Financial
Highlights
GAAP disclosures for the second quarter:
- GAAP income before taxes of $44.1
million and diluted EPS of $0.40
- Up from $37.7 million and $0.26 in
the second quarter of 2017
- After-tax GAAP return on average
equity of 11.7%
- Up from 8.1% in the second quarter
of 2017
- GAAP book value per share of $13.43
at June 30, 2018
- Up from $13.19 at December 31,
2017 and $13.37 at March 31, 2018
Core (non-GAAP) disclosures for the second quarter:
- Core earnings of $50.4 million and
Core EPS of $0.45
- Compared to core earnings of $51.2
million and core EPS of $0.42 in the second quarter of
2017
- After-tax core return on average
equity of 13.3%
- Up from 12.6% in the second quarter
of 2017
- Undepreciated book value per share
of $14.97 at June 30, 2018
- Up from $14.60 at December 31,
2017 and $14.82 at March 31, 2018
Operating and financing statistics for the second
quarter:
- Increased our quarterly dividend by
$0.01 per share, marking the fourth dividend increase in just over
three years, by declaring a second quarter dividend of $0.325/share
of Class A common stock paid on July 2, 2018
- Originated a total of $711.9 million
of commercial mortgage loans, including $479.8 million of mortgage
loans held for investment and $232.1 million of mortgage loans held
for sale
- Made $89.7 million of new real
estate equity investments, and received $3.7 million of proceeds
from sales of real estate
- Contributed $400.8 million of loans
to 3 securitization transactions in the second quarter
Ladder Capital Corp (NYSE:LADR) (“we,” “Ladder,” or the
“Company”) today announced operating results for the quarter ended
June 30, 2018. GAAP income before taxes for the three and six
months ended June 30, 2018 was $44.1 million and $115.8
million, respectively compared to $37.7 million and $55.9 million
for the three and six months ended June 30, 2017,
respectively. The favorable year over year quarterly earnings
variance reflects higher net interest income, higher net rental
income, and the favorable impact of rising interest rates on
interest rate hedges offset by lower gains on loan securitizations.
The Diluted EPS for the three and six months ended June 30,
2018 was $0.40 and $0.93, respectively, compared to $0.26 and $0.45
for the three and six months ended June 30, 2017,
respectively. After-tax GAAP return on average equity was 11.7% in
the second quarter of 2018.
Core earnings, a non-GAAP financial measure, was $50.4 million
for the second quarter of 2018, compared to $51.2 million earned in
the second quarter of 2017. We achieved nearly the same quarterly
earnings as the second quarter 2017 due to growth in recurring
income that offset lower income from sales of loans. For the six
months ended June 30, 2018, core earnings was $114.2 million
compared to $82.7 million for the comparable period in 2017. The
results of the six months ended June 30, 2018 surpassed the
comparable period in the prior year due to higher net interest
income on our portfolio of loans and higher net rental income on
our real estate investments, as well as higher gains on sales of
real estate than in the prior year. Core EPS, a non-GAAP financial
measure, was $0.45 for the second quarter of 2018 and $1.00 for the
six months ended June 30, 2018, compared to $0.42 and $0.73
for the three and six months ended June 30, 2017,
respectively. We believe core earnings and core EPS are useful in
evaluating our earnings from operations across reporting periods as
discussed in the Non-GAAP Financial Measures section of this
earnings release.
Portfolio Overview
The following table summarizes the book value of our investment
portfolio as of the dates indicated below ($ in thousands):
June 30, 2018 December 31, 2017
Loans Balance sheet loans: Balance sheet first
mortgage loans $ 3,606,248 56.3 % $ 3,123,268 51.9 % Other
commercial real estate-related loans 157,924 2.5 % 159,194 2.6 %
Provision for loan losses (7,300 ) (0.1 )% (4,000 ) (0.1 )% Total
balance sheet loans 3,756,872 58.7 % 3,278,462 54.4 % Conduit first
mortgage loans 107,744 1.7 % 230,180 3.8 % Total
loans 3,864,616 60.4 % 3,508,642 58.2 %
Securities CMBS
investments 1,068,843 16.7 % 1,066,570 17.7 % U.S. Agency
Securities investments 37,515 0.6 % 39,947 0.7 %
Total securities 1,106,358 17.3 % 1,106,517 18.4 %
Real
Estate Real estate and related lease intangibles, net 1,060,243
16.6 % 1,032,041 17.1 % Total real estate 1,060,243
16.6 % 1,032,041 17.1 %
Other Investments Investments in
unconsolidated joint ventures 35,302 0.6 % 35,441 0.6 % FHLB stock
77,915 1.2 % 77,915 1.3 % Total other investments
113,217 1.8 % 113,356 1.9 % Total investments
6,144,434 96.1 % 5,760,556 95.6 % Cash, cash equivalents and
restricted cash 94,739 1.5 % 182,683 3.0 % Other assets 150,241
2.4 % 82,376 1.4 %
Total assets $
6,389,414 100.0 % $
6,025,615 100.0 %
Note: CMBS investments and U.S. Agency Securities are carried at
fair value.
