0001577670 us-gaap:~~FairValueMeasurementsRecurringMember~~FairValueInputsLevel3Member ladr:~~CommercialMortgageBackedSecuritiesInterestOnlyMember ladr:InternalModelThirdPartyInputsValuationTechniqueMember 2019-01-01 2019-09-30~~RepurchaseAgreementsLongTermMember 2019-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

☐ 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)			(IRS Employer Identification No.)

345 Park Avenue,	New York,	NY	10154
(Address of principal executive offices)			(Zip Code)

(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 ☒ No ☐

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 ☒ No ☐

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 filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes ☐ No ☒

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, 2019~~April 22, 2020
Class A common stock, $0.001 par value		~~107,573,820~~108,337,782
Class B common stock, $0.001 par value		12,158,933

LADDER CAPITAL CORP

FORM 10-Q

~~September 30, 2019~~March 31, 2020



Index			Page
PART I - FINANCIAL INFORMATION			5
Item 1.	Financial Statements (Unaudited)		5
		Consolidated Balance Sheets	6
		Consolidated Statements of Income	7
		Consolidated Statements of Comprehensive Income	9
		Consolidated Statements of Changes in Equity	10
		Consolidated Statements of Cash Flows	1412
		Notes to Consolidated Financial Statements	1715
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8565
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		~~127~~90
Item 4.	Controls and Procedures		~~130~~93
PART II - OTHER INFORMATION			~~130~~93
Item 1.	Legal Proceedings		~~130~~93
Item 1A.	Risk Factors		~~130~~93
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		~~130~~95
Item 3.	Defaults Upon Senior Securities		~~131~~95
Item 4.	Mine Safety Disclosures		~~131~~95
Item 5.	Other Information		~~131~~95
Item 6.	Exhibits		~~132~~96
SIGNATURES			~~133~~97

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” herein and in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 (“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”);

the impact of the COVID-19 pandemic and of responsive measures implemented by various governmental authorities, businesses and other third parties;

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 Ladder or 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 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)



Consolidated Balance Sheets		6
Consolidated Statements of Income		7
Consolidated Statements of Comprehensive Income		9
Consolidated Statements of Changes in Equity		10
Consolidated Statements of Cash Flows		1412
Notes to Consolidated Financial Statements		1715
	Note 1. Organization and Operations	1715
	Note 2. Significant Accounting Policies	1716
	Note 3. Mortgage Loan Receivables	2320
	Note 4. Real Estate Securities	2726
	Note 5. Real Estate and Related Lease Intangibles, Net	3029
	Note 6. Investment in Unconsolidated Joint Ventures	3533
	Note 7. Debt Obligations, Net	3836
	Note 8. Derivative Instruments	4642
	Note 9. Offsetting Assets and Liabilities	4844
	Note 10. ~~Consolidated Variable Interest Entities~~Equity Structure and Accounts	46
	Note 11. Noncontrolling Interests	48
	Note 12. Earnings Per Share	49
	Note 13. Stock Based and Other Compensation Plans	50
	Note ~~11. Equity Structure and Accounts~~14. Fair Value of Financial Instruments	51
	~~Note 12. Noncontrolling Interests~~	54
	~~Note 13. Earnings Per Share~~	56
	~~Note 14. Stock Based and Other Compensation Plans~~	5853
	Note 15. ~~Fair Value of Financial Instruments~~Income Taxes	6859
	Note 16. ~~Income Taxes~~Commitments and Contingencies	7560
	Note 17. ~~Related Party Transactions~~Segment Reporting	7762
	Note 18. ~~Commitments and Contingencies~~	79
	~~Note 19. Segment Reporting~~	80
	~~Note 20.~~ Subsequent Events	8464

Ladder Capital Corp

Consolidated Balance Sheets

(Dollars in Thousands)


	September 30, 2019(1)			December 31, 2018(1)			March 31, 2020(1)			December 31, 2019(1)
	(Unaudited)						(Unaudited)
Assets
Cash and cash equivalents	$	83,097		$	67,878		$	358,352		$	58,171
Restricted cash	38,656			30,572			263,869			297,575
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries	3,231,443			3,318,390
Provision for loan losses	(18,500		)	(17,900		)
Mortgage loan receivables held for investment, net, at amortized cost							3,383,322			3,236,536
Mortgage loan receivables held for sale	174,214			182,439			146,713			122,325
Real estate securities	1,911,456			1,410,126			1,930,605			1,721,305
Real estate and related lease intangibles, net	981,333			998,022			1,047,418			1,048,081
Investments in and advances to unconsolidated joint ventures	51,419			40,354			48,659			48,433
FHLB stock	61,619			57,915			61,619			61,619
Derivative instruments	22			—			950			693
Due from brokers	3,962			—
Accrued interest receivable	22,699			27,214			23,231			21,066
Other assets	78,454			157,862			67,134			53,348
Total assets	$	6,619,874		$	6,272,872		$	7,331,872		$	6,669,152
Liabilities and Equity
Liabilities
Debt obligations, net	$	4,860,687		$	4,452,574		$	5,681,020		$	4,859,873
Due to brokers	7,000			1,301
Derivative instruments	82			975
Amount payable pursuant to tax receivable agreement	1,559			1,570
Dividends payable	2,384			37,316			38,256			38,696
Accrued expenses	45,761			82,425			38,476			72,397
Other liabilities	63,151			53,076			73,293			59,209
Total liabilities	4,980,624			4,629,237			5,831,045			5,030,175
Commitments and contingencies (Note 18)	—			—			—			—
Equity
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 107,573,820 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
Class A common stock, par value $0.001 per share, 600,000,000 shares authorized; 110,693,832 and 110,693,832 shares issued and 108,337,782 and 107,509,563 shares outstanding							109			108
Class B common stock, par value $0.001 per share, 100,000,000 shares authorized; 12,158,933 and 12,158,933 shares issued and outstanding							12			12
Additional paid-in capital	1,529,599			1,471,157			1,546,143			1,532,384
Treasury stock, 3,120,012 and 2,701,162 shares, at cost	(41,556		)	(32,815		)
Treasury stock, 2,356,050 and 3,184,269 shares, at cost							(52,983		)	(42,699		)
Retained earnings (dividends in excess of earnings)	(39,860		)	11,342			(94,171		)	(35,746		)
Accumulated other comprehensive income (loss)	10,367			(4,649		)	(65,920		)	4,218
Total shareholders’ equity	1,458,670			1,445,153			1,333,190			1,458,277
Noncontrolling interest in operating partnership	171,731			188,427			160,466			172,054
Noncontrolling interest in consolidated joint ventures	8,849			10,055			7,171			8,646
Total equity	1,639,250			1,643,635			1,500,827			1,638,977

Total liabilities and equity	$	6,619,874		$	6,272,872		$	7,331,872		$	6,669,152


(1)	Includes amounts relating to consolidated variable interest entities. See Note 10. 1.

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 March 31,
	2019			2018			2019			2018			2020			2019

Net interest income
Interest income	$	82,251		$	90,386		$	254,040		$	253,822		$	72,589		$	86,466
Interest expense	51,397			51,476			155,015			144,606			51,401			51,248
Net interest income	30,854			38,910			99,025			109,216			21,188			35,218
Provision for loan losses	—			10,300			600			13,600			26,581			300
Net interest income after provision for loan losses	30,854			28,610			98,425			95,616			(5,393		)	34,918

Other income (loss)
Operating lease income	24,405			24,997			81,106			79,306			26,328			28,921
Sale of loans, net	11,247			1,861			38,589			12,893			1,005			7,079
Realized gain (loss) on securities	3,396			(2,554		)	10,726			(4,896		)	3,011			2,865
Unrealized gain (loss) on equity securities	254			—			1,341			—			(533		)	2,078
Unrealized gain (loss) on Agency interest-only securities	16			142			38			456			76			11
Realized gain (loss) on sale of real estate, net	2,082			63,704			963			96,341			10,529			4
Impairment of real estate	—			—			(1,350		)	—			—			(1,350		)
Fee and other income	5,166			4,851			17,047			17,579			1,519			4,685
Net result from derivative transactions	(9,465		)	7,115			(35,956		)	29,156			(15,435		)	(11,034		)
Earnings (loss) from investment in unconsolidated joint ventures	1,094			401			3,617			466			441			959
Gain (loss) on extinguishment/defeasance of debt	—			(4,323		)	(1,070		)	(4,392		)	2,061			(1,070		)
Total other income (loss)	38,195			96,194			115,051			226,909			29,002			33,148
Costs and expenses
Salaries and employee benefits	14,319			15,792			52,800			46,754			17,021			23,574
Operating expenses	5,314			5,464			16,727			16,608			5,794			5,403
Real estate operating expenses	6,270			7,152			17,776			23,806			7,948			5,474
Fee expense	2,056			1,311			4,951			2,953			1,439			1,712
Depreciation and amortization	9,030			10,417			29,192			31,896			10,009			10,227
Total costs and expenses	36,989			40,136			121,446			122,017			42,211			46,390
Income (loss) before taxes	32,060			84,668			92,030			200,508			(18,602		)	21,676
Income tax expense (benefit)	1,112			1,204			478			5,679			(4,541		)	(2,854		)
Net income (loss)	30,948			83,464			91,552			194,829			(14,061		)	24,530
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures	(64		)	(7,843		)	691			(16,132		)	(1,519		)	447
Net (income) loss attributable to noncontrolling interest in operating partnership	(3,308		)	(8,991		)	(10,247		)	(22,786		)	(148		)	(2,802		)
Net income (loss) attributable to Class A common shareholders	$	27,576		$	66,630		$	81,996		$	155,911		$	(15,728	)	$	22,175

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 March 31,
	2019		2018		2019		2018		2020			2019

Earnings per share:
Basic	$	0.26	$	0.69	$	0.78	$	1.62	$	(0.15	)	$	0.21
Diluted	$	0.26	$	0.67	$	0.77	$	1.61	$	(0.15	)	$	0.21

Weighted average shares outstanding:
Basic	106,004,152		96,935,986		105,264,752		96,317,513		106,329,796			104,259,549
Diluted	106,603,713		110,650,253		106,232,581		110,482,991		106,329,796			105,006,315

Dividends per share of Class A common stock (Note 11)	$	0.340	$	0.325	$	1.020	$	0.965
Dividends per share of Class A common stock									$	0.340		$	0.340

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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019

Net income (loss)	$	30,948		$	83,464		$	91,552		$	194,829		$	(14,061	)	$	24,530

Other comprehensive income (loss)
Unrealized gain (loss) on securities, net of tax:
Unrealized gain (loss) on real estate securities, available for sale	1,389			(1,109		)	27,414			(14,554		)	(76,252		)	15,971
Reclassification adjustment for (gain) loss included in net income (loss)	(3,398		)	2,554			(10,639		)	4,896			(1,755		)	(2,778		)

Total other comprehensive income (loss)	(2,009		)	1,445			16,775			(9,658		)	(78,007		)	13,193

Comprehensive income (loss)	28,939			84,909			108,327			185,171			(92,068		)	37,723
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures	(64		)	(7,843		)	691			(16,132		)	(1,519		)	447
Comprehensive income (loss) of combined Class A common shareholders and Operating Partnership unitholders	28,875			77,066			109,018			169,039			(93,587		)	38,170
Comprehensive (income) loss attributable to noncontrolling interest in operating partnership	(3,104		)	(9,160		)	(12,087		)	(21,358		)	7,717			(4,265		)
Comprehensive income (loss) attributable to Class A common shareholders	$	25,771		$	67,906		$	96,931		$	147,681		$	(85,870	)	$	33,905

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, 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
Contributions —
—
—
—
—
—
—
—
—
306
306
Distributions —
—
—
—
—
—
—
—
(4,283 ) (751 ) (5,034 )
Amortization of equity based compensation —
—
—
—
3,575
—
—
—
—
—
3,575
Re-issuance of treasury stock 24
—
—
—
—
—
—
—
—
—
—
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units (1 ) —
—
—
—
(21 ) —
—
—
—
(21 )
Dividends declared —
—
—
—
—
—
(36,589 ) —
—
—
(36,589 )
Net income (loss) —
—
—
—
—
—
27,576
—
3,308
64
30,948
Other comprehensive income (loss) —
—
—
—
—
—
—
(1,804 ) (205 ) —
(2,009 )
Rebalancing of ownership percentage between Company and Operating Partnership —
—
—
—
(445 ) —
—
—
445
—
—
Balance, September 30, 2019 107,574
$ 108
12,159
$ 12
$ 1,529,599
$ (41,556 ) $ (39,860 ) $ 10,367
$ 171,731
$ 8,849
$ 1,639,250

~~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 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					_{Treasury Stock}						_Operating _Partnership				_Consolidated _{Joint Ventures}			_Shares			_Par					_Shares		_Par				_Operating _Partnership				_{Treasury Stock}			_Consolidated _{Joint Ventures}					_Accumulated _Other _{Comprehensive} _{Income (Loss)}									_{Total Equity}
								_{Additional Paid-} _in-Capital						_{Retained Earnings (Dividends in Excess of Earnings)}				_Accumulated _Other _{Comprehensive} _{Income (Loss)}										_{Total Equity}											_{Additional Paid-} _in-Capital
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
Balance, December 31, 2019																															107,509		$	108	12,160	$	12		$	1,532,384		$	(42,699	)		_{Retained Earnings (Dividends in Excess of Earnings)}	$	(35,746	)		$	4,218		$	172,054		$	8,646		$	1,638,977
Contributions	—	—		—		—		—			—			—				—			—			739				739			—		—		—	—			—			—				—				—			—			302			302
Distributions	—	—		—		—		—			—			—				—			(4,292		)	(10,608		)		(14,900		)	—		—		—	—			—			—				—				—			(4,133		)	(3,296		)	(7,429		)
Amortization of equity based compensation	—	—		—		—		2,162			—			—				—			—			—				2,162			—		—		—	—			14,026			—				—				—			—			—			14,026
Grants of restricted stock	5	—		—		—		—			—			—				—			—			—				—
Purchase of treasury stock																															(146	)	—		—	—			—			(1,206		)		—				—			—			—			(1,206		)
Re-issuance of treasury stock																															1,466		1		—	—			(1		)	—				—				—			—			—			—
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units																															(486	)	—		—	—			—			(9,078		)		—				—			—			—			(9,078		)
Forfeitures																															(6	)	—		—	—			—			—				—				—			—			—			—
Dividends declared	—	—		—		—		—			—			(31,931		)		—			—			—				(31,931		)	—		—		—	—			—			—				(36,900		)		—			—			—			(36,900		)
Exchange of noncontrolling interest for common stock	200	—		(200	)	—		3,000			—			—				(24		)	(2,774		)	—				202
CECL Adoption																															—		—		—	—			—			—				(5,797		)		—			—			—			(5,797		)
Net income (loss)	—	—		—		—		—			—			66,630				—			8,991			7,843				83,464			—		—		—	—			—			—				(15,728		)		—			148			1,519			(14,061		)
Other comprehensive income (loss)	—	—		—		—		—			—			—				1,276			169			—				1,445			—		—		—	—			—			—				—				(70,142		)	(7,865		)	—			(78,007		)
Rebalancing of ownership percentage between Company and Operating Partnership	—	—		—		—		(238		)	—			—				21			217			—				—			—		—		—	—			(266		)	—				—				4			262			—			—
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, March 31, 2020																															108,337		$	109	12,160	$	12		$	1,546,143		$	(52,983	)		$	(94,171	)		$	(65,920	)	$	160,466		$	7,171		$	1,500,827

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 —
—
—
—
—
—
—
—
—
498
498
Distributions —
—
—
—
—
—
—
—
(12,821 ) (1,013 ) (13,834 )
Amortization of equity based compensation —
—
—
—
18,336
—
—
—
—
—
18,336
Grants of restricted stock 1,478
1
—
—
(1 ) —
—
—
—
—
—
Purchase of treasury stock (40 ) —
—
—
—
(637 ) —
—
—
—
(637 )
Re-issuance of treasury stock 92
—
—
—
—
—
—
—
—
—
—
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units (462 ) —
—
—
—
(8,104 ) —
—
—
—
(8,104 )
Forfeitures (9 ) —
—
—
—
—
—
—
—
—
—
Dividends declared —
—
—
—
—
—
(109,375 ) —
—
—
(109,375 )
Stock dividends 1,434
1
181
—
23,822
—
(23,823 ) —
—
—
—
Exchange of noncontrolling interest for common stock 1,140
1
(1,140 ) (1 ) 16,449
—
—
64
(16,109 ) —
404
Net income (loss) —
—
—
—
—
—
81,996
—
10,247
(691 ) 91,552
Other comprehensive income (loss) —
—
—
—
—
—
—
14,935
1,840
—
16,775
Rebalancing of ownership percentage between Company and Operating Partnership —
—
—
—
(164 ) —
—
17
147
—
—
Balance, September 30, 2019 107,574
$ 108
12,159
$ 12
$ 1,529,599
$ (41,556 ) $ (39,860 ) $ 10,367
$ 171,731
$ 8,849
$ 1,639,250

~~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 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						_{Treasury Stock}						_Operating _Partnership				_Consolidated _{Joint Ventures}			_Shares			_Par					_Shares		_Par					_Operating _Partnership				_{Treasury Stock}			_Consolidated _{Joint Ventures}				_Accumulated _Other _{Comprehensive} _{Income (Loss)}										_{Total Equity}
										_{Additional Paid-} _in-Capital						_{Retained Earnings (Dividends in Excess of Earnings)}				_Accumulated _Other _{Comprehensive} _{Income (Loss)}										_{Total Equity}												_{Additional Paid-} _in-Capital
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, December 31, 2018																																	103,941		$	105	13,118		$	13		$	1,471,157		$	(32,815	)		_{Retained Earnings (Dividends in Excess of Earnings)}	$	11,342		$	(4,649	)		$	188,427		$	10,055		$	1,643,635
Contributions	—		—		—		—			—			—			—				—			—			5,779				5,779			—		—		—		—			—			—				—			—				—			77			77
Distributions	—		—		—		—			—			—			—				—			(13,191		)	(24,400		)		(37,591		)	—		—		—		—			—			—				—			—				(4,253		)	(56		)	(4,309		)
Amortization of equity based compensation	—		—		—		—			6,667			—			—				—			—			—				6,667			—		—		—		—			11,292			—				—			—				—			—			11,292
Grants of restricted stock	34		—		—		—			—			—			—				—			—			—				—			1,478		1		—		—			(1		)	—				—			—				—			—			—
Re-issuance of treasury stock																																	63		—		—		—			—			—				—			—				—			—			—
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units	(56	)	—		—		—			—			(837		)	—				—			—			—				(837		)	(455	)	—		—		—			—			(7,984		)		—			—				—			—			(7,984		)
Forfeitures	(26	)	—		—		—			—			—			—				—			—			—				—
Dividends declared	—		—		—		—			—			—			(94,206		)		—			—			—				(94,206		)	—		—		—		—			—			—				(36,243		)	—				—			—			(36,243		)
Stock dividends																																	1,434		1		181		—			23,822			—				(23,823		)	—				—			—			—
Exchange of noncontrolling interest for common stock	4,550		5		(4,550	)	(5		)	63,109			—			—				(167		)	(62,428		)	—				514			101		—		(101	)	—			1,493			—				—			(5		)		(1,436		)	—			52
Net income (loss)	—		—		—		—			—			—			155,911				—			22,786			16,132				194,829			—		—		—		—			—			—				22,175			—				2,802			(447		)	24,530
Other comprehensive income (loss)	—		—		—		—			—			—			—				(8,230		)	(1,428		)	—				(9,658		)	—		—		—		—			—			—				—			11,731				1,462			—			13,193
Rebalancing of ownership percentage between Company and Operating Partnership	—		—		—		—			(896		)	—			—				27			869			—				—			—		—		—		—			689			—				—			3				(692		)	—			—
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, 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

The accompanying notes are an integral part of these consolidated financial statements.

Ladder Capital Corp

Consolidated Statements of Cash Flows

(Dollars in Thousands)

~~(Unaudited)~~


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019

Cash flows from operating activities:
Net income (loss)	$	91,552		$	194,829		$	(14,061	)	$	24,530
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
(Gain) loss on extinguishment/defeasance of debt	1,070			4,392			(2,061		)	1,070
Depreciation and amortization	29,192			31,896			10,009			10,227
Unrealized (gain) loss on derivative instruments	(889		)	(1,356		)	(383		)	(2,491		)
Unrealized (gain) loss on equity securities	(1,341		)	—			533			(2,078		)
Unrealized (gain) loss on Agency interest-only securities	(38		)	(456		)	(76		)	(11		)
Unrealized (gain) loss on investment in mutual fund	(308		)	(204		)	991			(151		)
Provision for loan losses	600			13,600			26,581			300
Impairment of real estate	1,350			—			—			1,350
Amortization of equity based compensation	18,336			6,667			14,026			11,292
Amortization of deferred financing costs included in interest expense	8,460			8,020			2,568			2,738
Amortization of premium on mortgage loan financing	(1,300		)	(762		)	(309		)	(386		)
Amortization of above- and below-market lease intangibles	(867		)	(1,286		)	(660		)	(144		)
Amortization of premium/(accretion) of discount and other fees on loans	(14,405		)	(13,795		)	(3,924		)	(5,389		)
Amortization of premium/(accretion) of discount and other fees on securities	82			2,944			431			(113		)
Realized (gain) loss on sale of mortgage loan receivables held for sale	(38,589		)	(12,893		)	(1,005		)	(7,079		)
Realized (gain) loss on disposition of loan							51			—
Realized (gain) loss on securities	(10,726		)	4,896			(3,011		)	(2,865		)
Realized (gain) loss on sale of real estate, net	(963		)	(96,341		)	(10,529		)	(4		)
Realized gain on sale of derivative instruments	84			192			(125		)	(8		)
Origination of mortgage loan receivables held for sale	(554,115		)	(1,115,218		)	(212,805		)	(175,256		)
Purchases of mortgage loan receivables held for sale	(9,934		)	—
Repayment of mortgage loan receivables held for sale	492			1,324			64			193
Proceeds from sales of mortgage loan receivables held for sale	574,303			926,889			189,359			159,424
(Income) loss from investments in unconsolidated joint ventures in excess of distributions received	(3,617		)	(466		)	(441		)	(959		)
Distributions from operations of investment in unconsolidated joint ventures	3,067			—			—			3,067
Deferred tax asset (liability)	7,405			(4,484		)	12,037			3,139
Changes in operating assets and liabilities:
Accrued interest receivable	4,275			(1,968		)	(2,165		)	347
Other assets	(5,921		)	7,503			(13,731		)	92
Accrued expenses and other liabilities	(33,010		)	(5,262		)	(32,456		)	(42,869		)
Net cash provided by (used in) operating activities	64,245			(51,339		)	(41,092		)	(22,034		)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2020			2019

Cash flows from investing activities:
Origination of mortgage loan receivables held for investment	(985,825		)	(1,240,894		)	(313,936		)	(224,418		)
Repayment of mortgage loan receivables held for investment	1,191,908			755,404			118,573			294,074
Purchases of real estate securities	(1,192,852		)	(303,021		)	(438,423		)	(384,478		)
Repayment of real estate securities	178,468			93,185			43,627			24,188
Basis recovery of Agency interest-only securities	9,339			14,898			1,880			3,333
Proceeds from sales of real estate securities	534,249			306,109			106,367			209,166
Purchases of real estate	(13,905		)	(113,903		)	(6,239		)	(2,406		)
Capital improvements of real estate	(3,606		)	(4,822		)	(940		)	(907		)
Proceeds from sale of real estate	10,794			153,398			11,160			1,688
Capital contributions and advances to investment in unconsolidated joint ventures	(56,393		)	(370		)	—			(56,424		)
Capital distribution from investment in unconsolidated joint ventures	46,019			1,250			215			—
Capitalization of interest on investment in unconsolidated joint ventures	(142		)	(1,074		)	—			(142		)
Purchase of FHLB stock	(3,704		)	—			—			(3,704		)
Proceeds from sale of FHLB stock	—			20,000
Purchase of derivative instruments	(210		)	(305		)	(46		)	(159		)
Sale of derivative instruments	101			114			297			50
Net cash provided by (used in) investing activities	(285,759		)	(320,031		)	(477,465		)	(140,139		)
Cash flows from financing activities:
Deferred financing costs paid	(4,453		)	(2,975		)	(12,186		)	(3,899		)
Proceeds from borrowings under debt obligations	10,186,669			4,401,648			5,924,969			4,042,942
Repayment of borrowings under debt obligations	(9,771,014		)	(3,969,654		)	(5,073,000		)	(3,765,720		)
Cash dividends paid to Class A common shareholders	(144,306		)	(122,770		)	(37,340		)	(72,150		)
Capital distributed to noncontrolling interests in operating partnership	(12,821		)	(13,191		)	(4,134		)	(4,253		)
Capital contributed by noncontrolling interests in consolidated joint ventures	498			5,779			303			77
Capital distributed to noncontrolling interests in consolidated joint ventures	(1,013		)	(24,400		)	(3,296		)	(56		)
Reissuance of treasury stock							1			—
Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock	(8,106		)	(837		)	(9,078		)	(7,985		)
Purchase of treasury stock	(637		)	—			(1,206		)	—
Issuance of common stock							(1		)	—
Net cash provided by (used in) financing activities	244,817			273,600			785,032			188,956
Net increase (decrease) in cash, cash equivalents and restricted cash	23,303			(97,770		)	266,475			26,783
Cash, cash equivalents and restricted cash at beginning of period	98,450			182,683			355,746			98,450
Cash, cash equivalents and restricted cash at end of period	$	121,753		$	84,913		$	622,221		$	125,233


							Three Months Ended March 31,
	Nine Months Ended September 30,						2020			2019
	2019			2018

Supplemental information:
Cash paid for interest, net of amounts capitalized	$	164,429		$	151,868		$	49,417		$	63,985
Cash paid (received) for income taxes	4,817			5,718			(194		)	1,102

Non-cash investing and financing activities:
Securities and derivatives purchased, not settled	7,000			14			17			49,766
Securities and derivatives sold, not settled	3,962			—			1,383			5,514
Repayment in transit of mortgage loans receivable held for investment (other assets)	6,120			31,764			551			20,653
Repayment of mortgage loans receivable held for sale	128			—
Settlement of mortgage loan receivable held for investment by real estate, net	(17,851		)	—			(21,586		)	(17,851		)
Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, net, at amortized cost	35,940			55,403			—			15,504
Proceeds from sale of real estate	—			1,421
Real estate acquired in settlement of mortgage loan receivable held for investment, net	17,851			—			21,535			17,851
Net settlement of sale of real estate, subject to debt - real estate	(11,943		)	—			(19,098		)	—
Net settlement of sale of real estate, subject to debt - debt obligations	11,943			—			19,098			—
Reduction in proceeds from sales of real estate	—			62,417
Assumption of debt obligations by real estate buyer/defeasance of debt and related costs	—			(62,417		)
Exchange of noncontrolling interest for common stock	16,110			62,433			—			1,437
Change in deferred tax asset related to exchanges of noncontrolling interest for common stock	—			428
Increase in amount payable pursuant to tax receivable agreement	(11		)	(86		)	—			(11		)
Rebalancing of ownership percentage between Company and Operating Partnership	147			869
Dividends declared, not paid	2,384			1,964			38,256			1,409
Stock dividends	23,824			—			—			23,824

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, 2019		September 30, 2018		December 31, 2018		March 31, 2020		March 31, 2019		December 31, 2019

Cash and cash equivalents	$	83,097	$	49,625	$	67,878	$	358,352	$	45,158	$	58,171
Restricted cash	38,656		35,288		30,572		263,869		80,075		297,575
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	121,753	$	84,913	$	98,450	$	622,221	$	125,233	$	355,746

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 originates and invests in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. Ladder’s investment activities include: (i) direct origination of commercial real estate first mortgage loans; (ii) investments in investment grade securities secured by first mortgage loans on commercial real estate; and (iii) investments in net leased and other commercial real estate equity. 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 ~~September 30, 2019,~~March 31, 2020, Ladder Capital Corp has a ~~89.8%~~89.9% 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 its subsidiaries and records a noncontrolling interest for the economic interest in LCFH held by certain existing owners of LCFH, who were limited partners of LCFH prior to Ladder Capital Corp’s initial public offering (“IPO”) and continue to hold an economic interest in LCFH and voting shares of Ladder Capital Corp Class B common stock (the “Continuing LCFH Limited Partners”). LCFH is a Variable Interest Entity (“VIE”) and, as such, substantially all of the consolidated balance sheet is a consolidated VIE. 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 its 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. The IPO transactions described herein are referred to as the “IPO Transactions.”

