial
Highlights
GAAP disclosures for the third quarter:
- GAAP Income before Taxes of $30.1
million and Diluted EPS of $0.28
- After-Tax GAAP Return on Average
Equity of 8.5%
- GAAP Book Value per Share of $13.07
at September 30, 2017
Core (non-GAAP) disclosures for the third quarter:
- Core Earnings of $35.6 million and
Core EPS of $0.35
- After-Tax Core Return on Average
Equity of 10.5%
- Undepreciated Book Value per Share
of $14.39 at September 30, 2017
Operating and financing statistics for the third
quarter:
- Declared a third quarter dividend of
$0.30/share of Class A common stock paid on October 2,
2017
- Originated a total of $630.1 million
of commercial mortgage loans, including $306.6 million of mortgage
loans held for investment and $323.5 million of mortgage loans held
for sale, and made $48.6 million of net leased and other equity
investments
- Issued $400.0 million in aggregate
principal amount of 5.250% senior unsecured notes due October 1,
2025
- Upgraded by S&P to a BB
corporate family rating and Moody's moved to Positive Outlook from
Stable
Ladder Capital Corp (NYSE:LADR) (“we,” “Ladder,” or the
“Company”) today announced operating results for the quarter ended
September 30, 2017. GAAP income before taxes for the three
months ended September 30, 2017 was $30.1 million compared to
$58.3 million for the three months ended September 30, 2016.
The results for the third quarter of 2017 reflect lower gains on
loan securitizations as well as the favorable impact of rising
interest rates on interest rate hedges during the third quarter of
the prior year. GAAP income before taxes for the nine months ended
September 30, 2017 was $60.3 million compared to $47.6 million
for the nine months ended September 30, 2016. The year to date
2017 results reflect higher operating lease income and gains on
sales of securities than in the prior year as well as a more
favorable change in interest rate derivatives, offset by lower
gains on sales of loans and real estate thus far in 2017. The
Diluted EPS for the three and nine months ended September 30,
2017 was $0.28 and $0.59, respectively, compared to $0.44 and $0.40
for the three and nine months ended September 30, 2016,
respectively. After-tax GAAP return on average equity was 8.5% in
the third quarter of 2017.
Core Earnings, a non-GAAP financial measure, was $35.6 million
for the third quarter of 2017, compared to $44.5 million earned in
the third quarter of 2016. For the nine months ended
September 30, 2017, Core Earnings was $118.4 million compared
to $113.6 million for the comparable period in 2016. While the
results of the nine months ended September 30, 2017 surpassed the
comparable period in the prior year, the quarterly results reflect
lower volumes on sales 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 $0.35 for the third quarter of 2017
and $1.08 for the nine months ended September 30, 2017,
compared to $0.40 and $1.10 for the three and nine months ended
September 30, 2016, respectively.
Portfolio Overview
The following table summarizes the book value of our investment
portfolio as of the dates indicated below ($ in thousands):
September 30, 2017
December 31, 2016 Loans
Balance sheet loans: Balance sheet first mortgage loans $ 2,688,845
41.9 % $ 1,832,626 32.9 % Other commercial real estate-related
loans 158,095
2.6
% 167,469 3.0 % Mortgage loans transferred but not considered sold
598,525 9.3 % — — % Provision for loan losses (4,000 ) (0.1 )%
(4,000 ) (0.1 )% Total balance sheet loans 3,441,465
53.7
% 1,996,095 35.8 % Conduit first mortgage loans 522,961
8.2
% 357,882 6.4 % Total loans 3,964,426
61.9
% 2,353,977 42.2 %
Securities CMBS investments 1,054,512
16.4 % 2,043,566 36.6 % U.S. Agency Securities investments 43,959
0.7 % 57,381 1.1 % Total securities 1,098,471 17.1 %
2,100,947 37.7 %
Real Estate Real estate and related lease
intangibles, net 1,041,901 16.2 % 822,338 14.7 %
Total real estate 1,041,901 16.2 % 822,338 14.7 %
Other
Investments Investments in unconsolidated joint ventures 35,007
0.6 % 34,025 0.6 % FHLB stock 77,915 1.2 % 77,915 1.4
% Total other investments 112,922 1.8 % 111,940 2.0 %
Total investments 6,217,720
97.0
% 5,389,202 96.6 % Cash, cash equivalents and restricted cash
97,377
1.5
% 64,017 1.1 % Other assets
96,943
1.5
% 125,118 2.3 %
Total assets $
6,412,040
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 September 25, 2017, we issued $400.0 million in aggregate
principal amount of 5.250% senior unsecured notes due October 1,
2025. On September 29, 2017, we executed an amendment to our
committed securities repurchase facility to extend the maximum term
of the facility to September 30, 2019. Effective September 30,
2017, we executed an amendment to one of our committed loan
repurchase facilities to extend the maximum term of the facility to
October 1, 2022, inclusive of two 12-month extension options, and
to extend the final date to obtain new advances under the facility
from October 30, 2018 to October 1, 2020. During the quarter, we
also amended our syndicated revolving credit facility to add an
additional bank to our syndicate and increase the maximum funding
capacity to $215.5 million. On October 27, 2017, the maximum
funding capacity was again increased to $241.4 million.
