Ladder Capital Corp (NYSE: LADR) (“we,” “Ladder,” or the
“Company”) today announced operating results for the quarter ended
June 30, 2020. GAAP loss before taxes for the three months ended
June 30, 2020 was $5.7 million, and diluted loss per share was
$0.04. Core earnings was $12.8 million, or $0.12 of core EPS.
After-tax GAAP return on average equity was (1.2)% and after-tax
core return on average equity was 4.0%.
“In the second quarter, we met our goal of strengthening our
balance sheet. We accomplished this by reducing our debt by $727.5
million and finishing the quarter with $826.1 million in cash,”
said Brian Harris, Ladder’s Chief Executive Officer. “We believe we
are now well-positioned to take advantage of the opportunities that
are beginning to present themselves.”
Supplemental
The Company issued a supplemental presentation detailing its
second quarter 2020 operating results, which can be viewed at
http://ir.laddercapital.com/.
Conference Call and
Webcast
We will host a conference call on Thursday, July 30, 2020 at
5:00 p.m. Eastern Time to discuss second quarter 2020 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, July 30, 2020 through midnight
Thursday, August 13, 2020. To access the replay, please call (844)
512-2921 domestic or (412) 317-6671 international, access code
13706742. 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.
About Ladder
Ladder Capital Corp is an internally-managed commercial real
estate investment trust with over $6 billion of assets. Our
investment objective is to preserve and protect shareholder capital
while producing attractive risk-adjusted returns. As one of the
nation’s leading commercial real estate capital providers, we
specialize in underwriting commercial real estate and offering
flexible capital solutions within a sophisticated platform.
Ladder originates and invests in a diverse portfolio of
commercial real estate and real estate-related assets, focusing on
senior secured assets. Our investment activities include: (i) our
primary business of originating senior first mortgage fixed and
floating rate loans collateralized by commercial real estate with
flexible loan structures; (ii) investing in investment grade
securities secured by first mortgage loans on commercial real
estate; and (iii) owning and operating commercial real estate,
including net leased commercial properties.
Founded in 2008, and led by Brian Harris, the Company’s Chief
Executive Officer, 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. Members of
Ladder’s management and board of directors are highly aligned with
the Company’s investors, owning over 10% of the Company’s
equity.
Forward-Looking Statements &
Coronavirus Risk
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, including
the impact of the COVID-19 pandemic on the Company's business.
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 each of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2019 and Quarterly
Report on Form 10-Q for the period ended March 31, 2020, 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.
Ladder Capital Corp
Consolidated Balance
Sheets
(Dollars in Thousands)
June 30, 2020(1)
December 31, 2019(1)
(Unaudited)
Assets
Cash and cash equivalents
$
826,059
$
58,171
Restricted cash
47,945
297,575
Mortgage loan receivables held for
investment, net, at amortized cost:
Mortgage loans held by consolidated
subsidiaries
2,955,084
3,257,036
Allowance for loan losses
(49,102
)
(20,500
)
Mortgage loan receivables held for
sale
85,977
122,325
Real estate securities
1,506,713
1,721,305
Real estate and related lease intangibles,
net
1,042,210
1,048,081
Investments in and advances to
unconsolidated joint ventures
48,919
48,433
FHLB stock
61,619
61,619
Derivative instruments
380
693
Accrued interest receivable
18,783
21,066
Other assets
64,963
53,348
Total assets
