0001577670 srt:MaximumMember us-gaap:FairValueInputsLevel3Member ladr:CommercialMortgageBackedSecuritiesInterestOnlyMember 2018-01-01 2018-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
Or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
001-36299
Ladder Capital Corp
(Exact name of registrant as specified in its charter)
|
| | | | |
Delaware | | 80-0925494 |
(State or other jurisdiction of incorporation or organization) | | 80-0925494
(IRS Employer Identification No.) |
| | | | | |
345 Park Avenue, | New York, | NY | | 10154 |
| (Address of principal executive offices) | | 10154
(Zip Code) |
(212) (212) 715-3170
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Class A common stock, $0.001 par value | LADR | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
|
| | | |
Large accelerated filerý | ☒ | Accelerated filero | ☐ |
| | | | |
Non-accelerated filero | ☐ | Smaller reporting companyo | ☐ |
| | | |
| | | Emerging growth companyo | ☐ |
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. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes o☐ No ý☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
|
| | |
| Class | | Outstanding at October 31, 2018July 29, 2019 |
Class A Common Stock,common stock, $0.001 par value | | 98,141,899107,574,439 |
Class B Common Stock,common stock, $0.001 par value | | 13,117,41912,158,933 |
LADDER CAPITAL CORP
FORM 10-Q
SeptemberJune 30, 20182019
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact contained in this Quarterly Report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “might,” “will,” “should,” “can have,” “likely,” “continue,” “design,” and other words and terms of similar expressions are intended to identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ from those expressed in our forward-looking statements. Our future financial position and results of operations, as well as any forward-looking statements are subject to change and inherent risks and uncertainties. You should consider our forward-looking statements in light of a number of factors that may cause actual results to vary from our forward-looking statements including, but not limited to:
risks discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20172018 (“Annual Report”), as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this Quarterly Report and our other filings with the United States Securities and Exchange Commission (“SEC”);
changes in general economic conditions, in our industry and in the commercial finance and the real estate markets;
changes to our business and investment strategy;
our ability to obtain and maintain financing arrangements;
the financing and advance rates for our assets;
our actual and expected leverage and liquidity;
the adequacy of collateral securing our loan portfolio and a decline in the fair value of our assets;
interest rate mismatches between our assets and our borrowings used to fund such investments;
changes in interest rates and the market value of our assets;
changes in prepayment rates on our mortgages and the loans underlying our mortgage-backed and other asset-backed securities;
the effects of hedging instruments and the degree to which our hedging strategies may or may not protect us from interest rate and credit risk volatility;
the increased rate of default or decreased recovery rates on our assets;
the adequacy of our policies, procedures and systems for managing risk effectively;
a potential downgrade in the credit ratings assigned to our investments;
our compliance with, and the impact of and changes in, governmental regulations, tax laws and rates, accounting guidance and similar matters;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes and our ability and the ability of our subsidiaries to operate in compliance with REIT requirements;
our ability and the ability of our subsidiaries to maintain our and their exemptions from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”);
potential liability relating to environmental matters that impact the value of properties we may acquire or the properties underlying our investments;
the inability of insurance covering real estate underlying our loans and investments to cover all losses;
the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities;
fraud by potential borrowers;
the availability of qualified personnel;
the impact of the Tax Cuts and Jobs Act and/or estimates concerning the impact of the Tax Cuts and Jobs Act, which are subject to change based on further analysis and/any tax legislation or IRS guidance;
the degree and nature of our competition; and
the market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.
You should not rely upon forward-looking statements as predictions of future events. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The forward-looking statements contained in this Quarterly Report are made as of the date hereof, and the Company assumes no obligation to update or supplement any forward-looking statements.
REFERENCES TO LADDER CAPITAL CORP
Ladder Capital Corp is a holding company, and its primary assets are a controlling equity interest in Ladder Capital Finance Holdings LLLP (“LCFH” or the “Operating Partnership”) and in each series thereof, directly or indirectly. Unless the context suggests otherwise, references in this report to “Ladder,” “Ladder Capital,” the “Company,” “we,” “us” and “our” refer (1) prior to the February 2014 initial public offering (“IPO”) of the Class A common stock of Ladder Capital Corp and related transactions, to LCFH (“Predecessor”) and its consolidated subsidiaries and (2) after our IPO and related transactions, to Ladder Capital Corp and its consolidated subsidiaries.
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
The consolidated financial statements of Ladder Capital Corp and the notes related to the foregoing consolidated financial statements are included in this Item.
Index to Consolidated Financial Statements (Unaudited)
Ladder Capital Corp
Consolidated Balance Sheets
(Dollars in Thousands)
| | | | September 30, 2018(1) | | December 31, 2017(1) | June 30, 2019(1) | | December 31, 2018(1) |
| | (Unaudited) | | | (Unaudited) | | |
| Assets | |
| | |
| |
| | |
|
| Cash and cash equivalents | $ | 49,625 |
| | $ | 76,674 |
| $ | 126,529 |
| | $ | 67,878 |
|
| Restricted cash | 35,288 |
| | 106,009 |
| 88,904 |
| | 30,572 |
|
| Mortgage loan receivables held for investment, net, at amortized cost: | | | | | | |
| Mortgage loans held by consolidated subsidiaries | 3,805,387 |
| | 3,282,462 |
| 3,119,857 |
| | 3,318,390 |
|
| Provision for loan losses | (17,600 | ) | | (4,000 | ) | (18,500 | ) | | (17,900 | ) |
| Mortgage loan receivables held for sale | 375,162 |
| | 230,180 |
| 111,977 |
| | 182,439 |
|
| Real estate securities | 978,289 |
| | 1,106,517 |
| 1,788,415 |
| | 1,410,126 |
|
| Real estate and related lease intangibles, net | 1,000,010 |
| | 1,032,041 |
| 984,377 |
| | 998,022 |
|
| Investments in unconsolidated joint ventures | 36,100 |
| | 35,441 |
| |
| Investments in and advances to unconsolidated joint ventures | | 57,751 |
| | 40,354 |
|
| FHLB stock | 57,915 |
| | 77,915 |
| 61,619 |
| | 57,915 |
|
| Derivative instruments | 57 |
| | 888 |
| 536 |
| | — |
|
| Due from brokers | | 5 |
| | — |
|
| Accrued interest receivable | 27,844 |
| | 25,875 |
| 24,269 |
| | 27,214 |
|
| Other assets | 77,668 |
| | 55,613 |
| 61,036 |
| | 157,862 |
|
| Total assets | $ | 6,425,745 |
| | $ | 6,025,615 |
| $ | 6,406,775 |
| | $ | 6,272,872 |
|
| Liabilities and Equity | |
| | |
| |
| | |
|
| Liabilities | |
| | |
| |
| | |
|
| Debt obligations, net: | | | | |
| Secured and unsecured debt obligations | $ | 4,757,633 |
| | $ | 4,379,826 |
| |
| Debt obligations, net | | $ | 4,613,088 |
| | $ | 4,452,574 |
|
| Due to brokers | — |
| | 14 |
| 25,500 |
| | 1,301 |
|
| Derivative instruments | 280 |
| | 2,606 |
| — |
| | 975 |
|
| Amount payable pursuant to tax receivable agreement | 1,570 |
| | 1,656 |
| 1,559 |
| | 1,570 |
|
| Dividends payable | 1,964 |
| | 30,528 |
| 1,860 |
| | 37,316 |
|
| Accrued expenses | 57,079 |
| | 59,619 |
| 55,453 |
| | 82,425 |
|
| Other liabilities | 53,576 |
| | 63,220 |
| 61,241 |
| | 53,076 |
|
| Total liabilities | 4,872,102 |
| | 4,537,469 |
| 4,758,701 |
| | 4,629,237 |
|
| Commitments and contingencies (Note 18) | — |
| | — |
| — |
| | — |
|
| Equity | |
| | |
| |
| | |
|
| Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 100,842,335 and 96,258,847 shares issued and 98,142,513 and 93,641,260 shares outstanding | 99 |
| | 94 |
| |
| Class B common stock, par value $0.001 per share, 100,000,000 shares authorized; 13,117,419 and 17,667,251 shares issued and outstanding | 13 |
| | 18 |
| |
| Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 110,693,832 and 106,642,335 shares issued and 107,550,933 and 103,941,173 shares outstanding | | 108 |
| | 105 |
|
| Class B common stock, par value $0.001 per share, 100,000,000 shares authorized; 12,158,933 and 13,117,419 shares issued and outstanding | | 12 |
| | 13 |
|
| Additional paid-in capital | 1,375,016 |
| | 1,306,136 |
| 1,526,469 |
| | 1,471,157 |
|
| Treasury stock, 2,699,822 and 2,617,587 shares, at cost | (32,793 | ) | | (31,956 | ) | |
| Treasury stock, 3,142,899 and 2,701,162 shares, at cost | | (41,535 | ) | | (32,815 | ) |
| Retained earnings (dividends in excess of earnings) | 22,593 |
| | (39,112 | ) | (30,847 | ) | | 11,342 |
|
| Accumulated other comprehensive income (loss) | (8,582 | ) | | (212 | ) | 12,171 |
| | (4,649 | ) |
| Total shareholders’ equity | 1,356,346 |
| | 1,234,968 |
| 1,466,378 |
| | 1,445,153 |
|
| Noncontrolling interest in operating partnership | 187,469 |
| | 240,861 |
| 172,466 |
| | 188,427 |
|
| Noncontrolling interest in consolidated joint ventures | 9,828 |
| | 12,317 |
| 9,230 |
| | 10,055 |
|
| Total equity | 1,553,643 |
| | 1,488,146 |
| 1,648,074 |
| | 1,643,635 |
|
| | | | | | | |
| Total liabilities and equity | $ | 6,425,745 |
| | $ | 6,025,615 |
| $ | 6,406,775 |
| | $ | 6,272,872 |
|
| |
| (1) | Includes amounts relating to consolidated variable interest entities. See Note 3. |
The accompanying notes are an integral part of these consolidated financial statements.
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, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | |
| Net interest income | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Interest income | $ | 90,386 |
| | $ | 66,833 |
| | $ | 253,822 |
| | $ | 190,315 |
| $ | 85,322 |
| | $ | 85,230 |
| | $ | 171,789 |
| | $ | 163,437 |
|
| Interest expense | 51,476 |
| | 37,485 |
| | 144,606 |
| | 104,561 |
| 52,369 |
| | 48,417 |
| | 103,618 |
| | 93,130 |
|
| Net interest income | 38,910 |
| | 29,348 |
| | 109,216 |
| | 85,754 |
| 32,953 |
| | 36,813 |
| | 68,171 |
| | 70,307 |
|
| Provision for loan losses | 10,300 |
| | — |
| | 13,600 |
| | — |
| 300 |
| | 300 |
| | 600 |
| | 3,300 |
|
| Net interest income after provision for loan losses | 28,610 |
| | 29,348 |
| | 95,616 |
| | 85,754 |
| 32,653 |
| | 36,513 |
| | 67,571 |
| | 67,007 |
|
| | | | | | | | | | | | | | | |
| Other income | |
| | |
| | |
| | |
| |
| Other income (loss) | | |
| | |
| | |
| | |
|
| Operating lease income | 22,739 |
| | 22,924 |
| | 71,556 |
| | 64,741 |
| 27,780 |
| | 26,171 |
| | 56,701 |
| | 54,310 |
|
| Tenant recoveries | 2,258 |
| | 2,382 |
| | 7,750 |
| | 5,121 |
| |
| Sale of loans, net | 1,861 |
| | (775 | ) | | 12,893 |
| | 24,129 |
| 20,264 |
| | 6,144 |
| | 27,342 |
| | 11,032 |
|
| Realized gain (loss) on securities | (2,554 | ) | | 6,688 |
| | (4,896 | ) | | 19,182 |
| 4,464 |
| | (1,243 | ) | | 7,329 |
| | (2,342 | ) |
| Unrealized gain (loss) on equity securities | | (990 | ) | | — |
| | 1,088 |
| | — |
|
| Unrealized gain (loss) on Agency interest-only securities | 142 |
| | 577 |
| | 456 |
| | 1,034 |
| 11 |
| | 110 |
| | 22 |
| | 313 |
|
| Realized gain on sale of real estate, net | 63,704 |
| | 3,228 |
| | 96,341 |
| | 7,790 |
| |
| Realized gain (loss) on sale of real estate, net | | (1,124 | ) | | 1,628 |
| | (1,119 | ) | | 32,637 |
|
| Impairment of real estate | | — |
| | — |
| | (1,350 | ) | | — |
|
| Fee and other income | 4,851 |
| | 4,338 |
| | 17,579 |
| | 13,378 |
| 7,196 |
| | 6,477 |
| | 11,882 |
| | 12,728 |
|
| Net result from derivative transactions | 7,115 |
| | (348 | ) | | 29,156 |
| | (18,352 | ) | (15,457 | ) | | 7,081 |
| | (26,491 | ) | | 22,040 |
|
| Earnings (loss) from investment in unconsolidated joint ventures | 401 |
| | 127 |
| | 466 |
| | 64 |
| 1,564 |
| | 13 |
| | 2,522 |
| | 65 |
|
| Gain (loss) on extinguishment/defeasance of debt | (4,323 | ) | | — |
| | (4,392 | ) | | (54 | ) | — |
| | — |
| | (1,070 | ) | | (69 | ) |
| Total other income | 96,194 |
| | 39,141 |
| | 226,909 |
| | 117,033 |
| |
| Total other income (loss) | | 43,708 |
| | 46,381 |
| | 76,856 |
| | 130,714 |
|
| Costs and expenses | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Salaries and employee benefits | 15,792 |
| | 13,255 |
| | 46,754 |
| | 43,786 |
| 14,907 |
| | 13,866 |
| | 38,481 |
| | 30,962 |
|
| Operating expenses | 5,464 |
| | 4,790 |
| | 16,608 |
| | 16,098 |
| 6,012 |
| | 5,597 |
| | 11,413 |
| | 11,144 |
|
| Real estate operating expenses | 7,152 |
| | 9,351 |
| | 23,806 |
| | 24,861 |
| 6,032 |
| | 7,836 |
| | 11,506 |
| | 16,654 |
|
| Fee expense | 1,311 |
| | 1,242 |
| | 2,953 |
| | 3,556 |
| 1,183 |
| | 799 |
| | 2,895 |
| | 1,641 |
|
| Depreciation and amortization | 10,417 |
| | 10,606 |
| | 31,896 |
| | 29,323 |
| 9,935 |
| | 10,656 |
| | 20,162 |
| | 21,479 |
|
| Total costs and expenses | 40,136 |
| | 39,244 |
| | 122,017 |
| | 117,624 |
| 38,069 |
| | 38,754 |
| | 84,457 |
| | 81,880 |
|
| Income (loss) before taxes | 84,668 |
| | 29,245 |
| | 200,508 |
| | 85,163 |
| 38,292 |
| | 44,140 |
| | 59,970 |
| | 115,841 |
|
| Income tax expense (benefit) | 1,204 |
| | (576 | ) | | 5,679 |
| | 4,654 |
| 2,219 |
| | 573 |
| | (634 | ) | | 4,476 |
|
| Net income (loss) | 83,464 |
| | 29,821 |
| | 194,829 |
| | 80,509 |
| 36,073 |
| | 43,567 |
| | 60,604 |
| | 111,365 |
|
| Net (income) loss attributable to noncontrolling interest in consolidated joint ventures | (7,843 | ) | | 265 |
| | (16,132 | ) | | (133 | ) | 307 |
| | 133 |
| | 754 |
| | (8,289 | ) |
| Net (income) loss attributable to noncontrolling interest in operating partnership | (8,991 | ) | | (6,499 | ) | | (22,786 | ) | | (21,205 | ) | (4,136 | ) | | (5,294 | ) | | (6,939 | ) | | (13,795 | ) |
| Net income (loss) attributable to Class A common shareholders | $ | 66,630 |
| | $ | 23,587 |
| | $ | 155,911 |
| | $ | 59,171 |
| $ | 32,244 |
| | $ | 38,406 |
| | $ | 54,419 |
| | $ | 89,281 |
|
| | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | |
| Earnings per share: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Basic | $ | 0.69 |
| | $ | 0.28 |
| | $ | 1.62 |
| | $ | 0.75 |
| $ | 0.31 |
| | $ | 0.40 |
| | $ | 0.52 |
| | $ | 0.93 |
|
| Diluted | $ | 0.67 |
| | $ | 0.28 |
| | $ | 1.61 |
| | $ | 0.74 |
| $ | 0.30 |
| | $ | 0.40 |
| | $ | 0.51 |
| | $ | 0.93 |
|
| | | | | | | | | | | | | | | |
| Weighted average shares outstanding: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Basic | 96,935,986 |
| | 85,135,685 |
| | 96,317,513 |
| | 79,416,957 |
| 105,511,385 |
| | 96,810,266 |
| | 104,888,925 |
| | 96,003,151 |
|
| Diluted | 110,650,253 |
| | 85,476,266 |
| | 110,482,991 |
| | 109,857,679 |
| 105,892,420 |
| | 97,165,899 |
| | 105,742,589 |
| | 96,276,824 |
|
| | | | | | | | | | | | | | | |
| Dividends per share of Class A common stock (Note 12) | $ | 0.325 |
| | $ | 0.300 |
| | $ | 0.965 |
| | $ | 0.900 |
| $ | 0.340 |
| | $ | 0.325 |
| | $ | 0.680 |
| | $ | 0.640 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
| Net income (loss) | $ | 36,073 |
| | $ | 43,567 |
| | $ | 60,604 |
| | $ | 111,365 |
|
| | | | | | | | |
| Other comprehensive income (loss) | |
| | |
| | |
| | |
|
| Unrealized gain (loss) on securities, net of tax: | |
| | |
| | |
| | |
|
| Unrealized gain (loss) on real estate securities, available for sale | 10,053 |
| | (3,490 | ) | | 26,024 |
| | (13,446 | ) |
| Reclassification adjustment for (gain) loss included in net income (loss) | (4,464 | ) | | 1,243 |
| | (7,242 | ) | | 2,342 |
|
| | | | | | | | |
| Total other comprehensive income (loss) | 5,589 |
| | (2,247 | ) | | 18,782 |
| | (11,104 | ) |
| | | | | | | | |
| Comprehensive income (loss) | 41,662 |
| | 41,320 |
| | 79,386 |
| | 100,261 |
|
| Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures | 307 |
| | 133 |
| | 754 |
| | (8,289 | ) |
| Comprehensive income (loss) of combined Class A common shareholders and Operating Partnership unitholders | 41,969 |
| | 41,453 |
| | 80,140 |
| | 91,972 |
|
| Comprehensive (income) loss attributable to noncontrolling interest in operating partnership | (4,718 | ) | | (5,025 | ) | | (8,983 | ) | | (12,197 | ) |
| Comprehensive income (loss) attributable to Class A common shareholders | $ | 37,251 |
| | $ | 36,428 |
| | $ | 71,157 |
| | $ | 79,775 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
| Net income (loss) | $ | 83,464 |
| | $ | 29,821 |
| | $ | 194,829 |
| | $ | 80,509 |
|
| | | | | | | | |
| Other comprehensive income (loss) | |
| | |
| | |
| | |
|
| Unrealized gain (loss) on securities, net of tax: | |
| | |
| | |
| | |
|
| Unrealized gain (loss) on real estate securities, available for sale | (1,109 | ) | | 4,710 |
| | (14,554 | ) | | 23,362 |
|
| Reclassification adjustment for (gains) included in net income | 2,554 |
| | (6,874 | ) | | 4,896 |
| | (20,345 | ) |
| | | | | | | | |
| Total other comprehensive income (loss) | 1,445 |
| | (2,164 | ) | | (9,658 | ) | | 3,017 |
|
| | | | | | | | |
| Comprehensive income | 84,909 |
| | 27,657 |
| | 185,171 |
| | 83,526 |
|
| Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures | (7,843 | ) | | 265 |
| | (16,132 | ) | | (133 | ) |
| Comprehensive income of combined Class A common shareholders and Operating Partnership unitholders | $ | 77,066 |
| | $ | 27,922 |
| | $ | 169,039 |
| | $ | 83,393 |
|
| Comprehensive (income) attributable to noncontrolling interest in operating partnership | (9,160 | ) | | (6,016 | ) | | (21,358 | ) | | (22,885 | ) |
| Comprehensive income attributable to Class A common shareholders | $ | 67,906 |
| | $ | 21,906 |
| | $ | 147,681 |
| | $ | 60,508 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)
| | | | Shareholders’ Equity | | | | | | | Shareholders’ Equity | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Shareholders’ Equity | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Shares | | Par | | Shares | | Par | | | | Operating Partnership | | Consolidated Joint Ventures | | Shares | | Par | | Shares | | Par | | | | Operating Partnership | | Consolidated Joint Ventures | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Balance, December 31, 2017 | 93,641 |
| | $ | 94 |
| | 17,668 |
| | $ | 18 |
| | $ | 1,306,136 |
| | $ | (31,956 | ) | | $ | (39,112 | ) | | $ | (212 | ) | | $ | 240,861 |
| | $ | 12,317 |
| | $ | 1,488,146 |
| |
| Balance, March 31, 2019 | | 106,562 |
| | $ | 107 |
| | 13,198 |
| | $ | 13 |
| | $ | 1,508,452 |
| | $ | (40,799 | ) | | $ | (26,549 | ) | | $ | 7,080 |
| | $ | 186,310 |
| | $ | 9,629 |
| | $ | 1,644,243 |
|
| Contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,779 |
| | 5,779 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 114 |
| | 114 |
|
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (13,191 | ) | | (24,400 | ) | | (37,591 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,284 | ) | | (206 | ) | | (4,490 | ) |
| Equity based compensation | — |
| | — |
| | — |
| | — |
| | 6,667 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6,667 |
| |
| Grants of restricted stock | 34 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Amortization of equity based compensation | | — |
| | — |
| | — |
| | — |
| | 3,469 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3,469 |
|
| Purchase of treasury stock | | (40 | ) | | — |
| | — |
| | — |
| | — |
| | (637 | ) | | — |
| | — |
| | — |
| | — |
| | (637 | ) |
| Re-issuance of treasury stock | | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units | (56 | ) | | — |
| | — |
| | — |
| | — |
| | (837 | ) | | — |
| | — |
| | — |
| | — |
| | (837 | ) | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (99 | ) | | — |
| | — |
| | — |
| | — |
| | (99 | ) |
| Forfeitures | (26 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (94,206 | ) | | — |
| | — |
| | — |
| | (94,206 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (36,542 | ) | | — |
| | — |
| | — |
| | (36,542 | ) |
| Exchange of noncontrolling interest for common stock | 4,550 |
| | 5 |
| | (4,550 | ) | | (5 | ) | | 63,109 |
| | — |
| | — |
| | (167 | ) | | (62,428 | ) | | — |
| | 514 |
| 1,039 |
| | 1 |
| | (1,039 | ) | | (1 | ) | | 14,956 |
| | — |
| | — |
| | 70 |
| | (14,672 | ) | | — |
| | 354 |
|
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 155,911 |
| | — |
| | 22,786 |
| | 16,132 |
| | 194,829 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 32,244 |
| | — |
| | 4,136 |
| | (307 | ) | | 36,073 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,230 | ) | | (1,428 | ) | | — |
| | (9,658 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,007 |
| | 582 |
| | — |
| | 5,589 |
|
| Rebalancing of ownership percentage between Company and Operating Partnership | — |
| | — |
| | — |
| | — |
| | (896 | ) | | — |
| | — |
| | 27 |
| | 869 |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | (408 | ) | | — |
| | — |
| | 14 |
| | 394 |
| | — |
| | — |
|
| Balance, September 30, 2018 | 98,143 |
| | $ | 99 |
| | 13,118 |
| | $ | 13 |
| | $ | 1,375,016 |
| | $ | (32,793 | ) | | $ | 22,593 |
| | $ | (8,582 | ) | | $ | 187,469 |
| | $ | 9,828 |
| | $ | 1,553,643 |
| |
| Balance, June 30, 2019 | | 107,551 |
| | $ | 108 |
| | 12,159 |
| | $ | 12 |
| | $ | 1,526,469 |
| | $ | (41,535 | ) | | $ | (30,847 | ) | | $ | 12,171 |
| | $ | 172,466 |
| | $ | 9,230 |
| | $ | 1,648,074 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)
| | | | Shareholders’ Equity | | | | | | | Shareholders’ Equity | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Shareholders’ Equity | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Shares | | Par | | Shares | | Par | | | | Operating Partnership | | Consolidated Joint Ventures | | Shares | | Par | | Shares | | Par | | | | Operating Partnership | | Consolidated Joint Ventures | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Balance, December 31, 2016 | 71,586 |
| | $ | 72 |
| | 38,003 |
| | $ | 38 |
| | $ | 992,307 |
| | $ | (11,244 | ) | | $ | (11,148 | ) | | $ | 1,365 |
| | $ | 533,246 |
| | $ | 4,918 |
| | $ | 1,509,554 |
| |
| Balance, March 31, 2018 | | 97,956 |
| | $ | 99 |
| | 13,318 |
| | $ | 13 |
| | $ | 1,368,548 |
| | $ | (32,684 | ) | | $ | (18,659 | ) | | $ | (7,880 | ) | | $ | 184,201 |
| | $ | 9,654 |
| | $ | 1,503,292 |
|
| Contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,479 |
| | 7,479 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,405 |
| | 2,405 |
|
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (42,218 | ) | | (306 | ) | | (42,524 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4,626 | ) | | (72 | ) | | (4,698 | ) |
| Equity based compensation | — |
| | — |
| | — |
| | — |
| | 18,965 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 18,965 |
| |
| Amortization of equity based compensation | | — |
| | — |
| | — |
| | — |
| | 2,105 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,105 |
|
| Grants of restricted stock | 1,997 |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 4 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Purchase of treasury stock | (190 | ) | | — |
| | — |
| | — |
| | — |
| | (2,588 | ) | | — |
| | — |
| | — |
| | — |
| | (2,588 | ) | |
| Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units | (1,323 | ) | | (1 | ) | | — |
| | — |
| | — |
| | (18,124 | ) | | — |
| | — |
| | — |
| | — |
| | (18,125 | ) | (7 | ) | | — |
| | — |
| | — |
| | — |
| | (109 | ) | | — |
| | — |
| | — |
| | — |
| | (109 | ) |
| Forfeitures | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| (15 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (105,921 | ) | | — |
| | — |
| | — |
| | (105,921 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (31,853 | ) | | — |
| | — |
| | — |
| | (31,853 | ) |
| Stock dividends | 814 |
| | 1 |
| | 432 |
| | 1 |
| | 17,317 |
| | — |
| | (17,319 | ) | | — |
| | — |
| | — |
| | — |
| |
| Exchange of noncontrolling interest for common stock | 20,767 |
| | 21 |
| | (20,767 | ) | | (21 | ) | | 280,714 |
| | — |
| | — |
| | 1,696 |
| | (284,763 | ) | | — |
| | (2,353 | ) | |
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95,276 |
| | — |
| | 30,377 |
| | 226 |
| | 125,879 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,406 |
| | — |
| | 5,294 |
| | (133 | ) | | 43,567 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2,915 | ) | | 695 |
| | — |
| | (2,220 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,978 | ) | | (269 | ) | | — |
| | (2,247 | ) |
| Rebalancing of ownership percentage between Company and Operating Partnership | — |
| | — |
| | — |
| | — |
| | (3,166 | ) | | — |
| | — |
| | (358 | ) | | 3,524 |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | (561 | ) | | — |
| | — |
| | 3 |
| | 558 |
| | — |
| | — |
|
| Balance, December 31, 2017 | 93,641 |
| | $ | 94 |
| | 17,668 |
| | $ | 18 |
| | $ | 1,306,136 |
| | $ | (31,956 | ) | | $ | (39,112 | ) | | $ | (212 | ) | | $ | 240,861 |
| | $ | 12,317 |
| | $ | 1,488,146 |
| |
| Balance, June 30, 2018 | | 97,938 |
| | $ | 99 |
| | 13,318 |
| | $ | 13 |
| | $ | 1,370,092 |
| | $ | (32,793 | ) | | $ | (12,106 | ) | | $ | (9,855 | ) | | $ | 185,158 |
| | $ | 11,854 |
| | $ | 1,512,462 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shareholders’ Equity | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Shares | | Par | | Shares | | Par | | | | | | Operating Partnership | | Consolidated Joint Ventures | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Balance, December 31, 2018 | 103,941 |
| | $ | 105 |
| | 13,118 |
| | $ | 13 |
| | $ | 1,471,157 |
| | $ | (32,815 | ) | | $ | 11,342 |
| | $ | (4,649 | ) | | $ | 188,427 |
| | $ | 10,055 |
| | $ | 1,643,635 |
|
| Contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 191 |
| | 191 |
|
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,537 | ) | | (262 | ) | | (8,799 | ) |
| Amortization of equity based compensation | — |
| | — |
| | — |
| | — |
| | 14,761 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,761 |
|
| Grants of restricted stock | 1,478 |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Purchase of treasury stock | (40 | ) | | — |
| | — |
| | — |
| | — |
| | (637 | ) | | — |
| | — |
| | — |
| | — |
| | (637 | ) |
| Re-issuance of treasury stock | 68 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units | (461 | ) | | — |
| | — |
| | — |
| | — |
| | (8,083 | ) | | — |
| | — |
| | — |
| | — |
| | (8,083 | ) |
| Forfeitures | (9 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (72,785 | ) | | — |
| | — |
| | — |
| | (72,785 | ) |
| Stock dividends | 1,435 |
| | 1 |
| | 180 |
| | — |
| | 23,822 |
| | — |
| | (23,823 | ) | | — |
| | — |
| | — |
| | — |
|
| Exchange of noncontrolling interest for common stock | 1,139 |
| | 1 |
| | (1,139 | ) | | (1 | ) | | 16,449 |
| | — |
| | — |
| | 65 |
| | (16,109 | ) | | — |
| | 405 |
|
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 54,419 |
| | — |
| | 6,939 |
| | (754 | ) | | 60,604 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16,738 |
| | 2,044 |
| | — |
| | 18,782 |
|
| Rebalancing of ownership percentage between Company and Operating Partnership | — |
| | — |
| | — |
| | — |
| | 281 |
| | — |
| | — |
| | 17 |
| | (298 | ) | | — |
| | — |
|
| Balance, June 30, 2019 | 107,551 |
| | $ | 108 |
| | 12,159 |
| | $ | 12 |
| | $ | 1,526,469 |
| | $ | (41,535 | ) | | $ | (30,847 | ) | | $ | 12,171 |
| | $ | 172,466 |
| | $ | 9,230 |
| | $ | 1,648,074 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shareholders’ Equity | | | | | | |
| | Class A Common Stock | | Class B Common Stock | | Additional Paid- in-Capital | | Treasury Stock | | Retained Earnings (Dividends in Excess of Earnings) | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests | | Total Equity |
Shares | | Par | | Shares | | Par | | | | | | Operating Partnership | | Consolidated Joint Ventures | |
| | |
| | |
| | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| | |
|
| Balance, December 31, 2017 | 93,641 |
| | $ | 94 |
| | 17,668 |
| | $ | 18 |
| | $ | 1,306,136 |
| | $ | (31,956 | ) | | $ | (39,112 | ) | | $ | (212 | ) | | $ | 240,861 |
| | $ | 12,317 |
| | $ | 1,488,146 |
|
| Contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5,040 |
| | 5,040 |
|
| Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,899 | ) | | (13,792 | ) | | (22,691 | ) |
| Amortization of equity based compensation | — |
| | — |
| | — |
| | — |
| | 4,505 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,505 |
|
| Grants of restricted stock | 29 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units | (56 | ) | | — |
| | — |
| | — |
| | — |
| | (837 | ) | | — |
| | — |
| | — |
| | — |
| | (837 | ) |
| Forfeitures | (26 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Dividends declared | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (62,275 | ) | | — |
| | — |
| | — |
| | (62,275 | ) |
| Exchange of noncontrolling interest for common stock | 4,350 |
| | 5 |
| | (4,350 | ) | | (5 | ) | | 60,110 |
| | — |
| | — |
| | (143 | ) | | (59,654 | ) | | — |
| | 313 |
|
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 89,281 |
| | — |
| | 13,795 |
| | 8,289 |
| | 111,365 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (9,506 | ) | | (1,598 | ) | | — |
| | (11,104 | ) |
| Rebalancing of ownership percentage between Company and Operating Partnership | — |
| | — |
| | — |
| | — |
| | (659 | ) | | — |
| | — |
| | 6 |
| | 653 |
| | — |
| | — |
|
| Balance, June 30, 2018 | 97,938 |
| | $ | 99 |
| | 13,318 |
| | $ | 13 |
| | $ | 1,370,092 |
| | $ | (32,793 | ) | | $ | (12,106 | ) | | $ | (9,855 | ) | | $ | 185,158 |
| | $ | 11,854 |
| | $ | 1,512,462 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
|
| | | | | | | | |
| | Six Months Ended June 30, | |
| | 2019 | | 2018 | |
| | | | | |
| Cash flows from operating activities: | |
| | |
| |
| Net income (loss) | $ | 60,604 |
| | $ | 111,365 |
| |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
| |
| (Gain) loss on extinguishment/defeasance of debt | 1,070 |
| | 69 |
| |
| Depreciation and amortization | 20,162 |
| | 21,479 |
| |
| Unrealized (gain) loss on derivative instruments | (1,511 | ) | | (2,340 | ) | |
| Unrealized (gain) loss on equity securities | (1,088 | ) | | — |
| |
| Unrealized (gain) loss on Agency interest-only securities | (22 | ) | | (313 | ) | |
| Unrealized (gain) loss on investment in mutual fund | (254 | ) | | (124 | ) | |
| Provision for loan losses | 600 |
| | 3,300 |
| |
| Impairment of real estate | 1,350 |
| | — |
| |
| Amortization of equity based compensation | 14,761 |
| | 4,505 |
| |
| Amortization of deferred financing costs included in interest expense | 5,721 |
| | 4,984 |
| |
| Amortization of premium on mortgage loan financing | (774 | ) | | (499 | ) | |
| Amortization of above- and below-market lease intangibles | (397 | ) | | (940 | ) | |
| Amortization of premium/(accretion) of discount and other fees on loans | (10,294 | ) | | (8,942 | ) | |
| Amortization of premium/(accretion) of discount and other fees on securities | (87 | ) | | 2,270 |
| |
| Realized (gain) loss on sale of mortgage loan receivables held for sale | (27,342 | ) | | (11,032 | ) | |
| Realized (gain) loss on securities | (7,329 | ) | | 2,342 |
| |
| Realized (gain) loss on sale of real estate, net | 1,119 |
| | (32,637 | ) | |
| Realized gain on sale of derivative instruments | 108 |
| | 192 |
| |
| Origination of mortgage loan receivables held for sale | (333,342 | ) | | (764,948 | ) | |
| Repayment of mortgage loan receivables held for sale | 370 |
| | 286 |
| |
| Proceeds from sales of mortgage loan receivables held for sale | 430,649 |
| | 843,214 |
| |
| (Income) loss from investments in unconsolidated joint ventures in excess of distributions received | (2,522 | ) | | (65 | ) | |
| Distributions from operations of investment in unconsolidated joint ventures | 3,067 |
| | — |
| |
| Deferred tax asset (liability) | 6,336 |
| | 1,483 |
| |
| Changes in operating assets and liabilities: | |
| | |
| |
| Accrued interest receivable | 2,705 |
| | (1,757 | ) | |
| Other assets | (6,310 | ) | | (793 | ) | |
| Accrued expenses and other liabilities | (24,805 | ) | | 2,507 |
| |
| Net cash provided by (used in) operating activities | 132,545 |
| | 173,606 |
| |
| | | | | |
|
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2018 | | 2017 | |
| | | | | |
| Cash flows from operating activities: | |
| | |
| |
| Net income (loss) | $ | 194,829 |
| | $ | 80,509 |
| |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
| |
| (Gain) loss on extinguishment/defeasance of debt | 4,392 |
| | 54 |
| |
| Depreciation and amortization | 31,896 |
| | 29,323 |
| |
| Unrealized (gain) loss on derivative instruments | (1,356 | ) | | 3,510 |
| |
| Unrealized (gain) loss on Agency interest-only securities | (456 | ) | | (1,034 | ) | |
| Unrealized (gain) loss on investment in mutual fund | (204 | ) | | (57 | ) | |
| Provision for loan losses | 13,600 |
| | — |
| |
| Amortization of equity based compensation | 6,667 |
| | 10,481 |
| |
| Amortization of deferred financing costs included in interest expense | 8,020 |
| | 5,574 |
| |
| Amortization of premium on mortgage loan financing | (762 | ) | | (735 | ) | |
| Amortization of above- and below-market lease intangibles | (1,286 | ) | | (451 | ) | |
| Accretion of premium on liability for transfers not considered sales | — |
| | (38 | ) | |
| Amortization of premium/(accretion) of discount and other fees on loans | (13,795 | ) | | (7,928 | ) | |
| Amortization of premium/(accretion) of discount and other fees on securities | 2,944 |
| | 4,175 |
| |
| Realized (gain) loss on sale of mortgage loan receivables held for sale | (12,893 | ) | | (24,129 | ) | |
| Realized (gain) loss on real estate securities | 4,896 |
| | (19,182 | ) | |
| Realized gain on sale of real estate, net | (96,341 | ) | | (7,790 | ) | |
| Realized gain on sale of derivative instruments | 192 |
| | (1,623 | ) | |
| Origination of mortgage loan receivables held for sale | (1,115,218 | ) | | (887,978 | ) | |
| Repayment of mortgage loan receivables held for sale | 1,324 |
| | 1,857 |
| |
| Proceeds from sales of mortgage loan receivables held for sale | 926,889 |
| (1) | 512,087 |
| |
| (Income) loss from investments in unconsolidated joint ventures in excess of distributions received | (466 | ) | | (64 | ) | |
| Deferred tax asset (liability) | (4,484 | ) | | (993 | ) | |
| Payments pursuant to tax receivable agreement | — |
| | (230 | ) | |
| Changes in operating assets and liabilities: | |
| | |
| |
| Accrued interest receivable | (1,968 | ) | | (710 | ) | |
| Other assets | 7,503 |
| | (3,318 | ) | |
| Accrued expenses and other liabilities | (5,262 | ) | | (7,688 | ) | |
| Net cash provided by (used in) operating activities | (51,339 | ) | | (316,378 | ) | |
| | | | | |
|
| | | | | | | | |
| | Six Months Ended June 30, | |
| | 2019 | | 2018 | |
| | | | | |
| Cash flows from investing activities: | |
| | |
| |
| Purchase of derivative instruments | (159 | ) | | (205 | ) | |
| Sale of derivative instruments | 50 |
| | 114 |
| |
| Purchases of real estate securities | (827,999 | ) | | (199,135 | ) | |
| Repayment of real estate securities | 110,443 |
| | 56,707 |
| |
| Proceeds from sales of real estate securities | 384,356 |
| | 161,518 |
| |
| Purchase of FHLB stock | (3,704 | ) | | — |
| |
| Origination of mortgage loan receivables held for investment | (484,496 | ) | | (914,489 | ) | |
| Repayment of mortgage loan receivables held for investment | 781,916 |
| | 431,030 |
| |
| Basis recovery of Agency interest-only securities | 6,413 |
| | 10,453 |
| |
| Capital contributions and advances to investment in unconsolidated joint ventures | (56,424 | ) | | (370 | ) | |
| Capital distribution from investment in unconsolidated joint ventures | 38,625 |
| | 1,250 |
| |
| Capitalization of interest on investment in unconsolidated joint ventures | (142 | ) | | (676 | ) | |
| Purchases of real estate | (5,071 | ) | | (114,184 | ) | |
| Capital improvements of real estate | (1,707 | ) | | (3,290 | ) | |
| Proceeds from sale of real estate | 8,521 |
| | 90,806 |
| |
| Net cash provided by (used in) investing activities | (49,378 | ) | | (480,471 | ) | |
| Cash flows from financing activities: | |
| | |
| |
| Deferred financing costs paid | (4,453 | ) | | (2,664 | ) | |
| Proceeds from borrowings under debt obligations | 6,377,515 |
| | 2,919,776 |
| |
| Repayment of borrowings under debt obligations | (6,213,678 | ) | | (2,588,483 | ) | |
| Cash dividends paid to Class A common shareholders | (108,240 | ) | | (91,220 | ) | |
| Capital distributed to noncontrolling interests in operating partnership | (8,537 | ) | | (8,899 | ) | |
| Capital contributed by noncontrolling interests in consolidated joint ventures | 191 |
| | 5,040 |
| |
| Capital distributed to noncontrolling interests in consolidated joint ventures | (262 | ) | | (13,792 | ) | |
| Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock | (8,083 | ) | | (837 | ) | |
| Purchase of treasury stock | (637 | ) | | — |
| |
| Net cash provided by (used in) financing activities | 33,816 |
| | 218,921 |
| |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 116,983 |
| | (87,944 | ) | |
| Cash, cash equivalents and restricted cash at beginning of period | 98,450 |
| | 182,683 |
| |
| Cash, cash equivalents and restricted cash at end of period | $ | 215,433 |
| | $ | 94,739 |
| |
| | | | | |
| | | | | |
|
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2018 | | 2017 | |
| | | | | |
| Cash flows from investing activities: | |
| | |
| |
| Purchase of derivative instruments | (305 | ) | | (199 | ) | |
| Sale of derivative instruments | 114 |
| | — |
| |
| Purchases of real estate securities | (303,021 | ) | | (184,768 | ) | |
| Repayment of real estate securities | 93,185 |
| | 93,232 |
| |
| Proceeds from sales of real estate securities | 306,109 |
| | 983,386 |
| |
| Proceeds from sale of FHLB stock | 20,000 |
| | — |
| |
| Origination of mortgage loan receivables held for investment | (1,240,894 | ) | | (869,981 | ) | |
| Purchases of mortgage loan receivables held for investment | — |
| | (94,079 | ) | |
| Repayment of mortgage loan receivables held for investment | 755,404 |
| | 265,395 |
| (2) |
| Basis recovery of Agency interest-only securities | 14,898 |
| | 45,201 |
| |
| Capital contributions to investment in unconsolidated joint ventures | (370 | ) | | — |
| |
| Capital distribution from investment in unconsolidated joint ventures | 1,250 |
| | — |
| |
| Capitalization of interest on investment in unconsolidated joint ventures | (1,074 | ) | | (918 | ) | |
| Purchases of real estate | (113,903 | ) | | (230,677 | ) | |
| Capital improvements of real estate | (4,822 | ) | | (3,943 | ) | |
| Proceeds from sale of real estate | 153,398 |
| (3) | 20,522 |
| |
| Net cash provided by (used in) investing activities | (320,031 | ) | | 23,171 |
| |
| Cash flows from financing activities: | |
| | |
| |
| Deferred financing costs paid | (2,975 | ) | | (14,752 | ) | |
| Proceeds from borrowings under debt obligations | 4,401,648 |
| | 7,809,983 |
| |
| Repayment of borrowings under debt obligations | (3,969,654 | ) | | (7,351,731 | ) | |
| Cash dividends paid to Class A common shareholders | (122,770 | ) | | (99,452 | ) | |
| Capital distributed to noncontrolling interests in operating partnership | (13,191 | ) | | (36,372 | ) | |
| Capital contributed by noncontrolling interests in consolidated joint ventures | 5,779 |
| | 6,935 |
| |
| Capital distributed to noncontrolling interests in consolidated joint ventures | (24,400 | ) | | (198 | ) | |
| Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock | (837 | ) | | (13,257 | ) | |
| Net cash provided by (used in) financing activities | 273,600 |
| | 301,156 |
| |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (97,770 | ) | | 7,949 |
| |
| Cash, cash equivalents and restricted cash at beginning of period | 182,683 |
| | 89,428 |
| |
| Cash, cash equivalents and restricted cash at end of period | $ | 84,913 |
| | $ | 97,377 |
| |
| | | | | |
|
| | | | | | | | |
| | Six Months Ended June 30, | |
| | 2019 | | 2018 | |
| | | | | |
| Supplemental information: | |
| | |
| |
| Cash paid for interest, net of amounts capitalized | $ | 98,832 |
| | $ | 87,675 |
| |
| Cash paid (received) for income taxes | 3,591 |
| | 6,266 |
| |
| | | | | |
| Non-cash investing and financing activities: | |
| | |
| |
| Securities and derivatives purchased, not settled | 25,500 |
| | (44,786 | ) | |
| Securities and derivatives sold, not settled | 5 |
| | — |
| |
| Repayment in transit of mortgage loans receivable held for investment (other assets) | — |
| | 66,094 |
| |
| Repayment of mortgage loans receivable held for sale | 127 |
| | — |
| |
| Settlement of mortgage loan receivable held for investment by real estate, net | (17,851 | ) | | — |
| |
| Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, at amortized cost | 15,504 |
| | 55,403 |
| |
| Proceeds from sale of real estate | — |
| | 638 |
| |
| Real estate acquired in settlement of mortgage loan receivable held for investment, net | 17,851 |
| | — |
| |
| Net settlement of sale of real estate, subject to debt - real estate | (7,144 | ) | | — |
| |
| Net settlement of sale of real estate, subject to debt - debt obligations | 7,144 |
| | — |
| |
| Reduction in proceeds from sales of real estate | — |
| | 11,050 |
| |
| Assumption of debt obligations by real estate buyer/defeasance of debt and related costs | — |
| | (11,050 | ) | |
| Exchange of noncontrolling interest for common stock | 16,109 |
| | 59,654 |
| |
| Change in deferred tax asset related to exchanges of noncontrolling interest for common stock | — |
| | (226 | ) | |
| Increase in amount payable pursuant to tax receivable agreement | (11 | ) | | (86 | ) | |
| Rebalancing of ownership percentage between Company and Operating Partnership | (298 | ) | | 653 |
| |
| Dividends declared, not paid | 1,860 |
| | 1,582 |
| |
| Stock dividends | 23,823 |
| | — |
| |
|
| | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2018 | | 2017 | |
| | | | | |
| Supplemental information: | |
| | |
| |
| Cash paid for interest, net of amounts capitalized | $ | 151,868 |
| | $ | 107,206 |
| |
| Cash paid (received) for income taxes | 5,718 |
| | 1,670 |
| |
| | | | | |
| Non-cash investing and financing activities: | |
| | |
| |
| Securities and derivatives purchased, not settled | 14 |
| | (37 | ) | |
| Securities and derivatives sold, not settled | — |
| | 12,517 |
| |
| Repayment in transit of mortgage loans receivable held for investment | 31,764 |
| | — |
| |
| Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, at amortized cost | 55,403 |
| | 119,952 |
| |
| Proceeds from sale of real estate | 1,421 |
| | — |
| |
| Reduction in proceeds from sales of real estate | 62,417 |
| | 51,846 |
| |
| Assumption of debt obligations by real estate buyer/defeasance of debt and related costs | (62,417 | ) | | (51,846 | ) | |
| Exchange of noncontrolling interest for common stock | 62,433 |
| | 188,521 |
| |
| Change in deferred tax asset related to exchanges of noncontrolling interest for common stock | 428 |
| | (1,935 | ) | |
| Increase in amount payable pursuant to tax receivable agreement | (86 | ) | | 148 |
| |
| Rebalancing of ownership percentage between Company and Operating Partnership | 869 |
| | 3,510 |
| |
| Dividends declared, not paid | 1,964 |
| | 1,988 |
| |
| Stock dividends | — |
| | 17,319 |
| |
| |
(1) | Includes cash proceeds received in 2018 that relate to 2017 sales of loans of $0.5 million. |
| |
(2) | Includes cash proceeds received in 2017 that relate to 2016 sales of loans of $20.3 million. |
| |
(3) | Includes cash proceeds received in 2018 that relate to 2017 sales of real estate of $1.4 million. |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statement of cash flows ($ in thousands):
| | | | September 30, 2018 | | September 30, 2017 | | December 31, 2017 | June 30, 2019 | | June 30, 2018 | | December 31, 2018 | |
| | | | | | | | | | | | |
| Cash and cash equivalents | $ | 49,625 |
| | $ | 48,894 |
| | $ | 76,674 |
| $ | 126,529 |
| | $ | 51,918 |
| | $ | 67,878 |
| |
| Restricted cash | 35,288 |
| | 48,483 |
| | 106,009 |
| 88,904 |
| | 42,821 |
| | 30,572 |
| |
| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ | 84,913 |
| | $ | 97,377 |
| | $ | 182,683 |
| $ | 215,433 |
| | $ | 94,739 |
| | $ | 98,450 |
| |
The accompanying notes are an integral part of these consolidated financial statements.
Ladder Capital Corp
Notes to Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION AND OPERATIONS
Ladder Capital Corp is an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. Ladder Capital Corp, as the general partner of Ladder Capital Finance Holdings LLLP (“LCFH,” “Predecessor” or the “Operating Partnership”), operates the Ladder Capital business through LCFH and its subsidiaries. As of SeptemberJune 30, 2018,2019, Ladder Capital Corp has a 88.2%89.8% economic interest in LCFH and controls the management of LCFH as a result of its ability to appoint its board members. Accordingly, Ladder Capital Corp consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners (as defined below). In addition, Ladder Capital Corp, through certain subsidiaries which are treated as taxable REIT subsidiaries (each a “TRS”), is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and such indirect U.S. federal, state and local income taxes, there are no material differences between Ladder Capital Corp’s consolidated financial statements and LCFH’s consolidated financial statements.
Ladder Capital Corp was formed as a Delaware corporation on May 21, 2013. The Company conducted an initial public offering (“IPO”) which closed on February 11, 2014. The Company used the net proceeds from the IPO to purchase newly issued limited partnership units (“LP Units”) from LCFH. In connection with the IPO, Ladder Capital Corp also became a holding corporation and the general partner of, and obtained a controlling interest in, LCFH. Ladder Capital Corp’s only business is to act as the general partner of LCFH, and, as such, Ladder Capital Corp indirectly operates and controls all of the business and affairs of LCFH and its subsidiaries through its ability to appoint the LCFH board. The proceeds received by LCFH in connection with the sale of the LP Units have been and will be used for loan origination and related real estate business lines and for general corporate purposes. The IPO transactions described herein are referred to as the “IPO Transactions.”
In anticipation of the Company’s election to be subject to tax as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) beginning with its 2015 taxable year (the “REIT Election”), the Company effected an internal realignment as of December 31, 2014. As part of this realignment, LCFH and certain of its wholly-owned subsidiaries were serialized in order to segregate our REIT-qualified assets and income from the Company’s non-REIT-qualified assets and income. Pursuant to such serialization, all assets and liabilities of LCFH and each such subsidiary were identified as TRS assets and liabilities (e.g., conduit securitization and condominium sales businesses) and REIT assets and liabilities (e.g., balance sheet loans, real estate and most securities), and were allocated on the Company’s internal books and records into two pools within LCFH or such subsidiary, Series TRS and Series REIT (collectively, the “Series”), respectively. Series REIT and Series TRS have separate boards, officers, books and records, bank accounts, and tax identification numbers. Each outstanding LP Unit was exchanged for one Series REIT limited partnership unit (“Series REIT LP Unit”), which is entitled to receive profits and losses derived from REIT assets and liabilities, and one Series TRS limited partnership unit (“Series TRS LP Unit”), which is entitled to receive profits and losses derived from TRS assets and liabilities (Series REIT LP Units and Series TRS LP Units are collectively referred to as “Series Units”). Ladder Capital Corp remains the general partner of Series REIT of LCFH. LC TRS I LLC (“LC TRS I”), a Delaware limited liability company wholly-owned by Series REIT of LCFH, serves as the general partner of Series TRS of LCFH and Series TRS LP Units are exchangeable for an equal number of shares (“TRS Shares”) of LC TRS I (a “TRS Exchange”).
Ladder Capital Corp consolidates the financial results of LCFH and its subsidiaries. The ownership interest of certain existing owners of LCFH, who owned LP Units and an equivalent number of shares of Ladder Capital Corp Class B common stock as of the completion of the IPO (the “Continuing LCFH Limited Partners”) and continue to hold equivalent Series Units and Ladder Capital Corp Class B common stock, is reflected as a noncontrolling interest in Ladder Capital Corp’s consolidated financial statements.
Pursuant to LCFH’s Third Amended and Restated LLLP Agreement, dated as of December 31, 2014 and as amended from time to time, and subject to the applicable minimum retained ownership requirements and certain other restrictions, including notice requirements, from time to time, Continuing LCFH Limited Partners (or certain transferees thereof)
may from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications. However, such exchange for shares of Ladder Capital Corp Class A common stock will not affect the exchanging owners’ voting power since the votes represented by the canceled shares of Ladder Capital Corp Class B common stock will be replaced with the votes represented by the shares of Class A common stock for which such Series Units, including TRS Shares as applicable, will be exchanged.
As a result of the Company’s ownership interest in LCFH and LCFH’s election under Section 754 of the Code, the Company expects to benefit from depreciation and other tax deductions reflecting LCFH’s tax basis for its assets. Those deductions will be allocated to the Company and will be taken into account in reporting the Company’s taxable income.
As of March 4, 2015, the Company made the necessary TRS and check-the-box elections began to elect to be taxed as a REIT starting with its tax return for the year ended December 31, 2015, filed in September 2016.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Principles of Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim periods presented in this report reflects all normal and recurring adjustments necessary for a fair statement of results of operations, financial position and cash flows. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2017,2018, which are included in the Company’s Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this interim report. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. The interim consolidated financial statements have been prepared, without audit, and do not necessarily include all information and footnotes necessary for a fair statement of our consolidated financial position, results of operations and cash flows in accordance with GAAP.
The consolidated financial statements include the Company’s accounts and those of its subsidiaries which are majority-owned and/or controlled by the Company and variable interest entities for which the Company has determined itself to be the primary beneficiary, if any. All significant intercompany transactions and balances have been eliminated.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 — Consolidation (“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. See Note 3 for further information on the Company’s consolidated variable interest entities.
Noncontrolling interests in consolidated subsidiaries are defined as “the portion of the equity (net assets) in the subsidiaries not attributable, directly or indirectly, to a parent.” Noncontrolling interests are presented as a separate component of capitalequity in the consolidated balance sheets. In addition, the presentation of net income attributes earnings to shareholders/unitholders (controlling interest) and noncontrolling interests.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the balance sheets and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of resulting changes are reflected in the consolidated financial statements in the period the changes are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to the following:
valuation of real estate securities;
valuation of mortgage loan receivables held for sale;
allocation of purchase price for acquired real estate;
impairment, and useful lives, of real estate;
useful lives of intangible assets;
valuation of derivative instruments;
valuation of deferred tax asset (liability);
amounts payable pursuant to the Tax Receivable Agreement;
determination of effective yield for recognition of interest income;
adequacy of provision for loan losses including the valuation of underlying collateral for collateral dependent loans;
determination of other than temporary impairment of real estate securities and investments in and advances to unconsolidated joint ventures;
certain estimates and assumptions used in the accrual of incentive compensation and calculation of the fair value of equity compensation issued to employees;
determination of the effective tax rate for income tax provision; and
certain estimates and assumptions used in the allocation of revenue and expenses for our segment reporting.
Cash and Cash Equivalents
The Company considers all investments with original maturities of three months or less, at the time of acquisition, to be cash equivalents. The Company maintains cash accounts at several financial institutions, which are insured up to a maximum of $250,000 per account as of SeptemberJune 30, 20182019 and December 31, 2017.2018. At SeptemberJune 30, 20182019 and December 31, 2017,2018, and at various times during the years, the balances exceeded the insured limits.
Restricted Cash
Restricted cash is comprised of accounts the Company maintains with brokers to facilitate financial derivative and repurchase agreement transactions in support of its loan and securities investments and risk management activities. Based on the value of the positions in these accounts and the associated margin requirements, the Company may be required to deposit additional cash into these broker accounts. The cash collateral held by broker is considered restricted cash. Restricted cash also includes tenant security deposits, deposits related to real estate sales and acquisitions and required escrow balances on credit facilities. Prior to January 1, 2017, these amounts were previously recorded in other assets on the Company’s consolidated balance sheets.
Mortgage Loan Receivables HeldRecognition of Operating Lease Income and Tenant Recoveries
The Company adopted ASC Topic 842 on January 1, 2019. The primary impact of applying ASC Topic 842 was the initial recognition of a $3.5 million lease liability and a $3.3 million right-of-use asset (including previously accrued straight line rent) on the Company’s consolidated financial statements, for Investmentleases classified as operating leases under ASC Topic 840, primarily for the Company’s corporate headquarters and other identified leases. There is no cumulative effect on retained earnings or other components of equity recognized as of January 1, 2019.
LoansCertain arrangements may contain both lease and non-lease components. The Company determines if an arrangement is, or contains, a lease at contract inception. Only the lease components of these contractual arrangements are subject to the provisions of ASC Topic 842. Any non-lease components are subject to other applicable accounting guidance. We have elected, however, to adopt the optional practical expedient not to separate lease components from non-lease components for which the Companyaccounting purposes. This policy election has the intention and ability to holdbeen adopted for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances net of any unearned income, unamortized deferred fees or costs, premiums or discounts and an allowance for loan losses. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over the estimated lifeeach of the loans usingCompany’s leased asset classes existing as of the interest method, adjusted for actual prepayments. Uponeffective date and subject to the decisiontransition provisions of ASC Topic 842, will be applied to sell such loans,all new or modified leases executed on or after January 1, 2019. For contractual arrangements executed in subsequent periods involving a new leased asset class, the Company will transferdetermine at contract inception whether it will apply the loan from mortgage loan receivables heldoptional practical expedient to the new leased asset class.
Leases are evaluated for investment to mortgage loan receivables held for saleclassification as operating or finance leases at the lowercommencement date of carrying value or fair valuethe lease. Right-of-use assets and corresponding liabilities are recognized on the Company’s consolidated balance sheets.
Provision for Loan Losses
The provision for loan losses reflects the Company’s estimate of loan losses inherent in the loan portfolio as of the balance sheet date. The provision for loan losses includes a portfolio-based, general component and an asset-specific component.
The Company estimates its portfolio-based loan loss provision based on its historical loss experience and expectation of losses inherent in the investment portfolio but not yet realized. To ensure that the risk exposures are properly measured and the appropriate reserves are taken, the Company assesses a loan loss provision balance that will grow over time with its portfolio and the related risk as the assets are aged and approach maturity and ultimate refinancing where applicable.
The asset-specific reserve component relates to reserves for losses on individually impaired loans. The Company evaluates each loan for impairment at least quarterly. Impairment occurs when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. If the loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan to the present value of the expected future cash flows discounted at the loan’s effective rate or the fair value of the collateral, less the estimated costs to sell, if recovery of the Company’s investment is expected solely from the collateral.
The Company’s loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data.
For collateral dependent impaired loans, impairment is measured using the estimated fair value of collateral less the estimated cost to sell. Valuations are performed or obtained at the time a loan is determined to be impaired and designated non-performing, and are updated if circumstances indicate that a significant change in value has occurred. The Company generally will use the direct capitalization rate valuation methodology to estimate the fair value of the collateral for such loans. In more limited cases, the Company will obtain external appraisals for loan collateral. A loan is also considered impaired if its terms are modified in a troubled debt restructuring ("TDR"). A TDR occurs when a concession is granted and the debtor is experiencing financial difficulties. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discountedlease payments relating to the use of the underlying asset during the lease term. Future lease payments include fixed lease payments as well as variable lease payments that depend upon an index or rate using the index or rate at the effective interest ratecommencement date and probable amounts owed under residual value guarantees. The amount of future lease payments may be increased to include additional payments related to lease extension, termination, and/or purchase options when the original loans. Significant judgmentCompany has determined, at or subsequent to lease commencement, generally due to limited asset availability or operating commitments, it is required when evaluating loans for impairment, therefore actual results over time could be materially different.reasonably certain of exercising such options.
The Company designates non-performing loans at such timeuses its incremental borrowing rate as (i) loanthe discount rate in determining the present value of future lease payments, become 90-days past due; (ii)unless the loan has a maturity default; or (iii)interest rate implicit in the opinionlease arrangement is readily determinable. Lease payments that vary based on future usage levels, the nature of leased asset activities, or certain other contingencies, are not included in the measurement of lease right-of-use assets and corresponding liabilities. The Company it is probable the Company will be unablehas elected not to collect all amounts due according to the contractualrecord assets and liabilities on its consolidated balance sheet for lease arrangements with terms of 12 months or less. Tenant recoveries related to reimbursement of real estate taxes, insurance, utilities, repairs and maintenance, and other operating expenses are recognized as revenue in the loan. Income recognition will be suspended when a loan is designated non-performing and resumed only whenperiod during which the suspended loan becomes contractually current and performance is demonstrated to have resumed. Any interest received for loans in non-performing status will be applied as a reduction to the unpaid principal balance. A loan will be written off when it is no longer realizable and legally discharged.applicable expenses are incurred.
Out-of-Period Adjustments
During the first quarter of 2017, the Company recorded an out-of-period adjustment to reduce depreciation expense by $0.8 million related to prior periods. The Company has concluded that this adjustment is not material to the financial position or results of operations for the three months ended March 31, 2017 or any prior periods; accordingly, the Company recorded the related adjustment in the three month period ended March 31, 2017.
During the first quarter of 2018, the Company recorded an out-of-period adjustment to increase tenant real estate tax recoveries on a net lease property by $1.1 million, which was not billed until the three month period ended March 31, 2018, but related to prior periods. The Company has concluded that this adjustment iswas not material to the financial position or results of operations for the three months ended March 31, 2018 or any prior periods; accordingly, the Company recorded the related adjustment in the three month period ended March 31, 2018.
Change in Accounting Principle
As more fully described in Note 4, on June 29, 2017, the Company completed its first sponsored securitization transaction whereby it transferred $625.7 million of loans to LCCM 2017-LC26 securitization trust. The Company initially concluded that the transfer restrictions placed on the Third Party Purchaser (“TPP”) of the risk retention securities, imposed by the risk retention rules of the Dodd-Frank Act, precluded sale accounting under ASC 860 and, accordingly, the Company originally accounted for the transaction as a financing in its interim financial statements for the periods ended June 30, 2017 and September 30, 2017. As a result of industry discussions, in November 2017 the staff of the Securities and Exchange Commission (the “SEC staff”) indicated that, despite such restrictions, they would not take exception to a registrant treating such transfers as sales if they otherwise met all the criteria for sale accounting. The Company believes treatment of such transfers as sales is more consistent with the substance of such transaction and, accordingly, changed its accounting principle to treat such transfers as sales in the quarter ended December 31, 2017. In accordance with generally accepted accounting principles, the Company reflected this change in accounting principle retrospectively to prior interim periods within 2017. The retrospective changes for the three and six months ended June 30, 2017 were reflected in the Company’s quarterly report for the quarter ended June 30, 2018. The retrospective changes for the three and nine months ended September 30, 2017 are reflected in this Quarterly Report. Refer to Note 20, Quarterly Financial Data (Unaudited) in the Company’s December 31, 2017 Annual Report for a summary of these changes.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Recently Adopted Accounting Pronouncements
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers2016-02, Leases (Topic 606) (“842) (“ASU 2014-09”), that outlined a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most then-current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. ASU 2014-09 was initially scheduled to become effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period; early adoption was not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date (“ASU 2015-14”2016-02”), which deferredsets out the effective date of ASU 2014-09 for one year and permitted early adoption as early as the original effective date of ASU 2014-09. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. In 2016, the FASB issued additional guidance to clarify the implementation guidance, ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”); ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2017-10”); ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 Emerging Issues Task Force (“EITF”) Meeting (SEC Update) (“ASU 2016-11”), ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”); and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (“ASU 2016-20”). In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) (“ASU 2017-05”). In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission f Prior SEC Staff Announcements and Observer Comments (SEC Update) (“ASU 2017-13”). In November 2017, the FASB issued ASU 2017-14, Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) (SEC Update) (“ASU 2017-14”). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09.
Under the full retrospective method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the modified retrospective method, a company will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous rules. The Company believes the effects on its existing accounting policies will be associated with its non-leasing revenue components, specifically the amount, timing and presentation of tenant expense reimbursements revenue. The Company adopted the standard using the modified retrospective approach on January 1, 2018 and there was no cumulative effect adjustment recognized. The Company’s revenues impacted by this standard are included in tenant recoveries in the consolidated statements of income.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (“ASU 2016-01”), which was further amended in February and in March 2018 by ASU 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities, (“ASU 2018-03”) andASU 2018-04, Investments—Debt Securities (Topic 320) and Regulated Operations (Topic 980): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273 (SEC Update), (“ASU 2018-04”) to clarify certain aspects of ASU 2016-01 and to update Securities and Exchange Commission (“SEC”) interpretive guidance in connection with the provisions of ASU 2016-01. These updates provide guidanceprinciples for the recognition, measurement, presentation and disclosure of financial instruments. Among other changes,leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either operating leases or financing leases based on the updates require public business entities to useprinciple of whether or not the exit price notion when measuringlease is effectively a financed purchase by the fair value of financial instruments for disclosure purposes, and clarifies that entities should evaluate the need for a valuation allowancelessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a deferred taxstraight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset relatedand a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to availableexisting guidance for sale securities in combinationoperating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sale-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous lease standard, Leases (Topic 840). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new leasing standard. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which provides a new transition method at the adoption date through a cumulative-effect adjustment to the opening balance of retained earnings, prior periods will not require restatement. ASU 2018-11 also provides a new practical expedient for lessors adopting the new lease standard. Lessors have the option to aggregate nonlease components with the entities' other deferred tax assets. Theserelated lease component upon adoption of the new standard if the following conditions are met: (1) the timing and pattern of transfer for the nonlease component and the related lease component are the same and (2) the stand-alone lease component would be classified as an operating lease if accounted for separately. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) (“ASU 2018-20”), which provides narrow amendments to clarify how to apply certain aspects of the new leasing standard. Each of the standards are effective for public companies for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Thethe Company adoptedon January 1, 2019, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements (“ASU 2019-01”), which aligns the guidance effective January 1, 2018, usingfor fair value of the modified retrospective method. Upon adoption,underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the Company's loan portfoliounderlying asset at lease commencement is now presentedits cost, reflecting any volume or trade discounts that may apply. However, if there has been a significant lapse of time between when the underlying asset is acquired and when the lease commences, the definition of fair value in Topic 820, Fair Value Measurement should be applied. ASU 2019-01 also requires lessors within the scope of Topic 942, Financial Services—Depository and Lending, to present all “principal payments received under leases” within investing activities.
The Company adopted ASU 2016-02, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, collectively FASB ASC Topic 842, Leases (“ASC Topic 842”), beginning January 1, 2019. The Company adopted ASU Topic 842 using an exit price method. Also,the modified retrospective approach and elected to utilize the Optional Transition Method, which permits the Company is no longer required to discloseapply the methodologies used for estimating fair valueprovisions of ASC Topic 842 to leasing arrangements existing at or entered into after January 1, 2019, and present in its financial statements comparative periods prior to January 1, 2019 under the historical requirements of ASC Topic 840. In addition, the Company elected to adopt the package of optional transition-related practical expedients, which among other things, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. Furthermore, the Company elected not to record assets and liabilities that are not measured at fair value on a recurringits consolidated balance sheets for new or nonrecurring basis. The remaining requirementsexisting lease arrangements with terms of this update did not have a material impact on the Company's consolidated financial statements.12 months or less.
In MayMarch 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718)2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), (“ASU 2017-09”2017-08”). The ASU provides clarificationshortens the amortization period for the premium on when modification accounting should be used for changescertain purchased callable debt securities to the terms or conditionsearliest call date. Historically, entities generally amortized the premium over the contractual life of a share-based payment award. ASU 2017-09the security. The new guidance does not change the accounting for modifications but clarifies that modification accounting guidance should onlypurchased callable debt securities held at a discount; the discount continues to be applied if thereamortized to maturity. ASU No. 2017-08 is a change to the value, vesting conditions or award classificationeffective for interim and would not be required if the changes are considered non-substantive. The amendments of this ASU are effective forannual reporting periods beginning after December 15, 2017, with2018; early adoption is permitted. The Company adoptedguidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance effective January 1, 2018.is adopted. The adoption of ASU 2017-09 did not have a2017-08 on January 1, 2019 had no material impact on the Company’s consolidated financial statements.
In May 2018,July 2017, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Depository2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Lending—Income TaxesDerivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (“ASU 2018-06”2017-11”). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in ASU 2018-06 supersede the guidance within Subtopic 942-741 that has been rescinded by the OfficePart II of the Comptroller of the Currency and is no longer relevant. A cross-reference between Subtopic 740-30, Income Taxes—Other Considerations or Special Areas, and Subtopic 942-740 is being added to the remaining guidance in Subtopic 740-30 to improve the usefulness of the codification. The amendments in ASU 2018-06 are effective upon issuance, as no accounting requirements are affected. The amendments in ASU 2018-06this update do not have aan accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The adoption of ASU 2017-11 on January 1, 2019 had no material impact on the Company’s consolidated financial statements.