The following table summarizes our debt obligations as of the
following dates ($ in thousands):
September 30, 2017
December 31, 2016 Committed loan repurchase
facilities $ 696,394 $ 567,163 Committed securities repurchase
facility 116,626 228,317 Uncommitted securities repurchase
facilities 100,117 311,705 Total repurchase facilities
913,137 1,107,185 Revolving credit facility 76,000 25,000 Mortgage
loan financing 587,490 590,106 Participation financing - mortgage
loan receivable 3,368 — Borrowings from the FHLB 1,464,000
1,660,000 Senior unsecured notes(1) 1,152,552 559,847 Total
secured and unsecured debt obligations 4,196,547 3,942,138
Liability for transfers not considered sales(2) 631,480 —
Total debt obligations $ 4,828,027
$ 3,942,138 (1) Presented net of
unamortized debt issuance costs of $13.6 million and $4.0 million
at September 30, 2017 and December 31, 2016, respectively.
(2)
Presented net of unamortized debt issuance
costs of $4.8 million as of September 30, 2017.
Conference Call and
Webcast
We will host a conference call on Thursday, November 2,
2017 at 5:00 p.m. Eastern Time to discuss third 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 Thursday,
November 2, 2017 through midnight Thursday, November 16, 2017.
To access the replay, please call (844) 512-2921 domestic or (412)
317-6671 international, access code 13671844. 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)
September 30, 2017
December 31, 2016 (Unaudited)
Assets Cash and cash
equivalents $ 48,894 $ 44,615 Restricted cash 48,483 44,813
Mortgage loan receivables held for investment, net, at amortized
cost: Mortgage loans held by consolidated subsidiaries 2,846,940
2,000,095 Mortgage loans transferred but not considered sold
598,525 — Provision for loan losses (4,000 ) (4,000 ) Mortgage loan
receivables held for sale 522,961 357,882 Real estate securities,
available-for-sale 1,098,471 2,100,947 Real estate and related
lease intangibles, net 1,041,901 822,338 Investments in
unconsolidated joint ventures 35,007 34,025 FHLB stock 77,915
77,915 Derivative instruments
568
5,018 Due from brokers 12,526 10 Accrued interest receivable 26,426
24,439 Other assets 57,423 70,240
Total assets
$
6,412,040
$ 5,578,337 Liabilities and
Equity Liabilities Debt obligations, net: Secured and
unsecured debt obligations $ 4,196,547 $ 3,942,138 Liability for
transfers not considered sales 631,480 — Due to brokers 432 394
Derivative instruments
2,711
3,446 Amount payable pursuant to tax receivable agreement 2,438
2,520 Dividends payable 1,988 24,682 Accrued expenses 52,679 66,597
Other liabilities 58,246 29,006
Total
liabilities
4,946,521
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 1,201,402 992,307 Treasury stock,
2,040,591 and 1,095,048 shares, at cost (24,501 ) (11,244 )
Retained Earnings/(Dividends in Excess of Earnings) (57,052 )
(11,148 ) Accumulated other comprehensive income (loss) 4,398
1,365
Total shareholders’ equity
1,124,359 971,390 Noncontrolling interest in
operating partnership 329,372 533,246 Noncontrolling interest in
consolidated joint ventures 11,788 4,918
Total
equity 1,465,519 1,509,554
Total liabilities and equity $
6,412,040
$ 5,578,337
Ladder Capital Corp
Consolidated Statements of
Income
(Dollars in Thousands, Except Per Share
and Dividend Data)
(Unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Net interest income Interest income $
72,763 $ 60,284 $ 196,410 $ 175,650 Interest expense 42,607
30,685 109,625 88,622
Net interest
income 30,156 29,599 86,785 87,028
Provision for loan losses — — — 300
Net interest income after provision for loan losses
30,156 29,599 86,785 86,728
Other income Operating lease income 22,924 19,466 64,741
57,845 Tenant recoveries 2,382 1,185 5,121 3,844 Sale of loans, net
(775 ) 19,640 (1,774 ) 30,265 Realized gain (loss) on securities
6,688 7,126 19,182 9,524 Unrealized gain (loss) on Agency
interest-only securities 577 (47 ) 1,034 29 Realized gain on sale
of real estate, net 3,228 4,649 7,790 15,616 Fee and other income
4,338 8,101 13,378 17,258 Net result from derivative transactions
(348 ) 9,356 (18,352 ) (66,148 ) Earnings (loss) from investment in