Liquidity and Capital
Resources
The following table summarizes our debt obligations as of the
following dates ($ in thousands):
June 30, 2018 December 31, 2017
Committed loan repurchase facilities $ 599,653 $ 398,653 Committed
securities repurchase facility 99,889 — Uncommitted securities
repurchase facilities 120,421 74,757 Total repurchase
facilities 819,963 473,410 Revolving credit facility — — Mortgage
loan financing(1) 770,880 692,696 CLO debt(2) 685,416 688,479
Participation financing - mortgage loan receivable 2,647 3,107
Borrowings from the FHLB 1,270,000 1,370,000 Senior unsecured
notes(3) 1,153,543 1,152,134
Total debt obligations
$ 4,702,449 $ 4,379,826 (1)
Presented net of unamortized debt issuance costs of $1.0
million as of June 30, 2018. (2) Presented net of unamortized debt
issuance costs of $4.5 million and $6.0 million as of June 30, 2018
and December 31, 2017, respectively. (3) Presented net of
unamortized debt issuance costs of $12.7 million and $14.1 million
at June 30, 2018 and December 31, 2017, respectively.
Conference Call and
Webcast
We will host a conference call on Tuesday, July 31, 2018 at
5:00 p.m. Eastern Time to discuss second quarter 2018 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 Tuesday, July 31, 2018 through midnight
Tuesday, August 14, 2018. To access the replay, please call (844)
512-2921 domestic or (412) 317-6671 international, access code
13681400. The conference call will also be webcast though a link on
Ladder Capital Corp’s Investor Relations website at
ir.laddercapital.com/event. 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, 2018(1) December 31, 2017(1)
(Unaudited)
Assets Cash and cash equivalents $ 51,918 $
76,674 Restricted cash 42,821 106,009 Mortgage loan receivables
held for investment, net, at amortized cost: Mortgage loans held by
consolidated subsidiaries 3,764,172 3,282,462 Provision for loan
losses (7,300 ) (4,000 ) Mortgage loan receivables held for sale
107,744 230,180 Real estate securities 1,106,358 1,106,517 Real
estate and related lease intangibles, net 1,060,243 1,032,041
Investments in unconsolidated joint ventures 35,302 35,441 FHLB
stock 77,915 77,915 Derivative instruments 660 888 Accrued interest
receivable 27,632 25,875 Other assets 121,949 55,613
Total assets $ 6,389,414 $
6,025,615 Liabilities and Equity
Liabilities Debt obligations, net: Secured and unsecured
debt obligations $ 4,702,449 $ 4,379,826 Due to brokers 44,800 14
Derivative instruments — 2,606 Amount payable pursuant to tax
receivable agreement 1,570 1,656 Dividends payable 1,582 30,528
Accrued expenses 60,294 59,619 Other liabilities 66,257
63,220
Total liabilities 4,876,952
4,537,469 Commitments and contingencies — —
Equity Class A common stock, par value $0.001 per share,
600,000,000 shares authorized; 100,637,615 and 96,258,847 shares
issued and 97,937,793 and 93,641,260 shares outstanding 99 94 Class
B common stock, par value $0.001 per share, 100,000,000 shares
authorized; 13,317,419 and 17,667,251 shares issued and outstanding
13 18 Additional paid-in capital 1,370,092 1,306,136 Treasury
stock, 2,699,822 and 2,617,587 shares, at cost (32,793 ) (31,956 )
Dividends in Excess of Earnings (12,106 ) (39,112 ) Accumulated
other comprehensive income (loss) (9,855 ) (212 )
Total
shareholders’ equity 1,315,450 1,234,968
Noncontrolling interest in operating partnership 185,158 240,861
Noncontrolling interest in consolidated joint ventures 11,854
12,317
Total equity 1,512,462
1,488,146 Total liabilities and equity
$ 6,389,414 $ 6,025,615
____________________
(1) Includes amounts relating to consolidated variable
interest entities.