In January 2018, the FASB issued ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, (“ASU 2018-01”). This ASU provides an optional transition practical expedient that, if elected, would not require companies to reconsider their accounting for existing or expired land easements before adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. This ASU will be effective January 1, 2019 and early adoption is permitted. The adoption of ASU 2018-01 on January 1, 2019, had no material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), (“ASU 2018-02”). This ASU allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. This ASU will be effective January 1, 2019, and early adoption is permitted. The adoption of ASU 2018-02 on January 1, 2019 had no material impact on the Company’s consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements, (“ASU 2018-09”). This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The adoption of ASU 2018-09 had no material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements Pending Adoption
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either operating leases or financing leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sale-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous lease standard, Leases (Topic 840). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 (Leases) (“ASU 2018-10”), which provides narrow amendments to clarify how to apply certain aspects of the new leasing standard. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”), which provides a new transition method at the adoption date through a cumulative-effect adjustment to the opening balance of retained earnings; prior periods will not require restatement. ASU 2018-11 also provides a new practical expedient for lessors adopting the new lease standard. Lessors have the option to aggregate nonlease components with the related lease component upon adoption of the new standard if the following conditions are met: (1) the timing and pattern of transfer for the nonlease component and the related lease component are the same and (2) the stand-alone lease component would be classified as an operating lease if accounted for separately. Each of the standards are effective for the Company on January 1, 2019, with early adoption permitted. The Company continues to evaluate the effect the adoption of ASU 2016-02, ASU 2018-10 and ASU 2018-11 will have on the Company’s financial position and/or results of operations. The Company currently believes that the adoption of ASU 2016-02 will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. For leases where the Company is the lessee, primarily for the Company’s corporate headquarters, the Company expects to record a lease liability and a right of use asset on its consolidated financial statements upon adoption. The lease liability and right-of-use asset are to be carried at the present value of remaining expected future lease payments.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”). The guidance changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. On July 25,In November 2018, the FASB proposed an amendment toissued ASU 2016-132018-19 to clarify that operating lease receivables recorded by lessors are explicitly excluded from the scope of ASU 2016-13. In May 2019, the FASB issued ASU 2019-05 to provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. The Company must apply the amendments in this updatethese updates through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently assessing the impact of this standard on the consolidated financial statements. In general, the allowance for credit losses is expected to increase when changing from an incurred loss to expected loss methodology. The models and methodologies that are currently used in estimating the allowance for credit losses are being evaluated to identify the changes necessary to meet the requirements of the new standard.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), (“ASU 2017-04”). The ASU simplifies the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be applied prospectively and is effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2019 with early adoption permitted. The Company does not currently expect any impact on its consolidated financial statements as the Company (absent a business combination) has no recorded goodwill.
In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20), (“ASU 2017-08”). The ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. Today, entities generally amortize the premium over the contractual life of the security. The new guidance does not change the accounting for purchased callable debt securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified retrospective transition approach under which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements when adopted.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, (“ASU 2017-11”). Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently assessing the potential impact of adopting ASU 2017-11 on its financial statements and related disclosures.
In January 2018, the FASB issued ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, (“ASU 2018-01”). This ASU provides an optional transition practical expedient that, if elected, would not require companies to reconsider their accounting for existing or expired land easements before adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. This ASU will be effective January 1, 2019, and early adoption is permitted. The Company is currently assessing the potential impact of adopting ASU 2018-01 on its financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), (“ASU 2018-02”). This ASU allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. This ASU will be effective January 1, 2019, and early adoption is permitted. The Company is does not expect the adoption of ASU 2018-02 to have a material impact on its financial statements and related disclosures.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SEC Update), (“ASU 2018-05”), which included amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118 (“SAB 118”). The pronouncement addresses certain circumstances that may arise for registrants in accounting for the income tax effects of the Tax Cuts and Jobs Act, including when certain income tax effects of the Tax Cuts and Jobs Act are incomplete by the time financial statements are issued. The Company has complied with the amendments related to SAB 118, as discussed further in Note 16.
In July 2018, the FASB issued ASU 2018-09, Codification Improvements, (“ASU 2018-09”). This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates are applicable immediately while others provide for a transition period to adopt as part of the next fiscal year beginning after December 15, 2018. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, (“ASU 2018-13”). ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-02 to have a material impact on its financial statements and related disclosures.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities, (“ASU 2018-17”). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, (“ASU 2019-04”). ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The Company previously adopted ASU 2016-01 and does not expect the amendments of ASU 2019-04 to have a material impact on its consolidated financial statements.
Any new accounting standards not disclosed above that have been issued or proposed by FASB and that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
3. CONSOLIDATED VARIABLE INTEREST ENTITIES
FASB Accounting Standards Codification (“ASC”) ASC Topic 810 — Consolidation (“ASC 810”), provides guidance on the identification of entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and the determination of which business enterprise, if any, should consolidate the VIEs. Generally, the consideration of whether an entity is a VIE applies when either: (1) the equity investors (if any) lack one or more of the essential characteristics of a controlling financial interest; (2) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support; or (3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The Company consolidates VIEs in which it is considered to be the primary beneficiary. The primary beneficiary is the entity that has both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance; and (2) the obligation to absorb losses and right to receive the returns from the VIE that would be significant to the VIE. The Operating Partnership is a VIE and as such, substantially all of the consolidated balance sheet is a consolidated VIE. In addition, the Operating Partnership consolidates two collateralized loan obligation (“CLO”) VIEs with the following aggregate balance sheets ($ in thousands):
|
| | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | Notes 4 & 8 | | Notes 4 & 8 |
| | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | $ | 869,536 |
| | 880,385 |
|
| Accrued interest receivable | 4,391 |
| | 4,252 |
|
| Total assets | $ | 873,927 |
| | $ | 884,637 |
|
| | | | |
| Senior and unsecured debt obligations | $ | 677,898 |
| | $ | 689,961 |
|
| Accrued expenses | 1,478 |
| | 794 |
|
| Other liabilities | 2 |
| | — |
|
| Total liabilities | 679,378 |
| | 690,755 |
|
| | | | |
| Net equity in VIEs (eliminated in consolidation) | 194,549 |
| | 193,882 |
|
| Total equity | 194,549 |
| | 193,882 |
|
| | | | |
| Total liabilities and equity | $ | 873,927 |
| | $ | 884,637 |
|
4. MORTGAGE LOAN RECEIVABLES
September 30, 2018 ($ in thousands)
|
| | | | | | | | | | | | |
| | Outstanding Face Amount | | Carrying Value | | Weighted Average Yield (1) | | Remaining Maturity (years) |
| | | | | | | | |
| Mortgage loans held by consolidated subsidiaries(2) | $ | 3,830,115 |
| | $ | 3,805,387 |
| | 7.70 | % | | 1.35 |
| Provision for loan losses | N/A |
| | (17,600 | ) | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | 3,830,115 |
| | 3,787,787 |
| | | | |
| Mortgage loan receivables held for sale | 377,352 |
| | 375,162 |
| | 5.26 | % | | 9.87 |
| Total | $ | 4,207,467 |
| | $ | 4,162,949 |
| | 7.51 | % | | 2.13 |
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Notes 4 & 8 | | Notes 4 & 8 |
| | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | $ | 425,439 |
| | $ | 710,502 |
|
| Accrued interest receivable | 2,342 |
| | 3,921 |
|
| Other assets(1) | — |
| | 81,390 |
|
| Total assets | $ | 427,781 |
| | $ | 795,813 |
|
| | | | |
| Senior and unsecured debt obligations | $ | 263,215 |
| | $ | 607,440 |
|
| Accrued expenses | 766 |
| | 1,471 |
|
| Other liabilities | 2 |
| | 2 |
|
| Total liabilities | 263,983 |
| | 608,913 |
|
| | | | |
| Net equity in VIEs (eliminated in consolidation) | 163,798 |
| | 186,900 |
|
| Total equity | 163,798 |
| | 186,900 |
|
| | | | |
| Total liabilities and equity | $ | 427,781 |
| | $ | 795,813 |
|
| |
| (1) | SeptemberPrimarily consists of loan repayments in transit as of June 30, 20182019. |
4. MORTGAGE LOAN RECEIVABLES
June 30, 2019 ($ in thousands)
|
| | | | | | | | | | | | |
| | Outstanding Face Amount | | Carrying Value | | Weighted Average Yield (1) | | Remaining Maturity (years) |
| | | | | | | | |
| Mortgage loans held by consolidated subsidiaries(2) | $ | 3,136,334 |
| | $ | 3,119,857 |
| | 8.01 | % | | 1.19 |
| Provision for loan losses | N/A |
| | (18,500 | ) | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | 3,136,334 |
| | 3,101,357 |
| | | | |
| Mortgage loan receivables held for sale | 112,099 |
| | 111,977 |
| | 5.05 | % | | 9.41 |
| Total | $ | 3,248,433 |
| | $ | 3,213,334 |
| | 7.96 | % | | 1.48 |
| |
| (1) | June 30, 2019 London Interbank Offered Rate (“LIBOR”) rates are used to calculate weighted average yield for floating rate loans. |
| |
| (2) | Includes amounts relating to consolidated variable interest entities. See Note 3. |
On June 29, 2017, the Company transferred its interests in $625.7 million of loans to the LCCM 2017-LC26 securitization trust. The assets transferred to the trust were comprised of 34 loans to third parties having a combined outstanding face amount of $549.0 million and a combined carrying value of $547.7 million as well as 23 former intercompany loans secured by certain of the Company’s real estate assets, having a combined principal balance of $76.7 million (which had not previously been recognized for accounting purposes because they were eliminated in consolidation). In connection with this transaction, pursuant to the 5% risk retention requirement of the Dodd-Frank Act described in Part I, Item 1A “Risk Factors,” in the Annual Report, the Company (i) retained a $12.9 million restricted “vertical interest” consisting of approximately 2% in each class of securities issued by the trust, which must be held by the Company until the principal balance of the pool has been reduced to a level prescribed by the risk retention rules and (ii) sold an approximately 3% restricted “horizontal interest” in the form of 98% of the controlling classes (excluding the 2% included in the vertical interest) to a TPP, which must be held by the TPP for at least five years. In addition, the Company purchased $62.7 million of securities issued by the trust, which are not restricted.
The Company initially concluded that the transfer restrictions placed on the TPP of the risk retention securities, imposed by the risk retention rules of the Dodd-Frank Act, precluded sale accounting under generally accepted accounting principles and, accordingly, the Company originally accounted for the transaction as a financing. As a result of industry discussions, in November 2017, the SEC staff indicated that, despite such restrictions, they would not take exception to a registrant treating such transfers as sales if they otherwise met all the criteria for sale accounting. The Company believes treatment of such transfers as sales is more consistent with the substance of such transaction, and accordingly, changed its accounting principles to treat such transfers as sales in the quarter ended December 31, 2017. In accordance with generally accepted accounting principles, the Company reflected this change in accounting principle retrospectively to prior interim periods within 2017. The retrospective changes for the three and nine months ended September 30, 2017 are reflected in this Quarterly Report. The retrospective changes for the three and six months ended June 30, 2017 were reflected in the Company’s quarterly report for the quarter ended June 30, 2018. Refer to Note 20, Quarterly Financial Data (Unaudited) in the Company’s December 31, 2017 Annual Report for a summary of these changes.
In connection with the securitization transaction, the former intercompany loans, which are secured by real estate properties still owned by the Company, will continue to be reported as a financing transaction. As a result of the change in accounting principle, the Company recognized a gain of $26.1 million on the transaction when it closed on June 29, 2017. In addition, upon consummation, the Company recognized $12.9 million and $62.7 million in restricted and unrestricted securities, respectively, which are included in real estate securities on the Company’s consolidated balance sheets. The Company also recognized a liability for $78.8 million for 23 intercompany loans with a combined principal balance of $76.7 million.
As of SeptemberJune 30, 2018, $808.2 million,2019, $2.5 billion, or 21.2%,79.3% of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and $3.0 billion, or 78.8%, of the carrying valueoutstanding face amount of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, someLIBOR. Of this $2.5 billion, 100% of which includethese variable interest rate mortgage loan receivables were subject to interest rate floors. As of SeptemberJune 30, 2018, $375.22019, $112.1 million, or 100.0%100%, of the carrying valueoutstanding face amount of our mortgage loan receivables held for sale were at fixed interest rates.
December 31, 2017 2018 ($ in thousands)
| | | | Outstanding Face Amount | | Carrying Value | | Weighted Average Yield (1) | | Remaining Maturity (years) | Outstanding Face Amount | | Carrying Value | | Weighted Average Yield (1) | | Remaining Maturity (years) |
| | | | | | | | | | | | | |
| Mortgage loans held by consolidated subsidiaries | $ | 3,300,709 |
| | $ | 3,282,462 |
| | 7.18 | % | | 1.61 | $ | 3,340,381 |
| | $ | 3,318,390 |
| | 7.84 | % | | 1.32 |
| Provision for loan losses | N/A |
| | (4,000 | ) | | | | N/A |
| | (17,900 | ) | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | 3,300,709 |
| | 3,278,462 |
| | | | 3,340,381 |
| | 3,300,490 |
| | | |
| Mortgage loan receivables held for sale | 232,527 |
| | 230,180 |
| | 4.88 | % | | 8.17 | 181,905 |
| | 182,439 |
| | 5.46 | % | | 9.75 |
| Total | 3,533,236 |
| | 3,508,642 |
| | 7.03 | % | | 2.04 | $ | 3,522,286 |
| | $ | 3,482,929 |
| | 7.76 | % | | 1.77 |
| |
| (1) | December 31, 20172018 LIBOR rates are used to calculate weighted average yield for floating rate loans. |
| |
| (2) | Includes amounts relating to consolidated variable interest entities. See Note 3. |
As of December 31, 2017, $723.7 million,2018, $2.5 billion, or 22.0%75.4%, of the carrying value of our mortgage loan receivables held for investment, at amortized cost, were at fixed interest rates and $2.6 billion, or 78.0%, of the carrying valueoutstanding principal of our mortgage loan receivables held for investment, at amortized cost, were at variable interest rates, linked to LIBOR, someLIBOR. Of this $2.5 billion, 100% of which includethese variable rate mortgage loan receivables were subject to interest rate floors. As of December 31, 2017, $230.22018, $182.4 million, or 100%, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.
The following table summarizes mortgage loan receivables by loan type ($ in thousands):
|
| | | | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | Outstanding Face Amount | | Carrying Value | | Outstanding Face Amount | | Carrying Value |
| | | | | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost: | |
| | |
| | |
| | |
|
| First mortgage loans | $ | 2,992,553 |
| | $ | 2,976,625 |
| | $ | 3,192,160 |
| | $ | 3,170,788 |
|
| Mezzanine loans | 143,781 |
| | 143,232 |
| | 148,221 |
| | 147,602 |
|
| Mortgage loan receivables held for investment, net, at amortized cost | 3,136,334 |
| | 3,119,857 |
| | 3,340,381 |
| | 3,318,390 |
|
| Mortgage loan receivables held for sale | |
| | |
| | |
| | |
|
| First mortgage loans | 112,099 |
| | 111,977 |
| | 181,905 |
| | 182,439 |
|
| Total mortgage loan receivables held for sale | 112,099 |
| | 111,977 |
| | 181,905 |
| | 182,439 |
|
| | | | | | | | |
| Provision for loan losses | N/A |
| | (18,500 | ) | | N/A |
| | (17,900 | ) |
| Total | $ | 3,248,433 |
| | $ | 3,213,334 |
| | $ | 3,522,286 |
| | $ | 3,482,929 |
|
|
| | | | | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | Outstanding Face Amount | | Carrying Value | | Outstanding Face Amount | | Carrying Value |
| | | | | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost: | |
| | |
| | |
| | |
|
| First mortgage loans | $ | 3,671,849 |
| | $ | 3,647,710 |
| | $ | 3,140,788 |
| | $ | 3,123,268 |
|
| Mezzanine loans | 158,266 |
| | 157,677 |
| | 159,921 |
| | 159,194 |
|
| Mortgage loan receivables held for investment, net, at amortized cost | 3,830,115 |
| | 3,805,387 |
| | 3,300,709 |
| | 3,282,462 |
|
| Mortgage loan receivables held for sale | |
| | |
| | |
| | |
|
| First mortgage loans | 377,352 |
| | 375,162 |
| | 232,527 |
| | 230,180 |
|
| Total mortgage loan receivables held for sale | 377,352 |
| | 375,162 |
| | 232,527 |
| | 230,180 |
|
| | | | | | | | |
| Provision for loan losses | N/A |
| | (17,600 | ) | | N/A |
| | (4,000 | ) |
| Total | $ | 4,207,467 |
| | $ | 4,162,949 |
| | $ | 3,533,236 |
| | $ | 3,508,642 |
|
For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the activity in our loan portfolio was as follows ($ in thousands):
| | | | Mortgage loan receivables held for investment, net, at amortized cost: | | | Mortgage loan receivables held for investment, net, at amortized cost: | | |
| | Mortgage loans held by consolidated subsidiaries | | Provision for loan losses | | Mortgage loan receivables held for sale | Mortgage loans held by consolidated subsidiaries | | Mortgage loans transferred but not considered sold | | Provision for loan losses | | Mortgage loan receivables held for sale |
| | | | | | | | | | | | | |
| Balance, December 31, 2017 | $ | 3,282,462 |
| | $ | (4,000 | ) | | $ | 230,180 |
| |
| Balance, December 31, 2018 | | $ | 3,318,390 |
| | $ | — |
| | $ | (17,900 | ) | | $ | 182,439 |
|
| Origination of mortgage loan receivables | 1,240,894 |
| | — |
| | 1,115,218 |
| 484,496 |
| | — |
| | — |
| | 333,342 |
|
| Repayment of mortgage loan receivables | (787,167 | ) | | — |
| | (1,324 | ) | (693,323 | ) | | — |
| | — |
| | (497 | ) |
Proceeds from sales of mortgage loan receivables | — |
| | — |
| | (926,402 | ) | — |
| | (15,504 | ) | | — |
| | (415,145 | ) |
Realized gain on sale of mortgage loan receivables(1) | — |
| | — |
| | 12,893 |
| — |
| | — |
| | — |
| | 27,342 |
|
Transfer between held for investment and held for sale(2)(1) | 55,403 |
| | — |
| | (55,403 | ) | — |
| | 15,504 |
| | — |
| | (15,504 | ) |
| Accretion/amortization of discount, premium and other fees | 13,795 |
| | — |
| | — |
| 10,294 |
| | — |
| | — |
| | — |
|
| Loan loss provision(3) | — |
| | (13,600 | ) | | — |
| |
| Balance, September 30, 2018 | $ | 3,805,387 |
| | $ | (17,600 | ) | | $ | 375,162 |
| |
| Provision for loan losses | | — |
| | — |
| | (600 | ) | | — |
|
| Balance, June 30, 2019 | | $ | 3,119,857 |
| | $ | — |
| | $ | (18,500 | ) | | $ | 111,977 |
|
| |
| (1) | During the three months ended March 31, 2019, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, net, at amortized cost, one loan with an outstanding face amount of $15.4 million, a book value of $15.5 million (fair value at the date of reclassification) and a remaining maturity of 9.8 years, which was sold to the WFCM 2019-C49 securitization trust. Subsequently, the controlling loan interest was sold to the UBS 2019-C16 securitization trust, and as a result, the loan previously sold during the three months ended March 31, 2019 will be accounted for as a sale during the six months ended June 30, 2019. |
|
| | | | | | | | | | | |
| | Mortgage loan receivables held for investment, net, at amortized cost: | | |
| | Mortgage loans held by consolidated subsidiaries | | Provision for loan losses | | Mortgage loan receivables held for sale |
| | | | | | |
| Balance, December 31, 2017 | $ | 3,282,462 |
| | $ | (4,000 | ) | | $ | 230,180 |
|
| Origination of mortgage loan receivables | 914,489 |
| | — |
| | 764,948 |
|
| Repayment of mortgage loan receivables | (497,124 | ) | | — |
| | (286 | ) |
| Proceeds from sales of mortgage loan receivables | — |
| | — |
| | (842,727 | ) |
| Realized gain on sale of mortgage loan receivables(1) | — |
| | — |
| | 11,032 |
|
| Transfer between held for investment and held for sale(2) | 55,403 |
| | — |
| | (55,403 | ) |
| Accretion/amortization of discount, premium and other fees | 8,942 |
| | — |
| | — |
|
| Provision for loan losses | — |
| | (3,300 | ) | | — |
|
| Balance, June 30, 2018 | $ | 3,764,172 |
| | $ | (7,300 | ) | | $ | 107,744 |
|
| |
| (1) | Includes $0.5 million of realized losses on loans related to lower of cost or market adjustments for the ninesix months ended SeptemberJune 30, 2018. |
| |
| (2) | During the ninesix months ended SeptemberJune 30, 2018, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, net, at amortized cost, three loans with a combined outstanding face amount of $57.6 million, a combined book value of $55.4 million (fair value at date of reclassification) and a remaining maturity of 2.5 years. The loans had been recorded at lower of cost or market prior to their reclassification. The discount to fair value is the result of an increase in market interest rates since the loan’sloans’ origination and not a deterioration in credit of the borrowerborrowers or collateral coverage and the Company expects to collect all amounts due under the loan. These transfers have been reflected as non-cash items on the consolidated statement of cash flows for the nine months ended September 30, 2018. |
| |
(3) | As further discussed below, during the three and nine months ended September 30, 2018, the Company recorded asset-specific provisions on collateral dependent loans of $10.0 million and $12.7 million, respectively. In addition, the Company records a portfolio-based, general loan loss provision to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment. During the three and nine months ended September 30, 2018, the Company recorded an additional general reserve of $0.3 million and $0.9 million, respectively.
loans. |
|
| | | | | | | | | | | |
| | Mortgage loan receivables held for investment, net, at amortized cost: | | |
| | Mortgage loans held by consolidated subsidiaries | | Provision for loan losses | | Mortgage loan receivables held for sale |
| | | | | | |
| Balance, December 31, 2016 | $ | 2,000,095 |
| | $ | (4,000 | ) | | $ | 357,882 |
|
| Origination of mortgage loan receivables | 869,981 |
| | — |
| | 887,978 |
|
| Purchases of mortgage loan receivables | 94,079 |
| | — |
| | — |
|
| Repayment of mortgage loan receivables | (245,095 | ) | | — |
| | (1,857 | ) |
| Proceeds from sales of mortgage loan receivables | — |
| | — |
| | (563,933 | ) |
| Realized gain on sale of mortgage loan receivables(1) | — |
| | — |
| | 24,129 |
|
| Transfer between held for investment and held for sale(2) | 119,952 |
| | — |
| | (119,952 | ) |
| Accretion/amortization of discount, premium and other fees | 7,928 |
| | — |
| | — |
|
| Balance, September 30, 2017 | $ | 2,846,940 |
| | $ | (4,000 | ) | | $ | 584,247 |
|
| |
(1) | Includes $1.8 million of realized losses on loans related to lower of cost or market adjustments for the nine months ended September 30, 2017. |
| |
(2) | During the nine months ended September 30, 2017, the Company reclassified from mortgage loan receivables held for sale to mortgage loan receivables held for investment, net, at amortized cost, a loan with an outstanding face amount of $120.0 million, a book value of $119.9 million (fair value at date of reclassification) and a remaining maturity of three years. The loan had been recorded at lower of cost or market prior to its reclassification. The discount to fair value is the result of an increase in market interest rates since the loan’s origination and not a deterioration in credit of the borrower or collateral coverage and the Company expects to collect all amounts due under the loan. This transfer has been reflected as a non-cash item on the consolidated statement of cash flows for the nine months ended September 30, 2017. |
During the ninesix months ended SeptemberJune 30, 2019 and June 30, 2018, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing.Servicing.
At SeptemberAs of June 30, 20182019 and December 31, 2017,2018, there was $0.2$0.3 million and $0.5 million, respectively, of unamortized discounts included in our mortgage loan receivables held for investment, net, at amortized cost, on our consolidated balance sheets.
Provision for Loan Losses and Non-Accrual Status ($ in thousands)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | |
| Provision for loan losses at beginning of period | $ | 18,200 |
| | $ | 7,000 |
| | $ | 17,900 |
| | $ | 4,000 |
|
| Provision for loan losses | 300 |
| | 300 |
| | 600 |
| | 3,300 |
|
| Provision for loan losses at end of period | $ | 18,500 |
| | $ | 7,300 |
| | $ | 18,500 |
| | $ | 7,300 |
|
| | | | | | | | |
| | | | | | June 30, 2019 | | December 31, 2018 |
| | | | | | | | |
| Principal balance of loans on non-accrual status | | | | | $ | 36,946 |
| | $ | 36,850 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
| Provision for loan losses at beginning of period | $ | 7,300 |
| | $ | 4,000 |
| | $ | 4,000 |
| | $ | 4,000 |
|
| Provision for loan losses | 10,300 |
| | — |
| | 13,600 |
| | — |
|
| Provision for loan losses at end of period | $ | 17,600 |
| | $ | 4,000 |
| | $ | 17,600 |
| | $ | 4,000 |
|
| | | | | | | | |
| | | | | | September 30, 2018 |
| | December 31, 2017 |
|
| | | | | | | | |
| Principal balance of loans on non-accrual status | | | | | $ | 71,850 |
| | $ | 26,850 |
|
The Company evaluates each of its loans for potential losses at least quarterly. Its loans are typically collateralized by real estate directly or indirectly. As a result, the Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property, as well as the financial and operating capability of the borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan at maturity, and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management personnel, who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, the borrowers’ business plan, and capitalization and discount rates, (ii) site inspections, and (iii) current credit spreads and other market data.
As a result of this analysis, the Company has concluded that none of its loans, other than the three loans discussed below, are individually impaired as of SeptemberJune 30, 20182019 and none of its loans are individually impaired as of December 31, 2017.2018. It is probable, however, that Ladder’s loan portfolio as a whole incurred an impairment due to common characteristics and shared inherent risks in the portfolio. The Company determined that an increase in itsa provision expense for loan losses of $13.6$0.6 million was required for the ninesix months ended SeptemberJune 30, 20182019. This provision consisted of a portfolio-based, general loan loss provision of $0.9$0.6 million to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment, anand no additional asset-specific reserve of $2.7 million relating to two of the Company’s loans, discussed below and an asset-specific reserve of $10.0 million relating to one of the Company’s loans, discussed below.reserves.
As of SeptemberJune 30, 2018,2019, two of the Company’s loans, which were originated simultaneously as part of a single transaction and had a carrying value of $26.9 million, were in default. These loans are directly and indirectly secured by the same property and are considered collateral dependent because repayment is expected to be provided solely by the underlying collateral. The Company placed these loans on non-accrual status in July 2017. In assessing these collateral dependent loans for impairment, the most significant consideration is the fair value of the underlying real estate collateral, which includes an in-place long-dated retail lease. The value of such propertiesproperty is most significantly affected by the contractual lease paymentsterms and the appropriate market capitalization rates, which are driven by the property’s market strength, the general interest rate environment and the retail tenant’s creditworthiness. In view of these considerations, the Company uses a direct capitalization rate valuation methodology to calculate the fair value of the underlying real estate collateral. These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy. Through December 31, 2017, the Company believed no loss provision was necessary as the estimated fair value of the property less the cost to foreclose and sell the property exceeded the combined carrying value of the loans. The Company utilized direct capitalization rates of 4.35% to 4.65% atas of December 31, 2017.
The on-going bankruptcy proceedings, rising interest rates and the retail tenant’s creditworthiness, resulted in a decline in the estimated value of the collateral. As a result, and as previously disclosed in the Company’s Form 10-Q for the three months endedon March 31, 2018, the Company recorded a provision for loss on these loans of $2.7 million to reduce the carrying value of these loans to the fair value of the property less the cost to foreclose and sell the property utilizing direct capitalization rates of 4.70% to 5.00%. During the three months ended SeptemberAs of June 30, 2018,2019, the Company believed no additional loss provision was necessary based on the application of direct capitalization rates of 4.70%4.60% to 5.00%4.90% utilized by the Company.
During the three monthsyear ended September 30,December 31, 2018, management identified a loan with a carrying value of $45.0 million as potentially impaired, reflecting a decline in collateral value attributable to: (i) recent and near term tenant vacancies at the property; (ii) new information available during the three months ended September 30, 2018 regarding the addition of supply that will increase the local submarket vacancy rate in the local market;rate; and (iii) declining market conditions. As of September 30, 2018 this loan was not yet in default but the borrower was not expected to be able to pay off or refinance the loan at maturity. As part of the Company’s evaluation, it obtained an external appraisal of the loan collateral. Based on this review, a reserve of $10.0 million was recorded for this potentially impaired loan in the three months ended September 30, 2018 to reduce the carrying value of the loan to the estimated fair value of the collateral, less the estimated costs to sell. The Company has placed this loan on non-accrual status as of September 30, 2018. As of September 30, 2018,During the borrower continues to make current interest payments. Subsequent to September 30,quarter ended December 31, 2018, this loan experienced a maturity default and its terms were modified in a TDRTroubled Debt Restructuring (“TDR”) on October 17, 2018. The terms of the TDR provided for, among other things, the restructuring of the Company’s existing $45.0 million first mortgage loan into a $35.0 million A-Note and a $10.0 million B-Note and a 19.0% equity interest which is not subject to dilution.dilution and that can be increased to 25% under certain conditions. Under certain conditions, the B-Note may be forgiven or reduced. The restructured loan was extended for up to 12 months, including extensions. There have been no additional changes during the six months ended June 30, 2019.
Generally when granting concessions, the Company will seek to protect its position by requiring incremental pay downs, additional collateral or guarantees and in some cases lookback features or equity kickers to offset concessions granted should conditions impacting the loan improve. The Company's determination of credit losses is impacted by TDRs whereby loans that have gone through TDRs are considered impaired, assessed for specific reserves, and are not included in the Company's assessment of general loan loss reserves. Loans previously restructured under TDRs that subsequently default are reassessed to incorporate the Company's current assumptions on expected cash flows and additional provision expense is recorded to the extent necessary. As of June 30, 2019, there were no unfunded commitments associated with modified loans considered TDRs.
As of SeptemberJune 30, 20182019 and December 31, 20172018 there were no other loans on non-accrual status.
During the six months ended June 30, 2019, the Company acquired title to real estate through a mortgage foreclosure. The real estate had a fair value of $18.2 million and previously served as collateral for a mortgage loan receivable held for investment, which was previously on non-accrual status. This loan had an amortized cost of $17.8 million, accrued interest of $0.2 million and an unamortized discount of $0.1 million. The acquisition was accounted for in real estate, net, at fair value on the date of foreclosure. There was no gain or loss resulting from the disposition of the loan.
5. REAL ESTATE SECURITIES
Commercial mortgage backed securities (“CMBS”), CMBS interest-only securities, Agency securities, Government National Mortgage Association (“GNMA”) construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. GNMA and Federal Home Loan Mortgage Corp (“FHLMC”) securities (collectively, “Agency interest-only securities”) are recorded at fair value with changes in fair value recorded in current period earnings. Equity securities are classified as available-for-sale and reported at fair value with changes in fair value recorded in current period earnings. The following is a summary of the Company’s securities at SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
SeptemberJune 30, 20182019
| | | | | | | | | Gross Unrealized | | | | | | Weighted Average | | | | | | Gross Unrealized | | | | | | Weighted Average |
| Asset Type | | Outstanding Face Amount | | Amortized Cost Basis | | Gains | | Losses | | Carrying Value | | # of Securities | | Rating (1) | | Coupon % | | Yield % | | Remaining Duration (years) | | Outstanding Face Amount | | Amortized Cost Basis/Purchase Price
| | Gains | | Losses | | Carrying Value | | # of Securities | | Rating (1) | | Coupon % | | Yield % | | Remaining Duration (years) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CMBS(2) | | $ | 883,416 |
| | $ | 886,907 |
| | $ | 309 |
| | $ | (8,475 | ) | | $ | 878,741 |
| (3) | 92 |
| | AAA | | 3.37 | % | | 3.04 | % | | 2.36 | | $ | 1,642,160 |
| | $ | 1,643,149 |
| | $ | 11,108 |
| | $ | (554 | ) | | $ | 1,653,703 |
| (3) | 145 |
| | AAA | | 3.47 | % | | 3.31 | % | | 2.26 |
| CMBS interest-only(2)(4) | | 2,272,679 |
| | 63,282 |
| | 324 |
| | (1,968 | ) | | 61,638 |
| (5) | 19 |
| | AAA | | 0.63 | % | | 2.71 | % | | 2.79 | | 2,166,640 |
| | 42,689 |
| | 1,370 |
| | (7 | ) | | 44,052 |
| (5) | 18 |
| | AAA | | 0.50 | % | | 3.63 | % | | 2.67 |
| GNMA interest-only(4)(6) | | 138,026 |
| | 3,068 |
| | 74 |
| | (387 | ) | | 2,755 |
| | 12 |
| | AA+ | | 0.49 | % | | 7.24 | % | | 4.08 | | 118,858 |
| | 2,483 |
| | 124 |
| | (316 | ) | | 2,291 |
| | 12 |
| | AA+ | | 0.52 | % | | 9.13 | % | | 2.72 |
| Agency securities(2) | | 678 |
| | 693 |
| | — |
| | (29 | ) | | 664 |
| | 2 |
| | AA+ | | 2.75 | % | | 1.87 | % | | 2.49 | | 652 |
| | 664 |
| | 1 |
| | (2 | ) | | 663 |
| | 2 |
| | AA+ | | 2.70 | % | | 1.78 | % | | 2.11 |
| GNMA permanent securities(2) | | 32,916 |
| | 33,182 |
| | 420 |
| | (339 | ) | | 33,263 |
| | 6 |
| | AA+ | | 3.95 | % | | 3.78 | % | | 5.19 | | 32,055 |
| | 32,291 |
| | 793 |
| | — |
| | 33,084 |
| | 6 |
| | AA+ | | 3.93 | % | | 3.74 | % | | 4.72 |
| Corporate bonds(2) | | 1,250 |
| | 1,223 |
| | 5 |
| | — |
| | 1,228 |
| | 1 |
| | BB | | 3.63 | % | | 4.61 | % | | 2.25 | | 41,205 |
| | 40,581 |
| | 837 |
| | — |
| | 41,418 |
| | 2 |
| | BB- | | 3.80 | % | | 4.82 | % | | 1.64 |
| Total | | $ | 3,328,965 |
| | $ | 988,355 |
| | $ | 1,132 |
| | $ | (11,198 | ) | | $ | 978,289 |
| | 132 |
| | | | 1.39 | % | | 3.06 | % | | 2.48 | |
| Total debt securities | | | $ | 4,001,570 |
| | $ | 1,761,857 |
| | $ | 14,233 |
| | $ | (879 | ) | | $ | 1,775,211 |
| | 185 |
| | 1.78 | % | | 3.34 | % | | 2.29 |
| Equity securities(7) | | | N/A |
| | 13,720 |
| | 63 |
| | (579 | ) | | 13,204 |
| | 3 |
| | N/A | | N/A |
| | N/A |
| | N/A |
| Total real estate securities | | | $ | 4,001,570 |
| | $ | 1,775,577 |
| | $ | 14,296 |
| | $ | (1,458 | ) | | $ | 1,788,415 |
| | 188 |
| | | | | | | |
| |
| (1) | Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time. |
| |
| (2) | CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (3) | As more fully described in Note 4, certainIncludes $11.6 million of restricted securities that were purchased from the LCCM LC-26 securitization trustwhich are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost. Includes $11.2 million of such restricted securities. |
| |
| (4) | The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate. |
| |
| (5) | As more fully described in Note 4, certainIncludes $0.9 million of restricted securities that were purchased from the LCCM LC-26 securitization trustwhich are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost. Includes $0.9 million of such restricted securities. |
| |
| (6) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accountshas elected to account for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815. |
| |
| (7) | The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings. |
December 31, 20172018
| | | | | | | | | Gross Unrealized | | | | | | Weighted Average | | | | | | Gross Unrealized | | | | | | Weighted Average |
| Asset Type | | Outstanding Face Amount | | Amortized Cost Basis | | Gains | | Losses | | Carrying Value | | # of Securities | | Rating (1) | | Coupon % | | Yield % | | Remaining Duration (years) | | Outstanding Face Amount | | Amortized Cost Basis | | Gains | | Losses | | Carrying Value | | # of Securities | | Rating (1) | | Coupon % | | Yield % | | Remaining Duration (years) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CMBS(2) | | $ | 945,167 |
| | $ | 954,397 |
| | $ | 2,748 |
| | $ | (3,646 | ) | | $ | 953,499 |
| (3) | 96 |
| | AAA | | 3.28 | % | | 2.79 | % | | 2.89 | | $ | 1,258,819 |
| | $ | 1,257,801 |
| | $ | 2,477 |
| | $ | (7,638 | ) | | $ | 1,252,640 |
| (3) | 138 |
| | AAA | | 3.32 | % | | 3.14 | % | | 2.33 |
| CMBS interest-only(2)(4) | | 3,140,297 |
| | 112,609 |
| | 796 |
| | (334 | ) | | 113,071 |
| (5) | 25 |
| | AAA | | 0.81 | % | | 3.16 | % | | 3.08 | | 2,373,936 |
| | 55,534 |
| | 428 |
| | (271 | ) | | 55,691 |
| (5) | 19 |
| | AAA | | 0.57 | % | | 2.80 | % | | 2.69 |
| GNMA interest-only(4)(6) | | 172,916 |
| | 5,245 |
| | 157 |
| | (925 | ) | | 4,477 |
| | 13 |
| | AA+ | | 0.58 | % | | 6.70 | % | | 4.18 | | 135,932 |
| | 2,862 |
| | 93 |
| | (307 | ) | | 2,648 |
| | 12 |
| | AA+ | | 0.51 | % | | 6.30 | % | | 4.11 |
| Agency securities(2) | | 720 |
| | 743 |
| | — |
| | (15 | ) | | 728 |
| | 2 |
| | AA+ | | 2.82 | % | | 1.80 | % | | 2.94 | | 668 |
| | 682 |
| | — |
| | (20 | ) | | 662 |
| | 2 |
| | AA+ | | 2.73 | % | | 1.83 | % | | 2.36 |
| GNMA permanent securities(2) | | 33,745 |
| | 34,386 |
| | 595 |
| | (239 | ) | | 34,742 |
| | 6 |
| | AA+ | | 3.98 | % | | 3.62 | % | | 5.66 | | 32,633 |
| | 32,889 |
| | 420 |
| | (245 | ) | | 33,064 |
| | 6 |
| | AA+ | | 3.94 | % | | 3.76 | % | | 5.03 |
| Total | | $ | 4,292,845 |
| | $ | 1,107,380 |
| | $ | 4,296 |
| | $ | (5,159 | ) | | $ | 1,106,517 |
| | 142 |
| | | | 1.37 | % | | 2.87 | % | | 3.00 | |
| Corporate bonds(2) | | | 55,305 |
| | 54,257 |
| | — |
| | (386 | ) | | 53,871 |
| | 2 |
| | BB | | 4.08 | % | | 5.04 | % | | 2.51 |
| Total debt securities | | | $ | 3,857,293 |
| | $ | 1,404,025 |
| | $ | 3,418 |
| | $ | (8,867 | ) | | $ | 1,398,576 |
| | 179 |
| | 1.54 | % | | 3.19 | % | | 2.40 |
| Equity securities(7) | | | N/A |
| | 13,154 |
| | — |
| | (1,604 | ) | | 11,550 |
| | 3 |
| | N/A | | N/A |
| | N/A |
| | N/A |
| Total real estate securities | | | $ | 3,857,293 |
| | $ | 1,417,179 |
| | $ | 3,418 |
| | $ | (10,471 | ) | | $ | 1,410,126 |
| | 182 |
| | | | | | | |
| |
| (1) | Represents the weighted average of the ratings of all securities in each asset type, expressed as an S&P equivalent rating. For each security rated by multiple rating agencies, the highest rating is used. Ratings provided were determined by third-party rating agencies as of a particular date, may not be current and are subject to change (including the assignment of a “negative outlook” or “credit watch”) at any time. |
| |
| (2) | CMBS, CMBS interest-only securities, Agency securities, and GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (3) | As more fully described in Note 4, certainIncludes $11.3 million of restricted securities which were purchased from the LCCM LC-26 securitization trust are designated as risk retention securities under the Dodd-Frank Act whichand are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost. Includes $11.7 million of such restricted securities. |
| |
| (4) | The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate. |
| |
| (5) | As more fully described in Note 4, certainIncludes $0.9 million of restricted securities which were purchased from the LCCM LC-26 securitization trust are designated as risk retention securities under the Dodd-Frank Act whichand are therefore subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost. Includes $1.1 million of such restricted securities. |
| |
| (6) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. The Company’s Agency interest-only securities are considered to be hybrid financial instruments that contain embedded derivatives. As a result, the Company accounts for them as hybrid instruments in their entirety at fair value with changes in fair value recognized in unrealized gain (loss) on Agency interest-only securities in the consolidated statements of income in accordance with ASC 815. |
| |
| (7) | The Company has elected to account for equity securities at fair value with changes in fair value recorded in current period earnings. |
The following is a breakdown of the carrying value of the Company’s debt securities by remaining maturity based upon expected cash flows at SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
SeptemberJune 30, 20182019
|
| | | | | | | | | | | | | | | | | | | | |
| Asset Type | | Within 1 year | | 1-5 years | | 5-10 years | | After 10 years | | Total |
| | | | | | | | | | | |
| CMBS(1) | | $ | 333,542 |
| | $ | 415,799 |
| | $ | 129,400 |
| | $ | — |
| | $ | 878,741 |
|
| CMBS interest-only(1) | | 1,043 |
| | 60,595 |
| | — |
| | — |
| | 61,638 |
|
| GNMA interest-only(2) | | 19 |
| | 2,373 |
| | 360 |
| | 3 |
| | 2,755 |
|
| Agency securities(1) | | — |
| | 664 |
| | — |
| | — |
| | 664 |
|
| GNMA permanent securities(1) | | — |
| | 1,549 |
| | 31,714 |
| | — |
| | 33,263 |
|
| Corporate bonds(1) | | — |
| | 1,228 |
| | — |
| | — |
| | 1,228 |
|
| Total | | $ | 334,604 |
| | $ | 482,208 |
| | $ | 161,474 |
| | $ | 3 |
| | $ | 978,289 |
|
December 31, 2017
| | | Asset Type | | Within 1 year | | 1-5 years | | 5-10 years | | After 10 years | | Total | | Within 1 year | | 1-5 years | | 5-10 years | | After 10 years | | Total |
| | | | | | | | | | | | | | | | | | | | | |
| CMBS(1) | | $ | 285,982 |
| | $ | 544,278 |
| | $ | 123,239 |
| | $ | — |
| | $ | 953,499 |
| | $ | 368,984 |
| | $ | 1,143,775 |
| | $ | 140,944 |
| | $ | — |
| | $ | 1,653,703 |
|
| CMBS interest-only(1) | | 537 |
| | 112,534 |
| | — |
| | — |
| | 113,071 |
| | 1,014 |
| | 43,038 |
| | — |
| | — |
| | 44,052 |
|
| GNMA interest-only(2) | | 76 |
| | 3,906 |
| | 484 |
| | 11 |
| | 4,477 |
| | 297 |
| | 1,745 |
| | 249 |
| | — |
| | 2,291 |
|
| Agency securities(1) | | — |
| | 728 |
| | — |
| | — |
| | 728 |
| | — |
| | 663 |
| | — |
| | — |
| | 663 |
|
| GNMA permanent securities(1) | | — |
| | 1,797 |
| | 32,945 |
| | — |
| | 34,742 |
| | 414 |
| | 32,670 |
| | — |
| | — |
| | 33,084 |
|
| Total | | $ | 286,595 |
| | $ | 663,243 |
| | $ | 156,668 |
| | $ | 11 |
| | $ | 1,106,517 |
| |
| Corporate bonds(1) | | | — |
| | 41,418 |
| | — |
| | — |
| | 41,418 |
|
| Total debt securities | | | $ | 370,709 |
| | $ | 1,263,309 |
| | $ | 141,193 |
| | $ | — |
| | $ | 1,775,211 |
|
| |
| (1) | CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (2) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. |
December 31, 2018
|
| | | | | | | | | | | | | | | | | | | | |
| Asset Type | | Within 1 year | | 1-5 years | | 5-10 years | | After 10 years | | Total |
| | | | | | | | | | | |
| CMBS(1) | | $ | 342,121 |
| | $ | 772,594 |
| | $ | 137,925 |
| | $ | — |
| | $ | 1,252,640 |
|
| CMBS interest-only(1) | | 1,145 |
| | 54,546 |
| | — |
| | — |
| | 55,691 |
|
| GNMA interest-only(2) | | 17 |
| | 2,276 |
| | 353 |
| | 2 |
| | 2,648 |
|
| Agency securities(1) | | — |
| | 662 |
| | — |
| | — |
| | 662 |
|
| GNMA permanent securities(1) | | 551 |
| | 1,048 |
| | 31,465 |
| | — |
| | 33,064 |
|
| Corporate bonds(1) | | — |
| | 53,871 |
| | — |
| | — |
| | 53,871 |
|
| Total debt securities | | $ | 343,834 |
| | $ | 884,997 |
| | $ | 169,743 |
| | $ | 2 |
| | $ | 1,398,576 |
|
| |
| (1) | CMBS, CMBS interest-only securities, Agency securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (2) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. |
During the ninethree and six months ended SeptemberJune 30, 2019, the Company realized a gain (loss) on sale of equity securities of none and $86.9 thousand, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income. During the three and six months ended June 30, 2018, the Company realized a gain (loss) on sale of equity securities of $72.0 thousand, which is included in fee and other incomerealized gain (loss) on securities on the Company’s consolidated statements of income.
There were $0.6 million and $0.2 million ofno realized losses on securities recorded as other than temporary impairments for the three and six months ended SeptemberJune 30, 2019. During the three and six months ended June 30, 2018 and 2017, respectively. Therethere were $2.2$0.6 million and $1.2$1.6 million, respectively, of realized losses on securities recorded as other than temporary impairments, forwhich is included in realized gain (loss) on securities on the nine months ended September 30, 2018 and 2017, respectively.Company’s consolidated statements of income. The determination of whether a security is other-than-temporarily impaired involves judgments and assumptions based on subjective and objective factors. Consideration is given to (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near-term prospects of recovery in fair value of the security, and (iii) the Company’s intent to sell the security and whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. The Company has no intention to sell its securities before recovery of its amortized cost basis. For cash flow statement purposes, receipts of interest from interest-only real estate securities are bifurcated between amortization of premium/(accretion) of discount and other fees on securities as part of cash flows from operations and basis recovery of Agency interest-only securities as part of cash flows from investing activities.
6. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET
The following tables present additional detail related to our real estate portfolio, net, including foreclosed properties ($ in thousands):
|
| | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| | | | |
| Land | $ | 197,086 |
| | $ | 195,644 |
|
| Building | 817,595 |
| | 814,314 |
|
| In-place leases and other intangibles | 158,868 |
| | 162,002 |
|
| Less: Accumulated depreciation and amortization | (189,172 | ) | | (173,938 | ) |
| Real estate and related lease intangibles, net | $ | 984,377 |
| | $ | 998,022 |
|
| | | | |
| Below market lease intangibles, net (other liabilities) | $ | (39,163 | ) | | $ | (40,367 | ) |
|
| | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| | | | |
| Land | $ | 194,307 |
| | $ | 213,992 |
|
| Building | 808,714 |
| | 789,622 |
|
| In-place leases and other intangibles | 161,186 |
| | 189,490 |
|
| Less: Accumulated depreciation and amortization | (164,197 | ) | | (161,063 | ) |
| Real estate and related lease intangibles, net | $ | 1,000,010 |
| | $ | 1,032,041 |
|
| | | | |
| Below market lease intangibles, net (other liabilities) | $ | (40,458 | ) | | $ | (42,607 | ) |
At June 30, 2019 and December 31, 2018, the Company held foreclosed properties included in real estate, net with a carrying value of $24.1 million and $6.3 million, respectively.
The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | |
| Depreciation expense (1) | $ | 8,063 |
| | $ | 7,624 |
| | $ | 24,058 |
| | $ | 20,470 |
| $ | 7,697 |
| | $ | 8,208 |
| | $ | 15,382 |
| | $ | 15,995 |
|
| Amortization expense | 2,336 |
| | 2,959 |
| | 7,782 |
| | 8,783 |
| 2,213 |
| | 2,429 |
| | 4,730 |
| | 5,447 |
|
| Total real estate depreciation and amortization expense | $ | 10,399 |
| | $ | 10,583 |
| | $ | 31,840 |
| | $ | 29,253 |
| $ | 9,910 |
| | $ | 10,637 |
| | $ | 20,112 |
| | $ | 21,442 |
|
| |
| (1) | Depreciation expense on the consolidated statements of income also includes $18$25 thousand and $23$19 thousand of depreciation on corporate fixed assets for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $56$50 thousand and $70$37 thousand of depreciation on corporate fixed assets for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. |
The Company’s intangible assets are comprised of in-place leases, favorable leases compared to market leases and other intangibles. At SeptemberJune 30, 2018,2019, gross intangible assets totaled $161.2$158.9 million with total accumulated amortization of $53.6$59.8 million, resulting in net intangible assets of $107.6$99.0 million, including $5.6$4.7 million of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. At December 31, 2017,2018, gross intangible assets totaled $189.5$162.0 million with total accumulated amortization of $60.9$57.7 million, resulting in net intangible assets of $128.6$104.3 million, including $8.9$5.5 million of unamortized favorable lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets. For the three and ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded a reduction in operating lease income of $(0.2)$0.2 million and $(0.5)$0.6 million, respectively, for amortization of above market leaseleases intangibles acquired, compared to $(0.3)$0.2 million and $(0.8)$0.4 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2017.2018. For the three and ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded an increase in operating lease income of $0.5 million and $1.8$1.0 million respectively, for amortization of below market lease intangibles acquired, compared to $0.6$0.7 million and $1.3 million respectively, for the three and ninesix months ended SeptemberJune 30, 2017.2018.
The following table presents expected adjustment to operating lease income and expected amortization expense during the next five years and thereafter related to the above and below market leases and acquired in-place lease intangibles and other intangibles for property owned as of SeptemberJune 30, 20182019 ($ in thousands):
|
| | | | | | | | |
| Period Ending December 31, | | Adjustment to Operating Lease Income | | Amortization Expense |
| | | | | |
| 2019 (last 6 months) | | $ | 517 |
| | $ | 3,327 |
|
| 2020 | | 1,036 |
| | 6,347 |
|
| 2021 | | 1,037 |
| | 6,259 |
|
| 2022 | | 1,041 |
| | 6,195 |
|
| 2023 | | 1,041 |
| | 6,195 |
|
| Thereafter | | 29,756 |
| | 66,043 |
|
| Total | | $ | 34,428 |
| | $ | 94,366 |
|
|
| | | | |
| Period Ending December 31, | | Amount |
| | | |
| 2018 (last 3 months) | | $ | 2,170 |
|
| 2019 | | 7,924 |
|
| 2020 | | 6,514 |
|
| 2021 | | 6,448 |
|
| 2022 | | 6,384 |
|
| Thereafter | | 72,548 |
|
| Total | | $ | 101,988 |
|
Lease Prepayment by Lessor, Retirement of Related Mortgage Loan Financing and Impairment of Real Estate
On January 10, 2019, the Company received $10.0 million prepayment of a lease on a single-tenant two-story office building in Wayne, NJ. As of March 31, 2019, this property had a book value of $5.6 million, which is net of accumulated depreciation and amortization of $2.7 million. The Company recognized the $10.0 million of operating lease income on a straight-line basis over the revised lease term. On February 6, 2019, the Company paid off $6.6 million of mortgage loan financing related to the property, recognizing a loss on extinguishment of debt of $1.1 million. During the three months ended March 31, 2019, the Company recorded a $1.4 million impairment of real estate to reduce the carrying value of the real estate to the estimated fair value of the real estate. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a net loss of $20 thousand. See Note 9, Fair Value of Financial Instruments for further detail.
There were $0.5$1.4 million and $0.9$0.8 million of rent receivables included in other assets on the consolidated balance sheets as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
There was unencumbered real estate of $19.4$71.5 million and $128.7$58.6 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
During the three and six months ended June 30, 2019, the Company recorded $0.8 million and $1.0 million of real estate operating income, respectively, which is included in operating lease income in the consolidated statements of income.
The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at SeptemberJune 30, 20182019 ($ in thousands):
|
| | | | |
| Period Ending December 31, | | Amount |
| | | |
| 2019 (last 6 months) | | $ | 42,016 |
|
| 2020 | | 77,970 |
|
| 2021 | | 68,304 |
|
| 2022 | | 64,406 |
|
| 2023 | | 62,219 |
|
| Thereafter | | 510,864 |
|
| Total | | $ | 825,779 |
|
|
| | | | |
| Period Ending December 31, | | Amount |
| | | |
| 2018 (last 3 months) | | $ | 21,988 |
|
| 2019 | | 78,702 |
|
| 2020 | | 76,744 |
|
| 2021 | | 73,711 |
|
| 2022 | | 142,493 |
|
| Thereafter | | 570,220 |
|
| Total | | $ | 963,858 |
|
Acquisitions
During the ninesix months ended SeptemberJune 30, 2018,2019, the Company acquired the following propertyproperties ($ in thousands):
|
| | | | | | | | | | |
| Acquisition Date | | Type | | Primary Location(s) | | Purchase Price | | Ownership Interest (1) |
| | | | | | | | | |
| March 2018 | | Diversified(2) | | Lithia Springs, GA | | $ | 24,466 |
| | 70.6% |
| April 2018 | | Net Lease | | Kirbyville, MO | | 1,156 |
| | 100.0% |
| April 2018 | | Net Lease | | Gladwin, MI | | 1,171 |
| | 100.0% |
| April 2018 | | Net Lease | | Foley, MN | | 1,176 |
| | 100.0% |
| April 2018 | | Net Lease | | Moscow Mills, MO | | 1,237 |
| | 100.0% |
| April 2018 | | Net Lease | | Wonder Lake, IL | | 1,255 |
| | 100.0% |
| May 2018 | | Diversified(3) | | Isla Vista, CA | | 83,442 |
| | 75.0% |
| | | | | | | | | |
| Total | | | | $ | 113,903 |
| | |
|
| | | | | | | | | | |
| Acquisition Date | | Type | | Primary Location(s) | | Purchase Price/Fair Value on the Date of Foreclosure | | Ownership Interest (1) |
| | | | | | | | | |
| Purchases of real estate | | | | | | |
| February 2019 | | Net Lease | | Houghton Lake, MI | | $ | 1,242 |
| | 100.0% |
| February 2019 | | Net Lease | | Trenton, MO | | 1,164 |
| | 100.0% |
| April 2019 | | Net Lease | | Centralia, IL | | 1,242 |
| | 100.0% |
| June 2019 | | Net Lease | | Fayette, MO | | 1,423 |
| | 100.0% |
| Total purchases of real estate | | | | 5,071 |
| | |
| | | | | | | | | |
| Real estate acquired via foreclosure | | | | |
| February 2019 | | Diversified | | Omaha, NE | | 18,200 |
| | 100.0% |
| Total real estate acquired via foreclosure | | 18,200 |
| | |
| | | | | | | | | |
| Total real estate acquisitions | | | | $ | 23,271 |
| | |
| |
| (1) | Properties were consolidated as of acquisition date. |
| |
(2) | Joint venture partner contributed $2.9 million to the partnership. |
| |
(3) | Joint venture partner contributed $4.2 million to the partnership. |
During the six months ended June 30, 2019, the Company acquired title to real estate in a foreclosure. The real estate had a fair value of $18.2 million and previously served as collateral for a mortgage loan receivable held for investment, which was previously on non-accrual status. This loan had an amortized cost of $17.8 million, accrued interest of $0.2 million and an unamortized discount of $0.1 million. The acquisition was accounted for in real estate, net, at fair value on the date of foreclosure. There was no gain or loss resulting from the disposition of the loan.
On October 1, 2016, the Company early adopted ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). As a result of this adoption, acquisitions of real estate may not meet the revised definition of a business and may be treated as asset acquisitions rather than business combinations. The measurement of assets and liabilities acquired will no longer be recorded at fair value and the Company will now allocate purchase consideration based on relative fair values. Real estate acquisition costs, which are no longer expensed as incurred, will be capitalized as a component of the cost of the assets acquired. During the ninesix months ended SeptemberJune 30, 2018 and 2017,2019, all acquisitions were determined to be asset acquisitions.
The purchase prices were allocated to the asset acquisitions during the ninesix months ended SeptemberJune 30, 2018,2019, as follows ($ in thousands):
|
| | | | |
| | | Purchase Price Allocation |
| | | |
| Land | | $ | 3,789 |
|
| Building | | 18,885 |
|
| Intangibles | | 854 |
|
| Below Market Lease Intangibles | | (257 | ) |
| Total purchase price | | $ | 23,271 |
|
|
| | | | |
| | | Purchase Price Allocation |
| | | |
| Land | | $ | 39,317 |
|
| Building | | 72,625 |
|
| Intangibles | | 2,290 |
|
| Below Market Lease Intangibles | | (329 | ) |
| Total purchase price | | $ | 113,903 |
|
The weighted average amortization period for intangible assets acquired during the ninesix months ended SeptemberJune 30, 20182019 was 18.5 years.37.0 months. The Company recorded $2.0 million$62 thousand and $3.4 million$79 thousand in revenues from its 20182019 acquisitions for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, which is included in its consolidated statements of income. The Company recorded $0.7$(1.2) million and $1.5$(1.5) million in earnings (losses) from its 20182019 acquisitions for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, which is included in its consolidated statements of income.
During the ninesix months ended SeptemberJune 30, 2017,2018, the Company acquired the following properties ($ in thousands):
|
| | | | | | | | | | |
| Acquisition Date | | Type | | Primary Location(s) | | Purchase Price | | Ownership Interest (1) |
| | | | | | | | | |
| February 2017 | | Net Lease | | Carmi, IL | | $ | 1,411 |
| | 100.0% |
| February 2017 | | Net Lease | | Peoria, IL | | 1,183 |
| | 100.0% |
| March 2017 | | Net Lease | | Ridgedale, MO | | 1,298 |
| | 100.0% |
| April 2017 | | Net Lease | | Hanna City, IL | | 1,141 |
| | 100.0% |
| April 2017 | | Diversified(2) | | El Monte, CA | | 54,110 |
| | 70.0% |
| May 2017 | | Net Lease | | Jessup, IA | | 1,163 |
| | 100.0% |
| May 2017 | | Net Lease | | Shelbyville, IL | | 1,132 |
| | 100.0% |
| May 2017 | | Net Lease | | Jacksonville, FL | | 115,641 |
| | 100.0% |
| May 2017 | | Net Lease | | Wabasha, MN | | 1,280 |
| | 100.0% |
| May 2017 | | Net Lease | | Port O'Connor, TX | | 1,255 |
| | 100.0% |
| May 2017 | | Net Lease | | Denver, IA | | 1,183 |
| | 100.0% |
| June 2017 | | Net Lease | | Jefferson City, MO | | 1,241 |
| | 100.0% |
| August 2017 | | Diversified(3) | | Miami, FL | | 38,145 |
| | 80.0% |
| September 2017 | | Net Lease | | Milford, IA | | 1,298 |
| | 100.0% |
| September 2017 | | Diversified | | Crum Lynne, PA | | 9,196 |
| | 100.0% |
| | | | | | | | | |
| Total | | | | $ | 230,677 |
| | |
|
| | | | | | | | | | |
| Acquisition Date | | Type | | Primary Location(s) | | Purchase Price | | Ownership Interest (1) |
| | | | | | | | | |
| March 2018 | | Diversified(2) | | Lithia Springs, GA | | $ | 24,466 |
| | 70.6% |
| April 2018 | | Net Lease | | Kirbyville, MO | | 1,156 |
| | 100.0% |
| April 2018 | | Net Lease | | Gladwin, MI | | 1,171 |
| | 100.0% |
| April 2018 | | Net Lease | | Foley, MN | | 1,176 |
| | 100.0% |
| April 2018 | | Net Lease | | Moscow Mills, MO | | 1,237 |
| | 100.0% |
| April 2018 | | Net Lease | | Wonder Lake, IL | | 1,255 |
| | 100.0% |
| May 2018 | | Diversified(3) | | Isla Vista, CA | | 85,087 |
| | 75.0% |
| | | | | | | | | |
| Total real estate acquisitions | | | | $ | 115,548 |
| | |
| |
| (1) | Properties were consolidated as of acquisition date. |
| |
| (2) | Joint venture partner contributed $5.3$2.9 million to the partnership. |
| |
| (3) | Joint venture partner contributed $1.64.6 million to the partnership. |
The purchase prices were allocated to the asset acquisitions during the ninesix months ended SeptemberJune 30, 2017,2018, as follows ($ in thousands):
|
| | | | |
| | | Purchase Price Allocation |
| | | |
| Land | | $ | 40,019 |
|
| Building | | 73,794 |
|
| Intangibles | | 2,065 |
|
| Below Market Lease Intangibles | | (330 | ) |
| Total purchase price | | $ | 115,548 |
|
|
| | | | |
| | | Purchase Price Allocation |
| | | |
| Land | | $ | 70,750 |
|
| Building | | 153,502 |
|
| Intangibles | | 34,172 |
|
| Below Market Lease Intangibles | | (27,747 | ) |
| Total purchase price | | $ | 230,677 |
|
The weighted average amortization period for intangible assets acquired during the ninesix months ended SeptemberJune 30, 20172018 was 18.618.4 years. The Company recorded $0.3$1.4 million and $5.6 million in revenues from its 2017 acquisitions2018 acquisition for the three and ninesix months ended SeptemberJune 30, 2017, respectively, which is included in its consolidated statements of income.2018. The Company recorded $0.1 million and $3.7$0.8 million in earnings (losses) from its 2017 acquisitions2018 acquisition for the three and ninesix months ended SeptemberJune 30, 2017, respectively,2018, which is included in its consolidated statements of income.
Sales
The Company sold the following properties during the ninesix months ended SeptemberJune 30, 2019 ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Date | | Type | | Primary Location(s) | | Net Sales Proceeds | | Net Book Value | | Realized Gain/(Loss) | | Properties | | Units Sold | | Units Remaining |
| | | | | | | | | | | | | | | | | |
| N/A | | Condominium | | Las Vegas, NV | | $ | — |
| | $ | — |
| | $ | — |
| | — |
| | — |
| | 1 |
|
| Various | | Condominium | | Miami, FL | | 3,917 |
| | 3,550 |
| | 367 |
| | — |
| | 13 |
| | 9 |
|
| April 2019 | | Diversified | | Wayne, NJ | | 1,729 |
| | 4,799 |
| | (3,070 | ) | (1) | 1 |
| | — |
| | — |
|
| May 2019 | | Diversified | | Grand Rapids, MI | | 10,019 |
| | 8,254 |
| | 1,765 |
| (2) | 1 |
| | — |
| | — |
|
| Totals | | | | | | $ | 15,665 |
| | $ | 16,603 |
| | $ | (938 | ) | | | | | | |
The Company sold the following properties during the six months ended June 30, 2018 ($ in thousands):
| | | Sales Date | | Type | | Primary Location(s) | | Net Sales Proceeds | | Net Book Value | | Realized Gain/(Loss) | | Properties | | Units Sold | | Units Remaining | | Type | | Primary Location(s) | | Net Sales Proceeds | | Net Book Value | | Realized Gain/(Loss) | | Properties | | Units Sold | | Units Remaining |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Various | | Condominium | | Las Vegas, NV | | $ | 6,228 |
| | $ | 3,116 |
| | $ | 3,112 |
| | — |
| | 8 |
| | 5 |
| | Condominium | | Las Vegas, NV | | $ | 4,509 |
| | $ | 1,939 |
| | $ | 2,570 |
| | — |
| | 6 |
| | 7 |
|
| Various | | Condominium | | Miami, FL | | 4,844 |
| | 3,987 |
| | 857 |
| | — |
| | 18 |
| | 30 |
| | Condominium | | Miami, FL | | 3,296 |
| | 2,662 |
| | 634 |
| | — |
| | 12 |
| | 36 |
|
| March 2018 | | Diversified | | El Monte, CA | | 71,807 |
| | 52,610 |
| | 19,197 |
| (1) | 1 |
| | — |
| | — |
| | Diversified | | El Monte, CA | | 71,807 |
| | 52,610 |
| | 19,197 |
| (1) | 1 |
| | — |
| | — |
|
| March 2018 | | Diversified | | Richmond, VA | | 21,632 |
| | 11,396 |
| | 10,236 |
| (2) | 1 |
| | — |
| | — |
| | Diversified | | Richmond, VA | | 20,966 |
| | 11,370 |
| | 9,596 |
| (2) | 1 |
| | — |
| | — |
|
| September 2018 | | Diversified | | St. Paul, MN | | 110,128 |
| | 47,189 |
| | 62,939 |
| (3) | 4 |
| | — |
| | — |
| |
| Totals | | $ | 214,639 |
| | $ | 118,298 |
| | $ | 96,341 |
| | | | | | | | $ | 100,578 |
| | $ | 68,581 |
| | $ | 31,997 |
| | | | | | |
| |
| (1) | This property had a third party investor. The third party investor has been allocated $7.0 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the ninesix months ended SeptemberJune 30, 2017,2018, on the consolidated statements of income. |
| |
| (2) | This property had a third party investor. The third party investor has been allocated $0.4 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the ninesix months ended SeptemberJune 30, 2017,2018, on the consolidated statements of income. |
| |
(3) | This property had a third party investor. The third party investor has been allocated $7.9 million of the realized gain, which is included in net (income) loss attributable to noncontrolling interest in consolidated joint ventures, for the nine months ended September 30, 2017, on the consolidated statements of income. |
The Company sold the following properties during the nine months ended September 30, 2017 ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales Date | | Type | | Primary Location(s) | | Net Sales Proceeds | | Net Book Value | | Realized Gain/(Loss) | | Properties | | Units Sold | | Units Remaining |
| | | | | | | | | | | | | | | | | |
| Various | | Condominium | | Las Vegas, NV | | $ | 14,568 |
| | $ | 7,943 |
| | $ | 6,625 |
| | — |
| | 37 |
| | 22 |
|
| Various | | Condominium | | Miami, FL | | 6,104 |
| | 4,789 |
| | 1,315 |
| | — |
| | 21 |
| | 67 |
|
| Totals | | | | | | $ | 20,672 |
| | $ | 12,732 |
| | $ | 7,940 |
| (1) | | | | | |
| |
(1) | Realized gain on the sale of real estate, net on the consolidated statements of income also includes $150 thousand of realized loss on the disposal of fixed assets for the nine months ended September 30, 2017. |
7. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company had an aggregate investment of $36.1$57.8 million and $35.4$40.4 million, respectively, in its equity method joint ventures with unaffiliated third parties.
The following is a summary of the Company’s investments in and advances to unconsolidated joint ventures, which we account for using the equity method, as of SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
|
| | | | | | | | |
| Entity | | June 30, 2019 | | December 31, 2018 |
| | | | | |
| Grace Lake JV, LLC | | $ | 3,282 |
| | $ | 5,316 |
|
| 24 Second Avenue Holdings LLC | | 54,469 |
| | 35,038 |
|
| Investment in unconsolidated joint ventures | | $ | 57,751 |
| | $ | 40,354 |
|
|
| | | | | | | | |
| Entity | | September 30, 2018 | | December 31, 2017 |
| | | | | |
| Grace Lake JV, LLC | | $ | 4,796 |
| | $ | 4,908 |
|
| 24 Second Avenue Holdings LLC | | 31,304 |
| | 30,533 |
|
| Investment in unconsolidated joint ventures | | $ | 36,100 |
| | $ | 35,441 |
|
The following is a summary of the Company’s allocated earnings (losses) based on its ownership interests from investment in unconsolidated joint ventures for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Entity | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Grace Lake JV, LLC | | $ | 618 |
| | $ | 266 |
| | $ | 1,032 |
| | $ | 533 |
|
| 24 Second Avenue Holdings LLC | | 946 |
| | (253 | ) | | 1,490 |
| | (468 | ) |
| Earnings (loss) from investment in unconsolidated joint ventures | | $ | 1,564 |
| | $ | 13 |
| | $ | 2,522 |
| | $ | 65 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| Entity | | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | | |
| Grace Lake JV, LLC | | 605 |
| | 387 |
| | $ | 1,138 |
| | $ | 895 |
|
| 24 Second Avenue Holdings LLC | | (204 | ) | | (260 | ) | | (672 | ) | | (831 | ) |
| Earnings (loss) from investment in unconsolidated joint ventures | | $ | 401 |
| | $ | 127 |
| | $ | 466 |
| | $ | 64 |
|
Grace Lake JV, LLC
In connection with the origination of a loan in April 2012, the Company received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, the loan was refinanced, and the Company converted its interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”), which holds an investment in an office building complex. After taking into account the preferred return of 8.25% and the return of all equity remaining in the property to the Company’s operating partner, the Company is entitled to 25% of the distribution of all excess cash flows and all disposition proceeds upon any sale. The Company is not legally required to provide any future funding to Grace Lake JV. The Company accounts for its interest in Grace Lake JV using the equity method of accounting, as it has a 19% investment, compared to the 81% investment of its operating partner and does not control the entity.
The Company’s investment in Grace Lake LLC is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on the fact there are disproportionate voting and economic rights within the joint venture. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has a passive investment and no control of this entity and therefore does not have controlling financial interests in this VIE. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this VIE that it was not previously contractually required to provide.