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.

COVID-19 Impact on the Organization

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As of the date of this filing, our employees continue to work remotely in compliance with state guidelines. We continue to actively manage the liquidity and operations of the Company in light of the market disruption and impact on liquidity caused by the COVID-19 pandemic across most industries in the United States. Due to uncertainty related to the severity and duration of the pandemic, its impact on our revenues, profitability and financial position is difficult to assess at this time. Refer to the Notes to the Consolidated Financial Statements for further disclosure on the current and potential impact of the COVID-19 global pandemic on our business.

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company conducted a more extensive going concern analysis as a result of market volatility at March 31, 2020.

As the COVID-19 crisis evolved, management set out a plan to increase liquidity resources and pay down debt. The Company maintained a cash position of $622.2 million as of March 31, 2020 to mitigate uncertainty in liquidity needs in light of current market conditions. Partly as a result of maintaining higher levels of cash, the Company was not in compliance with its 3.5x covenant ratio with certain of its lenders as of March 31, 2020 (refer to Note 7, Debt Obligations, Net). However, the Company cured such non-compliance through pay downs of debt with various counterparties in excess of $830.0 million during the contractually provided covenant compliance grace period subsequent to quarter end. Additional cash sources subsequent to quarter end included pay downs of loans, the sales of certain loans and securities, a $310.2 million new non-recourse private collateralized loan obligation (“CLO”) financing and a $206.4 million new secured non-mark to market financing facility with KREI (refer to Note 18, Subsequent Events for further disclosure). Management has evaluated current market conditions and expects that the Company’s current cash resources, operating cash flows and ability to obtain financing will be sufficient to sustain operations for a period greater than one year from the issuance date of this report.

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, ~~2018,~~2019, 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 10 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 equity in the consolidated balance sheets. In addition, the presentation of net income attributes earnings to shareholders/unitholders (controlling interest) and noncontrolling interests.

Provision for Loan Losses

~~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~~reflects the ~~valuation~~Company’s estimate of ~~underlying collateral~~loan losses inherent in the loan portfolio as of the balance sheet date. The provision for ~~collateral dependent loans;~~

~~determination~~loan losses includes a portfolio-based, current expected credit loss (“CECL”) component and an asset-specific component. In compliance with the new CECL reporting requirements, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of ~~other than temporary impairment~~the CECL reserves. As part of that effort, the Company has engaged a third-party service provider to provide market data and a credit loss model. The credit loss model is a forward-looking, econometric, commercial real estate ~~securities~~(“CRE”) loss forecasting tool. It is comprised of a probability of default (“PD”) model and ~~investments in~~a loss given default (“LGD”) model that, layered together with user’s loan-level data, selected forward-looking macroeconomic variables, and ~~advances~~pool-level mean loss rates, produces life of loan expected losses (“EL”) at the loan and portfolio level.

The asset-specific reserve component relates to ~~unconsolidated joint ventures;~~

~~certain estimates and assumptions used in~~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 ~~accrual~~Company will not be able to collect all amounts due according to the contractual terms of ~~incentive compensation and calculation~~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 ~~equity compensation issued~~the collateral, less the estimated costs to ~~employees;~~

~~determination~~sell, if recovery of the ~~effective tax~~Company’s investment is expected solely from the collateral. The Company generally will use the direct capitalization rate valuation methodology or the sales comparison approach to estimate the fair value of the collateral for ~~income tax provision;~~such loans and

in certain ~~estimates~~cases will obtain external appraisals. Determining fair value of the collateral may take into account a number of assumptions including, but not limited to, cash flow projections, market capitalization rates, discount rates and data regarding recent comparable sales of similar properties. Such assumptions ~~used in the allocation of revenue~~are generally based on current market conditions and ~~expenses for our segment reporting.~~

~~Cash~~are subject to economic and ~~Cash Equivalents~~market uncertainties.

The ~~Company considers all investments with original maturities of three months~~Company’s loans are typically collateralized by real estate directly 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~~indirectly. As a maximum of $250,000 per account as of September 30, 2019 and December 31, 2018. At September 30, 2019 and December 31, 2018, and at various times during the years, the balances exceeded the insured limits.

~~Restricted Cash~~

~~Restricted cash is comprised of accounts~~result, the Company ~~maintains~~regularly evaluates the extent and impact of any credit deterioration associated 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 performance and/or value of the ~~positions~~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 ~~these accounts~~managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector, and geographic submarket in which the collateral property is located. Such impairment analyses are completed and reviewed by asset management and underwriting 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 and ultimately presented to management for approval.

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 ~~associated margin requirements, the Company may be required to deposit additional cash into these broker accounts. The cash collateral held by broker~~debtor is ~~considered restricted cash. Restricted cash also includes tenant security deposits, deposits related to real estate sales and acquisitions and required escrow balances~~experiencing financial difficulties. Impairments on ~~credit facilities. Prior to January 1, 2017, these amounts were previously recorded in other assets on the Company’s consolidated balance sheets.~~

~~Recognition of Operating Lease Income and Tenant Recoveries~~

Certain 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 arrangementsTDR loans 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 accounting purposes. This policy election has been adopted for each of the Company’s leased asset classes existing as of the effective date and subject to the transition provisions of ASC Topic 842, will be applied to 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 determine at contract inception whether it will apply the optional practical expedient to the new leased asset class.

Leases are evaluated for classification as operating or finance leases at the commencement date of the lease. Right-of-use assets and corresponding liabilities are recognized on the Company’s consolidated balance sheetgenerally measured based on the present value of expected future ~~lease payments relating to~~cash flows discounted at the ~~use~~effective interest rate 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 commencement 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 optionsoriginal loans. Generally, when granting concessions, the Company ~~has determined, at~~will seek to protect its position by requiring incremental pay downs, additional collateral or ~~subsequent~~guarantees and, in some cases, lookback features or equity interests to ~~lease commencement, generally due to limited asset availability or operating commitments, it~~offset concessions granted should conditions impacting the loan improve. The Company’s determination of credit losses is ~~reasonably certain of exercising such options.~~

The Company uses its incremental borrowing rate as the discount rate in determining the present value of future lease payments, unless the interest rate implicit in the lease arrangement is readily determinable. Lease paymentsimpacted by TDRs whereby loans that ~~vary based on future usage levels, the nature of leased asset activities, or certain other contingencies,~~have gone through TDRs are considered impaired, assessed for specific reserves, and are not included in the ~~measurement~~Company’s assessment of ~~lease right-of-use assets~~the CECL reserve. Loans previously restructured under TDRs that subsequently default are reassessed to incorporate the Company’s current assumptions on expected cash flows and ~~corresponding liabilities. The Company has elected not~~additional provision expense is recorded to record 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 ~~period during which the applicable expenses are incurred.~~extent necessary.

~~Out-of-Period Adjustments~~The Company designates non-accrual loans at such time as (i) loan payments become 90-days past due or (ii) in the opinion of the Company, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan. Income recognition will be suspended when a loan is designated non-accrual and resumed only when the suspended loan becomes contractually current and performance is demonstrated to have resumed. Any interest received for loans on non-accrual 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.

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 was 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.

Recently Adopted Accounting Pronouncements

In ~~February~~June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016-02,~~2016-13 ~~Leases~~Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic ~~842)~~ 326)(“ (“ASU ~~2016-02”~~2016-13”) and 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”), ~~which sets out~~collectively, the ~~principles~~“CECL Standard.” These updates change how entities measure potential credit losses for most financial assets and certain other instruments that are not measured at fair value. The CECL Standard replaced the ~~recognition, measurement, presentation~~“incurred loss” approach under previous guidance with an “expected loss” model for instruments measured at amortized cost. The net carrying value of an asset under the CECL Standard is intended to represent the amount expected to be collected on such asset and ~~disclosure of leases~~requires entities to deduct allowances for ~~both parties~~potential losses on held-to-maturity debt securities. The Company will continue to record asset-specific reserves consistent with our existing accounting policy. In addition, the Company will now record 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~~general reserve in accordance with the CECL Standard 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 termremainder of the ~~lease. A lessee is also required~~loan portfolio (“CECL Reserve”). At adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to ~~record a right-of-use asset~~0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded 3 loans that previously had an aggregate of $14.7 million of asset-specific reserves and a ~~lease liability~~carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock). As of March 31, 2020, the Company recorded additional CECL reserves of $18.6 million for ~~all leases with~~ a ~~term greater than 12 months regardless~~total CECL reserve of ~~their classification. Leases with~~$30.2 million. This excludes 5 loans that previously had an aggregate of $20.7 million of asset-specific reserves and a ~~term~~total principal balance of ~~12 months or less will be accounted for similar~~$81.3 million as of March 31, 2020. This increase is primarily due to ~~existing guidance for operating leases today. The new standard requires lessors~~the update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter to ~~account for leases using an approach~~reflect a recessionary macro economic scenario instead of the more stable “Baseline” scenario from the Federal Reserve that ~~is substantially equivalent to existing guidance for sale-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes~~was utilized in the ~~previous lease standard,~~ January 1, 2020 CECL reserve analysis.

~~Leases (Topic 840)~~. In ~~July~~August 2018, the FASB issued ASU ~~2018-10,~~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. The adoption of ASU 2018-13 had no material impact on the Company’s consolidated financial statements.

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 adoption of ASU 2018-17 had no material impact on the Company’s consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic ~~842 (Leases)~~326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, (“(“ASU ~~2018-10”~~2019-04”)~~, which provides narrow amendments to clarify how to apply certain aspects~~. ASU 2019-04 clarifies and improves areas 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~~guidance related to the ~~opening balance~~recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement 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~~financial instruments (ASU 2016-01). The amendments generally have the ~~option to aggregate nonlease components with~~same effective dates as their related standards. If already adopted, the ~~related lease component upon adoption~~amendments of ~~the new standard if the following conditions are met: (1) the timing~~ASU 2016-01 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~~2016-13 are effective for ~~the Company on 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 for fair value of the 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 underlying asset at lease commencement is its 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 the modified retrospective approach and elected to utilize the Optional Transition Method, which permits the Company to apply the provisions 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 on its consolidated balance sheets for new or existing lease arrangements with terms of 12 months or less.

~~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. Historically, entities generally amortized 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 periodsfiscal years 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~~2019 and the amendments of ASU 2017-12 are effective as of the beginning of the ~~first~~Company’s next annual reporting ~~period in which the guidance~~period; early adoption is ~~adopted.~~permitted. The Company previously adopted ASU 2016-01. The adoption of ASU ~~2017-08~~2019-04 had no material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, (“ASU 2020-03”). ASU 2020-03 improves various financial instruments topics, including the CECL Standard. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP, intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments related to Issue 1, Issue 2, Issue 4 and Issue 5 were effective upon issuance of ASU 2020-03. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, ~~2019~~2020. The adoption of ASU 2020-03 had no material impact on the Company’s consolidated financial statements.

In ~~July 2017,~~March 2020, the FASB issued ASU ~~2017-11,~~2020-04, ~~Earnings Per Share~~Reference Rate Reform (Topic ~~260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815)~~848): ~~I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement~~Facilitation of the ~~Indefinite Deferral~~Effects of Reference Rate Reform on Financial Reporting, (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for ~~Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities~~applying GAAP to contracts, hedging relationships and ~~Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception~~,other transactions that reference the London Interbank Offered Rate (“~~ASU 2017-11”~~LIBOR”). 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~~,another reference rate expected to be discontinued 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. Thisreference rate reform. ASU 2020-04 is effective ~~for fiscal years, and interim periods within those years, beginning after December 15, 2018. The adoption~~upon issuance of ASU ~~2017-11~~2020-04 for contract modifications and hedging relationships on ~~January 1, 2019 had no~~a prospective basis. While the Company is currently assessing the impact of ASU 2020-04, the Company does not expect the adoption to have a material impact on ~~the Company’s~~its 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 ~~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. In November 2018, the FASB issued ASU 2018-19 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 these 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.2019-12,

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement,~~Income Taxes (Topic ~~820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,~~815), (“ASU ~~2018-13”~~2019-12”). ASU ~~2018-13 eliminates, adds~~2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also improves the consistent application of, and ~~modifies certain disclosure requirements~~simplifies, GAAP for ~~fair value measurements as part~~other areas of ~~its disclosure framework project.~~Topic 740 by clarifying and amending existing guidance. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, ~~2019,~~2020, 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 2019-042019-12 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. MORTGAGE LOAN RECEIVABLES

~~September 30, 2019~~March 31, 2020 ($ 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 loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries:
First mortgage loans~~(2)~~	$	3,116,050	$	3,098,241		7.14	%	1.27	$	3,330,918	$	3,310,167		6.72	%	1.22
Mezzanine loans	133,661		133,202			10.87	%	3.76	122,975		122,612			10.84	%	3.16
Total mortgage loans held by consolidated subsidiaries	3,249,711		3,231,443			7.29	%	1.37	3,453,893		3,432,779			6.86	%	1.29
Provision for loan losses	N/A		(18,500		)
Current expected credit losses									N/A		(49,457		)
Total mortgage loan receivables held for investment, net, at amortized cost	3,249,711		3,212,943						3,453,893		3,383,322
Mortgage loan receivables held for sale:
First mortgage loans	173,957		174,214			4.59	%	9.68	154,833		146,713			3.94	%	9.96
Total	$	3,423,668	$	3,387,157		7.19	%	1.81	$	3,608,726	$	3,530,035		6.84	%	1.66


(1)	~~September 30, 2019 London Interbank Offered Rate (“LIBOR”)~~March 31, 2020 LIBOR rates are used to calculate weighted average yield for floating rate loans.


~~(2)~~	~~Includes amounts relating to consolidated variable interest entities. See~~ ~~Note 10~~.

As of ~~September 30, 2019, $2.5~~March 31, 2020, $2.8 billion, or ~~78.4%~~80.0%, of the outstanding face amount of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates, linked to LIBOR. Of this ~~$2.5~~$2.8 billion, 100% of these variable interest rate mortgage loan receivables were subject to interest rate floors. As of ~~September 30, 2019, $174.0~~March 31, 2020, $154.8 million, or 100%, of the outstanding face amount of our mortgage loan receivables held for sale were at fixed interest rates.

December 31, ~~2018~~2019 ($ 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 loan receivables held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries:
First mortgage loans~~(2)~~	$	3,192,160	$	3,170,788		7.70	%	1.18	$	3,147,275	$	3,127,173		6.77	%	1.35
Mezzanine loans	148,221		147,602			10.89	%	4.35	130,322		129,863			10.97	%	3.26
Total mortgage loans held by consolidated subsidiaries	3,340,381		3,318,390			7.84	%	1.32	3,277,597		3,257,036			6.94	%	1.43
Provision for loan losses	N/A		(17,900		)
Allowance for loan losses									N/A		(20,500		)
Total mortgage loan receivables held for investment, net, at amortized cost	3,340,381		3,300,490						3,277,597		3,236,536
Mortgage loan receivables held for sale:
First mortgage loans	181,905		182,439			5.46	%	9.75	122,748		122,325			4.20	%	9.99
Total	$	3,522,286	$	3,482,929		7.76	%	1.77	$	3,400,345	$	3,358,861		6.88	%	1.75


(1)	December 31, ~~2018~~2019 LIBOR rates are used to calculate weighted average yield for floating rate loans.


~~(2)~~	~~Includes amounts relating to consolidated variable interest entities. See~~ ~~Note 10~~.

As of December 31, ~~2018,~~2019, $2.5 billion, or ~~75.4%~~77.2%, of the outstanding principal of our mortgage loan receivables held for investment, net, at amortized cost, were at variable interest rates, linked to LIBOR. Of this $2.5 billion, 100% of these variable rate mortgage loan receivables were subject to interest rate floors. As of December 31, ~~2018, $182.4~~2019, $122.7 million, or 100%, of the carrying value of our mortgage loan receivables held for sale were at fixed interest rates.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the activity in our loan portfolio was as follows ($ in thousands):

Mortgage loan receivables held for investment, net, at amortized cost:
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, 2018 $ 3,318,390
$ —
$ (17,900 ) $ 182,439
Origination of mortgage loan receivables 985,825
—
—
554,115
Purchases of mortgage loan receivables —
—
—
9,934
Repayment of mortgage loan receivables (1,105,506 ) —
—
(620 )
Proceeds from sales of mortgage loan receivables(1) —
(15,504 ) —
(558,799 )
Non-cash disposition of loans via foreclosure(2) (17,611 ) —
—
—
Sale of loans, net —
—
—
38,589
Transfer between held for investment and held for sale(1) 35,940
15,504
—
(51,444 )
Accretion/amortization of discount, premium and other fees 14,405
—
—
—
Provision for loan losses —
—
(600 ) —
Balance, September 30, 2019 $ 3,231,443
$ —
$ (18,500 ) $ 174,214



	Mortgage loan receivables held for investment, net, at amortized cost:
	Mortgage loans held by consolidated subsidiaries			Provision expense for current expected credit loss			Mortgage loan receivables held for sale

Balance, December 31, 2019	$	3,257,036		$	(20,500	)	$	122,325
Origination of mortgage loan receivables	313,936			—			212,805
Repayment of mortgage loan receivables	(118,531		)	—			(64		)
Proceeds from sales of mortgage loan receivables	—			—			(189,358		)
Non-cash disposition of loans via foreclosure(1)	(23,586		)	—			—
Sale of loans, net	—			—			1,005
Accretion/amortization of discount, premium and other fees	3,924			—			—
Release of asset-specific loan loss provision via foreclosure(1)	—			2,000			—
Provision expense for current expected credit loss (implementation impact)(2)	—			(4,964		)
Provision expense for current expected credit loss (impact to earnings)(2)	—			(17,993		)	—
Additional asset-specific reserve	—			(8,000		)	—
Balance, March 31, 2020	$	3,432,779		$	(49,457	)	$	146,713


(1)	Refer to Note 5 Real Estate and Related Lease Intangibles, Net for further detail on foreclosure of real estate.

(2)

During the three months ended March 31, 2020, the initial impact of the implementation of the CECL accounting standard as of January 1, 2020 is recorded against retained earnings. Subsequent remeasurement thereafter, including the period to date change for the three months ended March 31, 2020, is accounted for as provision expense for current expected credit loss in the consolidated statements of income.



	Mortgage loan receivables held for investment, net, at amortized cost:
	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, 2018	$	3,318,390		$	—	$	(17,900	)	$	182,439
Origination of mortgage loan receivables	224,418			—		—			175,256
Repayment of mortgage loan receivables	(245,444		)	—		—			(321		)
Proceeds from sales of mortgage loan receivables	—			—		—			(159,424		)
Sale of loans, net	—			—		—			7,079
Transfer between held for investment and held for sale(1)	—			15,504		—			(15,504		)
Accretion/amortization of discount, premium and other fees	5,389			—		—			—
Provision for loan losses	—			—		(300		)	—
Balance, March 31, 2019	$	3,302,753		$	15,504	$	(18,200	)	$	189,525

(1)

We sell certain loans into securitizations; however, for a transfer of financial assets to be considered a sale, the transfer must meet the sale criteria of ASC 860 under which the Company must surrender control over the transferred assets which must qualify as recognized financial assets at the time of transfer. The assets must be isolated from the Company, even in bankruptcy or other receivership, the purchaser must have the right to pledge or sell the assets transferred and the Company may not have an option or obligation to reacquire the assets. If the sale criteria are not met, the transfer is considered to be a secured borrowing, the assets remain on the Company’s consolidated balance sheets and the sale proceeds are recognized as a liability. 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,~~loans transferred but not considered sold, 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~~years. This loan was sold to the WFCM 2019-C49 securitization ~~trust. Subsequently, the controlling loan interest was sold to the UBS 2019-C16 securitization~~ trust and is considered a financing for accounting purposes. This transfer has been reflected as a ~~result,~~non-cash item on the ~~loan previously sold during~~consolidated statement of cash flows for the three months ended March 31, ~~2019 was accounted for as a sale during the six months ended June 30,~~ 2019.


~~(2)~~	~~Refer to~~ ~~Note 5 Real Estate and Related Lease Intangibles, Net~~ ~~for further detail on foreclosure of real estate.~~

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 1,240,894
—
1,115,218
Repayment of mortgage loan receivables (787,167 ) —
(1,324 )
Proceeds from sales of mortgage loan receivables —
—
(926,402 )
Sale of loans, net(1) —
—
12,893
Transfer between held for investment and held for sale(2) 55,403
—
(55,403 )
Accretion/amortization of discount, premium and other fees 13,795
—
—
Provision for loan losses(3) —
(13,600 ) —
Balance, September 30, 2018 $ 3,805,387
$ (17,600 ) $ 375,162


~~(1)~~	~~Includes $0.5 million of realized losses on loans related to lower of cost or market adjustments for the nine months ended September 30, 2018.~~

~~(2)~~

During the nine months ended September 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 loans’ origination and not a deterioration in credit of the borrowers or collateral coverage and the Company expects to collect all amounts due under the loans.

~~(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.

During the ~~nine~~three months ended ~~September 30, 2019 and September 30, 2018,~~March 31, 2020, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing. During the three months ended March 31, 2019, the transfers of financial assets via sales of loans were treated as sales under ASC Topic 860 — Transfers and Servicing, except for the one loan discussed above.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there was ~~$0.1~~$0.4 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~~Allowance for Loan Losses and Non-Accrual Status ($ in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020				2019

Allowance for loan losses at beginning of period	$	18,500	$	7,300	$	17,900	$	4,000	$	20,500			$	17,900
Provision for loan losses	—		10,300		600		13,600
Provision expense for current expected credit loss (implementation impact)									4,964				—
Provision expense for current expected credit loss (impact to earnings)									17,993				300
Additional asset-specific reserve									8,000				—
Foreclosure of loans subject to asset-specific reserve									(2,000		)		—
Allowance for loan losses at end of period	$	18,500	$	17,600	$	18,500	$	17,600	$	49,457			$	18,200

					September 30, 2019		December 31, 2018		March 31, 2020				December 31, 2019

Principal balance of loans on non-accrual status(1)					$	37,161	$	36,850	$	142,387		(1)	$	98,725	(2)

(1)

Represents 2 of the Company’s loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $26.9 million, ~~and one~~2 loans with a combined carrying value of $46.4 million, 1 loan with a carrying value of ~~$45.0~~$61.5 million, and 2 loans, which were originated simultaneously as part of a single transaction and have a combined carrying value of $7.7 million as further discussed below.


(2)	Represents 2 of the Company’s loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $26.9 million, 1 loan with a carrying value of $10.4 million and 1 loan with a carrying value of $61.5 million, as further discussed below.

~~The~~

Current Expected Credit Loss (“CECL”)

In compliance with the new CECL reporting requirements, the Company ~~evaluates each~~has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded 3 loans ~~for potential losses at least quarterly. Its loans are typically collateralized~~that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by ~~real estate directly or indirectly.~~$5.8 million (or approximately $0.05 of book value per share of common stock). As ~~a result,~~of March 31, 2020, the Company ~~regularly evaluates~~recorded additional CECL reserves of $18.6 million for a total CECL reserve of $30.2 million. This excludes five loans that previously had an aggregate of $20.7 million of asset-specific reserves and a total principal balance of $81.3 million as of March 31, 2020. The change of $18.6 million in the ~~extent~~quarter is reflected as an increase of reserve to provision expense of $18.0 million, and ~~impact~~an increase in reserve on unfunded commitments of ~~any credit deterioration associated with~~$0.6 million. These increases are primarily due to the ~~performance and/or value~~update of the ~~underlying collateral property, as well as~~macro economic assumptions used in the ~~financial and operating capability~~Company’s CECL evaluation in the current quarter to reflect a recessionary macro economic scenario instead of the ~~borrower. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash flow~~more stable “Baseline” scenario from ~~operations is sufficient to cover~~ the ~~debt service requirements currently and into~~Federal Reserve that was utilized in 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.January 1, 2020 CECL reserve analysis.

~~As a result of this analysis, the~~The Company has concluded that none of its loans, other than the 34 loans discussed below, are individually impaired as of ~~September 30, 2019 and December~~March 31, 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 a provision expense for loan losses of $0.6 million ~~was required for the~~ ~~nine months ended September 30, 2019. This provision consisted of a~~ portfolio-based, general loan loss provision of $0.6 million to provide reserves for expected losses over the remaining portfolio of mortgage loan receivables held for investment, and no additional asset-specific reserves.2020.

Loan Portfolio by Property Type, Geographic Region and Vintage ($ in thousands)



	Principal Amount
Property Type	Principal Amount

Multifamily	$	1,046,253
Office	854,808
Hospitality	386,487
Mixed Use	423,002
Retail	247,958
Other	105,879
Industrial	174,098
Manufactured Housing	82,666
Self-Storage	51,425
Subtotal loans	3,372,576
Individually impaired loans(1)	81,316
Total loans	$	3,453,892



	Principal Amount
Geographic Region	Principal Amount

Northeast	$	966,468
Southwest	660,635
Midwest	640,633
South	547,812
West	557,028
Subtotal loans	3,372,576
Individually impaired loans(1)	81,316
Total loans	$	3,453,892



	Principal Amount
Vintage	Principal Amount

2019	$	291,604
2018	1,319,593
2017	1,020,543
2016	322,563
Prior to 2016	418,273
Subtotal loans	3,372,576
Individually impaired loans(1)	81,316
Total loans	$	3,453,892

(1)

Included in individually impaired loans are 1 loan, originated in 2016, with a carrying value of $5.9 million, collateralized by a mixed use property located in the Northeast region, 2 loans, which were restructured in 2018, with a combined carrying value of $46.4 million, collateralized by a mixed use property located in the Northeast region, and 1 loan, originated in 2018, with a carrying value of $4.1 million, collateralized by a hotel located in the Midwest region.

