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Section 1: 8-K (LADDER CAPITAL CORP 8-K)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): November 2, 2017

Ladder Capital Corp
(Exact name of registrant as specified in its charter)

Delaware

001-36299

80-0925494

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

345 Park Avenue, 8th Floor

New York, New York

10154

(Zip Code)

(Address of principal executive
offices)

Registrant’s telephone number, including area code: 212-715-3170

Not Applicable
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.




Item 2.02.  Results of Operations and Financial Condition.

On November 2, 2017, Ladder Capital Corp (“Ladder”) issued a press release disclosing financial results for the quarter ended September 30, 2017.  The information in Exhibit 99.1 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

Item 9.01.  Financial Statements and Exhibits.

          (d)       Exhibits

          99.1      Press release of Ladder Capital Corp dated November 2, 2017.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: November 2, 2017

LADDER CAPITAL CORP

 

 

By:

/s/ Marc Fox

Marc Fox

Chief Financial Officer

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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit 99.1

Ladder Capital Corp Reports Third Quarter 2017 Results

Financial Highlights

GAAP disclosures for the third quarter:

Core (non-GAAP) disclosures for the third quarter:

Operating and financing statistics for the third quarter:

NEW YORK--(BUSINESS WIRE)--November 2, 2017--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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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 Ended
September 30,

Nine Months Ended
September 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:

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.

CONTACT:
Ladder Capital Corp Investor Relations
917-369-3207
investor.relations@laddercapital.com

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