During the ninesix months ended SeptemberJune 30, 2019, the Company received no distributions from its investment in Grace Lake JV, LLC. During the six months ended June 30, 2018, the Company received a $1.3 million distributionof distributions from its investment in Grace Lake JV, LLC.
24 Second Avenue Holdings LLC
On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an operating partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium constructiondevelopment and developmentconstruction project located at 24 Second Avenue, New York, NY. The Company accountsaccounted for its interest in 24 Second Avenue using the equity method of accounting as its joint venture partner iswas the managing member of 24 Second Avenue and hashad substantive participatingmanagement rights.
During the three months ended March 31, 2019, the Company converted its existing $35.0 million common equity interest into a $35.0 million priority preferred equity position. The Company contributed $31.1also provided $50.4 million for a 73.8% interest, within first mortgage financing in order to refinance the operating partner holdingexisting $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the remaining 26.2% interest. The Company is entitled to income allocations and distributions based upon its membership interest of 73.8% untilnew $50.4 million first mortgage loan, the Company achievesalso funded a 1.70x profit multiple, after which, income is allocated$6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and distributed 50%all additional capital for necessary expenses.
Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company and 50% toaccounts for the operating partner.new loans as additional investments in the joint venture.
During the three and ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded $0.2$0.9 million and $0.7$1.5 million, respectively, in expenses,income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During the three and ninesix months ended SeptemberJune 30, 2017,2018, the Company recorded $0.3$(0.3) million and $0.8$(0.5) million, respectively, in expenses,income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. TheDuring 2018, the Company capitalizescapitalized interest related to the cost of its investment in 24 Second Avenue, as 24 Second Avenue hashad activities in progress necessary to construct and ultimately sell condominium units. During the six months ended June 30, 2019, the Company capitalized $0.1 million of interest expense, using a weighted average interest rate. During the three and ninesix months ended SeptemberJune 30, 2018, the Company capitalizedrecorded $0.4 million and $1.1$0.7 million, respectively, of interest expense, using a weighted average interest rate, which israte. The capitalized interest expense was recorded in investment in unconsolidated joint ventures in the consolidated balance sheets. DuringAs a result of the transactions described above, during the three and nine months ended September 30, 2017,March 31, 2019, the Company capitalized $0.4 millionwill no longer capitalize interest related to this investment, and $0.9 million, respectively, of interest expense, using a weighted average interest rate, which is recorded inincome generated the new loans will be accounted for as earnings from investment in unconsolidated joint ventures in the consolidated balance sheets.ventures.
As of September 30, 2018 and December 31, 2017,2018, 24 Second Avenue had $46.4$46.7 million and $36.5 million, respectively, of loans payable to a third party lenders.lender. As of December 31, 2016, the previously existing building had been demolished and the site was cleared with all supportive excavation work completed, and we are anticipating completion of the new construction and all certificates of occupancy for the units in 2018.2019. 24 Second Avenue consists of 3130 residential condominium units and one commercial condominium unit. As of September 30, 2018, 16 residential condominium units were under contract for sale for $39.3 million in sales proceeds. As of September 30, 2018, the Company is holding a 10.0% deposit on each sales contract. The Company expects to start24 Second Avenue started closing on the existing sales contracts during the quarter ended DecemberMarch 31, 2018, pending2019, upon receipt of New York City Building Department approvals. The Company’s operating partner entered intoapprovals and a construction loan in the amounttemporary certificate of $50.5 million to fund the completionoccupancy for a portion of the project. As of SeptemberJune 30, 2018, draws2019, 24 Second Avenue sold 15 residential condominium units for $40.1 million in total gross sale proceeds and one residential condominium unit was under contract for sale for $4.3 million in gross sales proceeds. As of $46.4 million have been taken againstJune 30, 2019, 24 Second Avenue is holding a 15% deposit on the construction loan. Thesales contract. As of June 30, 2019, the Company hashad no additional remaining capital commitment to our operating partner.24 Second Avenue.
The Company’s investment in 24 Second Avenue is an unconsolidated joint venture, which is a VIE for which the Company is not the primary beneficiary. This joint venture was deemed to be a VIE primarily based on (i) the fact there are disproportionatethat the total equity investment at risk (inclusive of the additional financing the Company provided through the first mortgage and mezzanine loans) is sufficient to permit the entities to finance activities without additional subordinated financial support provided by any parties, including equity holders; and (ii) the voting and economic rights are not disproportionate within the joint venture. The Company determined that it was not the primary beneficiary of this VIE based on the fact that the Company has shared control of this entity along with the entity’s partner and thereforebecause it does not have a controlling financial interests in this VIE. The Company’s maximum exposure to loss is limited to its investment in the VIE. The Company has not provided financial support to this VIE that it was not previously contractually required to provide. In general, future costs of development not financed through a third party will be funded with capital contributions from the Company and its outside partner in accordance with their respective ownership percentages.interest.
The Company holds its investment in 24 Second Avenue in its TRS.
Combined Summary Financial Information for Unconsolidated Joint Ventures
The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
| | | | | September 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
| | | | | | | | | |
| Total assets | | $ | 161,388 |
| | $ | 154,979 |
| | $ | 168,530 |
| | $ | 167,837 |
|
| Total liabilities | | 116,628 |
| | 108,119 |
| | 125,209 |
| | 116,667 |
|
| Partners’/members’ capital | | $ | 44,760 |
| | $ | 46,860 |
| | $ | 43,321 |
| | $ | 51,170 |
|
The following is a summary of the combined results from operations of the unconsolidated joint ventures for the period in which the Company had investment interests during the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Total revenues | | $ | 6,330 |
| | $ | 4,972 |
| | $ | 11,030 |
| | $ | 9,321 |
|
| Total expenses | | 3,571 |
| | 2,801 |
| | 7,434 |
| | 6,373 |
|
| Net income (loss) | | $ | 2,759 |
| | $ | 2,171 |
| | $ | 3,596 |
| | $ | 2,948 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | | |
| Total revenues | | $ | 4,351 |
| | $ | 5,199 |
| | $ | 13,671 |
| | $ | 13,942 |
|
| Total expenses | | 3,415 |
| | 3,709 |
| | 9,788 |
| | 11,193 |
|
| Net income (loss) | | $ | 936 |
| | $ | 1,490 |
| | $ | 3,883 |
| | $ | 2,749 |
|
8. DEBT OBLIGATIONS, NET
The details of the Company’s debt obligations at SeptemberJune 30, 20182019 and December 31, 20172018 are as follows ($ in thousands):
SeptemberJune 30, 20182019
| | | Debt Obligations | | Committed Financing | | Debt Obligations Outstanding | | Committed but Unfunded | | Interest Rate at September 30, 2018(1) | | Current Term Maturity | | Remaining Extension Options | | Eligible Collateral | | Carrying Amount of Collateral | | Fair Value of Collateral | | | Committed Financing | | Debt Obligations Outstanding | | Committed but Unfunded | | Interest Rate at June 30, 2019(1) | | Current Term Maturity | | Remaining Extension Options | | Eligible Collateral | | Carrying Amount of Collateral | | Fair Value of Collateral | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Committed Loan Repurchase Facility | | | $ | 600,000 |
| | $ | 200,501 |
| | $ | 399,499 |
| | 4.14% - 4.64% | | 2/24/2022 | | (2) | | (3) | | $ | 282,722 |
| | $ | 282,798 |
| |
| Committed Loan Repurchase Facility | | $ | 600,000 |
| | $ | 263,033 |
| | $ | 336,967 |
| | 3.91% - 4.66% | | 10/1/2020 | | (2) | | (3) | | $ | 416,109 |
| | $ | 415,610 |
| | | 350,000 |
| | 63,996 |
| | 286,004 |
| | 4.62% - 4.97% | | 5/24/2020 | | (4) | | (5) | | 98,515 |
| | 100,652 |
|
|
| Committed Loan Repurchase Facility | | 350,000 |
| | 164,676 |
| | 185,324 |
| | 4.38% - 5.13% | | 5/24/2019 | | (4) | | (5) | | 278,078 |
| | 310,631 |
|
| | 300,000 |
| | 177,710 |
| | 122,290 |
| | 4.39% - 4.90% | | 4/10/2020 | | (6) | | (7) | | 302,349 |
| | 302,349 |
|
|
| Committed Loan Repurchase Facility | | 300,000 |
| | 150,800 |
| | 149,200 |
| | 4.16% - 4.66% | | 4/7/2019 | | (6) | | (7) | | 234,264 |
| | 234,664 |
|
| | 300,000 |
| | 102,499 |
| | 197,501 |
| | 4.44% - 4.94% | | 5/6/2021 | | (8) | | (3) | | 155,332 |
| | 155,332 |
|
|
| Committed Loan Repurchase Facility | | 300,000 |
| | 112,570 |
| | 187,430 |
| | 4.19% - 5.19% | | 5/6/2021 | | (8) | | (3) | | 173,920 |
| | 173,857 |
|
| | 100,000 |
| | 87,174 |
| | 12,826 |
| | 4.21% - 4.65% | | 7/20/2021 | | (9) | | (3) | | 133,949 |
| | 134,211 |
| |
| Committed Loan Repurchase Facility | | 100,000 |
| | 60,892 |
| | 39,108 |
| | 4.28% - 4.66% | | 7/20/2021 | | (9) | | (3) | | 83,118 |
| | 83,118 |
| | | 100,000 |
| | 53,380 |
| | 46,620 |
| | 4.39% | | 3/26/2020 | | (10) | | (11) | | 71,800 |
| | 71,800 |
| |
| Total Committed Loan Repurchase Facilities | | 1,650,000 |
| | 751,971 |
| | 898,029 |
| | 1,185,489 |
| | 1,217,880 |
| | | 1,750,000 |
| | 685,260 |
| | 1,064,740 |
| | 1,044,667 |
| | 1,047,142 |
| |
| Committed Securities Repurchase Facility | | 400,000 |
| | 97,921 |
| | 302,079 |
| | 2.38% - 3.16% | | 9/30/2019 | | N/A | | (10) | | 116,799 |
| | 116,799 |
| | | 400,000 |
| | — |
| | 400,000 |
| | NA | | 3/4/2021 | | N/A | | (12) | | — |
| | — |
| |
| Uncommitted Securities Repurchase Facility | | N/A (11) |
| | 123,725 |
| | N/A (11) |
| | 2.73% - 4.06% | | 10/2018 - 12/2018 | | N/A | | (10) | | 140,823 |
| | 140,823 |
| (12)(13) | | N/A (12) |
| | 582,111 |
| | N/A (13) |
| | 2.99% - 4.06% | | 7/2019 - 9/2019 | | N/A | | (12) | | 637,238 |
| | 637,238 |
| (14) |
| Total Repurchase Facilities | | 2,050,000 |
| | 973,617 |
| | 1,200,108 |
| | 1,443,111 |
| | 1,475,502 |
| | | 2,150,000 |
| | 1,267,371 |
| | 1,464,740 |
| | 1,681,905 |
| | 1,684,380 |
| |
| Revolving Credit Facility | | 266,430 |
| | — |
| | 266,430 |
| | NA | | 2/11/2019 | | (14) | | N/A (15) | | N/A (15) |
| | N/A (15) |
| | | 266,430 |
| | — |
| | 266,430 |
| | NA | | 2/11/2020 | | (15) | | N/A (16) | | N/A (16) |
| | N/A (16) |
| |
| Mortgage Loan Financing | | 743,225 |
| | 743,225 |
|
| — |
| | 4.25% - 6.75% | | 2020 - 2028 | | N/A | | (16) | | 944,616 |
| | 1,104,443 |
| (17) | | 734,652 |
| | 734,652 |
|
| — |
| | 4.25% - 7.00% | | 2020 - 2029(17) | | N/A | | (18) | | 912,888 |
| | 1,097,090 |
| (19) |
| CLO Debt | | 672,001 |
| | 672,001 |
| (18) | — |
| | 3.04% - 5.76% | | 2021-2034 | | N/A | | (19) | | 869,536 |
| | 869,531 |
| | | 263,216 |
| | 263,216 |
| (20) | — |
| | 3.40% - 5.99% | | 2021-2034 | | N/A | | (21) | | 425,439 |
| | 425,810 |
| |
| Participation Financing - Mortgage Loan Receivable | | 2,516 |
| | 2,516 |
| | — |
| | 17.00% | | 12/6/2018 | | N/A | | (3) | | 2,516 |
| | 2,516 |
| | |
| Borrowings from the FHLB | | 1,933,522 |
| | 1,212,000 |
| | 721,522 |
| | 1.02% - 2.74% | | 2018 - 2024 | | N/A | | (20) | | 1,637,530 |
| | 1,639,263 |
| (21) | | 1,945,795 |
| | 1,191,449 |
| | 754,346 |
| | 1.47% - 3.00% | | 2019 - 2024 | | N/A | | (22) | | 1,493,752 |
| | 1,500,648 |
| (23) |
| Senior Unsecured Notes | | 1,166,201 |
| | 1,154,274 |
| (22) | — |
| | 5.250% - 5.875% | | 2021 - 2025 | | N/A | | N/A (23) | | N/A (23) |
| | N/A (23) |
| | | 1,166,201 |
| | 1,156,400 |
| (24) | — |
| | 5.250% - 5.875% | | 2021 - 2025 | | N/A | | N/A (25) | | N/A (25) |
| | N/A (25) |
| |
| Total Debt Obligations | | $ | 6,833,895 |
| | $ | 4,757,633 |
| | $ | 2,188,060 |
| | $ | 4,897,309 |
| | $ | 5,091,255 |
| | |
| Total Debt Obligations, Net | | | $ | 6,526,294 |
| | $ | 4,613,088 |
| | $ | 2,485,516 |
| | $ | 4,513,984 |
| | $ | 4,707,928 |
| |
| |
| (1) | SeptemberJune 2019 LIBOR rates are used to calculate interest rates for floating rate debt. |
| |
| (2) | Two additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date. |
| |
| (3) | First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
| (4) | One additional 12-month period at Company’s option. |
| |
| (5) | First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans. |
| |
| (6) | One additional 364-day period with Bank’s consent. |
| |
| (7) | First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
| (8) | One additional 12-month extension period and two additional 6-month extension periods at Company’s option. |
| |
| (9) | One additional 12-month extension period at Company’s option. No new advances are permitted after the initial maturity date. |
| |
| (10) | The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination. |
| |
| (11) | First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein. |
| |
| (12) | Commercial real estate securities. It does not include the real estate collateralizing such securities. |
| |
| (13) | Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances. |
| |
| (14) | Includes $3.0 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis. |
| |
| (15) | Three additional 12-month periods at Company’s option. |
| |
| (16) | The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries. |
| |
| (17) | Anticipated repayment dates. |
| |
| (18) | Certain of our real estate investments serve as collateral for our mortgage loan financing. |
| |
| (19) | Using undepreciated carrying value of commercial real estate to approximate fair value. |
| |
| (20) | Presented net of unamortized debt issuance costs of $1.0 million at June 30, 2019. |
| |
| (21) | First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
| (22) | First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities. |
| |
| (23) | Includes $10.0 million of restricted securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis. |
| |
| (24) | Presented net of unamortized debt issuance costs of $9.8 million at June 30, 2019. |
| |
| (25) | The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries. |
December 31, 2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations | | Committed Financing | | Debt Obligations Outstanding | | Committed but Unfunded | | Interest Rate at December 31, 2018(1) | | Current Term Maturity | | Remaining Extension Options | | Eligible Collateral | | Carrying Amount of Collateral | | Fair Value of Collateral | |
| | | | | | | | | | | | | | | | | | | | |
| Committed Loan Repurchase Facility | | $ | 600,000 |
| | $ | 180,597 |
| | $ | 419,403 |
| | 4.21% - 4.96% | | 10/1/2020 | | (2) | | (3) | | $ | 262,642 |
| | $ | 261,602 |
| |
| Committed Loan Repurchase Facility | | 350,000 |
| | 63,679 |
| | 286,321 |
| | 4.68% - 4.98% | | 5/24/2019 | | (4) | | (5) | | 87,385 |
| | 88,762 |
| |
| Committed Loan Repurchase Facility | | 300,000 |
| | 120,631 |
| | 179,369 |
| | 4.46% - 4.96% | | 4/7/2019 | | (6) | | (7) | | 204,747 |
| | 205,219 |
|
|
| Committed Loan Repurchase Facility | | 300,000 |
| | 79,886 |
| | 220,114 |
| | 4.44% - 4.94% | | 5/6/2021 | | (8) | | (3) | | 117,382 |
| | 117,366 |
| |
| Committed Loan Repurchase Facility | | 100,000 |
| | 52,738 |
| | 47,262 |
| | 4.58% - 4.96% | | 7/20/2021 | | (9) | | (3) | | 72,154 |
| | 72,154 |
|
|
| Committed Loan Repurchase Facility | | 100,000 |
| | — |
| | 100,000 |
| | NA | | 12/26/2019 | | (10) | | (11) | | — |
| | — |
| |
| Total Committed Loan Repurchase Facilities | | 1,750,000 |
| | 497,531 |
| | 1,252,469 |
| | | | | | | | | | 744,310 |
| | 745,103 |
| |
| Committed Securities Repurchase Facility | | 400,000 |
| | — |
| | 400,000 |
| | NA | | 9/30/2019 | | N/A | | (12) | | — |
| | — |
| |
| Uncommitted Securities Repurchase Facility | | N/A (12) |
| | 166,154 |
| | N/A (13) |
| | 2.99% - 4.55% | | 1/2019 - 3/2019 | | N/A | | (12) | | 187,803 |
| | 187,803 |
| (14)(15) |
| Total Repurchase Facilities | | 2,150,000 |
| | 663,685 |
| | 1,652,469 |
| | | | | | | | | | 932,113 |
| | 932,906 |
| |
| Revolving Credit Facility | | 266,430 |
| | — |
| | 266,430 |
| | NA | | 2/11/2019 | | (16) | | N/A (17) | | N/A (17) |
| | N/A (17) |
| |
| Mortgage Loan Financing | | 743,902 |
| | 743,902 |
| | — |
| | 4.25% - 7.00% | | 2020 - 2028(18) | | N/A | | (19) | | 939,362 |
| | 1,108,968 |
| (20) |
| CLO Debt | | 601,543 |
| | 601,543 |
| (21 | ) | — |
| | 3.34% - 6.06% | | 2021-2034 | | N/A | | (22) | | 710,502 |
| | 710,737 |
| |
| Participation Financing - Mortgage Loan Receivable | | 2,453 |
| | 2,453 |
| | — |
| | 17.00% | | 6/6/2019 | | N/A | | (3) | | 2,453 |
| | 2,453 |
| |
| Borrowings from the FHLB | | 1,933,522 |
| | 1,286,000 |
| | 647,522 |
| | 1.18% - 3.01% | | 2019 - 2024 | | N/A | | (23) | | 1,652,952 |
| | 1,655,150 |
| (24) |
| Senior Unsecured Notes | | 1,166,201 |
| | 1,154,991 |
| (25) | — |
| | 5.250% - 5.875% | | 2021 - 2025 | | N/A | | N/A (26) | | N/A (26) |
| | N/A (26) |
| |
| Total Debt Obligations | | $ | 6,864,051 |
| | $ | 4,452,574 |
| | $ | 2,566,421 |
| | | | | | | | | | $ | 4,237,382 |
| | $ | 4,410,214 |
| |
| |
| (1) | December 31, 2018 LIBOR rates are used to calculate interest rates for floating rate debt. |
| |
| (2) | Two additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date. |
| |
| (3) | First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
| (4) | Two additional 12-month periods at Company’s option. |
| |
| (5) | First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans. |
| |
| (6) | One additional 364-day periods at Company’s option and one additional 364-day period with Bank’s consent. |
| |
| (7) | First mortgage and mezzanine commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
| (8) | One additional 12-month extension period and two additional 6-month extension periods at Company’s option. |
| |
| (9) | One additional 12-month extension period at Company’s option. No new advances are permitted after the initial maturity date. |
| |
| (10) | The Company may extend periodically with lender’s consent. At no time can the maturity of the facility exceed 364 days from the date of determination. |
| |
| (11) | First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein. |
| |
| (12) | Commercial real estate securities. It does not include the real estate collateralizing such securities. |
| |
(11)(13) | Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances. |
| |
(12)(14) | As more fully described in Note 4, certain securities which were purchased from the LCCM LC-26 securitization trust are restricted. Includes $2.4$3.0 million of restricted securities.securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis. |
| |
(13)(15) | Includes $6.0$6.0 million of securities purchased in the secondary market of the Company’s October 2017 CLO issuance. These securities are not included in real estate securities available-for-sale but were rather considered a partial retirement of CLO Debt.debt. |
| |
(14)(16) | Four additional 12-month periods at Company’s option. |
| |
(15)(17) | The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries. |
| |
(16)(18) | Real estate.Anticipated repayment dates. |
| |
(17)(19) | Certain of our real estate investments serve as collateral for our mortgage loan financing. |
| |
| (20) | Using undepreciated carrying value of commercial real estate to approximate fair value. |
| |
(18)(21) | Presented net of unamortized debt issuance costs of $3.5$2.6 million at September 30,December 31, 2018. |
| |
(19)(22) | First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
(20)(23) | First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities. |
| |
(21)(24) | As more fully described in Note 4, certain securities which were purchased from the LCCM LC-26 securitization trust are restricted. Includes $9.6$9.7 million of restricted securities.
securities under the risk retention rules of Dodd-Frank Act. These securities are accounted for as held-to-maturity and recorded at amortized cost basis. |
| |
(22)(25) | Presented net of unamortized debt issuance costs of $11.9$11.2 million at September 30,December 31, 2018. |
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(23)(26) | The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries. |
December 31, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Debt Obligations | | Committed Financing | | Debt Obligations Outstanding | | Committed but Unfunded | | Interest Rate at December 31, 2017(1) | | Current Term Maturity | | Remaining Extension Options | | Eligible Collateral | | Carrying Amount of Collateral | | Fair Value of Collateral | |
| | | | | | | | | | | | | | | | | | | | |
| Committed Loan Repurchase Facility | | $ | 600,000 |
| | $ | 120,493 |
| | $ | 479,507 |
| | 3.23% - 3.98% | | 10/1/2020 | | (2) | | (3) | | $ | 160,031 |
| | $ | 159,568 |
| |
| Committed Loan Repurchase Facility | | 450,000 |
| | 183,111 |
| | 266,889 |
| | 3.63% - 4.48% | | 5/24/2018 | | (4) | | (3) | | 333,647 |
| | 335,076 |
| |
| Committed Loan Repurchase Facility | | 300,000 |
| | 63,007 |
| | 236,993 |
| | 3.73% - 4.73% | | 4/10/2018 | | (5) | | (6) | | 125,379 |
| | 125,975 |
|
|
| Committed Loan Repurchase Facility | | 200,000 |
| | 32,042 |
| | 167,958 |
| | 4.25% - 4.50% | | 2/29/2020 | | (7) | | (8) | | 48,045 |
| | 48,045 |
| |
| Committed Loan Repurchase Facility | | 100,000 |
| | — |
| | 100,000 |
| | N/A | | 6/28/2019 | | N/A | | (3) | | — |
| | — |
|
|
| Total Committed Loan Repurchase Facilities | | 1,650,000 |
| | 398,653 |
| | 1,251,347 |
| | | | | | | | | | 667,102 |
| | 668,664 |
| |
| Committed Securities Repurchase Facility | | 400,000 |
| | — |
| | 400,000 |
| | N/A | | 9/30/2019 | | N/A | | (9) | | — |
| | — |
| |
| Uncommitted Securities Repurchase Facility | | N/A (10) |
| | 74,757 |
| | N/A (10) |
| | 1.65% - 3.31% | | 1/2018 - 3/2018 | | N/A | | (9) | | 86,322 |
| | 86,322 |
| (11) |
| Total Repurchase Facilities | | 2,050,000 |
| | 473,410 |
| | 1,651,347 |
| | | | | | | | | | 753,424 |
| | 754,986 |
| |
| Revolving Credit Facility | | 241,430 |
| | — |
| | 241,430 |
| | N/A | | 2/11/2018 | | (4) | | N/A (12) | | N/A (14) |
| | N/A (14) |
| |
| Mortgage Loan Financing | | 692,696 |
| | 692,696 |
| | — |
| | 4.25% - 6.75% | | 2018 - 2027 | | N/A | | (13) | | 911,034 |
| | 1,066,708 |
| (14) |
| CLO Debt | | 688,479 |
| | 688,479 |
| (15 | ) | — |
| | 2.36% - 5.08% | | 2021-2034 | | N/A | | (16) | | 880,385 |
| | 881,576 |
| |
| Participation Financing - Mortgage Loan Receivable | | 3,107 |
| | 3,107 |
| | — |
| | 17.00% | | 6/6/2018 | | N/A | | (3) | | 3,107 |
| | 3,107 |
| |
| Borrowings from the FHLB | | 2,000,000 |
| | 1,370,000 |
| | 630,000 |
| | 0.87% - 2.74% | | 2018 - 2024 | | N/A | | (17) | | 1,777,597 |
| | 1,783,210 |
| (18) |
| Senior Unsecured Notes | | 1,166,201 |
| | 1,152,134 |
| (19) | — |
| | 5.250% - 5.875% | | 2021 - 2025 | | N/A | | N/A (20) | | N/A (20) |
| | N/A (20) |
| |
| Total Debt Obligations | | $ | 6,841,913 |
| | $ | 4,379,826 |
| | $ | 2,522,777 |
| | | | | | | | | | $ | 4,325,547 |
| | $ | 4,489,587 |
| |
| |
(1) | December 31, 2017 LIBOR rates are used to calculate interest rates for floating rate debt. |
| |
(2) | Two additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date. |
| |
(3) | First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
(4) | Three additional 12-month periods at Company’s option. |
| |
(5) | Two additional 364-day periods at Company’s option and one additional 364-day period with Bank’s consent. |
| |
(6) | First mortgage and mezzanine commercial real estate loans. It does not include the real estate collateralizing such loans. |
| |
(7) | One additional 12-month extension period and two additional 6-month extension periods at Company’s option. |
| |
(8) | First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans. |
| |
(9) | Commercial real estate securities. It does not include the real estate collateralizing such securities. |
| |
(10) | Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances. |
| |
(11) | As more fully described in Note 4, certain securities which were purchased from the LCCM LC-26 securitization trust are restricted. Includes $26.7 million of restricted securities.
|
| |
(12) | The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by equity pledges in certain Company subsidiaries. |
| |
(14) | Using undepreciated carrying value of commercial real estate to approximate fair value. |
| |
(15) | Presented net of unamortized debt issuance costs of $6.0 million at December 31, 2017. |
| |
(16) | First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans. |
| |
(17) | First mortgage commercial real estate loans and investment grade commercial real estate securities. It does not include the real estate collateralizing such loans and securities. |
| |
(18) | As more fully described in Note 4, certain securities which were purchased from the LCCM LC-26 securitization trust are restricted. Includes $10.1 million of restricted securities.
|
| |
(19) | Presented net of unamortized debt issuance costs of $14.1 million at December 31, 2017. |
| |
(20) | The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries. |
Committed Loan and Securities Repurchase Facilities
The Company has entered into multiple committed master repurchase agreements in order to finance its lending activities. The Company has entered into fivesix committed master repurchase agreements, as outlined in the SeptemberJune 30, 20182019 table above, totaling $1.7$1.8 billion of credit capacity. Assets pledged as collateral under these facilities are limited to whole mortgage loans or participation interests in mortgage loans collateralized by first liens on commercial properties and mezzanine debt. The Company also has a term master repurchase agreement with a major U.S. bank to finance CMBS totaling $400.0 million. The Company’s repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, maximum leverage ratios, and minimum fixed charge coverage ratios. The Company believes it was in compliance with all covenants as of SeptemberJune 30, 20182019 and December 31, 2017.2018.
The Company has the option to extend some of the current facilities subject to a number of conditions, including satisfaction of certain notice requirements, no event of default exists, and no margin deficit exists, all as defined in the repurchase facility agreements. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, to be exercised on a good faith basis, and have the right in certain cases to require additional collateral, a full and/or partial repayment of the facilities (margin call), or a reduction in unused availability under the facilities, sufficient to rebalance the facilities if the estimated market value of the included collateral declines.
On February 22, 2017, the Company exercised a one year extension option on one of its committed loan repurchase facilities. In connection with this extension, the Company elected to reduce the maximum capacity of the facility to $300.0 million. In addition, on March 21, 2017, the Company amended this committed loan repurchase facility to, among other things, add one additional 364-day extension period at Company’s option and one additional 364-day extension period permitted with lender’s consent.
On March 1, 2017, the Company executed an amendment and extension of one of its credit facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to February 28, 2022 and increasing the maximum funding capacity to $200.0 million.
On May 1, 2017, the Company executed an amendment to one of its credit facilities with a major banking institution to, among other things, extend the maximum term by an additional year to May 24, 2021.
On September 29, 2017, the Company executed an amendment to its committed securities repurchase facility with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to September 30, 2019.
Effective September 30, 2017, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to
October 1, 2022, inclusive of two 12-month extension options, and to extend of the final date to obtain new advances under the facility to October 1, 2020.
On January 4, 2018, the Company exercised its option to extend one of its committed loan repurchase facilities with a major banking institution for a term of one year.
On April 3, 2018, the Company exercised its option to extend one of its credit facilities with a major banking institution for a term of one year and agreed with such banking institution to decrease the maximum funding capacity under such facility from $450 million to $350 million together with other related modifications, all of which will be memorialized in definitive documentation.
On May 7, 2018, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to May 6, 2023 and increasing the maximum funding capacity to $300.0 million.
On July 20, 2018, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the maximum term of the facility to July 20, 2021 and decreasing the interest rate spreads thereunder by 25 basis points.
On December 27, 2018, the Company executed a new $100.0 million committed loan repurchase facility with a major banking institution to finance first mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein. The facility has a one-year initial term and the Company may extend periodically with lender’s consent, but at no time can the maturity of the facility exceed 364 days from the date of determination.
On February 26, 2019, the Company executed an amendment of one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the initial term of the facility to February 24, 2022. The facility has two additional 12-month extension periods at the Company’s option. No new advances are permitted after the initial maturity date.
On March 4, 2019, the Company executed an amendment of its committed securities repurchase facility with a major banking institution, providing for, among other things, the extension of the initial term of the facility to March 4, 2021.
On May 1, 2019, the Company amended the pricing side letter related to one of its committed loan repurchase facilities with a major banking institution, providing for, among other things, the extension of the initial term of the facility to March 26, 2020.
On May 24, 2019, the Company exercised its option to extend one of its committed loan repurchase facilities with a major banking institution for a term of one year.
As of SeptemberJune 30, 2018, we2019, the Company had repurchase agreements with eightnine counterparties, with total debt obligations outstanding of $973.6 million.$1.3 billion. As of SeptemberJune 30, 2018, four2019, two counterparties, Deutsche Bank, JP Morgan US Bank and Wells Fargo, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $77.7$82.4 million, or 5% of our total equity. As of SeptemberJune 30, 2018,2019, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 34.0%24.8%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.
Revolving Credit Facility
The Company entered into aCompany’s revolving credit facility (the “Revolving Credit Facility”) on February 11, 2014, and subsequent amendments on February 26, 2016, March 1, 2017, March 23, 2017, September 29, 2017, October 27, 2017, September 14, 2018 and September 28, 2018, which provided for, among other things, (i) additional members in the lenders’ syndicate and an increase in the aggregate maximum borrowings under the agreement to $266.4 million, (ii) additional 1-year extension options to extend the final maturity date to February 2023, and (iii) a reduction in the cost of funds by 0.25%.
The Revolving Credit Facility provides for an aggregate maximum borrowing amount of $266.4 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. TheOn January 15, 2019, the Company extended the maturity date of the Revolving Credit Facility to February 11, 2020. The Company has aadditional one-year extension options to extend the final maturity date ofto February 11, 2019, which may be extended by four 12-month periods subject to the satisfaction of customary conditions, including the absence of default.2023. Interest on the Revolving Credit Facility is one-month LIBOR plus 3.25% per annum payable monthly in arrears.
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. The Company’s ability to borrow under the Revolving Credit Facility is dependent on, among other things, LCFH’s compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.
Debt Issuance Costs
As discussed in Note 2, Significant Accounting Policies in the Annual Report, the Company considers its committed loan master repurchase facilities and Revolving Credit Facility to be revolving debt arrangements. As such, the Company continues to defer and present costs associated with these facilities as an asset, subsequently amortizing those costs ratably over the term of each revolving debt arrangement. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the amount of unamortized costs relating to such facilities are $6.8$8.3 million and $7.8$6.3 million, respectively, and are included in other assets in the consolidated balance sheets.
Uncommitted Securities Repurchase Facilities
The Company has also entered into multiple master repurchase agreements with several counterparties collateralized by real estate securities. The borrowings under these agreements have typical advance rates between 75% and 95% of the fair value of collateral.
Mortgage Loan Financing
These non-recourse debt agreements provide for fixed rate financing at rates, ranging from 4.25% to 6.75%7.00%, maturingwith anticipated maturity dates between 2020 - 20282029 as of SeptemberJune 30, 2018.2019. These loans have carrying amounts of $743.2$734.7 million and $692.7$743.9 million, net of unamortized premiums of $6.1$5.5 million and $6.6$5.8 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, representing proceeds received upon financing greater than the contractual amounts due under these agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. The Company recorded $0.3$0.4 million and $0.8 million of premium amortization, which decreased interest expense, for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The Company recorded $0.3$0.2 million and $0.7$0.5 million of premium amortization, which decreased interest expense, for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. The loans are collateralized by real estate and related lease intangibles, net, of $944.6$912.9 million and $911.0$939.4 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. During the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, the Company executed 11six and 23eight term debt agreements, respectively, to finance properties in its real estate portfolio.
On February 6, 2019, the Company paid off $6.6 million of mortgage loan financing, recognizing a loss on extinguishment of debt of $1.1 million.
CLO Debt
The Company completed its inaugural CLO issuances in the two transactions described below. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company had a total of $672.0$263.2 million and $688.5$601.5 million, respectively, of floating rate, non-recourse CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of $3.5$1.0 million and $6.0$2.6 million are included in CLO Debtdebt as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. As of SeptemberJune 30, 2018,2019, the CLO debt has interest rates of 3.04%3.4% to 5.76%5.99% (with a weighted average of 4.06%5.1%). As of SeptemberJune 30, 2018,2019, collateral for the CLO debt comprised $869.5$425.4 million of first mortgage commercial mortgage real estate loans.
On October 17, 2017, a consolidated subsidiary of the Company consummated a securitization of floating-rate commercial mortgage loans through a static CLO structure. Over $456.9 million of balance sheet loans (“Contributed Loans”) were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a consolidated subsidiary of the Company in the form of a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s consolidated subsidiary. A consolidated subsidiary of the Company retained an approximately 18.5% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO,CLO. The Company retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE - See Note 3.
On December 21, 2017, a subsidiary of the Company consummated a securitization of fixed and floating-rate commercial mortgage loans through a static CLO structure. Over $431.5 million of Contributed Loans were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a consolidated subsidiary of the Company in the form of a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s consolidated subsidiary.subsidiary, as long as certain requirements are met. A consolidated subsidiary of the Company retained an approximately 25% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO,CLO. The Company retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE - See Note 3.
Participation Financing - Mortgage Loan Receivable
During the three months ended March 31, 2017, the Company sold a participating interest in a first mortgage loan receivable to a third party. The sales proceeds of $4.0 million arewere considered non-recourse secured borrowings and arewere recognized in debt obligations on the Company’s consolidated balance sheets with $2.5 million and $3.1 million outstanding as of September 30, 2018 and December 31, 2017, respectively.2018. There were no non-recourse secured borrowings recognized in debt obligations on the Company’s consolidated balance sheets as of June 30, 2019, as the loan matured and was repaid during the three months ended June 30, 2019. The Company recorded $0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The Company recorded $0.2$0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively.
Borrowings from the Federal Home Loan Bank (“FHLB”)
On July 11, 2012, Tuebor Captive Insurance Company LLC (“Tuebor”), a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. On December 6, 2017, Tuebor’s advance limit was updated by the FHLB to the lowest of a Set Dollar Limit ($2.0 billion), 40% of Tuebor’s total assets or 150% of the Company’s total equity. Beginning April 1, 2020 through December 31, 2020, the Set Dollar Limit will be $1.5 billion. Beginning January 1, 2021 through February 19, 2021, the Set Dollar Limit will be $750.0 million. Tuebor is well-positioned to meet its obligations and pay down its advances in accordance with the scheduled reduction in the Set Dollar Limit, which remains subject to revision by the FHLB or as a result of any future changes in applicable regulations.
As of SeptemberJune 30, 2018,2019, Tuebor had $1.2 billion of borrowings outstanding (with an additional $721.5$754.3 million of committed term financing available from the FHLB), with terms of overnight to six5.3 years (with a weighted average of 2.62.3 years), interest rates of 1.02%1.47% to 2.74%3.00% (with a weighted average of 2.22%2.58%), and advance rates of 58.0%55.2% to 95.2%100% of the collateral. As of SeptemberJune 30, 2018,2019, collateral for the borrowings was comprised of $721.5$825.9 million of CMBS and U.S. Agency Securities and $916.0$669.7 million of first mortgage commercial real estate loans.
As of December 31, 2017,2018, Tuebor had $1.4$1.3 billion of borrowings outstanding (with an additional $630.0$647.5 million of committed term financing available from the FHLB), with terms of overnight to six5.75 years (with a weighted average of 2.5 years), interest rates of 0.87%1.18% to 2.74%3.01% (with a weighted average of 1.61%2.55%), and advance rates of 49.6%56.4% to 100%95.2% of the collateral. As of December 31, 2017,2018, collateral for the borrowings was comprised of $861.7 million$1.0 billion of CMBS and U.S. Agency Securities and $915.9$637.2 million of first mortgage commercial real estate loans.
Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, approximately $1.7$1.9 billion of the member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at SeptemberJune 30, 2018.2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.
Effective February 19, 2016, the Federal Housing Finance Agency (the “FHFA’’), regulator of the FHLB, adopted a final rule amending its regulation regarding the eligibility of captive insurance companies for FHLB membership. According to the final rule, Ladder’s captive insurance company subsidiary, Tuebor may remain as a member of the FHLB through February 19, 2021 (the “Transition Period”). During the Transition Period, Tuebor is eligible to continue to draw new additional advances, extend the maturities of existing advances, and pay off outstanding advances on the same terms as non-captive insurance company FHLB members with the following two exceptions:
| |
| 1. | New advances (including any existing advances that are extended during the Transition Period) will have maturity dates on or before February 19, 2021; and |
| |
| 2. | The FHLB will make new advances to Tuebor subject to a requirement that Tuebor’s total outstanding advances do not exceed 40% of Tuebor’s total assets. |
Tuebor has executed new advances since the effective date of the new rule in the ordinary course of business.
FHLB advances amounted to 25.5%25.8% of the Company’s outstanding debt obligations as of SeptemberJune 30, 2018.2019. The Company does not anticipate that the FHFA’s final regulation will materially impact its operations as it will continue to access FHLB advances during the five-year Transition Period.
There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s membership in the FHLB and continuing access to new or existing advances prior to February 19, 2021.
Senior Unsecured Notes
LCFH issued the 2025 Notes, the 2022 Notes, the 2021 Notes and the 2017 Notes (each as defined below, and collectively, the “Notes”) with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary of Series TRS of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company is the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business. As of SeptemberJune 30, 2018,2019, the Company has a 88.2%89.8% economic and voting interest in LCFH and controls the management of LCFH as a result of its ability to appoint board members. Accordingly, the Company consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners. In addition, the Company, through certain subsidiaries which are treated as TRSs, is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and federal, state and local income taxes, there are no material differences between the Company’s consolidated financial statements and LCFH’s consolidated financial statements. The Company believes it was in compliance with all covenants of the Notes as of SeptemberJune 30, 20182019 and December 31, 2017.2018.
Unamortized debt issuance costs of $11.9$9.8 million and $14.1$11.2 million are included in senior unsecured notes as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, in accordance with GAAP.
2017 Notes
On September 19, 2012, LCFH issued $325.0 million in aggregate principal amount of 7.375% senior notes due October 1, 2017 (the “2017 Notes”). The 2017 Notes required interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on September 19, 2012. The 2017 Notes were unsecured and subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after April 1, 2017, the 2017 Notes were redeemable at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice, without penalty. On November 5, 2014, the board of directors authorized the Company to make up to $325.0 million in repurchases of the 2017 Notes from time to time without further approval.
On December 17, 2014, the Company retired $5.4 million of principal of the 2017 Notes for a repurchase price of $5.6 million recognizing a $0.2 million loss on extinguishment of debt. During the year ended December 31, 2016, the Company retired $21.9 million of principal of the 2017 Notes for a repurchase price of $21.4 million, recognizing a $0.3 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt.
On March 1, 2017, the Company delivered a notice of conditional full redemption to holders of the 2017 Notes, pursuant to which the Company redeemed all outstanding 2017 Notes at 100% of the principal amount thereof (plus any accrued and unpaid interest to the redemption date) as of April 1, 2017. The redemption was conditional on the completion by the Company of a senior notes offering with gross proceeds of not less than $500 million. The Company’s offering of the 2022 Notes, described below, satisfied this condition. On April 3, 2017, the Company retired the remaining $297.7 million of principal of the 2017 Notes for a repurchase price of $297.7 million, recognizing a $53.5 thousand net loss on extinguishment of debt after recognizing $(22.8) thousand of unamortized debt issuance costs associated with the retired debt.
2021 Notes
On August 1, 2014, LCFH issued $300.0 million in aggregate principal amount of 5.875% senior notes due August 1, 2021 (the “2021 Notes”). The 2021 Notes require interest payments semi-annually in cash in arrears on February 1 and August 1 of each year, beginning on February 1, 2015. The 2021 Notes will mature on August 1, 2021. The 2021 Notes are unsecured and are subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after August 1, 2020,2017, the Company may redeem the 2021 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice, without penalty.at redemption prices defined in the indenture governing the 2021 Notes, plus accrued and unpaid interest, if any, to the redemption date. On February 24, 2016, the board of directors authorized the Company to make up to $100.0 million in repurchases of the 2021 Notes from time to time without further approval. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2021 Notes from time to time without further approval.
During the year ended December 31, 2016, the Company retired $33.8 million of principal of the 2021 Notes for a repurchase price of $28.2 million, recognizing a $5.1 million net gain on extinguishment of debt after recognizing $(0.4) million of unamortized debt issuance costs associated with the retired debt. As of SeptemberJune 30, 2018,2019, the remaining $266.2 million in aggregate principal amount of the 2021 Notes is due August 1, 2021.
2022 Notes
On March 16, 2017, LCFH issued $500.0 million in aggregate principal amount of 5.250% senior notes due March 15, 2022 (the “2022 Notes”). The 2022 Notes require interest payments semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The 2022 Notes will mature on March 15, 2022. The 2022 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. At any time on or after September 15, 2021, the 2022 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, without penalty. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2022 Notes from time to time without further approval.
2025 Notes
On September 25, 2017, LCFH issued $400.0 million in aggregate principal amount of 5.250% senior notes due October 1, 2025 (the “2025 Notes”). The 2025 Notes require interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on April 1, 2018. The 2025 Notes will mature on October 1, 2025. The 2025 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the 2025 Notes, in whole, at any time, or from time to time, prior to their stated maturity. TheAt any time after October 1, 2020, the Company may redeem the 2025 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the 2025 Notes plus the Applicable Premium (asprices defined in the indenture governing the 2025 Notes) as of, andNotes, plus accrued and unpaid interest, if any, to the redemption date. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2025 Notes from time to time without further approval.
Combined Maturity of Debt Obligations
The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands):
| | | Period ending December 31, | | Borrowings by Maturity(1) | | Borrowings by Maturity(1) |
| | | |
| | |
|
| 2018 (last 3 months) | | $ | 466,087 |
| |
| 2019 | | 1,216,659 |
| |
| 2019 (last 6 months) | | | $ | 842,102 |
|
| 2020 | | 626,722 |
| | 1,040,826 |
|
| 2021 | | 559,308 |
| | 843,924 |
|
| 2022 | | 656,904 |
| | 655,796 |
|
| 2023 | | | 559,305 |
|
| Thereafter | | 1,242,284 |
| | 676,940 |
|
| Subtotal | | $ | 4,767,964 |
| | 4,618,893 |
|
| Debt issuance costs included in senior unsecured notes | | (11,927 | ) | | (9,801 | ) |
| Debt issuance costs included in CLO debt | | (3,498 | ) | | (971 | ) |
| Debt issuance costs included in mortgage loan financing | | (973 | ) | | (543 | ) |
| Premiums included in mortgage loan financing(2) | | 6,067 |
| | 5,510 |
|
| Total | | 4,757,633 |
| | $ | 4,613,088 |
|
| |
| (1) | Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for 20182019 relate to debt obligations that are subject to existing Company controlled extension options for one or more additional one-yearone year periods or could be refinanced by other existing facilities as of SeptemberJune 30, 2018.2019. |
| |
| (2) | Deferred gains on intercompany loans, secured by our own real estate, sold into securitizations. Premium isThese premiums are amortized as a reduction to interest expense. |
The Company’s debt facilities are subject to covenants which require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately $780.0$829.3 million of the total equity is restricted from payment as a dividend by the Company at SeptemberJune 30, 2018.2019.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is based upon internal models, using market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.
Fair Value Summary Table
The carrying values and estimated fair values of the Company’s financial instruments, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at SeptemberJune 30, 20182019 and December 31, 20172018 are as follows ($ in thousands):
SeptemberJune 30, 20182019 | | | | | | | | | | | | Weighted Average | | | | | | | | | Weighted Average |
| | Outstanding Face Amount | | Amortized Cost Basis | | Fair Value | | Fair Value Method | | Yield % | | Remaining Maturity/Duration (years) | Outstanding Face Amount | | Amortized Cost Basis/Purchase Price | | Fair Value | | Fair Value Method | | Yield % | | Remaining Maturity/Duration (years) |
| Assets: | |
| | |
| | |
| | | | |
| | | |
| | |
| | |
| | | | |
| | |
| CMBS(1) | $ | 883,416 |
| | $ | 886,907 |
| | $ | 878,741 |
| | Internal model, third-party inputs | | 3.04 | % | | 2.36 | $ | 1,642,160 |
| | $ | 1,643,149 |
| | $ | 1,653,703 |
| | Internal model, third-party inputs | | 3.31 | % | | 2.26 |
| CMBS interest-only(1) | 2,272,679 |
| (2) | 63,282 |
| | 61,638 |
| | Internal model, third-party inputs | | 2.71 | % | | 2.79 | 2,166,640 |
| (2) | 42,689 |
| | 44,052 |
| | Internal model, third-party inputs | | 3.63 | % | | 2.67 |
| GNMA interest-only(3) | 138,026 |
| (2) | 3,068 |
| | 2,755 |
| | Internal model, third-party inputs | | 7.24 | % | | 4.08 | 118,858 |
| (2) | 2,483 |
| | 2,291 |
| | Internal model, third-party inputs | | 9.13 | % | | 2.72 |
| Agency securities(1) | 678 |
| | 693 |
| | 664 |
| | Internal model, third-party inputs | | 1.87 | % | | 2.49 | 652 |
| | 664 |
| | 663 |
| | Internal model, third-party inputs | | 1.78 | % | | 2.11 |
| GNMA permanent securities(1) | 32,916 |
| | 33,182 |
| | 33,263 |
| | Internal model, third-party inputs | | 3.78 | % | | 5.19 | 32,055 |
| | 32,291 |
| | 33,084 |
| | Internal model, third-party inputs | | 3.74 | % | | 4.72 |
| Corporate bonds(1) | 1,250 |
| | 1,223 |
| | 1,228 |
| | Internal model, third-party inputs | | 4.61 | % | | 2.25 | 41,205 |
| | 40,581 |
| | 41,418 |
| | Internal model, third-party inputs | | 4.82 | % | | 1.64 |
| Equity securities(3) | | N/A |
| | 13,720 |
| | 13,204 |
| | Observable market prices | | N/A |
| | N/A |
| Mortgage loan receivables held for investment, net, at amortized cost: | | | | | | | | | | | | | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | 3,830,115 |
| | 3,805,387 |
| | 3,806,114 |
| | Discounted Cash Flow(4) | | 7.70 | % | | 1.35 | 3,136,334 |
| | 3,119,857 |
| | 3,133,579 |
| | Discounted Cash Flow(4) | | 8.01 | % | | 1.19 |
| Provision for loan losses | N/A |
| | (17,600 | ) | | (17,600 | ) | | (5) | | N/A |
| | N/A | N/A |
| | (18,500 | ) | | (18,500 | ) | | (5) | | N/A |
| | N/A |
| Mortgage loan receivables held for sale | 377,352 |
| | 375,162 |
| | 384,945 |
| | Internal model, third-party inputs(6) | | 5.26 | % | | 9.87 | 112,099 |
| | 111,977 |
| | 116,531 |
| | Internal model, third-party inputs(6) | | 5.05 | % | | 9.41 |
| FHLB stock(7) | 57,915 |
| | 57,915 |
| | 57,915 |
| | (7) | | 4.50 | % | | N/A | 61,619 |
| | 61,619 |
| | 61,619 |
| | (7) | | 5.50 | % | | N/A |
| Nonhedge derivatives(1)(8) | 43,500 |
| | N/A |
| | 57 |
| | Counterparty quotations | | N/A |
| | 0.30 | 344,171 |
| | N/A |
| | 536 |
| | Counterparty quotations | | N/A |
| | 0.25 |
| | | | | | | | | | | | | | | | | |
| Liabilities: | |
| | |
| | |
| | | | |
| | | |
| | |
| | |
| | | | |
| | |
| Repurchase agreements - short-term | 603,303 |
| | 603,303 |
| | 603,303 |
| | Discounted Cash Flow(9) | | 4.06 | % | | 0.67 | 957,902 |
| | 957,902 |
| | 957,902 |
| | Discounted Cash Flow(9) | | 3.07 | % | | 0.29 |
| Repurchase agreements - long-term | 370,313 |
| | 370,313 |
| | 370,313 |
| | Discounted Cash Flow(10) | | 2.90 | % | | 1.86 | 309,469 |
| | 309,469 |
| | 309,469 |
| | Discounted Cash Flow(10) | | 3.36 | % | | 1.52 |
| Mortgage loan financing | 754,027 |
| | 743,225 |
| | 719,689 |
| | Discounted Cash Flow(10) | | 5.05 | % | | 3.04 | 729,685 |
| | 734,652 |
| | 750,161 |
| | Discounted Cash Flow(10) | | 5.09 | % | | 1.82 |
| CLO debt | 672,001 |
| | 672,001 |
| | 672,001 |
| | Discounted Cash Flow(9) | | 4.06 | % | | 10.11 | 263,216 |
| | 263,216 |
| | 263,216 |
| | Discounted Cash Flow(9) | | 5.10 | % | | 4.89 |
| Participation Financing - Mortgage Loan Receivable | 2,516 |
| | 2,516 |
| | 2,516 |
| | Discounted Cash Flow(11) | | 17.00 | % | | 0.18 | |
| Borrowings from the FHLB | 1,212,000 |
| | 1,212,000 |
| | 1,208,116 |
| | Discounted Cash Flow | | 2.22 | % | | 2.60 | 1,191,449 |
| | 1,191,449 |
| | 1,199,510 |
| | Discounted Cash Flow | | 2.58 | % | | 2.34 |
| Senior unsecured notes | 1,166,201 |
| | 1,154,274 |
| | 1,142,863 |
| | Broker quotations, pricing services | | 5.39 | % | | 4.53 | 1,166,201 |
| | 1,156,400 |
| | 1,185,576 |
| | Broker quotations, pricing services | | 5.39 | % | | 3.78 |
| Nonhedge derivatives(1)(8) | 721,071 |
| | N/A |
| | 280 |
| | Counterparty quotations | | N/A |
| | 0.25 | |
| |
| (1) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. |
| |
| (2) | Represents notional outstanding balance of underlying collateral. |
| |
| (3) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. |
| |
| (4) | Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a discounted cash flow model. |
| |
| (5) | Fair value is estimated to equal par value. |
| |
| (6) | Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing. |
| |
| (7) | Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par. |
| |
| (8) | The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts. |
| |
| (9) | Fair value for repurchase agreement liabilities and CLO debt is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions. |
| |
| (10) | For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions. |
| |
(11) | Fair value for Participation Financing - Mortgage Loan Receivable approximates amortized cost as this is a loan participation to a third party. |
December 31, 2017 2018
| | | | | | | | | | | | Weighted Average | | | | | | | | | Weighted Average |
| | Outstanding Face Amount | | Amortized Cost Basis | | Fair Value | | Fair Value Method | | Yield % | | Remaining Maturity/Duration (years) | Outstanding Face Amount | | Amortized Cost Basis | | Fair Value | | Fair Value Method | | Yield % | | Remaining Maturity/Duration (years) |
| Assets: | |
| | |
| | |
| | | | |
| | | |
| | |
| | |
| | | | |
| | |
| CMBS(1) | $ | 945,167 |
| | $ | 954,397 |
| | $ | 953,499 |
| | Internal model, third-party inputs | | 2.79 | % | | 2.89 | $ | 1,258,819 |
| | $ | 1,257,801 |
| | $ | 1,252,640 |
| | Internal model, third-party inputs | | 3.14 | % | | 2.33 |
| CMBS interest-only(1) | 3,140,297 |
| (2) | 112,609 |
| | 113,071 |
| | Internal model, third-party inputs | | 3.16 | % | | 3.08 | 2,373,936 |
| (2) | 55,534 |
| | 55,691 |
| | Internal model, third-party inputs | | 2.80 | % | | 2.69 |
| GNMA interest-only(3) | 172,916 |
| (2) | 5,245 |
| | 4,477 |
| | Internal model, third-party inputs | | 6.70 | % | | 4.18 | 135,932 |
| (2) | 2,862 |
| | 2,648 |
| | Internal model, third-party inputs | | 6.30 | % | | 4.11 |
| Agency securities(1) | 720 |
| | 743 |
| | 728 |
| | Internal model, third-party inputs | | 1.80 | % | | 2.94 | 668 |
| | 682 |
| | 662 |
| | Internal model, third-party inputs | | 1.83 | % | | 2.36 |
| GNMA permanent securities(1) | 33,745 |
| | 34,386 |
| | 34,742 |
| | Internal model, third-party inputs | | 3.62 | % | | 5.66 | 32,633 |
| | 32,889 |
| | 33,064 |
| | Internal model, third-party inputs | | 3.76 | % | | 5.03 |
| Corporate bonds(1) | | 55,305 |
| | 54,257 |
| | 53,871 |
| | Internal model, third-party inputs | | 5.04 | % | | 2.51 |
| Equity securities(3) | | N/A |
| | 13,154 |
| | 11,550 |
| | Observable market prices | | N/A |
| | N/A |
| Mortgage loan receivables held for investment, net, at amortized cost: | | | | | | | | | | | | | | | | |
| Mortgage loan receivables held for investment, net, at amortized cost | 3,300,709 |
| | 3,282,462 |
| | 3,292,035 |
| | Discounted Cash Flow(4) | | 7.18 | % | | 1.61 | 3,340,381 |
| | 3,318,390 |
| | 3,324,588 |
| | Discounted Cash Flow(4) | | 7.84 | % | | 1.32 |
| Provision for loan losses | N/A |
| | (4,000 | ) | | (4,000 | ) | | (5) | | N/A |
| | N/A | N/A |
| | (17,900 | ) | | (17,900 | ) | | (5) | | N/A |
| | N/A |
| Mortgage loan receivables held for sale | 232,527 |
| | 230,180 |
| | 236,428 |
| | Internal model, third-party inputs(6) | | 4.88 | % | | 8.17 | 181,905 |
| | 182,439 |
| | 187,870 |
| | Internal model, third-party inputs(6) | | 5.46 | % | | 9.75 |
| FHLB stock(7) | 77,915 |
| | 77,915 |
| | 77,915 |
| | (7) | | 4.25 | % | | N/A | 57,915 |
| | 57,915 |
| | 57,915 |
| | (7) | | 4.50 | % | | N/A |
| Nonhedge derivatives(1)(8) | 594,140 |
| | N/A |
| | 888 |
| | Counterparty quotations | | N/A |
| | 0.24 | — |
| | N/A |
| | — |
| | Counterparty quotations | | N/A |
| | 0.00 |
| | | | | | | | | | | | | | | | | |
| Liabilities: | |
| | |
| | |
| | | | |
| | | |
| | |
| | |
| | | | |
| | |
| Repurchase agreements - short-term | 371,427 |
| | 371,427 |
| | 371,427 |
| | Discounted Cash Flow(9) | | 3.19 | % | | 0.35 | 436,957 |
| | 436,957 |
| | 436,957 |
| | Discounted Cash Flow(9) | | 3.42 | % | | 0.23 |
| Repurchase agreements - long-term | 101,983 |
| | 101,983 |
| | 101,983 |
| | Discounted Cash Flow(10) | | 2.62 | % | | 2.64 | 226,728 |
| | 226,728 |
| | 226,728 |
| | Discounted Cash Flow(10) | | 3.47 | % | | 1.73 |
| Mortgage loan financing | 692,394 |
| | 692,696 |
| | 693,055 |
| | Discounted Cash Flow(10) | | 4.91 | % | | 6.81 | 738,825 |
| | 743,902 |
| | 735,662 |
| | Discounted Cash Flow(10) | | 5.09 | % | | 2.61 |
| CLO debt | 688,479 |
| | 688,479 |
| | 688,479 |
| | Discounted Cash Flow(9) | | 3.40 | % | | 10.77 | 601,543 |
| | 601,543 |
| | 601,543 |
| | Discounted Cash Flow(9) | | 4.41 | % | | 9.40 |
| Participation Financing - Mortgage Loan Receivable | 3,107 |
| | 3,107 |
| | 3,107 |
| | Discounted Cash Flow(11) | | 17.00 | % | | 0.43 | 2,453 |
| | 2,453 |
| | 2,453 |
| | Discounted Cash Flow(11) | | 17.00 | % | | 0.43 |
| Borrowings from the FHLB | 1,370,000 |
| | 1,370,000 |
| | 1,369,544 |
| | Discounted Cash Flow | | 1.61 | % | | 2.49 | 1,286,000 |
| | 1,286,000 |
| | 1,286,664 |
| | Discounted Cash Flow | | 2.55 | % | | 2.46 |
| Senior unsecured notes | 1,166,201 |
| | 1,152,134 |
| | 1,187,187 |
| | Broker quotations, pricing services | | 5.39 | % | | 5.28 | 1,166,201 |
| | 1,154,991 |
| | 1,111,288 |
| | Broker quotations, pricing services | | 5.39 | % | | 4.28 |
| Nonhedge derivatives(1)(8) | 54,160 |
| | N/A |
| | 2,606 |
| | Counterparty quotations | | N/A |
| | 2.44 | 578,971 |
| | N/A |
| | 975 |
| | Counterparty quotations | | N/A |
| | 0.25 |
| |
| (1) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. |
| |
| (2) | Represents notional outstanding balance of underlying collateral. |
| |
| (3) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. |
| |
| (4) | Fair value for floating rate mortgage loan receivables, held for investment is estimated to approximate the outstanding face amount given the short interest rate reset risk (30 days) and no significant change in credit risk. Fair value for fixed rate mortgage loan receivables, held for investment is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing.discounted cash flow. |
| |
| (5) | Fair value is estimated to equal par value. |
| |
| (6) | Fair value for mortgage loan receivables, held for sale is measured using a hypothetical securitization model utilizing market data from recent securitization spreads and pricing. |
| |
| (7) | Fair value of the FHLB stock approximates outstanding face amount as the Company’s captive insurance subsidiary is restricted from trading the stock and can only put the stock back to the FHLB, at the FHLB’s discretion, at par. |
| |
| (8) | The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts. |
| |
| (9) | Fair value for repurchase agreement liabilities and CLO debt is estimated to approximate carrying amount primarily due to the short interest rate reset risk (30 days) of the financings and the high credit quality of the assets collateralizing these positions. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions. |
| |
| (10) | For repurchase agreements - long term and mortgage loan financing, the carrying value approximates the fair value discounting the expected cash flows at current market rates. If the collateral is determined to be impaired, the related financing would be revalued accordingly. There are no impairments on any positions. |
| |
| (11) | Fair value for Participation Financing - Mortgage Loan Receivable approximates amortized cost as this is a loan participation to a third party. |
The following table summarizes the Company’s financial assets and liabilities, which are both reported at fair value on a recurring basis (as indicated) or amortized cost/par, at SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
SeptemberJune 30, 20182019
| | | Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition | | Outstanding Face Amount | | Fair Value | | Outstanding Face Amount | | Fair Value |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | | | | | |
| Assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| CMBS(1) | | $ | 883,416 |
| | $ | — |
| | $ | — |
| | $ | 878,741 |
| | $ | 878,741 |
| | $ | 1,629,992 |
| | $ | — |
| | $ | — |
| | $ | 1,642,058 |
| | $ | 1,642,058 |
|
| CMBS interest-only(1) | | 2,272,679 |
| (2) | — |
| | — |
| | 61,638 |
| | 61,638 |
| | 2,155,495 |
| (2) | — |
| | — |
| | 43,179 |
| | 43,179 |
|
| GNMA interest-only(3) | | 138,026 |
| (2) | — |
| | — |
| | 2,755 |
| | 2,755 |
| | 118,858 |
| (2) | — |
| | — |
| | 2,291 |
| | 2,291 |
|
| Agency securities(1) | | 678 |
| | — |
| | — |
| | 664 |
| | 664 |
| | 652 |
| | — |
| | — |
| | 663 |
| | 663 |
|
| GNMA permanent securities(1) | | 32,916 |
| | — |
| | — |
| | 33,263 |
| | 33,263 |
| | 32,055 |
| | — |
| | — |
| | 33,084 |
| | 33,084 |
|
| Corporate bonds(1) | | 1,250 |
| | — |
| | — |
| | 1,228 |
| | 1,228 |
| | 41,205 |
| | — |
| | — |
| | 41,418 |
| | 41,418 |
|
| Equity securities | | | N/A |
| | 13,204 |
| | — |
| | — |
| | 13,204 |
|
| Nonhedge derivatives(4) | | 43,500 |
| | — |
| | 57 |
| | — |
| | 57 |
| | 344,171 |
| | — |
| | 536 |
| | — |
| | 536 |
|
| | | | | $ | — |
| | $ | 57 |
| | $ | 978,289 |
| | $ | 978,346 |
| | | | $ | 13,204 |
| | $ | 536 |
| | $ | 1,762,693 |
| | $ | 1,776,433 |
|
| Liabilities: | | | | | | | | | | | |
| Nonhedge derivatives(4) | | 721,071 |
| | $ | — |
| | $ | 280 |
| | $ | — |
| | $ | 280 |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition | | Outstanding Face Amount | | Fair Value | | Outstanding Face Amount | | Fair Value |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Mortgage loan receivable held for investment, net, at amortized cost: | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans held by consolidated subsidiaries | | $ | 3,830,115 |
| | $ | — |
| | $ | — |
| | $ | 3,806,114 |
| | $ | 3,806,114 |
| | $ | 3,136,334 |
| | $ | — |
| | $ | — |
| | $ | 3,133,579 |
| | $ | 3,133,579 |
|
| Provision for loan losses | | N/A |
| | — |
| | — |
| | (17,600 | ) | | (17,600 | ) | | N/A |
| | — |
| | — |
| | (18,500 | ) | | (18,500 | ) |
| Mortgage loan receivable held for sale | | 377,352 |
| | — |
| | — |
| | 384,945 |
| | 384,945 |
| | 112,099 |
| | — |
| | — |
| | 116,531 |
| | 116,531 |
|
| CMBS(5) | | | 12,168 |
| | — |
| | — |
| | 11,645 |
| | 11,645 |
|
| CMBS interest-only(5) | | | 11,145 |
| (2) | — |
| | — |
| | 873 |
| | 873 |
|
| FHLB stock | | 57,915 |
| | — |
| | — |
| | 57,915 |
| | 57,915 |
| | 61,619 |
| | — |
| | — |
| | 61,619 |
| | 61,619 |
|
| | | | | $ | — |
| | $ | — |
| | $ | 4,231,374 |
| | $ | 4,231,374 |
| | | | $ | — |
| | $ | — |
| | $ | 3,305,747 |
| | $ | 3,305,747 |
|
| Liabilities: | | |
| | |
| | |
| | |
| | 0 |
| | |
| | |
| | |
| | |
| |
|
|
| Repurchase agreements - short-term | | 603,303 |
| | $ | — |
| | $ | — |
| | $ | 603,303 |
| | $ | 603,303 |
| | 957,902 |
| | $ | — |
| | $ | — |
| | $ | 957,902 |
| | $ | 957,902 |
|
| Repurchase agreements - long-term | | 370,313 |
| | — |
| | — |
| | 370,313 |
| | 370,313 |
| | 309,469 |
| | — |
| | — |
| | 309,469 |
| | 309,469 |
|
| Mortgage loan financing | | 754,027 |
| | — |
| | — |
| | 719,689 |
| | 719,689 |
| | 729,685 |
| | — |
| | — |
| | 750,161 |
| | 750,161 |
|
| CLO debt | | 672,001 |
| | — |
| | — |
| | 672,001 |
| | 672,001 |
| | 263,216 |
| | — |
| | — |
| | 263,216 |
| | 263,216 |
|
| Participation Financing - Mortgage Loan Receivable | | 2,516 |
| | — |
| | — |
| | 2,516 |
| | 2,516 |
| |
| Borrowings from the FHLB | | 1,212,000 |
| | — |
| | — |
| | 1,208,116 |
| | 1,208,116 |
| | 1,191,449 |
| | — |
| | — |
| | 1,199,510 |
| | 1,199,510 |
|
| Senior unsecured notes | | 1,166,201 |
| | — |
| | — |
| | 1,142,863 |
| | 1,142,863 |
| | 1,166,201 |
| | — |
| | — |
| | 1,185,576 |
| | 1,185,576 |
|
| | | | | $ | — |
| | $ | — |
| | $ | 4,718,801 |
| | $ | 4,718,801 |
| | | | $ | — |
| | $ | — |
| | $ | 4,665,834 |
| | $ | 4,665,834 |
|
| |
| (1) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. |
| |
| (2) | Represents notional outstanding balance of underlying collateral. |
| |
| (3) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. |
| |
| (4) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts. |
| |
| (5) | Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost. |
December 31, 20172018
| | | Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition | | Outstanding Face Amount | | Fair Value | | Outstanding Face Amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | | | | | |
| Assets: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| CMBS(1) | | $ | 945,167 |
| | $ | — |
| | $ | — |
| | $ | 953,499 |
| | $ | 953,499 |
| | $ | 1,246,609 |
| | $ | — |
| | $ | — |
| | $ | 1,241,334 |
| | $ | 1,241,334 |
|
| CMBS interest-only(1) | | 3,140,297 |
| (2) | — |
| | — |
| | 113,071 |
| | 113,071 |
| | 2,362,747 |
| (2) | — |
| | — |
| | 54,789 |
| | 54,789 |
|
| GNMA interest-only(3) | | 172,916 |
| (2) | — |
| | — |
| | 4,477 |
| | 4,477 |
| | 135,932 |
| (2) | — |
| | — |
| | 2,648 |
| | 2,648 |
|
| Agency securities(1) | | 720 |
| | — |
| | — |
| | 728 |
| | 728 |
| | 668 |
| | — |
| | — |
| | 662 |
| | 662 |
|
| GNMA permanent securities(1) | | 33,745 |
| | — |
| | — |
| | 34,742 |
| | 34,742 |
| | 32,633 |
| | — |
| | — |
| | 33,064 |
| | 33,064 |
|
| Nonhedge derivatives(4) | | 594,140 |
| | — |
| | 888 |
| | — |
| | 888 |
| |
| Corporate bonds(1) | | | 55,305 |
| | — |
| | — |
| | 53,871 |
| | 53,871 |
|
| Equity securities | | | N/A |
| | 11,550 |
| | — |
| | — |
| | 11,550 |
|
| | | | | $ | — |
| | $ | 888 |
| | $ | 1,106,517 |
| | $ | 1,107,405 |
| | | | $ | 11,550 |
| | $ | — |
| | $ | 1,386,368 |
| | $ | 1,397,918 |
|
| Liabilities: | | | | | | | | | | | | | | | | | | | | |
| Nonhedge derivatives(4) | | $ | 54,160 |
| | $ | — |
| | $ | 2,606 |
| | $ | — |
| | $ | 2,606 |
| | $ | 605,871 |
| | $ | — |
| | $ | 975 |
| | $ | — |
| | $ | 975 |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition | | Outstanding Face Amount | | Fair Value | | Outstanding Face Amount | | Fair Value |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | |
| Mortgage loan receivable held for investment, net, at amortized cost: | | | | | | | | | | | | | | | | | | | | |
| Mortgage loans held by consolidated subsidiaries | | $ | 3,300,709 |
| | $ | — |
| | $ | — |
| | $ | 3,292,035 |
| | $ | 3,292,035 |
| | $ | 3,340,381 |
| | $ | — |
| | $ | — |
| | $ | 3,324,588 |
| | $ | 3,324,588 |
|
| Provision for loan losses | | N/A |
| | — |
| | — |
| | (4,000 | ) | | (4,000 | ) | | N/A |
| | — |
| | — |
| | (17,900 | ) | | (17,900 | ) |
| Mortgage loan receivables held for sale | | 232,527 |
| | — |
| | — |
| | 236,428 |
| | 236,428 |
| | 181,905 |
| | — |
| | — |
| | 187,870 |
| | 187,870 |
|
| CMBS(5) | | | 12,210 |
| | — |
| | — |
| | 11,306 |
| | 11,306 |
|
| CMBS interest-only(5) | | | 11,189 |
| (2) | — |
| | — |
| | 902 |
| | 902 |
|
| FHLB stock | | 77,915 |
| | — |
| | — |
| | 77,915 |
| | 77,915 |
| | 57,915 |
| | — |
| | — |
| | 57,915 |
| | 57,915 |
|
| | | | | $ | — |
| | $ | — |
| | $ | 3,602,378 |
| | $ | 3,602,378 |
| | | | $ | — |
| | $ | — |
| | $ | 3,564,681 |
| | $ | 3,564,681 |
|
| Liabilities: | | |
| | |
| | |
| | |
| | 0 |
| | |
| | |
| | |
| | |
| |
|
|
| Repurchase agreements - short-term | | 371,427 |
| | $ | — |
| | $ | — |
| | $ | 371,427 |
| | $ | 371,427 |
| | 436,957 |
| | $ | — |
| | $ | — |
| | $ | 436,957 |
| | $ | 436,957 |
|
| Repurchase agreements - long-term | | 101,983 |
| | — |
| | — |
| | 101,983 |
| | 101,983 |
| | 226,728 |
| | — |
| | — |
| | 226,728 |
| | 226,728 |
|
| Mortgage loan financing | | 692,394 |
| | — |
| | — |
| | 693,055 |
| | 693,055 |
| | 738,825 |
| | — |
| | — |
| | 735,662 |
| | 735,662 |
|
| CLO debt | | | 601,543 |
| | — |
| | — |
| | 601,543 |
| | 601,543 |
|
| Participation Financing - Mortgage Loan Receivable | | 688,479 |
| | — |
| | — |
| | 688,479 |
| | 688,479 |
| | 2,453 |
| | — |
| | — |
| | 2,453 |
| | 2,453 |
|
| Liability for transfers not considered sales | | 3,107 |
| | — |
| | — |
| | 3,107 |
| | 3,107 |
| |
| Borrowings from the FHLB | | 1,370,000 |
| | — |
| | — |
| | 1,369,544 |
| | 1,369,544 |
| | 1,286,000 |
| | — |
| | — |
| | 1,286,664 |
| | 1,286,664 |
|
| Senior unsecured notes | | 1,166,201 |
| | — |
| | — |
| | 1,187,187 |
| | 1,187,187 |
| | 1,166,201 |
| | — |
| | — |
| | 1,111,288 |
| | 1,111,288 |
|
| | | | | $ | — |
| | $ | — |
| | $ | 4,414,782 |
| | $ | 4,414,782 |
| | | | $ | — |
| | $ | — |
| | $ | 4,401,295 |
| | $ | 4,401,295 |
|
| |
| (1) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded as a component of other comprehensive income (loss) in equity. |
| |
| (2) | Represents notional outstanding balance of underlying collateral. |
| |
| (3) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. |
| |
| (4) | Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. The outstanding face amount of the nonhedge derivatives represents the notional amount of the underlying contracts. |
| |
| (5) | Restricted securities which are designated as risk retention securities under the Dodd-Frank Act and are therefore subject to transfer restrictions over the term of the securitization trust, which are classified as held-to-maturity and reported at amortized cost. |
The following table summarizes changes in Level 3 financial instruments reported at fair value on the consolidated statements of financial condition for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
|
| | | | | | | | |
| | | Six Months Ended June 30, |
| Level 3 | | 2019 | | 2018 |
| | | | | |
| Balance at January 1, | | $ | 1,385,957 |
| | $ | 1,106,517 |
|
| Transfer from level 2 | | — |
| | — |
|
| Purchases | | 847,318 |
| | 243,921 |
|
| Sales | | (379,961 | ) | | (161,518 | ) |
| Paydowns/maturities | | (110,400 | ) | | (56,707 | ) |
| Amortization of premium/discount | | (6,267 | ) | | (12,724 | ) |
| Unrealized gain/(loss) | | 18,804 |
| | (10,789 | ) |
| Realized gain/(loss) on sale(1) | | 7,242 |
| | (2,342 | ) |
| Balance at June 30, | | $ | 1,762,693 |
| | $ | 1,106,358 |
|
|
| | | | | | | | |
| Level 3 | | 2018 | | 2017 |
| | | | | |
| Balance at January 1, | | $ | 1,106,517 |
| | $ | 2,100,947 |
|
| Transfer from level 2 | | — |
| | — |
|
| Purchases | | 303,007 |
| | 184,464 |
|
| Sales | | (306,109 | ) | | (993,739 | ) |
| Paydowns/maturities | | (93,185 | ) | | (93,232 | ) |
| Amortization of premium/discount | | (17,842 | ) | | (49,376 | ) |
| Unrealized gain/(loss) | | (9,203 | ) | | 4,051 |
|
| Realized gain/(loss) on sale(1) | | (4,896 | ) | | 19,182 |
|
| Balance at September 30, | | $ | 978,289 |
| | $ | 1,172,297 |
|
| |
| (1) | Includes realized losses on securities recorded as other than temporary impairments. |
The following is quantitative information about significant unobservable inputs in our Level 3 measurements for those assets and liabilities measured at fair value on a recurring basis ($ in thousands):
SeptemberJune 30, 20182019
|
| | | | | | | | | | | | | | | | | |
| Financial Instrument | | Carrying Value | | Valuation Technique | | Unobservable Input | | Minimum | | Weighted Average | | Maximum |
| | | | | | | | | | | | | |
| CMBS (1) | | $ | 878,741 |
| | Discounted cash flow | | Yield (4) | | — | % | | 3.52 | % | | 21.47 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 2.58 |
| | 7.79 |
|
| CMBS interest-only (1) | | 61,638 |
| (2) | Discounted cash flow | | Yield (4) | | 1.62 | % | | 5.19 | % | | 8.36 | % |
| | | | | | | Duration (years)(5) | | 0.31 |
| | 3.09 |
| | 7.12 |
|
| | | | | | | Prepayment speed (CPY)(5) | | 100.00 |
| | 100.00 |
| | 100.00 |
|
| GNMA interest-only (3) | | 2,755 |
| (2) | Discounted cash flow | | Yield (4) | | — | % | | 5.52 | % | | 10.3 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 3.20 |
| | 4.52 |
|
| | | | | | | Prepayment speed (CPJ)(5) | | 5.00 |
| | 12.77 |
| | 25.00 |
|
| Agency securities (1) | | 664 |
| | Discounted cash flow | | Yield (4) | | — | % | | 2.35 | % | | 3.24 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 2.93 |
| | 4.04 |
|
| GNMA permanent securities (1) | | 33,263 |
| | Discounted cash flow | | Yield (4) | | — | % | | 3.58 | % | | 4.28 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 5.85 |
| | 6.09 |
|
| Corporate bonds (1) | | 1,228 |
| | Discounted cash flow | | Yield (4) | | 4.42 | % | | 4.42 | % | | 4.42 | % |
| | | | | | | Duration (years)(5) | | 2.19 |
| | 2.19 |
| | 2.19 |
|
| Total | | $ | 978,289 |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| Financial Instrument | | Carrying Value | | Valuation Technique | | Unobservable Input | | Minimum | | Weighted Average | | Maximum |
| | | | | | | | | | | | | |
| CMBS(1) | | $ | 1,653,703 |
| | Discounted cash flow | | Yield (4) | | — | % | | 3.23 | % | | 20.87 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 1.71 |
| | 7.37 |
|
| CMBS interest-only(1) | | 44,052 |
| (2) | Discounted cash flow | | Yield (4) | | 1.95 | % | | 4.16 | % | | 9.88 | % |
| | | | | | | Duration (years)(5) | | 0.20 |
| | 2.63 |
| | 3.85 |
|
| | | | | | | Prepayment speed (CPY)(5) | | 100.00 |
| | 100.00 |
| | 100.00 |
|
| GNMA interest-only(3) | | 2,291 |
| (2) | Discounted cash flow | | Yield (4) | | (6 | )% | | 14.03 | % | | 59.34 | % |
| | | | | | | Duration (years)(5) | | 0.62 |
| | 2.81 |
| | 10.02 |
|
| | | | | | | Prepayment speed (CPJ)(5) | | 5.00 |
| | 6.74 |
| | 15.00 |
|
| Agency securities(1) | | 663 |
| | Discounted cash flow | | Yield (4) | | — | % | | 1.53 | % | | 2.01 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 2.58 |
| | 3.39 |
|
| GNMA permanent securities(1) | | 33,084 |
| | Discounted cash flow | | Yield (4) | | 2.08 | % | | 3.52 | % | | 6.67 | % |
| | | | | | | Duration (years)(5) | | 2.62 |
| | 3.60 |
| | 6.67 |
|
| Corporate bonds(1) | | 41,418 |
| | Discounted cash flow | | Yield (4) | | 3.48 | % | | 3.51 | % | | 3.52 | % |
| | | | | | | Duration (years)(5) | | 1.27 |
| | 1.37 |
| | 2.07 |
|
| Total | | $ | 1,775,211 |
| | | | | | | | | | |
| |
| (1) | CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (2) | The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate. |
| |
| (3) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. |
Sensitivity of the Fair Value to Changes in the Unobservable Inputs
| |
| (4) | Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement. |
| |
| (5) | Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question. |
December 31, 20172018
|
| | | | | | | | | | | | | | | | | |
| Financial Instrument | | Carrying Value | | Valuation Technique | | Unobservable Input | | Minimum | | Weighted Average | | Maximum |
| | | | | | | | | | | | | |
| CMBS (1) | | $ | 953,499 |
| | Discounted cash flow | | Yield (3) | | 0.61 | % | | 3 | % | | 18.32 | % |
| | | | | | | Duration (years)(4) | | 0.12 |
| | 3.19 |
| | 7.84 |
|
| CMBS interest-only (1) | | 113,071 |
| (2) | Discounted cash flow | | Yield (3) | | 2.7 | % | | 3.52 | % | | 6.31 | % |
| | | | | | | Duration (years)(4) | | 0.39 |
| | 3.06 |
| | 4.46 |
|
| | | | | | | Prepayment speed (CPY)(4) | | 100.00 |
| | 100.00 |
| | 100.00 |
|
| GNMA interest-only (3) | | 4,477 |
| (2) | Discounted cash flow | | Yield (4) | | 4.46 | % | | 11.85 | % | | 71.88 | % |
| | | | | | | Duration (years)(5) | | 0.44 |
| | 2.43 |
| | 5.19 |
|
| | | | | | | Prepayment speed (CPJ)(5) | | 5.00 |
| | 12.19 |
| | 35.00 |
|
| Agency securities (1) | | 728 |
| | Discounted cash flow | | Yield (4) | | 1.4 | % | | 2.16 | % | | 2.52 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 3.22 |
| | 4.72 |
|
| GNMA permanent securities (1) | | 34,742 |
| | Discounted cash flow | | Yield (4) | | 2.62 | % | | 3.44 | % | | 6.93 | % |
| | | | | | | Duration (years)(5) | | 1.40 |
| | 5.75 |
| | 5.94 |
|
| Total | | $ | 1,106,517 |
| | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| Financial Instrument | | Carrying Value | | Valuation Technique | | Unobservable Input | | Minimum | | Weighted Average | | Maximum |
| | | | | | | | | | | | | |
| CMBS(1) | | $ | 1,252,640 |
| | Discounted cash flow | | Yield (3) | | — | % | | 3.54 | % | | 21.67 | % |
| | | | | | | Duration (years)(4) | | 0.00 |
| | 2.50 |
| | 7.78 |
|
| CMBS interest-only(1) | | 55,691 |
| (2) | Discounted cash flow | | Yield (3) | | 0.87 | % | | 4.71 | % | | 8.11 | % |
| | | | | | | Duration (years)(4) | | 0.14 |
| | 2.96 |
| | 6.86 |
|
| | | | | | | Prepayment speed (CPY)(4) | | 100.00 |
| | 100.00 |
| | 100.00 |
|
| GNMA interest-only(3) | | 2,648 |
| (2) | Discounted cash flow | | Yield (4) | | 1.21 | % | | 5.54 | % | | 10.21 | % |
| | | | | | | Duration (years)(5) | | 0.04 |
| | 3.13 |
| | 4.77 |
|
| | | | | | | Prepayment speed (CPJ)(5) | | 5.00 |
| | 6.58 |
| | 15.00 |
|
| Agency securities(1) | | 662 |
| | Discounted cash flow | | Yield (4) | | — | % | | 2.1 | % | | 2.84 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 2.83 |
| | 3.82 |
|
| GNMA permanent securities(1) | | 33,064 |
| | Discounted cash flow | | Yield (4) | | — | % | | 3.51 | % | | 4 | % |
| | | | | | | Duration (years)(5) | | 0.00 |
| | 5.62 |
| | 5.88 |
|
| Corporate bonds(1) | | 53,871 |
| | Discounted cash flow | | Yield (4) | | 5.3 | % | | 5.35 | % | | 5.46 | % |
| | | | | | | Duration (years)(5) | | 1.94 |
| | 2.19 |
| | 2.70 |
|
| Total | | $ | 1,398,576 |
| | | | | | | | | | |
| |
| (1) | CMBS, CMBS interest-only securities, Agency securities, GNMA construction securities, and GNMA permanent securities and corporate bonds are classified as available-for-sale and reported at fair value with changes in fair value recorded in the current period in other comprehensive income. |
| |
| (2) | The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate. |
| |
| (3) | Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings. |
Sensitivity of the Fair Value to Changes in the Unobservable Inputs
| |
| (4) | Significant increase (decrease) in the unobservable input in isolation would result in significantly lower (higher) fair value measurement. |
| |
| (5) | Significant increase (decrease) in the unobservable input in isolation would result in either a significantly lower or higher (lower or higher) fair value measurement depending on the structural features of the security in question. |
Nonrecurring Fair Values
The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-down of assets value due to impairment.