unconsolidated joint ventures 127 (141 ) 64 485 Gain (loss) on
extinguishment of debt — — (54 ) 5,382
Total other income 39,141 69,335
91,130 74,100 Costs and expenses
Salaries and employee benefits 13,255 17,296 43,786 43,343
Operating expenses 4,790 4,391 16,098 15,399 Real estate operating
expenses 9,351 8,392 24,861 23,244 Fee expense 1,242 803 3,556
2,407 Depreciation and amortization 10,606 9,733
29,323 28,789
Total costs and expenses
39,244 40,615 117,624
113,182 Income (loss) before taxes
30,053 58,319 60,291 47,646 Income tax
expense (benefit) (400 ) 8,721 (3,224 ) 5,547
Net
income (loss) 30,453 49,598 63,515
42,099 Net (income) loss attributable to noncontrolling
interest in consolidated joint ventures 265 439 (133 ) 436 Net
(income) loss attributable to noncontrolling interest in operating
partnership (6,679 ) (22,429 ) (15,210 ) (17,664 )
Net income
(loss) attributable to Class A common shareholders $
24,039 $ 27,608 $
48,172 $ 24,871
Earnings per share: Basic $ 0.28 $ 0.44 $ 0.61 $ 0.41
Diluted $ 0.28 $ 0.44 $ 0.59 $ 0.40
Weighted average
shares outstanding: Basic 85,135,685 62,148,362 79,416,957
60,976,046 Diluted 85,476,266 63,347,690 109,857,679 61,875,010
Dividends per share of Class A common stock: $ 0.300
$ 0.275 $ 0.900 $ 0.825
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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Net income (loss) $ 30,453 $ 49,598 $ 63,515 $
42,099 Income tax expense (benefit) (400 ) 8,721 (3,224 )
5,547 Income (loss) before taxes 30,053 58,319 60,291 47,646
Net (income) loss attributable to noncontrolling interest in
consolidated joint ventures and operating partnership (GAAP) (1)
257 431 (157 ) 415 Our share of real estate depreciation,
amortization and gain adjustments (2) 9,221 8,295 26,519 24,620
Adjustments for unrecognized derivative results (3) (3,929 )
(24,919 ) (5,141 ) 30,553 Unrealized (gain) loss on Agency IO
securities (577 ) 48 (1,034 ) (30 ) Adjustment for economic gain on
securitization transactions not recognized under GAAP for which
risk has been substantially transferred, net of
reversal/amortization (4) (1,511 ) 282 26,485 27 Non-cash
stock-based compensation 2,127 5,218 11,422 13,527 One-time
transactional adjustments (5) — (3,181 ) — (3,181 )
Core Earnings 35,641 44,493 118,385 113,577 Core estimated
corporate tax benefit (expense) (6) 2,464 (976 ) (214 )
4,830
After-tax Core Earnings $ 38,105
$ 43,517 $ 118,171
$ 118,407 (1) Includes $8
thousand and $24 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 nine months ended September 30, 2017,
respectively. Includes $8 thousand and $21 thousand of net income
attributable to noncontrolling interest in consolidated joint
ventures which are included in net (income) loss attributable to
noncontrolling interest in operating partnership on the
consolidated statements of income for the three and nine months
ended September 30, 2016, respectively. (2) The following is
a reconciliation of GAAP depreciation and amortization to our share
of real estate depreciation, amortization and gain adjustments
presented in the computation of Core Earnings in the preceding
table ($ in thousands):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Total GAAP depreciation and amortization $
10,606 $ 9,733 $ 29,323 $ 28,789 Less: Depreciation and
amortization related to non-rental property fixed assets (23 ) (28
) (70 ) (85 ) Less: Non-controlling interest in consolidated joint
ventures’ share of accumulated depreciation and amortization (328 )
(590 ) (824 ) (1,794 ) Our share of real estate depreciation and
amortization 10,255 9,115 28,429 26,910 Realized gain from
accumulated depreciation and amortization on real estate sold (see
below) (577 ) (825 ) (1,459 ) (2,306 ) Less: Non-controlling
interest in consolidated joint ventures’ share of accumulated
depreciation and amortization on real estate sold 5 5
12 16 Our share of accumulated depreciation and
amortization on real estate sold (572 ) (820 ) (1,447 ) (2,290 )
Less: Operating lease income on above/below market lease
intangible amortization (462 ) — (463 ) —
Our share of real estate depreciation, amortization and
gain adjustments $ 9,221 $
8,295 $ 26,519 $
24,620