Individually Impaired Loans

As of ~~September 30, 2019,~~March 31, 2020, 2 of the Company’s loans, collateralized by a mixed use property, 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.~~property. The Company placed these loans on non-accrual status in July 2017. In assessing these ~~collateral dependent~~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 property is most significantly affected by the contractual lease terms 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.~~ During the three months ended March 31, 2018, management believed these loans to be ~~potentially~~ impaired, reflecting a decline in collateral value attributable to: (i) on-going bankruptcy proceedings; (ii) rising interest rates; and (iii) the retail tenant’s creditworthiness. As a result, on March 31, 2018, the Company recorded aan asset-specific provision for loss on 1 of these loans, with a carrying value of ~~$2.7~~$5.9 million, 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%. As of ~~September 30, 2019,~~March 31, 2020, the Company believed no additional loss provision was necessary based on the application of direct capitalization rates of 4.60% to 4.90%.

During the year ended December 31, 2018, management identified a loan, secured by a mixed-use office and hospitality property, 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; and (iii) declining market conditions. ~~As part of the Company’s evaluation, it obtained an external appraisal of the loan collateral. Based on this review, a~~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. During the quarter ended December 31, 2018, this loan experienced a maturity default and its terms were modified in a Troubled 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 and that can be increased to 25% under certain conditions. Under certain conditions, the B-Note may be forgiven or reduced. The ~~restructured loan~~reserve of $10.0 million was ~~extended for up~~applied to ~~12 months, including extensions. There have been no additional changes~~the B-Note and the B-Note was placed on non-accrual status on October 17, 2018. During the quarter ended March 31, 2020, management identified that the A-Note was impaired, reflecting a decline in collateral value due to: (i) new information available during the ~~nine~~three months ended ~~September 30, 2019. On October 4, 2019,~~March 31, 2020 regarding two recent non-distressed sales of office buildings in the Wilmington, DE central business district; (ii) a change in market conditions driven by COVID-19 as capital flow to the tertiary markets shifted given increased opportunities in primary markets; and (iii) the closure of the corporate housing component of the property. As a result, on March 31, 2020, the Company recorded an asset-specific provision for loss on the A-Note of $7.5 million to reduce the carrying value of this loan to the fair value of the property less the cost to foreclose and sell the property utilizing direct capitalization rates of 7.50% to 8.75%. The Company placed the A-Note on non-accrual status as of March 31, 2020. As of March 31, 2020, the combined carrying value of the A-Note and the B-Note was ~~extended for an additional one month period with a November 6, 2019 maturity. On November 6, 2019 the loan was extended for an additional three month period with a February 6, 2020 maturity.~~$46.4 million.

~~Generally when granting concessions,~~As of March 31, 2020, two of the Company’s loans, collateralized by hotel properties, which were originated simultaneously as part of a single transaction and had a carrying value of $7.7 million, were in default. The Company placed these loans on non-accrual status in March 2020. The Company filed for foreclosure in December 2019 and did not believe there was an impairment at that time. In assessing these collateral-dependent loans for impairment, the most significant consideration is the fair value of the underlying real estate collateral. Based on current indications of value from market participants with knowledge of the asset and the temporary closure of the nearby university and local businesses due to COVID-19, the Company ~~will seek~~believes the fair value of one of the two hotel properties is below the carrying value of $4.1 million. As a result, on March 31, 2020, the Company recorded an asset-specific provision for loss of $0.5 million 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 impactingreduce the ~~loan improve. The Company's determination~~carrying value 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~~this 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.~~ fair value of the property less the cost to foreclose and sell the property.

As of ~~September 30, 2019,~~March 31, 2020, there were no unfunded commitments associated with modified loans considered TDRs.

~~As of September 30, 2019 and~~These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.

Loans on Non-Accrual Status

During the three months ended December 31, ~~2018 there were~~2019, 1 of the Company’s loans, which had a carrying value of $61.5 million, was placed on non-accrual status. The Company performed a review of the loan collateral. The review consisted of conversations with market participants familiar with the property location as well as reviewing market data and comparables. Based on this review, no asset-specific impairment was required for this loan.

There are 0 other loans on non-accrual ~~status.~~status other than discussed in Individually Impaired Loans above as of March 31, 2020.

4. REAL ESTATE SECURITIES

~~Commercial~~Due to the recent market volatility, there has been a significant decrease in liquidity across all types of securities. There was a significant reduction in trading activity with the turbulent and uncertain market conditions that existed at the end of March as restrictive responsive measures related to the COVID-19 pandemic impacted the overall economy. The credit profile of our portfolio is predominantly AAA-rated and almost entirely investment grade. We expect the subordination structure of the investments, as well as the hyperamortization provision included in our senior CRE-CLO security positions, to help mitigate potential losses in the current market conditions. Spreads in the commercial mortgage backed securities (“CMBS”), market have generally tightened from the widest levels seen in March 2020 and that has continued to be the trend with the introduction of Term Asset-Backed Securities Loan Facility (“TALF”) for financing certain CMBS securities. The reduction in liquidity and overall trading activity during this period resulted in a decline of approximately $78.2 million in market value of the Company’s real estate securities through March 31, 2020. This decline was reflected in our consolidated financial statements as other comprehensive income.

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

~~September 30,~~March 31, 2020



					Gross Unrealized										Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis/Purchase Price		Gains		Losses			Carrying Value				# of Securities	Rating (1)	Coupon %		Yield %		Remaining Duration (years)

CMBS(2)	$	1,943,507	$	1,943,359	$	1,476	$	(76,686	)	$	1,868,149		(3)	127	AAA	2.20	%	2.21	%	2.31
CMBS interest-only(2)(4)	1,550,358		26,800		1,044		(9		)	27,835			(5)	15	AAA	0.60	%	2.99	%	2.46
GNMA interest-only(4)(6)	105,009		1,661		139		(193		)	1,607				11	AA+	0.46	%	4.86	%	3.05
Agency securities(2)	621		631		2		(5		)	628				2	AA+	2.63	%	1.70	%	1.70
GNMA permanent securities(2)	31,159		31,345		866		—			32,211				6	AA+	3.90	%	3.50	%	2.61
Total debt securities	$	3,630,654	$	2,003,796	$	3,527	$	(76,893	)	$	1,930,430			161		1.48	%	2.25	%	2.32
Equity securities(7)	N/A		598		—		(401		)	197				3	N/A	N/A		N/A		N/A
Provision for current expected credit losses	N/A		—		—		(22		)	(22		)
Total real estate securities	$	3,630,654	$	2,004,394	$	3,527	$	(77,316	)	$	1,930,605			164

(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)	Includes $11.6 million of 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 and are classified as held-to-maturity and reported at amortized cost.


(4)	The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.


(5)	Includes $0.8 million of 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 and are classified as held-to-maturity and reported at amortized cost.

(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 has 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, 2019


					Gross Unrealized									Weighted Average										Gross Unrealized									Weighted Average
Asset Type	Outstanding Face Amount		Amortized Cost Basis/Purchase Price		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)	$	1,779,458	$	1,780,233	$	9,012	$	(533	)	$	1,788,712	(3)	139	AAA	3.27	%	3.14	%	2.38	$	1,640,597	$	1,640,905	$	4,337	$	(920	)	$	1,644,322	(3)	125	AAA	3.06	%	3.08	%	2.41
CMBS interest-only(2)(4)	2,139,357		39,961		1,491		(12		)	41,440		(5)	18	AAA	0.49	%	3.65	%	2.61	1,559,160		28,553		630		(37		)	29,146		(5)	15	AAA	0.60	%	3.04	%	2.53
GNMA interest-only(4)(6)	113,096		2,202		119		(295		)	2,026			12	AA+	0.51	%	9.65	%	2.73	109,783		1,982		123		(254		)	1,851			11	AA+	0.49	%	4.59	%	2.77
Agency securities(2)	641		652		2		—			654			2	AA+	2.67	%	1.74	%	1.97	629		640		1		(4		)	637			2	AA+	2.65	%	1.73	%	1.83
GNMA permanent securities(2)	31,760		31,984		811		—			32,795			6	AA+	3.92	%	3.27	%	4.55	31,461		31,681		688		—			32,369			6	AA+	3.91	%	3.17	%	1.93
Corporate bonds(2)	32,088		31,604		768		—			32,372			1	BB-	3.63	%	4.81	%	1.31
Total debt securities	$	4,096,400	$	1,886,636	$	12,203	$	(840	)	$	1,897,999		178		1.75	%	3.17	%	2.39	$	3,341,630	$	1,703,761	$	5,779	$	(1,215	)	$	1,708,325		159		1.84	%	3.06	%	2.39
Equity securities(7)	N/A		13,720		125		(388		)	13,457			3	N/A	N/A		N/A		N/A	N/A		12,848		292		(160		)	12,980			2	N/A	N/A		N/A		N/A
Total real estate securities	$	4,096,400	$	1,900,356	$	12,328	$	(1,228	)	$	1,911,456		181							$	3,341,630	$	1,716,609	$	6,071	$	(1,375	)	$	1,721,305		161

(1)


(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)	Includes $11.6 million of 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 and are classified as held-to-maturity and reported at amortized cost.


(4)	The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.


(5)	Includes $0.8 million of 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 and are classified as held-to-maturity and reported at amortized cost.

(6)


~~(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, 2018~~

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)

CMBS(2) $ 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) 2,373,936
55,534
428
(271 ) 55,691
(5) 19
AAA 0.57 % 2.80 % 2.69
GNMA interest-only(4)(6) 135,932
2,862
93
(307 ) 2,648
12
AA+ 0.51 % 6.30 % 4.11
Agency securities(2) 668
682
—
(20 ) 662
2
AA+ 2.73 % 1.83 % 2.36
GNMA permanent securities(2) 32,633
32,889
420
(245 ) 33,064
6
AA+ 3.94 % 3.76 % 5.03
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)~~


~~(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)~~	Includes $11.3 million of 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 and are classified as held-to-maturity and reported at amortized cost.


~~(4)~~	~~The amounts presented represent the principal amount of the mortgage loans outstanding in the pool in which the interest-only securities participate.~~


~~(5)~~	Includes $0.9 million of 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 and are classified as held-to-maturity and reported at amortized cost.

~~(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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

~~September 30,~~March 31, 2020



Asset Type	Within 1 year		1-5 years		5-10 years		After 10 years		Total

CMBS	$	262,830	$	1,552,917	$	52,402	$	—	$	1,868,149
CMBS interest-only	1,151		26,684		—		—		27,835
GNMA interest-only	135		1,189		283		—		1,607
Agency securities	—		628		—		—		628
GNMA permanent securities	324		31,887		—		—		32,211
Total debt securities	$	264,440	$	1,613,305	$	52,685	$	—	$	1,930,430

December 31, 2019


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)~~	$	395,377	$	1,212,074	$	181,261	$	—	$	1,788,712	$	177,193	$	1,389,392	$	77,737	$	—	$	1,644,322
CMBS interest-only~~(1)~~	645		40,795		—		—		41,440		1,439		27,707		—		—		29,146
GNMA interest-only~~(2)~~	250		1,515		261		—		2,026		91		1,504		256		—		1,851
Agency securities~~(1)~~	—		654		—		—		654		—		637		—		—		637
GNMA permanent securities~~(1)~~	344		32,451		—		—		32,795		416		31,953		—		—		32,369
Corporate bonds(1)	—		32,372		—		—		32,372
Total debt securities	$	396,616	$	1,319,861	$	181,522	$	—	$	1,897,999	$	179,139	$	1,451,193	$	77,993	$	—	$	1,708,325


~~(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 three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company realized a gain (loss) on the sale of equity securities of ~~NaN~~$1.3 million and $0.1 million, respectively, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income.

During the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020, the Company realized ~~a gain (loss)~~losses on ~~sale~~securities recorded as other than temporary impairments of ~~equity securities of NaN and $0.1~~$0.2 million which isare included in realized gain (loss) on securities on the Company’s consolidated statements of income.

~~There were $0.1 million~~ During the three months ended March 31, 2019 the Company realized 0 losses on securities recorded as other than temporary impairments for the three and nine months ended September 30, 2019. During the three and nine months ended September 30, 2018 there were $0.6 million and $2.2 million, respectively, of realized losses on securities recorded as other than temporary impairments, which is included in realized gain (loss) on securities on the Company’s consolidated statements of income.impairments.

5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET

The recent market volatility due to the COVID-19 pandemic has brought illiquidity in most asset classes, including real estate. The Company expects the net leased commercial real estate properties, which comprise the majority of our portfolio, to be minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based retail and have remained open and stable during the COVID-19 pandemic. We continue to actively monitor the diversified commercial real estate properties for both the immediate and long term impact of the pandemic on the buildings, the tenants, the business plans and the ability to execute those business plans.

The following tables present additional detail related to our real estate portfolio, net, including foreclosed properties ($ in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019

Land	$	197,682		$	195,644		$	227,070		$	209,955
Building	820,783			814,314			867,985			883,005
In-place leases and other intangibles	159,721			162,002			159,055			161,203
Less: Accumulated depreciation and amortization	(196,853		)	(173,938		)	(206,692		)	(206,082		)
Real estate and related lease intangibles, net	$	981,333		$	998,022		$	1,047,418		$	1,048,081

Below market lease intangibles, net (other liabilities)	$	(39,087	)	$	(40,367	)	$	(38,744	)	$	(39,067	)

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company held foreclosed properties included in real estate and related lease intangibles, net with a carrying value of ~~$23.9~~$110.0 million and ~~$6.3~~$89.5 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 March 31,
	2019		2018		2019		2018		2020		2019

Depreciation expense(1)	$	7,394	$	8,063	$	22,776	$	24,058	$	8,273	$	7,685
Amortization expense	1,612		2,336		6,342		7,782		1,711		2,517
Total real estate depreciation and amortization expense	$	9,006	$	10,399	$	29,118	$	31,840	$	9,984	$	10,202


(1)	Depreciation expense on the consolidated statements of income also includes ~~$24 thousand and $18~~$25 thousand of depreciation on corporate fixed assets for the three months ended ~~September 30, 2019~~March 31, 2020 and ~~2018, respectively, and $74 thousand and $56 thousand of depreciation on corporate fixed assets for the nine months ended September 30, 2019 and 2018, respectively.~~2019.

The Company’s intangible assets are comprised of in-place leases, ~~favorable leases compared to~~above market leases and other intangibles. The following tables present additional detail related to our intangible assets ($ in thousands):


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019

Gross intangible assets(1)	$	159,721	$	162,002	$	159,054	$	161,203
Accumulated amortization	61,056		57,712		61,327		62,773
Net intangible assets	$	98,665	$	104,290	$	97,727	$	98,430


(1)	Includes ~~$4.6~~$4.4 million and ~~$5.5~~$4.5 million of unamortized ~~favorable~~above market lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019

Reduction in operating lease income for amortization of above market lease intangibles acquired	$	(94	)	$	(155	)	$	(727	)	$	(535	)	$	(92	)	$	(425	)
Increase in operating lease income for amortization of below market lease intangibles acquired	564			500			1,594			1,821			752			569

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 and other intangibles for property owned as of ~~September 30, 2019~~March 31, 2020 ($ in thousands):


Period Ending December 31,	Adjustment to Operating Lease Income		Amortization Expense		Adjustment to Operating Lease Income		Amortization Expense

2019 (last 3 months)	$	263	$	1,601
2020	1,054		6,403
2020 (last 9 months)					$	943	$	4,442
2021	1,054		6,232		1,070		5,504
2022	1,054		6,232		1,070		5,504
2023	1,054		6,232		1,070		5,504
2024					1,070		5,504
Thereafter	29,981		67,233		29,077		66,785
Total	$	34,460	$	93,933	$	34,300	$	93,243

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 ~~15,~~14, Fair Value of Financial Instruments for further detail.

There were ~~$1.0~~$0.9 million and ~~$0.8~~$0.9 million of rent receivables included in other assets on the consolidated balance sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

There was unencumbered real estate of ~~$90.8~~$79.6 million and ~~$58.6~~$59.2 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recorded ~~$1.1~~$2.0 million and ~~$2.1~~$0.2 million, respectively, 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 ~~September 30, 2019~~March 31, 2020 ($ in thousands):


Period Ending December 31,	Amount		Amount

2019 (last 3 months)	$	21,347
2020	80,401
2020 (last 9 months)			$	63,389
2021	69,055		72,729
2022	65,936		68,139
2023	64,106		66,703
2024			65,173
Thereafter	520,897		504,234
Total	$	821,742	$	840,367

Acquisitions

During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company acquired the following properties ($ in thousands):

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%
July 2019 Net Lease Dexter, MO 1,150
100.0%
July 2019 Net Lease Caledonia, MI 1,199
100.0%
August 2019 Net Lease Poseyville, IN 1,220
100.0%
September 2019 Net Lease Chillicothe, IL 1,445
100.0%
September 2019 Net Lease Sullivan, IL 1,496
100.0%
September 2019 Net Lease Becker, MN 1,185
100.0%
September 2019 Net Lease Adrian, MO 1,138
100.0%
Total purchases of real estate 13,904

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 $ 32,104



Acquisition Date	Type	Primary Location(s)	Purchase Price/Fair Value on the Date of Foreclosure		Ownership Interest (1)

Purchases of real estate

Aggregate purchases of net leased real estate			$	6,239	100.0%

Real estate acquired via foreclosure
March 2020	Diversified	Los Angeles, CA	21,535		100.0%
Total real estate acquired via foreclosure			21,535

Total real estate acquisitions			$	27,774


(1)	Properties were consolidated as of acquisition date.

During the nine months ended September 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 foreclosure of the loan.

~~On October 1, 2016, the~~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 allocateallocates purchase consideration based on relative fair ~~values. Real~~values, and real estate acquisition costs ~~which~~ are ~~no longer expensed as incurred, will be~~ capitalized as a component of the cost of the assets ~~acquired.~~acquired for asset acquisitions. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, all acquisitions were determined to be asset acquisitions.

The purchase prices were allocated to the asset acquisitions during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, as follows ($ in thousands):

Purchase Price Allocation

Land $ 4,969
Building 25,571
Intangibles 2,309
Below Market Lease Intangibles (745 )
Total purchase price $ 32,104



	Purchase Price Allocation

Land	$	22,450
Building	4,418
Intangibles	1,201
Below Market Lease Intangibles	(295		)
Total purchase price	$	27,774

The weighted average amortization period for intangible assets acquired during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~38.3~~39.8 years. The Company recorded ~~$167 thousand and $246~~$44 thousand in revenues from its ~~2019~~2020 acquisitions for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020, which is included in its consolidated statements of income. The Company recorded ~~$(1.0) million and $(2.5)~~$(0.1) million in earnings (losses) from its ~~2019~~2020 acquisitions for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020, which is included in its consolidated statements of income.

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company acquired the following properties ($ 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 85,087
75.0%

Total real estate acquisitions $ 115,548



Acquisition Date	Type	Primary Location(s)	Purchase Price/Fair Value on the Date of Foreclosure		Ownership Interest (1)

Purchases of real estate

Aggregate purchases of net leased real estate			$	2,406	100.0%

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			$	20,606


(1)	Properties were consolidated as of acquisition date.


~~(2)~~	~~Joint venture partner contributed $2.9 million to the partnership.~~


~~(3)~~	~~Joint venture partner contributed~~ ~~$4.6 million~~ ~~to the partnership.~~

The purchase prices were allocated to the asset acquisitions during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, as follows ($ in thousands):


	Purchase Price Allocation			Purchase Price Allocation

Land	$	40,019		$	3,483
Building	73,794			16,804
Intangibles	2,065			442
Below Market Lease Intangibles	(330		)	(123		)
Total purchase price	$	115,548		$	20,606

The weighted average amortization period for intangible assets acquired during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 was ~~18.5~~36.7 years. The Company recorded ~~$2.0 million and $3.4 million~~$16.4 thousand in revenues from its ~~2018~~2019 acquisitions for the three ~~and nine~~ months ended September 30, 2018, respectively. The Company recorded $0.7 million and $1.5 million in earnings (losses) from its 2018 acquisitions for the three and nine months ended September 30, 2018, respectively,March 31, 2019, which is included in its consolidated statements of income. The Company recorded $(0.2) million in earnings (losses) from its 2019 acquisitions for the three months ended March 31, 2019, which is included in its consolidated statements of income.

Acquisitions via Foreclosure

In March 2020, the Company acquired a development property in Los Angeles, CA, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a basis of $21.6 million, net of an asset-specific loan loss provision of $2.0 million. The Company obtained a third-party appraisal of the property. Substantially all of the fair value was attributed to land. The $21.5 million fair value was determined using the sales comparison approach to value. Using this approach, the appraiser developed an opinion of the fee simple value of the underlying land by comparing the property to similar, recently sold properties in the surrounding or competing area. The Company recorded a $0.1 million loss resulting from the foreclosure of the loan.

In February 2019, the Company acquired a hotel in Omaha, NE, via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $17.9 million. The Company obtained a third-party appraisal of the property. The $18.2 million fair value was determined using the income approach to value. The appraiser utilized a terminal capitalization rate of 8.75% and a discount rate of 10.25%. There was 0 gain or loss resulting from the foreclosure of the loan.

These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.

Sales

The Company sold the following properties during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 ($ 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 4,195
3,796
399
—
14
8
April 2019 Diversified Wayne, NJ 1,729
4,799
(3,070 ) 1
—
—
May 2019 Diversified Grand Rapids, MI 10,019
8,254
1,765
1
—
—
August 2019 Diversified Grand Rapids, MI 6,970
4,920
2,050
1
—
—
Totals $ 22,913
$ 21,769
$ 1,144



Sales Date	Type	Primary Location(s)	Net Sales Proceeds		Net Book Value		Realized Gain/(Loss)		Properties	Units Sold	Units Remaining

Various	Condominium	Miami, FL	$	665	$	658	$	7	—	2	4
March 2020	Diversified	Richmond, VA	22,526		14,829		7,697		7	—	—
March 2020	Diversified	Richmond, VA	6,933		4,109		2,824		1	—	—
Totals			$	30,124	$	19,596	$	10,528

Realized gain on the sale of real estate, net on the consolidated statements of income also includes $10.5 million of realized loss on the disposal of fixed assets for the three months ended March 31, 2020

The Company sold the following properties during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 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	1,688		1,503		185		—	6	16
Totals			$	1,688	$	1,503	$	185

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 $ 6,228
$ 3,116
$ 3,112
—
8
5
Various Condominium Miami, FL 4,844
3,987
857
—
18
30
March 2018 Diversified El Monte, CA 71,807
52,610
19,197
(1) 1
—
—
March 2018 Diversified Richmond, VA 20,966
11,370
9,596
(2) 1
—
—
September 2018 Diversified St. Paul, MN 109,275
47,627
61,648
(3) 4
—
—
Totals $ 213,120
$ 118,710
$ 94,410


~~(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 nine months ended September 30, 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 nine months ended September 30, 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, 2018, on the consolidated statements of income.

6. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):


Entity	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019

Grace Lake JV, LLC	$	3,799	$	5,316	$	3,233	$	3,047
24 Second Avenue Holdings LLC	47,620		35,038		45,426		45,386
Investment in unconsolidated joint ventures	$	51,419	$	40,354	$	48,659	$	48,433

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 nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ ($ in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
Entity	2019		2018			2019		2018			2020		2019

Grace Lake JV, LLC	$	517	$	605		$	1,549	$	1,138		$	186	$	415
24 Second Avenue Holdings LLC	577		(204		)	2,068		(672		)	255		544
Earnings (loss) from investment in unconsolidated joint ventures	$	1,094	$	401		$	3,617	$	466		$	441	$	959

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.~~LLC. The Company accounts for its interest in Grace Lake JVLLC 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 ~~nine~~three months ended ~~September 30,~~March 31, 2020, the Company received 0 distributions from its investment in Grace Lake LLC. During the three months ended March 31, 2019, the Company had received $3.1 million of distributions from its investment in Grace Lake ~~JV,~~ LLC. ~~During the nine months ended September 30, 2018, the~~

The Company ~~received $1.3 million of distributions from~~holds its investment in Grace Lake ~~JV, LLC.~~LLC in a TRS.

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 development and construction project located at 24 Second Avenue, New York, NY. The Company accounted for its interest in 24 Second Avenue using the equity method of accounting as its joint venture partner was the managing member of 24 Second Avenue and had substantive management 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 also provided $50.4 million in first mortgage financing in order to refinance the existing $48.1 million first mortgage construction loan which was made by another lending institution. In addition to the new $50.4 million first mortgage loan, the Company also funded a $6.5 million mezzanine loan for use in completing the project. The Operating Partner must fully fund any and all additional capital for necessary expenses.

Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company accounts for the new loans as additional investments in the joint venture.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recorded ~~$0.6~~$0.3 million and ~~$2.1~~$0.5 million, respectively, in 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 nine months ended September 30, 2018, the Company recorded $(0.2) million and $(0.7) million, respectively, in income (expenses), each of which is recorded in earnings (loss) from investment in unconsolidated joint ventures in the consolidated statements of income. During 2018,2019, the Company capitalized interest related to the cost of its investment in 24 Second Avenue, as 24 Second Avenue had activities in progress necessary to construct and ultimately sell condominium units. During the ~~nine~~three months ended ~~September 30,~~March 31, 2019, the Company capitalized $0.1 million ~~of interest expense, using a weighted average interest rate. During the three and nine months ended September 30, 2018, the Company recorded $0.4 million and $1.1 million, respectively,~~ of interest expense, using a weighted average interest rate. The capitalized interest expense was recorded in investment in unconsolidated joint ventures in the consolidated balance sheets. As a result of the transactions described above, ~~during~~subsequent to the three months ended March 31, 2019, the Company no longer capitalizes interest related to this investment, and income generated from the new loans is accounted for as earnings from investment in unconsolidated joint ventures.

As of ~~December~~March 31, ~~2018,~~2020, 24 Second Avenue had ~~$46.7~~$19.0 million of loans payable to a ~~third party~~third-party lender. 24 Second Avenue consists of 30 residential condominium units and 1 commercial condominium unit. 24 Second Avenue started closing on the existing sales contracts during the quarter ended March 31, 2019, upon receipt of New York City Building Department approvals and a temporary certificate of occupancy for a portion of the project. As of ~~September 30, 2019,~~March 31, 2020, 24 Second Avenue sold 1719 residential condominium units for ~~$47.3~~$49.6 million in total gross sale ~~proceeds and 1 residential condominium unit was under contract for sale for $1.2 million in gross sales~~ proceeds. As of ~~September 30, 2019, 24 Second Avenue is holding a 15% deposit on the sales contract. As of September 30, 2019,~~March 31, 2020, the Company had 0 additional remaining capital commitment to 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 that 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 because it does not have a controlling financial interest.