There were no assets carried at fair value on a nonrecurring basis at June 30, 2019 and December 31, 2018.
The following table summarizes the fair value write-downs to assets carried at fair value on a nonrecurring basis ($ in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| Impairment of real estate | | | | | | | |
| Real estate, net(1)(2) | $ | — |
| | $ | — |
| | $ | 1,350 |
| | $ | — |
|
| |
| (1) | The write down to fair value was recorded based on contracted sales price and classified as Level 2 of the fair valuation hierarchy. On May 1, 2019, the Company completed the sale of the property recognizing $3.9 million of operating lease income, $3.5 million realized loss on sale of real estate, net and $0.4 million of depreciation and amortization expense, resulting in a $20 thousand loss on sale of real estate, net. |
| |
| (2) | Impairment is discussed in further detail in Note 6, Real Estate and Related Lease Intangibles, Net. |
10. DERIVATIVE INSTRUMENTS
The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of SeptemberJune 30, 20182019 and December 31, 20172018 ($ in thousands):
SeptemberJune 30, 20182019
| | | | | | | Fair Value | | Remaining Maturity (years) | | | | Fair Value | | Remaining Maturity (years) |
| Contract Type | | Notional | | Asset(1) | | Liability(1) | | | Notional | | Asset(1) | | Liability(1) | |
| | | | | | | | | | | | | | | |
| Caps | | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| 1MO LIB | | $ | 96,471 |
| | $ | — |
| | $ | — |
| | 1.60 | |
| 1 Month LIBOR | | | $ | 69,571 |
| | $ | — |
| | $ | — |
| | 0.86 |
| Futures | | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| 5-year Swap | | $ | 231,500 |
| | $ | — |
| | $ | 104 |
| | 0.25 | | 95,800 |
| | 187 |
| | — |
| | 0.25 |
| 10-year Swap | | 386,300 |
| | — |
| | 173 |
| | 0.25 | | 175,900 |
| | 343 |
| | — |
| | 0.25 |
| 5-year U.S. Treasury Note | | 6,800 |
| | — |
| | 3 |
| | 0.25 | | 2,900 |
| | 6 |
| | — |
| | 0.25 |
| Total futures | | 624,600 |
| | — |
| | 280 |
| | | | 274,600 |
| | 536 |
| | — |
| | |
| Credit derivatives | | |
| | |
| | |
| | | |
| VIX | | 43,500 |
| | 57 |
| | — |
| | 0.30 | |
| Total credit derivatives | | 43,500 |
| | 57 |
| | — |
| | | |
| Total derivatives | | $ | 764,571 |
| | $ | 57 |
| | $ | 280 |
| | | | $ | 344,171 |
| | $ | 536 |
| | $ | — |
| | |
(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
December 31, 20172018
| | | | | | | Fair Value | | Remaining Maturity (years) | | | | Fair Value | | Remaining Maturity (years) |
| Contract Type | | Notional | | Asset(1) | | Liability(1) | | | Notional | | Asset(1) | | Liability(1) | |
| | | | | | | | | | | | | | | |
| Caps | | | |
| | |
| | |
| | |
| 1MO LIBOR | | | $ | 69,571 |
| | $ | — |
| | $ | — |
| | 1.35 |
| Futures | | |
| | |
| | |
| | | | |
| | |
| | |
| | |
| 5-year Swap | | 304,300 |
| | 656 |
| | — |
| | 0.25 | | $ | 274,900 |
| | $ | — |
| | $ | 526 |
| | 0.25 |
| 10-year Swap | | 248,100 |
| | 133 |
| | 153 |
| | 0.25 | | 227,700 |
| | — |
| | 436 |
| | 0.25 |
| 5-year U.S. Treasury Note | | 11,400 |
| | 47 |
| | — |
| | 0.25 | | 6,800 |
| | — |
| | 13 |
| | 0.25 |
| 10-year U.S. Treasury Note | | — |
| | — |
| | 911 |
| |
| |
| Total futures | | 563,800 |
| | 836 |
| | 1,064 |
| | | | 509,400 |
| | — |
| | 975 |
| | |
| Swaps | | |
| | |
| | |
| | | |
| 3 Month LIBOR(2) | | 50,000 |
| | — |
| | 1,542 |
| | 2.68 | |
| Credit Derivatives | | |
| | |
| | |
| | | |
| CDX | | 34,500 |
| | 52 |
| | — |
| | 0.12 | |
| Total credit derivatives | | 34,500 |
| | 52 |
| | — |
| | | |
| Total derivatives | | $ | 648,300 |
| | $ | 888 |
| | $ | 2,606 |
| | | | $ | 578,971 |
| | $ | — |
| | $ | 975 |
| | |
(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
(2) The Company is paying fixed interest rates on these swaps.
The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of operations for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
| | | | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
| | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions | | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions | | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
| Contract Type | | | | | | | | | | | | | | | | | | | | | | |
| Futures | $ | (940 | ) | | $ | 8,099 |
| | $ | 7,159 |
| | $ | (52 | ) | | $ | 28,985 |
| | $ | 28,933 |
| $ | (1,046 | ) | | $ | (14,361 | ) | | $ | (15,407 | ) | | $ | 1,511 |
| | $ | (27,894 | ) | | $ | (26,383 | ) |
| Swaps | — |
| | — |
| | — |
| | 1,403 |
| | (848 | ) | | 555 |
| |
| Credit Derivatives | (44 | ) | | — |
| | (44 | ) | | 5 |
| | (337 | ) | | (332 | ) | 66 |
| | (116 | ) | | (50 | ) | | — |
| | (108 | ) | | (108 | ) |
| Total | $ | (984 | ) | | $ | 8,099 |
| | $ | 7,115 |
| | $ | 1,356 |
| | $ | 27,800 |
| | $ | 29,156 |
| $ | (980 | ) | | $ | (14,477 | ) | | $ | (15,457 | ) | | $ | 1,511 |
| | $ | (28,002 | ) | | $ | (26,491 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2018 | | Six Months Ended June 30, 2018 |
| | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions | | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract Type | | | | | | | | | | | |
| Futures | $ | 568 |
| | $ | 6,513 |
| | $ | 7,081 |
| | $ | 888 |
| | $ | 20,885 |
| | $ | 21,773 |
|
| Swaps | — |
| | — |
| | — |
| | 1,403 |
| | (848 | ) | | 555 |
|
| Credit Derivatives | — |
| | — |
| | — |
| | 49 |
| | (337 | ) | | (288 | ) |
| Total | $ | 568 |
| | $ | 6,513 |
| | $ | 7,081 |
| | $ | 2,340 |
| | $ | 19,700 |
| | $ | 22,040 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions | | Unrealized Gain/(Loss) | | Realized Gain/(Loss) | | Net Result from Derivative Transactions |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Contract Type | | | | | | | | | | | |
| Futures | $ | (2,587 | ) | | $ | 2,192 |
| | $ | (395 | ) | | $ | (4,249 | ) | | $ | (13,571 | ) | | $ | (17,820 | ) |
| Swaps | 277 |
| | (242 | ) | | 35 |
| | 561 |
| | (780 | ) | | (219 | ) |
| Credit Derivatives | 110 |
| | (98 | ) | | 12 |
| | 178 |
| | (491 | ) | | (313 | ) |
| Total | $ | (2,200 | ) | | $ | 1,852 |
| | $ | (348 | ) | | $ | (3,510 | ) | | $ | (14,842 | ) | | $ | (18,352 | ) |
The Company’s counterparties held $6.9$3.1 million and $9.6$5.0 million of cash margin as collateral for derivatives as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, which is included in restricted cash in the consolidated balance sheets.
Futures
Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a Futures Commission Merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.
The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.
Credit Risk-Related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain a provision whereby, if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company was in compliance with these requirements and not in default on its indebtedness. As of SeptemberJune 30, 2019 and December 31, 2018, there was no cash collateral held by the derivative counterparties for these derivatives. As of December 31, 2017, there was $4.1 million of cash collateral held by the derivative counterparties for these derivatives, included in restricted cash in the consolidated statements of financial condition. No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.
11. OFFSETTING ASSETS AND LIABILITIES
The following tables present both gross information and net information about derivatives and other instruments eligible for offset in the statement of financial position as of SeptemberJune 30, 20182019 and 2017.December 31, 2018. The Company’s accounting policy is to record derivative asset and liability positions on a gross basis, therefore, the following tables present the gross derivative asset and liability positions recorded on the balance sheets, while also disclosing the eligible amounts of financial instruments and cash collateral to the extent those amounts could offset the gross amount of derivative asset and liability positions. The actual amounts of collateral posted by or received from counterparties may be in excess of the amounts disclosed in the following tables as the following only disclose amounts eligible to be offset to the extent of the recorded gross derivative positions.
As of SeptemberJune 30, 20182019
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
| | | Description | | Gross amounts of recognized assets | | Gross amounts offset in the balance sheet | | Net amounts of assets presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount | | Gross amounts of recognized assets | | Gross amounts offset in the balance sheet | | Net amounts of assets presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount |
| | | Financial instruments | | Cash collateral received/(posted)(1) | | | | Financial instruments | | Cash collateral received/(posted)(1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 57 |
| | $ | — |
| | $ | 57 |
| | $ | — |
| | $ | — |
| | $ | 57 |
| | $ | 536 |
| | $ | — |
| | $ | 536 |
| | $ | — |
| | $ | — |
| | $ | 536 |
|
| Total | | $ | 57 |
| | $ | — |
| | $ | 57 |
| | $ | — |
| | $ | — |
| | $ | 57 |
| | $ | 536 |
| | $ | — |
| | $ | 536 |
| | $ | — |
| | $ | — |
| | $ | 536 |
|
(1) Included in restricted cash on consolidated balance sheets.
As of SeptemberJune 30, 20182019
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
| | | Description | | Gross amounts of recognized liabilities | | Gross amounts offset in the balance sheet | | Net amounts of liabilities presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount | | Gross amounts of recognized liabilities | | Gross amounts offset in the balance sheet | | Net amounts of liabilities presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount |
| | | Financial instruments collateral | | Cash collateral posted/(received)(1) | | | | Financial instruments collateral | | Cash collateral posted/(received)(1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 280 |
| | $ | — |
| | $ | 280 |
| | $ | — |
| | $ | 280 |
| | $ | — |
| |
| Repurchase agreements | | 973,617 |
| | — |
| | 973,617 |
| | 973,617 |
| | — |
| | — |
| | $ | 1,267,371 |
| | $ | — |
| | $ | 1,267,371 |
| | $ | 1,267,371 |
| | $ | — |
| | $ | — |
|
| Total | | $ | 973,897 |
| | $ | — |
| | $ | 973,897 |
| | $ | 973,617 |
| | $ | 280 |
| | $ | — |
| | $ | 1,267,371 |
| | $ | — |
| | $ | 1,267,371 |
| | $ | 1,267,371 |
| | $ | — |
| | $ | — |
|
(1) Included in restricted cash on consolidated balance sheets.
As of December 31, 2017
Offsetting of Financial Assets and Derivative Assets
($ in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Gross amounts of recognized assets | | Gross amounts offset in the balance sheet | | Net amounts of assets presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount |
| | | | | Financial instruments | | Cash collateral received/(posted)(1) | |
| | | | | | | | | | | | | |
| Derivatives | | $ | 888 |
| | $ | — |
| | $ | 888 |
| | $ | — |
| | $ | — |
| | $ | 888 |
|
| Total | | $ | 888 |
| | $ | — |
| | $ | 888 |
| | $ | — |
| | $ | — |
| | $ | 888 |
|
(1) Included in restricted cash on consolidated balance sheets.
As of December 31, 20172018
Offsetting of Financial Liabilities and Derivative Liabilities
($ in thousands)
| | | Description | | Gross amounts of recognized liabilities | | Gross amounts offset in the balance sheet | | Net amounts of liabilities presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount | | Gross amounts of recognized liabilities | | Gross amounts offset in the balance sheet | | Net amounts of liabilities presented in the balance sheet | | Gross amounts not offset in the balance sheet | | Net amount |
| | | Financial instruments collateral | | Cash collateral posted/(received)(1) | | | | Financial instruments collateral | | Cash collateral posted/(received) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives | | $ | 2,606 |
| | $ | — |
| | $ | 2,606 |
| | $ | — |
| | $ | 2,606 |
| | $ | — |
| | $ | 975 |
| | $ | — |
| | $ | 975 |
| | $ | — |
| | $ | 975 |
| | $ | — |
|
| Repurchase agreements | | 473,410 |
| | — |
| | 473,410 |
| | 473,410 |
| | — |
| | — |
| | 663,685 |
| | — |
| | 663,685 |
| | 663,685 |
| | — |
| | — |
|
| Total | | $ | 476,016 |
| | $ | — |
| | $ | 476,016 |
| | $ | 473,410 |
| | $ | 2,606 |
| | $ | — |
| | $ | 664,660 |
| | $ | — |
| | $ | 664,660 |
| | $ | 663,685 |
| | $ | 975 |
| | $ | — |
|
(1) Included in restricted cash on consolidated balance sheets.
Master netting agreements that the Company has entered into with its derivative and repurchase agreement counterparties allow for netting of the same transaction, in the same currency, on the same date. Assets, liabilities, and collateral subject to master netting agreements as of SeptemberJune 30, 20182019 and 2017December 31, 2018 are disclosed in the tables above. The Company does not present its derivative and repurchase agreements net on the consolidated financial statements as it has elected gross presentation.
12. EQUITY STRUCTURE AND ACCOUNTS
The Company has two classes of common stock, Class A and Class B, which are described as follows:
Class A Common Stock
Voting Rights
Holders of shares of Class A common stock are entitled to one vote per share on all matters to be voted upon by the shareholders. The holders of Class A common stock do not have cumulative voting rights in the election of directors.
Dividend Rights
Subject to the rights of the holders of any preferred stock that may be outstanding and any contractual or statutory restrictions, holders of Class A common stock are entitled to receive equally and ratably, share for share, dividends as may be declared by the board of directors out of funds legally available to pay dividends. Dividends upon Class A common stock may be declared by the board of directors at any regular or special meeting and may be paid in cash, in property, or in shares of capital stock. Before payment of any dividend, there may be set aside out of any funds available for dividends, such sums as the board of directors deems proper as reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any of the Company’s property, or for any proper purpose, and the board of directors may modify or abolish any such reserve.
Liquidation Rights
Upon liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available for distribution to the shareholders after payment of liabilities and the liquidation preference of any outstanding shares of preferred stock.
Other Matters
The shares of Class A common stock have no preemptive or conversion rights and are not subject to further calls or assessment by the Company. There are no redemption or sinking fund provisions applicable to the Class A common stock. All outstanding shares of Class A common stock are fully paid and non-assessable.
Allocation of Income and Loss
Income and losses are allocated among the shareholders based upon the number of shares outstanding.
Class B Common Stock
Voting Rights
Holders of shares of Class B common stock are entitled to one vote for each share held of record by such holder and all matters submitted to a vote of shareholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law.
No Dividend or Liquidation Rights
Holders of Class B common stock do not have any right to receive dividends or to receive a distribution upon a liquidation or winding up of Ladder Capital Corp.
Exchange for Class A Common Stock
Pursuant to the Third Amended and Restated LLLP Agreement of LCFH, the Continuing LCFH Limited Partners may from time to time, subject to certain conditions, receive one share of the Company’s Class A common stock in exchange for (i) one share of the Company’s Class B common stock, (ii) one Series REIT LP Unit and (iii) either one Series TRS LP Unit or one TRS Share, subject to equitable adjustments for stock splits, stock dividends and reclassifications.
During the ninesix months ended SeptemberJune 30, 2018, 4,549,8322019, 1,139,411 Series REIT LP Units and 4,549,8321,139,411 Series TRS LP Units were collectively exchanged for 4,549,8321,139,411 shares of Class A common stock and 4,549,8321,139,411 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.
During the ninesix months ended SeptemberJune 30, 2017, 13,737,3652018, 4,349,832 Series REIT LP Units and 13,737,3654,349,832 Series TRS LP Units were collectively exchanged for 13,737,3654,349,832 shares of Class A common stock; and 13,737,3654,349,832 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.
Stock Repurchases
On October 30, 2014, the board of directors authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. During the ninesix months ended SeptemberJune 30, 2018 and 2017,2019, the Company repurchased no40,065 shares of Class A common stock. All repurchased shares are recorded in treasury stock at cost. As of SeptemberJune 30, 2018,2019, the Company has a remaining amount available for repurchase of $41.8$41.1 million, which represents 2.5%2.3% in the aggregate of its outstanding Class A common stock, based on the closing price of $16.94$16.61 per share on such date.
The following table is a summary of the Company’s repurchase activity of its Class A common stock during the six months ended June 30, 2019 and 2018 ($ in thousands):
|
| | | | | | | |
| | | Shares | | Amount(1) |
| | | | | |
| Authorizations remaining as of December 31, 2018 | | | | $ | 41,769 |
|
| Additional authorizations | | | | — |
|
| Repurchases paid | | 40,065 |
| | (637 | ) |
| Repurchases unsettled | | | | — |
|
| Authorizations remaining as of June 30, 2019 | | | | $ | 41,132 |
|
(1) Amount excludes commissions paid associated with share repurchases.
|
| | | | | | | |
| | | Shares | | Amount(1) |
| | | | | |
| Authorizations remaining as of December 31, 2017 | | | | $ | 41,769 |
|
| Additional authorizations | | | | — |
|
| Repurchases paid | | — |
| | — |
|
| Repurchases unsettled | | | | — |
|
| Authorizations remaining as of June 30, 2018 | | | | $ | 41,769 |
|
(1) Amount excludes commissions paid associated with share repurchases.
Dividends
In order for the Company to maintain its qualification as a REIT under the Code, it must annually distribute at least 90% of its taxable income. The Company has paid and in the future intends to declare regular quarterly distributions to its shareholders in an amount approximating the REIT’s net taxable income.
Consistent with IRS guidance, the Company may, subject to a cash/stock election by its shareholders, pay a portion of its dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit its ability to retain earnings and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, the Company’s future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of the Company’s board of directors. Generally, the Company expects its distributions to be taxable as ordinary dividends to its shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital or a capital gain (although for taxable years beginning after December 31, 2017 and before January 1, 2026, generally stockholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations). The Company believes that its significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to its shareholders and servicing our debt obligations.
The following table presents dividends declared (on a per share basis) of Class A common stock for the yearssix months ended December 31, 2018June 30, 2019 and 2017:2018:
|
| | | | |
| Declaration Date | | Dividend per Share |
| | | |
| February 27, 2019 | | $ | 0.340 |
|
| May 30, 2019 | | 0.340 |
|
| Total | | $ | 0.680 |
|
| | | |
| February 27, 2018 | | $ | 0.315 |
|
| May 30, 2018 | | 0.325 |
|
| Total | | $ | 0.640 |
|
|
| | | | | |
| Declaration Date | | Dividend per Share | |
| | | | |
| February 27, 2018 | | $ | 0.315 |
| |
| May 30, 2018 | | 0.325 |
| |
| September 5, 2018 | | 0.325 |
| |
| November 1, 2018 | | 0.570 |
| (1) |
| Total | | $ | 1.535 |
| |
| | | | |
| March 1, 2017 | | $ | 0.300 |
| |
| June 1, 2017 | | 0.300 |
| |
| September 1, 2017 | | 0.300 |
| |
| November 7, 2017 | | 0.315 |
| |
| Total | | $ | 1.215 |
| |
| |
(1) | On November 1, 2018, the Company’s board of directors approved the fourth quarter 2018 dividend of $0.570 per share of the Company’s Class A common stock in order to meet its annual REIT taxable income distribution requirement. The dividend will be paid as a combination of cash and Class A common stock, subject to shareholder elections. |
Changes in Accumulated Other Comprehensive Income
The following table presents changes in accumulated other comprehensive income related to the cumulative difference between the fair market value and the amortized cost basis of securities classified as available for sale for the ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
| | | | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income of Noncontrolling Interests | | Total Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests | | Total Accumulated Other Comprehensive Income (Loss) |
| | | | | | | | | | | | | |
| December 31, 2017 | | $ | (212 | ) | | $ | 116 |
| | $ | (96 | ) | |
| December 31, 2018 | | | $ | (4,649 | ) | | $ | (588 | ) | | $ | (5,237 | ) |
| Other comprehensive income (loss) | | (8,230 | ) | | (1,428 | ) | | (9,658 | ) | | 16,738 |
| | 2,044 |
| | 18,782 |
|
| Exchange of noncontrolling interest for common stock | | (167 | ) | | 167 |
| | — |
| | 65 |
| | (65 | ) | | — |
|
| Rebalancing of ownership percentage between Company and Operating Partnership | | 27 |
| | (27 | ) | | — |
| | 17 |
| | (17 | ) | | — |
|
| September 30, 2018 | | $ | (8,582 | ) | | $ | (1,172 | ) | | $ | (9,754 | ) | |
| June 30, 2019 | | | $ | 12,171 |
| | $ | 1,374 |
| | $ | 13,545 |
|
|
| | | | | | | | | | | | |
| | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests | | Total Accumulated Other Comprehensive Income (Loss) |
| | | | | | | |
| December 31, 2017 | | $ | (212 | ) | | $ | 116 |
| | $ | (96 | ) |
| Other comprehensive income (loss) | | (9,506 | ) | | (1,598 | ) | | (11,104 | ) |
| Exchange of noncontrolling interest for common stock | | (143 | ) | | 143 |
| | — |
|
| Rebalancing of ownership percentage between Company and Operating Partnership | | 6 |
| | (6 | ) | | — |
|
| June 30, 2018 | | $ | (9,855 | ) | | $ | (1,345 | ) | | $ | (11,200 | ) |
|
| | | | | | | | | | | | |
| | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Other Comprehensive Income of Noncontrolling Interests | | Total Accumulated Other Comprehensive Income (Loss) |
| | | | | | | |
| December 31, 2016 | | $ | 1,365 |
| | $ | 761 |
| | $ | 2,126 |
|
| Other comprehensive income (loss) | | 1,336 |
| | 1,681 |
| | 3,017 |
|
| Exchange of noncontrolling interest for common stock | | 1,422 |
| | (1,422 | ) | | — |
|
| Rebalancing of ownership percentage between Company and Operating Partnership | | (230 | ) | | 230 |
| | — |
|
| September 30, 2017 | | $ | 3,893 |
| | $ | 1,250 |
| | $ | 5,143 |
|
13. NONCONTROLLING INTERESTS
Pursuant to ASC 810, Consolidation, on the accounting and reporting for noncontrolling interests and changes in ownership interests of a subsidiary, changes in a parent’s ownership interest (and transactions with noncontrolling interest unitholders in the subsidiary), while the parent retains its controlling interest in its subsidiary, should be accounted for as equity transactions. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary, with the offset to equity attributable to the parent. Accordingly, as a result of LP unitContinuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the Company’s Class A shareholders and the noncontrolling interests in the Operating Partnership that occurred during the ninesix months ended SeptemberJune 30, 2018,2019, the Company has increaseddecreased noncontrolling interests in the Operating Partnership and decreasedincreased additional paid-in capital and accumulated other comprehensive income in the Company’s shareholders’ equity by $0.9$0.3 million as of SeptemberJune 30, 2018.2019. Upon the adoption of ASU 2015-02, which amended ASC 810, Consolidation, in the quarter ended March 31, 2016, the Operating Partnership is now determined to be a VIE, however, since the Company was previously consolidating the Operating Partnership, the adoption of ASU 2015-02 had no material impact on the Company’s consolidated financial statements.
There are two main types of noncontrolling interest reflected in the Company’s consolidated financial statements (i) noncontrolling interest in the operating partnership and (ii) noncontrolling interest in consolidated joint ventures.
Noncontrolling Interest in the Operating Partnership
As more fully described in Note 1, certain of the predecessor equity owners continue to own interests in the operating partnershipOperating Partnership as modified by the IPO Transactions. These interests were subsequently further modified by the REIT Structuring Transactions (also described in Note 1). These interests, along with the Class B shares held by these investors, are exchangeable for Class A shares of the Company. The roll-forward of the Operating Partnership’s LP Units follow the Class B common stock of the Company as disclosed in the consolidated statements of changes in equity.
Distributions to Noncontrolling Interest in the Operating Partnership
Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and available liquidity as determined by the board of directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to make quarterly distributions to each of its partners (including the Company) at least equal to such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in LCFH’s Third Amended and Restated LLLP Agreement) for each partner as the product of (x) the U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to such partner in respect of the Series REIT LP Units and Series TRS LP Units held by such partner and (y) the highest marginal blended U.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing in New York, NY, taking into account, for U.S. federal income tax purposes, the deductibility of state and local taxes; provided that Series TRS of LCFH may take into account, in determining the amount of tax distributions to holders of Series TRS LP Units, the amount of any distributions each such holder received from Series REIT of LCFH in excess of tax distributions. In addition, to the extent the Company requires an additional distribution from the Series of LCFH in excess of its quarterly tax distribution in order to pay its quarterly cash dividend, the Series of LCFH will be required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis.
Allocation of Income and Loss
Income and losses and comprehensive income are allocated among the partners in a manner to reflect as closely as possible the amount each partner would be distributed under the Third Amended and Restated LLLP Agreement of LCFH upon liquidation of the Operating Partnership’s assets.
Noncontrolling Interest in UnconsolidatedConsolidated Joint Ventures
As of SeptemberJune 30, 2018,2019, the Company consolidates nineeight ventures in which there are other noncontrolling investors, which own between 1.2% - 29.4% of such ventures. These ventures hold investments in a 40 property student housing portfolio, 2120 office buildings, two industrial properties, one condominium complex and one apartment complex. The Company makes distributions and allocates income from these ventures to the noncontrolling interests in accordance with the terms of the respective governing agreements.
14. EARNINGS PER SHARE
The Company’s net income (loss) and weighted average shares outstanding for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 consist of the following:
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| ($ in thousands except share amounts) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Basic Net income (loss) available for Class A common shareholders | | $ | 32,244 |
| | $ | 38,406 |
| | $ | 54,419 |
| | $ | 89,281 |
|
| Diluted Net income (loss) available for Class A common shareholders | | $ | 32,244 |
| | $ | 38,406 |
| | $ | 54,419 |
| | $ | 89,281 |
|
| Weighted average shares outstanding | | |
| | |
| | |
| | |
|
| Basic | | 105,511,385 |
| | 96,810,266 |
| | 104,888,925 |
| | 96,003,151 |
|
| Diluted | | 105,892,420 |
| | 97,165,899 |
| | 105,742,589 |
| | 96,276,824 |
|
|
| | | | | | | | | | | | | | | | |
| ($ in thousands except share amounts) | | For the Three Months Ended September 30, 2018 | | For the Three Months Ended September 30, 2017 | | For the Nine Months Ended September 30, 2018 | | For the Nine Months Ended September 30, 2017 |
| | | | | | | | | |
| Basic Net income (loss) available for Class A common shareholders | | $ | 66,630 |
| | $ | 23,587 |
| | $ | 155,911 |
| | $ | 59,171 |
|
| Diluted Net income (loss) available for Class A common shareholders | | $ | 74,038 |
| | $ | 23,587 |
| | $ | 177,875 |
| | $ | 81,258 |
|
| Weighted average shares outstanding | | |
| | |
| | |
| | |
|
| Basic | | 96,935,986 |
| | 85,135,685 |
| | 96,317,513 |
| | 79,416,957 |
|
| Diluted | | 110,650,253 |
| | 85,476,266 |
| | 110,482,991 |
| | 109,857,679 |
|
The calculation of basic and diluted net income (loss) per share amounts for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 are described and presented below.
Basic Net Income (Loss) per Share
Numerator: utilizes net income (loss) available for Class A common shareholders for the three and ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively.
Denominator: utilizes the weighted average shares of Class A common stock for the three and ninesix months ended SeptemberJune 30, 2019 and 2018, and 2017, respectively.
Diluted Net Income (Loss) per Share
Numerator: utilizes net income (loss) available for Class A common shareholders for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, for the basic net income (loss) per share calculation described above, adding net income (loss) amounts attributable to the noncontrolling interest in the Operating Partnership using the as-if converted method for the Class B common shareholders while adjusting for additional corporate income tax expense (benefit) for the described net income (loss) add-back.
Denominator: utilizes the weighted average number of shares of Class A common stock for the three and ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, for the basic net income (loss) per share calculation described above adding the dilutive effect of shares issuable relating to Operating Partnership exchangeable interests and the incremental shares of unvested Class A restricted stock using the treasury method.
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands except share amounts) | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| Basic Net Income (Loss) Per Share of Class A Common Stock | | | | | | |
| | |
|
| Numerator: | | | | | | |
| | |
|
| Net income (loss) attributable to Class A common shareholders | | $ | 32,244 |
| | $ | 38,406 |
| | $ | 54,419 |
| | $ | 89,281 |
|
| Denominator: | | |
| | |
| | |
| | |
|
| Weighted average number of shares of Class A common stock outstanding | | 105,511,385 |
| | 96,810,266 |
| | 104,888,925 |
| | 96,003,151 |
|
| Basic net income (loss) per share of Class A common stock | | $ | 0.31 |
| | $ | 0.40 |
| | $ | 0.52 |
| | $ | 0.93 |
|
| | | | | | | | | |
| Diluted Net Income (Loss) Per Share of Class A Common Stock | | | | | | |
| | |
|
| Numerator: | | | | | | |
| | |
|
| Net income (loss) attributable to Class A common shareholders | | $ | 32,244 |
| | $ | 38,406 |
| | $ | 54,419 |
| | $ | 89,281 |
|
| Add (deduct) - dilutive effect of: | | |
| | |
| | |
| | |
|
| Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss) | | — |
| | — |
| | — |
| | — |
|
| Additional corporate tax (expense) benefit | | — |
| | — |
| | — |
| | — |
|
| Diluted net income (loss) attributable to Class A common shareholders | | 32,244 |
| | 38,406 |
| | 54,419 |
| | 89,281 |
|
| Denominator: | | | | | | |
| | |
|
| Basic weighted average number of shares of Class A common stock outstanding | | 105,511,385 |
| | 96,810,266 |
| | 104,888,925 |
| | 96,003,151 |
|
| Add - dilutive effect of: | | |
| | |
| | |
| | |
|
| Shares issuable relating to converted Class B common shareholders | | — |
| | — |
| | — |
| | — |
|
| Incremental shares of unvested Class A restricted stock | | 381,035 |
| | 355,633 |
| | 853,664 |
| | 273,673 |
|
| Diluted weighted average number of shares of Class A common stock outstanding | | 105,892,420 |
| | 97,165,899 |
| | 105,742,589 |
| | 96,276,824 |
|
| Diluted net income (loss) per share of Class A common stock | | $ | 0.30 |
| | $ | 0.40 |
| | $ | 0.51 |
| | $ | 0.93 |
|
|
| | | | | | | | | | | | | | | | |
| (In thousands except share amounts) | | For the Three Months Ended September 30, 2018 | | For the Three Months Ended September 30, 2017(1) | | For the Nine Months Ended September 30, 2018 | | For the Nine Months Ended September 30, 2017 |
| | | | | | | | | |
| Basic Net Income (Loss) Per Share of Class A Common Stock | | | | | | |
| | |
|
| Numerator: | | | | | | |
| | |
|
| Net income (loss) attributable to Class A common shareholders | | $ | 66,630 |
| | $ | 23,587 |
| | $ | 155,911 |
| | $ | 59,171 |
|
| Denominator: | | |
| | |
| | |
| | |
|
| Weighted average number of shares of Class A common stock outstanding | | 96,935,986 |
| | 85,135,685 |
| | 96,317,513 |
| | 79,416,957 |
|
| Basic net income (loss) per share of Class A common stock | | $ | 0.69 |
| | $ | 0.28 |
| | $ | 1.62 |
| | $ | 0.75 |
|
| | | | | | | | | |
| Diluted Net Income (Loss) Per Share of Class A Common Stock | | | | | | |
| | |
|
| Numerator: | | | | | | |
| | |
|
| Net income (loss) attributable to Class A common shareholders | | $ | 66,630 |
| | $ | 23,587 |
| | $ | 155,911 |
| | $ | 59,171 |
|
| Add (deduct) - dilutive effect of: | | |
| | |
| | |
| | |
|
| Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss) | | 8,991 |
| | — |
| | 22,786 |
| | 21,205 |
|
| Additional corporate tax (expense) benefit | | (1,583 | ) | | — |
| | (822 | ) | | 882 |
|
| Diluted net income (loss) attributable to Class A common shareholders | | $ | 74,038 |
| | $ | 23,587 |
| | $ | 177,875 |
| | $ | 81,258 |
|
| Denominator: | | | | | | |
| | |
|
| Basic weighted average number of shares of Class A common stock outstanding | | 96,935,986 |
| | 85,135,685 |
| | 96,317,513 |
| | 79,416,957 |
|
| Add - dilutive effect of: | | |
| | |
| | |
| | |
|
| Shares issuable relating to converted Class B common shareholders | | 13,202,202 |
| | — |
| | 13,800,597 |
| | 30,211,137 |
|
| Incremental shares of unvested Class A restricted stock | | 512,065 |
| | 340,581 |
| | 364,881 |
| | 229,585 |
|
| Diluted weighted average number of shares of Class A common stock outstanding | | 110,650,253 |
| | 85,476,266 |
| | 110,482,991 |
| | 109,857,679 |
|
| Diluted net income (loss) per share of Class A common stock | | $ | 0.67 |
| | $ | 0.28 |
| | $ | 1.61 |
| | $ | 0.74 |
|
| |
| (1) | For the three and six months ended SeptemberJune 30, 2017,2019 and 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. |
The shares of Class B common stock do not share in the earnings of Ladder Capital Corp and are, therefore, not participating securities. Accordingly, basic and diluted net income (loss) per share of Class B common stock has not been presented, although the assumed conversion of Class B common stock has been included in the presented diluted net income (loss) per share of Class A common stock.
15. STOCK BASED AND OTHER COMPENSATION PLANS
The following table summarizes the impact on the consolidated statement of operations of the various stock based compensation plans described in this note ($ in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | |
| Stock Based Compensation Expense: | | | | | | | | | | | | | | |
| Annual Incentive Awards Granted in 2015 With Respect to 2014 Performance | $ | — |
| | $ | 419 |
| | $ | 172 |
| | $ | 1,456 |
| |
| Annual Incentive Awards Granted in 2016 With Respect to 2015 Performance | 323 |
| | 439 |
| | 971 |
| | 1,654 |
| |
| Annual Incentive Awards Granted in 2017 With Respect to 2016 Performance(1) | 524 |
| | 752 |
| | 1,655 |
| | 6,538 |
| |
| Annual Incentive Awards Granted in 2015 with Respect to 2014 Performance | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 172 |
|
| Annual Incentive Awards Granted in 2016 with Respect to 2015 Performance | | — |
| | 325 |
| | 131 |
| | 647 |
|
| Annual Incentive Awards Granted in 2017 with Respect to 2016 Performance(1) | | 282 |
| | 509 |
| | 676 |
| | 1,131 |
|
| Other 2017 Restricted Stock Awards(1) | 76 |
| | 78 |
| | 257 |
| | 225 |
| 25 |
| | 76 |
| | 76 |
| | 181 |
|
| Annual Incentive Awards Granted in 2017 With Respect to 2017 Performance(1) | 1,122 |
| | — |
| | 3,325 |
| | — |
| |
| Annual Incentive Awards Granted in 2017 with Respect to 2017 Performance(1) | | 580 |
| | 1,087 |
| | 1,365 |
| | 2,202 |
|
| 2018 Restricted Stock Awards | 95 |
| | — |
| | 230 |
| | — |
| — |
| | 93 |
| | 32 |
| | 136 |
|
| Other 2018 Restricted Stock Awards(1) | 9 |
| | — |
| | 12 |
| | — |
| 10 |
| | 3 |
| | 21 |
| | 3 |
|
| Annual Incentive Awards Granted in 2019 with Respect to 2018 Performance(1) | | 2,481 |
| | — |
| | 12,295 |
| | — |
|
| 2019 Restricted Stock Awards | | 87 |
| | — |
| | 149 |
| | — |
|
| Other Employee/Director Awards | 13 |
| | 27 |
| | 45 |
| | 608 |
| 4 |
| | 12 |
| | 16 |
| | 33 |
|
| Total Stock Based Compensation Expense | $ | 2,162 |
| | $ | 1,715 |
| | $ | 6,667 |
| | $ | 10,481 |
| $ | 3,469 |
| | $ | 2,105 |
| | $ | 14,761 |
| | $ | 4,505 |
|
| | | | | | | | | | | | | | | |
| Phantom Equity Investment Plan | $ | — |
| | $ | 185 |
| | $ | — |
| | $ | 527 |
| $ | (98 | ) | | $ | — |
| | $ | 704 |
| | $ | — |
|
| Ladder Capital Corp Deferred Compensation Plan | $ | 601 |
| | $ | 227 |
| | $ | 1,519 |
| | $ | 414 |
| $ | — |
| | $ | 236 |
| | $ | — |
| | $ | 919 |
|
| Bonus Expense | $ | 9,210 |
| | $ | 7,371 |
| | $ | 26,772 |
| | $ | 19,899 |
| $ | 7,717 |
| | $ | 7,782 |
| | $ | 14,501 |
| | $ | 17,562 |
|
| |
| (1) | Includes immediate vesting of retirement eligible employees, including Brian Harris.Harris, our Chief Executive Officer. |
2014 Omnibus Incentive Plan
In connection with the IPO Transactions, the 2014 Ladder Capital Corp Omnibus Incentive Equity Plan (the “2014 Omnibus Incentive Plan”) was adopted by the board of directors on February 11, 2014, and provides certain members of management, employees and directors of the Company or its affiliates with additional incentives including grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards.
Annual Incentive Awards Granted in 2016 With2017 with Respect to 20152016 Performance
Members ofFor 2016 performance, management were eligible to receive annual restricted stock awardsreceived stock-based incentive equity (the “Annual Restricted Stock Awards”) and annual option awards (the “Annual Option Awards”) based on the performance of the Company.. OnFebruary 18, 2016,2017, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $9.1$10.2 million which represents 793,598736,461 shares of restricted Class A common stock in connection with 20152016 compensation. Fifty percentIn accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees, 50% of each restricted stock award granted is subject to time-based vesting criteria, and the remaining 50% of each restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to the Management Grantees will generally vest in three installments on each of the first three anniversaries of the date of grant, subject to continued employment on the applicable vesting dates.dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves a return on equity, based on core earnings divided by the Company’s average book value of equity, equal to or greater than 8% for such year (the “Performance Target”) for those years. If the Company misses the Performance Target during either the first or second calendar year but meets the Performance Target for a subsequent year during the three-year3 year performance period and the Company’s return on equity for such subsequent year and any years for which it missed its Performance Target equals or exceeds the compounded return on equity of 8%, based on core earnings divided by the Company’s average book value of equity, the performance-vesting restricted stock which failed to vest because the Company previously missed its Performance Target will vest on the last day of such subsequent year (the “Catch-Up Provision”). If the term “core earnings” is no longer used in the Company’s SEC filings and approved by the compensation committee, then the Performance Target will be calculated using such other pre-tax performance measurement defined in the Company’s SEC filings, as determined by the compensation committee. The Company met the Performance Target for the years ended December 31, 20172018 and 2016.2017.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period.period for the entire award. As such, the compensation expense related to the February 18, 20162017 Annual Restricted Stock Awards to Management Grantees isshall be recognized as follows:
| |
| 1. | Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date. |
| |
| 2. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Brian Harris wasPamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in full on February 11, 2017,advance of the HarrisMcCormack Retirement Eligibility Date. |
| |
2.3. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Michael Mazzei will be expensed 1/3 each year, for three years, on an annual basis. |
| |
| 4. | Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris, Ms. McCormack and Mr. Mazzei will be expensed 1/3 each year, for three years, on an annual basis following such grant.in advance of the Executive Retirement Eligibility Date. |
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall beis accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
On February 18, 2016, Annual Stock Option Awards were granted to Management Grantees with an aggregate grant date fair value of $1.0 million, which represents 289,326 shares of Class A common stock subject to the Annual Stock Option Awards. The stock option awards are subject to the same terms and conditions as those granted in 2015 except that the vesting period commenced in 2016 and the 2016 stock option awards included dividend equivalent rights. The actual grant date fair values of the Annual Option Awards granted to our Management Grantees were computed in accordance with FASB ASC Topic 718 using the Black Scholes model based on the following assumptions: (1) risk-free rate of 1.5%; (2) dividend yield of 9.8%; (3) expected life of six years; and (4) volatility of 48.0%.
On February 18, 2016, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.1 million, representing 12,636 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to directors will be expensed in full on an annual basis following such grant.
Upon a change in control (as defined in the respective award agreements), all restricted stock and option awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
On February 11, 2017 (the “Harris Retirement Eligibility Date”), all outstanding Annual Restricted Stock Awards, including the time-vesting portion and the performance-vesting portion, and all outstanding Annual Option Awards granted to Mr. Harris became fully vested, and any Annual Restricted Stock Awards and Annual Option Awards granted after the Harris Retirement Eligibility Date will be fully vested at grant. The Executive Retirement Eligibility Date for Pamela McCormack is December 8, 2019 (the “McCormack Retirement Eligibility Date”). For Management Grantees other than Harris and McCormack, the Executive Retirement Eligibility Date is February 11, 2019, when the time-vesting portion of the Annual Restricted Stock Awards and the Annual Option Awards will become fully vested, and the time-vesting portion of any Annual Restricted Stock Awards and Annual Option Awards granted after the Executive Retirement Eligibility Date will be fully vested at grant. Upon the occurrence of the respective Executive Retirement Eligibility Date,Dates for each of the Management Grantees except Mr. Harris, the performance-vesting portion of such Management Grantee’s Annual Restricted Stock Awards will remain outstanding for the performance period and will vest to the extent we meet the Performance Target, including via the Catch-Up Provision described above, regardless of continued employment with us our subsidiaries following the Executive Retirement Eligibility Date.
Annual Incentive Awards Granted in 2017 With Respect to 2016 Performance
For 2016 performance, management received stock-based incentive equity. On February 18, 2017, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $10.2 million which represents 736,461 shares of restricted Class A common stock in connection with 2016 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees, fifty percent of each restricted stock award granted is subject to time-based vesting criteria, and the remaining 50% of each restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in three installments on each of the first three anniversaries of the date of grant, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2017, 2018 and 2019, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the February 18, 2017 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
| |
1. | Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date. |
| |
2. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date. |
| |
3. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Michael Mazzei will be expensed 1/3 each year, for three years, on an annual basis. |
| |
4. | Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris, Ms. McCormack and Mr. Mazzei will be expensed 1/3 each year, for three years, on an annual basis in advance of the Executive Retirement Eligibility Date. |
Accruals of compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
Upon a change in control (as defined in the respective award agreements), all restricted stock and option awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
Other 2017 Restricted Stock Awards
On January 24, 2017, Management Grantees received a Restricted Stock Award with a grant date fair value of $30,455, representing 2,191 shares of restricted Class A common stock. These shares represent stock dividends paid on the number of shares subject to the 2016 options (had such shares been outstanding) and vest with the time-vesting 2016 options they are associated with, subject to the Retirement Eligibility Date of the respective member of management. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On February 18, 2017, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.4 million, representing 28,881 shares of restricted Class A common stock, which will vest in two equal installments on each of the first two anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On February 18, 2017, Management Grantees received cash of $1.0 million and a Stock Award with a grant date fair value of $48,475, representing 3,500 shares of Class A common stock, intended to represent dividends in type and amount that the 2015 stock option grant to management would have received had such options had dividend equivalent rights since grant. This grant also provides for future dividend equivalents that vest according to the vesting schedule of the 2015 stock option grant. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On February 18, 2017, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.2 million, representing 16,245 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one-yearone year vesting period.
On February 18, 2017, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of $0.6 million which represents 40,000 shares of restricted Class A common stock in connection with 2016 compensation. Fifty percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in three installments on each of the first three anniversaries of June 1, 2017, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in three equal installments on June 1 of each of 2018, 2019 and 2020 (subject to the performance target being achieved). The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the February 18, 2017 Restricted Stock Awards to Non-Management Grantees for time-based vesting shall be recognized 1/3 for the period February 18, 2017 through June 1, 2018, 1/3 for the period June 2, 2018 through June 1, 2019 and 1/3 for the period June 2, 2019 through June 1, 2020.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
On March 3, 2017, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 5,130 shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.
On June 19, 2017, Restricted Stock Awards were granted to a Non-Management Grantee with an aggregate value of $0.3 million, which represents 21,307 shares of time-based restricted Class A common stock. One-third of this amount will vest on the first anniversary date of the grant date and 1,775 shares will vest on each of October 1, 2018, December 31, 2018, April 1, 2019, July 1, 2019, September 30, 2019, December 31, 2019 and March 31, 2020. The remaining 1,780 shares of the grant will vest on July 1, 2020, subject to the Non-Management Grantee’s continued employment with the Company. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of this Restricted Stock Award for the entire award on a straight-line basis over the requisite service period.
In connection with Mr. Mazzei’s retirement as President, Ladder Capital Finance LLC, a subsidiary of Ladder, and Mr. Mazzei entered into a separation agreement, dated June 22, 2017 (the “Separation Agreement”). Pursuant to the Separation Agreement, Mr. Mazzei was appointed as a Class III director of Ladder and, subject to certain exceptions, Mr. Mazzei’s unvested stock and stock options will continue to vest as they would have had he continued to be employed with Ladder as long as he continues to serve on the Board of Directors. Such unvested stock and stock options will not be subject to the original retirement eligibility date provided for in his employment agreement. On June 22, 2017, in connection with his appointment to the board of directors, Mr. Mazzei received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 5,346 shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.
Annual Incentive Awards Granted in 2017 Withwith Respect to 2017 Performance
For 2017 performance, management received stock-based incentive equity. On December 21, 2017, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $10.5 million which represents 768,205 shares of restricted Class A common stock in connection with 2017 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. For other Management Grantees, 50% of each restricted stock award granted is subject to time-based vesting criteria, and the remaining 50% of each restricted stock award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in three installments on each of February 18, 2019, February 18, 2020 and February 18, 2021, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2018, 2019 and 2020, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the December 21, 2017 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
| |
| 1. | Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date. |
| |
| 2. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date. |
| |
| 3. | Compensation expense for restricted stock subject to time-based vesting criteria granted to the Management Grantees other than Mr. Harris and Ms. McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the Executive Retirement Eligibility Date. |
Compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
Upon a change in control (as defined in the respective award agreements), all restricted stock awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
On December 21, 2017, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of $5.0 million which represents 369,328 shares of restricted Class A common stock in connection with 2017 compensation. Fifty percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in three installments on February 18 of each of 2019, 2020 and 2021 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2018, 2019 and 2020, respectively. The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the December 21, 2017 Restricted Stock Awards to Non-Management Grantees shall be recognized 1/3 for the period December 21, 2017 through February 18, 2019, 1/3 for the period February 19, 2019 through February 18, 2020 and 1/3 for the period February 19, 2020 through February 18, 2021.
In the event a Non-Management Grantee is terminated by the Company without cause within six months of certain changes in control, all unvested time shares shall vest on the termination date and all unvested performance shares shall remain outstanding and be eligible to vest (and be forfeited) in accordance with the performance conditions; provided that if such change in control is for more than 50% of the shares of the Company, then all restricted stock awards will become fully vested if the Non-Management Grantee continues to be employed through the closing of the change in control.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
2018 Restricted Stock Awards
On February 18, 2018, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.4 million, representing 25,370 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one-yearone year vesting period.
Other 2018 Restricted Stock Awards
On April 24, 2018, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 3,566 shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued employment on the applicable vesting dates. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
On July 19, 2018, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 4,720 shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.
Annual Incentive Awards Granted in 2019 with Respect to 2018 Performance
For 2018 performance, management received stock-based incentive equity. On February 18, 2019, Annual Restricted Stock Awards were granted to Management Grantees with an aggregate value of $11.7 million which represents 666,288 shares of restricted Class A common stock in connection with 2018 compensation. In accordance with the Harris Employment Agreement, Mr. Harris’ annual awards were fully vested at grant. Having attained their Executive Retirement Eligibility Date, fifty percent of the annual awards (representing the portion of the Annual Restricted Stock Awards historically subject to time-based vesting) to Messrs. Fox, Harney, and Perelman was fully vested at grant and the remaining fifty percent of each of their Annual Restricted Stock Awards is subject to performance-based criteria. For Ms. McCormack, the vesting of her annual awards is the same as described for the Annual Restricted Stock Awards with respect to 2017 performance. Subject to the McCormack Retirement Eligibility Date, her time-vesting restricted stock will vest in three installments on each of February 18, 2020, February 18, 2021 and February 18, 2022, subject to continued employment on the applicable vesting dates and subject to the applicable Retirement Eligibility Date. The performance-vesting restricted stock for the Management Grantees other than Mr. Harris will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2019, 2020 and 2021, respectively. The Catch-Up Provision applies to the performance vesting portion of this award.
The Company has elected to recognize the compensation expense related to the time-based vesting of the Annual Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period for the entire award. As such, the compensation expense related to the February 18, 2019 Annual Restricted Stock Awards to Management Grantees shall be recognized as follows:
| |
| 1. | Compensation expense for stock granted to Brian Harris will be expensed immediately in accordance with the Harris Retirement Eligibility Date. |
| |
| 2. | Compensation expense for restricted stock subject to time-based vesting criteria granted to Pamela McCormack will be expensed 1/3 each year, for three years, on an annual basis in advance of the McCormack Retirement Eligibility Date. |
| |
| 3. | Having attained their Executive Retirement Eligibility Date, compensation expense for restricted stock subject to time-based vesting criteria granted to Messrs. Fox, Harney, and Perelman was fully vested at grant date. |
Compensation cost for an award with a performance condition is accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
Upon a change in control (as defined in the respective award agreements), all restricted stock awards will become fully vested, if (1) the Management Grantee continues to be employed through the closing of the change in control or (2) after the signing of definitive documentation related to the change in control, but prior to its closing, the Management Grantee’s employment is terminated without cause or due to death or disability or the Management Grantee resigns for Good Reason. The compensation committee retains the right, in its sole discretion, to provide for the accelerated vesting (in whole or in part) of the restricted stock and option awards granted.
On February 18, 2019, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”) with an aggregate value of $14.9 million which represents 849,087 shares of restricted Class A common stock in connection with 2018 compensation. Fifty percent of each Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of each Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted to Non-Management Grantees will vest in three installments on February 18 of each of 2020, 2021 and 2022 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in three equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, 2019, 2020 and 2021, respectively. The Catch-Up Provision applies to the performance vesting portion of this award. The Company has elected to recognize the compensation expense related to the time-based vesting criteria of these Restricted Stock Awards for the entire award on a straight-line basis over the requisite service period. As such, the compensation expense related to the February 18, 2019 Restricted Stock Awards to Non-Management Grantees shall be recognized 1/3 for the period February 18, 2019 through February 18, 2020, 1/3 for the period February 19, 2020 through February 18, 2021 and 1/3 for the period February 19, 2021 through February 18, 2022.
In the event a Non-Management Grantee is terminated by the Company without cause within six months of certain changes in control, all unvested time shares shall vest on the termination date and all unvested performance shares shall remain outstanding and be eligible to vest (and be forfeited) in accordance with the performance conditions; provided that if such change in control is for more than 50% of the shares of the Company, then all restricted stock awards will become fully vested if the Non-Management Grantee continues to be employed through the closing of the change in control.
Accruals of compensation cost for an award with a performance condition shall be based on the probable outcome of that performance condition. Therefore, compensation cost shall be accrued if it is probable that the performance condition will be achieved and shall not be accrued if it is not probable that the performance condition will be achieved.
2019 Restricted Stock Awards
On February 18, 2019, certain members of the board of directors each received Annual Restricted Stock Awards with a grant date fair value of $0.4 million, representing 25,626 shares of restricted Class A common stock, which will vest in full on the first anniversary of the date of grant, subject to continued service on the board of directors. Compensation expense related to the time-based vesting criteria of the award shall be recognized on a straight-line basis over the one year vesting period.
Other 2019 Restricted Stock Awards
On January 24, 2019, Management Grantees received a Restricted Stock Award with a grant date fair value of $11,328, representing 682 shares of restricted Class A common stock. These shares represent stock dividends paid on the number of shares subject to the 2016 options (had such shares been outstanding) and vest with the time-vesting 2016 options they are associated with, subject to the Retirement Eligibility Date of the respective member of management. Compensation expense shall be recognized on a straight-line basis over the requisite service period.
An equitable adjustment was also made to outstanding options in the first quarter of 2019 for the Company’s stock dividend paid on January 24, 2019. Those additional options are reflected in the chart below.
On June 4, 2019, a new member of the board of directors received a Restricted Stock Award with a grant date fair value of $0.1 million, representing 4,568 shares of restricted Class A common stock, which will vest in three equal installments on each of the first three anniversaries of the date of grant, subject to continued service on the board of directors. These shares of restricted Class A common stock were a re-issuance of treasury stock. Compensation expense for restricted stock subject to time-based vesting criteria granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.
Summary of Restricted Stock and Stock Option Expense and Shares/Options Nonvested/Outstanding
A summary of the grants is presented below ($ in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | Number
of Shares/Options | | Weighted
Average
Fair Value | | Number
of Shares | | Weighted
Average
Fair Value | | Number
of Shares/Options | | Weighted Average Fair Value | | Number
of Shares/Options | | Weighted Average Fair Value |
| | | | | | | | | | | | | | | | |
| Grants - Class A Common Stock (restricted) | 4,568 |
| | $ | 75 |
| | 3,566 |
| | $ | 50 |
| | 1,546,251 |
| | $ | 27,146 |
| | 28,936 |
| | $ | 425 |
|
| Grants - Class A Common Stock (restricted) dividends | — |
| | — |
| | — |
| | — |
| | 11,113 |
| | 185 |
| | — |
| | — |
|
| Stock Options | — |
| | — |
| | — |
| | — |
| | 12,073 |
| | — |
| | — |
| | — |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Amortization to compensation expense | | | | | | | | | | | | | | | |
| Ladder compensation expense | |
| | (3,469 | ) | | |
| | (2,105 | ) | | |
| | (14,761 | ) | | |
| | (4,505 | ) |
| Total amortization to compensation expense | |
| | $ | (3,469 | ) | | |
| | $ | (2,105 | ) | | |
| | $ | (14,761 | ) | | |
| | $ | (4,505 | ) |
The table below presents the number of unvested shares and outstanding stock options at June 30, 2019 and changes during 2019 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | Number
of Shares/Options | | Weighted
Average
Fair Value | | Number
of Shares | | Weighted
Average
Fair Value | | Number
of Shares/Options | | Weighted Average Fair Value | | Number
of Shares/Options | | Weighted Average Fair Value |
| | | | | | | | | | | | | | | | |
| Grants - Class A Common Stock (restricted) | 4,720 |
| | $ | 75 |
| | — |
| | $ | — |
| | 33,656 |
| | $ | 500 |
| | 859,061 |
| | $ | 11,995 |
|
| Grants - Class A Common Stock (restricted) dividends | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15,560 |
| | 216 |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Amortization to compensation expense | | | | | | | | | | | | | | | |
| Ladder compensation expense | |
| | (2,162 | ) | | |
| | (1,715 | ) | | |
| | $ | (6,667 | ) | | |
| | $ | (10,481 | ) |
| Total amortization to compensation expense | |
| | $ | (2,162 | ) | | |
| | $ | (1,715 | ) | | |
| | $ | (6,667 | ) | | |
| | $ | (10,481 | ) |
|
| | | | | |
| | Restricted Stock | | Stock Options |
| | | | |
| Nonvested/Outstanding at December 31, 2018 | 1,118,194 |
| | 982,135 |
|
| Granted | 1,556,682 |
| | 12,073 |
|
| Exercised | | | — |
|
| Vested | (1,116,901 | ) | | |
| Forfeited | (8,702 | ) | | — |
|
| Expired | | | — |
|
| Nonvested/Outstanding at June 30, 2019 | 1,549,273 |
| | 994,208 |
|
| | | | |
| Exercisable at June 30, 2019 | | | 994,208 |
|
At June 30, 2019 there was $17.9 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 36 months, with a weighted-average remaining vesting period of 27.7 months.