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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 GAAP realized gain on sale of real estate, net $
3,228 $ 4,649 $ 7,790 $ 15,616 Adjusted gain/loss on sale of real
estate for purposes of Core Earnings (2,656 ) (3,829 ) (6,343 )
(13,326 )
Our share of accumulated depreciation and amortization
on real estate sold $ 572 $
820 $ 1,447 $
2,290 (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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Net results from derivative transactions $ (348
) $ 9,356 $ (18,352 ) $ (66,148 ) Hedging interest expense 3,448
8,661
12,573
23,244 Hedging realized result 829 6,903 10,920
12,351
Adjustments for unrecognized derivative
results $ 3,929 $ 24,920
$ 5,141 $ (30,553
) (4) We reflected in Core Earnings, an
economic gain of $28.5 million for the nine months ended September
30, 2017, primarily relating to the LCCM 2017-LC26 securitization
transaction. This is offset by amortization of such economic gain
and of discounts in prior securitizations of intercompany debt.
(5)
One-time transactional adjustment for
costs related to our restructuring for REIT related operations. All
costs were expensed and accrued for in the period incurred.
(6) Core estimated corporate tax benefit (expense) based on
effective tax rate applied to Core Earnings generated by the
activity within our taxable REIT subsidiary.
Core EPS
Core EPS is defined as after-tax Core Earnings divided by the
adjusted weighted average diluted shares outstanding during the
period. The adjusted weighted average diluted shares outstanding is
defined as the GAAP weighted average diluted shares outstanding,
adjusted for shares issuable upon conversion of all Class B shares,
if excluded from the GAAP measure because they would have an
anti-dilutive effect. The inclusion of shares issuable upon
conversion of Class B shares is consistent with the inclusion of
income attributable to noncontrolling interest in operating
partnership in Core Earnings and after-tax Core Earnings.
Set forth below is an unaudited reconciliation of weighted
average diluted shares outstanding to adjusted weighted average
diluted shares outstanding (in thousands):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Weighted average diluted shares outstanding
85,476 63,348 109,858 61,875 Weighted average shares issuable to
converted Class B shareholders 24,698 45,468 — 45,970
Adjusted
weighted average diluted shares outstanding 110,174
108,816 109,858 107,845
Set forth below is an unaudited computation of Core EPS ($ in
thousands, except per share date):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 After-Tax Core Earnings $
38,105
$ 43,517 $
118,171
$ 118,407 Adjusted weighted average diluted shares outstanding
110,174 108,816 109,858 107,845
Core EPS $
0.35 $ 0.40 $ 1.08 $
1.10
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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 After-Tax Core Earnings $
38,105
$ 43,517 $
118,171
$ 118,407 Average shareholders' equity and NCI in operating
partnership 1,455,441 1,488,071
1,470,802
1,482,317
After-Tax Core ROAE 10.5
% 11.7 % 10.7 % 10.7
%
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 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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017(1) 2016 2017(2)
2016 Number of loans — 34 57 60 Face amount of
loans sold into securitizations $ — $ 414,902 $ 625,653 $ 664,058
Number of securitizations — 1 1 3 Income from sales of
securitized loans, net (3) $ — $ 19,640 $ — $ 27,186 Hedge
gain/(loss) related to loans securitized (4) — (3,007 )
(7,720 ) (6,815 )
Income from sales of securitized loans, net of
hedging
—
16,633
(7,720 )
20,371 Adjustment for economic gain on securitization
transactions not recognized under GAAP for which risk has been
substantially transferred —
506
28,461
687
Core gain on sale of securitized loans $
— $
17,139
$ 20,741 $
21,058
(1) There were no securitization
transactions completed in the three months ended September 30,
2017. (2) On June 29, 2017, we transferred our interests in
$625.7 million of loans to the LCCM 2017-LC26 securitization trust.