The Company holds its investment in 24 Second Avenue in a 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):


	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019

Total assets	$	123,871	$	167,837	$	171,827	$	118,727
Total liabilities	80,333		116,667		85,598		78,762
Partners’/members’ capital	$	43,538	$	51,170	$	86,229	$	39,965

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 ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ ($ in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
	2019			2018		2019		2018		2020		2019

Total revenues	$	3,915		$	4,351	$	14,945	$	13,671	$	4,476	$	4,699
Total expenses	4,595			3,415		12,029		9,788		3,974		3,863
Net income (loss)	$	(680	)	$	936	$	2,916	$	3,883	$	502	$	836

7. DEBT OBLIGATIONS, NET

The details of the Company’s debt obligations at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows ($ in thousands):

~~September 30, 2019~~March 31, 2020


Debt Obligations	Committed Financing		Debt Obligations Outstanding			Committed but Unfunded		Interest Rate at September 30, 2019(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 March 31, 2020(1)	Current Term Maturity	Remaining Extension Options	Eligible Collateral	Carrying Amount of Collateral		Fair Value of Collateral

Committed Loan Repurchase Facility	$	600,000	$	191,031		$	408,969	3.78% - 4.28%	2/24/2022	(2)	(3)	$	283,517	$	283,746
Committed Loan Repurchase Facility(2)																	$	500,000	$	191,031		$	308,969	2.20% - 2.70%	12/19/2022	(3)	(4)	$	295,557	$	295,839
Committed Loan Repurchase Facility	350,000		63,996			286,004		4.25% - 4.60%	5/24/2020	(4)	(5)	100,354		102,616			250,000		—			250,000		0.00% - 0.00%	2/26/2021	(5)	(6)	—		—
Committed Loan Repurchase Facility	300,000		211,350			88,650		4.00% - 4.53%	4/10/2020	(6)	(7)	343,448		343,448			300,000		149,044			150,956		2.46% - 3.83%	12/19/2020	(7)	(8)	231,701		231,701
Committed Loan Repurchase Facility	300,000		116,043			183,957		3.81% - 4.06%	5/6/2021	(8)	(3)	174,001		174,353			300,000		139,394			160,606		2.51% - 2.81%	11/6/2022	(9)	(4)	204,671		204,859
Committed Loan Repurchase Facility	100,000		87,174			12,826		4.02% - 4.28%	7/20/2021	(9)	(3)	135,373		135,606			100,000		34,599			65,401		2.83% - 2.93%	12/31/2022	(10)	(4)	56,952		57,088
Committed Loan Repurchase Facility	100,000		90,927			9,073		4.03%	3/26/2020	(10)	(11)	121,899		121,899			100,000		22,950			77,050		2.92% - 4.48%	12/24/2020	(11)	(12)	30,600		30,600
Total Committed Loan Repurchase Facilities	1,750,000		760,521			989,479						1,158,592		1,161,668			1,550,000		537,018			1,012,982						819,481		820,087
Committed Securities Repurchase Facility(2)	400,000		85,457			314,543		2.38% - 2.87%	3/4/2021	N/A	(12)	103,547		103,547			708,969		477,734			231,235		1.50% - 3.21%	12/23/2021	N/A	(13)	622,653		622,653
Uncommitted Securities Repurchase Facility	N/A (12)		940,070			N/A (13)		2.45% - 3.78%	10/2019 - 12/2019	N/A	(12)	1,047,663		1,047,663		(14)	N/A (13)		712,048			N/A (14)		1.32% - 3.75%	4/2020 - 6/2020	N/A	(13)	799,466		799,466		(15)
Total Repurchase Facilities	2,150,000		1,786,048			1,304,022						2,309,802		2,312,878			1,950,000		1,726,800			1,244,217						2,241,600		2,242,206
Revolving Credit Facility	266,430		—			266,430		NA	2/11/2020	(15)	N/A (16)	N/A (16)		N/A (16)			266,430		266,430			—		3.80% - 5.25%	2/11/2021	(16)	N/A (17)	N/A (17)		N/A (17)
Mortgage Loan Financing	723,313		723,313			—		4.25% - 6.75%	2020 - 2029(17)	N/A	(18)	902,656		1,093,952		(19)	806,153		806,153			—		3.75% - 6.75%	2020 - 2030(18)	N/A	(19)	967,842		1,171,170		(20)
CLO Debt	117,760		117,760		(20)	—		3.40% - 5.62%	2021-2034	N/A	(21)	274,149		274,523
Borrowings from the FHLB	1,945,795		1,076,449			869,346		1.47% - 2.95%	2019 - 2024	N/A	(22)	1,411,022		1,422,246		(23)	1,945,795		1,007,581			938,214		NA	2020 - 2024	N/A	(21)	1,454,039		1,458,494		(22)
Senior Unsecured Notes	1,166,201		1,157,117		(24)	—		5.250% - 5.875%	2021 - 2025	N/A	N/A (25)	N/A (25)		N/A (25)			1,891,897		1,874,056		(23)	—		0.54% - 2.95%	2021 - 2025	N/A	N/A (24)	N/A (24)		N/A (24)
Total Debt Obligations, Net	$	6,369,499	$	4,860,687		$	2,439,798					$	4,897,629	$	5,103,599		$	6,860,275	$	5,681,020		$	2,182,431					$	4,663,481	$	4,871,870


(1)	~~September~~March 2020 LIBOR rates are used to calculate interest rates for floating rate debt.


(2)	The combined committed amounts for the loan repurchase facility and the securities repurchase facility total $900.0 million, with maximum capacity on the loan repurchase facility of $500.0 million, and maximum capacity on the securities repurchase facility of $900.0 million less outstanding commitments on the loan repurchase facility.


(3)	NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date.


(4)	First mortgage commercial real estate loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.


(5)	NaN additional 12-month periods at Company’s option.


(6)	First mortgage commercial real estate loans. It does not include the real estate collateralizing such loans.


(7)	NaN additional 364-day periods.


(8)	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.


(9)	NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.


(10)	NaN additional 12-month extension periods at Company’s option. No new advances are permitted after the initial maturity date.


(11)	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.


(12)	First mortgage, junior and mezzanine commercial real estate loans, and certain senior and/or pari passu interests therein.


(13)	Commercial real estate securities. It does not include the real estate collateralizing such securities.


(14)	Represents uncommitted securities repurchase facilities for which there is no committed amount subject to future advances.


(15)	Includes $2.2 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.


(16)	NaN additional 12-month periods at Company’s option.


(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.


(18)	Anticipated repayment dates.


(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.


(21)	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.


(22)	Includes $9.9 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.


(23)	Presented net of unamortized debt issuance costs of $17.8 million at March 31, 2020.


(24)	The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

December 31, 2019



Debt Obligations	Committed Financing		Debt Obligations Outstanding			Committed but Unfunded		Interest Rate at December 31, 2019(1)	Current Term Maturity	Remaining Extension Options	Eligible Collateral	Carrying Amount of Collateral		Fair Value of Collateral

Committed Loan Repurchase Facility	$	600,000	$	183,828		$	416,172	3.24% - 3.74%	12/19/2022	(2)	(3)	$	287,974	$	288,210
Committed Loan Repurchase Facility	350,000		70,697			279,303		3.71% - 3.81%	5/24/2020	(4)	(5)	101,590		103,868
Committed Loan Repurchase Facility	300,000		248,182			51,818		3.49% - 3.74%	12/19/2020	(6)	(7)	382,778		382,778
Committed Loan Repurchase Facility	300,000		98,678			201,322		3.50% - 3.75%	11/6/2022	(8)	(3)	175,000		175,270
Committed Loan Repurchase Facility	100,000		9,952			90,048		3.96% - 3.99%	1/3/2023	(9)	(3)	75,628		75,813
Committed Loan Repurchase Facility	100,000		90,927			9,073		3.74% - 3.80%	12/24/2020	(10)	(11)	126,311		126,311
Total Committed Loan Repurchase Facilities	1,750,000		702,264			1,047,736						1,149,281		1,152,250
Committed Securities Repurchase Facility	400,000		42,751			357,249		2.50% - 2.56%	12/23/2021	N/A	(12)	52,691		52,691
Uncommitted Securities Repurchase Facility	N/A (12)		1,070,919			N/A (13)		2.17% - 3.54%	1/2020 - 3/2020	N/A	(12)	1,188,440		1,188,440		(14)
Total Repurchase Facilities	2,150,000		1,815,934			1,404,985						2,390,412		2,393,381
Revolving Credit Facility	266,430		—			266,430		NA	2/11/2020	(15)	N/A (16)	N/A (16)		N/A (16)
Mortgage Loan Financing	812,606		812,606			—		3.75% - 6.75%	2020 - 2029(17)	N/A	(18)	988,857		1,192,106		(19)
Borrowings from the FHLB	1,945,795		1,073,500			872,295		1.47% - 2.95%	2020 - 2024	N/A	(20)	1,107,188		1,113,811		(21)
Senior Unsecured Notes	1,166,201		1,157,833		(22)	—		5.250% - 5.875%	2021 - 2025	N/A	N/A (23)	N/A (23)		N/A (23)
Total Debt Obligations	$	6,341,032	$	4,859,873		$	2,543,710					$	4,486,457	$	4,699,298


(1)	December 31, 2019 LIBOR rates are used to calculate interest rates for floating rate debt.


(2)	NaN 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)	NaN 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)	NaN additional 364-day ~~period with Bank’s consent.~~periods.


(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)	NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.


(9)	NaN additional 12-month extension ~~period~~periods 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 ~~$2.3~~$2.2 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)	NaN 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 $0.4 million at September 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)~~(21)	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)~~(22)	Includes $9.9 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)~~(23)	Presented net of unamortized debt issuance costs of ~~$9.1~~$8.4 million at ~~September 30,~~December 31, 2019.


~~(25)~~(24)	The obligations under the senior unsecured notes are guaranteed by the Company and certain of its subsidiaries.

~~December 31, 2018~~Combined Maturity of Debt Obligations

The following schedule reflects the Company’s contractual payments under all borrowings by maturity ($ in thousands):

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



Period ending December 31,	Borrowings by Maturity(1)

2020 (last 9 months)	$	1,900,025
2021	1,087,628
2022	665,357
2023	156,872
2024	408,282
Thereafter	1,476,059
Subtotal	5,694,223
Debt issuance costs included in senior unsecured notes	(17,841		)
Debt issuance costs included in mortgage loan financing	(642		)
Premiums included in mortgage loan financing(2)	5,280
Total	$	5,681,020

(1)

~~December~~Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for 2020 (last 9 months) relate to debt obligations that are subject to existing Company controlled extension options for one or more additional one year periods or could be refinanced by other existing facilities as of March 31, ~~2018 LIBOR rates are used to calculate interest rates for floating rate debt.~~2020.


(2)	~~NaN additional 12-month periods at Company’s option. No new advances are permitted after the initial maturity date.~~


~~(3)~~	~~First mortgage commercial~~Deferred gains on intercompany loans, secured by our own real estate, ~~loans and senior and pari passu interests therein. It does not include the real estate collateralizing such loans.~~sold into securitizations. These premiums are amortized as a reduction to interest expense.


~~(4)~~	~~NaN 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)~~	~~NaN additional 364-day periods at Company’s option and 1 additional 364-day period with Bank’s consent.~~


~~(7)~~	~~First mortgage and mezzanine commercial real estate loans and senior pari passu interests therein. It does not include the real estate collateralizing such loans.~~


~~(8)~~	~~NaN additional 12-month extension period and 2 additional 6-month extension periods at Company’s option.~~


~~(9)~~	~~NaN 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)~~	~~Includes~~ ~~$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 but were rather considered a partial retirement of CLO debt.


~~(16)~~	~~NaN additional 12-month periods at Company’s option.~~


~~(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.~~


~~(18)~~	~~Anticipated repayment dates.~~


~~(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.~~


~~(21)~~	~~Presented net of unamortized debt issuance costs of $2.6 million at December 31, 2018.~~


~~(22)~~	~~First mortgage commercial real estate loans and pari passu interests therein. It does not include the real estate collateralizing such loans.~~


~~(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.~~


~~(24)~~	~~Includes $9.7 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.~~


~~(25)~~	~~Presented net of unamortized debt issuance costs of $11.2 million at December 31, 2018.~~


~~(26)~~	~~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 6 committed master repurchase agreements, as outlined in the September 30, 2019 table above, totaling $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 September 30, 2019 and December 31, 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 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 2 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 September 30, 2019, the Company had repurchase agreements with 10 counterparties, with total debt obligations outstanding of $1.8 billion. As of September 30, 2019, 2 counterparties, JP Morgan and Wells Fargo, held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $82.0 million, or 5% of our total equity. As of September 30, 2019, the weighted average haircut, or the percent of collateral value in excess of the loan amount, under our repurchase agreements was 22.8%. There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.

~~Revolving Credit Facility~~

The Company’s revolving credit facility (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 basisdebt facilities are subject to ~~finance the Company’s working capital needs and for general corporate purposes. On January 15, 2019,~~covenants which require the Company ~~extended the maturity date~~to maintain a minimum level of the Revolving Credit Facility to February 11, 2020. The Company has additional one-year extension options to extend the final maturity date to February 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 September 30, 2019 and December 31, 2018, the amount of unamortized costs relating to such facilities are $6.8 million and $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%, with anticipated maturity dates between 2020 - 2029 as of September 30, 2019. These loans have carrying amounts of $723.3 million and $743.9 million, net of unamortized premiums of $5.3 million and $5.8 million as of September 30, 2019 and December 31, 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 $0.5 million and $1.3 million of premium amortization, which decreased interest expense, for the three and nine months ended September 30, 2019, respectively. The Company recorded $0.3 million and $0.8 million of premium amortization, which decreased interest expense, for the three and nine months ended September 30, 2018, respectively. The loans are collateralized by real estate and related lease intangibles, net, of $902.7 million and $939.4 million as of September 30, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2019 and 2018, the Company executed 9 and 11 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 CLO issuances in the two transactions described below. As of September 30, 2019 and December 31, 2018, the Company had a total of $117.8 million and $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 $0.4 million and $2.6 million are included in CLO debt as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019, the CLO debt has interest rates of 3.4% to 5.62% (with a weighted average of 4.97%). As of September 30, 2019, collateral for the CLO debt comprised $274.1 million of first mortgage commercial mortgage real estate loans. In October 2019, the Company redeemed all outstanding debt obligations related to the two CLO transactions.

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. 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 10.

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, the CLO may acquire portions of the future fundings from the Company’s consolidated 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. 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 10.

~~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 were considered non-recourse secured borrowings and were recognized in debt obligations on the Company’s consolidated balance sheets with $2.5 million outstanding as of December 31, 2018. There were 0 non-recourse secured borrowings recognized in debt obligations on the Company’s consolidated balance sheets as of September 30, 2019, as the loan matured and was repaid during the three months ended June 30, 2019. The Company recorded $0.2 million of interest expense for the nine months ended September 30, 2019. The Company recorded $0.1 million and $0.4 million of interest expense for the three and nine months ended September 30, 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 September 30, 2019, Tuebor had $1.1 billion of borrowings outstanding (with an additional $869.3 million of committed term financing available from the FHLB), with terms of overnight to 5.0 years (with a weighted average of 2.3 years), interest rates of 1.47% to 2.95% (with a weighted average of 2.50%), and advance rates of 61.0% to 95.7% of the collateral. As of September 30, 2019, collateral for the borrowings was comprised of $721.5 million of CMBS and U.S. Agency Securities and $689.5 million of first mortgage commercial real estate loans.

As of December 31, 2018, Tuebor had $1.3 billion of borrowings outstanding (with an additional $647.5 million of committed term financing available from the FHLB), with terms of overnight to 5.75 years (with a weighted average of 2.5 years), interest rates of 1.18% to 3.01% (with a weighted average of 2.55%), and advance rates of 56.4% to 95.2% of the collateral. As of December 31, 2018, collateral for the borrowings was comprised of $1.0 billion of CMBS and U.S. Agency Securities and $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 ~~$1.9 billion~~$829.3 million of the ~~member’s capital was~~total equity is restricted from ~~transfer via~~payment as a dividend ~~to Tuebor’s parent without prior approval of state insurance regulators~~by the Company at ~~September 30, 2019. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.~~March 31, 2020.

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.~~

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

2027 Notes

On January 30, 2020, 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~~wholly-owned 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 September 30, 2019, the Company has a 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 September 30, 2019 and December 31, 2018.

~~Unamortized debt issuance costs of $9.1 million and $11.2 million are included in senior unsecured notes as of September 30, 2019 and December 31, 2018, respectively, in accordance with GAAP.~~

~~2021 Notes~~

~~On August 1, 2014,~~ LCFH, issued ~~$300.0~~$750.0 million in aggregate principal amount of ~~5.875%~~4.25% senior notes due ~~August~~February 1, ~~2021~~2027 (the ~~“2021~~“2027 Notes”). The ~~2021~~2027 Notes require interest payments semi-annually in cash in arrears on ~~February~~August 1 and ~~August~~February 1 of each year, beginning on ~~February~~August 1, ~~2015.~~2020. The ~~2021~~2027 Notes will mature on ~~August~~February 1, ~~2021.~~2027. 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 after August 1, 2017, the Company may redeem the 2021 Notes in whole or in part, upon not less than 30 nor more than 60 days’ notice, 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 September 30, 2019, the remaining $266.2 million in aggregate principal amount of the 2021 Notes is due August 1, 2021.

~~2022 Notes~~

~~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 20252027 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the ~~2025~~2027 Notes, in whole, at any time, or from time to time, prior to their stated maturity. At any time on or after ~~October~~February 1, ~~2020,~~2023, the Company may redeem the ~~2025~~2027 Notes in whole or in part, upon not less than 15 nor more than 60 days’ notice, at a redemption ~~prices~~price defined in the indenture governing the ~~2025~~2027 Notes, plus accrued and unpaid interest, if any, to the redemption date. ~~On May 2, 2018, the board~~Net proceeds of the ~~directors authorized~~offering were used to repay secured indebtedness. During the three months ended March 31, 2020, the Company toretired $19.2 million of principal of the 2027 Notes for a repurchase ~~any or all~~price of $17.2 million, recognizing a $1.7 million net gain on extinguishment of debt after recognizing $(0.3) million of unamortized debt issuance costs associated with the retired debt. As of March 31, 2020, the remaining $730.8 million in aggregate principal amount of the 2027 Notes is due February 1, 2027.

2025 Notes

On September 25, 2017, LCFH and LCFC issued $400.0 million in aggregate principal amount of 5.250% senior notes due October 1, 2025 (the “2025 Notes”). During the three months ended March 31, 2020, the Company retired $4.1 million of principal of the 2025 Notes ~~from time to time without further approval.~~for a repurchase price of $4.0 million, recognizing a $5.8 thousand net gain on extinguishment of debt after recognizing $(39.9) thousand of unamortized debt issuance costs associated with the retired debt. As of March 31, 2020, the remaining $395.9 million in aggregate principal amount of the 2025 Notes is due October 1, 2025.

~~Combined Maturity of Debt Obligations~~2021 Notes

On August 1, 2014, LCFH and LCFC issued $300.0 million in aggregate principal amount of 5.875% senior notes due August 1, 2021 (the “2021 Notes”). During the three months ended March 31, 2020, the Company retired $1.0 million of principal of the 2021 Notes for a repurchase price of $1.0 million, recognizing a $1.8 thousand net gain on extinguishment of debt after recognizing $(3.2) thousand of unamortized debt issuance costs associated with the retired debt. As of March 31, 2020, the remaining $265.2 million in aggregate principal amount of the 2021 Notes is due August 1, 2021.

Committed Loan and Securities Repurchase Facilities

On February 14, 2020, the Company amended one of its committed loan repurchase facilities with a major U.S. bank to reduce the maximum capacity of the facility from $600.0 million to $500.0 million.

On February 26, 2020, the Company amended one of its committed loan repurchase facilities with a major U.S. bank, extending the term of the facility. The ~~following schedule reflects~~current maturity date is now February 26, 2021, and the Company has 3 one-year extension options for a final maturity date of February 26, 2024. The Company also reduced the maximum size of the facility from $350.0 million to $250.0 million.

On March 23, 2020, the Company amended one of its committed loan and securities repurchase facilities with a major U.S. bank to allow for an increase in the capacity on the securities repurchase facility, to the extent the Company has excess capacity on the loan repurchase facility. Prior to the amendment, the committed amounts on the facility were $500.0 million and $400.0 million on the loan and securities repurchase facilities, respectively. After the amendment, the committed amounts continue to total $900.0 million, with maximum capacity on the loan repurchase facility of $500.0 million, and maximum capacity on the securities repurchase facility of $900.0 million less outstanding commitments on the loan repurchase facility.

Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a financial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million unsecured revolving credit facility, which continues to be fully-drawn, and the proceeds continue to be held as unrestricted cash on the Company’s ~~contractual payments under all borrowings by maturity ($ in thousands):~~balance sheet as of May 1, 2020.

Period ending December 31,
Borrowings by
Maturity(1)

2019 (last 3 months) $ 1,039,597
2020 1,052,894
2021 876,649
2022 655,706
2023 559,422
Thereafter 680,935
Subtotal 4,865,203
Debt issuance costs included in senior unsecured notes (9,084 )
Debt issuance costs included in CLO debt (394 )
Debt issuance costs included in mortgage loan financing (380 )
Premiums included in mortgage loan financing(2) 5,342
Total $ 4,860,687


~~(1)~~	Contractual payments under current maturities, some of which are subject to extensions. The maturities listed above for 2019 relate to debt obligations that are subject to existing Company controlled extension options for one or more additional one year periods or could be refinanced by other existing facilities as of September 30, 2019.


~~(2)~~	~~Deferred gains on intercompany loans, secured by our own real estate, sold into securitizations. These premiums are amortized as a reduction to interest expense.~~

–Securities Repurchase Facilities:The ~~Company’s debt facilities are subject to covenants which require~~Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term, typically 30-day maturity repurchase agreements with various bank counterparties. Beginning in late March 2020 and extending through April 2020, the Company has been able to ~~maintain a minimum level~~continue to access securities repurchase funding. While the Company was successful in refinancing its securities and extending the terms of ~~total equity. Largely~~the majority of its securities repurchase financing to periods ranging from three to six months from certain key counterparties, the funding received generally reflected higher costs of financing and lower advance rates than prevailed during times of market stability.

In March, as a result of ~~this restriction,~~the COVID-19 pandemic, trading volumes for CRE CLO securities fell significantly and prices for CRE CLO securities declined. As a result, the Company experienced margin calls on its securities repurchase financing, all of which were successfully satisfied in cash in a timely manner. As the securities markets stabilized somewhat in April, the Company received rebates of much of the previously posted cash margin and applied other margin funds to reduce securities repurchase debt outstanding as repurchase financing transactions were extended in term. Management plans to continue to work with its bank counterparties to roll and extend such maturities. Given the credit quality and short duration of the securities portfolio, extension of term would allow for such securities to pay off at par or allow for sales in an orderly manner.

–Federal Home Loan Bank (“FHLB”) Financing: As discussed in the Company’s Annual Report, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February of 2021. As the COVID-19 crisis unfolded, management maintained an active dialogue with the FHLB and subsequent to March 31, 2020, the Company completed a non-mark to market private CLO financing transaction (refer to below and Note 18, Subsequent Events) and sold securities and loans previously serving as collateral at the FHLB. A portion of the proceeds of the CLO financing transaction and asset sales were used to pay down FHLB advances, reducing the amount of the Company’s financing that is mark to market. As of May 1, 2020, FHLB advances outstanding were $487.0 million, reflecting a reduction of approximately ~~$829.3~~$520.6 million since March 31, 2020. The Company maintains ongoing discussions with the FHLB about further reducing its outstanding advances to ensure a smooth and timely transition from FHLB membership. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral.

–Loan Repurchase Financing: The Company has maintained a consistent dialogue with its loan financing counterparties as the COVID-19 crisis has unfolded. The Company has drawn additional funds from certain loan repurchase facilities since the start of the crisis in mid-March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, subsequent to March 31, 2020, the Company has paid off over $123.0 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a CLO financing transaction (refer to below). As of May 1, 2020, the Company had $414.0 million of loan repurchase debt outstanding with 5 separate bank counterparties. The Company continues to maintain an active dialogue with its bank counterparties as it expects loan collateral on each of their lines to experience some measure of forbearance.

–New Secured Financing Facility: On April 30, 2020, the ~~total~~Company entered into a strategic financing arrangement (the “Agreement”) with Koch Real Estate Investments, LLC (“Koch”), an affiliate of Koch Industries, under which Koch will provide the Company with approximately $206.4 million in senior secured financing (the “Koch Facility”) to fund transitional and land loans. Koch Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature after 36 months, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Koch Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Koch Facility is non-recourse, subject to limited exceptions, and does not contain mark to market provisions. Additionally, the Koch Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, which is non-recourse, subject to limited exceptions, Koch also has the ability to make an equity ~~is restricted from payment~~investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, Koch has agreed to a customary standstill until December 31, 2020 or the date on which Koch has exercised the Purchase Right in full, if earlier. In addition, Koch has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a ~~dividend by~~result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and Koch entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to Koch. (Refer to Note 18, Subsequent Events.)

–Completion of Private CLO: On April 27, 2020, the Company completed a private CLO financing transaction with Goldman Sachs Bank USA which generated $310.2 million of gross proceeds, financing $481.3 million of loans at ~~September 30, 2019.~~a 64.5% advance rate on a matched term, non-mark to market and non-recourse basis. The Company will retain a 35% subordinate and controlling interest in the collateral, which affords for broad discretion in managing these loans in light of the COVID-19 pandemic and preserving or increasing their value. Proceeds from the transaction were used to pay off other secured debt including loan repurchase and FHLB financing that was subject to mark to market provisions. (Refer to Note 18, Subsequent Events.)

As a result of our financing and liquidity strategy and execution to date, as of May 1, 2020, Ladder had approximately $830.0 million of unrestricted cash on hand and, subsequent to quarter end, has paid down $783.0 million of secured debt that was subject to mark to market provisions subsequent to quarter end. Furthermore, the Company maintains $2.7 billion of unencumbered assets primarily comprised of first mortgage loans representing another significant source of potential liquidity.

Financial Covenants

As the COVID-19 crisis evolved, management began executing on a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark to market financing. The Company’s cash and cash equivalents and restricted cash totaled $622.2 million as of March 31, 2020, including $358.4 million of unrestricted cash and cash equivalents to mitigate uncertainty in liquidity needs in light of current market conditions and $263.9 million of cash margin posted as collateral against securities repurchase financing obligations and for other borrowings as of March 31, 2020. Partly as a result of maintaining such cash levels, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders as of March 31, 2020 but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements) with various counterparties that totaled in excess of $830.0 million as of April 28, 2020.

We were in compliance with all remaining covenants described in the Company’s Annual Report, as of March 31, 2020.

8. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

~~September 30, 2019~~March 31, 2020


			Fair Value				Remaining Maturity (years)			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)		Remaining Maturity (years)	Notional		Asset(1)		Liability(1)		Remaining Maturity (years)

Caps
1 Month LIBOR	$	69,571	$	—	$	—	0.61	$	69,571	$	—	$	—	0.11
Futures
5-year Swap	49,200		—		20		0.25	24,400		191		—		0.25
10-year Swap	149,500		—		61		0.25	76,700		600		—		0.25
5-year U.S. Treasury Note	2,200		—		1		0.25	20,300		159		—		0.25
Total futures	200,900		—		82			121,400		950		—
Credit derivatives
S&P 500 Put Options	6,000		22		—		0.30
Total credit derivatives	6,000		22		—
Total derivatives	$	276,471	$	22	$	82		$	190,971	$	950	$	—

(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

December 31, ~~2018~~2019


			Fair Value					Remaining Maturity (years)			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)			Remaining Maturity (years)	Notional		Asset(1)		Liability(1)		Remaining Maturity (years)

Caps
1MO LIBOR	$	69,571	$	—	$	—		1.35	$	69,571	$	—	$	—	0.36
Futures							��
5-year Swap	$	274,900	$	—	$	526		0.25	46,000		158		—		0.25
10-year Swap	227,700		—		436			0.25	149,800		516		—		0.25
5-year U.S. Treasury Note	6,800		—		13			0.25	1,100		4		—		0.25
Total futures	509,400		—		975				196,900		678		—
Credit Derivatives
S&P 500 Put Options									143,300		15		—		0.05
Total credit derivatives									143,300		15		—
Total derivatives	$	578,971	$	—	$	975			$	409,771	$	693	$	—

(1) Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

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 nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ ($ in thousands):


	Three Months Ended September 30, 2019									Nine Months Ended September 30, 2019									Three Months Ended March 31, 2020
	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	$	(618	)	$	(8,868	)	$	(9,486	)	$	892		$	(36,761	)	$	(35,869	)	$	272	$	(15,946	)	$	(15,674	)
Credit Derivatives	(3		)	24			21			(3		)	(84		)	(87		)	111		128			239
Total	$	(621	)	$	(8,844	)	$	(9,465	)	$	889		$	(36,845	)	$	(35,956	)	$	383	$	(15,818	)	$	(15,435	)


	Three Months Ended September 30, 2018								Nine Months Ended September 30, 2018									Three Months Ended March 31, 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

Contract Type
Futures	$	(940	)	$	8,099	$	7,159		$	(52	)	$	28,985		$	28,933		$	2,557		$	(13,533	)	$	(10,976	)
Swaps	—			—		—			1,403			(848		)	555
Credit Derivatives	(44		)	—		(44		)	5			(337		)	(332		)	(66		)	8			(58		)
Total	$	(984	)	$	8,099	$	7,115		$	1,356		$	27,800		$	29,156		$	2,491		$	(13,525	)	$	(11,034	)

The Company’s counterparties held ~~$4.2~~$2.5 million and ~~$5.0~~$3.5 million of cash margin as collateral for derivatives as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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.~~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 September 30, 2019 and December 31, 2018, the Company was in compliance with these requirements and not in default on its indebtedness. As of September 30, 2019 and December 31, 2018, there was 0 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.

9. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The Company’s accounting policy is to record derivative asset and liability positions on a gross ~~basis,~~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 ~~September 30, 2019~~March 31, 2020

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
Description	Gross amounts of recognized assets				Financial instruments				Cash collateral received/(posted)(1)						Net amount			Financial instruments				Gross amounts offset in the balance sheet		Cash collateral received/(posted)(1)										Net amount
			Gross amounts offset in the balance sheet
Derivatives	$	22	$	—		Net amounts of assets presented in the balance sheet	$	22		$	—		$	—		$	22		Gross amounts of recognized assets		$	950		$	Net amounts of assets presented in the balance sheet		—		$	950		$	—		$	—	$	950
Total	$	22	$	—		$	22		$	—		$	—		$	22			$	950		$	—		$	950		$	—		$	—		$	950

(1) Included in restricted cash on consolidated balance sheets.

As of ~~September 30, 2019~~March 31, 2020

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
Description	Gross amounts of recognized liabilities				Financial instruments collateral				Cash collateral posted/(received)(1)						Net amount			Financial instruments collateral			Gross amounts offset in the balance sheet		Cash collateral posted/(received)(1)													Net amount
			Gross amounts offset in the balance sheet
Derivatives	$	82	$	—		Net amounts of liabilities presented in the balance sheet	$	82		$	—		$	82		$	—		Gross amounts of recognized liabilities
Repurchase agreements	$	1,786,048	$	—		$	1,786,048		$	1,786,048		$	—		$	—			$	1,726,800	$	—		Net amounts of liabilities presented in the balance sheet		$	1,726,800			$	1,726,800			$	—			$	—
Total	$	1,786,130	$	—		$	1,786,130		$	1,786,048		$	82		$	—			$	1,726,800	$	—		$	1,726,800			$	1,726,800			$	—			$	—

(1) Included in restricted cash on consolidated balance sheets.

As of December 31, 2019

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
Description	Gross amounts of recognized assets		Gross amounts offset in the balance sheet		Net amounts of assets presented in the balance sheet		Financial instruments		Cash collateral received/(posted)(1)		Net amount

Derivatives	$	693	$	—	$	693	$	—	$	—	$	693
Total	$	693	$	—	$	693	$	—	$	—	$	693

(1) Included in restricted cash on consolidated balance sheets.

As of December 31, ~~2018~~2019

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
Description	Gross amounts of recognized liabilities				Financial instruments collateral				Cash collateral posted/(received)						Net amount			Financial instruments collateral			Gross amounts offset in the balance sheet		Cash collateral posted/(received)													Net amount
			Gross amounts offset in the balance sheet
Derivatives	$	975	$	—		Net amounts of liabilities presented in the balance sheet	$	975		$	—		$	975		$	—		Gross amounts of recognized liabilities
Repurchase agreements	663,685		—			663,685			663,685			—			—				$	1,815,934	$	—		Net amounts of liabilities presented in the balance sheet		$	1,815,934			$	1,815,934			$	—			$	—
Total	$	664,660	$	—		$	664,660		$	663,685		$	975		$	—			$	1,815,934	$	—		$	1,815,934			$	1,815,934			$	—			$	—

(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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 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.

10. ~~CONSOLIDATED VARIABLE INTEREST ENTITIES~~EQUITY STRUCTURE AND ACCOUNTS

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.

~~FASB ASC~~ ~~Topic 810 — Consolidation~~ ~~(“ASC 810”), provides guidance~~During the three months ended March 31, 2020, 0 Series REIT LP Units and 0 Series TRS LP Units were collectively exchanged for shares of Class A common stock and no shares of Class B common stock were canceled. We received no other consideration in connection with these exchanges.

During the three months ended March 31, 2019, 101,000 Series REIT LP Units and 101,000 Series TRS LP Units were collectively exchanged for 101,000 shares of Class A common stock; and 101,000 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. As of March 31, 2020, the Company has a remaining amount available for repurchase of $39.9 million, which represents 7.8% in the aggregate of its outstanding Class A common stock, based on the ~~identification~~closing price 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$4.74 per share on such date.

The following table is a ~~VIE applies when either: (1) the equity investors (if any) lack one or more~~summary of the ~~essential characteristics~~Company’s repurchase activity of ~~a controlling financial interest; (2)~~its Class A common stock during 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 intereststhree months ended March 31, 2020 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 sheets2019 ($ in thousands):

September 30, 2019 December 31, 2018
Notes 3 & 7 Notes 3 & 7

Mortgage loan receivables held for investment, net, at amortized cost $ 274,149
$ 710,502
Accrued interest receivable 1,363
3,921
Other assets(1) —
81,390
Total assets $ 275,512
$ 795,813

Senior and unsecured debt obligations $ 117,760
$ 607,440
Accrued expenses 306
1,471
Other liabilities 2
2
Total liabilities 118,068
608,913

Net equity in VIEs (eliminated in consolidation) 157,444
186,900
Total equity 157,444
186,900

Total liabilities and equity $ 275,512
$ 795,813



	Shares	Amount(1)

Authorizations remaining as of December 31, 2019		$	41,132
Additional authorizations		—
Repurchases paid	146,153	(1,201		)
Repurchases unsettled		—
Authorizations remaining as of March 31, 2020		$	39,931


(1)	~~Primarily consists of loan repayments in transit as of December 31, 2018.~~Amount excludes commissions paid associated with share repurchases.



	Shares	Amount(1)

Authorizations remaining as of December 31, 2018		$	41,769
Additional authorizations		—
Repurchases paid	—	—
Repurchases unsettled		—
Authorizations remaining as of March 31, 2019		$	41,769


(1)	Amount excludes commissions paid associated with share repurchases.

~~11. EQUITY STRUCTURE AND ACCOUNTS~~

~~The Company has 2 classes of common stock, Class A and Class B, which are described as follows:~~Dividends

~~Class A Common Stock~~

~~Voting Rights~~

~~Holders of shares~~The following table presents dividends declared (on a per share basis) of Class A common stock for the three months ended March 31, 2020 and 2019:



Declaration Date	Dividend per Share

February 27, 2020	$	0.340
	$	0.340

February 27, 2019	$	0.340
Total	$	0.340

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 three months ended March 31, 2020 and 2019 ($ in thousands):



	Accumulated Other Comprehensive Income (Loss)			Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests			Total Accumulated Other Comprehensive Income (Loss)

December 31, 2019	$	4,218		$	477		$	4,695
Other comprehensive income (loss)	(70,142		)	(7,865		)	(78,007		)
Exchange of noncontrolling interest for common stock	—			—			—
Rebalancing of ownership percentage between Company and Operating Partnership	4			(4		)	—
March 31, 2020	$	(65,920	)	$	(7,392	)	$	(73,312	)



	Accumulated Other Comprehensive Income (Loss)			Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests			Total Accumulated Other Comprehensive Income (Loss)

December 31, 2018	$	(4,649	)	$	(588	)	$	(5,237	)
Other comprehensive income (loss)	11,731			1,462			13,193
Exchange of noncontrolling interest for common stock	(5		)	5			—
Rebalancing of ownership percentage between Company and Operating Partnership	3			(3		)	—
March 31, 2019	$	7,080		$	876		$	7,956

11. NONCONTROLLING INTERESTS

There are ~~entitled~~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 ~~1 vote per share on all matters to be voted upon~~own interests in the Operating Partnership as modified by the ~~shareholders. The holders of~~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 ~~do not have cumulative voting rights~~of the Company as disclosed in the ~~election~~consolidated statements of ~~directors.~~changes in equity.

~~Dividend Rights~~

~~Subject~~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 ~~rights~~parent. Accordingly, as a result of Continuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the ~~holders of any preferred stock that may be outstanding and any contractual or statutory restrictions, holders of~~Company’s Class A ~~common stock are entitled~~shareholders and the noncontrolling interests in the Operating Partnership that occurred during the three months ended March 31, 2020, the Company has increased noncontrolling interests in the Operating Partnership and accumulated other comprehensive income and decreased additional paid-in capital in the Company’s shareholders’ equity by $0.3 million as of March 31, 2020.

Distributions to ~~receive equally~~Noncontrolling Interest in the Operating Partnership

Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and ~~ratably, share for share, dividends~~available liquidity as ~~may be declared~~determined by the board of directors ~~out~~ of ~~funds legally available~~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 ~~dividends. Dividends upon Class A common stock may~~its quarterly cash dividend, the Series of LCFH will be ~~declared by~~required to make a corresponding distribution of cash to each of their partners (other than 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.Company) on a pro-rata basis.

~~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~~Noncontrolling Interest in the ~~shareholders based upon the number of shares outstanding.~~Operating Partnership

~~Voting Rights~~

~~Holders~~shares held by these investors, are exchangeable for Class A shares of ~~shares~~the Company. The roll-forward of the Operating Partnership’s LP Units follow the Class B common stock ~~are entitled~~of the Company as disclosed in the consolidated statements of changes in equity.

Pursuant to ~~1 vote~~ASC 810, Consolidation, on the accounting and reporting for ~~each share held~~noncontrolling interests and changes in ownership interests of ~~record by such holder and all matters submitted~~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 ~~vote~~result of ~~shareholders. Holders of shares of our~~Continuing LCFH Limited Partners exchanges which caused changes in ownership percentages between the Company’s Class A ~~common stock~~shareholders and ~~Class B common stock vote together~~the noncontrolling interests in the Operating Partnership that occurred during the three months ended March 31, 2020, the Company has increased noncontrolling interests in the Operating Partnership and accumulated other comprehensive income and decreased additional paid-in capital in the Company’s shareholders’ equity by $0.3 million as ~~a single class on all matters presented~~of March 31, 2020.

Distributions to ~~our shareholders for their vote or approval, except~~Noncontrolling Interest in the Operating Partnership

Notwithstanding the foregoing, subject to any restrictions in applicable debt financing agreements and available liquidity as ~~otherwise required~~determined by ~~applicable law.~~

~~No Dividend or Liquidation Rights~~

~~Holders~~the board of ~~Class B common stock do not have any right~~directors of each of Series REIT of LCFH and Series TRS of LCFH, each Series must use commercially reasonable efforts to ~~receive dividends or~~make quarterly distributions to ~~receive a distribution upon a liquidation or winding up~~each of ~~Ladder Capital Corp.~~

~~Exchange for Class A Common Stock~~

~~Pursuant~~its partners (including the Company) at least equal to ~~the~~such partner’s “Quarterly Estimated Tax Amount,” which shall be computed (as more fully described in LCFH’s Third Amended and Restated LLLP ~~Agreement~~Agreement) for each partner as the product of ~~LCFH,~~(x) the ~~Continuing LCFH Limited Partners may from time~~U.S. federal taxable income (or alternative minimum taxable income, if higher) allocated by such Series to ~~time, subject to certain conditions, receive one share~~such partner in respect 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 nine months ended September 30, 2019, 1,140,000~~ Series REIT LP Units and ~~1,140,000~~ Series TRS LP Units ~~were collectively exchanged~~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 ~~1,140,000 shares~~U.S. federal income tax purposes, the deductibility of ~~Class A common stock~~state and ~~1,140,000 shares~~local taxes; provided that Series TRS of ~~Class B common stock were canceled. We received no other consideration~~LCFH may take into account, in ~~connection with these exchanges.~~

~~During~~determining the ~~nine months ended September 30, 2018, 4,549,832 Series REIT LP Units and 4,549,832~~amount of tax distributions to holders of Series TRS LP Units, ~~were collectively exchanged for 4,549,832 shares~~the amount of ~~Class A common stock; and 4,549,832 shares~~any distributions each such holder received from Series REIT of ~~Class B common stock were canceled. We received no other consideration~~LCFH in ~~connection with these exchanges.~~

~~Stock Repurchases~~

~~On October 30, 2014,~~excess of tax distributions. In addition, to the ~~board of directors authorized~~extent the Company ~~to repurchase up to $50.0 million~~requires an additional distribution from the Series 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~~LCFH 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 nine months ended September 30, 2019, the Company repurchased 40,065 shares of Class A common stock. As of September 30, 2019, the Company has a remaining amount available for repurchase of $41.1 million, which represents 2.2% in the aggregateexcess of its ~~outstanding Class A common stock, based on~~quarterly tax distribution in order to pay its quarterly cash dividend, the ~~closing price~~Series of ~~$17.27 per share on such date.~~

~~The following table is~~LCFH will be required to make a ~~summary~~corresponding distribution of cash to each of their partners (other than the ~~Company’s repurchase activity of its Class A common stock during the nine months ended September 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 September 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 September 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 basedCompany) 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.pro-rata basis.

~~The following table presents dividends declared (on a per share basis) of Class A common stock for the nine months ended September 30, 2019 and 2018:~~

Declaration Date Dividend per Share

February 27, 2019 $ 0.340
May 30, 2019 0.340
August 22, 2019 0.340
Total $ 1.020

February 27, 2018 $ 0.315
May 30, 2018 0.325
September 5, 2018 0.325
Total $ 0.965

~~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 nine months ended September 30, 2019 and 2018 ($ in thousands):

Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) of Noncontrolling Interests Total Accumulated Other Comprehensive Income (Loss)

December 31, 2018 $ (4,649 ) $ (588 ) $ (5,237 )
Other comprehensive income (loss) 14,935
1,840
16,775
Exchange of noncontrolling interest for common stock 64
(64 ) —
Rebalancing of ownership percentage between Company and Operating Partnership 17
(17 ) —
September 30, 2019 $ 10,367
$ 1,171
$ 11,538

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) (8,230 ) (1,428 ) (9,658 )
Exchange of noncontrolling interest for common stock (167 ) 167
—
Rebalancing of ownership percentage between Company and Operating Partnership 27
(27 ) —
September 30, 2018 $ (8,582 ) $ (1,172 ) $ (9,754 )

~~12. NONCONTROLLING INTERESTS~~

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 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.

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 Continuing 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 ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company has increased noncontrolling interests in the Operating Partnership and accumulated other comprehensive income and decreased additional paid-in capital ~~and accumulated other comprehensive income~~ in the Company’s shareholders’ equity by ~~$0.1~~$0.3 million as of ~~September 30, 2019.~~March 31, 2020.

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 Consolidated Joint Ventures

As of ~~September 30, 2019,~~March 31, 2020, the Company consolidates 75 ventures in which there are other noncontrolling investors, which own between ~~1.2%~~10% - 29.4% of such ventures. These ventures hold investments in a ~~40 property~~40-building student housing portfolio 20in Isla Vista, CA with a book value of $82.4 million, 11 office buildings 1in Richmond, VA with a book value of $72.6 million, a single-tenant office building in Ewing, NJ with a book value of $26.6 million, an industrial ~~property, 1 condominium~~building in Lithia Springs, GA with an aggregate book value of $23.5 million and an apartment complex ~~and 1 apartment complex.~~in Miami, FL with a book value of $37.2 million. The Company makes distributions and allocates income from these ventures to the noncontrolling interests in accordance with the terms of the respective governing agreements.

~~13.~~12. EARNINGS PER SHARE

The Company’s net income (loss) and weighted average shares outstanding for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ consist of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
($ in thousands except share amounts)	2019		2018		2019		2018		2020			2019

Basic Net income (loss) available for Class A common shareholders	$	27,576	$	66,630	$	81,996	$	155,911	$	(15,728	)	$	22,175
Diluted Net income (loss) available for Class A common shareholders	$	27,576	$	74,038	$	81,996	$	177,875	$	(15,728	)	$	22,175
Weighted average shares outstanding
Basic	106,004,152		96,935,986		105,264,752		96,317,513		106,329,796			104,259,549
Diluted	106,603,713		110,650,253		106,232,581		110,482,991		106,329,796			105,006,315

The calculation of basic and diluted net income (loss) per share amounts for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018 are described and presented below.~~

~~Basic Net Income (Loss) per Share~~

~~Numerator:~~ ~~utilizes net income (loss) available for Class A common shareholders for~~consist of the ~~three and nine months ended September 30, 2019 and 2018, respectively.~~

~~Denominator:~~ ~~utilizes the weighted average shares of Class A common stock for the three and nine months ended September 30, 2019 and 2018, respectively.~~

~~Diluted Net Income (Loss) per Share~~

~~Numerator:~~ utilizes net income (loss) available for Class A common shareholders for the three and nine months ended September 30, 2019 and 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 nine months ended September 30, 2019 and 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.

following:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(In thousands except share amounts)	2019		2018			2019		2018			2020			2019

Basic Net Income (Loss) Per Share of Class A Common Stock
Numerator:
Net income (loss) attributable to Class A common shareholders	$	27,576	$	66,630		$	81,996	$	155,911		$	(15,728	)	$	22,175
Denominator:
Weighted average number of shares of Class A common stock outstanding	106,004,152		96,935,986			105,264,752		96,317,513			106,329,796			104,259,549
Basic net income (loss) per share of Class A common stock	$	0.26	$	0.69		$	0.78	$	1.62		$	(0.15	)	$	0.21

Diluted Net Income (Loss) Per Share of Class A Common Stock
Numerator:
Net income (loss) attributable to Class A common shareholders	$	27,576	$	66,630		$	81,996	$	155,911		$	(15,728	)	$	22,175
Add (deduct) - dilutive effect of:
Amounts attributable to operating partnership’s share of Ladder Capital Corp net income (loss)(2)	—		8,991			—		22,786			—			—
Additional corporate tax (expense) benefit(2)	—		(1,583		)	—		(822		)	—			—
Diluted net income (loss) attributable to Class A common shareholders	27,576		74,038			81,996		177,875			(15,728		)	22,175
Denominator:
Basic weighted average number of shares of Class A common stock outstanding	106,004,152		96,935,986			105,264,752		96,317,513			106,329,796			104,259,549
Add - dilutive effect of:
Shares issuable relating to converted Class B common shareholders(3)	—		13,202,202			—		13,800,597			—			—
Incremental shares of unvested Class A restricted stock(3)	599,561		512,065			967,829		364,881			—			746,766
Incremental shares of unvested stock options											—			—
Diluted weighted average number of shares of Class A common stock outstanding	106,603,713		110,650,253			106,232,581		110,482,991			106,329,796			105,006,315
Diluted net income (loss) per share of Class A common stock	$	0.26	$	0.67		$	0.77	$	1.61		$	(0.15	)	$	0.21


(1)	For three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, 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.


(2)	The Company is 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.


(3)	The Company is using the treasury stock method.

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.

~~14.~~13. 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~~Note 14, Stock Based and Other Compensation Plans included within the Company’s Annual Report ($ in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Stock Based Compensation Expense:
Annual Incentive Awards Granted in 2015 with Respect to 2014 Performance $ —
$ —
$ —
$ 172
Annual Incentive Awards Granted in 2016 with Respect to 2015 Performance —
323
131
971
Annual Incentive Awards Granted in 2017 with Respect to 2016 Performance(1) 280
524
955
1,655
Other 2017 Restricted Stock Awards(1) 25
76
102
257
Annual Incentive Awards Granted in 2017 with Respect to 2017 Performance(1) 596
1,122
1,961
3,325
2018 Restricted Stock Awards —
95
32
230
Other 2018 Restricted Stock Awards(1) 11
9
31
12
Annual Incentive Awards Granted in 2019 with Respect to 2018 Performance(1) 2,509
—
14,804
—
2019 Restricted Stock Awards 148
—
297
—
Other Employee/Director Awards 6
13
23
45
Total Stock Based Compensation Expense $ 3,575
$ 2,162
$ 18,336
$ 6,667

Phantom Equity Investment Plan $ 343
$ —
$ 1,047
$ —
Ladder Capital Corp Deferred Compensation Plan $ —
$ 601
$ —
$ 1,519
Bonus Expense $ 6,533
$ 9,210
$ 21,035
$ 26,772



	Three Months Ended March 31,
	2020			2019

Stock Based Compensation Expense	$	14,026		$	11,292
Phantom Equity Investment Plan	2,138			802
Stock Options Exercised	(270		)	—
Bonus Expense	30			6,785
Total	$	15,924		$	18,879


~~(1)~~	~~Includes immediate vesting of retirement eligible employees, including Brian Harris, our Chief Executive Officer.~~

Summary of ~~Restricted Stock and~~ Stock and Shares/Options Nonvested/Outstanding

A summary of the grants is presented below:

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Number
of Shares/Options
Weighted
Average
Fair Value
Per Share
Number
of Shares Weighted
Average
Fair Value
Per Share Number
of Shares/Options Weighted
Average
Fair Value
Per Share Number
of Shares/Options Weighted
Average
Fair Value
Per Share

Grants - Class A Common Stock (restricted) 23,443
$ 16.58
4,720
$ 15.89
1,569,694
$ 17.54
33,656
$ 14.86
Grants - Class A Common Stock (restricted) dividends —
—
—
—
11,113
16.61
—
—
Stock Options —
—
—
—
12,073
—
—
—



	Three Months Ended March 31,
	2020			2019
	Number of Shares/Options	Weighted Average Fair Value Per Share		Number of Shares	Weighted Average Fair Value Per Share

Grants - Class A Common Stock	1,466,337	$	18.72	1,541,001	$	17.56
Grants - Class A Common Stock dividends	—	—		11,113	16.61
Stock Options	—	—		12,073	—

The table below presents the number of unvested shares and outstanding stock options at ~~September 30, 2019~~March 31, 2020 and changes during ~~2019~~2020 of the Class A Common stock and Stock Options of Ladder Capital Corp granted under the 2014 Omnibus Incentive Plan:


	Restricted Stock		Stock Options	Restricted Stock		Stock Options

Nonvested/Outstanding at December 31, 2018	1,118,194		982,135
Nonvested/Outstanding at December 31, 2019				1,436,683		994,208
Granted	1,580,807		12,073	1,466,337		—
Exercised			—			(83,845	)
Vested	(1,122,107	)		(1,161,118	)
Forfeited	(8,702	)	—	(5,803	)	—
Expired			—			—
Nonvested/Outstanding at September 30, 2019	1,568,192		994,208
Nonvested/Outstanding at March 31, 2020				1,736,099		910,363

Exercisable at September 30, 2019			994,208
Exercisable at March 31, 2020						910,363

At ~~September 30, 2019~~March 31, 2020 there was ~~$14.8~~$24.7 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 3429.5 months, with a weighted-average remaining vesting period of ~~25.8~~35 months.

The table below presents the number of unvested shares and outstanding stock options at September 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 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

As of September 30, 2018 there was $8.0 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 21.2 months.

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 ~~2017~~2020 with Respect to ~~2016~~2019 Performance

For ~~2016~~2019 performance, ~~management~~certain employees received stock-based incentive ~~equity (the “Annual Restricted Stock Awards”). On February 18, 2017, Annual Restricted Stock Awards were granted~~equity. Fair value for all restricted and unrestricted stock grants was calculated using the closing stock price on the grant date. Compensation expense for unrestricted stock grants will be expensed immediately. The Company has elected to ~~Management Grantees with an aggregate value~~recognize the compensation expense related to the time-based vesting 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, 50% of each~~ restricted stock awards for the entire award ~~granted is~~on a straight-line basis over the requisite service period for the entire award. Restricted stock subject to ~~time-based vesting~~performance criteria ~~and the remaining 50% of each restricted stock award~~ is ~~subject~~eligible to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in 3 installments on each of the first 3 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 3 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.~~the years ended December 31, 2020, 2021 and 2022, respectively. 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 3three 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, 2018 and 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 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.

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 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 our subsidiaries following the Executive Retirement Eligibility Date.

~~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 vested in 2 equal installments on each of the first 2 anniversaries of the date of grant, subject to continued employment on the applicable vesting ~~dates. Compensation expense was 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 vested 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 was recognized on a straight-line basis over the one year vesting period.

~~On February 18, 2017, Restricted Stock Awards were granted to certain non-management employees (each, a “Non-Management Grantee”~~(the “Catch-Up Provision”) with an aggregate value of $0.6 million which represents 40,000 shares of restricted Class A common stock in connection with 2016 compensation. NaN 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 3 installments on each of the first 3 anniversaries of June 1, 2017, subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 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~~February 18, 2020, in connection with ~~a grant date~~2019 compensation, annual stock and restricted stock awards were granted to management grantees, other than Ms. Porcella, with an aggregate fair value of ~~$0.1~~$12.5 million ~~representing 5,130~~which represents 667,201 shares of restricted Class A common ~~stock, which was scheduled~~stock. The grant to ~~vest~~Ms. Porcella is subject to the same time-based and performance-based vesting described below for non-management grantees and her shares are included in ~~3 equal installments on each~~that total. The grant to Mr. Harris, and 50% of the ~~first 3 anniversaries~~grants to Mr. Fox, Ms. McCormack and Mr. Perelman, were unrestricted. The other 50% of ~~the date of grant, subject~~incentive equity granted to ~~continued service on the board of directors. Compensation expense for~~Mr. Fox, Ms. McCormack and Mr. Perelman is restricted stock subject to ~~time-based vesting~~performance criteria ~~granted to the director will be expensed 1/3 each year, for three years on an annual basis following such grant.~~as described above.