$
6,609,550
$
6,669,152
Liabilities and Equity
Liabilities
Debt obligations, net
$
4,953,514
$
4,859,873
Dividends payable
23,583
38,696
Accrued expenses
55,616
72,397
Other liabilities
68,457
59,209
Total liabilities
5,101,170
5,030,175
Commitments and contingencies
—
—
Equity
Class A common stock, par value $0.001 per
share, 600,000,000 shares authorized; 117,473,057 and 110,693,832
shares issued and 115,015,738 and 107,509,563 shares
outstanding
116
108
Class B common stock, par value $0.001 per
share, 100,000,000 shares authorized; 5,379,708 and 12,158,933
shares issued and outstanding
5
12
Additional paid-in capital
1,649,170
1,532,384
Treasury stock, 2,457,319 and 3,184,269
shares, at cost
(53,619
)
(42,699
)
Retained earnings (dividends in excess of
earnings)
(120,082
)
(35,746
)
Accumulated other comprehensive income
(loss)
(45,080
)
4,218
Total shareholders’ equity
1,430,510
1,458,277
Noncontrolling interest in operating
partnership
70,968
172,054
Noncontrolling interest in consolidated
joint ventures
6,902
8,646
Total equity
1,508,380
1,638,977
Total liabilities
and equity
$
6,609,550
$
6,669,152
(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,
2020
2019
2020
2019
Net interest income
Interest income
$
62,096
$
85,322
$
134,686
$
171,789
Interest expense
68,425
52,369
119,827
103,618
Net interest income
(6,329
)
32,953
14,859
68,171
Provision for/(release of) loan loss
reserves
(729
)
300
25,852
600
Net interest income (expense) after
provision for loan losses
(5,600
)
32,653
(10,993
)
67,571
Other income (loss)
Operating lease income
23,773
27,780
50,101
56,701
Sale of loans, net
(744
)
20,264
261
27,342
Realized gain (loss) on securities
(14,798
)
4,464
(11,787
)
7,329
Unrealized gain (loss) on equity
securities
401
(990
)
(132
)
1,088
Unrealized gain (loss) on Agency
interest-only securities
98
11
174
22
Realized gain (loss) on sale of real
estate, net
(1
)
(1,124
)
10,528
(1,119
)
Impairment of real estate
—
—
—
(1,350
)
Fee and other income
3,505
7,196
5,024
11,882
Net result from derivative
transactions
(813
)
(15,457
)
(16,248
)
(26,491
)
Earnings (loss) from investment in
unconsolidated joint ventures
471
1,564
912
2,522
Gain (loss) on extinguishment/defeasance
of debt
19,017
—
21,077
(1,070
)
Total other income (loss)
30,909
43,708
59,910
76,856
Costs and expenses
Salaries and employee benefits
7,001
14,907
24,023
38,481
Operating expenses
6,224
6,012
12,018
11,413
Real estate operating expenses
6,034
6,032
13,981
11,506
Fee expense
1,977
1,183
3,415
2,895
Depreciation and amortization
9,816
9,935
19,825
20,162
Total costs and expenses
31,052
38,069
73,262
84,457
Income (loss) before taxes
(5,743
)
38,292
(24,345
)
59,970
Income tax expense (benefit)
(550
)
2,219
(5,091
)
(634
)
Net income (loss)
(5,193
)
36,073
(19,254
)
60,604
Net (income) loss attributable to
noncontrolling interest in consolidated joint ventures
250
307
(1,269
)
754
Net (income) loss attributable to
noncontrolling interest in operating partnership
754
(4,136
)
605
(6,939
)
Net income (loss) attributable to Class
A common shareholders
$
(4,189
)
$
32,244
$
(19,918
)
$
54,419
Earnings per share:
Basic
$
(0.04
)
$
0.31
$
(0.19
)
$
0.52
Diluted
$
(0.04
)
$
0.30
$
(0.19
)
$
0.51
Weighted average shares
outstanding:
Basic
106,809,987
105,511,385
106,569,892
104,888,925
Diluted
106,809,987
105,892,420
106,569,892
105,742,589
Dividends per share of Class A common
stock
$
0.200
$
0.340
$
0.540
$
0.680
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 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 fair
value securities and passive interest in unconsolidated joint
ventures, (iv) economic gains on loan sales 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) adjustment for
CECL reserves, (vi) non-cash stock-based compensation, and (vii)
certain transactional items.