In connection with this transaction, pursuant to the 5% risk
retention requirement of the Dodd-Frank Act, we retained a
restricted “vertical interest" in each class of securities issued
by the trust and sold a restricted "horizontal interest" to a
“Third Party Purchaser” (“TPP”). 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 adjust
for the economic gain on this securitization transaction that is
not recognized under GAAP in the amount of $28.5 million.
(3) The following is a reconciliation of the non-GAAP financial
measure of income from sales of securitized loans, net to income
from sale of loans, net, which is the closest GAAP measure, as
reported in our consolidated financial statements ($ in thousands):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Income from sales of loans, net $ (775 ) $
19,640 $ (1,774 ) $ 30,265 Unrealized losses on loans related to
lower of cost or market adjustments 775 — 1,774 — (Income) loss
from sale of loans (non-securitized), net — — —
(3,079 )
Income from sales of securitized loans, net
$ — $ 19,640 $
— $ 27,186
(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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Net results from derivative transactions $ (348
) $ 9,356 $ (18,352 ) $ (66,148 ) Hedge gain/(loss) related to
lending and securities positions 661 (12,363 ) 12,094 58,278 Hedge
gain/(loss) related to loans (non-securitized) (313 ) —
(1,462 ) 1,055
Hedge gain/(loss) related to loans
securitized $ — $ (3,007
) $ (7,720 ) $ (6,815
)
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):
September 30, 2017
December 31, 2016 Total shareholders' equity $
1,124,359 $ 971,390 Noncontrolling interest in operating
partnership 329,372 533,246 Our share of accumulated real estate
depreciation and amortization (1) 139,690 112,606
Undepreciated book value 1,593,421 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 $ 13.07 $ 13.57
Undepreciated book value per share $ 14.39
$ 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):
September 30, 2017
December 31, 2016 GAAP accumulated real estate
depreciation and amortization $ 150,621 $ 122,007 Less:
Noncontrolling interest in consolidated joint ventures' share of
accumulated real estate depreciation and amortization (10,931 )
(9,401 )
Our share of accumulated real estate depreciation and
amortization $ 139,690 $
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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 GAAP sale of loans, net $ (775 ) $ 19,640 $
(1,774 ) $ 30,265 Adjustment for economic gain on securitization
transactions not recognized under GAAP for which risk has been
substantially transferred —
506
28,461
687
Hedging gain/(loss) related to loans securitized and other loan
activity 1,093 (3,007 ) (4,480 ) (7,870 )
Core gain on
sale of loans $ 318 $
17,139
$ 22,207 $
23,082
(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 EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 GAAP realized gain (loss) on securities $ 6,688
$ 7,126 $ 19,182 $ 9,524 Plus: Other than temporary impairment, net
of hedging 186 — 559 584 Hedging realized result - security sales
(1,922 ) (3,896 ) (6,441 ) (4,481 )
Core gain on sales of
securities $ 4,952 $ 3,230
$ 13,300 $ 5,627
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 nine months ended September 30, 2017 and
2016, net rental income was as follows ($ in thousands):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017
2016 Operating lease income $ 22,924 $ 19,466 $
64,741 $ 57,845 Plus: Tenant recoveries 2,382 1,185
5,121
3,844 Less: Real estate operating expenses
(9,351
) (8,392 )
(24,861
) (23,244 )
Net rental income $
15,955
$ 12,259 $
45,001
$ 38,445
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):
September 30, 2017
December 31, 2016 GAAP debt obligations, net $
4,828,027 $ 3,942,138 Less: Liability for transfers not considered
sales (631,480 ) (1) — Plus: Other debt obligations associated with
transfers not considered sales 76,717 (2) — Adjusted debt
obligations 4,273,264 3,942,138 GAAP equity 1,465,519
1,509,554
Adjusted leverage 2.9
2.6 (1)
As discussed above, in connection with the
LCCM 2017-LC26 securitization that did not receive sale accounting
treatment, we recognized a liability for transfers not considered
sales of $631.5 million that are considered financing for
accounting purposes, but should be excluded from debt obligations
for adjusted leverage calculation purposes.
(2)
As discussed above, 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 our effective tax rate, including
the impact of Unincorporated Business Tax and the impact of our
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. Our 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 our 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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Ladder Capital Corp Investor
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