On ~~June 19, 2017, Restricted Stock Awards~~February 18, 2020, in connection with 2019 compensation, stock awards were granted to a Ms. Porcella and non-management employees (“Non-Management ~~Grantee~~Grantees”) with an aggregate value of ~~$0.3~~$14.5 million which represents ~~21,307~~775,100 shares of ~~time-based~~mostly restricted Class A common stock. ~~One-third~~Fifty percent 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 unvestedmost 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 3 equal installments on each of the first 3 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 with 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~~these stock ~~award~~awards is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock will vest in 3 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 3 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. NaN 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 3 installments on February 18 of each of ~~2019, 2020~~2021, 2022 and ~~2021~~2023 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments upon the compensation committee’s confirmation that the Company achieves the Performance Target for the years ended December 31, ~~2018, 2019~~2020, 2021 and ~~2020,~~2022, 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~~performance-based restricted stock granted 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~~February 18, 2020 shall be recognized 1/3 for the period ~~December 21, 2017~~February 18, 2020 through February 18, ~~2019,~~2021, 1/3 for the period February 19, ~~2019~~2021 through February 18, ~~2020~~2022 and 1/3 for the period February 19, ~~2020~~2022 through February 18, ~~2021.~~2023.

In the event Ms. Porcella or 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.

~~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 vested 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 was recognized on a straight-line basis over the one year vesting period.

~~Other 2018 Restricted Stock Awards~~

On April 23, 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 3 equal installments on each of the first 3 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 3 equal installments on each of the first 3 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, 50 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 50 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 3 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 3 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.

Upon a change in control (as defined in the respective award agreements), ~~all~~ restricted stock awards to Mr. Fox, Ms. McCormack and Mr. Perelman will become fully vested if (1) ~~the Management Grantee~~such 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~~such management grantee’s employment is terminated without cause or due to death or disability or the ~~Management Grantee~~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 3 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 3 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.

~~2019~~2020 Restricted Stock Awards

On February 18, ~~2019,~~2020, 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~~24,036 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 summary of grants table above.

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 3 equal installments on each of the first 3 anniversaries of the date of grant, subject to continued service on the board of directors. TheseMarch 26, 2020, 4,006 shares of restricted Class A common stock were forfeited when 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.

On July 1, 2019, a new employee of the Company received a Restricted Stock Award with a grant date fair value of $0.4 million, representing 24,125 shares of restricted Class A common stock. Fifty percent of this Restricted Stock Award granted is subject to time-based vesting criteria, and the remaining 50% of this Restricted Stock Award is subject to attainment of the Performance Target for the applicable years. The time-vesting restricted stock granted will vest in 3 installments on July 1 of each of 2020, 2021 and 2022 subject to continued employment on the applicable vesting dates. The performance-vesting restricted stock will vest in 3 equal installments on July 1 of each of 2020, 2021 and 2022 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 Award on a straight-line basis over the requisite service period.

~~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 three years on a straight-line basis following the applicable year in which the related compensation was earned and mandatory contributions for compensation earned in 2016 and 2017 remain in the 2014 Deferred Compensation Plan, subject to vesting in 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 ofmember resigned from 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.directors.

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 September 30, 2019, there are 260,200 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 138,583 are unvested, resulting in a liability of $4.6 million, which is included in accrued expenses on the consolidated balance sheets. As of December 31, 2018, there were 380,662 phantom units outstanding in the 2014 Deferred Compensation Plan, of which 130,389 were unvested, resulting in a liability of $5.9 million, which is included in accrued expenses on the consolidated balance sheets.

Bonus Payments

On February 6, 2020, the board of directors of Ladder Capital Corp approved the 2019 bonus payments to employees, including officers, totaling $55.2 million, which included $27.0 million of equity based compensation. The bonuses were accrued for as of December 31, 2019 and paid to employees in full on February 14, 2020. On February 7, 2019, the board of directors of Ladder Capital Corp approved the 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. During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020, the Company recorded 0 compensation expense related to bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy. During the three months ended March 31, 2019, the Company recorded compensation expense of ~~$6.5~~$6.8 million and $21.0 million, respectively, related to bonuses. During the three and nine months ended September 30, 2018, the Company recorded compensation expense of $9.2 million and $26.8 million, respectively, related to bonuses.

~~15.~~14. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows ($ in thousands):

~~September 30, 2019~~March 31, 2020


											Weighted Average													Weighted Average
	Outstanding Face Amount			Amortized Cost Basis/Purchase Price			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)	$	1,779,458		$	1,780,233		$	1,788,712		Internal model, third-party inputs	3.14	%	2.38	$	1,943,507		$	1,943,359		$	1,868,149		Internal model, third-party inputs	2.21	%	2.31
CMBS interest-only(1)	2,139,357		(2)	39,961			41,440			Internal model, third-party inputs	3.65	%	2.61	1,550,358		(2)	26,800			27,835			Internal model, third-party inputs	2.99	%	2.46
GNMA interest-only(3)	113,096		(2)	2,202			2,026			Internal model, third-party inputs	9.65	%	2.73	105,009		(2)	1,661			1,607			Internal model, third-party inputs	4.86	%	3.05
Agency securities(1)	641			652			654			Internal model, third-party inputs	1.74	%	1.97	621			631			628			Internal model, third-party inputs	1.70	%	1.70
GNMA permanent securities(1)	31,760			31,984			32,795			Internal model, third-party inputs	3.27	%	4.55	31,159			31,345			32,211			Internal model, third-party inputs	3.50	%	2.61
Corporate bonds(1)	32,088			31,604			32,372			Internal model, third-party inputs	4.81	%	1.31
Equity securities(3)	N/A			13,720			13,457			Observable market prices	N/A		N/A	N/A			598			197			Observable market prices	N/A		N/A
Provision for current expected credit reserves														N/A			(22		)	(22		)	(5)	N/A		N/A
Mortgage loan receivables held for investment, net, at amortized cost:
Mortgage loan receivables held for investment, net, at amortized cost	3,249,711			3,231,443			3,249,383			Discounted Cash Flow(4)	7.29	%	1.37	3,453,893			3,432,779			3,447,851			Discounted Cash Flow(4)	6.86	%	1.29
Provision for loan losses	N/A			(18,500		)	(18,500		)	(5)	N/A		N/A
Provision for current expected credit reserves														N/A			(49,457		)	(49,457		)	(5)	N/A		N/A
Mortgage loan receivables held for sale	173,957			174,214			182,716			Internal model, third-party inputs(6)	4.59	%	9.68	154,833			146,713			146,961			Internal model, third-party inputs(6)	3.94	%	9.96
FHLB stock(7)	61,619			61,619			61,619			(7)	5.50	%	N/A	61,619			61,619			61,619			(7)	4.25	%	N/A
Nonhedge derivatives(1)(8)	6,000			N/A			22			Counterparty quotations	N/A		0.30	121,400			N/A			950			Counterparty quotations	N/A		0.25

Liabilities:
Repurchase agreements - short-term	1,486,049			1,486,049			1,486,049			Discounted Cash Flow(9)	2.65	%	0.18	1,626,706			1,626,706			1,626,706			Discounted Cash Flow(9)	2.87	%	0.20
Repurchase agreements - long-term	299,999			299,999			299,999			Discounted Cash Flow(10)	3.20	%	1.28	100,094			100,094			100,094			Discounted Cash Flow(10)	2.48	%	1.36
Revolving credit facility														266,430			266,430			266,430			Discounted Cash Flow(11)	3.83	%	0.87
Mortgage loan financing	718,351			723,313			748,489			Discounted Cash Flow(10)	4.96	%	1.51	801,515			806,153			830,648			Discounted Cash Flow(10)	4.90	%	1.53
CLO debt	117,760			117,760			117,760			Discounted Cash Flow(9)	4.97	%	5.91
Borrowings from the FHLB	1,076,449			1,076,449			1,084,876			Discounted Cash Flow	2.50	%	2.32	1,007,581			1,007,581			1,012,997			Discounted Cash Flow	2.08	%	1.92
Senior unsecured notes	1,166,201			1,157,117			1,201,973			Broker quotations, pricing services	5.39	%	3.53	1,891,897			1,874,056			1,005,958			Broker quotations, pricing services	4.95	%	4.50
Nonhedge derivatives(1)(8)	270,471			N/A			82			Counterparty quotations	N/A		0.25	69,571			N/A			—			Counterparty quotations	N/A		0.11


(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.

December 31, ~~2018~~2019


											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)	$	1,258,819		$	1,257,801		$	1,252,640		Internal model, third-party inputs	3.14	%	2.33	$	1,640,597		$	1,640,905		$	1,644,322			Internal model, third-party inputs	3.08	%	2.41
CMBS interest-only(1)	2,373,936		(2)	55,534			55,691			Internal model, third-party inputs	2.80	%	2.69	1,559,160		(2)	28,553			29,146				Internal model, third-party inputs	3.04	%	2.53
GNMA interest-only(3)	135,932		(2)	2,862			2,648			Internal model, third-party inputs	6.30	%	4.11	109,783		(2)	1,982			1,851				Internal model, third-party inputs	4.59	%	2.77
Agency securities(1)	668			682			662			Internal model, third-party inputs	1.83	%	2.36	629			640			637				Internal model, third-party inputs	1.73	%	1.83
GNMA permanent securities(1)	32,633			32,889			33,064			Internal model, third-party inputs	3.76	%	5.03	31,461			31,681			32,369				Internal model, third-party inputs	3.17	%	1.93
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	N/A			12,848			12,980				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	3,340,381			3,318,390			3,324,588			Discounted Cash Flow(4)	7.84	%	1.32	3,277,596			3,257,036			3,273,219				Discounted Cash Flow(4)	6.94	%	1.43
Provision for loan losses	N/A			(17,900		)	(17,900		)	(5)	N/A		N/A	N/A			(20,500		)	(20,500		)		(5)	N/A		N/A
Mortgage loan receivables held for sale	181,905			182,439			187,870			Internal model, third-party inputs(6)	5.46	%	9.75	122,748			122,325			124,989				Internal model, third-party inputs(6)	4.20	%	9.99
FHLB stock(7)	57,915			57,915			57,915			(7)	4.50	%	N/A	61,619			61,619			61,619				(7)	4.75	%	N/A
Nonhedge derivatives(1)(8)	—			N/A			—			Counterparty quotations	N/A		0.00	340,200			N/A			693				Counterparty quotations	N/A		0.25

Liabilities:
Repurchase agreements - short-term	436,957			436,957			436,957			Discounted Cash Flow(9)	3.42	%	0.23	1,781,253			1,781,253			1,781,253			��	Discounted Cash Flow(9)	2.50	%	0.19
Repurchase agreements - long-term	226,728			226,728			226,728			Discounted Cash Flow(10)	3.47	%	1.73	34,681			34,681			34,681				Discounted Cash Flow(10)	2.81	%	1.41
Mortgage loan financing	738,825			743,902			735,662			Discounted Cash Flow(10)	5.09	%	2.61	807,854			812,606			838,766				Discounted Cash Flow(10)	4.91	%	1.51
CLO debt	601,543			601,543			601,543			Discounted Cash Flow(9)	4.41	%	9.40
Participation Financing - Mortgage Loan Receivable	2,453			2,453			2,453			Discounted Cash Flow(11)	17.00	%	0.43
Borrowings from the FHLB	1,286,000			1,286,000			1,286,664			Discounted Cash Flow	2.55	%	2.46	1,073,500			1,073,500			1,080,354				Discounted Cash Flow	2.33	%	2.08
Senior unsecured notes	1,166,201			1,154,991			1,111,288			Broker quotations, pricing services	5.39	%	4.28	1,166,201			1,157,833			1,208,860				Broker quotations, pricing services	5.39	%	3.28
Nonhedge derivatives(1)(8)	578,971			N/A			975			Counterparty quotations	N/A		0.25	69,571			N/A			—				Counterparty quotations	N/A		0.36


(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.


(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)


(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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 ($ in thousands):

~~September 30, 2019~~March 31, 2020


Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition	Outstanding Face Amount			Fair Value										Outstanding Face Amount			Fair Value
	Outstanding Face Amount			Level 1		Level 2		Level 3			Total			Outstanding Face Amount			Level 1		Level 2		Level 3			Total

Assets:
CMBS(1)	$	1,767,314		$	—	$	—	$	1,777,085		$	1,777,085		$	1,931,411		$	—	$	—	$	1,856,559		$	1,856,559
CMBS interest-only(1)	2,128,234		(2)	—		—		40,601			40,601			1,539,283		(2)	—		—		27,065			27,065
GNMA interest-only(3)	113,096		(2)	—		—		2,026			2,026			105,009		(2)	—		—		1,607			1,607
Agency securities(1)	641			—		—		654			654			621			—		—		628			628
GNMA permanent securities(1)	31,760			—		—		32,795			32,795			31,159			—		—		32,211			32,211
Corporate bonds(1)	32,088			—		—		32,372			32,372
Equity securities	N/A			13,457		—		—			13,457			N/A			197		—		—			197
Nonhedge derivatives(4)	6,000			—		22		—			22			121,400			—		950		—			950
				$	13,457	$	22	$	1,885,533		$	1,899,012					$	197	$	950	$	1,918,070		$	1,919,217
Liabilities:
Nonhedge derivatives(4)	270,471			$	—	$	82	$	—		$	82		69,571			$	—	$	—	$	—		$	—

Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition	Outstanding Face Amount			Fair Value										Outstanding Face Amount			Fair Value
	Outstanding Face Amount			Level 1		Level 2		Level 3			Total			Outstanding Face Amount			Level 1		Level 2		Level 3			Total

Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries	$	3,249,711		$	—	$	—	$	3,249,383		$	3,249,383		$	3,453,893		$	—	$	—	$	3,447,851		$	3,447,851
Provision for loan losses	N/A			—		—		(18,500		)	(18,500		)
Provision for current expected credit losses														N/A			—		—		(49,457		)	(49,457		)
Mortgage loan receivable held for sale	173,957			—		—		182,716			182,716			154,833			—		—		146,961			146,961
CMBS(5)	12,144			—		—		11,627			11,627			12,096			—		—		11,590			11,590
CMBS interest-only(5)	11,123		(2)	—		—		839			839			11,075		(2)	—		—		770			770
Provision for current expected credit losses														N/A			—		—		(22		)	(22		)
FHLB stock	61,619			—		—		61,619			61,619			61,619			—		—		61,619			61,619
				$	—	$	—	$	3,487,684		$	3,487,684					$	—	$	—	$	3,619,312		$	3,619,312
Liabilities:
Repurchase agreements - short-term	1,486,049			$	—	$	—	$	1,486,049		$	1,486,049		1,626,706			$	—	$	—	$	1,626,706		$	1,626,706
Repurchase agreements - long-term	299,999			—		—		299,999			299,999			100,094			—		—		100,094			100,094
Revolving credit facility														266,430			—		—		266,430			266,430
Mortgage loan financing	718,351			—		—		748,489			748,489			801,515			—		—		830,648			830,648
CLO debt	117,760			—		—		117,760			117,760
Borrowings from the FHLB	1,076,449			—		—		1,084,876			1,084,876			1,007,581			—		—		1,012,997			1,012,997
Senior unsecured notes	1,166,201			—		—		1,201,973			1,201,973			1,891,897			—		—		1,005,958			1,005,958
				$	—	$	—	$	4,939,146		$	4,939,146					$	—	$	—	$	4,842,833		$	4,842,833


(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, ~~2018~~2019


Financial Instruments Reported at Fair Value on Consolidated Statements of Financial Condition	Outstanding Face Amount			Fair Value										Outstanding Face Amount			Fair Value
	Outstanding Face Amount			Level 1		Level 2		Level 3			Total			Outstanding Face Amount			Level 1		Level 2		Level 3			Total

Assets:
CMBS(1)	$	1,246,609		$	—	$	—	$	1,241,334		$	1,241,334		$	1,628,476		$	—	$	—	$	1,632,714		$	1,632,714
CMBS interest-only(1)	2,362,747		(2)	—		—		54,789			54,789			1,548,061		(2)	—		—		28,342			28,342
GNMA interest-only(3)	135,932		(2)	—		—		2,648			2,648			109,783		(2)	—		—		1,851			1,851
Agency securities(1)	668			—		—		662			662			629			—		—		637			637
GNMA permanent securities(1)	32,633			—		—		33,064			33,064			31,461			—		—		32,369			32,369
Corporate bonds(1)	55,305			—		—		53,871			53,871
Equity securities	N/A			11,550		—		—			11,550			N/A			12,980		—		—			12,980
Nonhedge derivatives(4)														340,200			—		693		—			693
				$	11,550	$	—	$	1,386,368		$	1,397,918					$	12,980	$	693	$	1,695,913		$	1,709,586
Liabilities:
Nonhedge derivatives(4)	$	605,871		$	—	$	975	$	—		$	975		$	69,571		$	—	$	—	$	—		$	—


Financial Instruments Not Reported at Fair Value on Consolidated Statements of Financial Condition	Outstanding Face Amount			Fair Value										Outstanding Face Amount			Fair Value
	Outstanding Face Amount			Level 1		Level 2		Level 3			Total			Outstanding Face Amount			Level 1		Level 2		Level 3			Total

Assets:
Mortgage loan receivable held for investment, net, at amortized cost:
Mortgage loans held by consolidated subsidiaries	$	3,340,381		$	—	$	—	$	3,324,588		$	3,324,588		$	3,277,597		$	—	$	—	$	3,273,219		$	3,273,219
Provision for loan losses	N/A			—		—		(17,900		)	(17,900		)	N/A			—		—		(20,500		)	(20,500		)
Mortgage loan receivables held for sale	181,905			—		—		187,870			187,870			122,748			—		—		124,989			124,989
CMBS(5)	12,210			—		—		11,306			11,306			12,121			—		—		11,608			11,608
CMBS interest-only(5)	11,189		(2)	—		—		902			902			11,099		(2)	—		—		804			804
FHLB stock	57,915			—		—		57,915			57,915			61,619			—		—		61,619			61,619
				$	—	$	—	$	3,564,681		$	3,564,681					$	—	$	—	$	3,451,739		$	3,451,739
Liabilities:
Repurchase agreements - short-term	436,957			$	—	$	—	$	436,957		$	436,957		1,781,253			$	—	$	—	$	1,781,253		$	1,781,253
Repurchase agreements - long-term	226,728			—		—		226,728			226,728			34,681			—		—		34,681			34,681
Mortgage loan financing	738,825			—		—		735,662			735,662			807,854			—		—		838,766			838,766
CLO debt	601,543			—		—		601,543			601,543
Participation Financing - Mortgage Loan Receivable	2,453			—		—		2,453			2,453
Borrowings from the FHLB	1,286,000			—		—		1,286,664			1,286,664			1,073,500			—		—		1,080,354			1,080,354
Senior unsecured notes	1,166,201			—		—		1,111,288			1,111,288			1,166,201			—		—		1,208,860			1,208,860
				$	—	$	—	$	4,401,295		$	4,401,295					$	—	$	—	$	4,943,914		$	4,943,914


(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 ~~nine~~three months ended ~~September 30,~~March 31, 2020 and December 31, 2019 ~~and 2018~~ ($ in thousands):


	Nine Months Ended September 30,						Three Months Ended March 31,
Level 3	2019			2018			2020			2019

Balance at January 1,	$	1,385,957		$	1,106,517		$	1,695,913		$	1,385,957
Transfer from level 2	—			—			—			—
Purchases	1,193,671			303,007			437,519			431,107
Sales	(533,811		)	(306,109		)	(93,301		)	(210,279		)
Paydowns/maturities	(178,402		)	(93,185		)	(43,603		)	(24,166		)
Amortization of premium/discount	(9,333		)	(17,842		)	(2,284		)	(3,191		)
Unrealized gain/(loss)	16,813			(9,203		)	(77,931		)	13,203
Realized gain/(loss) on sale(1)	10,639			(4,896		)	1,755			2,778
Balance at September 30,	$	1,885,534		$	978,289
Balance at March 31,							$	1,918,068		$	1,595,409


(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):

~~September 30, 2019~~March 31, 2020


Financial Instrument	Carrying Value			Valuation Technique	Unobservable Input	Minimum		Weighted Average		Maximum		Carrying Value			Valuation Technique	Unobservable Input	Minimum		Weighted Average		Maximum

CMBS(1)	$	1,788,712		Discounted cash flow	Yield (4)	1.68	%	3.1	%	20.55	%	$	1,856,560		Discounted cash flow	Yield (4)	1.68	%	11.1	%	442.78	%
					Duration (years)(5)	0.00		1.54		7.10						Duration (years)(5)	0.01		2.60		6.25
CMBS interest-only(1)	41,440		(2)	Discounted cash flow	Yield (4)	1.79	%	3.73	%	6.35	%	27,065		(2)	Discounted cash flow	Yield (4)	2.06	%	4.04	%	6.8	%
					Duration (years)(5)	0.08		2.61		3.85						Duration (years)(5)	0.14		2.30		3.34
					Prepayment speed (CPY)(5)	100.00		100.00		100.00						Prepayment speed (CPY)(5)	100.00		97.23		100.00
GNMA interest-only(3)	2,026		(2)	Discounted cash flow	Yield (4)	(7.19	)%	14.44	%	44.47	%	1,607		(2)	Discounted cash flow	Yield (4)	(2.32	)%	10.81	%	123.94	%
					Duration (years)(5)	0.00		2.78		8.61						Duration (years)(5)	0.52		2.57		13.70
					Prepayment speed (CPJ)(5)	5.00		11.57		15.00						Prepayment speed (CPJ)(5)	5.00		12.36		35.00
Agency securities(1)	654			Discounted cash flow	Yield (4)	—	%	1.43	%	1.85	%	628			Discounted cash flow	Yield (4)	1.42	%	15.77	%	72	%
					Duration (years)(5)	0.00		2.46		3.17						Duration (years)(5)	0.00		2.16		2.71
GNMA permanent securities(1)	32,795			Discounted cash flow	Yield (4)	3.43	%	18.72	%	84.30	%	32,211			Discounted cash flow	Yield (4)	157.21	%	277.67	%	410.00	%
					Duration (years)(5)	1.15		7.76		13.99						Duration (years)(5)	1.15		9.96		14.89
Corporate bonds(1)	32,372			Discounted cash flow	Yield (4)	2.79	%	2.79	%	2.79	%
					Duration (years)(5)	1.05		1.05		1.05
Total	$	1,897,999										$	1,918,071


(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, ~~2018~~2019


Financial Instrument	Carrying Value			Valuation Technique	Unobservable Input	Minimum		Weighted Average		Maximum		Carrying Value			Valuation Technique	Unobservable Input	Minimum		Weighted Average		Maximum

CMBS(1)	$	1,252,640		Discounted cash flow	Yield (3)	—	%	3.54	%	21.67	%	$	1,632,714		Discounted cash flow	Yield (3)	—	%	3.11	%	19.92	%
					Duration (years)(4)	0.00		2.50		7.78						Duration (years)(4)	0.00		1.63		6.87
CMBS interest-only(1)	55,691		(2)	Discounted cash flow	Yield (3)	0.87	%	4.71	%	8.11	%	28,342		(2)	Discounted cash flow	Yield (3)	1.57	%	3.93	%	7.62	%
					Duration (years)(4)	0.14		2.96		6.86						Duration (years)(4)	0.26		2.47		3.51
					Prepayment speed (CPY)(4)	100.00		100.00		100.00						Prepayment speed (CPY)(4)	100.00		97.24		100.00
GNMA interest-only(3)	2,648		(2)	Discounted cash flow	Yield (4)	1.21	%	5.54	%	10.21	%	1,851		(2)	Discounted cash flow	Yield (4)	(4.82	)%	15.13	%	44.5	%
					Duration (years)(5)	0.04		3.13		4.77						Duration (years)(5)	0.85		2.90		13.69
					Prepayment speed (CPJ)(5)	5.00		6.58		15.00						Prepayment speed (CPJ)(5)	5.00		12.36		35.00
Agency securities(1)	662			Discounted cash flow	Yield (4)	—	%	2.1	%	2.84	%	637			Discounted cash flow	Yield (4)	—	%	1.7	%	2.16	%
					Duration (years)(5)	0.00		2.83		3.82						Duration (years)(5)	0.00		2.30		2.92
GNMA permanent securities(1)	33,064			Discounted cash flow	Yield (4)	—	%	3.51	%	4	%	32,369			Discounted cash flow	Yield (4)	56.56	%	166.79	%	410	%
					Duration (years)(5)	0.00		5.62		5.88						Duration (years)(5)	2.60		3.61		6.49
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										$	1,695,913


(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.

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 September 30, 2019 and December 31, 2018.~~

~~The following table summarizes the fair value write-downs~~ Refer to ~~assets carried at fair value on a nonrecurring basis ($ in thousands):~~

Three Months Ended September 30, Nine Months Ended September 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 5, Real Estate and Related Lease Intangibles, Net~~.

Note 3, Mortgage Loan Receivables for disclosure of level 3 inputs.

~~16.~~15. 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 (the “Code”), commencing with the taxable year ended December 31, 2015 (the REIT Election”). 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. Current income tax expense (benefit) was ~~$0.4~~$(16.6) million and ~~$(6.9)~~$(6.0) million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively. Current income tax expense (benefit) was $7.2 million and $10.2 million for the three and nine months ended September 30, 2018,~~ respectively.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company’s net deferred tax assets (liabilities) were ~~$(4.7)~~$(14.2) million and ~~$2.3~~$(2.1) million, respectively, and are included in other assets (other liabilities) in the Company’s consolidated balance sheets. Deferred income tax expense (benefit) included within the provision for income taxes was ~~$0.7~~$12.0 million and ~~$7.4~~$3.2 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively. Deferred income tax expense (benefit) included within the provision for income taxes was $(6.0) million and $(4.5) million for the three and nine months ended September 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 the deferred tax assets (aside from the exception noted below) will be realized in the future. Realization of the deferred tax assets is dependent upon our generation of sufficient taxable income in future years in appropriate tax 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 ~~September 30, 2019,~~March 31, 2020, the Company has a deferred tax asset of ~~$10.0~~$9.8 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.~~2021. As the realization of these assets are not more likely than not before their expiration, the Company ~~has~~ provided a full valuation allowance against this deferred tax asset. Additionally, as of March 31, 2020, the Company had a deferred tax asset of $0.9 million related to Code Section 163(j) interest expense limitation. As the Company is uncertain if this asset will be realized in the future, the Company provided a full valuation allowance against this deferred tax asset.