The table below presents the number of unvested shares and outstanding stock options at SeptemberJune 30, 2018 and changes during 2018 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
|
| | | | | |
| | Restricted Stock | | Stock Options |
| | | | |
| Nonvested/Outstanding at December 31, 2017 | 1,252,365 |
| | 982,135 |
|
| Granted | 28,936 |
| | — |
|
| Exercised | | | — |
|
| Vested | (138,216 | ) | | |
| Forfeited | (26,061 | ) | | — |
|
| Expired | | | — |
|
| Nonvested/Outstanding at June 30, 2018 | 1,117,024 |
| | 982,135 |
|
| | | | |
| Exercisable at June 30, 2018 | | | 929,701 |
|
|
| | | | | |
| | Restricted Stock | | Stock Options |
| | | | |
| Nonvested/Outstanding at December 31, 2017 | 1,252,365 |
| | 982,135 |
|
| Granted | 33,656 |
| | — |
|
| Exercised | | | — |
|
| Vested | (138,216 | ) | | |
| Forfeited | (26,061 | ) | | — |
|
| Expired | | | — |
|
| Nonvested/Outstanding at September 30, 2018 | 1,121,744 |
| | 982,135 |
|
| | | | |
| Exercisable at September 30, 2018 | | | 929,701 |
|
At SeptemberAs of June 30, 2018 there was $8.0$10.3 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 34 months, with a weighted-average remaining vesting period of 21.223.1 months.
The table below presents the number of unvested shares and outstanding stock options at September 30, 2017 and changes during 2017 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:
|
| | | | | |
| | Restricted Stock | | Stock Options |
| | | | |
| Nonvested/Outstanding at December 31, 2016 | 1,475,865 |
| | 982,135 |
|
| Granted | 874,621 |
| | — |
|
| Exercised | | | — |
|
| Vested | (1,425,490 | ) | | |
| Forfeited | (10,000 | ) | | — |
|
| Expired | | | — |
|
| Nonvested/Outstanding at September 30, 2017 | 914,996 |
| | 982,135 |
|
| | | | |
| Exercisable at September 30, 2017 | | | 752,017 |
|
As of September 30, 2017 there was $7.4 million of total unrecognized compensation cost related to certain share-based compensation awards that is expected to be recognized over a period of up to 34 months, with a weighted-average remaining vesting period of 21.7 months.
Phantom Equity Investment Plan
LCFH maintained a Phantom Equity Investment Plan, effective on June 30, 2011 (the “Phantom Equity Plan”) in which certain eligible employees of LCFH, LCF and their subsidiaries participate. On July 3, 2014, the Board of Directors froze the Phantom Equity Plan and adopted the 2014 Deferred Compensation Plan, as defined and further described below. The Phantom Equity Plan is an annual deferred compensation plan pursuant to which participants could elect, or in some cases, non-management participants could be required, depending upon the participant’s specific level of compensation, to defer all or a portion of their annual cash performance-based bonuses as elective or mandatory contributions. Generally, if a participant’s total compensation was in excess of a certain threshold, a portion of such participant’s annual bonus, was required to be deferred into the Phantom Equity Plan. Otherwise, amounts could be deferred into the Phantom Equity Plan at the election of the participant, so long as such election was timely made in accordance with the terms and procedures of the Phantom Equity Plan.
In the event that a participant elected to (or was required to) defer a portion of his or her compensation pursuant to the Phantom Equity Plan, such amount was not paid to the participant and was instead credited to such participant’s notional account under the Phantom Equity Plan. Prior to the closing of our IPO, such amounts were invested, on a phantom basis, in the Series B Participating Preferred Units issued by LCFH until such amounts were eventually paid to the participant pursuant to the Phantom Equity Plan. Following our IPO, as described below, such amounts were invested on a phantom basis in shares of the Company’s Class A common stock. Mandatory contributions are subject to one-third vesting over a three year period following the applicable Phantom Equity Plan year in which the related compensation was earned. Elective contributions were immediately vested upon contribution. Unvested amounts are generally forfeited upon the participant’s involuntary termination for cause, a voluntary termination for which the participant’s employer would have grounds to terminate the participant for cause or a voluntary termination within one year of which the participant obtains employment with a financial services organization.
The date that the amounts deferred into the Phantom Equity Plan are paid to a participant depends upon whether such deferral is a mandatory deferral or an elective deferral. Elective deferrals are paid upon the earliest to occur of (1) a change in control (as defined in the Phantom Equity Plan), (2) the end of the participant’s employment, or (3) December 31, 2017. The vested amounts of the mandatory contributions are paid upon the first to occur of (A) a change in control and (B) the first to occur of (x) December 31, 2017 or (y) the date of payment of the annual bonus payments following December 31 of the third calendar year following the applicable plan year to which the underlying deferred annual bonus relates. The Company could elect to make, and did make, payments pursuant to the Phantom Equity Plan in the form of cash in an amount equal to the then fair market value of such shares of the Company’s Class A common stock (or, prior to our IPO, the Series B Participating Preferred Units), and on May 14, 2014, the Compensation Committee made a global election to make all payments pursuant to the Phantom Equity Plan in the form of cash. Mandatory contributions that were paid at the time specified in clause 2(B) above were made in cash.
Upon the closing of our IPO, each participant in the Phantom Equity Plan had his or her notional interest in LCFH’s Series B Participating Preferred Units converted into a notional interest in the Company’s Class A common stock, which notional conversion was based on the issuance price of our Class A common stock at the time of the IPO. On July 3, 2014, the board of directors froze the Phantom Equity Plan, effective as of such date, so that there will neither be future participants in the Phantom Equity Plan nor additional amounts contributed to any accounts outstanding under the Phantom Equity Plan. Amounts previously outstanding under the Phantom Equity Plan will be paid in accordance with their original payment terms, including limiting payment to the dates and events specified above. In connection with freezing the Phantom Equity Plan, the board of directors also updated the definition of fair market value for purposes of measuring the value of its Class A Common Stock, to provide that, generally, such value would be the closing price of such stock on the principal national securities exchange on which it is then traded.
The final payment, which closed the liability under the Phantom Equity Plan, was made on January 5, 2018. As of December 31, 2017, there were 42,270 phantom units that have been withdrawn from the plan, resulting in a liability of $1.0 million, which is included in accrued expenses on the consolidated balance sheets.
Ladder Capital Corp Deferred Compensation Plan
On July 3, 2014, the Company adopted a nonqualified deferred compensation plan, which was amended and restated on March 17, 2015 (the “2014 Deferred Compensation Plan”), in which certain eligible employees participate. On February 22, 2018, the Board of Directors froze the 2014 Deferred Compensation Plan. Pursuant to the 2014 Deferred Compensation Plan, participants elected, or in some cases non-management participants were required, to defer all or a portion of their annual cash performance-based bonuses into the 2014 Deferred Compensation Plan. Generally, if a participant’s total compensation was in excess of a certain threshold, a portion of a participant’s performance-based annual bonus was required to be deferred into the 2014 Deferred Compensation Plan. Otherwise, a portion of the participant’s annual bonus could have been deferred into the 2014 Deferred Compensation Plan at the election of the participant, so long as such elections were timely made in accordance with the terms and procedures of the 2014 Deferred Compensation Plan.
In the event that a participant elected to (or was required to) defer a portion of his or her compensation pursuant to the 2014 Deferred Compensation Plan, such amount was not paid to the participant and was instead credited to such participant’s notional account under the 2014 Deferred Compensation Plan. Such amounts were then invested on a phantom basis in Class A common stock of the Company, or the phantom units, and a participant’s account is credited with any dividends or other distributions received by holders of Class A common stock of the Company, which are subject to the same vesting and payment conditions as the applicable contributions. Elective contributions were immediately vested upon contribution. Mandatory contributions are subject to one-third vesting over a three-year periodthree years on a straight-line basis following the applicable year in which the related compensation was earned and mandatory contributions for compensation earned in 2015, 2016 and 2017 remain in the 2014 Deferred Compensation Plan, subject to vesting in 2018, 2019 and 2020, respectively.
If a participant’s employment with the Company is terminated by the Company other than for cause and such termination is within six months following a change in control (each, as defined in the 2014 Deferred Compensation Plan), then the participant will fully vest in his or her unvested account balances. Furthermore, the unvested account balances will fully vest in the event of the participant’s death, disability, retirement (as defined in the 2014 Deferred Compensation Plan) or in the event of certain hostile takeovers of the board of directors of the Company. In the event that a participant’s employment is terminated by the Company other than for cause, the participant will vest in the portion of the participant’s account that would have vested had the participant remained employed through the end of the year in which such termination occurs, subject to, in such case or in the case of retirement, the participant’s timely execution of a general release of claims in favor of the Company. Unvested amounts are otherwise generally forfeited upon the participant’s resignation or termination of employment, and vested mandatory contributions are generally forfeited upon the participant’s termination for cause.
Amounts deferred into the 2014 Deferred Compensation Plan are paid upon the earliest to occur of (1) a change in control, (2) within sixty days following the end of the participant’s employment with the Company, or (3) the date of payment of the annual bonus payments following December 31 of the third calendar year following the applicable year to which the underlying deferred annual compensation relates. Payment is made in cash equal to the fair market value of the number of phantom units credited to a participant’s account, provided that, if the participant’s termination was by the Company for cause or was a voluntary resignation other than on account of such participant’s retirement, the amount paid is based on the lowest fair market value of a share of Class A common stock during the forty-five day period following such termination of employment.The amount of the final cash payment may be more or less than the amount initially deferred into the 2014 Deferred Compensation Plan, depending upon the change in the value of the Class A common stock of the Company during such period.
As of SeptemberJune 30, 2018,2019, there are 369,896255,089 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 243,352135,860 are unvested, resulting in a liability of $6.3$4.2 million, which is included in accrued expenses on the consolidated balance sheets. As of December 31, 2017,2018, there were 321,476380,662 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 182,983130,389 are unvested, resulting in a liability of $3.8$5.9 million, which is included in accrued expenses on the consolidated balance sheets.
Bonus Payments
On February 7, 2019, the board of directors of Ladder Capital Corp approved 2018 bonus payments to employees, including officers, totaling $61.4 million, which included $26.6 million of equity based compensation. The bonuses were accrued for as of December 31, 2018 and paid to employees in full on February 15, 2019. On December 19, 2017, the board of directors of Ladder Capital Corp approved 2017 bonus payments to employees, including officers, totaling $49.3 million, which included $15.5 million of equity based compensation, which was granted on December 21, 2017. Cash bonuses of $17.1 million were paid on December 29, 2017. The remaining $16.8 million of cash bonuses were accrued for as of December 31, 2017 and paid to employees in full on January 5, 2018. On February 8, 2017, the board of directors of Ladder Capital Corp approved 2016 bonus payments to employees, including officers, totaling $39.5 million, which included $10.2 million of equity based compensation. The bonuses were accrued for as of December 31, 2016 and paid to employees in full on February 21, 2017. During the three and ninesix months ended SeptemberJune 30, 2019, the Company recorded compensation expense of $7.7 million and $14.5 million, respectively, related to bonuses. During the three and six months ended June 30, 2018, the Company recorded compensation expense of $9.2$7.8 million and $26.8$17.6 million, respectively, related to 2018 bonuses. During the three and nine months ended September 30, 2017, the Company recorded compensation expense of $7.4 million and $19.9 million, respectively, related to 2017 bonuses.
16. INCOME TAXES
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2015. As such, the Company’s income is generally not subject to U.S. Federal, state and local corporate income taxes other than as described below.
Certain of the Company’s subsidiaries have elected to be treated as TRSs. TRSs permit the Company to participate in certain activities from which REITs are generally precluded, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Code. To the extent these criteria are met, the Company will continue to maintain its qualification as a REIT. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in TRSs.
There were $2.2 Current income tax expense (benefit) was $(1.3) million and $2.6 million. corporate taxes payable (receivable) as$(7.4) million for the three and six months ended June 30, 2019, respectively. Current income tax expense (benefit) was $(0.5) million and $3.0 million for the three and six months ended June 30, 2018, respectively.
As of SeptemberJune 30, 20182019 and December 31, 2017, respectively. There were $0.5 million NYC UBT taxes payable (receivable) at September 30, 2018, and December 31, 2017. Prepaid corporate taxes as of September 30, 2018 and December 31, 2017 were $7.5 million and $12.4 million, respectively.
As part of the recently enacted Tax Cuts and Jobs Act, the federal income tax rate applicable to TRS activities has been reduced. The Company has adjusted its deferred tax positions at the TRSs (including those resulting from the TRA) to reflect the reduced tax rate as part of its 2017 tax provision.
As of September 30, 2018 and December 31, 2017, the Company’s net deferred tax assets (liabilities) were $(0.8)$(4.1) million and $(5.7)$2.3 million, respectively, and are included in other assets (liabilities)(other liabilities) in the Company’s consolidated balance sheets. Deferred income tax expense (benefit) included within the provision for income taxes was $3.5 million and $6.7 million for the three and six months ended June 30, 2019, respectively. Deferred income tax expense (benefit) included within the provision for income taxes was $1.0 million and $1.5 million for the three and six months ended June 30, 2018, respectively. The Company’s net deferred tax liability is comprised of deferred tax assets and deferred tax liabilities. The Company believes it is more likely than not that anythe deferred tax assets (aside from the exception noted below) will be realized in the future through reversalfuture. Realization of temporary differences and/orthe deferred tax assets is dependent upon our generation of sufficient taxable income in future years in the appropriate tax jurisdictions.jurisdictions to obtain benefit from the reversal of temporary differences. The amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
As of December 31, 2017,June 30, 2019, the Company hadhas a deferred tax asset of $5.8$6.3 million relating to capital losses which it may only use to offset capital gains. These tax attributes will begin to expire if unused in 2020. As the realization of this deferred tax asset before its expiration wasthese assets are not more likely than not before their expiration, the Company has provided a full valuation allowance against this deferred tax asset. However, as of September 30, 2018, the Company has utilized all of its capital loss carryforwards and fully released its valuation allowance related to the tax attributes accordingly.
The Company’s tax returns are subject to audit by taxing authorities. Generally, as of SeptemberJune 30, 2018,2019, the tax years 2013 - 20172015-2018 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. The IRS andCompany acquired certain corporate entities at the time of its IPO. The related acquisition agreements provided an indemnification to the Company by each transferor of any amounts due for any potential tax liabilities owed by these entities for tax years prior to their acquisition. In January 2019, a settlement was reached with New York State have undertaken routine auditspertaining to an audit of these corporate entities for the years 2013-2015. As a result of the Company’s U.S. federal and statesettlement, during the year ended December 31, 2018, management recorded income tax returnsexpense in the amount of $3.3 million and a corresponding payable to the State of New York. Pursuant to the indemnification, management expects to recover $2.5 million of such amounts and, accordingly, recorded fee and other income in the amount of $2.5 million as well as a corresponding receivable from the indemnity counterparties. As of July 31, 2019, the Company has collected all amounts owed by the indemnity counterparties related to the 2013-2015 audit. The IRS recently completed its audit of the 2014 tax year and did not recommend any changes to the Company’s tax return. The Company is currently under New York City audit for tax year 2014 and 2013-2015 respectively.years 2012-2014. The Company does not expect the auditsaudit to result in any material changes to the Company’s financial position. The Company does not expect tax expense to have an impact on either short or long-term liquidity or capital needs.
Under U.S. GAAP, a tax benefit related to an income tax position may be recognized when it is more likely than not that the position will be sustained upon examination by the tax authorities based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. As of SeptemberJune 30, 20182019 and December 31, 2017,2018, the Company’s unrecognized tax benefit is a liability for $0.9 million and $0.8 million, respectively, and is included in the accrued expenses in the Company’s consolidated balance sheets. This unrecognized tax benefit, if recognized, would have a favorable impact on our effective income tax rate in future periods. As of SeptemberJune 30, 2018,2019, the Company has not recognized a significant amount of any interest or penalties related to uncertain tax positions. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months.
Tax Receivable Agreement
Upon consummation of the IPO, the Company entered into a Tax Receivable Agreement with the Continuing LCFH Limited Partners (the “TRA Members”).Partners. Under the Tax Receivable Agreement the Company generally is required to pay to the TRA Membersthose Continuing LCFH Limited Partners that exchange their interests in LCFH and Class B shares of the Company for Class A shares of the Company, 85% of the applicable cash savings, if any, in U.S. federal, state and local income tax that the Company realizes (or is deemed to realize in certain circumstances) as a result of (i) the increase in tax basis in its proportionate share of LCFH’s assets that is attributable to the Company as a result of the exchanges and (ii) payments under the Tax Receivable Agreement, including any tax benefits related to imputed interest deemed to be paid by the Company as a result of such agreement. The Company may make future payments under the Tax Receivable Agreement if the tax benefits are realized. We would then benefit from the remaining 15% of cash savings in income tax that we realize. For purposes of the Tax Receivable Agreement, cash savings in income tax will be computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had there been no increase to the tax basis of the assets of LCFH as a result of the exchanges and had we not entered into the Tax Receivable Agreement.
Payments to a TRA MemberContinuing LCFH Limited Partner under the Tax Receivable Agreement are triggered by each exchange and are payable annually commencing following the Company’s filing of its income tax return for the year of such exchange. The timing of the payments may be subject to certain contingencies, including the Company having sufficient taxable income to utilize all of the tax benefits defined in the Tax Receivable Agreement.
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, pursuant to the Tax Receivable Agreement, the Company recorded a liability of $1.6 million, and $1.7 million, respectively, included in amount payable pursuant to tax receivable agreement in the consolidated balance sheets for TRA Members.Continuing LCFH Limited Partners. The amount and timing of any payments may vary based on a number of factors, including the absence of any material change in the relevant tax law, the Company continuing to earn sufficient taxable income to realize all tax benefits, and assuming no additional exchanges that are subject to the Tax Receivable Agreement. Depending upon the outcome of these factors, the Company may be obligated to make substantial payments pursuant to the Tax Receivable Agreement. The actual payment amounts may differ from these estimated amounts, as the liability will reflect changes in prevailing tax rates, the actual benefit the Company realizes on its annual income tax returns, and any additional exchanges.
To determine the current amount of the payments due, the Company estimates the amount of the Tax Receivable Agreement payments that will be made within twelve months of the balance sheet date. As described in Note 1 above, the Tax Receivable Agreement was amended and restated in connection with the Company’sour REIT Election, effective as of December 31, 2014 (the “TRA Amendment”), in order to preserve a portion of the potential tax benefits currently existing under the Tax Receivable Agreement that would otherwise be reduced in connection with our REIT Election. The purpose of the TRA Amendment was to preserve the benefits of the Tax Receivable Agreement to the extent possible in a REIT, although, as a result, the amount of payments made to the TRA Members under the TRA Amendment is expected to be less than the amount that would have been paid under the original Tax Receivable Agreement. The TRA Amendment continues to share such benefits in the same proportions and otherwise has substantially the same terms and provisions as the prior Tax Receivable Agreement.
17. RELATED PARTY TRANSACTIONS
Ladder Select Bond Fund
On October 18, 2016, Ladder Capital Asset Management LLC (“LCAM”), a subsidiary of the Company and a registered investment adviser, launched the Ladder Select Bond Fund (the “Fund”), a mutual fund. In addition, on October 18, 2016, the Company made a $10.0 million investment in the Fund, which is included in other assets in the consolidated balance sheets. As of SeptemberJune 30, 2018,2019, members of senior management have $0.9$0.8 million invested in the Fund. LCAM earns a 0.75% fee on assets under management, which may be reduced for expenses incurred in excess of the Fund’s expense cap of 0.95%.
Stockholders Agreement
On March 3, 2017, Ladder, RREF II Ladder LLC, an entity affiliated with The Related Companies (“Related”), and certain pre-IPO stockholders of Ladder, including affiliates of TowerBrook Capital Partners, L.P. and GI Partners L.P., closed a purchase by Related of $80.0 million of Ladder’s Class A common stock from the pre-IPO stockholders. As part of the closing of the transaction, Ladder and Related entered into a Stockholders Agreement, dated as of March 3, 2017, pursuant to which Jonathan Bilzin resigned from the Board, and all committees thereof, and Ladder appointed Richard O’Toole to replace Mr. Bilzin as a Class II Director on Ladder’s Board, each effective as of March 3, 2017. Pursuant to the Stockholders Agreement, Ladder granted to Related a right of first offer with respect to certain horizontal risk retention investments in which Ladder intends to retain an interest and Related agreed to certain standstill provisions.
Commercial Real Estate Loans
From time to time, the Company may provide commercial real estate loans to entities affiliated with certain of our directors, officers or large shareholders who are, as part of their ordinary course of business, commercial real estate investors. These loans are made in the ordinary course of the Company’s business on the same terms and conditions as would be offered to any other borrower of similar type and standing on a similar property.
On March 13, 2017, Related Reserve IV LLC, an affiliate of Related Fund Management LLC (the “B Participation Holder”), purchased a $4.0 million subordinate participation interest (the “B Participation Interest”) in the up to $136.5 million mortgage loan (the “Loan”) secured by the Conrad hotels and condominiums in Fort Lauderdale, Florida from a subsidiary of the Company. The B Participation Interest earns interest at an annual rate of 17%, with the Company’s participation interest (the “A Participation Interest”) receiving the balance of all interest paid under the Loan. Upon an event of default under the Loan, all receipts will be applied to the payment of interest and principal on the Company’s share of the principal balance before the B Participation Holder receives any sums. The Company retains all control over the administration and servicing of the whole loan, except that upon the occurrence of certain Loan defaults and other events, the B Participation Holder will have the option to trigger a buy-sell option, whereupon the Company shall have the right to either repurchase the B Participation Interest at par or sell the A Participation Interest to the B Participation Holder at par plus exit fees that would have been payable upon a borrower repayment. Because the participation interest was not pari passu and effective control continued to reside with the retained portions of the loans the transfers of any portion of this loan asset is considered a non-recourse secured borrowing in which the full loan asset remains on the Company’s consolidated balance sheets in mortgage loan receivables held for investment, net, at amortized cost and the sale proceeds are reported as debt obligations. The loan was repaid during the three months ended June 30, 2019. See Note 8, Debt Obligations, Net for further detail. The Company recorded $0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, which is included in accrued expenses on the consolidated balance sheets. The Company recorded $0.2$0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, which is included in accrued expenses on the consolidated balance sheets.
On July 6, 2017,December 12, 2018, Ladder provided a $21.0$6.4 million first mortgage interest-only loan to a borrower affiliated with Theprincipals of Related Companies to facilitate the acquisition of two commercial condominium unitsa gym facility and associated parking located in the Brickell Heights mixed use development in Miami, Florida.Woodbury, New York. The borrowing entity Brickell Heights Commercial LLC, is 80% owned directly or indirectly by a joint venture between Related Special Assets LLC, a personal investment vehicle for certain investors, including, among other principals of The Related, Companies,Richard O’Toole, who owns an approximate 12% interest in the borrowing entity and another investor, with the remaining 20% interest belonging to an affiliateis a member of The Related GroupLadder’s board of Florida. This loan was sold to a securitization trust on October 31, 2017.directors. For the three and ninesix months ended SeptemberJune 30, 2017,2019, the Company earned $0.2$14.5 thousand and $0.1 million, respectively, in interest income related to this loan.
Firm Relationships
DLA Piper LLP (US),On March 5, 2019, Ladder provided a $14.3 million first mortgage interest-only loan to a borrower affiliated with principals of which Mr. Jeffrey B. Steiner,Related to refinance a gym facility and associated parking located in Bloomfield Heights, Michigan. The borrowing entity is owned directly or indirectly by certain investors, including, among other principals of Related, Richard O’Toole, who owns an approximate 0.7% interest in the borrowing entity and is a member of the Company’sLadder’s board of directors, was a Partner until March 2018,directors. For the three and McDermott Will & Emery, of which Mr. Steiner is currently a Partner, each provide legal services to the Company. During the yearsix months ended December 31, 2017,June 30, 2019, the Company paid, or causedearned $0.2 million and $0.3 million, respectively, in interest income related to be paid, to DLA Piper approximately $2.7 million in fees for legal services. Expenditures by the Company to DLA Piper and McDermott Will & Emery for the year ended December 31, 2018, for legal services in the aggregate are expected to be roughly equivalent to that amount. Mr. Steiner’s son, Andrew Steiner, is an associate at the Company; during the year ended December 31, 2017, his compensation from the Company exceeded $120,000. Andrew Steiner’s compensation and other benefits the year ended December 31, 2017 were comparable to those of other employees of the Company in similar positions and determined by the Company consistent with its compensation practices applicable to other similarly situated employees.this loan.
18. COMMITMENTS AND CONTINGENCIES
Leases
In 2011,The Company adopted ASC Topic 842 on January 1, 2019. The primary impact of applying ASC Topic 842 was the initial recognition of a $3.5 million lease liability and a $3.3 million right of use asset (including previously accrued straight line rent) on the Company’s consolidated financial statements, for leases classified as operating leases under ASC Topic 840, primarily for the Company’s corporate headquarters and other identified leases. There is no cumulative effect on retained earnings or other components of equity recognized as of January 1, 2019. As of June 30, 2019, the Company entered intohad a $3.0 million lease forliability and a $2.9 million right-of-use asset on its primary office space,consolidated balance sheets. Tenant reimbursements, which commenced on October 1, 2011consist of real estate taxes and expires on January 31, 2022 with no extension option. In 2012,other municipal charges paid by us which were reimbursable by our tenants pursuant to the Company entered into aterms of triple-net lease for secondary office space. The lease commenced on May 15, 2012 and would have expired on May 14, 2015 with no extension option. This lease was amended, however, on October 2, 2014, extending the expiration date from May 14, 2015 to May 14, 2018. The Company recorded $0.3agreements, were $1.7 million and $0.9$3.3 million of rental expense for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively, which isand are included in operating expenses inlease income on the Company’s consolidated statements of income. The Company recorded $0.3income, compared to $1.9 million and $0.9$5.5 million of rental expensetenant reimbursements for the three and ninesix months ended SeptemberJune 30, 2017, respectively, which2018, respectively.
Investments in Unconsolidated Joint Ventures
We have made investments in various unconsolidated joint ventures. See Note 7, Investment in and Advances to Unconsolidated Joint Ventures for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is included in operating expenses inlimited to the consolidated statementscarrying value of income.our investments.
The following is a schedule of future minimum rental payments required under the above operating leases ($ in thousands):
|
| | | | |
| Period Ending December 31, | | Amount |
| | | |
|
| 2018 (last 3 months) | | $ | 295 |
|
| 2019 | | 1,180 |
|
| 2020 | | 1,180 |
|
| 2021 | | 1,180 |
|
| 2022 | | 99 |
|
| Thereafter | | — |
|
| Total | | $ | 3,934 |
|
Unfunded Loan Commitments
As of SeptemberJune 30, 2018,2019, the Company’s off-balance sheet arrangements consisted of $386.0$228.6 million of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing, at rates to be determined at the time of funding. As of December 31, 2017,2018, the Company’s off-balance sheet arrangements consisted of $157.0$379.8 million of unfunded commitments of mortgage loan receivables held for investment to provide additional first mortgage loan financing, at rates to be determined at the time of funding. Such commitments are subject to our loan borrowers’ satisfaction of certain financial and nonfinancial covenants and may or may not be funded depending on a variety of circumstances including timing, credit metric hurdles, and other nonfinancial events occurring. These commitments are not reflected on the consolidated balance sheets.
19. SEGMENT REPORTING
The Company has determined that it has three reportable segments based on how the chief operating decision maker reviews and manages the business. These reportable segments include loans, securities, and real estate. The loans segment includes mortgage loan receivables held for investment (balance sheet loans) and mortgage loan receivables held for sale (conduit loans). The securities segment is composed of all of the Company’s activities related to commercial real estate securities, which include investments in CMBS, and U.S. Agency Securities.Securities, corporate bonds and equity securities. The real estate segment includes net leased properties, office buildings, a student housing portfolio, industrial buildings, a shopping center and condominium units. Corporate/other includes the Company’s investments in joint ventures, other asset management activities and operating expenses.
The Company evaluates performance based on the following financial measures for each segment ($ in thousands):
| | | | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total |
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2018 | |
| | |
| | |
| | |
| | |
| |
| Three months ended June 30, 2019 | | |
| | |
| | |
| | |
| | |
|
| Interest income | $ | 81,779 |
| | $ | 8,541 |
| | $ | 6 |
| | $ | 60 |
| | $ | 90,386 |
| $ | 69,794 |
| | $ | 15,210 |
| | $ | 7 |
| | $ | 311 |
| | $ | 85,322 |
|
| Interest expense | (17,232 | ) | | (1,482 | ) | | (9,213 | ) | | (23,549 | ) | | (51,476 | ) | (14,224 | ) | | (4,130 | ) | | (9,091 | ) | | (24,924 | ) | | (52,369 | ) |
| Net interest income (expense) | 64,547 |
| | 7,059 |
| | (9,207 | ) | | (23,489 | ) | | 38,910 |
| 55,570 |
| | 11,080 |
| | (9,084 | ) | | (24,613 | ) | | 32,953 |
|
| Provision for loan losses | (10,300 | ) | | — |
| | — |
| | — |
| | (10,300 | ) | (300 | ) | | — |
| | — |
| | — |
| | (300 | ) |
| Net interest income (expense) after provision for loan losses | 54,247 |
| | 7,059 |
| | (9,207 | ) | | (23,489 | ) | | 28,610 |
| 55,270 |
| | 11,080 |
| | (9,084 | ) | | (24,613 | ) | | 32,653 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating lease income | — |
| | — |
| | 22,739 |
| | — |
| | 22,739 |
| — |
| | — |
| | 27,780 |
| | — |
| | 27,780 |
|
| Tenant recoveries | — |
| | — |
| | 2,258 |
| | — |
| | 2,258 |
| |
| Sale of loans, net | 1,861 |
| | — |
| | — |
| | — |
| | 1,861 |
| 20,264 |
| | — |
| | — |
| | — |
| | 20,264 |
|
| Realized gain (loss) on securities | — |
| | (2,554 | ) | | — |
| | — |
| | (2,554 | ) | — |
| | 4,464 |
| | — |
| | — |
| | 4,464 |
|
| Unrealized gain (loss) on equity securities | | — |
| | (990 | ) | | — |
| | — |
| | (990 | ) |
| Unrealized gain (loss) on Agency interest-only securities | — |
| | 142 |
| | — |
| | — |
| | 142 |
| — |
| | 11 |
| | — |
| | — |
| | 11 |
|
| Realized gain (loss) on sale of real estate, net | — |
| | — |
| | 63,704 |
| | — |
| | 63,704 |
| |
| Realized gain on sale of real estate, net | | — |
| | — |
| | (1,124 | ) | | — |
| | (1,124 | ) |
| Fee and other income | 3,895 |
| | — |
| | — |
| | 956 |
| | 4,851 |
| 5,947 |
| | 333 |
| | — |
| | 916 |
| | 7,196 |
|
| Net result from derivative transactions | 3,741 |
| | 3,374 |
| | — |
| | — |
| | 7,115 |
| (8,518 | ) | | (6,939 | ) | | — |
| | — |
| | (15,457 | ) |
| Earnings (loss) from investment in unconsolidated joint ventures | — |
| | — |
| | 401 |
| | — |
| | 401 |
| — |
| | — |
| | 1,564 |
| | — |
| | 1,564 |
|
| Gain (loss) on extinguishment/defeasance of debt | — |
| | — |
| | (4,323 | ) | | — |
| | (4,323 | ) | |
| Total other income (expense) | 9,497 |
| | 962 |
| | 84,779 |
| | 956 |
| | 96,194 |
| |
| Total other income (loss) | | 17,693 |
| | (3,121 | ) | | 28,220 |
| | 916 |
| | 43,708 |
|
| | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | — |
| | — |
| | — |
| | (15,792 | ) | | (15,792 | ) | — |
| | — |
| | — |
| | (14,907 | ) | | (14,907 | ) |
| Operating expenses | 61 |
| | — |
| | — |
| | (5,525 | ) | | (5,464 | ) | — |
| | — |
| | — |
| | (6,012 | ) | (3) | (6,012 | ) |
| Real estate operating expenses | — |
| | — |
| | (7,152 | ) | | — |
| | (7,152 | ) | — |
| | — |
| | (6,032 | ) | | — |
| | (6,032 | ) |
| Fee expense | (928 | ) | | (91 | ) | | (292 | ) | | — |
| | (1,311 | ) | (1,058 | ) | | (87 | ) | | (38 | ) | | — |
| | (1,183 | ) |
| Depreciation and amortization | — |
| | — |
| | (10,398 | ) | | (19 | ) | | (10,417 | ) | — |
| | — |
| | (9,910 | ) | | (25 | ) | | (9,935 | ) |
| Total costs and expenses | (867 | ) | | (91 | ) | | (17,842 | ) | | (21,336 | ) | | (40,136 | ) | (1,058 | ) | | (87 | ) | | (15,980 | ) | | (20,944 | ) | | (38,069 | ) |
| | | | | | | | | | | | | | | | | | | |
| Income tax (expense) benefit | — |
| | — |
| | — |
| | (1,204 | ) | | (1,204 | ) | |
| Income Tax (expense) benefit | | — |
| | — |
| | — |
| | (2,219 | ) | | (2,219 | ) |
| Segment profit (loss) | $ | 62,877 |
| | $ | 7,930 |
| | $ | 57,730 |
| | $ | (45,073 | ) | | $ | 83,464 |
| $ | 71,905 |
| | $ | 7,872 |
| | $ | 3,156 |
| | $ | (46,860 | ) | | $ | 36,073 |
|
| | | | | | | | | | | | | | | | | | | |
| Total assets as of September 30, 2018 | $ | 4,162,949 |
| | $ | 978,289 |
| | $ | 1,036,110 |
| | $ | 248,397 |
| | $ | 6,425,745 |
| |
| Total assets as of June 30, 2019 | | $ | 3,213,334 |
| | $ | 1,788,415 |
| | $ | 1,042,128 |
| | $ | 362,898 |
| | $ | 6,406,775 |
|
| | | | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total |
| | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 | |
| | |
| | |
| | |
| | |
| |
| Three months ended June 30, 2018 | | |
| | |
| | |
| | |
| | |
|
| Interest income | $ | 56,763 |
| | $ | 9,986 |
| | $ | 3 |
| | $ | 81 |
| | $ | 66,833 |
| $ | 76,485 |
| | $ | 8,662 |
| | $ | 5 |
| | $ | 78 |
| | $ | 85,230 |
|
| Interest expense | (11,317 | ) | | (1,456 | ) | | (7,847 | ) | | (16,865 | ) | | (37,485 | ) | (15,488 | ) | | (1,085 | ) | | (8,732 | ) | | (23,112 | ) | | (48,417 | ) |
| Net interest income (expense) | 45,446 |
| | 8,530 |
| | (7,844 | ) | | (16,784 | ) | | 29,348 |
| 60,997 |
| | 7,577 |
| | (8,727 | ) | | (23,034 | ) | | 36,813 |
|
| Provision for loan losses | — |
| | — |
| | — |
| | — |
| | — |
| (300 | ) | | — |
| | — |
| | — |
| | (300 | ) |
| Net interest income (expense) after provision for loan losses | 45,446 |
| | 8,530 |
| | (7,844 | ) | | (16,784 | ) | | 29,348 |
| 60,697 |
| | 7,577 |
| | (8,727 | ) | | (23,034 | ) | | 36,513 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating lease income | — |
| | — |
| | 22,924 |
| | — |
| | 22,924 |
| — |
| | — |
| | 26,171 |
| | — |
| | 26,171 |
|
| Tenant recoveries | — |
| | — |
| | 2,382 |
| | — |
| | 2,382 |
| |
| Sale of loans, net | (775 | ) | | — |
| | — |
| | — |
| | (775 | ) | 6,144 |
| | — |
| | — |
| | — |
| | 6,144 |
|
| Realized gain (loss) on securities | — |
| | 6,688 |
| | — |
| | — |
| | 6,688 |
| — |
| | (1,243 | ) | | — |
| | — |
| | (1,243 | ) |
| Unrealized gain (loss) on Agency interest-only securities | — |
| | 577 |
| | — |
| | — |
| | 577 |
| — |
| | 110 |
| | — |
| | — |
| | 110 |
|
| Realized gain on sale of real estate, net | (159 | ) | | — |
| | 3,387 |
| | — |
| | 3,228 |
| — |
| | — |
| | 1,628 |
| | — |
| | 1,628 |
|
| Fee and other income | 1,447 |
| | — |
| | 2,057 |
| | 834 |
| | 4,338 |
| 3,866 |
| | 72 |
| | 1,634 |
| | 905 |
| | 6,477 |
|
| Net result from derivative transactions | 990 |
| | (1,338 | ) | | — |
| | — |
| | (348 | ) | 3,886 |
| | 3,195 |
| | — |
| | — |
| | 7,081 |
|
| Earnings from investment in unconsolidated joint ventures | — |
| | — |
| | 127 |
| | — |
| | 127 |
| |
| Total other income | 1,503 |
| | 5,927 |
| | 30,877 |
| | 834 |
| | 39,141 |
| |
| Earnings (loss) from investment in unconsolidated joint ventures | | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
| Total other income (loss) | | 13,896 |
| | 2,134 |
| | 29,446 |
| | 905 |
| | 46,381 |
|
| | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | 6,700 |
| | — |
| | — |
| | (19,955 | ) | | (13,255 | ) | — |
| | — |
| | — |
| | (13,866 | ) | | (13,866 | ) |
| Operating expenses | 99 |
| | — |
| | — |
| | (4,889 | ) | | (4,790 | ) | (86 | ) | | — |
| | — |
| | (5,511 | ) | (3) | (5,597 | ) |
| Real estate operating expenses | — |
| | — |
| | (9,351 | ) | | — |
| | (9,351 | ) | — |
| | — |
| | (7,836 | ) | | — |
| | (7,836 | ) |
| Fee expense | (992 | ) | | (68 | ) | | (182 | ) | | — |
| | (1,242 | ) | (615 | ) | | (96 | ) | | (88 | ) | | — |
| | (799 | ) |
| Depreciation and amortization | — |
| | — |
| | (10,583 | ) | | (23 | ) | | (10,606 | ) | — |
| | — |
| | (10,637 | ) | | (19 | ) | | (10,656 | ) |
| Total costs and expenses | 5,807 |
| | (68 | ) | | (20,116 | ) | | (24,867 | ) | | (39,244 | ) | (701 | ) | | (96 | ) | | (18,561 | ) | | (19,396 | ) | | (38,754 | ) |
| | | | | | | | | | | | | | | | | | | |
| Income tax (expense) benefit | — |
| | — |
| | — |
| | 576 |
| | 576 |
| |
| Income Tax (expense) benefit | | — |
| | — |
| | — |
| | (573 | ) | | (573 | ) |
| Segment profit (loss) | $ | 52,756 |
| | $ | 14,389 |
| | $ | 2,917 |
| | $ | (40,241 | ) | | $ | 29,821 |
| $ | 73,892 |
| | $ | 9,615 |
| | $ | 2,158 |
| | $ | (42,098 | ) | | $ | 43,567 |
|
| | | | | | | | | | | | | | | | | | | |
| Total assets as of December 31, 2017 | $ | 3,508,642 |
| | $ | 1,106,517 |
| | $ | 1,067,482 |
| | $ | 342,974 |
| | $ | 6,025,615 |
| |
| Total assets as of December 31, 2018 | | $ | 3,482,929 |
| | $ | 1,410,126 |
| | $ | 1,038,376 |
| | $ | 341,441 |
| | $ | 6,272,872 |
|
| | | | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total |
| | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2018 | |
| | |
| | |
| | |
| | |
| |
| Six months ended June 30, 2019 | | |
| | |
| | |
| | |
| | |
|
| Interest income | $ | 228,273 |
| | $ | 25,217 |
| | $ | 16 |
| | $ | 316 |
| | $ | 253,822 |
| $ | 142,947 |
| | $ | 28,329 |
| | $ | 15 |
| | $ | 498 |
| | $ | 171,789 |
|
| Interest expense | (46,286 | ) | | (3,423 | ) | | (25,799 | ) | | (69,098 | ) | | (144,606 | ) | (28,981 | ) | | (6,618 | ) | | (17,973 | ) | | (50,046 | ) | | (103,618 | ) |
| Net interest income (expense) | 181,987 |
| | 21,794 |
| | (25,783 | ) | | (68,782 | ) | | 109,216 |
| 113,966 |
| | 21,711 |
| | (17,958 | ) | | (49,548 | ) | | 68,171 |
|
| Provision for loan losses | (13,600 | ) | | — |
| | — |
| | — |
| | (13,600 | ) | (600 | ) | | — |
| | — |
| | — |
| | (600 | ) |
| Net interest income (expense) after provision for loan losses | 168,387 |
| | 21,794 |
| | (25,783 | ) | | (68,782 | ) | | 95,616 |
| 113,366 |
| | 21,711 |
| | (17,958 | ) | | (49,548 | ) | | 67,571 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating lease income | — |
| | — |
| | 71,556 |
| | — |
| | 71,556 |
| — |
| | — |
| | 56,701 |
| | — |
| | 56,701 |
|
| Tenant recoveries | — |
| | — |
| | 7,750 |
| | — |
| | 7,750 |
| |
| Sale of loans, net | 12,893 |
| | — |
| | — |
| | — |
| | 12,893 |
| 27,342 |
| | — |
| | — |
| | — |
| | 27,342 |
|
| Realized gain (loss) on securities | — |
| | (4,896 | ) | | — |
| | — |
| | (4,896 | ) | — |
| | 7,329 |
| | — |
| | — |
| | 7,329 |
|
| Unrealized gain (loss) on equity securities | | — |
| | 1,088 |
| | — |
| | — |
| | 1,088 |
|
| Unrealized gain (loss) on Agency interest-only securities | — |
| | 456 |
| | — |
| | — |
| | 456 |
| — |
| | 22 |
| | — |
| | — |
| | 22 |
|
| Realized gain (loss) on sale of real estate, net | — |
| | — |
| | 96,341 |
| | — |
| | 96,341 |
| |
| Realized gain on sale of real estate, net | | — |
| | — |
| | (1,119 | ) | | — |
| | (1,119 | ) |
| Impairment of real estate | | — |
| | — |
| | (1,350 | ) | | — |
| | (1,350 | ) |
| Fee and other income | 10,823 |
| | 72 |
| | 3,416 |
| | 3,268 |
| | 17,579 |
| 9,257 |
| | 737 |
| | 7 |
| | 1,881 |
| | 11,882 |
|
| Net result from derivative transactions | 14,516 |
| | 14,640 |
| | — |
| | — |
| | 29,156 |
| (13,716 | ) | | (12,775 | ) | | — |
| | — |
| | (26,491 | ) |
| Earnings from investment in unconsolidated joint ventures | — |
| | — |
| | 466 |
| | — |
| | 466 |
| |
| Gain (loss) on extinguishment/defeasance of debt | (69 | ) | | — |
| | (4,323 | ) | | — |
| | (4,392 | ) | |
| Total other income (expense) | 38,163 |
| | 10,272 |
| | 175,206 |
| | 3,268 |
| | 226,909 |
| |
| Earnings (loss) from investment in unconsolidated joint ventures | | — |
| | — |
| | 2,522 |
| | — |
| | 2,522 |
|
| Gain (loss) on extinguishment of debt | | — |
| | — |
| | (1,070 | ) | | — |
| | (1,070 | ) |
| Total other income (loss) | | 22,883 |
| | (3,599 | ) | | 55,691 |
| | 1,881 |
| | 76,856 |
|
| | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | — |
| | — |
| | — |
| | (46,754 | ) | | (46,754 | ) | — |
| | — |
| | — |
| | (38,481 | ) | | (38,481 | ) |
| Operating expenses | 61 |
| | — |
| | — |
| | (16,669 | ) | | (16,608 | ) | — |
| | — |
| | — |
| | (11,413 | ) | (3) | (11,413 | ) |
| Real estate operating expenses | — |
| | — |
| | (23,806 | ) | |
|
| | (23,806 | ) | |
| Fee expense | (2,160 | ) | | (297 | ) | | (496 | ) | | — |
| | (2,953 | ) | (2,252 | ) | | (187 | ) | | (456 | ) | | — |
| | (2,895 | ) |
| Depreciation and amortization | — |
| | — |
| | (31,840 | ) | | (56 | ) | | (31,896 | ) | — |
| | — |
| | (20,112 | ) | | (50 | ) | | (20,162 | ) |
| Total costs and expenses | (2,099 | ) | | (297 | ) | | (56,142 | ) | | (63,479 | ) | | (122,017 | ) | (2,252 | ) | | (187 | ) | | (32,074 | ) | | (49,944 | ) | | (84,457 | ) |
| | | | | | | | | | | | | | | | | | | |
| Tax (expense) benefit | — |
| | — |
| | — |
| | (5,679 | ) | | (5,679 | ) | |
| Income Tax (expense) benefit | | — |
| | — |
| | — |
| | 634 |
| | 634 |
|
| Segment profit (loss) | $ | 204,451 |
| | $ | 31,769 |
| | $ | 93,281 |
| | $ | (134,672 | ) | | $ | 194,829 |
| $ | 133,997 |
| | $ | 17,925 |
| | $ | 5,659 |
| | $ | (96,977 | ) | | $ | 60,604 |
|
| | | | | | | | | | | | | | | | | | | |
| Total assets as of September 30, 2018 | $ | 4,162,949 |
| | $ | 978,289 |
| | $ | 1,036,110 |
| | $ | 248,397 |
| | $ | 6,425,745 |
| |
| Total assets as of June 30, 2019 | | $ | 3,213,334 |
| | $ | 1,788,415 |
| | $ | 1,042,128 |
| | $ | 362,898 |
| | $ | 6,406,775 |
|
| | | | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total | Loans | | Securities | | Real Estate(1) | | Corporate/Other(2) | | Company Total |
| | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 | |
| | |
| | |
| | |
| | |
| |
| Six months ended June 30, 2018 | | |
| | |
| | |
| | |
| | |
|
| Interest income | $ | 154,939 |
| | $ | 35,236 |
| | $ | 9 |
| | $ | 131 |
| | $ | 190,315 |
| $ | 146,494 |
| | $ | 16,676 |
| | $ | 10 |
| | $ | 257 |
| | $ | 163,437 |
|
| Interest expense | (28,693 | ) | | (5,179 | ) | | (20,770 | ) | | (49,919 | ) | | (104,561 | ) | (29,054 | ) | | (1,941 | ) | | (16,586 | ) | | (45,549 | ) | | (93,130 | ) |
| Net interest income (expense) | 126,246 |
| | 30,057 |
| | (20,761 | ) | | (49,788 | ) | | 85,754 |
| 117,440 |
| | 14,735 |
| | (16,576 | ) | | (45,292 | ) | | 70,307 |
|
| Provision for loan losses | — |
| | — |
| | — |
| | — |
| | — |
| (3,300 | ) | | — |
| | — |
| | — |
| | (3,300 | ) |
| Net interest income (expense) after provision for loan losses | 126,246 |
| | 30,057 |
| | (20,761 | ) | | (49,788 | ) | | 85,754 |
| 114,140 |
| | 14,735 |
| | (16,576 | ) | | (45,292 | ) | | 67,007 |
|
| | | | | | | | | | | | | | | | | | | |
| Operating lease income | — |
| | — |
| | 64,741 |
| | — |
| | 64,741 |
| — |
| | — |
| | 54,310 |
| | — |
| | 54,310 |
|
| Tenant recoveries | — |
| | — |
| | 5,121 |
| | — |
| | 5,121 |
| |
| Sale of loans, net | 24,129 |
| | — |
| | — |
| | — |
| | 24,129 |
| 11,032 |
| | — |
| | — |
| | — |
| | 11,032 |
|
| Realized gain (loss) on securities | — |
| | 19,182 |
| | — |
| | — |
| | 19,182 |
| — |
| | (2,342 | ) | | — |
| | — |
| | (2,342 | ) |
| Unrealized gain (loss) on Agency interest-only securities | — |
| | 1,034 |
| | — |
| | — |
| | 1,034 |
| — |
| | 313 |
| | — |
| | — |
| | 313 |
|
| Realized gain on sale of real estate, net | — |
| | — |
| | 7,790 |
| | — |
| | 7,790 |
| — |
| | — |
| | 32,637 |
| | — |
| | 32,637 |
|
| Fee and other income | 4,798 |
| | — |
| | 6,040 |
| | 2,540 |
| | 13,378 |
| 6,929 |
| | 72 |
| | 3,416 |
| | 2,311 |
| | 12,728 |
|
| Net result from derivative transactions | (11,199 | ) | | (7,153 | ) | | — |
| | — |
| | (18,352 | ) | 10,774 |
| | 11,266 |
| | — |
| | — |
| | 22,040 |
|
| Earnings from investment in unconsolidated joint ventures | — |
| | — |
| | 64 |
| | — |
| | 64 |
| |
| Gain (loss) on extinguishment/defeasance of debt | — |
| | — |
| | — |
| | (54 | ) | | (54 | ) | |
| Total other income | 17,728 |
| | 13,063 |
| | 83,756 |
| | 2,486 |
| | 117,033 |
| |
| Earnings (loss) from investment in unconsolidated joint ventures | | — |
| | — |
| | 65 |
| | — |
| | 65 |
|
| Gain (loss) on extinguishment of debt | | (69 | ) | | — |
| | — |
| | — |
| | (69 | ) |
| Total other income (loss) | | 28,666 |
| | 9,309 |
| | 90,428 |
| | 2,311 |
| | 130,714 |
|
| | | | | | | | | | | | | | | | | | | |
| Salaries and employee benefits | — |
| | — |
| | — |
| | (43,786 | ) | | (43,786 | ) | — |
| | — |
| | — |
| | (30,962 | ) | | (30,962 | ) |
| Operating expenses | 212 |
| | — |
| | — |
| | (16,310 | ) | | (16,098 | ) | — |
| | — |
| | — |
| | (11,144 | ) | (3) | (11,144 | ) |
| Real estate operating expenses | — |
| | — |
| | (24,861 | ) | |
|
| | (24,861 | ) | — |
| | — |
| | (16,654 | ) | |
|
| | (16,654 | ) |
| Fee expense | (2,798 | ) | | (230 | ) | | (528 | ) | | — |
| | (3,556 | ) | (1,232 | ) | | (206 | ) | | (203 | ) | | — |
| | (1,641 | ) |
| Depreciation and amortization | — |
| | — |
| | (29,253 | ) | | (70 | ) | | (29,323 | ) | — |
| | — |
| | (21,441 | ) | | (38 | ) | | (21,479 | ) |
| Total costs and expenses | (2,586 | ) | | (230 | ) | | (54,642 | ) | | (60,166 | ) | | (117,624 | ) | (1,232 | ) | | (206 | ) | | (38,298 | ) | | (42,144 | ) | | (81,880 | ) |
| | | | | | | | | | | | | | | | | | | |
| Income tax (expense) benefit | — |
| | — |
| | — |
| | (4,654 | ) | | (4,654 | ) | |
| Income Tax (expense) benefit | | — |
| | — |
| | — |
| | (4,476 | ) | | (4,476 | ) |
| Segment profit (loss) | $ | 141,388 |
| | $ | 42,890 |
| | $ | 8,353 |
| | $ | (112,122 | ) | | $ | 80,509 |
| $ | 141,574 |
| | $ | 23,838 |
| | $ | 35,554 |
| | $ | (89,601 | ) | | $ | 111,365 |
|
| | | | | | | | | | | | | | | | | | | |
| Total assets as of December 31, 2017 | $ | 3,508,642 |
| | $ | 1,106,517 |
| | $ | 1,067,482 |
| | $ | 342,974 |
| | $ | 6,025,615 |
| |
| Total assets as of December 31, 2018 | | $ | 3,482,929 |
| | $ | 1,410,126 |
| | $ | 1,038,376 |
| | $ | 341,441 |
| | $ | 6,272,872 |
|
| |
| (1) | Includes the Company’s investment in unconsolidated joint ventures that held real estate of $36.1$57.8 million and $35.4$40.4 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
| (2) | Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This captionsegment also includes the Company’s investment in unconsolidated joint ventures and strategic investments that are not related to the other reportable segments above, including the Company’s investment in FHLB stock of $57.9$61.6 million and $77.9$57.9 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, the Company’s deferred tax asset (liability) of $(0.8)$(4.1) million and $(5.7)$2.3 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively and the Company’s senior unsecured notes of $1.2 billion as of SeptemberJune 30, 20182019 and December 31, 2017.2018. |
| |
| (3) | Includes $3.6 million and $6.1 million of professional fees for the three and six months ended June 30, 2019, respectively. Includes $2.8 million and $5.7 million of professional fees for the three and six months ended June 30, 2018, respectively. |
20. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of the financial statements and determined that no disclosure is necessary.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes of Ladder Capital Corp included within this Quarterly Report and the Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” within this Quarterly Report and “Risk Factors” within the Annual Report for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements as a result of various factors, including but not limited to, those in “Risk Factors” set forth within the Annual Report.
References to “Ladder,” the “Company,” and “we,” “our” and “us” refer to Ladder Capital Corp, a Delaware corporation incorporated in 2013, and its consolidated subsidiaries.
Ladder Capital Corp is the sole general partner of Ladder Capital Finance Holdings LLLP (“LCFH”) and, as a result of the serialization of LCFH on December 31, 2014, became the sole general partner of Series REIT of LCFH. LC TRS I LLC, a wholly-owned subsidiary of Series REIT of LCFH, is the general partner of Series TRS of LCFH. Ladder Capital Corp has a controlling interest in Series REIT of LCFH, and through such controlling interest, also has a controlling interest in Series TRS of LCFH. Ladder Capital Corp’s only business is to act as the sole general partner of LCFH and Series REIT of LCFH, and, as a result of the foregoing, Ladder Capital Corp directly and indirectly operates and controls all of the business and affairs of LCFH, and each Series thereof, and consolidates the financial results of LCFH, and each Series thereof, into Ladder Capital Corp’s consolidated financial statements.
Overview
We are a leading commercial real estate finance company structured as an internally-managed REIT. We conduct our business through three commercial real estate-related business lines: loans, securities, and real estate investments. We believe that our in-house origination platform, ability to flexibly allocate capital among complementary product lines, credit-centric underwriting approach, access to diversified financing sources, and experienced management team position us well to deliver attractive returns on equity to our shareholders through economic and credit cycles.
Our businesses, including balance sheet lending, conduit lending, securities investments, and real estate investments, provide for a stable base of net interest and rental income. We have originated $22.4$23.6 billion of commercial real estate loans from our inception through SeptemberJune 30, 2018.2019. During this timeframe, we also acquired $10.1$11.4 billion of predominantly investment grade-rated securities secured by first mortgage loans on commercial real estate and $1.7 billion of selected net leased and other real estate assets.
As part of our commercial mortgage lending operations, we originate conduit loans, which are first mortgage loans on stabilized, income producing commercial real estate properties that we intend to make available for sale in commercial mortgage-backed securities (“CMBS”) securitizations. From our inception in October 2008 through SeptemberJune 30, 2018,2019, we originated $15.3$15.8 billion of conduit loans, $15.0$15.8 billion of which were sold into 5662 CMBS securitizations, making us, by volume, the second largest non-bank contributor of loans to CMBS securitizations in the United States in such period. Our sales of loans into securitizations are generally historically accounted for as true sales, not financings, and we generally retain no ongoing interest in loans which we securitize unless we are required to do so as issuer pursuant to the risk retention requirements of the Dodd-Frank Act. The securitization of conduit loans enables us to reinvest our equity capital into new loan originations or allocate it to other investments.
As of SeptemberJune 30, 2018,2019, we had $6.4 billion in total assets and $1.6 billion of total equity. Our assets included $4.2$3.2 billion of loans, $1.0$1.8 billion of securities, and $1.0 billion of real estate.
We have a diversified and flexible financing strategy supporting our business operations, including unsecured debt and significant committed term financing from leading financial institutions. As of SeptemberJune 30, 2018,2019, we had $1.2 billion of unsecured debt financing outstanding. This unsecured financing was comprised of $266.2 million in aggregate principal amount of 5.875% senior notes due 2021 (the “2021 Notes”), $500.0 million in aggregate principal amount of 5.25% senior notes due 2022 (the “2022 Notes”) and $400.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes,” collectively with the 2021 Notes and the 2022 Notes, the “Notes”). , and there were no borrowings outstanding under our $266.4 million Revolving Credit Facility.
In addition, as of SeptemberJune 30, 2018,2019, we had $4.8$3.5 billion of secured debt financing outstanding. This financing was comprised of $1.2 billion of financing from the Federal Home Loan Bank (the “FHLB”), $849.9$685.3 million of committed secured term repurchase agreement financing, $123.7$582.1 million of other securities financing, $743.2$734.7 million of third-party, non-recourse mortgage debt and $672.0$263.2 million of collateralized loan obligation (“CLO”) debt. There were no borrowings outstanding under our Revolving Credit Facility and $2.5 million of participation financing - mortgage loan receivable.
As of SeptemberJune 30, 2018,2019, we had $2.2$2.5 billion of committed, undrawn total funding capacity available, consisting of $266.4 million of availability under our $266.4 million Revolving Credit Facility, $721.5$754.3 million of undrawn committed FHLB financing and $1.2$1.5 billion of other undrawn committed financings. As of SeptemberJune 30, 2018,2019, our debt-to-equity ratio was 3.1:2.8:1.0, as we employ leverage prudently to maximize financial flexibility. Our adjusted leverage, a non-GAAP financial measure, was 2.6:1.0 as of SeptemberJune 30, 2018.2019. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverage and a reconciliation to debt obligations, net.
Ladder was founded in October 2008 and we completed our IPO in February 2014. We are led by a disciplined and highly aligned management team. As of SeptemberJune 30, 2018,2019, our management team and directors held interests in our Company comprising 12.1%11.3% of our total equity. On average, our management team members have 2926 years of experience in the industry. Our management team includes Brian Harris, Chief Executive Officer; Pamela McCormack, President; Marc Fox, Chief Financial Officer; Thomas Harney, Head of Merchant Banking & Capital Markets; and Robert Perelman, Head of Asset Management. Additional officers of Ladder includeManagement; and Kelly Porcella, Chief Administrative Officer & General Counsel and Secretary, andCounsel. Kevin Moclair, Chief Accounting Officer.Officer is an additional officer of Ladder. We employ 7471 full-time industry professionals.
We are organized and conduct our operations to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). As such, we will generally not be subject to U.S. federal income tax on that portion of our net income that is distributed to shareholders if we distribute at least 90% of our taxable income and comply with certain other requirements.
Our Businesses
We invest primarily in loans, securities and other interests in U.S. commercial real estate, with a focus on senior secured assets. Our complementary business segments are designed to provide us with the flexibility to opportunistically allocate capital in order to generate attractive risk-adjusted returns under varying market conditions. The following table summarizes the carrying value of our investment portfolio as reported in our consolidated financial statements as of the dates indicated below ($ in thousands): |
| | | | | | | | | | | | | |
| | September 30, 2018 | | December 31, 2017 |
| Loans | |
| | | | |
| | |
| Balance sheet loans: | | | | | | | |
| Balance sheet first mortgage loans | $ | 3,647,710 |
| | 56.8 | % | | $ | 3,123,268 |
| | 51.9 | % |
| Other commercial real estate-related loans | 157,677 |
| | 2.5 | % | | 159,194 |
| | 2.6 | % |
| Provision for loan losses | (17,600 | ) | | (0.3 | )% | | (4,000 | ) | | (0.1 | )% |
| Total balance sheet loans | 3,787,787 |
| | 59.0 | % | | 3,278,462 |
| | 54.4 | % |
| Conduit first mortgage loans | 375,162 |
| | 5.8 | % | | 230,180 |
| | 3.8 | % |
| Total loans | 4,162,949 |
| | 64.8 | % | | 3,508,642 |
| | 58.2 | % |
| Securities | | | |
| | |
| | |
|
| CMBS investments | 940,379 |
| | 14.6 | % | | 1,066,570 |
| | 17.7 | % |
| U.S. Agency Securities investments | 36,682 |
| | 0.6 | % | | 39,947 |
| | 0.7 | % |
| Corporate bonds | 1,228 |
| | — | % | | — |
| | — | % |
| Total securities | 978,289 |
| | 15.2 | % | | 1,106,517 |
| | 18.4 | % |
| Real Estate | | | |
| | |
| | |
|
| Real estate and related lease intangibles, net | 1,000,010 |
| | 15.6 | % | | 1,032,041 |
| | 17.1 | % |
| Total real estate | 1,000,010 |
| | 15.6 | % | | 1,032,041 |
| | 17.1 | % |
| Other Investments | | | |
| | |
| | |
|
| Investments in unconsolidated joint ventures | 36,100 |
| | 0.6 | % | | 35,441 |
| | 0.6 | % |
| FHLB stock | 57,915 |
| | 0.9 | % | | 77,915 |
| | 1.3 | % |
| Total other investments | 94,015 |
| | 1.5 | % | | 113,356 |
| | 1.9 | % |
| Total investments | 6,235,263 |
| | 97.1 | % | | 5,760,556 |
| | 95.6 | % |
| Cash, cash equivalents and restricted cash | 84,913 |
| | 1.3 | % | | 182,683 |
| | 3.0 | % |
| Other assets | 105,569 |
| | 1.6 | % | | 82,376 |
| | 1.4 | % |
| Total assets | $ | 6,425,745 |
| | 100.0 | % | | $ | 6,025,615 |
| | 100.0 | % |
We invest in the following types of assets: |
| | | | | | | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
| Loans | |
| | | | |
| | |
| | | | | | | | |
| Balance sheet loans: | | | | | | | |
| Balance sheet first mortgage loans | $ | 2,976,625 |
| | 46.4 | % | | $ | 3,170,788 |
| | 50.5 | % |
| Other commercial real estate-related loans | 143,232 |
| | 2.2 | % | | 147,602 |
| | 2.4 | % |
| Provision for loan losses | (18,500 | ) | | (0.3 | )% | | (17,900 | ) | | (0.3 | )% |
| Total balance sheet loans | 3,101,357 |
| | 48.3 | % | | 3,300,490 |
| | 52.6 | % |
| Conduit first mortgage loans | 111,977 |
| | 1.7 | % | | 182,439 |
| | 2.9 | % |
| Total loans | 3,213,334 |
| | 50.0 | % | | 3,482,929 |
| | 55.5 | % |
| Securities | | | |
| | |
| | |
|
| CMBS investments | 1,697,755 |
| | 26.6 | % | | 1,308,331 |
| | 20.8 | % |
| U.S. Agency Securities investments | 36,038 |
| | 0.6 | % | | 36,374 |
| | 0.6 | % |
| Corporate bonds | 41,418 |
| | 0.6 | % | | 53,871 |
| | 0.9 | % |
| Equity securities | 13,204 |
| | 0.2 | % | | 11,550 |
| | 0.2 | % |
| Total securities | 1,788,415 |
| | 28.0 | % | | 1,410,126 |
| | 22.5 | % |
| Real Estate | | | |
| | |
| | |
|
| Real estate and related lease intangibles, net | 984,377 |
| | 15.4 | % | | 998,022 |
| | 15.9 | % |
| Total real estate | 984,377 |
| | 15.4 | % | | 998,022 |
| | 15.9 | % |
| Other Investments | | | |
| | |
| | |
|
| Investments in and advances to unconsolidated joint ventures | 57,751 |
| | 0.9 | % | | 40,354 |
| | 0.6 | % |
| FHLB stock | 61,619 |
| | 1.0 | % | | 57,915 |
| | 0.9 | % |
| Total other investments | 119,370 |
| | 1.9 | % | | 98,269 |
| | 1.5 | % |
| Total investments | 6,105,496 |
| | 95.3 | % | | 5,989,346 |
| | 95.4 | % |
| Cash, cash equivalents and restricted cash | 215,433 |
| | 3.4 | % | | 98,450 |
| | 1.6 | % |
| Other assets | 85,846 |
| | 1.3 | % | | 185,076 |
| | 3.0 | % |
| Total assets | $ | 6,406,775 |
| | 100.0 | % | | $ | 6,272,872 |
| | 100.0 | % |
Loans
Balance Sheet First Mortgage Loans. We originate and invest in balance sheet first mortgage loans secured by commercial real estate properties that are undergoing transition, including lease-up, sell-out, and renovation or repositioning. These mortgage loans are structured to fit the needs and business plans of the property owners, and generally have LIBOR based floating rates and terms (including extension options) ranging from one to five years. Our loans are directly originated by an internal team that has longstanding and strong relationships with borrowers and mortgage brokers throughout the United States. We follow a rigorous investment process, which begins with an initial due diligence review; continues through a comprehensive legal and underwriting process incorporating multiple internal and external checks and balances; and culminates in approval or disapproval of each prospective investment by our Investment Committee. Balance sheet first mortgage loans in excess of $50.0 million also require the approval of our board of directors’ Risk and Underwriting Committee.
We generally seek to hold our balance sheet first mortgage loans for investment although we also maintain the flexibility to contribute such loans into a CLO or similar structure, sell participation interests or “b-notes” in our mortgage loans or sell such mortgage loans as whole loans. These investments have been typically repaid at or prior to maturity (including by being refinanced by us into a new conduit first mortgage loan upon property stabilization). As of SeptemberJune 30, 2018,2019, we held a portfolio of 169147 balance sheet first mortgage loans with an aggregate book value of $3.6$3.0 billion. Based on the loan balances and the “as-is” third-party FIRREA appraised values at origination, the weighted average loan-to-value ratio of this portfolio was 68.4%70.1% at SeptemberJune 30, 2018.2019.
Other Commercial Real Estate-Related Loans. We selectively invest in note purchase financings, subordinated debt, mezzanine debt and other structured finance products related to commercial real estate that are generally held for investment. As of SeptemberJune 30, 2018,2019, we held a portfolio of 3229 other commercial real estate-related loans with an aggregate book value of $157.7$143.2 million. Based on the loan balance and the “as-is” third-party FIRREA appraised values at origination, the weighted average loan-to-value ratio of the portfolio was 69.5%69.8% at SeptemberJune 30, 2018.2019.
Conduit First Mortgage Loans. We also originate conduit loans, which are first mortgage loans that are secured by cash-flowing commercial real estate and are available for sale to securitizations. These first mortgage loans are typically structured with fixed interest rates and generally have five- to ten-year terms. Conduit first mortgage loans are originated, underwritten, approved and funded using the same comprehensive legal and underwriting approach, process and personnel used to originate our balance sheet first mortgage loans. Conduit first mortgage loans in excess of $50.0 million also require approval of our board of directors’ Risk and Underwriting Committee.
Although our primary intent is to sell our conduit first mortgage loans to CMBS trusts, we generally seek to maintain the flexibility to keep them on our balance sheet, sell participation interests or “b-notes” in our conduit first mortgagesuch loans or sell conduit first mortgagethe loans as whole loans. From our inception in 2008 through SeptemberJune 30, 2018,2019, we have originated and funded $15.3$15.8 billion of conduit first mortgage loans and securitized $15.0$15.8 billion of such mortgage loans in 5662 separate transactions, including two securitizations in 2010, three securitizations in 2011, six securitizations in 2012, six securitizations in 2013, 10 securitizations in 2014, 10 securitizations in 2015, six securitizations in 2016, seven securitizations in 2017, and sixnine securitizations in 2018.2018 and three securitization in 2019. We generally securitize our loans together with certain financial institutions, which to date have included affiliates of Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC. We have also completed three single-asset securitizations, executed a Ladder-only multi-borrower securitization from Ladder’s CMBS shelf in June 2017 and completed our first contributions of shorter-term loans into CLO transactions in the fourth quarter of 2017. As of SeptemberJune 30, 2018,2019, we held 18eight first mortgage loans that were substantially available for contribution into a securitization with an aggregate book value of $375.2$112.0 million. Based on the loan balances and the “as-is” third-party Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) appraised values at origination, the weighted average loan- to-value ratio of this portfolio was 59.1%64.1% at SeptemberJune 30, 2018.2019. The Company holds these conduit loans in its taxable REIT subsidiary (“TRS”).