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, 2018 2017 2018
2017 Net interest income Interest
income $ 85,230 $ 65,970 $ 163,437 $ 123,482 Interest expense
48,417 35,661 93,130 67,076
Net
interest income 36,813 30,309 70,307
56,406 Provision for loan losses 300 — 3,300
—
Net interest income after provision for loan
losses 36,513 30,309 67,007 56,406
Other income Operating lease income 24,258 22,187
48,818 41,816 Tenant recoveries 1,913 1,159 5,492 2,739 Sale of
loans, net 6,144 25,904 11,032 24,905 Realized gain (loss) on
securities (1,243 ) 7,132 (2,342 ) 12,494 Unrealized gain (loss) on
Agency interest-only securities 110 299 313 457 Realized gain on
sale of real estate, net 1,628 2,232 32,637 4,563 Fee and other
income 6,477 4,574 12,728 9,039 Net result from derivative
transactions 7,081 (16,022 ) 22,040 (18,003 ) Earnings (loss) from
investment in unconsolidated joint ventures 13 10 65 (63 ) Gain
(loss) on extinguishment of debt — — (69 ) (54 )
Total other income 46,381 47,475
130,714 77,893 Costs and
expenses Salaries and employee benefits 13,866 14,489 30,962
30,531 Operating expenses 5,597 5,829 11,144 11,308 Real estate
operating expenses 7,836 8,056 16,654 15,510 Fee expense 799 1,621
1,641 2,314 Depreciation and amortization 10,656 10,125
21,479 18,717
Total costs and expenses
38,754 40,120 81,880
78,380 Income (loss) before taxes
44,140 37,664 115,841 55,919 Income tax
expense (benefit) 573 6,606 4,476 5,231
Net income (loss) 43,567 31,058 111,365
50,688 Net (income) loss attributable to noncontrolling
interest in consolidated joint ventures 133 (77 ) (8,289 ) (398 )
Net (income) loss attributable to noncontrolling interest in
operating partnership (5,294 ) (8,868 ) (13,795 ) (14,706 )
Net
income (loss) attributable to Class A common shareholders
$ 38,406 $ 22,113
$ 89,281 $ 35,584
Earnings per share: Basic $ 0.40 $ 0.28 $ 0.93 $ 0.47
Diluted $ 0.40 $ 0.26 $ 0.93 $ 0.45
Weighted average
shares outstanding: Basic 96,810,266 80,108,431 96,003,151
76,510,201
Diluted(1)
97,165,899 110,055,308 96,276,824 109,693,706
Dividends
per share of Class A common stock: $ 0.325 $ 0.300 $ 0.640 $
0.600 (1) For the three and six months ended June 30, 2018,
shares issuable relating to converted Class B common shareholders
are excluded from the calculation of diluted EPS as the inclusion
of such potential common shares in the calculation would be
anti-dilutive.
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 more relevant and consistent basis by excluding certain non-cash
expenses and unrecognized results as well as eliminating timing
differences related to securitization gains and 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 and passive interest in
unconsolidated joint ventures, (iv) economic gains on
securitization transactions not recognized under 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 periods, (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 under 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 such gains were eliminated in consolidation.
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, 2018 2017 2018
2017 Net income (loss) $ 43,567 $ 31,058 $
111,365 $ 50,688 Income tax expense (benefit) 573 6,606
4,476 5,231 Income (loss) before taxes 44,140
37,664 115,841 55,919 Net (income) loss attributable to
noncontrolling interest in consolidated joint ventures and
operating partnership (GAAP) (1) 126 (85 ) (8,305 ) (414 ) Our
share of real estate depreciation, amortization and gain
adjustments (2) 8,777 9,503 14,835 17,298 Adjustments for
unrecognized derivative results (3) (4,596 ) (258 ) (12,706 )
(2,191 ) Unrealized (gain) loss on Agency IO securities (110 ) (299
) (313 ) (457 ) Adjustment for economic gain on securitization
transactions not recognized under GAAP for which risk has been
substantially transferred, net of reversal/amortization (246 )
3,518 (538 ) 3,292 Non-cash stock-based compensation 2,341
1,146 5,424 9,295
Core earnings 50,432
51,189 114,238 82,742 Core estimated corporate tax benefit
(expense) (4) (645 ) (4,809 ) (4,097 ) (2,676 )
After-tax core
earnings $ 49,787 $ 46,380
$ 110,141 $ 80,066
(1) Includes $7 thousand and $8 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 months ended June
30, 2018 and 2017, respectively. Includes $16 thousand and $15
thousand of net income attributable to noncontrolling interest in
consolidated joint ventures which are included in net (income) loss
attributable to noncontrolling interest in operating partnership on