The Company has historically calculated its tax provision during quarterly reporting periods by applying an annual effective tax rate for the full year to the income for the reporting period; however, for the three months ended March 31, 2020, the Company used a discrete effective tax rate method to calculate taxes for the three months ended March 31, 2020. Given the uncertainty in the markets driven by COVID-19, the Company is not able to reliably forecast the split of its income between its REIT and TRS entities. The Company determined that since changes in estimated income between its REIT and TRS entities would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three month period ended March 31, 2020.

The Company’s tax returns are subject to audit by taxing authorities. Generally, as of ~~September 30, 2019,~~March 31, 2020, the tax years ~~2015-2018~~2016-2019 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. 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 years 2012-2014. Several of the Company’s subsidiary entities are under New York State audit for tax years 2015-2018. The Company does not expect these audits 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.

The Company 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,~~connection with a ~~settlement was reached with~~ New York State ~~pertaining to an~~ audit ~~of these corporate entities for~~settlement, the years 2013-2015. As a result of the settlement, during the year ended December 31, 2018, management recorded income tax expense in the amount of $3.3 million and a corresponding payable to the State of New York. Pursuant to the indemnification, management expects to recoverCompany collected $2.5 million of ~~such amounts and, accordingly, recorded fee and other income in~~indemnities under the amount of $2.5 million as well as a corresponding receivable from the indemnity counterparties. As of July 31, 2019, the Company 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 years 2012-2014. The Company does not expect the audit 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.acquisition agreements during 2019.

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 ~~September 30, 2019 and~~ December 31, ~~2018,~~2019, the Company’s unrecognized tax benefit is a liability for $0.2 million, ~~and $0.8 million, respectively,~~ and is included in the accrued expenses in the Company’s consolidated balance sheets. ~~This~~The statute of limitations for the unrecognized tax benefit ~~if recognized, would have a favorable impact on our effective income tax rate in future periods. As~~as of ~~September 30,~~December 31, 2019 has expired as of March 31, 2020. This expiration allowed the Company ~~has not recognized a significant amount~~to release the remainder of ~~any interest or penalties related to uncertain~~the unrecognized tax ~~positions.~~benefit liability. 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. The statute of limitations for the federal portion of the $0.8 million unrecognized tax benefit as of December 31, 2018 had expired as of September 30, 2019. This expiration allowed us to release $0.6 million of the unrecognized tax benefit liability.

Tax Receivable Agreement

Upon consummation of the IPO, the Company entered into a Tax Receivable Agreement with the Continuing LCFH Limited Partners. Under the Tax Receivable Agreement the Company generally is required to pay to those 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. WeThe Company 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 Continuing 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, pursuant to the Tax Receivable Agreement, the Company recorded a liability of $1.6 million, included in ~~amount payable pursuant to tax receivable agreement~~other liabilities in the consolidated balance sheets for 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 our 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 September 30, 2019, members of senior management have $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 7, Debt Obligations, Net for further detail. The Company recorded $0.2 million of interest expense for the nine months ended September 30, 2019, which is included in accrued expenses on the consolidated balance sheets. The Company recorded $0.1 million and $0.4 million of interest expense for the three and nine months ended September 30, 2018, respectively, which is included in accrued expenses on the consolidated balance sheets.

On December 12, 2018, Ladder provided a $6.4 million first mortgage interest-only loan to a borrower affiliated with principals of Related to facilitate the acquisition of a gym facility and associated parking located in Woodbury, New York. The borrowing entity is owned directly or indirectly by certain investors, including, among other principals of Related, Richard O’Toole, who owns an approximate 12% interest in the borrowing entity and is a member of Ladder’s board of directors. For the nine months ended September 30, 2019, the Company earned $0.1 million in interest income related to this loan. The loan was sold into a securitization trust during the three months ended June 30, 2019.

On March 5, 2019, Ladder provided a $14.3 million first mortgage interest-only loan to a borrower affiliated with principals of 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 Ladder’s board of directors. For the nine months ended September 30, 2019, the Company earned $0.3 million in interest income related to this loan. The loan was sold into a securitization trust during the three months ended June 30, 2019.

~~18.~~16. COMMITMENTS AND CONTINGENCIES

Leases

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 ~~September 30, 2019,~~March 31, 2020, the Company had a ~~$2.7~~$2.0 million lease liability and a ~~$2.7~~$1.9 million right-of-use asset on its consolidated balance sheets. Tenant reimbursements, which consist of real estate taxes and other municipal charges paid by us which were reimbursable by our tenants pursuant to the terms of triple-net lease agreements, were ~~$1.3~~$1.2 million and $~~4.6~~1.6 million, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively, and are included in operating lease income on the Company’s consolidated statements of ~~income, compared to $2.3 million and~~ ~~$7.8 million~~ ~~of tenant reimbursements for the three and nine months ended September 30, 2018, respectively.~~income.

Investments in Unconsolidated Joint Ventures

We have made investments in various unconsolidated joint ventures. See Note 6, 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

As of ~~September 30, 2019,~~March 31, 2020, the Company’s off-balance sheet arrangements consisted of ~~$257.7~~$303.4 million of unfunded commitments on mortgage loan receivables held for investment to provide additional first mortgage loan financing over the next three years at rates to be determined at the time of ~~funding.~~funding, 48% of which additional funds relate to the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, ~~2018,~~2019, the Company’s off-balance sheet arrangements consisted of ~~$379.8~~$286.5 million of unfunded commitments ofon 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~~financing. 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. As a result of the COVID-19 pandemic, the progress of capital expenditures, construction, and leasing is anticipated to be slower than otherwise expected, and the pace of future funding relating to these capital needs may be commensurately slower. These commitments are not reflected on the consolidated balance sheets.

~~19.~~17. SEGMENT REPORTING

The Company has determined that it has 3 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, U.S. Agency 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, 2019
Three months ended March 31, 2020
Interest income	$	66,422		$	15,515		$	7		$	307			$	82,251		$	58,905		$	12,863		$	8		$	813			$	72,589
Interest expense	(12,063		)	(5,632		)	(9,646		)	(24,056		)		(51,397		)	(4,870		)	(6,759		)	(10,234		)	(29,538		)		(51,401		)
Net interest income (expense)	54,359			9,883			(9,639		)	(23,749		)		30,854			54,035			6,104			(10,226		)	(28,725		)		21,188
Provision for loan losses	—			—			—			—				—			(26,581		)	—			—			—				(26,581		)
Net interest income (expense) after provision for loan losses	54,359			9,883			(9,639		)	(23,749		)		30,854			27,454			6,104			(10,226		)	(28,725		)		(5,393		)

Operating lease income	—			—			24,405			—				24,405			—			—			26,328			—				26,328
Sale of loans, net	11,247			—			—			—				11,247			1,005			—			—			—				1,005
Realized gain (loss) on securities	—			3,396			—			—				3,396			—			3,011			—			—				3,011
Unrealized gain (loss) on equity securities	—			254			—			—				254			—			(533		)	—			—				(533		)
Unrealized gain (loss) on Agency interest-only securities	—			16			—			—				16			—			76			—			—				76
Realized gain on sale of real estate, net	—			—			2,082			—				2,082			—			—			10,529			—				10,529
Impairment of real estate																	—			—			—			—				—
Fee and other income	3,839			428			—			899				5,166			1,424			401			25			(331		)		1,519
Net result from derivative transactions	(6,557		)	(2,908		)	—			—				(9,465		)	(11,351		)	(4,084		)	—			—				(15,435		)
Earnings (loss) from investment in unconsolidated joint ventures	—			—			1,094			—				1,094			—			—			441			—				441
Gain (loss) on extinguishment of debt																	—			—			—			2,061				2,061
Total other income (loss)	8,529			1,186			27,581			899				38,195			(8,922		)	(1,129		)	37,323			1,730				29,002

Salaries and employee benefits	—			—			—			(14,319		)		(14,319		)	—			—			—			(17,021		)		(17,021		)
Operating expenses	—			—			—			(5,314		)	(3)	(5,314		)	—			—			—			(5,794		)	(3)	(5,794		)
Real estate operating expenses	—			—			(6,270		)	—				(6,270		)	—			—			(7,948		)	—				(7,948		)
Fee expense	(1,264		)	(92		)	(700		)	—				(2,056		)	(1,190		)	(72		)	(177		)	—				(1,439		)
Depreciation and amortization	—			—			(9,005		)	(25		)		(9,030		)	—			—			(9,984		)	(25		)		(10,009		)
Total costs and expenses	(1,264		)	(92		)	(15,975		)	(19,658		)		(36,989		)	(1,190		)	(72		)	(18,109		)	(22,840		)		(42,211		)

Income tax (expense) benefit	—			—			—			(1,112		)		(1,112		)	—			—			—			4,541				4,541
Segment profit (loss)	$	61,624		$	10,977		$	1,967		$	(43,620	)		$	30,948		$	17,342		$	4,903		$	8,988		$	(45,294	)		$	(14,061	)

Total assets as of September 30, 2019	$	3,387,157		$	1,911,456		$	1,032,752		$	288,509			$	6,619,874
Total assets as of March 31, 2020																	$	3,530,035		$	1,930,605		$	1,096,077		$	775,155			$	7,331,872

Loans Securities
Real
Estate(1)
Corporate/Other(2)
Company
Total

Three months ended September 30, 2018

Interest income $ 81,779
$ 8,541
$ 6
$ 60
$ 90,386
Interest expense (17,232 ) (1,482 ) (9,213 ) (23,549 ) (51,476 )
Net interest income (expense) 64,547
7,059
(9,207 ) (23,489 ) 38,910
Provision for loan losses (10,300 ) —
—
—
(10,300 )
Net interest income (expense) after provision for loan losses 54,247
7,059
(9,207 ) (23,489 ) 28,610

Operating lease income —
—
24,997
—
24,997
Sale of loans, net 1,861
—
—
—
1,861
Realized gain (loss) on securities —
(2,554 ) —
—
(2,554 )
Unrealized gain (loss) on Agency interest-only securities —
142
—
—
142
Realized gain on sale of real estate, net —
—
63,704
—
63,704
Fee and other income 3,895
—
—
956
4,851
Net result from derivative transactions 3,741
3,374
—
—
7,115
Earnings (loss) from investment in unconsolidated joint ventures —
—
401
—
401
Gain (loss) on extinguishment/defeasance of debt —
—
(4,323 ) —
(4,323 )
Total other income (loss) 9,497
962
84,779
956
96,194

Salaries and employee benefits —
—
—
(15,792 ) (15,792 )
Operating expenses 61
—
—
(5,525 ) (3) (5,464 )
Real estate operating expenses —
—
(7,152 ) —
(7,152 )
Fee expense (928 ) (91 ) (292 ) —
(1,311 )
Depreciation and amortization —
—
(10,398 ) (19 ) (10,417 )
Total costs and expenses (867 ) (91 ) (17,842 ) (21,336 ) (40,136 )

Income tax (expense) benefit —
—
—
(1,204 ) (1,204 )
Segment profit (loss) $ 62,877
$ 7,930
$ 57,730
$ (45,073 ) $ 83,464

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

Nine months ended September 30, 2019

Interest income $ 209,369
$ 43,844
$ 21
$ 806
$ 254,040
Interest expense (41,043 ) (12,250 ) (27,620 ) (74,102 ) (155,015 )
Net interest income (expense) 168,326
31,594
(27,599 ) (73,296 ) 99,025
Provision for loan losses (600 ) —
—
—
(600 )
Net interest income (expense) after provision for loan losses 167,726
31,594
(27,599 ) (73,296 ) 98,425

Operating lease income —
—
81,106
—
81,106
Sale of loans, net 38,589
—
—
—
38,589
Realized gain (loss) on securities —
10,726
—
—
10,726
Unrealized gain (loss) on equity securities —
1,341
—
—
1,341
Unrealized gain (loss) on Agency interest-only securities —
38
—
—
38
Realized gain on sale of real estate, net —
—
963
—
963
Impairment of real estate —
—
(1,350 ) —
(1,350 )
Fee and other income 13,095
1,165
7
2,780
17,047
Net result from derivative transactions (20,273 ) (15,683 ) —
—
(35,956 )
Earnings (loss) from investment in unconsolidated joint ventures —
—
3,617
—
3,617
Gain (loss) on extinguishment of debt —
—
(1,070 ) —
(1,070 )
Total other income (loss) 31,411
(2,413 ) 83,273
2,780
115,051

Salaries and employee benefits —
—
—
(52,800 ) (52,800 )
Operating expenses —
—
—
(16,727 ) (3) (16,727 )
Real estate operating expenses —
—
(17,776 ) (17,776 )
Fee expense (3,516 ) (280 ) (1,155 ) —
(4,951 )
Depreciation and amortization —
—
(29,118 ) (74 ) (29,192 )
Total costs and expenses (3,516 ) (280 ) (48,049 ) (69,601 ) (121,446 )

Income tax (expense) benefit —
—
—
(478 ) (478 )
Segment profit (loss) $ 195,621
$ 28,901
$ 7,625
$ (140,595 ) $ 91,552

Total assets as of September 30, 2019 $ 3,387,157
$ 1,911,456
$ 1,032,752
$ 288,509
$ 6,619,874


	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
Three months ended March 31, 2019
Interest income	$	228,273		$	25,217		$	16		$	316			$	253,822		$	73,152		$	13,119		$	8		$	187			$	86,466
Interest expense	(46,286		)	(3,423		)	(25,799		)	(69,098		)		(144,606		)	(14,756		)	(2,488		)	(8,882		)	(25,122		)		(51,248		)
Net interest income (expense)	181,987			21,794			(25,783		)	(68,782		)		109,216			58,396			10,631			(8,874		)	(24,935		)		35,218
Provision for loan losses	(13,600		)	—			—			—				(13,600		)	(300		)	—			—			—				(300		)
Net interest income (expense) after provision for loan losses	168,387			21,794			(25,783		)	(68,782		)		95,616			58,096			10,631			(8,874		)	(24,935		)		34,918

Operating lease income	—			—			79,306			—				79,306			—			—			28,921			—				28,921
Sale of loans, net	12,893			—			—			—				12,893			7,079			—			—			—				7,079
Realized gain (loss) on securities	—			(4,896		)	—			—				(4,896		)	—			2,865			—			—				2,865
Unrealized gain (loss) on equity securities																	—			2,078			—			—				2,078
Unrealized gain (loss) on Agency interest-only securities	—			456			—			—				456			—			11			—			—				11
Realized gain on sale of real estate, net	—			—			96,341			—				96,341			—			—			4			—				4
Impairment of real estate																	—			—			(1,350		)	—				(1,350		)
Fee and other income	10,823			72			3,416			3,268				17,579			3,310			403			7			965				4,685
Net result from derivative transactions	14,516			14,640			—			—				29,156			(5,198		)	(5,836		)	—			—				(11,034		)
Earnings (loss) from investment in unconsolidated joint ventures	—			—			466			—				466			—			—			959			—				959
Gain (loss) on extinguishment of debt	(69		)	—			(4,323		)	—				(4,392		)
Gain (loss) on extinguishment/defeasance of debt																	—			—			(1,070		)	—				(1,070		)
Total other income (loss)	38,163			10,272			175,206			3,268				226,909			5,191			(479		)	27,471			965				33,148

Salaries and employee benefits	—			—			—			(46,754		)		(46,754		)	—			—			—			(23,574		)		(23,574		)
Operating expenses	61			—			—			(16,669		)	(3)	(16,608		)	—			—			—			(5,403		)	(3)	(5,403		)
Real estate operating expenses	—			—			(23,806		)					(23,806		)	—			—			(5,474		)	—				(5,474		)
Fee expense	(2,160		)	(297		)	(496		)	—				(2,953		)	(1,194		)	(100		)	(418		)	—				(1,712		)
Depreciation and amortization	—			—			(31,840		)	(56		)		(31,896		)	—			—			(10,202		)	(25		)		(10,227		)
Total costs and expenses	(2,099		)	(297		)	(56,142		)	(63,479		)		(122,017		)	(1,194		)	(100		)	(16,094		)	(29,002		)		(46,390		)

Income tax (expense) benefit	—			—			—			(5,679		)		(5,679		)	—			—			—			2,854				2,854
Segment profit (loss)	$	204,451		$	31,769		$	93,281		$	(134,672	)		$	194,829		$	62,093		$	10,052		$	2,503		$	(50,118	)		$	24,530

Total assets as of December 31, 2018	$	3,482,929		$	1,410,126		$	1,038,376		$	341,441			$	6,272,872
Total assets as of December 31, 2019																	$	3,358,861		$	1,721,305		$	1,096,514		$	492,472			$	6,669,152


(1)	Includes the Company’s investment in unconsolidated joint ventures that held real estate of ~~$51.4~~$48.7 million and ~~$40.4~~$48.4 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

(2)

Corporate/Other represents all corporate level and unallocated items including any intercompany eliminations necessary to reconcile to consolidated Company totals. This segment 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 $61.6 million and ~~$57.9~~$61.6 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, the Company’s deferred tax asset (liability) of ~~$(4.7)~~$(14.2) million and ~~$2.3~~$(2.1) million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively, and the Company’s senior unsecured notes of $1.9 billion and $1.2 billion as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019, respectively.


(3)	Includes ~~$3.0~~$3.1 million and ~~$9.1~~$2.5 million of professional fees for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively. ~~Includes~~ ~~$2.9 million~~ ~~and $8.7 million of professional fees for the three and nine months ended September 30, 2018, respectively.~~

~~20.~~18. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the issuance date of the financial statements and determined that nothe following disclosure is ~~necessary.~~necessary:

New Secured Financing Facility

On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with Koch Real Estate Investments, LLC (“Koch”), an affiliate of Koch Industries, under which Koch will provide the Company with approximately $206.4 million in senior secured financing (the “Koch Facility”) to fund transitional and land loans. The Koch Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature after 36 months, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Koch Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Koch Facility is non-recourse, subject to limited exceptions, and does not contain mark to market provisions. Additionally, the Koch Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, Koch also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, Koch has agreed to a customary standstill until December 31, 2020 or the date on which Koch has exercised the Purchase Right in full, if earlier. In addition, Koch has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and Koch entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to Koch.

Completion of Private CLO Financing

On April 27, 2020, the Company completed a private CLO transaction with Goldman Sachs Bank USA which generated $310.2 million of gross proceeds to Ladder, financing $481.3 million of loans at a 64.5% advance rate on a matched term, non-mark to market and non-recourse basis. The Company will retain a 35% subordinate and controlling interest in the collateral, which affords for broad discretion in managing these loans in light of the COVID-19 pandemic and preserving or increasing their value. Proceeds from the transaction were used to pay off other secured debt including bank and FHLB financing that was subject to mark to market provisions.

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~~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

~~Ladder is~~We are an internally-managed real estate investment trust (“REIT”) that is a leader in commercial real estate finance. ~~Ladder originates~~We originate and ~~invests~~invest in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. ~~Ladder’s~~Our investment activities include: (i) direct origination of commercial real estate first mortgage loans; (ii) investments in investment grade securities secured by first mortgage loans on commercial real estate; and (iii) investments in net leased and other commercial real estate equity. 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 ~~$24.4~~$25.7 billion of commercial real estate loans from our inception through ~~September 30, 2019.~~March 31, 2020. During this timeframe, we also acquired ~~$11.8~~$12.7 billion of predominantly investment grade-rated securities secured by first mortgage loans on commercial real estate and ~~$1.7~~$1.8 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 ~~September 30, 2019,~~March 31, 2020, we originated ~~$16.0~~$16.6 billion of conduit loans, ~~$15.9~~$16.5 billion of which were sold into 6367 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 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 ~~September 30, 2019,~~March 31, 2020, we had ~~$6.6~~$7.3 billion in total assets and ~~$1.6~~$1.5 billion of total equity. Our assets included ~~$3.4~~$3.5 billion of loans, $1.9 billion of securities, and $1.0 billion of real estate.

We ~~have~~maintain a diversified and flexible financing strategy supporting our investment strategy and overall business operations, including unsecured debt and significant committed term financing from leading financial institutions. As of September 30, 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”)Refer to “Our Financing Strategies” and ~~$400.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes,” collectively with the 2021 Notes~~“Liquidity and ~~the 2022 Notes, the “Notes”), and there were no borrowings outstanding under our $266.4 million Revolving Credit Facility.~~

In addition, as of September 30, 2019, we had $3.7 billion of secured debt financing outstanding. This financing was comprised of $1.1 billion of financing from the Federal Home Loan Bank (the “FHLB”), $846.0 million of committed secured term repurchase agreement financing, $940.1 million of other securities financing, $723.3 million of third-party, non-recourse mortgage debt and $117.8 million of collateralized loan obligation (“CLO”) debt.Capital Resources” for further information.

As of September 30, 2019, we had $2.4 billion of committed, undrawn total funding capacity available, consisting of $266.4 million of availability under our $266.4 million Revolving Credit Facility, $869.3 million of undrawn committed FHLB financing and $1.3 billion of other undrawn committed financings. As of September 30, 2019, our debt-to-equity ratio was 3.0:1.0, as we employ leverage prudently to maximize financial flexibility. Our adjusted leverage, a non-GAAP financial measure, was 2.9:1.0 as of September 30, 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 ~~September 30, 2019,~~March 31, 2020, our management team and directors held interests in our Company comprising ~~11.3%~~10.7% of our total equity. On average, our management team members have 2627 years of experience in the industry. Our management team includes Brian Harris, Chief Executive Officer; Pamela McCormack, President; Marc Fox, Chief Financial Officer; Robert Perelman, Head of Asset Management; and Kelly Porcella, Chief Administrative Officer & General Counsel. Kevin Moclair, Chief Accounting Officer, is an additional officer of Ladder. ~~We employ 73~~As of March 31, 2020, we employed 75 full-time industry professionals.

~~We are organized and conduct our operations to qualify as a REIT under~~COVID-19 Impact on 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.Organization

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. As of the date of this filing, our employees continue to work remotely in compliance with state guidelines. We continue to actively manage the liquidity and operations of the Company in light of the market disruption and impact on liquidity caused by the COVID-19 pandemic across most industries in the United States. In view of the uncertainty related to the severity and duration of the pandemic, its impact on our revenues, profitability and financial position is difficult to assess at this time. The Company has disclosed the current and potential impact of the COVID-19 global pandemic on our business throughout this Quarterly Report.

Recent Developments

Refer to Note 18 to the Consolidated Financial Statements for disclosure regarding significant transactions that occurred subsequent to March 31, 2020.

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):



	March 31, 2020					December 31, 2019
Loans
Balance sheet loans:
Balance sheet first mortgage loans	$	3,310,167		45.1	%	$	3,127,173		46.9	%
Other commercial real estate-related loans	122,612			1.7	%	129,863			1.9	%
Provision for current expected credit losses	(49,457		)	(0.7	)%	(20,500		)	(0.3	)%
Total balance sheet loans	3,383,322			46.1	%	3,236,536			48.5	%
Conduit first mortgage loans	146,713			2.0	%	122,325			1.8	%
Total loans	3,530,035			48.1	%	3,358,861			50.3	%
Securities
CMBS investments	1,895,984			25.9	%	1,673,468			25.3	%
U.S. Agency Securities investments	34,446			0.5	%	34,857			0.5	%
Equity securities	197			—	%	12,980			0.2	%
Provision for current expected credit losses	(22		)	—	%	—			—	%
Total securities	1,930,605			26.4	%	1,721,305			26.0	%
Real Estate
Real estate and related lease intangibles, net	1,047,418			14.3	%	1,048,081			15.7	%
Total real estate	1,047,418			14.3	%	1,048,081			15.7	%
Other Investments
Investments in and advances to unconsolidated joint ventures	48,659			0.7	%	48,433			0.7	%
FHLB stock	61,619			0.8	%	61,619			0.9	%
Total other investments	110,278			1.5	%	110,052			1.6	%
Total investments	6,618,336			90.3	%	6,238,299			93.6	%
Cash, cash equivalents and restricted cash	622,221			8.5	%	355,746			5.3	%
Other assets	91,315			1.2	%	75,107			1.1	%
Total assets	$	7,331,872		100.0	%	$	6,669,152		100.0	%

September 30, 2019 December 31, 2018
Loans

Balance sheet loans:
Balance sheet first mortgage loans $ 3,098,241
46.8 % $ 3,170,788
50.5 %
Other commercial real estate-related loans 133,202
2.0 % 147,602
2.4 %
Provision for loan losses (18,500 ) (0.3 )% (17,900 ) (0.3 )%
Total balance sheet loans 3,212,943
48.5 % 3,300,490
52.6 %
Conduit first mortgage loans 174,214
2.6 % 182,439
2.9 %
Total loans 3,387,157
51.1 % 3,482,929
55.5 %
Securities

CMBS investments 1,830,152
27.8 % 1,308,331
20.8 %
U.S. Agency Securities investments 35,475
0.5 % 36,374
0.6 %
Corporate bonds 32,372
0.5 % 53,871
0.9 %
Equity securities 13,457
0.2 % 11,550
0.2 %
Total securities 1,911,456
29.0 % 1,410,126
22.5 %
Real Estate

Real estate and related lease intangibles, net 981,333
14.8 % 998,022
15.9 %
Total real estate 981,333
14.8 % 998,022
15.9 %
Other Investments

Investments in and advances to unconsolidated joint ventures 51,419
0.8 % 40,354
0.6 %
FHLB stock 61,619
0.9 % 57,915
0.9 %
Total other investments 113,038
1.7 % 98,269
1.5 %
Total investments 6,392,984
96.6 % 5,989,346
95.4 %
Cash, cash equivalents and restricted cash 121,753
1.8 % 98,450
1.6 %
Other assets 105,137
1.6 % 185,076
3.0 %
Total assets $ 6,619,874
100.0 % $ 6,272,872
100.0 %

While the unique nature of COVID-19 limits our normal visibility into expected underlying property operating results, we are in regular communication with our borrowers and are closely monitoring property performance. We expect our investments in loans and real estate in the hotels and retail sectors to be the most directly impacted by COVID-19. Loans on hotel and retail properties comprised approximately 11% and 7%, respectively, of our loan portfolio at March 31, 2020. Hotel and retail properties comprised approximately 6% and 47%, respectively, of our real estate portfolio at March 31, 2020. The majority of the net leased properties in our real estate portfolio, which comprise the majority of the 47%, are necessity-based retail and have remained open and stable during the COVID-19 pandemic.

Loans

Balance Sheet First Mortgage Loans. We originate and invest in balance sheet first mortgage loans secured by commercial real estate properties that are typically 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~~collateralized loan obligation (“CLO”) or similar structure, sell participation interests or “b-notes” in our mortgage loans or sell such mortgage loans as whole loans. ~~These investments~~Our balance sheet first mortgage loans 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 ~~September 30, 2019,~~March 31, 2020, we held a portfolio of ~~149~~151 balance sheet first mortgage loans with an aggregate book value of ~~$3.1~~$3.3 billion. Based on the loan balances and the “as-is” third-party ~~FIRREA~~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 ~~70.0%~~69.9% at ~~September 30, 2019.~~March 31, 2020.

We continue to actively manage and monitor the credit and liquidity risk associated with the balance sheet first mortgage loan portfolio. Due to the nationwide restrictions placed on most businesses in response to the COVID-19 pandemic, significant cashflow disruptions are expected across the economy which will likely impact our borrowers and their ability to stay current with their debt obligations in the near term. We expect to use a variety of legal and structural options to manage that risk effectively, including through possible forbearance and default provisions, as is generally being considered throughout the credit lending industries.