The following charts set forth our total outstanding balance sheet first mortgage loans, other commercial real estate-related loans, mortgage loans transferred but not considered sold and conduit first mortgage loans as of SeptemberJune 30, 20182019 and a breakdown of our loan portfolio by loan size and geographic location and asset type of the underlying real estate.
Securities
CMBS Investments. We invest in CMBS secured by first mortgage loans on commercial real estate and own predominantly AAA-rated securities. These investments provide a stable and attractive base of net interest income and help us manage our liquidity. We have significant in-house expertise in the evaluation and trading of CMBS, due in part to our experience in originating and underwriting mortgage loans that comprise assets within CMBS trusts, as well as our experience in structuring CMBS transactions. AAA-rated CMBS or U.S. Agency securities investments in excess of $76.0 million and all other investment grade CMBS or U.S. Agency securities positionsinvestments in excess of $51.0 million, each in any single class of any single issuance, require the approval of our board of directors’ Risk and Underwriting Committee. The Risk and Underwriting Committee also must approve any investments in non-rated or sub-investment grade CMBS or U.S. Agency Securities in any single class of any single issuance in excess of the lesser of (x) $21,000,000 and (y) 10% of the total net asset value of the respective Ladder investment company for non-rated or sub-investment grade securities.company. As of SeptemberJune 30, 2018,2019, the estimated fair value of our portfolio of CMBS investments totaled $940.4 million$1.7 billion in 111163 CUSIPs ($8.510.4 million average investment per CUSIP). As of SeptemberJune 30, 2018,2019, included in the $940.4 million$1.7 billion of CMBS securities are $12.1$12.5 million of CMBS securities designated as risk retention securities under the Dodd-Frank Act which are subject to transfer restrictions over the term of the securitization trust. As of that date, 99.9%100% of our CMBS investments were rated investment grade by Standard & Poor’s Ratings Group, Moody’s Investors Service, Inc. or Fitch Ratings Inc., consisting of 79.1%86.7% AAA/Aaa-rated securities and 20.8%13.3% of other investment grade-rated securities, including 16.7%10.7% rated AA/Aa, 2%1.6% rated A/A and 2.1%1.1% rated BBB/Baa. In the future, we may invest in CMBS securities or other securities that are unrated. As of SeptemberJune 30, 2018,2019, our CMBS investments had a weighted average duration of 2.42.3 years. The commercial real estate collateral underlying our CMBS investment portfolio is located throughout the United States. As of SeptemberJune 30, 2018,2019, by property count and market value, respectively, 53.3%52.6% and 91.8%76.6% of the collateral underlying our CMBS investment portfolio was distributed throughout the top 25 metropolitan statistical areas (“MSAs”) in the United States, with 4.9%4.1% and 10.3%36.6%, by property count and market value, respectively, of the collateral located in the New York-Newark-Edison MSA, and the concentrations in each of the remaining top 24 MSAs ranging from 0.0%0.1% to 7.8%7.2% by property count and 0.0% to 68.5%8.5% by market value.
U.S. Agency Securities Investments. Our U.S. Agency Securities portfolio consists of securities for which the principal and interest payments are guaranteed by a U.S. government agency, such as the Government National Mortgage Association (“GNMA”), or by a government-sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). In addition, these securities are secured by first mortgage loans on commercial real estate. Investments in U.S. Agency Securities are subject to the same Risk and Underwriting Committee approval requirements as CMBS investments, as described above. As of SeptemberJune 30, 2018,2019, the estimated fair value of our portfolio of U.S. Agency Securities was $36.7$36.0 million in 20 CUSIPs ($1.8 million average investment per CUSIP), with a weighted average duration of 5.14.5 years. The commercial real estate collateral underlying our U.S. Agency Securities portfolio is located throughout the United States. As of SeptemberJune 30, 2018,2019, by market value, 76.8%75.9% and 17.7%19.3% of the collateral underlying our U.S. Agency Securities, excluding the collateral underlying our Agency interest-only securities, was located in New York and California, respectively, with no other state having a concentration greater than 10.0%. By property count, California represented 75.9%76% and New York represented 3.4% of such collateral. While the specific geographic concentration of our Agency interest-only securities portfolio as of SeptemberJune 30, 20182019 is not obtainable, risk relating to any such possible concentration is mitigated by the interest payments of these securities being guaranteed by a U.S. government agency or a GSE.
Corporate Bonds. In addition to CMBS and U.S. Agency Securities, we invest in other debt securities, including but not limited to debt securities issued by REITs and real estate companies. Approval of our board of directors’ Risk and Underwriting Committee is required for the aggregate investments in such debt securities made and owned by all Ladder investment companies to exceed $20.0 million. As of June 30, 2019, the estimated fair value of our portfolio of debt securities was $41.4 million in two CUSIPs ($20.7 million average investment per CUSIP), with a weighted average duration of 1.6 years.
Equity Securities. We invest in real estate related equity investments. Approval of our board of directors’ Risk and Underwriting Committee is required for the aggregate real estate related equity investments made and owned by all Ladder investment companies to exceed $20.0 million. As of June 30, 2019, the estimated fair value of our portfolio of equity securities was $13.2 million in three CUSIPs ($4.4 million average investment per CUSIP).
Real Estate
Commercial Real Estate Properties. As of SeptemberJune 30, 2018,2019, we owned 137147 single tenant net leased properties with an aggregate book value of $671.3$666.4 million. These properties are fully leased on a net basis where the tenant is generally responsible for payment of real estate taxes, property, building and general liability insurance and property and building maintenance expenses. As of SeptemberJune 30, 2018,2019, our net leased properties comprised a total of 5.2 million square feet, 100% leased with an average age since construction of 14.315 years and a weighted average remaining lease term of 13.612.9 years. Commercial real estate investments in excess of $20.0 million require the approval of our board of directors’ Risk and Underwriting Committee.
In addition, as of SeptemberJune 30, 2018,2019, we owned 6968 diversified commercial real estate properties with an aggregate book value of $318.9$315.0 million. Through separate joint ventures, we owned a 40 property student housing portfolio in Isla Vista, CA with a book value of $82.9$83.2 million and an occupancy rate of 100.0%75.3%, a portfolio of 12 office buildings in Richmond, VA with a book value of $78.2$76.2 million with an 91.2%85.3% occupancy rate, an apartment complex in Miami, FL with a book value of $36.0$35.8 million and an occupancy rate of 87.0%90.9%, an unleased industrial building in Lithia Springs, GA with an aggregate book value of $24.5$23.9 million, a portfolio of seven office buildings in Richmond, VA with a book value of $15.8$15.3 million and an 80.3%75.2% occupancy rate, a 13-story office building in Oakland County, MI with a book value of $11.1$10.7 million and a 81.8% occupancy rate, a two-story office building in Grand Rapids, MI with a book value of $8.5 million and a 100.0%81.2% occupancy rate, and a single-tenant industrial building in Grand Rapids, MI with a book value of $5.2$4.9 million. We also own a single-tenant office building in Ewing, NJ with a book value of $28.5$27.6 million, a hotel in Omaha, NE with a book value of $17.9 million, a single-tenant office building in Crum Lynne, PA with a book value of $10.3 million, a single-tenant two-story office building in Wayne, NJ with a book value of $8.3$10.1 million, a shopping center in Carmel, NY with a book value of $6.3$6.2 million and a 43.0%44.4% occupancy rate, and an office building in Peoria, IL with a book value of $3.3 million and a 50.8% occupancy rate.
Residential Real Estate. We sold eightno condominium units at Veer Towers in Las Vegas, NV, during the ninesix months ended SeptemberJune 30, 2018, generating aggregate gains on sale of $3.1 million.2019. As of SeptemberJune 30, 2018,2019, we owned fiveone residential condominium unitsunit at Veer Towers in Las Vegas, NV with a book value of $1.3$0.4 million through a joint venture, and we expect to substantially complete the sale of thesethis remaining unitsunit in 2018 or early 2019. As of SeptemberJune 30, 2018,2019, there were twono condominium units under contract for sale. As of SeptemberJune 30, 2018, none of2019, the remaining condominium unitsunit we hold wereis not rented andor occupied.
We sold 1813 condominium units at Terrazas River Park Village in Miami, FL, during the ninesix months ended SeptemberJune 30, 2018,2019, generating aggregate gains on sale of $0.9$0.4 million. As of SeptemberJune 30, 2018,2019, we owned 30nine residential condominium units at Terrazas River Park Village in Miami, FL with a book value of $8.4$2.6 million, and we intend to sell these remaining units in less than 18 to 2421 months. As of SeptemberJune 30, 2018, four2019, two condominium units were under contract for sale with a book value of $0.9$0.5 million. As of SeptemberJune 30, 2018,2019, the remaining condominium units we hold were 62.0%55.6% rented and occupied. During the ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded $0.5$0.2 million of rental income from the condominium units.
The Company holds these residential condominium units in its TRS.
The following table, organized by tenant type and acquisition date, summarizes our owned properties as of SeptemberJune 30, 20182019 ($ amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Net Leased | | | | | | | | | | | | | | | | | | | | | |
| Moscow Mills, MO | | 04/12/18 | | $ | 1,237 |
| | 2018 | | 1/31/33 | | 9,026 |
| | $ | 1,293 |
| | $ | 992 |
| | $ | 301 |
| | $ | 90 |
| | 100.0 | % | |
| Foley, MN | | 04/12/18 | | 1,176 |
| | 2018 | | 1/1/33 | | 7,489 |
| | 1,217 |
| | 884 |
| | 333 |
| | 85 |
| | 100.0 | % | |
| Wonder Lake, IL | | 04/12/18 | | 1,255 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,306 |
| | 944 |
| | 362 |
| | 91 |
| | 100.0 | % | |
| Kirbyville, MO | | 04/02/18 | | 1,156 |
| | 2018 | | 1/31/33 | | 9,026 |
| | 1,202 |
| | 870 |
| | 332 |
| | 84 |
| | 100.0 | % | |
| Gladwin, MI | | 04/02/18 | | 1,171 |
| | 2017 | | 1/31/33 | | 9,026 |
| | 1,225 |
| | 884 |
| | 341 |
| | 85 |
| | 100.0 | % | |
| Rockford, MN | | 12/08/17 | | 1,195 |
| | 2017 | | 10/31/32 | | 9,002 |
| | 1,209 |
| | 884 |
| | 325 |
| | 87 |
| | 100.0 | % | |
| Winterset, IA | | 12/08/17 | | 1,258 |
| | 2017 | | 8/31/32 | | 9,026 |
| | 1,275 |
| | 933 |
| | 342 |
| | 91 |
| | 100.0 | % | |
| Kawkawlin, MI | | 10/05/17 | | 1,234 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,255 |
| | 916 |
| | 339 |
| | 89 |
| | 100.0 | % | |
| Aroma Park, IL | | 10/05/17 | | 1,218 |
| | 2017 | | 7/31/32 | | 9,002 |
| | 1,224 |
| | 950 |
| | 274 |
| | 88 |
| | 100.0 | % | |
| East Peoria, IL | | 10/05/17 | | 1,350 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,356 |
| | 1,019 |
| | 337 |
| | 98 |
| | 100.0 | % | |
| Milford, IA | | 09/08/17 | | 1,298 |
| | 2017 | | 6/1/32 | | 9,100 |
| | 1,318 |
| | 988 |
| | 330 |
| | 94 |
| | 100.0 | % | |
| Jefferson City, MO | | 06/02/17 | | 1,241 |
| | 2016 | | 2/28/32 | | 9,002 |
| | 1,289 |
| | 952 |
| | 337 |
| | 90 |
| | 100.0 | % | |
| Denver, IA | | 05/31/17 | | 1,183 |
| | 2017 | | 3/31/31 | | 9,026 |
| | 1,184 |
| | 906 |
| | 278 |
| | 86 |
| | 100.0 | % | |
| Port O'Connor, TX | | 05/25/17 | | 1,255 |
| | 2017 | | 3/31/30 | | 9,100 |
| | 1,254 |
| | 957 |
| | 297 |
| | 91 |
| | 100.0 | % | |
| Wabasha, MN | | 05/25/17 | | 1,280 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,310 |
| | 972 |
| | 338 |
| | 92 |
| | 100.0 | % | |
| Jacksonville, FL | | 05/23/17 | | 115,641 |
| | 1989 | | 9/30/31 | | 822,540 |
| | 135,446 |
| | 83,415 |
| | 52,031 |
| | 7,403 |
| | 100.0 | % | |
| Shelbyville, IL | | 05/23/17 | | 1,132 |
| | 2016 | | 1/31/31 | | 9,026 |
| | 1,193 |
| | 870 |
| | 323 |
| | 82 |
| | 100.0 | % | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Net Leased | | | | | | | | | | | | | | | | | | | | | |
| Fayette, MO | | 06/26/19 | | $ | 1,423 |
| | 2019 | | 1/31/34 | | 10,566 |
| | $ | 1,493 |
| | $ | — |
| | $ | 1,493 |
| | $ | 103 |
| | 100.0 | % | |
| Centralia, IL | | 04/25/19 | | 1,242 |
| | 2019 | | 2/28/34 | | 9,002 |
| | 1,299 |
| | — |
| | 1,299 |
| | 90 |
| | 100.0 | % | |
| Trenton, MO | | 02/26/19 | | 1,164 |
| | 2019 | | 12/31/33 | | 9,100 |
| | 1,214 |
| | — |
| | 1,214 |
| | 84 |
| | 100.0 | % | |
| Houghton Lake, MI | | 02/26/19 | | 1,242 |
| | 2018 | | 12/31/33 | | 9,100 |
| | 1,292 |
| | — |
| | 1,292 |
| | 90 |
| | 100.0 | % | |
| Pelican Rapids, MN | | 12/26/18 | | 1,195 |
| | 2018 | | 10/31/33 | | 9,100 |
| | 1,240 |
| | 921 |
| | 319 |
| | 87 |
| | 100.0 | % | |
| Carthage, MO | | 12/26/18 | | 1,099 |
| | 2018 | | 10/31/33 | | 7,489 |
| | 1,153 |
| | 849 |
| | 304 |
| | 80 |
| | 100.0 | % | |
| Bolivar, MO | | 12/26/18 | | 1,175 |
| | 2018 | | 10/31/33 | | 9,026 |
| | 1,227 |
| | 898 |
| | 329 |
| | 85 |
| | 100.0 | % | |
| Pinconning, MI | | 12/06/18 | | 1,235 |
| | 2018 | | 9/30/33 | | 9,026 |
| | 1,276 |
| | 952 |
| | 324 |
| | 90 |
| | 100.0 | % | |
| New Hampton, IA | | 11/30/18 | | 1,317 |
| | 2018 | | 9/30/33 | | 9,002 |
| | 1,449 |
| | 1,017 |
| | 432 |
| | 96 |
| | 100.0 | % | |
| Ogden, IA | | 10/03/18 | | 1,137 |
| | 2018 | | 7/31/33 | | 7,489 |
| | 1,163 |
| | 857 |
| | 306 |
| | 82 |
| | 100.0 | % | |
| Moscow Mills, MO | | 04/12/18 | | 1,237 |
| | 2018 | | 1/31/33 | | 9,026 |
| | 1,268 |
| | 991 |
| | 277 |
| | 90 |
| | 100.0 | % | |
| Foley, MN | | 04/12/18 | | 1,176 |
| | 2018 | | 1/1/33 | | 7,489 |
| | 1,190 |
| | 883 |
| | 307 |
| | 85 |
| | 100.0 | % | |
| | | Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Wonder Lake, IL | | | 04/12/18 | | 1,256 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,280 |
| | 943 |
| | 337 |
| | 91 |
| | 100.0 | % | |
| Kirbyville, MO | | | 04/02/18 | | 1,156 |
| | 2018 | | 1/31/33 | | 9,026 |
| | 1,177 |
| | 870 |
| | 307 |
| | 84 |
| | 100.0 | % | |
| Gladwin, MI | | | 04/02/18 | | 1,171 |
| | 2017 | | 1/31/33 | | 9,026 |
| | 1,202 |
| | 883 |
| | 319 |
| | 85 |
| | 100.0 | % | |
| Rockford, MN | | | 12/08/17 | | 1,195 |
| | 2017 | | 10/31/32 | | 9,002 |
| | 1,176 |
| | 885 |
| | 291 |
| | 87 |
| | 100.0 | % | |
| Winterset, IA | | | 12/08/17 | | 1,258 |
| | 2017 | | 8/31/32 | | 9,026 |
| | 1,249 |
| | 934 |
| | 315 |
| | 91 |
| | 100.0 | % | |
| Kawkawlin, MI | | | 10/05/17 | | 1,234 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,226 |
| | 916 |
| | 310 |
| | 89 |
| | 100.0 | % | |
| Aroma Park, IL | | | 10/05/17 | | 1,218 |
| | 2017 | | 7/31/32 | | 9,002 |
| | 1,200 |
| | 950 |
| | 250 |
| | 88 |
| | 100.0 | % | |
| East Peoria, IL | | | 10/05/17 | | 1,350 |
| | 2017 | | 7/31/32 | | 9,100 |
| | 1,329 |
| | 1,019 |
| | 310 |
| | 98 |
| | 100.0 | % | |
| Milford, IA | | | 09/08/17 | | 1,298 |
| | 2017 | | 6/1/32 | | 9,100 |
| | 1,293 |
| | 988 |
| | 305 |
| | 94 |
| | 100.0 | % | |
| Jefferson City, MO | | | 06/02/17 | | 1,241 |
| | 2016 | | 2/28/32 | | 9,002 |
| | 1,263 |
| | 950 |
| | 313 |
| | 90 |
| | 100.0 | % | |
| Denver, IA | | | 05/31/17 | | 1,183 |
| | 2017 | | 3/31/31 | | 9,026 |
| | 1,159 |
| | 904 |
| | 255 |
| | 86 |
| | 100.0 | % | |
| Port O'Connor, TX | | | 05/25/17 | | 1,255 |
| | 2017 | | 3/31/30 | | 9,100 |
| | 1,226 |
| | 955 |
| | 271 |
| | 91 |
| | 100.0 | % | |
| Wabasha, MN | | | 05/25/17 | | 1,280 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,280 |
| | 970 |
| | 310 |
| | 92 |
| | 100.0 | % | |
| Jacksonville, FL | | | 05/23/17 | | 115,641 |
| | 1989 | | 9/30/31 | | 822,540 |
| | 132,850 |
| | 83,315 |
| | 49,535 |
| | 7,403 |
| | 100.0 | % | |
| Shelbyville, IL | | | 05/23/17 | | 1,132 |
| | 2016 | | 1/31/31 | | 9,026 |
| | 1,169 |
| | 868 |
| | 301 |
| | 82 |
| | 100.0 | % | |
| Jesup, IA | | 05/05/17 | | 1,163 |
| | 2017 | | 3/31/30 | | 9,026 |
| | 1,151 |
| | 892 |
| | 259 |
| | 84 |
| | 100.0 | % | | | 05/05/17 | | 1,163 |
| | 2017 | | 3/31/30 | | 9,026 |
| | 1,125 |
| | 890 |
| | 235 |
| | 84 |
| | 100.0 | % | |
| Hanna City, IL | | 04/11/17 | | 1,141 |
| | 2016 | | 6/30/31 | | 9,100 |
| | 1,181 |
| | 872 |
| | 309 |
| | 83 |
| | 100.0 | % | | | 04/11/17 | | 1,141 |
| | 2016 | | 6/30/31 | | 9,100 |
| | 1,155 |
| | 870 |
| | 285 |
| | 83 |
| | 100.0 | % | |
| Ridgedale, MO | | 03/09/17 | | 1,298 |
| | 2016 | | 6/30/31 | | 9,002 |
| | 1,312 |
| | 1,000 |
| | 312 |
| | 94 |
| | 100.0 | % | | | 03/09/17 | | 1,298 |
| | 2016 | | 6/30/31 | | 9,002 |
| | 1,286 |
| | 998 |
| | 288 |
| | 94 |
| | 100.0 | % | |
| Peoria, IL | | 02/06/17 | | 1,183 |
| | 2016 | | 8/31/31 | | 7,489 |
| | 1,216 |
| | 911 |
| | 305 |
| | 86 |
| | 100.0 | % | | | 02/06/17 | | 1,183 |
| | 2016 | | 8/31/31 | | 7,489 |
| | 1,190 |
| | 909 |
| | 281 |
| | 86 |
| | 100.0 | % | |
| Carmi, IL | | 02/03/17 | | 1,411 |
| | 2016 | | 10/31/31 | | 9,100 |
| | 1,385 |
| | 1,109 |
| | 276 |
| | 102 |
| | 100.0 | % | | | 02/03/17 | | 1,411 |
| | 2016 | | 10/31/31 | | 9,100 |
| | 1,359 |
| | 1,106 |
| | 253 |
| | 102 |
| | 100.0 | % | |
| Springfield, IL | | 11/16/16 | | 1,308 |
| | 2016 | | 6/30/31 | | 9,026 |
| | 1,350 |
| | 1,009 |
| | 341 |
| | 96 |
| | 100.0 | % | | | 11/16/16 | | 1,308 |
| | 2016 | | 6/30/31 | | 9,026 |
| | 1,328 |
| | 1,007 |
| | 321 |
| | 96 |
| | 100.0 | % | |
| Fayetteville, NC | | 11/15/16 | | 6,971 |
| | 2008 | | 10/31/34 | | 14,820 |
| | 6,524 |
| | 4,923 |
| | 1,601 |
| | 450 |
| | 100.0 | % | | | 11/15/16 | | 6,971 |
| | 2008 | | 10/31/34 | | 14,820 |
| | 6,345 |
| | 4,913 |
| | 1,432 |
| | 450 |
| | 100.0 | % | |
| Dryden Township, MI | | 10/26/16 | | 1,190 |
| | 2016 | | 8/31/31 | | 9,100 |
| | 1,218 |
| | 918 |
| | 300 |
| | 87 |
| | 100.0 | % | | | 10/26/16 | | 1,190 |
| | 2016 | | 8/31/31 | | 9,100 |
| | 1,194 |
| | 916 |
| | 278 |
| | 87 |
| | 100.0 | % | |
| Lamar, MO | | 07/22/16 | | 1,176 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,169 |
| | 908 |
| | 261 |
| | 86 |
| | 100.0 | % | | | 07/22/16 | | 1,175 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,145 |
| | 906 |
| | 239 |
| | 86 |
| | 100.0 | % | |
| Union, MO | | 07/01/16 | | 1,227 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,266 |
| | 952 |
| | 314 |
| | 90 |
| | 100.0 | % | | | 07/01/16 | | 1,227 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,241 |
| | 950 |
| | 291 |
| | 90 |
| | 100.0 | % | |
| Pawnee, IL | | 07/01/16 | | 1,201 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,161 |
| | 952 |
| | 209 |
| | 88 |
| | 100.0 | % | | | 07/01/16 | | 1,201 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,139 |
| | 950 |
| | 189 |
| | 88 |
| | 100.0 | % | |
| Decatur, IL | | 06/30/16 | | 1,365 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,401 |
| | 1,058 |
| | 343 |
| | 100 |
| | 100.0 | % | | | 06/30/16 | | 1,365 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,377 |
| | 1,056 |
| | 321 |
| | 100 |
| | 100.0 | % | |
| Cape Girardeau, MO | | 06/30/16 | | 1,281 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,308 |
| | 1,021 |
| | 287 |
| | 94 |
| | 100.0 | % | | | 06/30/16 | | 1,281 |
| | 2016 | | 5/31/31 | | 9,100 |
| | 1,287 |
| | 1,023 |
| | 264 |
| | 94 |
| | 100.0 | % | |
| Linn, MO | | 06/30/16 | | 1,122 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,119 |
| | 866 |
| | 253 |
| | 82 |
| | 100.0 | % | | | 06/30/16 | | 1,122 |
| | 2016 | | 5/31/31 | | 9,002 |
| | 1,094 |
| | 864 |
| | 230 |
| | 82 |
| | 100.0 | % | |
| Rantoul, IL | | 06/21/16 | | 1,204 |
| | 2016 | | 4/30/31 | | 9,100 |
| | 1,225 |
| | 930 |
| | 295 |
| | 88 |
| | 100.0 | % | | | 06/21/16 | | 1,204 |
| | 2016 | | 4/30/31 | | 9,100 |
| | 1,199 |
| | 929 |
| | 270 |
| | 88 |
| | 100.0 | % | |
| Flora Vista, NM | | 06/06/16 | | 1,305 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,243 |
| | 1,008 |
| | 235 |
| | 95 |
| | 100.0 | % | | | 06/06/16 | | 1,305 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,213 |
| | 1,006 |
| | 207 |
| | 95 |
| | 100.0 | % | |
| Champaign, IL | | 06/03/16 | | 1,324 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,358 |
| | 1,024 |
| | 334 |
| | 97 |
| | 100.0 | % | | | 06/03/16 | | 1,324 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,335 |
| | 1,022 |
| | 313 |
| | 97 |
| | 100.0 | % | |
| Mountain Grove, MO | | 06/03/16 | | 1,279 |
| | 2016 | | 4/30/31 | | 10,566 |
| | 1,315 |
| | 988 |
| | 327 |
| | 93 |
| | 100.0 | % | | | 06/03/16 | | 1,279 |
| | 2016 | | 4/30/31 | | 10,566 |
| | 1,288 |
| | 986 |
| | 302 |
| | 93 |
| | 100.0 | % | |
| Decatur, IL | | 06/03/16 | | 1,181 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,199 |
| | 947 |
| | 252 |
| | 86 |
| | 100.0 | % | | | 06/03/16 | | 1,181 |
| | 2016 | | 4/30/31 | | 9,002 |
| | 1,174 |
| | 948 |
| | 226 |
| | 86 |
| | 100.0 | % | |
| San Antonio, TX | | 05/06/16 | | 1,096 |
| | 2015 | | 3/31/31 | | 9,100 |
| | 1,075 |
| | 888 |
| | 187 |
| | 80 |
| | 100.0 | % | | | 05/06/16 | | 1,096 |
| | 2015 | | 3/31/31 | | 9,100 |
| | 1,052 |
| | 889 |
| | 163 |
| | 80 |
| | 100.0 | % | |
| Borger, TX | | 05/06/16 | | 978 |
| | 2016 | | 3/31/31 | | 9,100 |
| | 975 |
| | 785 |
| | 190 |
| | 71 |
| | 100.0 | % | | | 05/06/16 | | 978 |
| | 2016 | | 3/31/31 | | 9,100 |
| | 952 |
| | 786 |
| | 166 |
| | 71 |
| | 100.0 | % | |
| St.Charles, MN | | 04/26/16 | | 1,198 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,174 |
| | 962 |
| | 212 |
| | 87 |
| | 100.0 | % | | | 04/26/16 | | 1,198 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,144 |
| | 964 |
| | 180 |
| | 87 |
| | 100.0 | % | |
| Philo, IL | | 04/26/16 | | 1,156 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,165 |
| | 925 |
| | 240 |
| | 84 |
| | 100.0 | % | | | 04/26/16 | | 1,156 |
| | 2016 | | 3/31/31 | | 9,026 |
| | 1,142 |
| | 926 |
| | 216 |
| | 84 |
| | 100.0 | % | |
| Dimmitt, TX | | 04/26/16 | | 1,319 |
| | 2016 | | 3/31/31 | | 10,566 |
| | 1,299 |
| | 1,050 |
| | 249 |
| | 96 |
| | 100.0 | % | | | 04/26/16 | | 1,319 |
| | 2016 | | 3/31/31 | | 10,566 |
| | 1,270 |
| | 1,052 |
| | 218 |
| | 96 |
| | 100.0 | % | |
| Radford, VA | | 12/23/15 | | 1,564 |
| | 2015 | | 9/30/30 | | 8,360 |
| | 1,448 |
| | 1,135 |
| | 313 |
| | 104 |
| | 100.0 | % | | | 12/23/15 | | 1,564 |
| | 2015 | | 9/30/30 | | 8,360 |
| | 1,417 |
| | 1,134 |
| | 283 |
| | 104 |
| | 100.0 | % | |
| Albion, PA | | 12/23/15 | | 1,525 |
| | 2015 | | 9/30/30 | | 8,184 |
| | 1,355 |
| | 1,127 |
| | 228 |
| | 101 |
| | 100.0 | % | | | 12/23/15 | | 1,525 |
| | 2015 | | 9/30/30 | | 8,184 |
| | 1,309 |
| | 1,123 |
| | 186 |
| | 101 |
| | 100.0 | % | |
| Rural Retreat, VA | | 12/23/15 | | 1,399 |
| | 2015 | | 9/30/30 | | 8,305 |
| | 1,299 |
| | 1,040 |
| | 259 |
| | 93 |
| | 100.0 | % | | | 12/23/15 | | 1,399 |
| | 2015 | | 9/30/30 | | 8,305 |
| | 1,272 |
| | 1,036 |
| | 236 |
| | 93 |
| | 100.0 | % | |
| Mount Vernon, AL | | 12/23/15 | | 1,224 |
| | 2015 | | 6/30/30 | | 8,323 |
| | 1,140 |
| | 946 |
| | 194 |
| | 84 |
| | 100.0 | % | | | 12/23/15 | | 1,224 |
| | 2015 | | 6/30/30 | | 8,323 |
| | 1,114 |
| | 942 |
| | 172 |
| | 84 |
| | 100.0 | % | |
| Malone, NY | | 12/16/15 | | 1,474 |
| | 2015 | | 6/30/30 | | 8,320 |
| | 1,361 |
| | 1,086 |
| | 275 |
| | 99 |
| | 100.0 | % | | | 12/16/15 | | 1,474 |
| | 2015 | | 6/30/30 | | 8,320 |
| | 1,331 |
| | 1,084 |
| | 247 |
| | 99 |
| | 100.0 | % | |
| Mercedes, TX | | 12/16/15 | | 1,263 |
| | 2015 | | 11/30/30 | | 9,100 |
| | 1,182 |
| | 837 |
| | 345 |
| | 86 |
| | 100.0 | % | | | 12/16/15 | | 1,263 |
| | 2015 | | 11/30/30 | | 9,100 |
| | 1,161 |
| | 836 |
| | 325 |
| | 86 |
| | 100.0 | % | |
| Gordonville, MO | | 11/10/15 | | 1,207 |
| | 2015 | | 9/30/30 | | 9,026 |
| | 1,123 |
| | 773 |
| | 350 |
| | 80 |
| | 100.0 | % | | | 11/10/15 | | 1,207 |
| | 2015 | | 9/30/30 | | 9,026 |
| | 1,102 |
| | 773 |
| | 329 |
| | 80 |
| | 100.0 | % | |
| Rice, MN | | 10/28/15 | | 1,242 |
| | 2015 | | 9/30/30 | | 9,002 |
| | 1,121 |
| | 819 |
| | 302 |
| | 85 |
| | 100.0 | % | | | 10/28/15 | | 1,242 |
| | 2015 | | 9/30/30 | | 9,002 |
| | 1,090 |
| | 819 |
| | 271 |
| | 85 |
| | 100.0 | % | |
| Bixby, OK | | 10/27/15 | | 12,151 |
| | 2012 | | 12/31/32 | | 75,996 |
| | 11,301 |
| | 7,977 |
| | 3,324 |
| | 769 |
| | 100.0 | % | | | 10/27/15 | | 12,151 |
| | 2012 | | 12/31/32 | | 75,996 |
| | 11,083 |
| | 7,969 |
| | 3,114 |
| | 769 |
| | 100.0 | % | |
| Farmington, IL | | 10/23/15 | | 1,408 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,298 |
| | 898 |
| | 400 |
| | 93 |
| | 100.0 | % | | | 10/23/15 | | 1,408 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,271 |
| | 897 |
| | 374 |
| | 93 |
| | 100.0 | % | |
| Grove, OK | | 10/20/15 | | 5,583 |
| | 2012 | | 8/31/32 | | 31,500 |
| | 5,081 |
| | 3,635 |
| | 1,446 |
| | 364 |
| | 100.0 | % | | |
| Jenks, OK | | 10/19/15 | | 13,418 |
| | 2009 | | 9/24/33 | | 80,932 |
| | 12,406 |
| | 8,826 |
| | 3,580 |
| | 912 |
| | 100.0 | % | | |
| Bloomington, IL | | 10/14/15 | | 1,294 |
| | 2015 | | 8/31/30 | | 9,026 |
| | 1,197 |
| | 819 |
| | 378 |
| | 85 |
| | 100.0 | % | | |
| Montrose, MN | | 10/14/15 | | 1,193 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,070 |
| | 785 |
| | 285 |
| | 83 |
| | 100.0 | % | | |
| Lincoln County , MO | | 10/14/15 | | 1,137 |
| | 2015 | | 8/31/30 | | 9,002 |
| | 1,051 |
| | 741 |
| | 310 |
| | 76 |
| | 100.0 | % | | |
| Wilmington, IL | | 10/07/15 | | 1,399 |
| | 2015 | | 8/31/30 | | 9,002 |
| | 1,292 |
| | 905 |
| | 387 |
| | 93 |
| | 100.0 | % | | |
| Danville, IL | | 10/07/15 | | 1,160 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,078 |
| | 741 |
| | 337 |
| | 76 |
| | 100.0 | % | | |
| Moultrie, GA | | 09/22/15 | | 1,305 |
| | 2014 | | 6/30/29 | | 8,225 |
| | 1,171 |
| | 933 |
| | 238 |
| | 85 |
| | 100.0 | % | | |
| Rose Hill, NC | | 09/22/15 | | 1,420 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,291 |
| | 1,003 |
| | 288 |
| | 93 |
| | 100.0 | % | | |
| Rockingham, NC | | 09/22/15 | | 1,158 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,042 |
| | 824 |
| | 218 |
| | 76 |
| | 100.0 | % | | |
| Biscoe, NC | | 09/22/15 | | 1,216 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,098 |
| | 862 |
| | 236 |
| | 80 |
| | 100.0 | % | | |
| De Soto, IL | | 09/08/15 | | 1,111 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 1,017 |
| | 706 |
| | 311 |
| | 76 |
| | 100.0 | % | | |
| Kerrville, TX | | 08/28/15 | | 1,236 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 1,117 |
| | 769 |
| | 348 |
| | 84 |
| | 100.0 | % | | |
| Floresville, TX | | 08/28/15 | | 1,312 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 1,192 |
| | 815 |
| | 377 |
| | 89 |
| | 100.0 | % | | |
| Minot, ND | | 08/19/15 | | 6,946 |
| | 2012 | | 1/31/34 | | 55,440 |
| | 6,474 |
| | 4,700 |
| | 1,774 |
| | 419 |
| | 100.0 | % | | |
| | | Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grove, OK | | | 10/20/15 | | 5,583 |
| | 2012 | | 8/31/32 | | 31,500 |
| | 4,953 |
| | 3,632 |
| | 1,321 |
| | 364 |
| | 100.0 | % | |
| Jenks, OK | | | 10/19/15 | | 13,418 |
| | 2009 | | 9/24/33 | | 80,932 |
| | 12,149 |
| | 8,818 |
| | 3,331 |
| | 912 |
| | 100.0 | % | |
| Bloomington, IL | | | 10/14/15 | | 1,294 |
| | 2015 | | 8/31/30 | | 9,026 |
| | 1,172 |
| | 819 |
| | 353 |
| | 85 |
| | 100.0 | % | |
| Montrose, MN | | | 10/14/15 | | 1,193 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,039 |
| | 783 |
| | 256 |
| | 83 |
| | 100.0 | % | |
| Lincoln County , MO | | | 10/14/15 | | 1,137 |
| | 2015 | | 8/31/30 | | 9,002 |
| | 1,029 |
| | 740 |
| | 289 |
| | 76 |
| | 100.0 | % | |
| Wilmington, IL | | | 10/07/15 | | 1,399 |
| | 2015 | | 8/31/30 | | 9,002 |
| | 1,265 |
| | 904 |
| | 361 |
| | 93 |
| | 100.0 | % | |
| Danville, IL | | | 10/07/15 | | 1,160 |
| | 2015 | | 8/31/30 | | 9,100 |
| | 1,058 |
| | 740 |
| | 318 |
| | 76 |
| | 100.0 | % | |
| Moultrie, GA | | | 09/22/15 | | 1,305 |
| | 2014 | | 6/30/29 | | 8,225 |
| | 1,138 |
| | 932 |
| | 206 |
| | 85 |
| | 100.0 | % | |
| Rose Hill, NC | | | 09/22/15 | | 1,420 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,258 |
| | 1,002 |
| | 256 |
| | 93 |
| | 100.0 | % | |
| Rockingham, NC | | | 09/22/15 | | 1,158 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,013 |
| | 823 |
| | 190 |
| | 76 |
| | 100.0 | % | |
| Biscoe, NC | | | 09/22/15 | | 1,216 |
| | 2014 | | 6/30/29 | | 8,320 |
| | 1,069 |
| | 862 |
| | 207 |
| | 80 |
| | 100.0 | % | |
| De Soto, IL | | | 09/08/15 | | 1,111 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 994 |
| | 705 |
| | 289 |
| | 76 |
| | 100.0 | % | |
| Kerrville, TX | | | 08/28/15 | | 1,236 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 1,088 |
| | 769 |
| | 319 |
| | 84 |
| | 100.0 | % | |
| Floresville, TX | | | 08/28/15 | | 1,312 |
| | 2015 | | 7/31/30 | | 9,100 |
| | 1,163 |
| | 815 |
| | 348 |
| | 89 |
| | 100.0 | % | |
| Minot, ND | | | 08/19/15 | | 6,946 |
| | 2012 | | 1/31/34 | | 55,440 |
| | 6,361 |
| | 4,699 |
| | 1,662 |
| | 419 |
| | 100.0 | % | |
| Lebanon, MI | | 08/14/15 | | 1,261 |
| | 2015 | | 7/31/30 | | 9,050 |
| | 1,176 |
| | 821 |
| | 355 |
| | 85 |
| | 100.0 | % | | | 08/14/15 | | 1,261 |
| | 2015 | | 7/31/30 | | 9,050 |
| | 1,156 |
| | 821 |
| | 335 |
| | 85 |
| | 100.0 | % | |
| Effingham County, IL | | 08/10/15 | | 1,252 |
| | 2015 | | 6/30/30 | | 9,002 |
| | 1,154 |
| | 821 |
| | 333 |
| | 85 |
| | 100.0 | % | | | 08/10/15 | | 1,252 |
| | 2015 | | 6/30/30 | | 9,002 |
| | 1,130 |
| | 821 |
| | 309 |
| | 85 |
| | 100.0 | % | |
| Ponce, PR | | 08/03/15 | | 9,345 |
| | 2012 | | 8/31/37 | | 15,660 |
| | 8,624 |
| | 6,524 |
| | 2,100 |
| | 560 |
| | 100.0 | % | | | 08/03/15 | | 9,345 |
| | 2012 | | 8/31/37 | | 15,660 |
| | 8,453 |
| | 6,523 |
| | 1,930 |
| | 560 |
| | 100.0 | % | |
| Tremont, IL | | 06/25/15 | | 1,192 |
| | 2015 | | 5/31/30 | | 9,026 |
| | 1,085 |
| | 790 |
| | 295 |
| | 82 |
| | 100.0 | % | | | 06/25/15 | | 1,192 |
| | 2015 | | 5/31/30 | | 9,026 |
| | 1,061 |
| | 789 |
| | 272 |
| | 82 |
| | 100.0 | % | |
| Pleasanton, TX | | 06/24/15 | | 1,377 |
| | 2015 | | 5/31/30 | | 9,026 |
| | 1,253 |
| | 866 |
| | 387 |
| | 93 |
| | 100.0 | % | | | 06/24/15 | | 1,377 |
| | 2015 | | 5/31/30 | | 9,026 |
| | 1,225 |
| | 865 |
| | 360 |
| | 93 |
| | 100.0 | % | |
| Peoria, IL | | 06/24/15 | | 1,293 |
| | 2015 | | 5/31/30 | | 9,002 |
| | 1,177 |
| | 856 |
| | 321 |
| | 87 |
| | 100.0 | % | | | 06/24/15 | | 1,293 |
| | 2015 | | 5/31/30 | | 9,002 |
| | 1,150 |
| | 855 |
| | 295 |
| | 87 |
| | 100.0 | % | |
| Bridgeport, IL | | 06/24/15 | | 1,241 |
| | 2015 | | 5/31/30 | | 9,100 |
| | 1,133 |
| | 823 |
| | 310 |
| | 84 |
| | 100.0 | % | | | 06/24/15 | | 1,241 |
| | 2015 | | 5/31/30 | | 9,100 |
| | 1,108 |
| | 822 |
| | 286 |
| | 84 |
| | 100.0 | % | |
| Warren, MN | | 06/24/15 | | 1,090 |
| | 2015 | | 4/30/30 | | 9,100 |
| | 966 |
| | 697 |
| | 269 |
| | 75 |
| | 100.0 | % | | | 06/24/15 | | 1,090 |
| | 2015 | | 4/30/30 | | 9,100 |
| | 938 |
| | 697 |
| | 241 |
| | 75 |
| | 100.0 | % | |
| Canyon Lake, TX | | 06/18/15 | | 1,443 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 1,314 |
| | 908 |
| | 406 |
| | 98 |
| | 100.0 | % | | | 06/18/15 | | 1,443 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 1,284 |
| | 907 |
| | 377 |
| | 98 |
| | 100.0 | % | |
| Wheeler, TX | | 06/18/15 | | 1,127 |
| | 2015 | | 3/31/30 | | 9,002 |
| | 1,005 |
| | 717 |
| | 288 |
| | 76 |
| | 100.0 | % | | | 06/18/15 | | 1,127 |
| | 2015 | | 3/31/30 | | 9,002 |
| | 977 |
| | 716 |
| | 261 |
| | 76 |
| | 100.0 | % | |
| Aurora, MN | | 06/18/15 | | 993 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 904 |
| | 629 |
| | 275 |
| | 68 |
| | 100.0 | % | | | 06/18/15 | | 993 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 884 |
| | 629 |
| | 255 |
| | 68 |
| | 100.0 | % | |
| Red Oak, IA | | 05/07/15 | | 1,208 |
| | 2014 | | 10/31/29 | | 9,026 |
| | 1,078 |
| | 779 |
| | 299 |
| | 84 |
| | 100.0 | % | | | 05/07/15 | | 1,208 |
| | 2014 | | 10/31/29 | | 9,026 |
| | 1,049 |
| | 779 |
| | 270 |
| | 84 |
| | 100.0 | % | |
| Zapata, TX | | 05/07/15 | | 1,204 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 1,043 |
| | 746 |
| | 297 |
| | 82 |
| | 100.0 | % | | | 05/07/15 | | 1,204 |
| | 2015 | | 3/31/30 | | 9,100 |
| | 1,007 |
| | 746 |
| | 261 |
| | 82 |
| | 100.0 | % | |
| St. Francis, MN | | 03/26/15 | | 1,180 |
| | 2014 | | 1/31/30 | | 9,002 |
| | 1,019 |
| | 733 |
| | 286 |
| | 79 |
| | 100.0 | % | | | 03/26/15 | | 1,180 |
| | 2014 | | 1/31/30 | | 9,002 |
| | 985 |
| | 733 |
| | 252 |
| | 79 |
| | 100.0 | % | |
| Yorktown, TX | | 03/25/15 | | 1,301 |
| | 2015 | | 2/28/30 | | 10,566 |
| | 1,127 |
| | 784 |
| | 343 |
| | 86 |
| | 100.0 | % | | | 03/25/15 | | 1,301 |
| | 2015 | | 2/28/30 | | 10,566 |
| | 1,090 |
| | 785 |
| | 305 |
| | 86 |
| | 100.0 | % | |
| Battle Lake, MN | | 03/25/15 | | 1,168 |
| | 2014 | | 2/28/30 | | 9,100 |
| | 1,001 |
| | 720 |
| | 281 |
| | 78 |
| | 100.0 | % | | | 03/25/15 | | 1,168 |
| | 2014 | | 2/28/30 | | 9,100 |
| | 965 |
| | 720 |
| | 245 |
| | 78 |
| | 100.0 | % | |
| Paynesville, MN | | 03/05/15 | | 1,254 |
| | 2015 | | 11/30/26 | | 9,100 |
| | 1,114 |
| | 804 |
| | 310 |
| | 89 |
| | 100.0 | % | | | 03/05/15 | | 1,254 |
| | 2015 | | 11/30/26 | | 9,100 |
| | 1,084 |
| | 804 |
| | 280 |
| | 89 |
| | 100.0 | % | |
| Wheaton, MO | | 03/05/15 | | 970 |
| | 2015 | | 11/30/29 | | 9,100 |
| | 851 |
| | 650 |
| | 201 |
| | 69 |
| | 100.0 | % | | | 03/05/15 | | 970 |
| | 2015 | | 11/30/29 | | 9,100 |
| | 826 |
| | 648 |
| | 178 |
| | 69 |
| | 100.0 | % | |
| Rotterdam, NY | | 03/03/15 | | 12,619 |
| | 1996 | | 8/31/32 | | 115,660 |
| | 10,348 |
| | 8,916 |
| | 1,432 |
| | 940 |
| | 100.0 | % | | | 03/03/15 | | 12,619 |
| | 1996 | | 8/31/32 | | 115,660 |
| | 9,872 |
| | 8,927 |
| | 945 |
| | 940 |
| | 100.0 | % | |
| Hilliard, OH | | 03/02/15 | | 6,384 |
| | 2007 | | 8/31/32 | | 14,820 |
| | 5,735 |
| | 4,569 |
| | 1,166 |
| | 399 |
| | 100.0 | % | | | 03/02/15 | | 6,384 |
| | 2007 | | 8/31/32 | | 14,820 |
| | 5,599 |
| | 4,559 |
| | 1,040 |
| | 399 |
| | 100.0 | % | |
| Niles, OH | | 03/02/15 | | 5,200 |
| | 2007 | | 11/30/32 | | 14,820 |
| | 4,660 |
| | 3,712 |
| | 948 |
| | 325 |
| | 100.0 | % | | | 03/02/15 | | 5,200 |
| | 2007 | | 11/30/32 | | 14,820 |
| | 4,547 |
| | 3,704 |
| | 843 |
| | 325 |
| | 100.0 | % | |
| Youngstown, OH | | 02/20/15 | | 5,400 |
| | 2005 | | 9/30/30 | | 14,820 |
| | 4,808 |
| | 3,833 |
| | 975 |
| | 336 |
| | 100.0 | % | | | 02/20/15 | | 5,400 |
| | 2005 | | 9/30/30 | | 14,820 |
| | 4,686 |
| | 3,828 |
| | 858 |
| | 336 |
| | 100.0 | % | |
| Kings Mountain, NC | | 01/29/15 | | 24,167 |
| | 1995 | | 9/30/30 | | 467,781 |
| | 24,991 |
| | 18,631 |
| | 6,360 |
| | 1,534 |
| | 100.0 | % | | | 01/29/15 | | 24,167 |
| | 1995 | | 9/30/30 | | 467,781 |
| | 24,101 |
| | 18,589 |
| | 5,512 |
| | 1,534 |
| | 100.0 | % | |
| Iberia, MO | | 01/23/15 | | 1,328 |
| | 2015 | | 12/31/29 | | 10,542 |
| | 1,169 |
| | 894 |
| | 275 |
| | 94 |
| | 100.0 | % | | | 01/23/15 | | 1,328 |
| | 2015 | | 12/31/29 | | 10,542 |
| | 1,137 |
| | 892 |
| | 245 |
| | 94 |
| | 100.0 | % | |
| Pine Island, MN | | 01/23/15 | | 1,142 |
| | 2014 | | 4/30/27 | | 9,100 |
| | 988 |
| | 769 |
| | 219 |
| | 81 |
| | 100.0 | % | | | 01/23/15 | | 1,142 |
| | 2014 | | 4/30/27 | | 9,100 |
| | 957 |
| | 767 |
| | 190 |
| | 81 |
| | 100.0 | % | |
| Isle, MN | | 01/23/15 | | 1,077 |
| | 2014 | | 1/31/30 | | 9,100 |
| | 930 |
| | 723 |
| | 207 |
| | 77 |
| | 100.0 | % | | | 01/23/15 | | 1,077 |
| | 2014 | | 1/31/30 | | 9,100 |
| | 900 |
| | 721 |
| | 179 |
| | 77 |
| | 100.0 | % | |
| Jacksonville, NC | | 01/22/15 | | 8,632 |
| | 2014 | | 12/31/29 | | 55,000 |
| | 7,791 |
| | 5,675 |
| | 2,116 |
| | 517 |
| | 100.0 | % | | | 01/22/15 | | 8,632 |
| | 2014 | | 12/31/29 | | 55,000 |
| | 7,620 |
| | 5,662 |
| | 1,958 |
| | 517 |
| | 100.0 | % | |
| Evansville, IN | | 11/26/14 | | 9,000 |
| | 2014 | | 12/31/35 | | 71,680 |
| | 7,997 |
| | 6,421 |
| | 1,576 |
| | 540 |
| | 100.0 | % | | | 11/26/14 | | 9,000 |
| | 2014 | | 12/31/35 | | 71,680 |
| | 7,802 |
| | 6,407 |
| | 1,395 |
| | 540 |
| | 100.0 | % | |
| Woodland Park, CO | | 11/14/14 | | 3,969 |
| | 2014 | | 8/31/29 | | 22,141 |
| | 3,432 |
| | 2,800 |
| | 632 |
| | 258 |
| | 100.0 | % | | | 11/14/14 | | 3,969 |
| | 2014 | | 8/31/29 | | 22,141 |
| | 3,328 |
| | 2,795 |
| | 533 |
| | 258 |
| | 100.0 | % | |
| Bellport, NY | | 11/13/14 | | 18,100 |
| | 2014 | | 8/16/34 | | 87,788 |
| | 16,003 |
| | 12,829 |
| | 3,174 |
| | 1,119 |
| | 100.0 | % | | | 11/13/14 | | 18,100 |
| | 2014 | | 8/16/34 | | 87,788 |
| | 15,598 |
| | 12,810 |
| | 2,788 |
| | 1,119 |
| | 100.0 | % | |
| Ankeny, IA | | 11/04/14 | | 16,510 |
| | 2013 | | 10/30/34 | | 94,872 |
| | 14,684 |
| | 11,701 |
| | 2,983 |
| | 991 |
| | 100.0 | % | | | 11/04/14 | | 16,510 |
| | 2013 | | 10/30/34 | | 94,872 |
| | 14,328 |
| | 11,683 |
| | 2,645 |
| | 991 |
| | 100.0 | % | |
| Springfield, MO | | 11/04/14 | | 11,675 |
| | 2011 | | 10/30/34 | | 88,793 |
| | 10,614 |
| | 8,347 |
| | 2,267 |
| | 701 |
| | 100.0 | % | | | 11/04/14 | | 11,675 |
| | 2011 | | 10/30/34 | | 88,793 |
| | 10,382 |
| | 8,328 |
| | 2,054 |
| | 701 |
| | 100.0 | % | |
| Cedar Rapids, IA | | 11/04/14 | | 11,000 |
| | 2012 | | 10/30/34 | | 79,389 |
| | 9,438 |
| | 7,796 |
| | 1,642 |
| | 660 |
| | 100.0 | % | | | 11/04/14 | | 11,000 |
| | 2012 | | 10/30/34 | | 79,389 |
| | 9,139 |
| | 7,784 |
| | 1,355 |
| | 660 |
| | 100.0 | % | |
| Fairfield, IA | | 11/04/14 | | 10,695 |
| | 2011 | | 10/30/34 | | 69,280 |
| | 9,361 |
| | 7,583 |
| | 1,778 |
| | 642 |
| | 100.0 | % | | | 11/04/14 | | 10,695 |
| | 2011 | | 10/30/34 | | 69,280 |
| | 9,102 |
| | 7,572 |
| | 1,530 |
| | 642 |
| | 100.0 | % | |
| Owatonna, MN | | 11/04/14 | | 9,970 |
| | 2010 | | 10/30/34 | | 70,825 |
| | 8,794 |
| | 7,113 |
| | 1,681 |
| | 598 |
| | 100.0 | % | | |
| Muscatine, IA | | 11/04/14 | | 7,150 |
| | 2013 | | 10/30/34 | | 78,218 |
| | 7,719 |
| | 5,101 |
| | 2,618 |
| | 429 |
| | 100.0 | % | | |
| Sheldon, IA | | 11/04/14 | | 4,300 |
| | 2011 | | 10/30/34 | | 35,385 |
| | 3,842 |
| | 3,068 |
| | 774 |
| | 258 |
| | 100.0 | % | | |
| Memphis, TN | | 10/24/14 | | 5,310 |
| | 1962 | | 12/31/29 | | 68,761 |
| | 4,479 |
| | 3,916 |
| | 563 |
| | 358 |
| | 100.0 | % | | |
| Bennett, CO | | 10/02/14 | | 3,522 |
| | 2014 | | 8/31/29 | | 21,930 |
| | 3,014 |
| | 2,487 |
| | 527 |
| | 229 |
| | 100.0 | % | | |
| Conyers, GA | | 08/28/14 | | 32,530 |
| | 2014 | | 4/30/29 | | 499,668 |
| | 28,433 |
| | 22,830 |
| | 5,603 |
| | 1,956 |
| | 100.0 | % | | |
| O'Fallon, IL | | 08/08/14 | | 8,000 |
| | 1984 | | 1/31/28 | | 141,436 |
| | 6,832 |
| | 5,685 |
| | 1,147 |
| | 460 |
| | 100.0 | % | | |
| El Centro, CA | | 08/08/14 | | 4,277 |
| | 2014 | | 6/30/29 | | 19,168 |
| | 3,769 |
| | 2,983 |
| | 786 |
| | 278 |
| | 100.0 | % | | |
| Durant, OK | | 01/28/13 | | 4,991 |
| | 2007 | | 2/28/33 | | 14,550 |
| | 4,249 |
| | 3,235 |
| | 1,014 |
| | 323 |
| | 100.0 | % | | |
| Gallatin, TN | | 12/28/12 | | 5,062 |
| | 2007 | | 9/30/32 | | 14,820 |
| | 4,395 |
| | 3,307 |
| | 1,088 |
| | 329 |
| | 100.0 | % | | |
| Mt. Airy, NC | | 12/27/12 | | 4,492 |
| | 2007 | | 6/30/32 | | 14,820 |
| | 3,941 |
| | 2,937 |
| | 1,004 |
| | 292 |
| | 100.0 | % | | |
| Aiken, SC | | 12/21/12 | | 5,926 |
| | 2008 | | 2/28/33 | | 14,550 |
| | 5,113 |
| | 3,868 |
| | 1,245 |
| | 384 |
| | 100.0 | % | | |
| Johnson City, TN | | 12/21/12 | | 5,262 |
| | 2007 | | 3/30/32 | | 14,550 |
| | 4,443 |
| | 3,438 |
| | 1,005 |
| | 341 |
| | 100.0 | % | | |
| Palmview, TX | | 12/19/12 | | 6,820 |
| | 2012 | | 8/31/37 | | 14,820 |
| | 5,880 |
| | 4,548 |
| | 1,332 |
| | 437 |
| | 100.0 | % | | |
| Ooltewah, TN | | 12/18/12 | | 5,703 |
| | 2008 | | 1/31/33 | | 14,550 |
| | 4,826 |
| | 3,809 |
| | 1,017 |
| | 365 |
| | 100.0 | % | | |
| | | Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Owatonna, MN | | | 11/04/14 | | 9,970 |
| | 2010 | | 10/30/34 | | 70,825 |
| | 8,546 |
| | 7,096 |
| | 1,450 |
| | 598 |
| | 100.0 | % | |
| Muscatine, IA | | | 11/04/14 | | 7,150 |
| | 2013 | | 10/30/34 | | 78,218 |
| | 7,473 |
| | 5,089 |
| | 2,384 |
| | 429 |
| | 100.0 | % | |
| Sheldon, IA | | | 11/04/14 | | 4,300 |
| | 2011 | | 10/30/34 | | 35,385 |
| | 3,736 |
| | 3,061 |
| | 675 |
| | 258 |
| | 100.0 | % | |
| Memphis, TN | | | 10/24/14 | | 5,310 |
| | 1962 | | 12/31/29 | | 68,761 |
| | 4,267 |
| | 3,910 |
| | 357 |
| | 358 |
| | 100.0 | % | |
| Bennett, CO | | | 10/02/14 | | 3,522 |
| | 2014 | | 8/31/29 | | 21,930 |
| | 2,916 |
| | 2,484 |
| | 432 |
| | 229 |
| | 100.0 | % | |
| Conyers, GA | | | 08/28/14 | | 32,530 |
| | 2014 | | 4/30/29 | | 499,668 |
| | 27,682 |
| | 22,822 |
| | 4,860 |
| | 1,956 |
| | 100.0 | % | |
| O'Fallon, IL | | | 08/08/14 | | 8,000 |
| | 1984 | | 1/31/28 | | 141,436 |
| | 6,451 |
| | 5,683 |
| | 768 |
| | 460 |
| | 100.0 | % | |
| El Centro, CA | | | 08/08/14 | | 4,277 |
| | 2014 | | 6/30/29 | | 19,168 |
| | 3,677 |
| | 2,982 |
| | 695 |
| | 278 |
| | 100.0 | % | |
| Durant, OK | | | 01/28/13 | | 4,991 |
| | 2007 | | 2/28/33 | | 14,550 |
| | 4,151 |
| | 3,238 |
| | 913 |
| | 323 |
| | 100.0 | % | |
| Gallatin, TN | | | 12/28/12 | | 5,062 |
| | 2007 | | 9/30/32 | | 14,820 |
| | 4,308 |
| | 3,310 |
| | 998 |
| | 329 |
| | 100.0 | % | |
| Mt. Airy, NC | | | 12/27/12 | | 4,492 |
| | 2007 | | 6/30/32 | | 14,820 |
| | 3,842 |
| | 2,939 |
| | 903 |
| | 292 |
| | 100.0 | % | |
| Aiken, SC | | | 12/21/12 | | 5,926 |
| | 2008 | | 2/28/33 | | 14,550 |
| | 5,007 |
| | 3,871 |
| | 1,136 |
| | 384 |
| | 100.0 | % | |
| Johnson City, TN | | | 12/21/12 | | 5,262 |
| | 2007 | | 3/30/32 | | 14,550 |
| | 4,337 |
| | 3,440 |
| | 897 |
| | 341 |
| | 100.0 | % | |
| Palmview, TX | | | 12/19/12 | | 6,820 |
| | 2012 | | 8/31/37 | | 14,820 |
| | 5,758 |
| | 4,534 |
| | 1,224 |
| | 437 |
| | 100.0 | % | |
| Ooltewah, TN | | | 12/18/12 | | 5,703 |
| | 2008 | | 1/31/33 | | 14,550 |
| | 4,712 |
| | 3,797 |
| | 915 |
| | 365 |
| | 100.0 | % | |
| Abingdon, VA | | 12/18/12 | | 4,688 |
| | 2006 | | 6/30/31 | | 15,371 |
| | 4,245 |
| | 3,058 |
| | 1,187 |
| | 300 |
| | 100.0 | % | | | 12/18/12 | | 4,688 |
| | 2006 | | 6/30/31 | | 15,371 |
| | 4,137 |
| | 3,048 |
| | 1,089 |
| | 300 |
| | 100.0 | % | |
| Wichita, KS | | 12/14/12 | | 7,200 |
| | 2012 | | 12/31/32 | | 73,322 |
| | 5,786 |
| | 4,766 |
| | 1,020 |
| | 536 |
| | 100.0 | % | | | 12/14/12 | | 7,200 |
| | 2012 | | 12/31/32 | | 73,322 |
| | 5,603 |
| | 4,751 |
| | 852 |
| | 536 |
| | 100.0 | % | |
| North Dartmouth, MA | | 09/21/12 | | 29,965 |
| | 1989 | | 8/31/32 | | 103,680 |
| | 22,600 |
| | 18,874 |
| | 3,726 |
| | 2,212 |
| | 100.0 | % | | | 09/21/12 | | 29,965 |
| | 1989 | | 8/31/32 | | 103,680 |
| | 21,684 |
| | 18,800 |
| | 2,884 |
| | 2,256 |
| | 100.0 | % | |
| Vineland, NJ | | 09/21/12 | | 22,507 |
| | 2003 | | 8/31/32 | | 115,368 |
| | 17,356 |
| | 13,863 |
| | 3,493 |
| | 1,662 |
| | 100.0 | % | | | 09/21/12 | | 22,507 |
| | 2003 | | 8/31/32 | | 115,368 |
| | 16,715 |
| | 13,817 |
| | 2,898 |
| | 1,695 |
| | 100.0 | % | |
| Saratoga Springs, NY | | 09/21/12 | | 20,222 |
| | 1994 | | 8/31/32 | | 116,620 |
| | 15,406 |
| | 12,456 |
| | 2,950 |
| | 1,493 |
| | 100.0 | % | | | 09/21/12 | | 20,222 |
| | 1994 | | 8/31/32 | | 116,620 |
| | 14,800 |
| | 12,414 |
| | 2,386 |
| | 1,523 |
| | 100.0 | % | |
| Waldorf, MD | | 09/21/12 | | 18,803 |
| | 1999 | | 8/31/32 | | 115,660 |
| | 15,380 |
| | 11,582 |
| | 3,798 |
| | 1,388 |
| | 100.0 | % | | | 09/21/12 | | 18,803 |
| | 1999 | | 8/31/32 | | 115,660 |
| | 14,870 |
| | 11,543 |
| | 3,327 |
| | 1,416 |
| | 100.0 | % | |
| Mooresville, NC | | 09/21/12 | | 17,644 |
| | 2000 | | 8/31/32 | | 108,528 |
| | 13,302 |
| | 10,867 |
| | 2,435 |
| | 1,303 |
| | 100.0 | % | | | 09/21/12 | | 17,644 |
| | 2000 | | 8/31/32 | | 108,528 |
| | 12,763 |
| | 10,831 |
| | 1,932 |
| | 1,329 |
| | 100.0 | % | |
| Sennett, NY | | 09/21/12 | | 7,476 |
| | 1996 | | 8/31/32 | | 68,160 |
| | 5,559 |
| | 4,709 |
| | 850 |
| | 628 |
| | 100.0 | % | | | 09/21/12 | | 7,476 |
| | 1996 | | 8/31/32 | | 68,160 |
| | 5,321 |
| | 4,690 |
| | 631 |
| | 641 |
| | 100.0 | % | |
| DeLeon Springs, FL | | 08/13/12 | | 1,242 |
| | 2011 | | 1/31/27 | | 9,100 |
| | 940 |
| | 815 |
| | 125 |
| | 98 |
| | 100.0 | % | | | 08/13/12 | | 1,242 |
| | 2011 | | 1/31/27 | | 9,100 |
| | 903 |
| | 812 |
| | 91 |
| | 98 |
| | 100.0 | % | |
| Orange City, FL | | 05/23/12 | | 1,317 |
| | 2011 | | 4/30/27 | | 9,026 |
| | 999 |
| | 798 |
| | 201 |
| | 103 |
| | 100.0 | % | | | 05/23/12 | | 1,317 |
| | 2011 | | 4/30/27 | | 9,026 |
| | 962 |
| | 798 |
| | 164 |
| | 103 |
| | 100.0 | % | |
| Satsuma, FL | | 04/19/12 | | 1,092 |
| | 2011 | | 11/30/26 | | 9,026 |
| | 785 |
| | 719 |
| | 66 |
| | 86 |
| | 100.0 | % | | | 04/19/12 | | 1,092 |
| | 2011 | | 11/30/26 | | 9,026 |
| | 749 |
| | 719 |
| | 30 |
| | 86 |
| | 100.0 | % | |
| Greenwood, AR | | 04/12/12 | | 5,147 |
| | 2009 | | 6/30/34 | | 13,650 |
| | 4,310 |
| | 3,398 |
| | 912 |
| | 332 |
| | 100.0 | % | | | 04/12/12 | | 5,147 |
| | 2009 | | 6/30/34 | | 13,650 |
| | 4,213 |
| | 3,387 |
| | 826 |
| | 332 |
| | 100.0 | % | |
| Snellville, GA | | 04/04/12 | | 8,000 |
| | 2011 | | 4/30/32 | | 67,375 |
| | 6,308 |
| | 5,308 |
| | 1,000 |
| | 626 |
| | 100.0 | % | | | 04/04/12 | | 8,000 |
| | 2011 | | 4/30/32 | | 67,375 |
| | 6,113 |
| | 5,302 |
| | 811 |
| | 626 |
| | 100.0 | % | |
| Columbia, SC | | 04/04/12 | | 7,800 |
| | 2001 | | 4/30/32 | | 71,744 |
| | 6,371 |
| | 5,163 |
| | 1,208 |
| | 610 |
| | 100.0 | % | | | 04/04/12 | | 7,800 |
| | 2001 | | 4/30/32 | | 71,744 |
| | 6,206 |
| | 5,158 |
| | 1,048 |
| | 610 |
| | 100.0 | % | |
| Millbrook, AL | | 03/28/12 | | 6,941 |
| | 2008 | | 3/22/32 | | 14,820 |
| | 5,717 |
| | 4,581 |
| | 1,136 |
| | 448 |
| | 100.0 | % | | | 03/28/12 | | 6,941 |
| | 2008 | | 3/22/32 | | 14,820 |
| | 5,576 |
| | 4,566 |
| | 1,010 |
| | 448 |
| | 100.0 | % | |
| Pittsfield, MA | | 02/17/12 | | 14,700 |
| | 2011 | | 10/29/31 | | 85,188 |
| | 11,804 |
| | 11,089 |
| | 715 |
| | 1,118 |
| | 100.0 | % | | | 02/17/12 | | 14,700 |
| | 2011 | | 10/29/31 | | 85,188 |
| | 11,476 |
| | 11,070 |
| | 406 |
| | 1,118 |
| | 100.0 | % | |
| Spartanburg, SC | | 01/14/11 | | 3,870 |
| | 2007 | | 8/31/32 | | 14,820 |
| | 3,282 |
| | 2,612 |
| | 670 |
| | 291 |
| | 100.0 | % | | | 01/14/11 | | 3,870 |
| | 2007 | | 8/31/32 | | 14,820 |
| | 3,196 |
| | 2,571 |
| | 625 |
| | 291 |
| | 100.0 | % | |
| Tupelo, MS | | 08/13/10 | | 5,128 |
| | 2007 | | 1/31/33 | | 14,691 |
| | 4,100 |
| | 3,090 |
| | 1,010 |
| | 400 |
| | 100.0 | % | | | 08/13/10 | | 5,128 |
| | 2007 | | 1/31/33 | | 14,691 |
| | 4,006 |
| | 3,140 |
| | 866 |
| | 400 |
| | 100.0 | % | |
| Lilburn, GA | | 08/12/10 | | 5,791 |
| | 2007 | | 10/31/32 | | 14,752 |
| | 4,604 |
| | 3,474 |
| | 1,130 |
| | 443 |
| | 100.0 | % | | | 08/12/10 | | 5,791 |
| | 2007 | | 10/31/32 | | 14,752 |
| | 4,494 |
| | 3,524 |
| | 970 |
| | 443 |
| | 100.0 | % | |
| Douglasville, GA | | 08/12/10 | | 5,409 |
| | 2008 | | 10/31/33 | | 13,434 |
| | 4,472 |
| | 3,264 |
| | 1,208 |
| | 417 |
| | 100.0 | % | | | 08/12/10 | | 5,409 |
| | 2008 | | 10/31/33 | | 13,434 |
| | 4,385 |
| | 3,314 |
| | 1,071 |
| | 417 |
| | 100.0 | % | |
| Elkton, MD | | 07/27/10 | | 4,872 |
| | 2008 | | 10/31/33 | | 13,706 |
| | 3,880 |
| | 2,925 |
| | 955 |
| | 380 |
| | 100.0 | % | | | 07/27/10 | | 4,872 |
| | 2008 | | 10/31/33 | | 13,706 |
| | 3,789 |
| | 2,978 |
| | 811 |
| | 380 |
| | 100.0 | % | |
| Lexington, SC | | 06/28/10 | | 4,732 |
| | 2009 | | 9/30/33 | | 14,820 |
| | 3,886 |
| | 2,901 |
| | 985 |
| | 362 |
| | 100.0 | % | | | 06/28/10 | | 4,732 |
| | 2009 | | 9/30/33 | | 14,820 |
| | 3,809 |
| | 2,948 |
| | 861 |
| | 362 |
| | 100.0 | % | |
| Total Net Leased | Total Net Leased | | 730,360 |
| | 5,135,139 |
| | 671,344 |
| | 502,440 |
| | 168,904 |
| | 49,057 |
| | | | Total Net Leased | | 742,589 |
| | 5,224,039 |
| | 666,379 |
| | 507,365 |
| | 159,014 |
| | 50,118 |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Diversified | Diversified | | | | | | | | | | | | | | | | Diversified | | | | | | | | | | | | | | | |
| Omaha, NE | | | 02/27/19 | | 18,200 |
| | 1969 | |
| | 108,555 |
| | 17,929 |
| | — |
| | 17,929 |
| | — |
| | 100.0 | % | |
| Isla Vista, CA | | 05/01/18 | | 83,442 |
| | 2005 | | 7/2/19(5) | | 117,324 |
| | 82,932 |
| | 68,656 |
| | 14,276 |
| | 6,240 |
| | 75.0 | % | (7) | | 05/01/18 | | 83,442 |
| | 2005 | | 7/2/19(6) | | 117,324 |
| | 83,154 |
| | 69,070 |
| | 14,084 |
| | 6,374 |
| | 75.0 | % | (8) |
| Lithia Springs, GA | | 03/08/18 | | 24,466 |
| | 2005 | | (6) | | 617,969 |
| | 24,453 |
| | 17,040 |
| | 7,413 |
| | — |
| | 70.6 | % | (7) | | 03/08/18 | | 24,466 |
| | 2005 | |
| | 617,969 |
| | 23,949 |
| | 18,270 |
| | 5,679 |
| | — |
| | 70.6 | % | (8) |
| Crum Lynne, PA | | 09/29/17 | | 9,196 |
| | 1999 | | 9/30/32 | | 56,320 |
| | 10,281 |
| | 6,032 |
| | 4,249 |
| | 675 |
| | 100.0 | % | | | 09/29/17 | | 9,196 |
| | 1999 | | 9/30/32 | | 56,320 |
| | 10,053 |
| | 6,029 |
| | 4,024 |
| | 675 |
| | 100.0 | % | |
| Miami, FL | | 08/31/17 | | 38,145 |
| | 1987 | | 9/30/18(8) | | 166,176 |
| | 35,986 |
| | — |
| | 35,986 |
| | 3,580 |
| | 80.0 | % | (7) | | 08/31/17 | | 38,145 |
| | 1987 | | 9/30/18(8) | | 166,176 |
| | 35,769 |
| | — |
| | 35,769 |
| | 3,873 |
| | 80.0 | % | (8) |
| Peoria, IL | | 10/21/16 | | 2,760 |
| | 1926 | | 7/31/30 | | 252,940 |
| | 3,318 |
| | — |
| | 3,318 |
| | 1,633 |
| | 100.0 | % | | | 10/21/16 | | 2,760 |
| | 1926 | | 7/31/30 | | 252,940 |
| | 3,266 |
| | — |
| | 3,266 |
| | 1,663 |
| | 100.0 | % | |
| Ewing, NJ | | 08/04/16 | | 30,640 |
| | 2009 | | 7/31/30 | | 110,765 |
| | 28,512 |
| | 21,789 |
| | 6,723 |
| | 1,999 |
| | 100.0 | % | | | 08/04/16 | | 30,640 |
| | 2009 | | 7/31/30 | | 110,765 |
| | 27,551 |
| | 21,761 |
| | 5,790 |
| | 1,999 |
| | 100.0 | % | |
| Carmel, NY | | 10/14/15 | | 6,706 |
| | 1985 | | 1/31/39 | | 50,121 |
| | 6,337 |
| | — |
| | 6,337 |
| | 477 |
| | 100.0 | % | | | 10/14/15 | | 6,706 |
| | 1985 | | 1/31/39 | | 50,121 |
| | 6,196 |
| | — |
| | 6,196 |
| | 463 |
| | 100.0 | % | |
| Wayne, NJ | | 06/24/15 | | 9,700 |
| | 1980 | | 7/31/27 | | 56,387 |
| | 8,328 |
| | 6,648 |
| | 1,680 |
| | 1,184 |
| | 100.0 | % | | |
| Grand Rapids, MI | | 06/18/15 | | 9,731 |
| | 1963 | | 6/30/24 | | 97,167 |
| | 8,476 |
| | 7,215 |
| | 1,261 |
| | 875 |
| | 97.0 | % | (7) | | 06/18/15 | | 6,300 |
| | 1992 | | 6/30/24 | | 160,000 |
| | 4,948 |
| | 4,843 |
| | 105 |
| | 572 |
| | 97.0 | % | (8) |
| Grand Rapids, MI | | 06/18/15 | | 6,300 |
| | 1992 | | 6/30/24 | | 160,000 |
| | 5,200 |
| | 4,901 |
| | 299 |
| | 560 |
| | 97.0 | % | (7) | |
| Richmond, VA | | 08/14/14 | | 19,850 |
| | 1986 | | 4/30/21 | | 195,881 |
| | 15,773 |
| | 15,791 |
| | (18 | ) | | 1,914 |
| | 77.5 | % | (7) | |
| Richmond, VA | | 06/07/13 | | 118,405 |
| | 1984 | | 4/30/21 | | 994,040 |
| | 78,234 |
| | 74,626 |
| | 3,608 |
| | 11,887 |
| | 77.5 | % | (7) | |
| Oakland County, MI | | 02/01/13 | | 18,000 |
| | 1989 | | 12/31/21 | | 240,900 |
| | 11,082 |
| | 18,087 |
| | (7,005 | ) | | 4,246 |
| | 90.0 | % | (7) | |
| Total Diversified | | 377,341 |
| | 3,115,990 |
| | 318,912 |
| | 240,785 |
| | 78,127 |
| | 35,270 |
| | | | |
| Condominium | | | | | | | | | | | | | | | | |
| Miami, FL | | 11/21/13 | | 80,000 |
| | 2010 | | (9) | | 8,407 |
| | — |
| | 8,407 |
| | 516 |
| | 100.0 | % | (10) | |
| Las Vegas, NV | | 12/20/12 | | 119,000 |
| | 2006 | | (11) | | 1,347 |
| | — |
| | 1,347 |
| | — |
| | 98.8 | % | (7)(12) | |
| Total Condominium | | 199,000 |
| | — |
| | 9,754 |
| | — |
| | 9,754 |
| | 516 |
| | | | |
| Total | | $ | 1,306,701 |
| | 8,251,129 |
| | $ | 1,000,010 |
| | $ | 743,225 |
| | $ | 256,785 |
| | $ | 84,843 |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Acquisition date | | Acquisition price/basis | | Year built/reno. | | Lease expiration (1) | | Approx. square footage | | Carrying value of asset | | Mortgage loan outstanding (2) | | Asset net of mortgage loan outstanding | | Annual rental income (3) | | Ownership Percentage (4) | |
| | | | | | | | | | | | | | | | | | | | | | |
| Richmond, VA | | 08/14/14 | | 19,850 |
| | 1986 | | 4/30/21 | | 195,881 |
| | 15,257 |
| | 15,614 |
| | (357 | ) | | 2,567 |
| | 77.5 | % | (8) |
| Richmond, VA | | 06/07/13 | | 118,406 |
| | 1984 | | 4/30/21 | | 994,040 |
| | 76,181 |
| | 73,631 |
| | 2,550 |
| | 11,377 |
| | 77.5 | % | (8) |
| Oakland County, MI | | 02/01/13 | | 18,000 |
| | 1989 | | 12/31/21 | | 240,900 |
| | 10,714 |
| | 18,069 |
| | (7,355 | ) | | 4,445 |
| | 90.0 | % | (8) |
| Total Diversified | | 376,111 |
| | | | | | 3,070,991 |
| | 314,967 |
| | 227,287 |
| | 87,680 |
| | 34,008 |
| | | |
| | | | | | | | | | | | | | | | | | | | |
| Condominium | | | | | | | | | | | | | | | | | | | |
| Miami, FL | | 11/21/13 | | 80,000 |
| | 2010 | | | | (10) | | 2,613 |
| | — |
| | 2,613 |
| | 147 |
| | 100.0 | % | (11) |
| Las Vegas, NV | | 12/20/12 | | 119,000 |
| | 2006 | | | | (12) | | 419 |
| | — |
| | 419 |
| | — |
| | 98.8 | % | (8)(13) |
| Total Condominium | | 199,000 |
| | | | | | — |
| | 3,032 |
| | — |
| | 3,032 |
| | 147 |
| | | |
| Total | | | | $ | 1,317,700 |
| | | | | | 8,295,030 |
| | $ | 984,378 |
| | $ | 734,652 |
| | $ | 249,726 |
| | $ | 84,273 |
| | | |
| |
| (1) | Lease expirations reflect the earliest date the lease is cancellable without penalty, although actual terms may be longer. |
| |
| (3) | Annual rental income represents twelve months of contractual rental income, excluding concessions, due under leases outstanding for the year ended December 31, 2018.2019. Operating lease income on the consolidated statements of income represents rental income earned and recorded on a straight line basis over the term of the lease. |
| |
| (4) | Properties were consolidated as of acquisition date. |
| |
| (6) | 40 property student housing portfolio with 73 leaseable units with short term rentals that are renewed regularly. Represents longest term lease expiration date. |
| |
(6)(7) | NoProperty was acquired with no lease in place. |
| |
(7)(8) | See Note 13 to our consolidated financial statements for further information regarding noncontrolling interests. |
| |
(8)(9) | This is an apartment complex with short term rentals that are renewed regularly. Represents longest term lease expiration date. |
| |
(9)(10) | 30Nine remaining condominium units. As of SeptemberJune 30, 2018, four2019, two condominium units were under contract for sale with a book value of $0.9$0.5 million. |
| |
(10)(11) | We own a portfolio of residential condominium units, some of which are subject to residential leases. We intend to sell these units. The residential leases are generally short term in nature and are not included in the table above given our intention to sell the units. |
| |
(11)(12) | FiveOne remaining condominium units.unit. There were twono condominium units under contract for sale as of SeptemberJune 30, 2018.2019.
|
| |
(12)(13) | We own, through a majority-owned joint venture with an operating partner, a portfolio of residential condominium units, some of which are subject to residential leases.unit. The joint venture intends to sell these units. The residential leases are generally short term in nature and are not included in the table above given the joint venture’s intention to sell the units.this unit. |
Other Investments
Unconsolidated Joint Venture. In connection with the origination of a loan in April 2012, we received a 25% equity interest with the right to convert upon a capital event. On March 22, 2013, we refinanced the loan, and we converted our equity interest into a 19% limited liability company membership interest in Grace Lake JV, LLC (“Grace Lake LLC”). As of SeptemberJune 30, 2018,2019, Grace Lake LLC owned an office building campus with a carrying value of $58.6$55.4 million, which is net of accumulated depreciation of $25.6$29.3 million, that is financed by $67.3$65.5 million of long-term debt. Debt of Grace Lake LLC is non-recourse to the limited liability company members, except for customary non-recourse carve-outs for certain actions and environmental liability. As of SeptemberJune 30, 2018,2019, the book value of our investment in Grace Lake LLC was $4.8$3.3 million. During the nine months ended September 30, 2018, we received a $1.3 million distribution from our investment in Grace Lake JV, LLC.