the consolidated statements of income for the six months ended June
30, 2018 and 2017, respectively. (2) The following is
a reconciliation of GAAP depreciation and amortization to our share
of real estate depreciation, amortization and gain adjustments
presented in the computation of core earnings in the preceding
table ($ in thousands):
Three Months Ended June
30, Six Months Ended June 30, 2018
2017 2018 2017 Total GAAP
depreciation and amortization $ 10,656 $ 10,125 $ 21,479 $ 18,717
Less: Depreciation and amortization related to non-rental property
fixed assets (19 ) (23 ) (37 ) (47 )
Less: Non-controlling interest in
consolidated joint ventures’ share of accumulated depreciation and
amortization and unrecognized passive interest in unconsolidated
joint ventures
(1,012 ) (122 ) (1,371 ) (496 ) Our share of real estate
depreciation and amortization 9,625 9,980 20,071 18,174
Realized gain from accumulated depreciation and amortization on
real estate sold (see below) (292 ) (480 ) (5,486 ) (882 ) Less:
Non-controlling interest in consolidated joint ventures’ share of
accumulated depreciation and amortization on real estate sold 2
3 1,190 6 Our share of accumulated
depreciation and amortization on real estate sold (290 ) (477 )
(4,296 ) (876 ) Less: Operating lease income on above/below
market lease intangible amortization (558 ) — (940 ) —
Our share of real estate depreciation,
amortization and gain adjustments $ 8,777
$ 9,503 $ 14,835 $
17,298
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, 2018 2017 2018
2017 GAAP realized gain on sale of real
estate, net $ 1,628 $ 2,232 $ 32,637 $ 4,563 Adjusted gain/loss on
sale of real estate for purposes of core earnings (1,338 ) (1,755 )
(28,341 ) (3,687 )
Our share of accumulated depreciation and
amortization on real estate sold $ 290
$ 477 $ 4,296 $
876 (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, 2018 2017 2018
2017 Net results from derivative transactions
$ 7,081 $ (16,022 ) $ 22,040 $ (18,003 ) Hedging interest expense
1,535 5,395 4,424 9,123 Hedging realized result (4,020 ) 10,885
(13,758 ) 11,071
Adjustments for unrecognized
derivative results $ 4,596 $
258 $ 12,706 $
2,191 (4) 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, 2018 2017 2018
2017 Weighted average diluted shares
outstanding 97,166 110,055 96,277 109,694 Weighted average
shares issuable to converted Class B shareholders 13,317 —
14,105 —
Adjusted weighted average diluted shares
outstanding 110,483 110,055
110,382 109,694
Set forth below is an unaudited computation of core EPS ($ in
thousands, except per share data):
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018
2017 After-tax core earnings $ 49,787 $ 46,380
$ 110,141 $ 80,066 Adjusted weighted average diluted shares
outstanding 110,483 110,055 110,382 109,694
Core EPS $ 0.45 $ 0.42
$ 1.00 $ 0.73
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, 2018 2017 2018
2017 After-tax core earnings $ 49,787 $ 46,380
$ 110,141 $ 80,066 Average shareholders’ equity and NCI in
operating partnership 1,497,124 1,475,054 1,490,929
1,482,704
After-tax core ROAE 13.3
% 12.6 % 14.8 % 10.8
%
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. 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 Ended June 30, Six
Months Ended June 30, 2018 2017
2018 2017 Number of loans 39 57 67 57
Face amount of loans sold into securitizations $ 400,789 $ 625,653
$ 837,336 $ 625,653 Number of securitizations 3 1 5 1 Income
from sales of securitized loans, net (1) $ 6,144 $ 26,063 $ 11,495
$ 26,063 Hedge gain/(loss) related to loans securitized (2) 2,309
(9,068 ) 8,876 (9,068 )
Income from sales of
securitized loans, net of hedging 8,453 16,995
20,371 16,995 Adjustment for economic gain on
securitization transactions not recognized under GAAP for which
risk has been substantially transferred 5 3,746 (32 )
3,746
Core gain on sale of securitized loans $
8,458 $ 20,741 $
20,339 $ 20,741
____________________
(1) The following is a reconciliation of income (loss) from
sale of loans, net, which is the closest GAAP measure, as reported
in our consolidated financial statements included herein to the
non-GAAP financial measure of income from sales of securitized
loans, net ($ in thousands):
Three Months Ended
June 30, Six Months Ended June 30, 2018
2017 2018 2017 Income
from sales of loans, net $ 6,144 $ 25,904 $ 11,032 $ 24,905
Realized losses on loans related to lower of cost or market
adjustments — — 463 999 (Income) loss from sale of loans