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.
Our results of operations were significantly impacted by the
actions we took to generate liquidity and pay down mark-to-market
debt in direct response to the unfavorable market conditions that
occurred near the onset of the COVID-19 pandemic. The actions taken
by management had multiple impacts on core earnings, core EPS and
after-tax core ROAE for the three months ended June 30, 2020.
Management believes the actions taken were prompted by the unusual
market conditions and therefore outside of Ladder’s core
operations. Management believes adjusting for certain transactional
charges/gains related to the impact of COVID-19 on its performance
measures provides a more useful guide to assess the ongoing core
operations of the Company.
Set forth below is an unaudited reconciliation of net income to
after-tax core earnings, and an unaudited computation of core EPS
(in thousands, except per share data):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net income (loss)
$
(5,193
)
$
36,073
$
(19,254
)
$
60,604
Income tax expense (benefit)
(550
)
2,219
(5,091
)
(634
)
Income (loss) before taxes
(5,743
)
38,292
(24,345
)
59,970
Net (income) loss attributable to
noncontrolling interest in consolidated joint ventures
(GAAP)(1)
246
299
(1,276
)
738
Our share of real estate depreciation,
amortization and gain adjustments(2)(3)
8,875
6,590
10,248
12,257
Adjustments for unrecognized derivative
results(4)
(8,630
)
2,187
8,959
11,302
Unrealized (gain) loss on fair value
securities
(1,649
)
861
(137
)
(1,227
)
Adjustment for economic gain on loan sales
not recognized under GAAP for which risk has been substantially
transferred, net of reversal/amortization
189
(645
)
(45
)
(648
)
Adjustment for CECL reserves
(729
)
—
17,852
—
Non-cash stock-based compensation
3,272
3,371
15,431
15,465
Transactional adjustments (response to
COVID- 19)(5)
16,939
—
16,939
—
Core earnings
12,770
50,955
43,626
97,857
Core estimated corporate tax benefit
(expense)(6)
2,044
22
2,334
316
After-tax core earnings
$
14,814
$
50,977
$
45,960
$
98,173
Adjusted weighted average diluted shares
outstanding(7)
118,895
118,565
119,211
118,678
Core EPS
$
0.12
$
0.43
$
0.39
$
0.83
(1)
Includes $4 thousand and $7 thousand of
net income 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, 2020, respectively. Includes $8 thousand and $16
thousand of net income which are included in net (income) loss
attributable to noncontrolling interest in operating partnership on
the consolidated statements of income for the three and six months
ended June 30, 2019, respectively.
(2)
The following is a reconciliation of GAAP
depreciation and amortization to our share of real estate
depreciation, amortization and gain adjustments presented in the
computation of core earnings in the preceding table ($ in
thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Total GAAP depreciation and
amortization
$
9,816
$
9,935
$
19,825
$
20,162
Less: Depreciation and amortization
related to non-rental property fixed assets
(25
)
(25
)
(50
)
(49
)
Less: Non-controlling interest in
consolidated joint ventures’ share of accumulated depreciation and
amortization and unrecognized passive interest in unconsolidated
joint ventures
(349
)
(1,070
)
(941
)
(1,976
)
Our share of real estate depreciation and
amortization
9,442
8,840
18,834
18,137
Realized gain from accumulated
depreciation and amortization on real estate sold (see below)
(40
)
(1,935
)
(9,679
)
(5,421
)
Less: Non-controlling interest in
consolidated joint ventures’ share of accumulated depreciation and
amortization on real estate sold
—
42
2,147
42
Our share of accumulated depreciation and
amortization on real estate sold
(40
)
(1,893
)
(7,532
)
(5,379
)
Less: Operating lease income on
above/below market lease intangible amortization
(527
)
(357
)
(1,054
)
(501
)
Our share of real estate depreciation,
amortization and gain adjustments
$
8,875
$
6,590
$
10,248
$
12,257
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 gains/losses also must be adjusted. Following is a
reconciliation of the related consolidated GAAP amounts to the
amounts reflected in core earnings ($ in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
GAAP realized gain (loss) on sale of real
estate, net
$
(1
)
$
(1,124
)
$
10,528
$
(1,119
)
Adjusted gain/loss on sale of real estate
for purposes of core earnings
41
3,017
(2,996
)
6,498
Our share of accumulated depreciation
and amortization on real estate sold
$
40
$
1,893
$
7,532
$
5,379
(3)
For the three months ended March 31, 2019,
the Company recognized $5.7 million of operating lease income from
prepayment of a lease, a $1.1 million loss on extinguishment of
debt and a $1.4 million impairment of real estate related to a
single-tenant two-story office building in Wayne, NJ. This property
was sold on May 1, 2019. For core earnings, the Company recognized
the net impact of these events in the period the sale was realized.