Unconsolidated Joint Venture. On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue Holdings LLC (“24 Second Avenue”), with an operating partnerOperating Partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium constructiondevelopment and developmentconstruction project located at 24 Second Avenue, New York, NY.
During the three months ended March 31, 2019, the Company converted its existing $35.0 million common equity interest into a $35.0 million priority preferred equity position. The Company contributed $31.1also provided $50.4 million for a 73.8% interest, within first mortgage financing in order to refinance the operating partner holdingexisting $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the remaining 26.2% interest. The Company is entitled to income allocations and distributions based upon its membership interest of 73.8% untilnew $50.4 million first mortgage loan, the Company achievesalso funded a 1.70x profit multiple, after which, income is allocated$6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and distributed 50%all additional capital for necessary expenses.
Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company and 50% toaccounts for the operating partner. new loans as additional investments in the joint venture.
As of December 31, 2016, the previously existing building had been demolished and the site was cleared with all supportive excavation work completed, and we are anticipating completion of the new construction and all certificates of occupancy for the units in 2018.2019. 24 Second Avenue consists of 3130 residential condominium units and one commercial condominium unit. As of September 30, 2018, 16 residential condominium units were under contract for sale for $39.3 million in sales proceeds. As of September 30, 2018, the Company is holding a 10.0% deposit on each sales contract. The Company expects to start24 Second Avenue started closing on the existing sales contracts during the quarter ended DecemberMarch 31, 2018, pending2019, upon receipt of New York City Building Department approvals. Our operating partner entered intoapprovals and a construction loan with The Banktemporary certificate of the Ozarks in the amount of $50.5 million to fund the completionoccupancy for a portion of the project. As of SeptemberJune 30, 2018, draws2019, 24 Second Avenue had sold 15 residential condominium units for $40.1 million in sales proceeds and one residential condominium unit was under contract for sale for $4.3 million in sales proceeds. As of $46.4 million have been taken againstJune 30, 2019, 24 Second Avenue is holding a 15% deposit on the construction loan. Thesales contract. As of June 30, 2019, the Company hashad no remaining additional capital commitment to our operating partner.24 Second Avenue. As of SeptemberJune 30, 2018,2019, the book value of ourthe Company’s investment in 24 Second Avenue was $31.3$54.5 million.
FHLB Stock. Tuebor Captive Insurance Company LLC (“Tuebor”) is a member of the FHLB. Each member of the FHLB must purchase and hold FHLB stock as a condition of initial and continuing membership, in proportion to their borrowings from the FHLB and levels of certain assets. Members may need to purchase additional stock to comply with these capital requirements from time to time. FHLB stock is redeemable by Tuebor upon five years’ prior written notice, subject to certain restrictions and limitations. Under certain conditions, the FHLB may also, at its sole discretion, repurchase FHLB stock from its members. As of SeptemberJune 30, 2018,2019, the book value of our investment in FHLB Stock was $57.9$61.6 million.
Our Financing Strategies
Our financing strategies are critical to the success and growth of our business. We manage our financing to complement our asset composition and to diversify our exposure across multiple capital markets and counterparties.
We fund our investments in commercial real estate loans and securities through multiple sources, including the $611.6following:
$611.6 million of gross cash proceeds we raised in our initial equity private placement beginning in October 2008, the $257.4
$257.4 million of gross cash proceeds we raised in our follow-on equity private placement in the third quarter of 2011,
$325.0 million of gross proceeds from the issuance of $325.0 million of 2017 Notes in 2012, the $238.5
$259.0 million of netgross proceeds from the issuance of Class A common stock in 2014,
$300.0 million of gross proceeds from the issuance of $300.0 million of 2021 Notes in 2014,
$500.0 million of gross proceeds from the issuance of $500.02022 Notes in 2017,
$400.0 million of 2022 Notes and $400.0 milliongross proceeds from the issuance of 2025 Notes in 2017,
$99.0 million of gross proceeds we raised in our primary equity offering in the fourth quarter of 2018,
current and future earnings and cash flow from operations, and
existing debt facilities, and other borrowing programs in which we participate.
We finance our portfolio of commercial real estate loans using committed term facilities provided by multiple financial institutions, with total commitments of $1.7$1.8 billion at SeptemberJune 30, 2018,2019, a $266.4 million Revolving Credit Facility, CLO transactions and through our FHLB membership. As of SeptemberJune 30, 2018,2019, there was $752.0$685.3 million outstanding under the committed term facilities. We finance our securities portfolio, including CMBS and U.S. Agency Securities, through our FHLB membership, a $400.0 million committed term master repurchase agreement from a leading domestic financial institution and uncommitted master repurchase agreements with numerous counterparties. As of SeptemberJune 30, 2018,2019, we had total outstanding balances of $221.6$582.1 million under all securities master repurchase agreements. We finance our real estate investments with non-recourse first mortgage loans. As of SeptemberJune 30, 2018,2019, we had outstanding balances of $743.2$734.7 million on these non-recourse mortgage loans.
In addition to the amounts outstanding on our other facilities, we had $1.2 billion of borrowings from the FHLB outstanding at SeptemberJune 30, 2018.2019. As of SeptemberJune 30, 2018,2019, we also had a $266.4 million Revolving Credit Facility, with no borrowings outstanding, and $1.2 billion of Notes issued and outstanding. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 8, Debt Obligations, Net in our consolidated financial statements included elsewhere in this Quarterly Report for more information about our financing arrangements.
We enter into interest rate and credit spread derivative contracts to mitigate our exposure to changes in interest rates and credit spreads. We generally seek to hedge the interest rate risk on the financing of assets that have a duration longer than five years, including newly-originated conduit first mortgage loans, securities in our CMBS portfolio if long enough in duration, and most of our U.S. Agency Securities portfolio. We monitor our asset profile and our hedge positions to manage our interest rate and credit spread exposures, and we seek to match fund our assets according to the liquidity characteristics and expected holding periods of our assets.
We generally seek to maintain a debt-to-equity ratio of approximately 3.0:1.0 or below. We expect this ratio to fluctuate during the course of a fiscal year due to the normal course of business in our conduit lending operations, in which we generally securitize our inventory of conduit loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. As of SeptemberJune 30, 2018,2019, our debt-to-equity ratio was 3.1:2.8:1.0. Our adjusted leverage, a non-GAAP financial measure, was 2.6:1.0 as of SeptemberJune 30, 2018.2019. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverage and a reconciliation to debt obligations, net. We believe that our predominantly senior secured assets and our moderate leverage provide financial flexibility to be able to capitalize on attractive market opportunities as they arise.
From time to time, we may add financing counterparties that we believe will complement our business, although the agreements governing our indebtedness may limit our ability and the ability of our present and future subsidiaries to incur additional indebtedness. Our amended and restated charter and by-laws do not impose any threshold limits on our ability to use leverage.
Business Outlook
We believe the commercial real estate finance market is currently characterized by solidstable demand for fixed and floating rate mortgage financing supported bystable property values in most parts of the U.S. The demand is driven by acquisitions and refinancings of existing properties, the need to fund expenditures to renovate or otherwise improve buildings, and new real estate development. After an extended period of low and stable interest rates in the U.S., recent interest rate increases and concerns regarding the potential for additional future interest rate increases has also contributed to demand for long term fixed rate mortgage financing. More than $1.9$2.0 trillion of commercial real estate debt is scheduled to mature over the next five years (according to Trepp), providing a substantial foundation of demand for mortgage financing services going forward. Somewhat offsetting these positive macro market factors is the yield curve's flattening trend which may reflect a market anticipating slower economic growth in the future.
From our perspective as a commercial mortgage lender that finances its customers’ real estate investments nationwide, the trends observed in the commercial mortgage backed securities market are often informative and somewhat predictive. In 2017, new U.S. CMBS issuance volume increased 27.1% to $87.8 billion in comparison to 2016, a year in which swings in credit spreads created uncertainty for lenders and borrowers thereby suppressing transaction activity. The return to positive annual growth in U.S. CMBS issuance volume in 2017 was, at least in part, due to more stable and favorable credit spread environment that was also favorable. The tighteningenvironment. Although spreads continued to tighten into the beginning of CMBS credit spreads that generally prevailed2018, they mostly widened during 2017 is seen as reflectivethe rest of the potential foryear. Still, the healthy and stable conditions to continue to prevail in the commercial real estate lending market in 2018. The U.S. CMBS new issuance market has beenwas active in 2018, with issuance fortotaling $77.0 billion during the year, a decrease of 12.3% compared to 2017, but an increase of 11.4% compared to 2016. Spreads have generally tightened over the first nine monthshalf of 20182019 with U.S. CMBS new issuance totaling $58.2 billion, a slight decrease of 5.3% compared to the same period in 2017, but a marked increase of 28.9% compared to the same period in 2016. During the first three months of 2018, CMBS credit spreads tightened further, but then re-widened during the three month period ended June 30, 2018, before remaining relatively stable and range-bound during the three month period ended September 30, 2018.$39.1 billion.
We believe the CMBS market will continue to play an important role in the financing of commercial real estate that is expected to produce substantial streams of stabilized income over multiple years and we expect to continue to participate in this market as a loan originator and a contributor of loans to securitization transactions in which CMBS are issued. We also expect to continue to be active as a lender to owners of properties that are in transition and are expected to start generating substantial streams of stabilized income after the financed property’s transition plan has been executed. Our ability to offer borrowers mortgage loan financing on transitional properties enables us to remain an active lender even when the CMBS market experiences disruptions or periods of slower activity that impair the origination of new loans for securitization.
Reflected in all of these lending and financing capabilities that Ladder applies in its daily operations is its ability to apply superior credit skills in the underwriting ofunderwrite commercial real estate debt and equity investments while maintaining the ability toand efficiently shift capital among mortgage loans, securities, and real estate investments. Underwriting commercial real estate credit risk is Ladder’s core strength—and Ladder expresses its view of the commercial real estate market and of specific investment opportunities within it by making loans, investing in debt securities, and acquiring real estate—constantly fine-tuning that mix of investments in an ongoing effort to optimize risk adjusted returns on equity.
Factors impacting operating results
There are a number of factors that influence our operating results in a meaningful way. The most significant factors include: (1) our competition; (2) market and economic conditions; (3) loan origination volume; (4) profitability of securitizations; (5) avoidance of credit losses; (6) availability of debt and equity funding and the costs of that funding; (7) the net interest margin on our investments; (8) effectiveness of our hedging and other risk management practices; (9) real estate transactions volumes; (10) occupancy rates; and (11) expense management.
Results of Operations
Three months ended SeptemberJune 30, 20182019 compared to the three months ended SeptemberJune 30, 20172018
Investment overview
Investment activity in the three months ended SeptemberJune 30, 2019 focused on loan, security and real estate activities. We originated and funded $418.2 million in principal value of commercial mortgage loans in the three months ended June 30, 2019. We acquired $419.3 million of new securities, which was offset by $169.7 million of sales and $86.3 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $169.3 million during the three months ended June 30, 2019. We also invested $2.7 million in real estate and received proceeds from the sale of real estate of $14.0 million.
Investment activity in the three months ended June 30, 2018 focused on loan, security and real estate activities. We originated and funded $676.7$711.9 million in principal value of commercial mortgage loans in the three months ended SeptemberJune 30, 2018. We acquired $59.1$108.9 million of new securities, which was offset by $144.6$39.2 million of sales and $36.5$53.8 million of amortization in the portfolio, which partially contributed to a net decreaseincrease in our securities portfolio of $128.1$6.3 million during the three months ended SeptemberJune 30, 2018. We received proceeds from the sale of real estate of $113.4 million.
Investment activity in the three months ended September 30, 2017 focused on loan, security and real estate activities. We originated and funded $630.1 million in principal value of commercial mortgage loans in the three months ended September 30, 2017. We acquired $33.0 million of new securities, which was offset by $323.9 million of sales and $11.5 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $310.1 million during the three months ended September 30, 2017. We also invested $48.6$91.1 million in real estate and received proceeds from the sale of real estate of $8.1$3.7 million.
Operating overview
Net income (loss) attributable to Class A common shareholders totaled $66.6$32.2 million for the three months ended SeptemberJune 30, 2018,2019, compared to $23.6$38.4 million for the three months ended SeptemberJune 30, 2017.2018. The most significant drivers of the $43.0$6.2 million increasedecrease are as follows:
an increasea decrease in total othernet interest income of $57.1$3.9 million, primarily as a result of a $60.5 million increase in realized gain on sale of real estate, net, a $7.4 million increase in net results from derivative transactions and an increase of $2.7 million in sale of loans, net, partially offset by a $9.3 million decrease in realized gain (loss) on securities;
an increase in net interest income of $9.6 million, primarily as a result of higherlower average loan balances and higherlower interest expense primarily attributable to the increase in LIBOR rates throughout 20172018 and 2018, partially offset by the decrease in the average yield on the securities portfolio year-over-year;
an increasea decrease in provision for loan lossestotal other income (loss) of $10.3$2.7 million,, primarily as a result of a $10.0$22.5 million loan-specific loss provision recordeddecrease in net results from derivative transactions and a $2.7 million decrease in Realized gain (loss) on onesale of the Company’sreal estate, net, partially offset by an increase of $14.2 million in sale of loans, further discussed below;
net and a $5.7 million increase in realized gain (loss) on securities;
an increasea decrease in total costs and expenses of $0.9$0.7 million compared to the prior year, primarily as a result of a $2.5$1.8 million decrease in real estate operating expenses, partially offset by a $1.0 million increase in salaries and employee benefits, a $0.7 million increase in operating expenses, a $0.1 million increase in fee expense, partially offset by a $2.2 million decrease in real estate operating expenses;benefits; and
an increase in income tax expense (benefit) of $1.8$1.6 million compared to the prior year, primarily as a result of significant increasesattributable to an increase in forecasted GAAP income in our TRSs relatedTRSs.
Income (loss) before taxes
Income (loss) before taxes totaled $38.3 million for the three months ended June 30, 2019, compared to securitization profit (along with related derivative gains), partially offset by reduced condominium sales and a reduction$44.1 million for the three months ended June 30, 2018. The significant components of the $5.8 million decrease in tax rate due toincome (loss) before taxes are described in the Tax Cuts and Jobs Act.first three bullet points under operating overview above.
Core earnings
Core earnings, a non-GAAP financial measure, totaled $63.4$51.0 million for the three months ended SeptemberJune 30, 2018,2019, compared to $35.7$50.4 million for the three months ended SeptemberJune 30, 2017.2018. The significant components of the $27.7$0.6 million increase in core earnings are an increase of $13.7 million in sale of loans, net, an increase of $5.7 million in gain (loss) on securities and a decrease in real estate operating expenses of $1.8 million, partially offset by a decrease in net results from derivative transactions of $15.8 million, a decrease in realized gain on the sale of real estate, net of $38.8$4.9 million, an increase in net results from derivative transactions of $8.1 million and an increase in profits on sales of loans, net of $3.0 million, partially offset by, a decrease of $9.2 million in gain (loss) on securities and a decrease in net interest income of $0.7$3.9 million. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.
Net interest income
Interest income totaled $90.4$85.3 million for the three months ended SeptemberJune 30, 2018,2019, compared to $66.8$85.2 million for the three months ended SeptemberJune 30, 2017.2018. The $0.1 million increase in interest income was primarily attributable to the increase in LIBOR rates throughout 2018, partially offset by the investment mix composition with lower yields on securities investments versus higher yields on loan investments. For the three months ended SeptemberJune 30, 2019, securities investments averaged $1.8 billion and loan investments averaged $3.4 billion. For the three months ended June 30, 2018, securities investments averaged $1.1 billion and loan investments averaged $4.0 billion. For the three months ended September 30, 2017, securities investments averaged $1.4 billion and loan investments averaged $3.1$3.9 billion. There was a $913.8$492.7 million decrease in loan investments, offset by a $656.2 million increase in loan investments, partially offset by a $278.5 million decrease in securities investments, resulting in higher interest income due to both higher combined investment balance and investment mix composition with higher yields on loans versus yields on securities investments as well as rising interest rates.investments.
Interest expense totaled $51.5$52.4 million for the three months ended SeptemberJune 30, 2018,2019, compared to $37.5$48.4 million for the three months ended SeptemberJune 30, 2017.2018. The $14.0$4.0 million increase in interest expense was primarily attributable to an increase in average debt obligations, the increase in LIBOR rates throughout 2017 and 2018, a decreased reliance on FHLB financing, and securities repurchase financing, and an increase in higher cost CLO debt and senior unsecured notes. Our interest expense also includes interest expense related toincreased reliance on mortgage loan financing against our real estate investments. Our interest expense related to mortgage loan financing increased by $3.8 million from $5.9 million for the three months ended September 30, 2017 to $9.7 million for the three months ended September 30, 2018, primarily as a result of our increase in average outstanding mortgage loan financing of $772.7 million for the three months ended September 30, 2018 compared to $666.7 million for the three months ended September 30, 2017 and the increase in the average cost of financing.
Net interest income after provision for loan losses totaled $28.6$32.7 million for the three months ended SeptemberJune 30, 2018,2019, compared to $29.3$36.5 million for the three months ended SeptemberJune 30, 2017.2018. The $0.7$3.8 million decrease in net interest income after provision for loan losses was primarily attributable to the increase in net interest income discussed above, offset by the increase in interest expense discussed above and the increase in our provision for loan losses discussed below.above.
Cost of funds, a non-GAAP financial measure, totaled $52.8$54.0 million for the three months ended SeptemberJune 30, 2018,2019, compared to $40.2$50.0 million for the three months ended SeptemberJune 30, 2017.2018. The $12.6$4.0 million increase in cost of funds was primarily attributable to the increase in LIBOR rates throughout 2017 and 2018 and a shift away from borrowings from the FHLB and securities repurchase financing, a lower cost source of funding, to higher cost, loan repurchase financing and senior unsecured notes.
We present cost of funds, which is a non-GAAP financial measure, as a supplemental measure of the Company’s cost of debt financing. We define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities, which is currently included in net results from derivative transactions on our consolidated statements of income. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of cost of funds and a reconciliation to interest expense.
Interest spreads
As of SeptemberJune 30, 2018,2019, the weighted average yield on our mortgage loan receivables was 7.5%7.9%, compared to 6.7%7.6% as of SeptemberJune 30, 20172018 as the weighted average yield on new loans originated was higher than the weighted average yield on loans that were securitized or paid off. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on borrowings against our mortgage loan receivables was 3.8%3.9%, compared to 2.6%3.6% as of SeptemberJune 30, 2017.2018. The increase in the rate on borrowings against our mortgage loan receivables from SeptemberJune 30, 20172018 to SeptemberJune 30, 20182019 was primarily due to higher prevailing market borrowing rates. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our mortgage loan receivables equal to 48.6%43.6% of the carrying value of our mortgage loan receivables, compared to 40.5%48.9% as of SeptemberJune 30, 2017.2018.
As of SeptemberJune 30, 2018,2019, the weighted average yield on our real estate securities was 3.1%3.3%, compared to 2.9%3.0% as of SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on borrowings against our real estate securities was 2.5%3.0%, compared to 1.6%2.2% as of SeptemberJune 30, 2017.2018. The increase in the rate on borrowings against our real estate securities from SeptemberJune 30, 20172018 to SeptemberJune 30, 20182019 was primarily due to higher prevailing market borrowing rates. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our real estate securities equal to 85.5%73.8% of the carrying value of our real estate securities, compared to 84.8%80.2% as of SeptemberJune 30, 2017.2018.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on mortgage borrowings against our real estate was 5.1%, compared to 4.9%5.0% as of SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our real estate equal to 74.3%74.6% of the carrying value of our real estate, compared to 63.9%72.7% as of SeptemberJune 30, 2017.2018.
Provision for loan losses
We had a $10.3 million provision for loan loss expense for the three months ended September 30, 2018 and no provision for loan loss expense for the three months ended September 30, 2017. We originate and invest primarily in loans with high credit quality, and we sell our conduit loans in the ordinary course of business. We estimate our loan loss provision based on our historical loss experience and our expectation of losses inherent in the investment portfolio but not yet realized. To ensure that the risk exposures are properly measured and the appropriate reserves are taken, the Company assesses a loan loss provision balance that will grow over time with its portfolio and the related risk as the assets approach maturity and ultimate refinancing where applicable.
We determined that an increase in oura provision expense for loan losses of $10.3$0.3 million was required for the three months ended SeptemberJune 30, 2018. This provision2019 and June 30, 2018. These provisions consisted of a portfolio-based, general reserve of $0.3 million to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment and an asset-specific reserve of $10.0 million relating to one of the Company’s loans.investment. For additional information, refer to “Provision for Loan Losses and Non-Accrual Status” in Note 4.4 Mortgage Loan Receivables to the consolidated financial statements.
Operating lease income and tenant recoveries
Operating lease income totaled $22.7$27.8 million for the three months ended SeptemberJune 30, 2018,2019, compared to $22.9$26.2 million for the three months ended SeptemberJune 30, 2017.2018. The decreaseincrease of $0.2$1.6 million was primarily attributable to the timing of the real estate sales during each quarter.
quarter and real estate purchases subsequent to June 30, 2018. Tenant recoveries totaled $2.3 million for the three months ended September 30, 2018, compared to $2.4 million for the three months ended September 30, 2017. The decrease of $0.1 million was primarily attributable to the timing the real estate sales during each quarter.are included in operating lease income.
Sales of loans, net
We recorded $1.9$20.3 million income (loss) from sales of loans, net, which includes all loan sales, whether by securitization, whole loan sales or other means, for the three months ended SeptemberJune 30, 2018,2019, compared to $(0.8)$6.1 million for the three months ended SeptemberJune 30, 2017,2018, an increase of $2.7$14.2 million. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. InDuring the three months ended SeptemberJune 30, 2018,2019, we participated in onetwo securitization transaction, transferring 1322 loans with an aggregate outstanding principal balance of $102.0$237.8 million. In the three months ended SeptemberJune 30, 2017,2018, we participated in nothree securitization transactions. In addition, intransactions, transferring 39 loans with an aggregate outstanding principal balance of $400.8 million. During the three months ended SeptemberJune 30, 2017,2019 and June 30, 2018, we recorded $0.8 million ofno realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. There was $2.3$11.2 million income (loss) from sales of securitized loans, net of hedging for the three months ended SeptemberJune 30, 2018,2019, compared to no$8.5 million income from sales of securitized loans, net of hedging for the three months ended SeptemberJune 30, 2017,2018. The $2.7 million increase was predominantly due to no securitization activity during thatan increase in the profit margin on sales of securitized loans, period over period.
Income (loss) from sale of loans, net, represents gross proceeds received from the sale of loans, less the book value of those loans at the time they were sold, less any costs, such as legal and closing costs, associated with the sale. Income from sales of securitized loans, net, a non-GAAP financial measure, represents the portion of income from sales of loans, net related to the sale of loans into securitization trusts. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of income from sale of securitized loans, net of hedging and a reconciliation to income (loss) from sale of loans, net.
Realized gain (loss) on securities
Realized gain (loss) on securities totaled $(2.6)$4.5 million for the three months ended SeptemberJune 30, 2018,2019, compared to $6.7$(1.2) million for the three months ended SeptemberJune 30, 2017,2018, a $9.3$5.7 million decrease.increase. Included in realized gain (loss) on securities are $(0.6) million of other than temporary impairments on securities for the three months ended June 30, 2018, compared to none for the three months ended June 30, 2019. For the three months ended SeptemberJune 30, 2018,2019, we sold $144.6$169.7 million of securities, comprised of $144.6$167.1 million of CMBS and no U.S. Agency Securities.$2.6 million of corporate bonds. For the three months ended SeptemberJune 30, 2017,2018, we sold $323.9$39.1 million of CMBS securities, comprised of $318.9$38.6 million of CMBS and $5.0$0.5 million of U.S. Agency Securities. The decreaseincrease reflects lowerhigher margin on sale of securities in 20182019 as compared to 2017 and due to2018, the increasedecrease in interest rates throughout 20172019 and no other than temporary impairments on securities recorded during the three months ended June 30, 2019.
Unrealized gain (loss) on equity securities
Unrealized gain (loss) on equity securities represented a loss of $1.0 million for the three months ended June 30, 2019, compared to none for the three months ended June 30, 2018. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
Unrealized gain (loss) on Agency interest-only securities
Unrealized gain (loss) on Agency interest-only securities represented a gain of $11 thousand for the three months ended June 30, 2019, compared to a gain of $0.1 million for the three months ended SeptemberJune 30, 2018, compared to a gain of $0.6 million for the three months ended September 30, 2017.2018. The negative change of $0.5$0.1 million in unrealized gain (loss) on Agency interest-only securities was due to the increase in interest rates throughout 2017 and 2018, partially offset by sales and amortization of theour securities portfolio. Agency interest-only securities are recorded at fair value with changes in fair value recorded in current period earnings.
Realized gain (loss) on sale of real estate, net
For the three months ended September 30, 2018, incomeIncome (loss) from sales of real estate, net totaled $63.7 million compared to $3.2$(1.1) million for the three months ended SeptemberJune 30, 2017.2019, compared to $1.6 million for the three months ended June 30, 2018. The increasedecrease of $60.5$2.7 million was a result of the commercial real estate and residential condominium sales discussed below.
During the three months ended SeptemberJune 30, 20182019 and 2017,2018, we sold no single-tenant net leased properties.
During the three months ended SeptemberJune 30, 20182019, we sold a portfolio of fourtwo diversified commercial real estate properties resulting in a net gain (loss) on sale of $62.9$(1.3) million. During the three months ended SeptemberJune 30, 2017,2018, we sold no diversified commercial real estate properties.
During the three months ended SeptemberJune 30, 2018,2019, income from sales of residential condominiums totaled $0.8$0.2 million. We sold two residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $0.5 million, and sixseven residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.3$0.2 million. During the three months ended SeptemberJune 30, 2017,2018, income from sales of residential condominiums totaled $3.4$1.7 million. We sold 16four residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $3.1$1.5 million, and fivefour residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.3$0.2 million.
Fee and other income
Fee and other income totaled $4.9$7.2 million for the three months ended SeptemberJune 30, 2018,2019, compared to $4.3$6.5 million for the three months ended SeptemberJune 30, 2017.2018. We generate fee and other income from origination fees, exit fees and other fees on the loans we originate and in which we invest, HOA fees, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock.stock and equity securities. The $0.6$0.7 million increase in fee and other income year-over-year was primarily due to an increase in exit and other fees relating to mortgage loan receivables, partially offset by a decrease in HOA fee income.
Net result from derivative transactions
Net result from derivative transactions represented a gainloss of $7.1$15.5 million for the three months ended SeptemberJune 30, 2018,2019, which was comprised of an unrealized loss of $1.0 million and a realized gainloss of $8.1$14.5 million, compared to a lossgain of $0.3$7.1 million which was comprised of an unrealized lossgain of $2.2$0.6 million and a realized gain of $1.9$6.5 million, for the three months ended SeptemberJune 30, 2017,2018, a positivenegative change of $7.4$22.5 million. The derivative positions that generated these results were a combination of futures, interest rate swaps, and credit derivatives that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gainloss in 20182019 was primarily related to the movement in interest rates during the three months ended SeptemberJune 30, 2018.2019. The total net result from derivative transactions is composed of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges. The hedge positions were related to fixed rate conduit loans and securities investments.
Earnings (loss) from investment in unconsolidated joint ventures
Total earnings (loss) from investment in unconsolidated joint ventures totaled $0.4$1.6 million for the three months ended SeptemberJune 30, 2018,2019, compared to $0.1 million$13 thousand for the three months ended SeptemberJune 30, 2017.2018. Earnings from our investment in Grace Lake JV totaled $0.6 million and $0.4$0.3 million for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $(0.2)$1.0 million and $(0.3) million for the three months ended SeptemberJune 30, 2019 and 2018, and 2017.respectively. The loss for the three months ended June 30, 2018 is due to a negative return related to upfront sales costs on the investment. As of September 30, 2018, 16 residential condominium units were under contract for sale for $39.3 millionThe gain in sales proceeds. We expect to start closing on the existing sales contracts during the quarter ended December 31, 2018, pending New York City Building Department approvals.
Gain (loss) on extinguishment/defeasance of debt
Gain (loss) on extinguishment/defeasance of debt totaled $(4.3) million for the three months ended SeptemberJune 30, 2018. There was no Gain (loss) on extinguishment/defeasance2019 is due to a recapitalization of debtour investment in 24 Second Avenue. See Note 7, Investment in and Advances to Unconsolidated Joint Ventures for the three months ended September 30, 2017. During the three months ended September 30, 2018, the Company retired $47.0 million of principal of mortgage loan financing in connection with the sale of real estate, recognizing a $4.3 million net loss on extinguishment of debt after paying $4.3 million of defeasance costs associated with the retired debt.further detail.
Salaries and employee benefits
Salaries and employee benefits totaled $15.8$14.9 million for the three months ended SeptemberJune 30, 2018,2019, compared to $13.3$13.9 million for the three months ended SeptemberJune 30, 2017.2018. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The increase of $2.5$1.0 million in compensation expense was primarily attributable to an increase in bonus expense and an increase in equity based compensation expense, partially offset by a decrease in bonus expense.
Operating expenses
Operating expenses totaled $5.5$6.0 million for the three months ended SeptemberJune 30, 2018,2019, compared to $4.8$5.6 million for the three months ended SeptemberJune 30, 2017.2018. Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The increase of $0.7$0.4 million was primarily related to an increase in professional fees, andpartially offset by a decrease in other operating expenses.occupancy costs.
Real estate operating expenses
Real estate operating expenses totaled $7.2$6.0 million for the three months ended SeptemberJune 30, 2018,2019, compared to $9.4$7.8 million for the three months ended SeptemberJune 30, 2017.2018. The decrease of $2.2$1.8 million in real estate operating expenses primarily relates to the smaller inventorysale of real estate in 2018 and a decrease in operating expenses for condominium properties.
Fee expense
Fee expense totaled $1.3 million for the three months ended September 30, 2018, compared to $1.2 million for the three months ended SeptemberJune 30, 2017.2019, compared to $0.8 million for the three months ended June 30, 2018. Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.1$0.4 million in fee expense was primarily attributable to an increase in legal fees on mortgage loan receivables and an increase in servicing fees related to the increase in the balance of our mortgage loan receivables held for investment, net, at amortized cost, partially offset by a decrease in financing fees due to reduced cost of capital at September 30, 2018, as compared to September 30, 2017.cost.
Depreciation and amortization
Depreciation and amortization totaled $10.4$9.9 million for the three months ended SeptemberJune 30, 2018,2019, compared to $10.6$10.7 million for the three months ended SeptemberJune 30, 2017.2018. The $0.2$0.8 million decrease in depreciation and amortization is was primarily attributable to the timing the real estate sales during each quarter.
Income tax (benefit) expense
Most of our consolidated income tax provision related to the business units held in our TRSs. Income tax expense (benefit) totaled $1.2$2.2 million for the three months ended SeptemberJune 30, 2018,2019, compared to $(0.6)$0.6 million for the three months ended SeptemberJune 30, 2017.2018. The increase of $1.8$1.6 million is primarily attributable to significant increases toan increase in forecasted GAAP income in our TRSs related to securitization profit (along with related derivative gains), partially offset by reduced condominium sales and a reduction in tax rate due to the Tax Cuts and Jobs Act.TRSs.
Results of Operations
NineSix months ended SeptemberJune 30, 20182019 compared to the ninesix months ended SeptemberJune 30, 20172018
Investment overview
Investment activity in the ninesix months ended SeptemberJune 30, 2019 focused on loan, security and real estate activities. We originated and funded $817.8 million in principal value of commercial mortgage loans, which was offset by $430.6 million of sales and $693.8 million of principal repayments in the six months ended June 30, 2019. We acquired $852.2 million of new securities, which was partially offset by $384.4 million of sales and $110.4 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $378.3 million during the six months ended June 30, 2019. We also invested $23.3 million in real estate and received proceeds from the sale of real estate of $15.7 million.
Investment activity in the six months ended June 30, 2018 focused on loan, security and real estate activities. We originated and funded $2.4$1.7 billion in principal value of commercial mortgage loans, which was offset by $926.4$842.7 million of sales and $788.5$497.4 million of principal repayments in the ninesix months ended SeptemberJune 30, 2018. We acquired $303.0$243.9 million of new securities, which was offset by $306.1$161.5 million of sales and $93.2$56.7 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $128.2$0.2 million during the ninesix months ended SeptemberJune 30, 2018. We also invested $113.9$115.5 million in real estate and received proceeds from the sale of real estate of $214.6$100.6 million.
Investment activity in the nine months ended September 30, 2017 focused on loan, security and real estate activities. We originated and funded $1.8 billion in principal value of commercial mortgage loans, which was offset by $563.9 million of sales and $247.0 million of principal repayments in the nine months ended September 30, 2017. We acquired $184.5 million of new securities, which was offset by $993.7 million of sales and $93.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $928.6 million during the nine months ended September 30, 2017. We also invested $230.7 million in real estate and received proceeds from the sale of real estate of $20.7 million.
Operating overview
Net income (loss) attributable to Class A common shareholders totaled $155.9$54.4 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $59.2$89.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. The most significant drivers of the $96.7$34.9 million increasedecrease are as follows:
an increasea decrease in total other income (loss) of $109.9$53.9 million, primarily as a result of a $88.5$48.5 million increase in profits on sale of real estate, a $47.6 million increasedecrease in net results from derivative transactions and a $6.9$33.7 million increasedecrease in operating lease income,profits on sale of real estate, partially offset by a decreasean increase of $24.1$16.3 million in sales of loans, net, an increase of $9.6 million in realized gains on securities and a decrease of $11.2$2.4 million in sales of loans, net;
an increase in net interest income of $23.5 million, primarily as a result of higher average loan balances and higher interest expense primarily attributable to the increase in LIBOR rates throughout 2017 and 2018, partially offset by the decrease in the average yield on the securities portfolio year-over-year;operating lease income;
an increase in provision for loan losses of $13.6 million, primarily as a result of a $10.0 million and a $2.7 million loan-specific loss provision recorded on three of the Company’s loans further discussed below;
an increase in total costs and expenses of $4.4$2.6 million compared to the prior year, primarily as a result of a $3.0$7.5 million increase in salaries and employee benefits a $2.6 million increase in depreciation and amortization,relating to equity compensation, partially offset by a $1.1$5.2 million decrease in real estate operating expenses; and
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| • | a decrease in income tax expense (benefit) of $5.1 million compared to the prior year, primarily as a result of a significant reduction in real estate sales in our TRSs as well as an increase in compensation deductions allowable for tax purposes. |
Income (loss) before taxes
an increase
Income (loss) before taxes totaled $60.0 million for the six months ended June 30, 2019, compared to $115.8 million for the six months ended June 30, 2018. The significant components of the $55.8 million decrease in income tax expense (benefit) of $1.0 million compared to(loss) before taxes are described in the prior year, primarily as a result of significant increases to income in our TRSs from gains on derivative transactions, partially offset by reduced condominium sales and a reduction in tax rate due to the Tax Cuts and Jobs Act.
first two bullet points under operating overview above.
Core earnings
Core earnings, a non-GAAP financial measure, totaled $177.6$97.9 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $118.4$114.2 million for the ninesix months ended SeptemberJune 30, 2017.2018. The significant components of the $59.2$16.3 million increasedecrease in core earnings are an increasea decrease in total other income (loss) of $73.0$33.5 million, primarily as a result of an increasea decrease of $64.4$36.3 million in sale of real estate, net, an increasea decrease of $37.7$24.5 million in net results from derivative transactions, andpartially offset by an increase of $6.8$16.2 million in operating lease income, partially offset by a decreasesale of $24.1loans, net, an increase of $9.7 million in gain (loss) on securities a decreaseand, an increase of $14.7$2.4 million in sale of loans, net,operating lease income and the changes in provision for loan losses and total costs and expenses discussed in the preceding paragraph. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.
Net interest income
Interest income totaled $253.8$171.8 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $190.3$163.4 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $8.4 million increase in interest income was primarily attributable to the increase in LIBOR rates throughout 2018, partially offset by the investment mix composition with lower yields on securities investments versus higher yields on loan investments. For the ninesix months ended SeptemberJune 30, 2019, securities investments averaged $1.6 billion and loan investments averaged $3.5 billion. For the six months ended June 30, 2018, securities investments averaged $1.1 billion and loan investments averaged $3.9 billion. For the nine months ended September 30, 2017, securities investments averaged $1.6 billion and loan investments averaged $2.9$3.8 billion. There was a $1.0 billion increase$304.0 million decrease in loan investments, offset by a $522.7$550.6 million decreaseincrease in securities investments, resulting in higher interest income due to both higher combined investment balance and investment mix composition with higher yields on loans verses yields on securities investments as well as rising interest rates.investments.
Interest expense totaled $144.6$103.6 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $104.6$93.1 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $40.0$10.5 million increase in interest expense was primarily attributable to an increase in average debt obligations, the increase in LIBOR rates throughout 2017 and 2018, a decreased reliance on FHLB financing, and securities repurchase financing, and an increase in higher cost CLO debt and senior unsecured notes. Our interest expense also includes interest expense related toincreased reliance on mortgage loan financing against our real estate investments. Our investment in real estate and related lease intangibles, net has continued to increase during 2017 and 2018 and our mortgage loan financing secured by such investments has also similarly increased.financing. Our interest expense related to mortgage loan financing increased by $12.4$1.0 million from $15.1$17.7 million for the ninesix months ended SeptemberJune 30, 20172018 to $27.5$18.7 million for the ninesix months ended SeptemberJune 30, 2018,2019, primarily as a result of our increase in average outstanding mortgage loan financing of $732.4$738.3 million for the ninesix months ended SeptemberJune 30, 20182019 compared to $619.4$712.3 million for the ninesix months ended SeptemberJune 30, 2017.2018.
Net interest income after provision for loan losses totaled $95.6$67.6 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $85.8$67.0 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $9.8$0.6 million increase in net interest income after provision for loan losses was primarily attributable to the increase in net interest income, increase in interest expense discussed above and increase in debt obligations.
Cost of funds, a non-GAAP financial measure, totaled $150.4$105.0 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $116.4$97.6 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $34.0$7.4 million increase in cost of funds was primarily attributable to the increase in LIBOR rates throughout 20162017 and 20172018 and a shift away from borrowings from the FHLB and securities repurchase financing, a lower cost source of funding, to higher cost loan repurchase financing and senior unsecured notes.
We present cost of funds, which is a non-GAAP financial measure, as a supplemental measure of the Company’s cost of debt financing. We define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities, which is currently included in net results from derivative transactions on our consolidated statements of income. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of cost of funds and a reconciliation to interest expense.
Interest spreads
As of SeptemberJune 30, 2018,2019, the weighted average yield on our mortgage loan receivables was 7.5%7.9%, compared to 6.7%7.6% as of SeptemberJune 30, 20172018 as the weighted average yield on new loans originated was higher than the weighted average yield on loans that were securitized or paid off. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on borrowings against our mortgage loan receivables was 3.8%3.9%, compared to 2.6%3.6% as of SeptemberJune 30, 2017.2018. The increase in the rate on borrowings
against our mortgage loan receivables from SeptemberJune 30, 20172018 to SeptemberJune 30, 20182019 was primarily due to higher prevailing market borrowing rates as of SeptemberJune 30, 20182019 compared to SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our mortgage loan receivables equal to 48.6%43.6% of the carrying value of our mortgage loan receivables, compared to 40.5%48.9% as of SeptemberJune 30, 2017.2018.
As of SeptemberJune 30, 2018,2019, the weighted average yield on our real estate securities was 3.1%3.3%, compared to 2.9%3.0% as of SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on borrowings against our real estate securities was 2.5%3.0%, compared to 1.6%2.2% as of SeptemberJune 30, 2017.2018. The increase in the rate on borrowings against our real estate securities from SeptemberJune 30, 20172018 to SeptemberJune 30, 20182019 was primarily due to higher prevailing market borrowing rates as of SeptemberJune 30, 20182019 versus SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our real estate securities equal to 85.5%73.8% of the carrying value of our real estate securities, compared to 84.8%80.2% as of SeptemberJune 30, 2017.2018.
Our real estate is comprised of non-interest bearing assets; however, interest incurred on mortgage financing collateralized by such real estate is included in interest expense. As of SeptemberJune 30, 2018,2019, the weighted average interest rate on mortgage borrowings against our real estate was 5.1%, compared to 4.9%5.0% as of SeptemberJune 30, 2017.2018. As of SeptemberJune 30, 2018,2019, we had outstanding borrowings secured by our real estate equal to 74.3%74.6% of the carrying value of our real estate, compared to 63.9%72.7% as of SeptemberJune 30, 2017.2018.
Provision for loan losses
We had $13.6 million provision for loan loss expense for the nine months ended September 30, 2018 and no provision for loan losses for the nine months ended September 30, 2017. We originate and invest primarily in loans with high credit quality, and we sell our conduit loans in the ordinary course of business. We estimate our loan loss provision based on our historical loss experience and our expectation of losses inherent in the investment portfolio but not yet realized. To ensure that the risk exposures are properly measured and the appropriate reserves are taken, the Company assesses a loan loss provision balance that will grow over time with its portfolio and the related risk as the assets approach maturity and ultimate refinancing where applicable. The Company
We determined that an increase in itsa provision expense for loan losses of $13.6$0.6 million was required for the ninesix months ended SeptemberJune 30, 2018. This2019. The provision consisted of a portfolio-based, general reserve of $0.9$0.6 million to provide reserves for the expected losses over the remaining portfolio of mortgage loan receivables held for investment. We determined that a provision expense for loan losses of $3.3 million was required for the six months ended June 30, 2018. The provision consisted of a portfolio-based, general reserve of $0.6 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment and an asset-specific reserve of $2.7 million relating to two of the Company’s loans and an asset-specific reserve of $10.0 million relating to one of the Company’s loans. For additional information, refer to “Provision for Loan Losses and Non-Accrual Status” in Note 4.4 Mortgage Loan Receivables to the consolidated financial statements.
Operating lease income and tenant recoveries
Operating lease income totaled $71.6$56.7 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $64.7$54.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. The increase of $6.9$2.4 million was primarily attributable to income on properties acquired in 2018 and a full period of operations of properties acquired in 2017. In addition, there was a $41.9 million decrease in our real estate balance from Septemberpurchases subsequent to June 30, 2017 to September 30, 2018 resulting from dispositions, which occurred late2018. Tenant recoveries are included in the period, and have not yet impacted operating lease income.
Tenant recoveries totaled $7.8 million for the nine months ended September 30, 2018, compared to $5.1 million for the nine months ended September 30, 2017. The increase of $2.7 million primarily reflects additional recoveries on properties acquired in 2018 and a full period of recoveries on properties acquired in 2017, partially offset by the decrease in recoveries on an existing office property due to a lease expiration. In addition, there was a $41.9 million decrease in our real estate balance from September 30, 2017 to September 30, 2018 resulting from dispositions, which occurred late in the period, and have not yet impacted tenant recoveries.
Sale of loans, net
IncomeWe recorded $27.3 million income (loss) from sale of loans, net, which includes all loan sales, whether by securitization, whole loan sales or other means, totaled $12.9for the six months ended June 30, 2019, compared to $11.0 million for the ninesix months ended SeptemberJune 30, 2018, compared to $24.1 million for the nine months ended September 30, 2017, a decreasean increase of $11.2$16.3 million. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the ninesix months ended SeptemberJune 30, 2018,2019, we participated in sixthree separate securitization transactions, selling/transferring 8036 loans with an aggregate outstanding principal balance of $939.3$407.5 million. In addition, duringDuring the ninesix months ended SeptemberJune 30, 2018,2019, we recorded $0.5 million ofno realized losses on loans related to lower of cost or market adjustments. During the ninesix months ended SeptemberJune 30, 2017,2018, we executed a Ladder-only multi-borrowerparticipated in five separate securitization from Ladder’s CMBS shelf, selling 57transactions, selling/transferring 67 loans with an aggregate outstanding principal balance of $625.7$837.3 million. In addition, in the ninesix months ended SeptemberJune 30, 2017,2018, we recorded $1.8$0.5 million of realized losses on loans related to lower of cost or market adjustments. Income from sales of loans, net is subject to market conditions impacting timing, size and pricing and as such may vary significantly quarter to quarter. There was $22.7$17.0 million income (loss) from sales of securitized loans, net of hedging for the ninesix months ended SeptemberJune 30, 20182019 compared to $17.0$20.4 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $5.7$3.4 million increasedecrease was predominantly due to an increasea $429.8 million decrease in the aggregate outstanding principal balance of loans sold, period over period, partially offset by increasing competition in the market and lower prevailing lending credit spreads for conduit loans.period.
Income (loss) from sale of loans, net, represents gross proceeds received from the sale of loans, less the book value of those loans at the time they were sold, less any costs, such as legal and closing costs, associated with the sale. Income from sales of securitized loans, net of hedging, a non-GAAP financial measure, represents the portion of income (loss) from sale of loans, net related to the sale of loans into securitization trusts. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of income from sales of securitized loans, net of hedging and a reconciliation to income (loss) from sale of loans, net.
Realized gain (loss) on securities
Realized gain (loss) on securities totaled $(4.9)$7.3 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $19.2$(2.3) million for the ninesix months ended SeptemberJune 30, 2017, a decrease2018, an increase of $24.1$9.6 million. OtherNo other than temporary impairmentimpairments on U.S. Agency Securities, which issecurities are included in realized gain (loss) on securities totaled $(2.2)for the six months ended June 30, 2019, compared to $(1.6) million for the ninesix months ended SeptemberJune 30, 2018, compared to $(1.2) million for the nine months ended September 30, 2017, an increasea reduction of $(1.0)$1.6 million. For the ninesix months ended SeptemberJune 30, 2018,2019, we sold $306.1$384.4 million of CMBS securities, comprised of $305.6$357.3 million of CMBS, no U.S. Agency Securities, $22.7 million of corporate bonds and $4.4 million of equity securities. For the six months ended June 30, 2018, we sold $161.5 million of CMBS securities, comprised of $161.0 million of CMBS and $0.5 million of U.S. Agency Securities. For the nine months ended September 30, 2017, we sold $993.7 million of CMBS securities, comprised of $988.7 million of CMBS and $5.0 million U.S. Agency Securities. The decrease in salesincrease reflects higher margin on sale of securities reflects lower transaction volume in 20182019 as compared to 2017.2018, the decrease in interest rates throughout 2019 and no other than temporary impairments on securities recorded during the six months ended June 30, 2019.
Unrealized gain (loss) on equity securities
Unrealized gain (loss) on equity securities represented a gain of $1.1 million for the six months ended June 30, 2019, compared to none for the six months ended June 30, 2018. The Company has elected the fair market value option for accounting for these equity securities and changes in fair value are recorded in current period earnings.
Unrealized gain (loss) on Agency interest-only securities
Unrealized gain (loss) on Agency interest-only securities represented a gain of $0.5 million$22.1 thousand for the ninesix months ended SeptemberJune 30, 2018,2019, compared to a gain of $1.0$0.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. The negative change of $0.5$0.3 million in unrealized gain (loss) on Agency interest-only securities was due to the increase in interest rates throughout 2017 and 2018, partially offset by sales and amortization of the portfolio during the nine months ended September 30, 2018. Agency interest-onlyour securities are recorded at fair value with changes in fair value recorded in current period earnings.portfolio.
Realized gain (loss) on sale of real estate, net
For the ninesix months ended SeptemberJune 30, 2018, realized gain on sale2019, income (loss) from sales of real estate, net totaled $96.3$(1.1) million, compared to $7.8$32.6 million for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease of $88.5$33.7 million was a result of the commercial real estate and residential condominium sales discussed below.
During the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, there were no sales of single-tenant net lease properties.
During the ninesix months ended SeptemberJune 30, 2018,2019, we sold sixtwo diversified commercial real estate properties, resulting in a net gain (loss) on sale of $92.4$(1.3) million. During the ninesix months ended SeptemberJune 30, 2017,2018, we sold notwo diversified commercial real estate properties.properties resulting in a net gain (loss) on sale of $28.8 million.
During the ninesix months ended SeptemberJune 30, 2018,2019, income from sales of residential condominiums totaled $4.0$0.4 million. We sold eightno residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $3.1 million, and 1813 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.9$0.4 million. We expect to substantially complete the sale of the remaining Veer units in 2018 or early 2019 and the remaining Terrazas units in less than 18 to 24 months which would result in reduced profit on condominium sales in future periods. During the ninesix months ended SeptemberJune 30, 2017,2018, income from sales of residential condominiums totaled $7.9$3.2 million. We sold 37six residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $6.6$2.6 million, and 2112 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $1.3$0.6 million.
Impairment of real estate
Impairment of real estate of $1.4 million for the six months ended June 30, 2019 is attributable to the receipt of a lease termination payment on a single-tenant two-story office building in Wayne, NJ. See Note 6, Real Estate and Related Lease Intangibles, Net and Note 9, Fair Value of Financial Instruments for further detail. There was no impairment of real estate for the six months ended June 30, 2018.
Fee and other income
Fee and other income totaled $17.6$11.9 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $13.4$12.7 million for the ninesix months ended SeptemberJune 30, 2017.2018. We generated fee income from origination fees, exit fees and other fees on the loans we originate and in which we invest, HOA fees, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock.stock and equity securities. The $4.2$0.8 million increasedecrease in fee and other income year-over-year was primarily due to an increase in exit fees, partially offset by a decrease in HOA fee income.
Net result from derivative transactions
Net result from derivative transactions represented a gainloss of $29.2$26.5 million for the ninesix months ended SeptemberJune 30, 2018,2019, which was comprised of an unrealized gain of $1.4$1.5 million and a realized gainloss of $27.8$28.0 million, compared to a lossgain of $18.4$22.0 million which was comprised of an unrealized lossgain of $3.5$2.3 million and a realized lossgain of $14.9$19.7 million, for the ninesix months ended SeptemberJune 30, 2017,2018, a positivenegative change of $47.6$48.5 million. The derivative positions that generated these results were a combination of interest rate swaps, and futures that we employed in an effort to hedge the interest rate risk on the financing of our fixed rate assets and the net interest income we earn against the impact of changes in interest rates. The gainloss in 20182019 was primarily related to movement in interest rates during the ninesix months ended SeptemberJune 30, 2018.2019. The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges. The hedge positions were related to fixed rate conduit loans and securities investments.
Earnings (loss) from investment in unconsolidated joint ventures
Total earnings (loss) from investment in unconsolidated joint ventures totaled $0.5$2.5 million and $0.1 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Earnings from our investment in Grace Lake LLC totaled $1.1$1.0 million and $0.9$0.5 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $(0.7)$1.5 million and $(0.8)$(0.5) million for the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively. The loss for the six months ended June 30, 2018 and 2017, respectively. We madeis due to a negative return related to upfront sales costs on the investment. The gain in the six months ended June 30, 2019 is due to a recapitalization of our investment in 24 Second Avenue on AugustAvenue. See Note 7, 2015Investment in and incurred $0.7 million and $0.8 million in construction costs and pre-completion sales and marketing costs during the construction periodAdvances to Unconsolidated Joint Ventures for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, 16 residential condominium units were under contract for sale for $39.3 million in sales proceeds. We expect to start closing on the existing sales contracts during the quarter ended December 31, 2018, pending New York City Building Department approvals.further detail.
Gain (loss) on extinguishment/defeasance of debt
Gain (loss) on extinguishment/defeasance of debt totaled $(4.4) million and $(0.1)$(1.1) million for the ninesix months ended SeptemberJune 30, 2018 and 2017, respectively.2019. There was a $(0.1) million gain (loss) on extinguishment/defeasance of debt for the six months ended June 30, 2018. During the ninesix months ended SeptemberJune 30, 2019, the Company paid off $6.6 million of mortgage loan financing, recognizing a loss on extinguishment of debt of $1.1 million. During the six months ended June 30, 2018 the Company retired $5.9$5.9 million of principal of the CLO Debt,debt, via the purchase of related CLO securities, for a repurchase price of $6.0$6.0 million, recognizing a $0.1$(0.1) million net loss on extinguishment of debt after recognizing $69.3 thousand$0.1 million of unamortized debt issuance costs associated with the retired debt. During the nine months ended September 30, 2018, the Company also retired $47.0 million of principal of mortgage loan financing in connection with the sale of real estate, recognizing a $4.3 million net loss on extinguishment of debt after paying $4.3 million of defeasance costs associated with the retired debt. During the nine months ended September 30, 2017, the Company retired the remaining $297.7 million of principal of the 2017 Notes for a repurchase price of $297.7 million, recognizing a $0.1 million net loss on extinguishment of debt after recognizing $(22.8) thousand of unamortized debt issuance costs associated with the retired debt.
Salaries and employee benefits
Salaries and employee benefits totaled $46.8$38.5 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $43.8$31.0 million for the ninesix months ended SeptemberJune 30, 2017.2018. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The increase of $3.0$7.5 million in compensation expense was primarily attributable to thean increase in bonusequity based compensation expense (due in part to the payment of some compensation awards in December of 2017, that would normally have been paid in early 2018), partially offset by a decrease in equity based compensation expense in the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.bonus expense.
Operating expenses
Operating expenses totaled $16.6$11.4 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $16.1$11.1 million for the ninesix months ended SeptemberJune 30, 2017.2018. Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The increase of $0.5$0.3 million was primarily related to an increase in occupancy costs, professional fees, andpartially offset by a decrease in other operating expenses.
Real estate operating expenses
Real estate operating expenses totaled $23.8$11.5 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $24.9$16.7 million for the ninesix months ended SeptemberJune 30, 2017.2018. The decrease of $1.1$5.2 million in real estate operating expense was in part dueprimarily relates to the decrease insale of real estate in 2018 and a decrease in operating expenses for the condominiums.condominium properties.
Fee expense
Fee expense totaled $3.0$2.9 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $3.6$1.6 million for the ninesix months ended SeptemberJune 30, 2017.2018. Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The decreaseincrease of $0.6$1.3 million in fee expense was primarily attributable to a decreasean increase in financinglegal fees due to reduced cost of capital, partially offset byon mortgage loan receivables and an increase in servicing fees related to the increase in the balance of our mortgage loan receivables held for investment, net, at amortized cost at September 30, 2018, as compared to September 30, 2017.cost.
Depreciation and amortization
Depreciation and amortization totaled $31.9$20.2 million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $29.3$21.5 million for the ninesix months ended SeptemberJune 30, 2017.2018. The $2.6$1.3 million increasedecrease in depreciation and amortization is primarily attributable to a full periodthe timing of depreciation and amortization related to properties acquired in 2017, partially offset by an out-of-period adjustment recorded in the first quarter of 2017, reducing depreciation expense by $0.8 million, relating to prior periods and certain intangible assets approaching the end of their useful lives in 2017.real estate sales during each quarter.
Income tax (benefit) expense
Most of our consolidated income tax provision relates to the business units held in our TRSs. Income tax (benefit) expense totaled $5.7$(0.6) million for the ninesix months ended SeptemberJune 30, 2018,2019, compared to $4.7$4.5 million for the ninesix months ended SeptemberJune 30, 2017.2018. The increasedecrease of $1.0$5.1 million is primarily attributable to theas a result of significant increase to incomereduction in real estate sales in our TRSs from gains on derivative transactions, partially offset by reduced condominium sales and a reductionas well as an increase in compensation deductions allowable for tax rate due to the Tax Cuts and Jobs Act.purposes.
Liquidity and Capital Resources
Our financing strategies are critical to the success and growth of our business. We manage our financing to complement our asset composition and to diversify our exposure across multiple capital markets and counterparties.
We require substantial amounts of capital to support our business. The management team, in consultation with our board of directors, establishes our overall liquidity and capital allocation strategies. A key objective of those strategies is to support the execution of our business strategy while maintaining sufficient ongoing liquidity throughout the business cycle to service our financial obligations as they become due. When making funding and capital allocation decisions, members of our senior management consider business performance; the availability of, and costs and benefits associated with, different funding sources; current and expected capital markets and general economic conditions; our balance sheet and capital structure; and our targeted liquidity profile and risks relating to our funding needs.
To ensure that Ladder Capital can effectively address the funding needs of the Company on a timely basis, we maintain a diverse array of liquidity sources including (1) cash and cash equivalents; (2) cash generated from operations; (3) borrowings under repurchase agreements; (4) principal repayments on investments including mortgage loans and securities; (5) proceeds from the issuance of CLO Debt;debt; (6) borrowings under our revolving credit facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of the Notes; and (11) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis.
Our primary uses of liquidity are for (1) the funding of loan and real estate-related investments; (2) the repayment of short-term and long-term borrowings and related interest; (3) the funding of our operating expenses; and (4) distributions to our equity investors to comply with the REIT distribution requirements and the terms of LCFH’s LLLP Agreement. We require short-term liquidity to fund loans that we originate and hold on our consolidated balance sheet pending sale, including through whole loan sale, participation, or securitization. We generally require longer-term funding to finance the loans and real estate-related investments that we hold for investment. We have historically used the aforementioned funding sources to meet the operating and investment needs as they have arisen and have been able to do so by applying a rigorous approach to long and short-term cash and debt forecasting.
In addition, as a REIT, we are also required to make sufficient dividend payments to our shareholders (and equivalent distributions to the Continuing LCFH Limited Partners) in amounts at least sufficient to maintain out REIT status. Under IRS guidance, we may elect to pay a portion of our dividends in stock, subject to a cash/stock election by our shareholders, to optimize our level of capital retention. Accordingly, our cash requirement to pay dividends to maintain REIT status could be substantially reduced at the discretion of the board.
A summary of our financial obligations is provided below in our Contractual Obligations table. All our existing financial obligations due within the following year are either extendablecan be extended for one or more additional years at our discretion or repaid at maturity using other existing facilities or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).
We generally seek to maintain an adjusted leverage ratio of approximately 3.0:1.0 or below. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverage and a reconciliation to debt obligations, net. This ratio typically fluctuates during the course of a fiscal year due to the normal course of business in our conduit lending operations, in which we generally securitize our inventory of loans at intervals, and also because of changes in our asset mix, due in part to such securitizations. We generally seek to match fund our assets according to their liquidity characteristics and expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our financing strategy has allowed us to maintain financial flexibility to capitalize on an attractive range of market opportunities as they have arisen.
We and our subsidiaries may incur substantial additional debt in the future. However, we are subject to certain restrictions on our ability to incur additional debt in the indentures governing the Notes (the “Indentures”) and our other debt agreements. Under the Indentures, we may not incur certain types of indebtedness unless our consolidated non-funding debt to equity ratio (as defined in the Indentures) is less than or equal to 1.75 to 1.00 or if the unencumbered assets of the Company and its subsidiaries is less than 120% of their unsecured indebtedness, although our subsidiaries are permitted to incur indebtedness where recourse is limited to the assets and/or the general credit of such subsidiary. Our borrowings under certain financing agreements and our committed loan facilities are subject to maximum consolidated leverage ratio limits (currently ranging from 3.50 to 1.00 to 4.00 to 1.00), including maximum consolidated leverage ratio limits weighted by asset composition that change based on our asset base at the time of determination, and, in the case of one provider, a minimum interest coverage ratio requirement of 1.50 to 1.00 if certain liquidity thresholds are not satisfied. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.