(non-securitized), net — 159 — 159
Income
from sales of securitized loans, net $ 6,144
$ 26,063 $ 11,495
$ 26,063 (2) The following is a reconciliation
of net results from derivative transactions, which is the closest
GAAP measure, as reported in our consolidated financial statements
included herein to the non-GAAP financial measure of hedge
gain/(loss) related to loans securitized ($ in thousands):
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018
2017 Net results from derivative transactions
$ 7,081 $ (16,022 ) $ 22,040 $ (18,003 ) Hedge gain/(loss) related
to lending and securities positions (4,772 ) 6,954 (13,164 ) 10,084
Hedge gain/(loss) related to loans (non-securitized) — —
— (1,149 )
Hedge gain/(loss) related to loans
securitized $ 2,309 $ (9,068
) $ 8,876 $ (9,068
)
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 data):
June 30, 2018 December 31, 2017
Total shareholders’ equity $ 1,315,450 $ 1,234,968 Noncontrolling
interest in operating partnership 185,158 240,861 Our share of
accumulated real estate depreciation and amortization (1) 165,121
149,494 Undepreciated book value 1,665,729 1,625,323
Class A shares outstanding 97,938 93,641 Class B shares outstanding
13,317 17,667 Total shares outstanding 111,255 111,308
GAAP book value per share (Class A only) $
13.43 $ 13.19 Undepreciated book value per
share $ 14.97 $ 14.60 (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, 2018 December
31, 2017 GAAP accumulated real estate depreciation and
amortization $ 176,375 $ 161,063 Less: Noncontrolling interest in
consolidated joint ventures’ share of accumulated real estate
depreciation and amortization (11,254 ) (11,569 )
Our share of
accumulated real estate depreciation and amortization $
165,121 $ 149,494
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, 2018 2017 2018
2017 GAAP sale of loans, net $ 6,144 $ 25,904
$ 11,032 $ 24,905 Adjustment for economic gain on securitization
transactions not recognized under GAAP for which risk has been
substantially transferred (1) 5 3,746 (32 ) 3,746 Hedging
gain/(loss) related to loans securitized and other loan activity
2,309 (8,699 ) 9,339 (6,551 )
Core gain on sale of
loans $ 8,458 $ 20,951
$ 20,339 $ 22,100
(1) For core gain on sale of loans, we include adjustments
for economic gains on securitization transactions not recognized
for GAAP accounting. 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, 2018 2017 2018
2017 GAAP realized gain (loss) on securities $
(1,243 ) $ 7,132 $ (2,342 ) $ 12,494 Plus: Other than temporary
impairment, net of hedging 16 373 150 373 Hedging realized result -
security sales 1,711 (2,186 ) 4,420 (4,520 )
Core
gain on sales of securities $ 484 $
5,319 $ 2,228 $
8,347
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.
Set forth below is an unaudited reconciliation of operating
lease income to net rental income ($ in thousands):
Three Months Ended June 30, Six Months
Ended June 30, 2018 2017 2018
2017 Operating lease income $ 24,258 $ 22,187
$ 48,818 $ 41,816 Plus: Tenant recoveries 1,913 1,159 5,492 2,739
Less: Real estate operating expenses (7,836 ) (8,056 ) (16,654 )
(15,510 )
Net rental income $ 18,335
$ 15,290 $ 37,656
$ 29,045
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 (i) debt obligations, net of
deferred financing costs, adjusted for non-recourse debt
obligations related to securitizations that are consolidated on our
GAAP balance sheet to (ii) GAAP total equity. We believe adjusted
leverage assists investors in comparing our leverage across
reporting periods on a consistent basis by excluding non-recourse
debt related to securitized loans.
Set forth below is an unaudited computation of adjusted leverage
($ in thousands):
June 30, 2018 December 31, 2017
Debt obligations, net $ 4,702,449 $ 4,379,826 Less: CLO Debt(1)
(685,416 ) (688,479 ) Adjusted debt obligations 4,017,033 3,691,347
Total equity 1,512,462 1,488,146
Adjusted
leverage 2.7 2.5
____________________
(1) We contributed over $888.4 million of balance sheet
loans into two CLO securitizations that remain on our balance sheet
for accounting purposes but should be excluded from 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 the 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 with a West Coast office in Santa Monica.
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, 2017, 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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