Accordingly, the $3.3 million net impact of the income and losses
discussed above were excluded from core earnings for the three
months ended March 31, 2019 and are included in core earnings for
the three and six months ended June 30, 2019.
(4)
The following is a reconciliation of GAAP
net results from derivative transactions to our unrecognized
derivative result presented in the computation of core earnings in
the preceding table ($ in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net results from derivative
transactions
$
(813
)
$
(15,457
)
$
(16,248
)
$
(26,491
)
Hedging interest expense
(843
)
1,640
(311
)
1,491
Hedging realized result
10,286
11,630
7,600
13,698
Adjustments for unrecognized derivative
results
$
8,630
$
(2,187
)
$
(8,959
)
$
(11,302
)
(5)
The impact from COVID-19 included
adjustments related to the unusual market conditions and actions
taken by management including: (a) $6.7 million of losses from
sales of performing first mortgage loans included in sale of loans,
net, (b) $15.4 million of losses from sales of CMBS, (c) $3.7
million of losses from conduit loan sales, (d) $6.5 million of
prepayment penalties related to paydowns of mark-to-market debt
included in interest expense, (e) $2.1 million of professional fee
expenses included in operating expenses and (f) $0.2 million of
severance costs included in salaries and employee benefits. The
$34.5 million total of the preceding amounts was partially offset
by (g) $19.0 million of gains from the repurchase of and
extinguishment of unsecured corporate bond debt at a discount from
par net of (h) $1.5 million of accelerated premium amortization
included in interest expense. Set forth below is a reconciliation
of certain of the above COVID-19 losses to the most comparable GAAP
financial measure ($ in thousands):
Three and six months
ended
June 30, 2020
(b) Losses from
sales of CMBS
Loss on sale of securities - COVID-19
related
$
(14,670)
Hedge (loss) related to sale of
securities, included in net results from derivative
transactions
(698)
Losses from sales of CMBS
$
(15,368)
(c) Losses from
conduit loan sales
Income from sales of loans, net - COVID-19
related
$
(1,680)
Hedge (loss) related to sales of loans,
included in net results from derivative transactions
(1,994)
Losses from conduit loan sales
$
(3,674)
(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.
(7)
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,
2020
2019
2020
2019
Weighted average diluted shares
outstanding
106,810
105,892
106,570
105,743
Weighted average shares issuable to
converted Class B shareholders
12,085
12,673
12,641
12,935
Adjusted weighted average diluted
shares outstanding
118,895
118,565
119,211
118,678
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,
2020
2019
2020
2019
After-tax core earnings
$
14,814
$
50,977
$
45,960
$
98,173
Average shareholders’ equity and NCI in
operating partnership
1,497,567
1,636,730
1,529,780
1,635,414
After-tax core ROAE
4.0
%
12.5
%
6.0
%
12.0
%
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; 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.
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.
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Investors Ladder Capital
Corp Investor Relations (917) 369-3207
investor.relations@laddercapital.com
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