Our principal debt financing sources include: (1) committed secured funding provided by banks, (2) uncommitted secured funding sources, including asset repurchase agreements with a number of banks, (3) long term non-recourse mortgage financing, (4) long term senior unsecured notes in the form of corporate bonds and (5) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB.
As of SeptemberJune 30, 2018,2019, we had unrestricted cash and cash equivalents of $49.6$126.5 million, unencumbered loans of $1.2$1.1 billion, unencumbered securities of $5.1$301.6 million, unencumbered real estate of $19.4$71.5 million and $389.7$366.7 million of other assets not secured by any portion of secured indebtedness, including the net equity in consolidated VIEs.
To maintain our qualification as a REIT under the Code, we were required to distribute our accumulated earnings and profits attributable to taxable periods ending prior to January 1, 2015 and we must annually distribute at least 90% of our taxable income. Consistent with the terms of an IRS private letter ruling, we paid our fourth quarter 2016 and 2015 dividends in a combination of cash and stock and may pay future distributions in such a manner; however, the REIT distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. We believe that our significant capital resources and access to financing will provide us with financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders and servicing our debt obligations.
Our captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends may only be made with regulatory approval. Largely as a result of this restriction, $1.7$1.9 billion of Tuebor’s member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at SeptemberJune 30, 2018.2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.
The Company established a broker-dealer subsidiary, Ladder Capital Securities LLC (“LCS”), which was initially licensed and capitalized to do business in July 2010. LCS is required to be compliant with Financial Industry Regulatory Authority (“FINRA”) and SEC regulations, which require that dividends may only be made with regulatory approval. Largely as a result of this restriction, $4.0$2.9 million of LCS’s member’s capital was restricted from transfer to LCS’s parent without prior approval of regulators at SeptemberJune 30, 2018.2019.
Cash, cash equivalents and restricted cash
We held unrestricted cash and cash equivalents of $49.6$126.5 million and $76.7$67.9 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. We held restricted cash of $35.3$88.9 million and $106.0$30.6 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. We elected to early adopt ASU 2016-18 effective January 1, 2017. ASU 2016-18 requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-the-period and end-of-period total amounts show on the statement of cash flows. We held cash, cash equivalents and restricted cash of $84.9$215.4 million and $182.7$98.5 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
Cash generated from (used in) operations
Our operating activities were a net provider (user) of cash of $(51.3)$132.5 million and $(316.4)$173.6 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Cash from operations includes the origination of loans held for sale, net of the proceeds from sale of loans and gains from sales of loans, which was the predominant driver of the $265.1$41.1 million increasedecrease in cash generated from operations for the ninesix months ended SeptemberJune 30, 2018,2019, compared to the ninesix months ended September 30, 2017.2018.
Borrowings under various financing arrangements
Our financing strategies are critical to the success and growth of our business. We manage our leverage policies to complement our asset composition and to diversify our exposure across multiple counterparties. Our borrowings under various financing arrangements as of SeptemberJune 30, 20182019 and December 31, 20172018 are set forth in the table below ($ in thousands):
| | | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| | | | | | | |
| Committed loan repurchase facilities | $ | 751,971 |
| | $ | 398,653 |
| $ | 685,260 |
| | $ | 497,531 |
|
| Committed securities repurchase facility | 97,921 |
| | — |
| — |
| | — |
|
| Uncommitted securities repurchase facilities | 123,725 |
| | 74,757 |
| 582,111 |
| | 166,154 |
|
| Total repurchase facilities | 973,617 |
| | 473,410 |
| 1,267,371 |
| | 663,685 |
|
| Revolving credit facility | — |
| | — |
| — |
| | — |
|
| Mortgage loan financing(1) | 743,225 |
| | 692,696 |
| 734,652 |
| | 743,902 |
|
| CLO debt(2) | 672,001 |
| | 688,479 |
| 263,216 |
| | 601,543 |
|
| Participation financing - mortgage loan receivable | 2,516 |
| | 3,107 |
| — |
| | 2,453 |
|
| Borrowings from the FHLB | 1,212,000 |
| | 1,370,000 |
| 1,191,449 |
| | 1,286,000 |
|
| Senior unsecured notes(3) | 1,154,274 |
| | 1,152,134 |
| 1,156,400 |
| | 1,154,991 |
|
| Total debt obligations | $ | 4,757,633 |
| | $ | 4,379,826 |
| |
| Total debt obligations, net | | $ | 4,613,088 |
| | $ | 4,452,574 |
|
| |
| (1) | Presented net of unamortized debt issuance costs of $1.0$0.5 million and $0.7 million as of SeptemberJune 30, 2018.2019 and December 31, 2018, respectively. |
| |
| (2) | Presented net of unamortized debt issuance costs of $3.5$1.0 million and $6.0$2.6 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
| (3) | Presented net of unamortized debt issuance costs of $11.9$9.8 million and $14.1$11.2 million at Septemberas of June 30, 20182019 and December 31, 2017,2018, respectively. |
The Company’s repurchase facilities include covenants covering minimum net worth requirements (ranging from $300.0 million to $780.0$829.3 million), maximum reductions in net worth over stated time periods, minimum liquidity levels (typically $30.0 million of cash or a higher standard that often allows for the inclusion of different percentages of liquid securities in the determination of compliance with the requirement), maximum leverage ratios (calculated in various ways based on specified definitions of indebtedness and net worth) and a fixed charge coverage ratio of 1.25x, and, in the instance of one lender, an interest coverage ratio of 1.50x, in each case, if certain liquidity thresholds are not satisfied. We were in compliance with all covenants as of SeptemberJune 30, 20182019 and December 31, 2017.2018. Further, certain of our financing arrangements and loans on our real property are secured by the assets of the Company, including pledges of the equity of certain subsidiaries or the assets of certain subsidiaries. From time to time, certain of these financing arrangements and loans may prohibit certain of our subsidiaries from paying dividends to the Company, from making distributions on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or other assets to the Company or other subsidiaries of the Company.
Committed loan facilities
We are parties to multiple committed loan repurchase agreement facilities, totaling $1.7$1.8 billion of credit capacity. As of SeptemberJune 30, 2018,2019, the Company had $752.0$685.3 million of borrowings outstanding, with an additional $0.9$1.1 billion of committed financing available. As of December 31, 2017,2018, the Company had $398.7$497.5 million of borrowings outstanding, with an additional $1.3 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to whole mortgage loans collateralized by first liens on commercial real estate.estate, mezzanine loans collateralized by equity interests in entities that own commercial real estate, and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios. We believe we were in compliance with all covenants as of SeptemberJune 30, 20182019 and December 31, 2017.2018.
We have the option to extend some of our existing facilities subject to a number of customary conditions. The lenders have sole discretion with respect to the inclusion of collateral in these facilities, to determine the market value of the collateral on a daily basis, and, if the estimated market value of the included collateral declines, the lenders have the right to require additional collateral or a full and/or partial repayment of the facilities (margin call), sufficient to rebalance the facilities. Typically, the facilities are established with stated guidelines regarding the maximum percentage of the collateral asset’s market value that can be borrowed. We often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon at a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.
Committed securities repurchase facility
We are a party to a term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $400.0 million of credit capacity. As we do in the case of borrowings under committed loan facilities, we often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis. As of SeptemberJune 30, 2018, the Company had $97.9 million borrowings outstanding, with an additional $302.1 million of committed financing available. As of2019 and December 31, 2017,2018, the Company had no borrowings outstanding, with an additional $400.0 million of committed financing available.
Uncommitted securities repurchase facilities
We are party to multiple master repurchase agreements with several counterparties to finance our investments in CMBS and U.S. Agency Securities. The securities that served as collateral for these borrowings are highly liquid and marketable assets that are typically of relatively short duration. As we do in the case of other secured borrowings, we often borrow at a lower percentage of the collateral asset’s value than the maximum leaving us with excess borrowing capacity that can be drawn upon a later date and/or applied against future margin calls so that they can be satisfied on a cashless basis.
Collateralized borrowings under repurchase agreement
The following table presents the amount of collateralized borrowings outstanding as of the end of each quarter, the average amount of collateralized borrowings outstanding during the quarter and the monthly maximum amount of collateralized borrowings outstanding during the quarter ($ in thousands):
| | | | | Total | | Collateralized Borrowings Under Repurchase Agreements (1) | | Other Collateralized Borrowings (2) | | Collateralized Borrowings Under Repurchase Agreements (1) |
| Quarter Ended | | Quarter-end balance | | Average quarterly balance | | Maximum balance of any month-end | | Quarter-end balance | | Average quarterly balance | | Maximum balance of any month-end | | Quarter-end balance | | Average quarterly balance | | Maximum balance of any month-end | | Quarter-end balance | | Average quarterly balance | | Maximum balance of any month-end |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2015 | | 1,241,326 |
| | 1,420,356 |
| | 1,653,179 |
| | 1,191,326 |
| | 1,347,523 |
| | 1,556,429 |
| | 50,000 |
| | 72,833 |
| | 96,750 |
| |
| December 31, 2015 | | 1,260,755 |
| | 1,296,608 |
| | 1,344,330 |
| | 1,260,755 |
| | 1,283,008 |
| | 1,323,930 |
| | — |
| | 13,600 |
| | 20,400 |
| |
| March 31, 2016 | | 1,104,339 |
| | 1,162,008 |
| | 1,240,778 |
| | 1,104,339 |
| | 1,162,008 |
| | 1,240,778 |
| | — |
| | — |
| | — |
| |
| June 30, 2016 | | 1,139,615 |
| | 1,108,263 |
| | 1,139,615 |
| | 1,139,615 |
| | 1,108,263 |
| | 1,139,615 |
| | — |
| | — |
| | — |
| | $ | 1,139,615 |
| | $ | 1,108,263 |
| | $ | 1,139,615 |
|
| September 30, 2016 | | 1,458,327 |
| | 1,393,122 |
| | 1,468,013 |
| | 1,458,327 |
| | 1,393,122 |
| | 1,468,013 |
| | — |
| | — |
| | — |
| | 1,458,327 |
| | 1,393,122 |
| | 1,468,013 |
|
| December 31, 2016 | | 1,107,185 |
| | 1,397,061 |
| | 1,555,941 |
| | 1,107,185 |
| | 1,397,061 |
| | 1,555,941 |
| | — |
| | — |
| | — |
| | 1,107,185 |
| | 1,397,061 |
| | 1,555,941 |
|
| March 31, 2017 | | 1,039,356 |
| | 1,073,893 |
| | 1,119,863 |
| | 1,039,356 |
| | 1,073,893 |
| | 1,119,863 |
| | — |
| | — |
| | — |
| | 1,039,356 |
| | 1,073,893 |
| | 1,119,863 |
|
| June 30, 2017 | | 1,149,605 |
| | 1,264,948 |
| | 1,373,953 |
| | 1,149,605 |
| | 1,264,948 |
| | 1,373,953 |
| | — |
| | — |
| | — |
| | 1,149,605 |
| | 1,264,948 |
| | 1,373,953 |
|
| September 30, 2017 | | 913,137 |
| | 1,126,201 |
| | 1,301,334 |
| | 913,137 |
| | 1,126,201 |
| | 1,301,334 |
| | — |
| | — |
| | — |
| | 913,137 |
| | 1,126,201 |
| | 1,301,334 |
|
| December 31, 2017 | | 473,410 |
| | 739,721 |
| | 892,081 |
| | 473,410 |
| | 739,721 |
| | 892,081 |
| | — |
| | — |
| | — |
| | 473,410 |
| | 739,721 |
| | 892,081 |
|
| March 31, 2018 | | 754,377 |
| | 721,139 |
| | 773,383 |
| | 754,377 |
| | 721,139 |
| | 773,383 |
| | — |
| | — |
| | — |
| | 754,377 |
| | 721,139 |
| | 773,383 |
|
| June 30, 2018 | | 819,963 |
| | 787,568 |
| | 819,962 |
| | 819,963 |
| | 787,568 |
| | 819,962 |
| | — |
| | — |
| | — |
| | 819,962 |
| | 787,568 |
| | 819,962 |
|
| September 30, 2018 | | 973,616 |
| | 934,554 |
| | 973,616 |
| | 973,617 |
| | 934,554 |
| | 973,617 |
| | — |
| | — |
| | — |
| | 973,616 |
| | 934,554 |
| | 973,616 |
|
| December 31, 2018 | | | 663,686 |
| | 735,350 |
| | 820,080 |
|
| March 31, 2019 | | | 1,030,082 |
| | 968,984 |
| | 1,030,082 |
|
| June 30, 2019 | | | 1,267,371 |
| | 1,221,388 |
| | 1,300,175 |
|
| |
| (1) | Collateralized borrowings under repurchase agreements include all securities and loan financing under repurchase agreements. |
| |
(2) | Other collateralized borrowings include borrowings under credit agreement and borrowings under credit and security agreement. |
As of SeptemberJune 30, 2018,2019, we had repurchase agreements with eightnine counterparties, with total debt obligations outstanding of $973.6 million.$1.3 billion. As of SeptemberJune 30, 2018, four2019, two counterparties, Deutsche Bank, JP Morgan US Bank and Wells Fargo, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $77.7$82.4 million, or 5% of our total equity. As of SeptemberJune 30, 2018,2019, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 34.0%24.8%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.
Revolving Credit Facility
The Company entered into aCompany’s revolving credit facility (the “Revolving Credit Facility”) on February 11, 2014, and subsequent amendments on February 26, 2016, March 1, 2017, March 23, 2017, September 29, 2017, October 27, 2017, September 14, 2018 and September 28, 2018, which provided for, among other things, (i) additional members in the lenders’ syndicate and an increase in the aggregate maximum borrowings under the agreement to $266.4 million, (ii) additional 1-year extension options to extend the final maturity date to February 2023, and (iii) a reduction in the cost of funds by 0.25%.
The Revolving Credit Facility provides for an aggregate maximum borrowing amount of $266.4 million, including a $25.0 million sublimit for the issuance of letters of credit. The Revolving Credit Facility is available on a revolving basis to finance the Company’s working capital needs and for general corporate purposes. TheOn January 15, 2019, the Company extended the maturity date of the Revolving Credit Facility to February 11, 2020. The Company has aadditional one-year extension options to extend the final maturity date ofto February 11, 2019, which may be extended by four 12-month periods subject to the satisfaction of customary conditions, including the absence of default.2023. Interest on the Revolving Credit Facility is one-month LIBOR plus 3.25% per annum payable monthly in arrears.
The obligations under the Revolving Credit Facility are guaranteed by the Company and certain of its subsidiaries. The Revolving Credit Facility is secured by a pledge of the shares of (or other ownership or equity interests in) certain subsidiaries to the extent the pledge is not restricted under existing regulations, law or contractual obligations.
LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. Our ability to borrow under the Revolving Credit Facility will be dependent on, among other things, LCFH’s compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.
Mortgage loan financing
We generally finance our real estate using long-term non-recourse mortgage financing. During the ninesix months ended SeptemberJune 30, 2018,2019, we executed 11six term debt agreements to finance real estate. These non-recourse debt agreementsOur total portfolio of mortgage loan financings are fixed rate financing at rates ranging from 4.25% to 6.75%7.00%, maturing between 2020 - 20282029 and totaling $743.2$734.7 million and $692.7$743.9 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. These long-term non-recourse mortgages include net unamortized premiums of $6.1$5.5 million and $6.6$5.8 million at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively, representing proceeds received upon financing greater than the contractual amounts due under the agreements. The premiums are being amortized over the remaining life of the respective debt instruments using the effective interest method. We recorded $0.8 million and $0.7$0.5 million of premium amortization, which decreased interest expense, for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The loans are collateralized by real estate and related lease intangibles, net, of $944.6$912.9 million and $911.0$939.4 million as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
CLO Debtdebt
The Company completed its inaugural CLO issuances in the two transactions described below. The Company had a total of $672.0$263.2 million and $688.5$601.5 million of floating rate, non-recourse CLO debt included in debt obligations on its consolidated balance sheets as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. Unamortized debt issuance costs of $3.5$1.0 million and $6.0$2.6 million are included in CLO Debtdebt as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. As of SeptemberJune 30, 2018,2019, the CLO debt has interest rates of 3.04%3.4% to 5.76%5.99% (with a weighted average of 4.06%5.10%). As of SeptemberJune 30, 2018,2019, collateral for the CLO debt comprised $869.5$425.4 million of first mortgage commercial mortgage real estate loans.
On October 17, 2017, a consolidated subsidiary of the Company consummated a securitization of floating-rate commercial mortgage loans through a static CLO structure. Over $456.9 million of balance sheet loans (“Contributed Loans”) were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a subsidiary of the Company in the form of a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s affiliate. An affiliate of the Company retained an approximately 18.5% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO, retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE.
On December 21, 2017, a consolidated subsidiary of the Company consummated a securitization of fixed and floating-rate commercial mortgage loans through a static CLO structure. Over $431.5 million of Contributed Loans were contributed into the CLO. Certain of the Contributed Loans have future funding components that were not contributed to the CLO and that are retained by a subsidiary of the Company in the form of a participation interest or separate note. However, for a limited period of time, to the extent loans in the CLO are repaid, the CLO may acquire portions of the future fundings from the Company’s affiliate. An affiliate of the Company retained an approximately 25% interest in the CLO by retaining the most subordinate classes of notes issued by the CLO, retains control over major decisions made with respect to the administration of the Contributed Loans and appoints the special servicer under the CLO. The CLO is a VIE and the Company is the primary beneficiary and, therefore, consolidates the VIE.
Participation Financing - Mortgage Loan Receivable
During the three months ended March 31, 2017, the Company sold a participating interest in a first mortgage loan receivable to a third party. The sales proceeds of $4.0 million arewere considered non-recourse secured borrowings and arewere recognized in debt obligations on the Company’s consolidated balance sheets with $2.5 million and $3.1 million outstanding as of September 30, 2018 and December 31, 2017, respectively.2018. There were no non-recourse secured borrowings recognized in debt obligations on the Company’s consolidated balance sheets as of June 30, 2019, as the loan matured and was repaid during the three months ended June 30, 2019. The Company recorded $0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2018,2019, respectively. The Company recorded $0.2$0.1 million and $0.4$0.2 million of interest expense for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively.
FHLB financing
On July 11, 2012, Tuebor became a member of the FHLB. As of SeptemberJune 30, 2018,2019, Tuebor had $1.2 billion of borrowings outstanding (with an additional $721.5$754.3 million of committed term financing available from the FHLB), with terms of overnight to six5.3 years, interest rates of 1.02%1.47% to 2.74%3.00%, and advance rates of 58.0%55.2% to 95.2%100% of the collateral. As of SeptemberJune 30, 2018,2019, collateral for the borrowings was comprised of $721.5$825.9 million of CMBS and U.S. Agency Securities and $916.0$669.7 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.3 billion for the threesix months ended SeptemberJune 30, 2018.2019. On December 6, 2017, Tuebor’s advance limit was updated by the FHLB to the lowest of a Set Dollar Limit (currently $2.0 billion), 40% of Tuebor’s total assets or 150% of the Company’s total equity. Beginning April 1, 2020 through December 31, 2020, the Set Dollar Limit will be $1.5 billion. Beginning January 1, 2021 through February 19, 2021, the Set Dollar Limit will be $750.0 million. Tuebor is well-positioned to meet its obligations and pay down its advances in accordance with the scheduled reduction in the Set Dollar Limit, which remains subject to revision by the FHLB or as a result of any future changes in applicable regulations.
As of December 31, 2017,2018, Tuebor had $1.4$1.3 billion of borrowings outstanding (with an additional $630.0$647.5 million of committed term financing available from the FHLB), with terms of overnight to six5.75 years, interest rates of 0.87%1.18% to 2.74%3.01%, and advance rates of 49.6%56.4% to 100%95.2% of the collateral. As of December 31, 2017,2018, collateral for the borrowings was comprised of $861.7 million$1.0 billion of CMBS and U.S. Agency Securities and $915.9$637.2 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.4$1.3 billion for the threesix months ended December 31, 2017.2018.
Effective February 19, 2016, the FHFA, regulator of the FHLB, adopted a final rule amending its regulation regarding the eligibility of captive insurance companies for FHLB membership.
Pursuant to the final rule, Tuebor may remain a member of the FHLB through February 19, 2021 (the “Transition Period”). During the Transition Period, Tuebor is eligible to continue to draw new additional advances, extend the maturities of existing advances, and pay off outstanding advances on the same terms as non-captive insurance company FHLB members with the following two exceptions:
| |
| 1. | New advances (including any existing advances that are extended during the Transition Period) will have maturity dates on or before February 19, 2021; and |
| |
| 2. | The FHLB will make new advances to Tuebor subject to a requirement that Tuebor’s total outstanding advances do not exceed 40% of Tuebor’s total assets. As of SeptemberJune 30, 2018,2019, the Company is in compliance with this requirement. |
Tuebor has executed new advances since the effective date of the new rule in the ordinary course of business.
FHLB advances amounted to 25.5%25.8% of the Company’s outstanding debt obligations as of SeptemberJune 30, 2018.2019. The Company does not anticipate that the FHFA’s final regulation will materially impact its operations as it will continue to access FHLB advances during the five-year Transition Period and it has multiple, diverse funding sources for financing its portfolio in the future. In the latter stages of the five-year Transition Period, the Company expects to adjust its financing activities by gradually making greater use of alternative sources of funding of types currently used by the Company including secured and unsecured borrowings from banks and other counterparties, the issuance of corporate bonds and equity, and the securitization or sale of assets. Future moves to alternative funding sources could result in higher or lower advance rates from secured funding sources but also the incurrence of higher funding and operating costs than would have been incurred had FHLB funding continued to be available. In addition, the Company may find it more difficult to obtain committed secured funding for multiple year terms as it has been able to obtain from the FHLB.
The Transition Period allows time for events to occur that may impact Tuebor’s long-term membership in the FHLB, including further regulatory changes, the enactment of legislation, or the filing of litigation challenging the validity of the final rule. During this period, a combination of these external events and/or Tuebor’s own actions could result in the emergence of feasible alternative approaches for it to retain its FHLB membership.
There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor’s membership in the FHLB and continuing access to new or existing advances prior to February 19, 2021.
Tuebor is subject to state regulations which require that dividends (including dividends to the Company as its parent) may only be made with regulatory approval. However, there can be no assurance that we would obtain such approval if sought. Largely as a result of this restriction, $1.7$1.9 billion of the member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at SeptemberJune 30, 2018.2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.
Senior Unsecured Notes
LCFH issued the 2025 Notes, the 2022 Notes, the 2021 Notes and the 2017 Notes (each as defined below, and collectively, the “Notes”) with Ladder Capital Finance Corporation (“LCFC”), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary of Series TRS of LCFH with no assets, operations, revenues or cash flows other than those related to the issuance, administration and repayment of the Notes. The Company and certain subsidiaries of LCFH currently guarantee the obligations under the Notes and the indenture. The Company is the general partner of LCFH and, through LCFH and its subsidiaries, operates the Ladder Capital business. As of SeptemberJune 30, 2018,2019, the Company has a 88.2%89.8% economic and voting interest in LCFH and controls the management of LCFH as a result of its ability to appoint board members. Accordingly, the Company consolidates the financial results of LCFH and records noncontrolling interest for the economic interest in LCFH held by the Continuing LCFH Limited Partners. In addition, the Company, through certain subsidiaries which are treated as TRSs, is indirectly subject to U.S. federal, state and local income taxes. Other than the noncontrolling interest in the Operating Partnership and federal, state and local income taxes, there are no material differences between the Company’s consolidated financial statements and LCFH’s consolidated financial statements. Unamortized debt issuance costs of $11.9$9.8 million and $14.1$11.2 million are included in senior unsecured notes as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively.
2017 Notes
On September 19, 2012, LCFH issued $325.0 million in aggregate principal amount of 7.375% senior notes due October 1, 2017 (the “2017 Notes”). The 2017 Notes require interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on September 19, 2012. The 2017 Notes were unsecured and subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after April 1, 2017, the 2017 Notes were redeemable at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice, without penalty. On November 5, 2014, the board of directors authorized the Company to make up to $325.0 million in repurchases of the 2017 Notes from time to time without further approval.
On December 17, 2014, the Company retired $5.4 million of principal of the 2017 Notes for a repurchase price of $5.6 million recognizing a $0.2 million loss on extinguishment of debt. During the year ended December 31, 2016, the Company retired $21.9 million of principal of the 2017 Notes for a repurchase price of $21.4 million, recognizing a $0.3 million net gain on extinguishment of debt after recognizing $(0.2) million of unamortized debt issuance costs associated with the retired debt.
On March 1, 2017, the Company delivered a notice of conditional full redemption to holders of the 2017 Notes, pursuant to which the Company redeemed all outstanding 2017 Notes at 100% of the principal amount thereof (plus any accrued and unpaid interest to the redemption date) as of April 1, 2017. The redemption was conditioned on the completion by the Company of a senior notes offering with gross proceeds of not less than $500 million. The Company’s offering of the 2022 Notes, described below, satisfied this condition. On April 3, 2017, the Company retired the remaining $297.7 million of principal of the 2017 Notes for a repurchase price of $297.7 million, recognizing a $53.5 thousand net loss on extinguishment of debt after recognizing $(22.8) thousand of unamortized debt issuance costs associated with the retired debt.
2021 Notes
On August 1, 2014, LCFH issued $300.0 million in aggregate principal amount of 5.875% senior notes due August 1, 2021 (the “2021 Notes”). The 2021 Notes require interest payments semi-annually in cash in arrears on February 1 and August 1 of each year, beginning on February 1, 2015. The 2021 Notes will mature on August 1, 2021. The 2021 Notes are unsecured and are subject to incurrence-based covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. At any time on or after August 1, 2020, the 2021 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice, without penalty. On February 24, 2016, the board of directors authorized the Company to make up to $100.0 million in repurchases of the 2021 Notes from time to time without further approval. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2021 Notes from time to time without further approval.
During the year ended December 31, 2016, the Company retired $33.8 million of principal of the 2021 Notes for a repurchase price of $28.2 million, recognizing a $5.1 million net gain on extinguishment of debt after recognizing $(0.4) million of unamortized debt issuance costs associated with the retired debt. As of SeptemberJune 30, 2018,2019, the remaining $266.2 million in aggregate principal amount of the 2021 Notes is due August 1, 2021.
2022 Notes
On March 16, 2017, LCFH issued $500.0 million in aggregate principal amount of 5.250% senior notes due March 15, 2022 (the “2022 Notes”). The 2022 Notes require interest payments semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The 2022 Notes will mature on March 15, 2022. The 2022 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. At any time on or after September 15, 2021, the 2022 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, without penalty. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2022 Notes from time to time without further approval.
2025 Notes
On September 25, 2017, LCFH issued $400.0 million in aggregate principal amount of 5.250% senior notes due October 1, 2025 (the “2025 Notes”). The 2025 Notes require interest payments semi-annually in cash in arrears on April 1 and October 1 of each year, beginning on April 1, 2018. The 2025 Notes will mature on October 1, 2025. The 2025 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the 2025 Notes, in whole, at any time, or from time to time, prior to their stated maturity. The 2025 Notes are redeemable at the option of the Company, in whole or in part, upon not less than 15 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the 2025 Notes plus the Applicable Premium (as defined in the indenture governing the 2025 Notes) as of, and accrued and unpaid interest, if any, to the redemption date. On May 2, 2018, the board of the directors authorized the Company to repurchase any or all of the 2025 Notes from time to time without further approval.
Stock Repurchases
On October 30, 2014, the board of directors authorized the Company to make up to $50.0 million in repurchases of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. As of SeptemberJune 30, 2018,2019, the Company has a remaining amount available for repurchase of $41.8$41.1 million, which represents 2.5%2.3% in the aggregate of its outstanding Class A common stock, based on the closing price of $16.94$16.61 per share on such date.
The following table is a summary of the Company’s repurchase activity of its Class A common stock during the ninesix months ended SeptemberJune 30, 20182019 and 20172018 ($ in thousands):
| | | | | Shares | | Amount(1) | | Shares | | Amount(1) |
| | | | | | | | | |
| Authorizations remaining as of December 31, 2017 | | | | $ | 41,769 |
| |
| Authorizations remaining as of December 31, 2018 | | | | | $ | 41,769 |
|
| Additional authorizations | | | | — |
| | | | — |
|
| Repurchases paid | | — |
| | — |
| | 40,065 |
| | (637 | ) |
| Repurchases unsettled | | | | — |
| | | | — |
|
| Authorizations remaining as of September 30, 2018 | | | | $ | 41,769 |
| |
| Authorizations remaining as of June 30, 2019 | | | | | $ | 41,132 |
|
(1) Amount excludes commissions paid associated with share repurchases.
| | | | | Shares | | Amount(1) | | Shares | | Amount(1) |
| | | | | | | | | |
| Authorizations remaining as of December 31, 2016 | | | | $ | 44,353 |
| |
| Authorizations remaining as of December 31, 2017 | | | | | $ | 41,769 |
|
| Additional authorizations | | | | — |
| | | | — |
|
| Repurchases paid | | — |
| | — |
| | — |
| | — |
|
| Repurchases unsettled | | | | — |
| | | | — |
|
| Authorizations remaining as of September 30, 2017 | | | | $ | 44,353 |
| |
| Authorizations remaining as of June 30, 2018 | | | | | $ | 41,769 |
|
(1) Amount excludes commissions paid associated with share repurchases.
Dividends
To maintain our qualification as a REIT under the Code, we must annually distribute at least 90% of our taxable income and, for 2015, we had to distribute our undistributed accumulated earnings and profits attributable to taxable periods prior to January 1, 2015 (the “E&P Distribution”). The Company made the E&P Distribution on January 21, 2016 and has paid and in the future intend to declare regular quarterly distributions to our shareholders in an amount approximating our net taxable income.
Consistent with IRS guidance we may, subject to a cash/stock election by our shareholders, pay a portion of our dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, our future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of our board of directors. Generally, we expect the distributions to be taxable as ordinary dividends to our shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital. TheRefer to Note 12, Equity Structure and Accounts for tax treatment of the 2018 dividends will be disclosed by the end of January 2019.dividends. We believe that our significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders and servicing our debt obligations.
The following table presents dividends declared (on a per share basis) of Class A common stock for the yearssix months ended December 31, 2018June 30, 2019 and 2017:2018:
|
| | | | | |
| Declaration Date | | Dividend per Share | |
| | | | |
| February 27, 2018 | | $ | 0.315 |
| |
| May 30, 2018 | | 0.325 |
| |
| September 5, 2018 | | 0.325 |
| |
| November 1, 2018 | | 0.570 |
| (1) |
| Total | | $ | 1.535 |
| |
| | | | |
| March 1, 2017 | | $ | 0.300 |
| |
| June 1, 2017 | | 0.300 |
| |
| September 1, 2017 | | 0.300 |
| |
| November 7, 2017 | | 0.315 |
| |
| Total | | $ | 1.215 |
| |
|
| | | | |
| Declaration Date | | Dividend per Share |
| | | |
| February 27, 2019 | | $ | 0.340 |
|
| May 30, 2019 | | 0.340 |
|
| Total | | $ | 0.680 |
|
| | | |
| February 27, 2018 | | $ | 0.315 |
|
| May 30, 2018 | | 0.325 |
|
| Total | | $ | 0.640 |
|
| |
(1) | On November 1, 2018, our board of directors approved the fourth quarter 2018 dividend of $0.570 per share of the Company’s Class A common stock in order to meet our annual REIT taxable income distribution requirement. The dividend will be paid as a combination of cash and Class A common stock, subject to shareholder elections. |
Principal repayments on investments
We receive principal amortization on our loans and securities as part of the normal course of our business. Repayment of mortgage loan receivables provided net cash of $756.7$782.3 million for the ninesix months ended SeptemberJune 30, 20182019 and $267.3$431.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. Repayment of real estate securities provided net cash of $93.2$110.4 million for the ninesix months ended SeptemberJune 30, 20182019 and $93.2$56.7 million for the ninesix months ended SeptemberJune 30, 2017.2018.
Proceeds from securitizations and sales of loans
We sell our conduit mortgage loans to securitization trusts and to other third parties as part of our normal course of business. There were $926.9$430.6 million of proceeds from sales of mortgage loans for the ninesix months ended SeptemberJune 30, 20182019 and $512.1$843.2 million sales of mortgage loans for the ninesix months ended SeptemberJune 30, 2017.2018.
Proceeds from the sale of securities
We invest in CMBS, and U.S. Agency Securities.Securities, corporate bonds and equity securities. Proceeds from sales of securities provided net cash of $306.1$384.4 million for the ninesix months ended SeptemberJune 30, 20182019 and $995.9$161.5 million for the ninesix months ended SeptemberJune 30, 2017.2018.
Proceeds from the sale of real estate
We own a portfolio of commercial real estate properties as well as residential condominium units. Proceeds from sales of real estate provided net cash of $214.4$8.5 million for the ninesix months ended SeptemberJune 30, 20182019 and $20.5$90.8 million for the ninesix months ended SeptemberJune 30, 2017.2018.
Proceeds from the issuance of equity
For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, there were no proceeds realized in connection with the issuance of equity. We may issue additional equity in the future.
Other potential sources of financing
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments.
Contractual obligations
Contractual obligations as of SeptemberJune 30, 20182019 were as follows ($ in thousands):
| | | | Contractual Obligations | Contractual Obligations |
| | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total |
| | | | | | | | | | | | | | | | | | | |
| Secured financings | $ | 1,349,073 |
| (1) | $ | 1,147,675 |
| | $ | 422,061 |
| | $ | 682,954 |
| | $ | 3,601,763 |
| $ | 1,216,881 |
| (1) | $ | 1,276,074 |
| | $ | 413,115 |
| | $ | 546,620 |
| | $ | 3,452,690 |
|
| Senior unsecured notes | — |
| | 266,201 |
| | 500,000 |
| | 400,000 |
| | 1,166,201 |
| — |
| | 766,201 |
| | — |
| | 400,000 |
| | 1,166,201 |
|
| Interest payable(2) | 132,485 |
| | 204,566 |
| | 57,695 |
| | 52,800 |
| | 447,546 |
| 124,868 |
| | 183,331 |
| | 44,741 |
| | 31,671 |
| | 384,611 |
|
| Other funding obligations(3) | 385,972 |
| | — |
| | — |
| | — |
| | 385,972 |
| 228,570 |
| | — |
| | — |
| | — |
| | 228,570 |
|
| Payments pursuant to tax receivable agreement | 105 |
| | 209 |
| | 209 |
| | 1,047 |
| | 1,570 |
| 104 |
| | 208 |
| | 208 |
| | 1,039 |
| | 1,559 |
|
| Operating lease obligations | 295 |
| | 2,360 |
| | 1,279 |
| | — |
| | 3,934 |
| 604 |
| | 2,361 |
| | 98 |
| | — |
| | 3,063 |
|
| Total | $ | 1,867,930 |
| | $ | 1,621,011 |
| | $ | 981,244 |
| | $ | 1,136,801 |
| | $ | 5,606,986 |
| $ | 1,571,027 |
| | $ | 2,228,175 |
| | $ | 458,162 |
| | $ | 979,330 |
| | $ | 5,236,694 |
|
(1) As more fully disclosed in Note 8, Debt Obligations, Net, these obligations are subject to existing Company controlled extension options for one or more additional one-year periods or could be refinanced by other existing facilities.
(2) Composed of interest on secured financings and on senior unsecured notes. For borrowings with variable interest rates, we used the rates in effect as of SeptemberJune 30, 20182019 to determine the future interest payment obligations.
(3) Comprised of our off-balance sheet unfunded commitment to provide additional first mortgage loan financing as of SeptemberJune 30, 2018.2019.
The tables above do not include amounts due under our derivative agreements as those contracts do not have fixed and determinable payments. Our contractual obligations will be refinanced and/or repaid from earnings as well as amortization and sales of our liquid collateral.
Off-Balance Sheet Arrangements
We have made investments in various unconsolidated joint ventures. See Note 7, Investment in and Advances to Unconsolidated Joint Ventures for further details of our unconsolidated investments. Our maximum exposure to loss from these investments is limited to the carrying value of our investments.
Unfunded Loan Commitments
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our borrowers. As of SeptemberJune 30, 2018,2019, our off-balance sheet arrangements consisted of $386.0$228.6 million of unfunded commitments of mortgage loan receivables held for investment, all of which was to provide additional first mortgage loan financing. As of December 31, 2017,2018, our off-balance sheet arrangements consisted of $157.0$379.8 million of unfunded commitments of mortgage loan receivables held for investment, all of which was to provide additional first mortgage loan financing. Such commitments are subject to our borrowers’ satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets and are not reflected on our consolidated balance sheets.
Critical Accounting Policies
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” within the Annual Report for a full discussion of our critical accounting policies. Other than disclosed in Note 2, Significant Accounting Policies, our critical accounting policies have not materially changed since December 31, 2017.2018.
Recently Adopted Accounting Pronouncements and Recent Accounting Pronouncements Pending Adoption
Our recently adopted accounting pronouncements and recent accounting pronouncements pending adoption are described in Item 1—“Financial Statements—Note 2,.” Significant Accounting Policies.
Reconciliation of Non-GAAP Financial Measures
Core Earnings
We present core earnings, which is a non-GAAP financial measure, as a supplemental measure of our performance. We believe core earnings assists 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: (i) to evaluate our earnings from operations and (ii) because management believes that it may be a useful performance measure 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 Continuing LCFH Limited Partners to have fundamentally equivalent interests in our pre-tax earnings. Accordingly, for purposes of computing core earnings we start with pre-tax earnings 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.
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-onlyfair value 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. As more fully described in Notes 2 and 4, in the fourth quarter of 2017, the Company changed its method of accounting for transfers of financial assets subject to certain transfer restrictions on the Third Party Purchasers of risk retention securities in securitizations imposed by the Dodd-Frank Act. Because such transactions are now treated as sales for purposes of net income, the Company no longer makes an adjustment to net income for purposes of core earnings. The Company reflected this change in accounting principle retrospectively to prior interim periods within 2017.
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 gains/(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.
As discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, 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.
As more fully discussed in Note 2 to the consolidated financial statements included elsewhere in this Quarterly Report, our investments in Agency interest-only securities and equity 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-onlyfair value securities adjusts for timing differences between when we recognize changes in the fair values of our assets.
Set forth below is a reconciliation of income (loss) before taxes to core earnings ($ in thousands):
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | | |
| Income (loss) before taxes | Income (loss) before taxes | $ | 84,668 |
| | $ | 29,245 |
| | $ | 200,508 |
| | $ | 85,163 |
| Income (loss) before taxes | $ | 38,292 |
| | $ | 44,140 |
| | $ | 59,970 |
| | $ | 115,841 |
|
| Net (income) loss attributable to noncontrolling interest in consolidated joint ventures and operating partnership (GAAP) (1) | (7,851 | ) | | 257 |
| | (16,155 | ) | | (157 | ) | |
| Net (income) loss attributable to noncontrolling interest in consolidated joint ventures and operating partnership (GAAP)(1) | | Net (income) loss attributable to noncontrolling interest in consolidated joint ventures and operating partnership (GAAP)(1) | 299 |
| | 126 |
| | 738 |
| | (8,305 | ) |
Our share of real estate depreciation, amortization and gain adjustments (2)(3) | Our share of real estate depreciation, amortization and gain adjustments (2)(3) | (12,435 | ) | | 9,221 |
| | 2,398 |
| | 26,519 |
| Our share of real estate depreciation, amortization and gain adjustments (2)(3) | 6,590 |
| | 8,777 |
| | 12,257 |
| | 14,835 |
|
Adjustments for unrecognized derivative results (3)(4) | Adjustments for unrecognized derivative results (3)(4) | (3,614 | ) | | (4,298 | ) | | (16,320 | ) | | (6,489 | ) | Adjustments for unrecognized derivative results (3)(4) | 2,187 |
| | (4,596 | ) | | 11,302 |
| | (12,706 | ) |
| Unrealized (gain) loss on Agency IO securities | (142 | ) | | (577 | ) | | (456 | ) | | (1,034 | ) | |
| Unrealized (gain) loss on fair value securities | | Unrealized (gain) loss on fair value securities | 861 |
| | (110 | ) | | (1,227 | ) | | (313 | ) |
| Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization | Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization | 7 |
| | (324 | ) | | (530 | ) | | 2,968 |
| Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization | (645 | ) | | (246 | ) | | (648 | ) | | (538 | ) |
| Non-cash stock-based compensation | Non-cash stock-based compensation | 2,763 |
| | 2,127 |
| | 8,186 |
| | 11,422 |
| Non-cash stock-based compensation | 3,371 |
| | 2,341 |
| | 15,465 |
| | 5,424 |
|
| Core earnings | Core earnings | $ | 63,396 |
| | $ | 35,651 |
| | $ | 177,631 |
| | $ | 118,392 |
| Core earnings | $ | 50,955 |
| | $ | 50,432 |
| | $ | 97,857 |
| | $ | 114,238 |
|
| |
| (1) | Includes $8 thousand and $8$7 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 SeptemberJune 30, 20182019 and 2017,2018, respectively. Includes $23 thousand and $24$16 thousand of net income attributable to noncontrolling interest in consolidated joint ventures which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the ninesix months endedSeptemberJune 30, 20182019 and 2017, respectively.2018. |
|
| | | | | | | | | | | | | | | | |
| (2) | The following is a reconciliation of GAAP depreciation and amortization to our share of real estate depreciation, amortization and gain adjustments presented in the computation of core earnings in the preceding table ($ in thousands): |
| | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| | Total GAAP depreciation and amortization | $ | 9,935 |
| | $ | 10,656 |
| | $ | 20,162 |
| | $ | 21,479 |
|
| | Less: Depreciation and amortization related to non-rental property fixed assets | (25 | ) | | (19 | ) | | (49 | ) | | (37 | ) |
| | Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures | (1,070 | ) | | (1,012 | ) | | (1,976 | ) | | (1,371 | ) |
| | Our share of real estate depreciation and amortization | 8,840 |
| | 9,625 |
| | 18,137 |
| | 20,071 |
|
| | | | | | | | | |
| | Realized gain from accumulated depreciation and amortization on real estate sold (see below) | (1,935 | ) | | (292 | ) | | (5,421 | ) | | (5,486 | ) |
| | Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold | 42 |
| | 2 |
| | 42 |
| | 1,190 |
|
| | Our share of accumulated depreciation and amortization on real estate sold | (1,893 | ) | | (290 | ) | | (5,379 | ) | | (4,296 | ) |
| | | | | | | | | |
| | Less: Operating lease income on above/below market lease intangible amortization | (357 | ) | | (558 | ) | | (501 | ) | | (940 | ) |
| | | | | | | | | |
| | Our share of real estate depreciation, amortization and gain adjustments | $ | 6,590 |
| | $ | 8,777 |
| | $ | 12,257 |
| | $ | 14,835 |
|
| | | | | | | | | |
| | | (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, | |
| | | 2018 | | 2017 | | 2018 | | 2017 | |
| | | | | | | | | | |
| | Total GAAP depreciation and amortization | $ | 10,417 |
| | $ | 10,606 |
| | $ | 31,896 |
| | $ | 29,323 |
| |
| | Less: Depreciation and amortization related to non-rental property fixed assets | (18 | ) | | (23 | ) | | (56 | ) | | (70 | ) | |
| | Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures | (1,076 | ) | | (328 | ) | | (2,447 | ) | | (824 | ) | |
| | Our share of real estate depreciation and amortization | 9,323 |
| | 10,255 |
| | 29,393 |
| | 28,429 |
| |
| | | | | | | | | | |
| | Realized gain from accumulated depreciation and amortization on real estate sold (see below) | (22,066 | ) | | (577 | ) | | (27,553 | ) | | (1,459 | ) | |
| | Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold | 653 |
| | 5 |
| | 1,844 |
| | 12 |
| |
| | Our share of accumulated depreciation and amortization on real estate sold | (21,413 | ) | | (572 | ) | | (25,709 | ) | | (1,447 | ) | |
| | | | | | | | | | |
| | Less: Operating lease income on above/below market lease intangible amortization | (345 | ) | | (462 | ) | | (1,286 | ) | | (463 | ) | |
| | | | | | | | | | |
| | Our share of real estate depreciation, amortization and gain adjustments | $ | (12,435 | ) | | $ | 9,221 |
| | $ | 2,398 |
| | $ | 26,519 |
| |
| | | | | | | | | | | | | | | | | | | |
| | 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: | 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 ($ in thousands): |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | | |
| | GAAP realized gain on sale of real estate, net | $ | 63,704 |
| | $ | 3,228 |
| | $ | 96,341 |
| | $ | 7,790 |
| GAAP realized gain (loss) on sale of real estate, net | $ | (1,124 | ) | | $ | 1,628 |
| | $ | (1,119 | ) | | $ | 32,637 |
|
| | Adjusted gain/loss on sale of real estate for purposes of core earnings | (42,291 | ) | | $ | (2,656 | ) | | (70,632 | ) | | (6,343 | ) | Adjusted gain/loss on sale of real estate for purposes of core earnings | 3,017 |
| | $ | (1,338 | ) | | 6,498 |
| | (28,341 | ) |
| | Our share of accumulated depreciation and amortization on real estate sold | $ | 21,413 |
| | $ | 572 |
| | $ | 25,709 |
| | $ | 1,447 |
| Our share of accumulated depreciation and amortization on real estate sold | $ | 1,893 |
| | $ | 290 |
| | $ | 5,379 |
| | $ | 4,296 |
|
| | | | | | | | | | | | | | | | | |
| (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): | As more fully discussed in Note 6, Real Estate and Related Intangibles, Net, Note 8, Debt Obligations, Net and Note 9, Fair Value of Financial Instruments to the Company’s Consolidated Financial Statements, during 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 recognizes the net impact of these events in the period the sale was realized. Accordingly, the $3.3 million net impact of the income and losses discussed above were excluded from core earnings for the three months ended March 31, 2019 and have been included in core earnings for the three and six months ended June 30, 2019. |
| | | | | | | | | | | | | | | | | |
| (4) | | The following is a reconciliation of GAAP net results from derivative transactions to our unrecognized derivative result presented in the computation of core earnings in the preceding table ($ in thousands): |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | | |
| | | 2018 | | 2017 | | 2018 | | 2017 | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | | | | | | | | | 2019 | | 2018 | | 2019 | | 2018 |
| | Net results from derivative transactions | $ | 7,115 |
| | $ | (348 | ) | | $ | 29,156 |
| | $ | (18,352 | ) | | | | | | | | |
| | Hedging interest expense | 1,365 |
| | 3,449 |
| | 5,789 |
| | 12,573 |
| Net results from derivative transactions | $ | (15,457 | ) | | $ | 7,081 |
| | $ | (26,491 | ) | | $ | 22,040 |
|
| | Hedging realized result | (4,866 | ) | | 1,197 |
| | (18,625 | ) | | 12,268 |
| Hedging interest expense | 1,640 |
| | 1,535 |
| | 1,491 |
| | 4,424 |
|
| | Adjustments for unrecognized derivative results | $ | 3,614 |
| | $ | 4,298 |
| | $ | 16,320 |
| | $ | 6,489 |
| Hedging realized result | 11,630 |
| | (4,020 | ) | | 13,698 |
| | (13,758 | ) |
| | | Adjustments for unrecognized derivative results | $ | (2,187 | ) | | $ | 4,596 |
| | $ | (11,302 | ) | | $ | 12,706 |
|
Core earnings has limitations as an analytical tool. Some of these limitations are:
Core earnings does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations and is not necessarily indicative of cash necessary to fund cash needs; and
other companies in our industry may calculate core earnings differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, core earnings should not be considered in isolation or as a substitute for net income (loss) attributable to shareholders or any other performance measures calculated in accordance with GAAP, or as 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 core earnings should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Income from sales of securitized loans, net of hedging and core gain on sale of securitized loans
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 the Company’s 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.
In addition, we present core gain on sale of securitized loans, a non-GAAP financial measure, which adjusts income from sales of securitized loans, net of hedging for economic gains on securitization transactions not recognized under GAAP. Management believes recognizing these amounts for core purposes in the period of economic transfer of risk is a reasonable supplemental measure of our performance.
Set forth below is an unaudited reconciliation of income from sale of securitized loans, net to income (loss) from sales of securitized loans, net of hedging as well as core gain on sale of loans, net as reported in our consolidated financial statements included herein and an unaudited reconciliation of hedge gain/(loss) relating to loans securitized to net results from derivative transactions as reported in our consolidated financial statements included hereinloans ($ in thousands except for number of loans and securitizations):
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2018(1) | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | | |
| Number of loans | Number of loans | 13 |
| | — |
| | 80 |
| | 57 |
| Number of loans | 22 |
| | 39 |
| | 36 |
| | 67 |
|
| Face amount of loans sold into securitizations | Face amount of loans sold into securitizations | $ | 101,978 |
| | $ | — |
| | $ | 939,314 |
| | $ | 625,653 |
| Face amount of loans sold into securitizations | $ | 237,782 |
| | $ | 400,789 |
| | $ | 407,452 |
| | $ | 837,336 |
|
| Number of securitizations | Number of securitizations | 1 |
| | — |
| | 6 |
| | 1 |
| Number of securitizations | 2 |
| | 3 |
| | 3 |
| | 5 |
|
| | | | | | | | | | | | | | | | | |
| Income from sales of securitized loans, net (1) | $ | 1,861 |
| | $ | — |
| | $ | 13,356 |
| | $ | 26,063 |
| |
| Hedge gain/(loss) related to loans securitized (2) | 453 |
| | — |
| | 9,329 |
| | (9,068 | ) | |
| Income from sales of loans, net | | Income from sales of loans, net | $ | 20,264 |
| | $ | 6,144 |
| | $ | 27,342 |
| | $ | 11,032 |
|
| Realized losses on loans related to lower of cost or market adjustments | | Realized losses on loans related to lower of cost or market adjustments | — |
| | — |
| | — |
| | 463 |
|
| Hedge gain/(loss) related to loans securitized(1) | | Hedge gain/(loss) related to loans securitized(1) | (9,109 | ) | | 2,309 |
| | (10,332 | ) | | 8,876 |
|
| Income from sales of securitized loans, net of hedging | Income from sales of securitized loans, net of hedging | 2,314 |
| | — |
| | 22,685 |
| | 16,995 |
| Income from sales of securitized loans, net of hedging | 11,155 |
| | 8,453 |
| | 17,010 |
| | 20,371 |
|
| Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred | Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred | 265 |
| | — |
| | 232 |
| | 3,746 |
| Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred | (256 | ) | | 5 |
| | 126 |
| | (32 | ) |
| Core gain on sale of securitized loans | Core gain on sale of securitized loans | $ | 2,579 |
| | $ | — |
| | $ | 22,917 |
| | $ | 20,741 |
| Core gain on sale of securitized loans | $ | 10,899 |
| | $ | 8,458 |
| | $ | 17,136 |
| | $ | 20,339 |
|
| |
| (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 September 30, | | Nine Months Ended September 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | |
| Income from sales of loans, net | $ | 1,861 |
| | $ | (775 | ) | | $ | 12,893 |
| | $ | 24,129 |
|
| Realized losses on loans related to lower of cost or market adjustments | — |
| | 411 |
| | 463 |
| | 1,779 |
|
| (Income) loss from sale of loans (non-securitized), net | — |
| | 364 |
| | — |
| | 155 |
|
| Income from sales of securitized loans, net | $ | 1,861 |
| | $ | — |
| | $ | 13,356 |
| | $ | 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 September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | | |
| Net results from derivative transactions | Net results from derivative transactions | $ | 7,115 |
| | $ | (348 | ) | | $ | 29,156 |
| | $ | (18,352 | ) | Net results from derivative transactions | $ | (15,457 | ) | | $ | 7,081 |
| | $ | (26,491 | ) | | $ | 22,040 |
|
| Hedge gain/(loss) related to lending and securities positions | Hedge gain/(loss) related to lending and securities positions | (6,662 | ) | | 661 |
| | (19,827 | ) | | 10,746 |
| Hedge gain/(loss) related to lending and securities positions | 6,348 |
| | (4,772 | ) | | 16,159 |
| | (13,164 | ) |
| Hedge gain/(loss) related to loans (non-securitized) | — |
| | (313 | ) | | — |
| | (1,462 | ) | |
| Hedge gain/(loss) related to loans securitized | Hedge gain/(loss) related to loans securitized | $ | 453 |
| | $ | — |
| | $ | 9,329 |
| | $ | (9,068 | ) | Hedge gain/(loss) related to loans securitized | $ | (9,109 | ) | | $ | 2,309 |
| | $ | (10,332 | ) | | $ | 8,876 |
|
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 indebtedness related to securitizations that is consolidated on our GAAP balance sheet and liability for transfers not considered sales 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. In addition, adjusted leverage is used to determine compliance with financial covenants.
Set forth below is an unaudited computation of adjusted leverage ($ in thousands):
| | | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| | | | | | | |
| Debt obligations, net | $ | 4,757,633 |
| | $ | 4,379,826 |
| $ | 4,613,088 |
| | $ | 4,452,574 |
|
| Less: CLO Debt(1) | (672,001 | ) | | (688,479 | ) | |
| Less: CLO debt(1) | | (263,216 | ) | | (601,543 | ) |
| Adjusted debt obligations | 4,085,632 |
| | 3,691,347 |
| 4,349,872 |
| | 3,851,031 |
|
| | | | | | | |
| Total equity | 1,553,643 |
| | 1,488,146 |
| 1,648,074 |
| | 1,643,635 |
|
| | | | | | | |
| Adjusted leverage | 2.6 |
| | 2.5 |
| 2.6 |
| | 2.3 |
|
| |
| (1) | As more fully discussed in Note 8 to our consolidated financial statements, we contributed over $888.4 million of balance sheet loans into two CLO securitizations that remain on our balance sheet for accounting purposes but should be excluded from debt obligations for adjusted leverage calculation purposes. |
Cost of funds
We present cost of funds, which is a non-GAAP financial measure, as a supplemental measure of the Company’s cost of debt financing. We define cost of funds as interest expense as reported on our consolidated statements of income adjusted to exclude interest expense related to liabilities for transfers not considered sales and include the net interest expense component resulting from our hedging activities, which is currently included in net results from derivative transactions on our consolidated statements of income. Interest income, net of cost of funds which is a non-GAAP financial measure, is defined as interest income, less interest income related to mortgage loans transferred but not considered sold less cost of funds.
Set forth below is an unaudited reconciliation of interest expense to cost of funds ($ in thousands):
| | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | | |
| Interest expense | Interest expense | $ | (51,476 | ) | | $ | (37,485 | ) | | $ | (144,606 | ) | | $ | (104,561 | ) | Interest expense | $ | (52,369 | ) | | $ | (48,417 | ) | | $ | (103,618 | ) | | $ | (93,130 | ) |
| Interest expense related to liability for loan transferred but not considered sales | — |
| | 764 |
| | — |
| | 780 |
| |
| Interest expense related to liability for transfers not considered sales(1) | | Interest expense related to liability for transfers not considered sales(1) | 34 |
| | — |
| | 92 |
| | — |
|
Net interest expense component of hedging activities (1)(2) | Net interest expense component of hedging activities (1)(2) | (1,365 | ) | | (3,449 | ) | | (5,789 | ) | | (12,573 | ) | Net interest expense component of hedging activities (1)(2) | (1,640 | ) | | (1,535 | ) | | (1,491 | ) | | (4,424 | ) |
| Cost of funds | Cost of funds | $ | (52,841 | ) | | $ | (40,170 | ) | | $ | (150,395 | ) | | $ | (116,354 | ) | Cost of funds | $ | (53,975 | ) | | $ | (49,952 | ) | | $ | (105,017 | ) | | $ | (97,554 | ) |
| | | | | | | | | | | | | | | | | |
| Interest income | Interest income | $ | 90,386 |
| | $ | 66,833 |
| | $ | 253,822 |
| | $ | 190,315 |
| Interest income | $ | 85,322 |
| | $ | 85,230 |
| | $ | 171,789 |
| | $ | 163,437 |
|
| Interest income related to mortgage loans transferred but not considered sold(1) | | Interest income related to mortgage loans transferred but not considered sold(1) | (34 | ) | | — |
| | (92 | ) | | — |
|
| Cost of funds | Cost of funds | (52,841 | ) | | (40,170 | ) | | (150,395 | ) | | (116,354 | ) | Cost of funds | (53,975 | ) | | (49,952 | ) | | (105,017 | ) | | (97,554 | ) |
| Interest income, net of cost of funds | Interest income, net of cost of funds | $ | 37,545 |
| | $ | 26,663 |
| | $ | 103,427 |
| | $ | 73,961 |
| Interest income, net of cost of funds | $ | 31,313 |
| | $ | 35,278 |
| | $ | 66,680 |
| | $ | 65,883 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2018 | | 2017 | | 2018 | | 2017 |
| | | | | | | | | |
| (1) | Net result from derivative transactions | $ | 7,115 |
| | $ | (348 | ) | | $ | 29,156 |
| | $ | (18,352 | ) |
| | Hedging realized result | (4,866 | ) | | 1,197 |
| | (18,625 | ) | | 12,268 |
|
| | Hedging unrecognized result | (3,614 | ) | | (4,298 | ) | | (16,320 | ) | | (6,489 | ) |
| | Net interest expense component of hedging activities | $ | (1,365 | ) | | $ | (3,449 | ) | | $ | (5,789 | ) | | $ | (12,573 | ) |
|
| | | | | | | | | | | | | | | | |
| (1) | As more fully discussed in Note 4 to our consolidated financial statements, during the three months ended March 31, 2019, we sold a non-controlling loan interest in a first mortgage loan receivable to a third party. The sales proceeds were considered non-recourse secured borrowings, which were included in liability for transfers not considered sales in debt obligations, and the asset remained on the Company’s consolidated balance sheets as mortgage loans transferred but not considered sold. During the three months ended June 30, 2019, the controlling loan interest was sold, and as a result, the loan previously sold during the three months ended March 30, 2019 was accounted for as a sale during the six months ended June 30, 2019. The interest income and expense related to this asset and liability are included on our consolidated statements of income but should be excluded from the calculation of cost of funds. |
| | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | |
| (2) | Net result from derivative transactions | $ | (15,457 | ) | | $ | 7,081 |
| | $ | (26,491 | ) | | $ | 22,040 |
|
| | Hedging realized result | 11,630 |
| | (4,020 | ) | | 13,698 |
| | (13,758 | ) |
| | Hedging unrecognized result | 2,187 |
| | (4,596 | ) | | 11,302 |
| | (12,706 | ) |
| | Net interest expense component of hedging activities | $ | (1,640 | ) | | $ | (1,535 | ) | | $ | (1,491 | ) | | $ | (4,424 | ) |
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The nature of the Company’s business exposes it to market risk arising from changes in interest rates. Changes, both increases and decreases, in the rates the Company is able to charge its borrowers, the yields the Company is able to achieve in its securities investments, and the Company’s cost of borrowing directly impacts its net income. The Company’s interest income stream from loans and securities is generally fixed over the life of its assets, whereas it uses floating-rate debt to finance a significant portion of its investments. Another component of interest rate risk is the effect changes in interest rates will have on the market value of the assets the Company acquires. The Company faces the risk that the market value of its assets will increase or decrease at different rates than that of its liabilities, including its hedging instruments. The Company mitigates interest rate risk through utilization of hedging instruments, primarily interest rate swap and futures agreements. Interest rate swap and futures agreements are utilized to hedge against future interest rate increases on the Company’s borrowings and potential adverse changes in the value of certain assets that result from interest rate changes. The Company generally seeks to hedge assets that have a duration longer than five years, including newly originated conduit first mortgage loans, securities in the Company’s CMBS portfolio if long enough in duration, and most of its U.S. Agency Securities portfolio.
The following table summarizes the change in net income for a 12-month period commencing SeptemberJune 30, 20182019 and the change in fair value of our investments and indebtedness assuming an increase or decrease of 100 basis points in the LIBOR interest rate on SeptemberJune 30, 2018,2019, both adjusted for the effects of our interest rate hedging activities ($ in thousands):
| | | | Projected change in net income(1) | | Projected change in portfolio value | Projected change in net income(1) | | Projected change in portfolio value |
| | | | | | | |
| Change in interest rate: | | | | | | |
| Decrease by 1.00% | $ | (15,395 | ) | | $ | 16,252 |
| $ | (10,127 | ) | | $ | 15,077 |
|
| Increase by 1.00% | 17,754 |
| | (16,057 | ) | 19,045 |
| | (14,523 | ) |
| |
| (1) | Subject to limits for floors on our floating rate investments and indebtedness. |
Market Value Risk
The Company’s securities investments are reflected at their estimated fair value. The change in estimated fair value of securities available-for-sale is reflected in accumulated other comprehensive income. The change in estimated fair value of Agency interest-only securities is recorded in current period earnings. The estimated fair value of these securities fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of these securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of these securities would be expected to increase. As market volatility increases or liquidity decreases, the market value of the Company’s assets may be adversely impacted. The Company’s fixed rate mortgage loan portfolio is subject to the same risks. However, to the extent those loans are classified as held for sale, they are reflected at the lower of cost or market. Otherwise, held for investment mortgage loans are reflected at values equal to the unpaid principal balances net of certain fees, costs and loan loss allowances.
Liquidity Risk
Market disruptions may lead to a significant decline in transaction activity in all or a significant portion of the asset classes in which the Company invests and may at the same time lead to a significant contraction in short-term and long-term debt and equity funding sources. A decline in liquidity of real estate and real estate-related investments, as well as a lack of availability of observable transaction data and inputs, may make it more difficult to sell the Company’s investments or determine their fair values. As a result, the Company may be unable to sell its investments, or only be able to sell its investments at a price that may be materially different from the fair values presented. Also, in such conditions, there is no guarantee that the Company’s borrowing arrangements or other arrangements for obtaining leverage will continue to be available or, if available, will be available on terms and conditions acceptable to the Company. In addition, a decline in market value of the Company’s assets may have particular adverse consequences in instances where it borrowed money based on the fair value of its assets. A decrease in the market value of the Company’s assets may result in the lender requiring it to post additional collateral or otherwise sell assets at a time when it may not be in the Company’s best interest to do so. The Company’s captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends may only be made with regulatory approval. The Company’s broker-dealer subsidiary, LCS, is also required to be compliant with FINRA and SEC regulations which require that dividends may only be made with regulatory approval.
Credit Risk
The Company is subject to varying degrees of credit risk in connection with its investments. The Company seeks to manage credit risk by performing deep credit fundamental analyses of potential assets and through ongoing asset management. The Company’s investment guidelines do not limit the amount of its equity that may be invested in any type of its assets; however, investments greater than a certain size are subject to approval by the Risk and Underwriting Committee of the board of directors.
Credit Spread Risk
Credit spread risk is the risk that interest rate spreads between two different financial instruments will change. In general, fixed-rate commercial mortgages and CMBS are priced based on a spread to Treasury or interest rate swaps. The Company generally benefits if credit spreads narrow during the time that it holds a portfolio of mortgage loans or CMBS investments, and the Company may experience losses if credit spreads widen during the time that it holds a portfolio of mortgage loans or CMBS investments. The Company actively monitors its exposure to changes in credit spreads and the Company may enter into credit total return swaps or take positions in other credit related derivative instruments to moderate its exposure against losses associated with a widening of credit spreads.
Risks Related to Real Estate
Real estate and real estate-related assets, including loans and commercial real estate-related securities, are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; environmental conditions; competition from comparable property types or properties; changes in tenant mix or performance and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause the Company to suffer losses.
Covenant Risk
In the normal course of business, the Company enters into loan and securities repurchase agreements and credit facilities with certain lenders to finance its real estate investment transactions. These agreements contain, among other conditions, events of default and various covenants and representations. If such events are not cured by the Company or waived by the lenders, the lenders may decide to curtail or limit extension of credit, and the Company may be forced to repay its advances or loans. In addition, the Company’s Notes are subject to covenants, including limitations on the incurrence of additional debt, restricted payments, liens, sales of assets, affiliate transactions and other covenants typical for financings of this type. The Company’s failure to comply with these covenants could result in an event of default, which could result in the Company being required to repay these borrowings before their due date. As of SeptemberJune 30, 2018,2019, the Company believes it was in compliance with all covenants.
Diversification Risk
The assets of the Company are concentrated in the real estate sector. Accordingly, the investment portfolio of the Company may be subject to more rapid change in value than would be the case if the Company were to maintain a wide diversification among investments or industry sectors. Furthermore, even within the real estate sector, the investment portfolio may be relatively concentrated in terms of geography and type of real estate investment. This lack of diversification may subject the investments of the Company to more rapid change in value than would be the case if the assets of the Company were more widely diversified.
Concentrations of Market Risk
Concentrations of market risk may exist with respect to the Company’s investments. Market risk is a potential loss the Company may incur as a result of change in the fair values of its investments. The Company may also be subject to risk associated with concentrations of investments in geographic regions and industries.
Regulatory Risk
The Company established a broker-dealer subsidiary, LCS, which was initially licensed and capitalized to do business in July 2010. LCS is required to be compliant with FINRA and SEC requirements on an ongoing basis and is subject to multiple operating and reporting requirements to which all broker-dealer entities are subject. Additionally, Ladder Capital Asset Management LLC (“LCAM”) is a registered investment adviser. LCAM is required to be compliant with SEC requirements on an ongoing basis and is subject to multiple operating and reporting requirements to which all registered investment advisers are subject. In addition, Tuebor is subject to state regulation as a captive insurance company. If LCS, the Adviser or Tuebor fail to comply with regulatory requirements, they could be subject to loss of their licenses and registration and/or economic penalties.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as required by Rules 13a-15 and 15d-15 under the Exchange Act as of SeptemberJune 30, 2018.2019. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of SeptemberJune 30, 2018,2019, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Changes in Internal Control Over Financial Reporting
There were no material impacts as a result of the accounting pronouncements adopted during the quarter ended September 30, 2018, and as such, there were no changes in controls required. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended SeptemberJune 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
From time to time, we may be involved in litigation and claims incidental to the conduct of our business in the ordinary course. Further, certain of our subsidiaries, including our registered broker-dealer, registered investment advisers and captive insurance company, are subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We are not presently a party to any material enforcement proceedings, litigation related to regulatory compliance matters or any other type of material litigation matters. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards.
Item 1A. Risk Factors
There have been no material changes during the three months ended SeptemberJune 30, 20182019 to the risk factors in Item 1A1A. in our Annual Report.
Item 2. Unregistered Sale of Securities and Use of Proceeds
None.During the six months endedJune 30, 2019, 1,139,411 Series REIT LP Units and 1,139,411 Series TRS LP Units were collectively exchanged for 1,139,411 shares of Class A common stock and 1,139,411 shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges, which were effected in reliance on Section 4(a)(2) of the Securities Act.
Stock Repurchases
On October 30, 2014, the board of directors authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time without further approval. Stock repurchases by the Company are generally made for cash in open market transactions at prevailing market prices but may also be made in privately negotiated transactions or otherwise. The timing and amount of purchases are determined based upon prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. During the ninethree months ended SeptemberJune 30, 2018, there were no repurchases2019, the Company repurchased 40,065 shares of Class A common stock byat an average of $15.90 per share for a total aggregate purchase price of $0.6 million. All repurchased shares are recorded as treasury stock at cost.
The following table is a summary of the Company.Company’s repurchase activity of its Class A common stock during the three months ended June 30, 2019 ($ in thousands, except per share data and average price paid per share):
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| | | | | | | | | | | | | | |
| ISSUER PURCHASE OF EQUITY SECURITIES |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| | | | | | | | | |
| April 1, 2019 - April 30, 2019 | | — |
| | $ | — |
| | — |
| | $ | 41,769 |
|
| May 1, 2019 - May 31, 2019 | | 20,065 |
| | 15.91 |
| | 20,065 |
| | 41,450 |
|
| June 1, 2019 - June 30, 2019 | | 20,000 |
| | 15.89 |
| | 20,000 |
| | 41,132 |
|
| Total | | 40,065 |
| | $ | 31.80 |
| | 40,065 |
| | $ | 41,132 |
|
| |
| (1) | In August 2015, we publicly disclosed that our board of directors had authorized the Company to repurchase up to $50.0 million of the Company’s Class A common stock from time to time. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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| EXHIBIT INDEX |
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EXHIBIT NO. | | DESCRIPTION |
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101101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i)File because its XBRL tags are embedded within the Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017; (ii) the Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2017; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017; (iv) the Consolidated Statement of Changes in Equity for the nine months ended September 30, 2018 and the year ended December 31, 2017; (v) the Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2018 and 2017; and (vi) the Notes to the Consolidated Financial Statements.Inline XBRL (iXBRL) document |
| 101.SCH | | iXBRL Taxonomy Extension Schema Document |
| 101.CAL | | iXBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | iXBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | iXBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | iXBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | | Cover Page Interactive Data File - iXBRL |
*The certifications attached hereto as Exhibits 32.1 and 32.2 are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing.
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, thereunto duly authorized.
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| | | |
| | | LADDER CAPITAL CORP |
| | | (Registrant) |
| | | |
| | | |
Date: November 1, 2018July 31, 2019 | | By: | /s/ BRIAN HARRIS |
| | | | Brian Harris |
| | | | Chief Executive Officer |
| | | |
Date: November 1, 2018July 31, 2019 | | By: | /s/ MARC FOX |
| | | | Marc Fox |
| | | | Chief Financial Officer |