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 ~~September 30, 2019,~~March 31, 2020, we held a portfolio of 2724 other commercial real estate-related loans with an aggregate book value of ~~$133.2~~$122.6 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 ~~68.2%~~67.4% at ~~September 30, 2019.~~March 31, 2020.

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 such loans or sell the loans as whole loans. From our inception in 2008 through September 30, 2019, we have originated and funded $16.0 billion of conduit first mortgage loans and securitized $15.9 billion of such mortgage loans in 63 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, nine securitizations in 2018 and four securitizations 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 and completed our first contributions of shorter-term loans into CLO transactions in the fourth quarter of 2017. As of ~~September 30, 2019,~~March 31, 2020, we held 11eight first mortgage loans that were available for contribution into a securitization with an aggregate book value of ~~$174.2~~$146.7 million. Based on the loan balances and the “as-is” third-party ~~Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”)~~FIRREA appraised values at origination, the weighted average loan- to-value ratio of this portfolio was ~~58.0%~~66.7% at ~~September 30, 2019.~~March 31, 2020. 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 ~~September 30, 2019~~March 31, 2020 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 investments 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. As of ~~September 30, 2019,~~March 31, 2020, the estimated fair value of our portfolio of CMBS investments totaled ~~$1.8~~$1.9 billion in ~~157~~142 CUSIPs ($~~11.7~~13.4 million average investment per CUSIP). As of ~~September 30, 2019,~~March 31, 2020, included in the ~~$1.8~~$1.9 billion of CMBS securities are ~~$12.5~~$12.4 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, 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 ~~88.4%~~91.5% AAA/Aaa-rated securities and ~~11.6%~~8.5% of other investment grade-rated securities, including ~~9.7%~~7% rated AA/Aa, ~~0.9%~~1.2% rated A/A and ~~1.0%~~0.3% rated BBB/Baa. In the future, we may invest in CMBS securities or other securities that are unrated. As of ~~September 30, 2019,~~March 31, 2020, our CMBS investments had a weighted average duration of ~~2.4~~2.3 years. The commercial real estate collateral underlying our CMBS investment portfolio is located throughout the United States. As of ~~September 30, 2019,~~March 31, 2020, by property count and market value, respectively, ~~49.9%~~52.4% and ~~76.2%~~72.2% of the collateral underlying our CMBS investment portfolio was distributed throughout the top 25 metropolitan statistical areas (“MSAs”) in the United States, with ~~7.2%~~8.0% and ~~34%~~35.2%, 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 ~~0.2%~~0.3% to ~~4.5%~~4.8% by property count and ~~0.1%~~0.2% to ~~8.2%~~8.8% 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 ~~September 30, 2019,~~March 31, 2020, the estimated fair value of our portfolio of U.S. Agency Securities was ~~$35.5~~$34.4 million in 2019 CUSIPs ($1.8 million average investment per CUSIP), with a weighted average duration of ~~4.4~~2.6 years. The commercial real estate collateral underlying our U.S. Agency Securities portfolio is located throughout the United States. As of ~~September 30, 2019,~~March 31, 2020, by market value, ~~75.9%~~76.6% and ~~19.7%~~20.3% 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%~~84.6% and New York represented ~~3.4%~~3.8% of such collateral. While the specific geographic concentration of our Agency interest-only securities portfolio as of ~~September 30, 2019~~March 31, 2020 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~~$80.0 million. As of ~~September 30, 2019, the estimated fair value of our portfolio of~~March 31, 2020, we had no investments in debt ~~securities was $32.4 million in one CUSIP, with a weighted average duration of 1.3 years.~~securities.

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 ~~September 30, 2019,~~March 31, 2020, the estimated fair value of our portfolio of equity securities was ~~$13.5~~$0.2 million in three CUSIPs ($~~4.5~~0.1 million average investment per CUSIP).

Due to the recent market volatility, there has been a significant decrease in liquidity across all types of securities. There was a significant reduction in trading activity with the turbulent and uncertain market conditions that existed at the end of March as restrictive responsive measures related to the COVID-19 pandemic impacted the overall economy. The credit profile of our portfolio is predominantly AAA-rated and almost entirely investment grade as noted earlier. We expect the subordination structure of the investments, as well as the hyperamortization provision included in our senior CRE-CLO security positions, to help mitigate potential losses in the current market conditions. The reduction in liquidity and overall trading activity during this period resulted in a decline of approximately $78.2 million in market value of the Company’s real estate securities through March 31, 2020.

Real Estate

Net Leased Commercial Real Estate Properties. As of ~~September 30, 2019,~~March 31, 2020, we owned ~~154~~164 single tenant net leased properties with an aggregate book value of ~~$669.5~~$671.1 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 ~~September 30, 2019,~~March 31, 2020, our net leased properties comprised a total of ~~5.3~~5.4 million square feet, 100% leased with an average age since construction of ~~14.8~~15.5 years and a weighted average remaining lease term of ~~12.6~~12.1 years. Commercial real estate investments in excess of $20.0 million require the approval of our board of directors’ Risk and Underwriting Committee.

Diversified Commercial Real Estate Properties. In addition, as of ~~September 30, 2019,~~March 31, 2020, we ~~own 67~~owned 63 diversified commercial real estate properties with an aggregate book value of ~~$309.0~~$375.2 million. Through separate joint ventures, we own a 40 property student housing portfolio in Isla Vista, CA with a book value of ~~$82.9~~$82.4 million and an occupancy rate of 100.0%, a portfolio of 1211 office buildings in Richmond, VA with a book value of ~~$77.1~~$72.6 million with a ~~90.5%~~92.3% occupancy rate, an apartment complex in Miami, FL with a book value of ~~$35.5~~$37.2 million and an occupancy rate of ~~92.9%~~93.4%, an unleased industrial building in Lithia Springs, GA with an aggregate book value of ~~$23.8~~$23.5 million, a portfolio of ~~seven office buildings~~two student housing properties in ~~Richmond, VA~~Fort Worth and Arlington, TX with an aggregate book value of $23.6 million and a 38.1% occupancy rate, one hotel in San Diego, CA with a book value of ~~$15.1~~$41.5 million and ~~an 88.3%~~a 100.0% occupancy rate, and a 13-story office building in Oakland County, MI with a book value of ~~$10.4~~$9.7 million and an ~~81.2%~~83.7% occupancy rate. We also own a single-tenant office building in Ewing, NJ with a book value of ~~$27.2~~$26.6 million, a development property in Los Angeles, CA with a book value of $21.5 million, a hotel in Omaha, NE with a book value of ~~$17.7~~$17.3 million, a single-tenant office building in Crum Lynne, PA with a book value of ~~$10.0~~$9.8 million, a shopping center in Carmel, NY with a book value of ~~$6.1~~$6.0 million and a 44.4% occupancy rate, and an office building in Peoria, IL with a book value of ~~$3.2~~$3.4 million and a ~~50.8%~~45.6% occupancy rate.

Residential Real Estate. We sold no condominium units at Veer Towers in Las Vegas, NV, during the nine months ended September 30, 2019. As of September 30, 2019, we own one residential condominium unit at Veer Towers in Las Vegas, NV with a book value of $0.5 million through a joint venture, and we expect to complete the sale of this remaining unit by March 31, 2020. As of September 30, 2019, there were no condominium units under contract for sale. As of September 30, 2019, the remaining condominium unit we hold is not rented or occupied.

~~We sold 14~~two condominium units at Terrazas River Park Village in Miami, FL, during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, generating aggregate gains on sale of ~~$0.4 million.~~$7 thousand. As of ~~September 30, 2019,~~March 31, 2020, we own ~~eight~~four residential condominium units at Terrazas River Park Village in Miami, FL with a book value of ~~$2.4~~$1.2 million, and we intend to sell these remaining units in less than 18 months. As of September 30, 2019, two condominium units were under contract for sale with a book value of $0.5 million. As of September 30, 2019, the remaining condominium units we hold were 37.5% rented and occupied. During the nine months ended September 30, 2019, the Company recorded $0.2 million of rental income from the condominium units.

The Company holds these residential condominium units in a TRS.

The ~~following table, organized by tenant type~~recent market volatility due to the COVID-19 pandemic has brought illiquidity in most asset classes, including real estate. The Company expects the net leased commercial real estate properties, which comprise the majority of our portfolio, to be minimally impacted as the majority of the net leased properties in our real estate portfolio are necessity-based retail and ~~acquisition date, summarizes~~have remained open and stable during the COVID-19 pandemic. We continue to actively monitor our ~~owned~~diversified commercial real estate properties as ~~of September 30, 2019 ($ amounts in thousands):~~well to determine the immediate and long term impacts on the buildings, tenants, business plans and the ability to execute those business plans.

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)

Pelican Rapids, MN 12/26/18 1,195
2018 10/31/33 9,100
1,229
920
309
87
100.0 %
Carthage, MO 12/26/18 1,099
2018 10/31/33 7,489
1,146
848
298
80
100.0 %
Bolivar, MO 12/26/18 1,175
2018 10/31/33 9,026
1,219
897
322
85
100.0 %
Pinconning, MI 12/06/18 1,235
2018 9/30/33 9,026
1,269
952
317
90
100.0 %
New Hampton, IA 11/30/18 1,317
2018 9/30/33 9,002
1,438
1,016
422
96
100.0 %
Ogden, IA 10/03/18 1,137
2018 7/31/33 7,489
1,154
857
297
82
100.0 %
Moscow Mills, MO 04/12/18 1,237
2018 1/31/33 9,026
1,259
991
268
90
100.0 %
Foley, MN 04/12/18 1,176
2018 1/1/33 7,489
1,181
883
298
85
100.0 %
Wonder Lake, IL 04/12/18 1,256
2017 7/31/32 9,100
1,272
943
329
91
100.0 %
Kirbyville, MO 04/02/18 1,156
2018 1/31/33 9,026
1,168
870
298
84
100.0 %
Gladwin, MI 04/02/18 1,171
2017 1/31/33 9,026
1,194
883
311
85
100.0 %
Rockford, MN 12/08/17 1,195
2017 10/31/32 9,002
1,166
886
280
87
100.0 %
Winterset, IA 12/08/17 1,258
2017 8/31/32 9,026
1,240
934
306
91
100.0 %
Kawkawlin, MI 10/05/17 1,234
2017 7/31/32 9,100
1,217
917
300
89
100.0 %
Aroma Park, IL 10/05/17 1,218
2017 7/31/32 9,002
1,192
949
243
88
100.0 %
East Peoria, IL 10/05/17 1,350
2017 7/31/32 9,100
1,320
1,019
301
98
100.0 %
Milford, IA 09/08/17 1,298
2017 6/1/32 9,100
1,284
987
297
94
100.0 %
Jefferson City, MO 06/02/17 1,241
2016 2/28/32 9,002
1,255
949
306
90
100.0 %
Denver, IA 05/31/17 1,183
2017 3/31/31 9,026
1,150
903
247
86
100.0 %
Port O'Connor, TX 05/25/17 1,255
2017 3/31/30 9,100
1,216
955
261
91
100.0 %
Wabasha, MN 05/25/17 1,280
2016 3/31/31 9,026
1,270
970
300
92
100.0 %
Jacksonville, FL 05/23/17 115,641
1989 9/30/31 822,540
131,816
83,281
48,535
7,403
100.0 %
Shelbyville, IL 05/23/17 1,132
2016 1/31/31 9,026
1,161
868
293
82
100.0 %
Jesup, IA 05/05/17 1,163
2017 3/31/30 9,026
1,116
889
227
84
100.0 %
Hanna City, IL 04/11/17 1,141
2016 6/30/31 9,100
1,147
870
277
83
100.0 %
Ridgedale, MO 03/09/17 1,298
2016 6/30/31 9,002
1,278
997
281
94
100.0 %
Peoria, IL 02/06/17 1,183
2016 8/31/31 7,489
1,181
909
272
86
100.0 %
Carmi, IL 02/03/17 1,411
2016 10/31/31 9,100
1,351
1,106
245
102
100.0 %
Springfield, IL 11/16/16 1,308
2016 6/30/31 9,026
1,320
1,007
313
96
100.0 %
Fayetteville, NC 11/15/16 6,971
2008 10/31/34 14,820
6,286
4,909
1,377
450
100.0 %
Dryden Township, MI 10/26/16 1,190
2016 8/31/31 9,100
1,186
916
270
87
100.0 %
Lamar, MO 07/22/16 1,175
2016 5/31/31 9,100
1,137
906
231
86
100.0 %
Union, MO 07/01/16 1,227
2016 5/31/31 9,100
1,232
949
283
90
100.0 %
Pawnee, IL 07/01/16 1,201
2016 5/31/31 9,002
1,131
949
182
88
100.0 %
Decatur, IL 06/30/16 1,365
2016 5/31/31 9,002
1,368
1,056
312
100
100.0 %
Cape Girardeau, MO 06/30/16 1,281
2016 5/31/31 9,100
1,280
1,023
257
94
100.0 %
Linn, MO 06/30/16 1,122
2016 5/31/31 9,002
1,086
864
222
82
100.0 %
Rantoul, IL 06/21/16 1,204
2016 4/30/31 9,100
1,191
928
263
88
100.0 %
Flora Vista, NM 06/06/16 1,305
2016 4/30/31 9,002
1,203
1,006
197
95
100.0 %
Champaign, IL 06/03/16 1,324
2016 4/30/31 9,002
1,328
1,021
307
97
100.0 %
Mountain Grove, MO 06/03/16 1,279
2016 4/30/31 10,566
1,278
985
293
93
100.0 %
Decatur, IL 06/03/16 1,181
2016 4/30/31 9,002
1,166
949
217
86
100.0 %
San Antonio, TX 05/06/16 1,096
2015 3/31/31 9,100
1,044
890
154
80
100.0 %
Borger, TX 05/06/16 978
2016 3/31/31 9,100
944
786
158
71
100.0 %
St.Charles, MN 04/26/16 1,198
2016 3/31/31 9,026
1,134
964
170
87
100.0 %
Philo, IL 04/26/16 1,156
2016 3/31/31 9,026
1,135
927
208
84
100.0 %
Dimmitt, TX 04/26/16 1,319
2016 3/31/31 10,566
1,260
1,053
207
96
100.0 %
Radford, VA 12/23/15 1,564
2015 9/30/30 8,360
1,406
1,133
273
104
100.0 %
Albion, PA 12/23/15 1,525
2015 9/30/30 8,184
1,294
1,122
172
101
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)

Rural Retreat, VA 12/23/15 1,399
2015 9/30/30 8,305
1,262
1,035
227
93
100.0 %
Mount Vernon, AL 12/23/15 1,224
2015 6/30/30 8,323
1,105
941
164
84
100.0 %
Malone, NY 12/16/15 1,474
2015 6/30/30 8,320
1,321
1,084
237
99
100.0 %
Mercedes, TX 12/16/15 1,263
2015 11/30/30 9,100
1,153
835
318
86
100.0 %
Gordonville, MO 11/10/15 1,207
2015 9/30/30 9,026
1,095
773
322
80
100.0 %
Rice, MN 10/28/15 1,242
2015 9/30/30 9,002
1,079
818
261
85
100.0 %
Bixby, OK 10/27/15 12,151
2012 12/31/32 75,996
11,010
7,967
3,043
769
100.0 %
Farmington, IL 10/23/15 1,408
2015 8/31/30 9,100
1,261
897
364
93
100.0 %
Grove, OK 10/20/15 5,583
2012 8/31/32 31,500
4,910
3,631
1,279
364
100.0 %
Jenks, OK 10/19/15 13,418
2009 9/24/33 80,932
12,063
8,815
3,248
912
100.0 %
Bloomington, IL 10/14/15 1,294
2015 8/31/30 9,026
1,164
818
346
85
100.0 %
Montrose, MN 10/14/15 1,193
2015 8/31/30 9,100
1,028
782
246
83
100.0 %
Lincoln County , MO 10/14/15 1,137
2015 8/31/30 9,002
1,021
740
281
76
100.0 %
Wilmington, IL 10/07/15 1,399
2015 8/31/30 9,002
1,256
904
352
93
100.0 %
Danville, IL 10/07/15 1,160
2015 8/31/30 9,100
1,051
740
311
76
100.0 %
Moultrie, GA 09/22/15 1,305
2014 6/30/29 8,225
1,127
932
195
85
100.0 %
Rose Hill, NC 09/22/15 1,420
2014 6/30/29 8,320
1,248
1,002
246
93
100.0 %
Rockingham, NC 09/22/15 1,158
2014 6/30/29 8,320
1,004
823
181
76
100.0 %
Biscoe, NC 09/22/15 1,216
2014 6/30/29 8,320
1,059
862
197
80
100.0 %
De Soto, IL 09/08/15 1,111
2015 7/31/30 9,100
986
705
281
76
100.0 %
Kerrville, TX 08/28/15 1,236
2015 7/31/30 9,100
1,079
768
311
84
100.0 %
Floresville, TX 08/28/15 1,312
2015 7/31/30 9,100
1,153
815
338
89
100.0 %
Minot, ND 08/19/15 6,946
2012 1/31/34 55,440
6,323
4,699
1,624
419
100.0 %
Lebanon, MI 08/14/15 1,261
2015 7/31/30 9,050
1,149
821
328
85
100.0 %
Effingham County, IL 08/10/15 1,252
2015 6/30/30 9,002
1,123
821
302
85
100.0 %
Ponce, PR 08/03/15 9,345
2012 8/31/37 15,660
8,396
6,522
1,874
560
100.0 %
Tremont, IL 06/25/15 1,192
2015 5/31/30 9,026
1,053
788
265
82
100.0 %
Pleasanton, TX 06/24/15 1,377
2015 5/31/30 9,026
1,215
865
350
93
100.0 %
Peoria, IL 06/24/15 1,293
2015 5/31/30 9,002
1,141
854
287
87
100.0 %
Bridgeport, IL 06/24/15 1,241
2015 5/31/30 9,100
1,100
821
279
84
100.0 %
Warren, MN 06/24/15 1,090
2015 4/30/30 9,100
928
697
231
75
100.0 %
Canyon Lake, TX 06/18/15 1,443
2015 3/31/30 9,100
1,274
907
367
98
100.0 %
Wheeler, TX 06/18/15 1,127
2015 3/31/30 9,002
968
716
252
76
100.0 %
Aurora, MN 06/18/15 993
2015 3/31/30 9,100
877
628
249
68
100.0 %
Red Oak, IA 05/07/15 1,208
2014 10/31/29 9,026
1,040
779
261
84
100.0 %
Zapata, TX 05/07/15 1,204
2015 3/31/30 9,100
995
746
249
82
100.0 %
St. Francis, MN 03/26/15 1,180
2014 1/31/30 9,002
973
733
240
79
100.0 %
Yorktown, TX 03/25/15 1,301
2015 2/28/30 10,566
1,078
785
293
86
100.0 %
Battle Lake, MN 03/25/15 1,168
2014 2/28/30 9,100
953
720
233
78
100.0 %
Paynesville, MN 03/05/15 1,254
2015 11/30/26 9,100
1,075
804
271
89
100.0 %
Wheaton, MO 03/05/15 970
2015 11/30/29 9,100
818
648
170
69
100.0 %
Rotterdam, NY 03/03/15 12,619
1996 8/31/32 115,660
9,713
8,930
783
940
100.0 %
Hilliard, OH 03/02/15 6,384
2007 8/31/32 14,820
5,554
4,555
999
399
100.0 %
Niles, OH 03/02/15 5,200
2007 11/30/32 14,820
4,510
3,701
809
325
100.0 %
Youngstown, OH 02/20/15 5,400
2005 9/30/30 14,820
4,645
3,826
819
336
100.0 %
Kings Mountain, NC 01/29/15 24,167
1995 9/30/30 467,781
23,804
18,574
5,230
1,534
100.0 %
Iberia, MO 01/23/15 1,328
2015 12/31/29 10,542
1,126
892
234
94
100.0 %
Pine Island, MN 01/23/15 1,142
2014 4/30/27 9,100
947
767
180
81
100.0 %
Isle, MN 01/23/15 1,077
2014 1/31/30 9,100
890
721
169
77
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)

Jacksonville, NC 01/22/15 8,632
2014 12/31/29 55,000
7,563
5,658
1,905
517
100.0 %
Evansville, IN 11/26/14 9,000
2014 12/31/35 71,680
7,736
6,402
1,334
540
100.0 %
Woodland Park, CO 11/14/14 3,969
2014 8/31/29 22,141
3,293
2,794
499
258
100.0 %
Bellport, NY 11/13/14 18,100
2014 8/16/34 87,788
15,463
12,803
2,660
1,119
100.0 %
Ankeny, IA 11/04/14 16,510
2013 10/30/34 94,872
14,210
11,678
2,532
991
100.0 %
Springfield, MO 11/04/14 11,675
2011 10/30/34 88,793
10,304
8,321
1,983
701
100.0 %
Cedar Rapids, IA 11/04/14 11,000
2012 10/30/34 79,389
9,039
7,780
1,259
660
100.0 %
Fairfield, IA 11/04/14 10,695
2011 10/30/34 69,280
9,015
7,568
1,447
642
100.0 %
Owatonna, MN 11/04/14 9,970
2010 10/30/34 70,825
8,463
7,091
1,372
598
100.0 %
Muscatine, IA 11/04/14 7,150
2013 10/30/34 78,218
7,391
5,085
2,306
429
100.0 %
Sheldon, IA 11/04/14 4,300
2011 10/30/34 35,385
3,700
3,058
642
258
100.0 %
Memphis, TN 10/24/14 5,310
1962 12/31/29 68,761
4,197
3,908
289
358
100.0 %
Bennett, CO 10/02/14 3,522
2014 8/31/29 21,930
2,883
2,483
400
229
100.0 %
Conyers, GA 08/28/14 32,530
2014 4/30/29 499,668
27,432
22,820
4,612
1,956
100.0 %
O'Fallon, IL 08/08/14 8,000
1984 1/31/28 141,436
6,324
5,682
642
460
100.0 %
El Centro, CA 08/08/14 4,277
2014 6/30/29 19,168
3,646
2,981
665
278
100.0 %
Durant, OK 01/28/13 4,991
2007 2/28/33 14,550
4,118
3,239
879
323
100.0 %
Gallatin, TN 12/28/12 5,062
2007 9/30/32 14,820
4,279
3,311
968
329
100.0 %
Mt. Airy, NC 12/27/12 4,492
2007 6/30/32 14,820
3,809
2,940
869
292
100.0 %
Aiken, SC 12/21/12 5,926
2008 2/28/33 14,550
4,972
3,872
1,100
384
100.0 %
Johnson City, TN 12/21/12 5,262
2007 3/30/32 14,550
4,301
3,441
860
341
100.0 %
Palmview, TX 12/19/12 6,820
2012 8/31/37 14,820
5,718
4,529
1,189
437
100.0 %
Ooltewah, TN 12/18/12 5,703
2008 1/31/33 14,550
4,674
3,793
881
365
100.0 %
Abingdon, VA 12/18/12 4,688
2006 6/30/31 15,371
4,100
3,045
1,055
300
100.0 %
Wichita, KS 12/14/12 7,200
2012 12/31/32 73,322
5,542
4,746
796
536
100.0 %
North Dartmouth, MA 09/21/12 29,965
1989 8/31/32 103,680
21,379
18,775
2,604
2,256
100.0 %
Vineland, NJ 09/21/12 22,507
2003 8/31/32 115,368
16,502
13,801
2,701
1,695
100.0 %
Saratoga Springs, NY 09/21/12 20,222
1994 8/31/32 116,620
14,598
12,400
2,198
1,523
100.0 %
Waldorf, MD 09/21/12 18,803
1999 8/31/32 115,660
14,700
11,530
3,170
1,416
100.0 %
Mooresville, NC 09/21/12 17,644
2000 8/31/32 108,528
12,583
10,819
1,764
1,329
100.0 %
Sennett, NY 09/21/12 7,476
1996 8/31/32 68,160
5,242
4,684
558
641
100.0 %
DeLeon Springs, FL 08/13/12 1,242
2011 1/31/27 9,100
890
811
79
98
100.0 %
Orange City, FL 05/23/12 1,317
2011 4/30/27 9,026
949
798
151
103
100.0 %
Satsuma, FL 04/19/12 1,092
2011 11/30/26 9,026
737
719
18
86
100.0 %
Greenwood, AR 04/12/12 5,147
2009 6/30/34 13,650
4,181
3,383
798
332
100.0 %
Snellville, GA 04/04/12 8,000
2011 4/30/32 67,375
6,048
5,300
748
626
100.0 %
Columbia, SC 04/04/12 7,800
2001 4/30/32 71,744
6,151
5,156
995
610
100.0 %
Millbrook, AL 03/28/12 6,941
2008 3/22/32 14,820
5,529
4,561
968
448
100.0 %
Pittsfield, MA 02/17/12 14,700
2011 10/29/31 85,188
11,366
11,063
303
1,118
100.0 %
Spartanburg, SC 01/14/11 3,870
2007 8/31/32 14,820
3,167
3,386
(219 ) 291
100.0 %
Tupelo, MS 08/13/10 5,128
2007 1/31/33 14,691
3,974
—
3,974
400
100.0 %
Lilburn, GA 08/12/10 5,791
2007 10/31/32 14,752
4,458
3,514
944
443
100.0 %
Douglasville, GA 08/12/10 5,409
2008 10/31/33 13,434
4,357
—
4,357
417
100.0 %
Elkton, MD 07/27/10 4,872
2008 10/31/33 13,706
3,758
4,428
(670 ) 380
100.0 %
Lexington, SC 06/28/10 4,732
2009 9/30/33 14,820
3,783
—
3,783
362
100.0 %
Total Net Leased 751,422
5,291,867
669,483
500,925
168,558
50,633


~~(1)~~	~~Lease expirations reflect the earliest date the lease is cancellable without penalty, although actual terms may be longer.~~


~~(2)~~	~~Non-recourse.~~


~~(3)~~	Annual rental income represents twelve months of contractual rental income, excluding concessions, due under leases outstanding for the year ended December 31, 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.~~


~~(5)~~	~~Property is a hotel.~~


~~(6)~~	~~40 property student housing portfolio with 73 leaseable units with short term rentals that are renewed regularly. Represents longest term lease expiration date.~~


~~(7)~~	~~Property was acquired with no lease in place.~~


~~(8)~~	~~See Note 12 to our consolidated financial statements for further information regarding noncontrolling interests.~~


~~(9)~~	~~This is an apartment complex with short term rentals that are renewed regularly. Represents longest term lease expiration date.~~


~~(10)~~	~~Eight remaining condominium units. As of September 30, 2019, two condominium units were under contract for sale with a book value of $0.5 million.~~


~~(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.


~~(12)~~	~~One~~ ~~remaining condominium unit. There were no condominium units under contract for sale as of September 30, 2019.~~


~~(13)~~	~~We own, through a majority-owned joint venture with an operating partner, a residential condominium unit. The joint venture intends to sell 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 ~~September 30, 2019,~~March 31, 2020, Grace Lake LLC owned an office building campus with a carrying value of ~~$54.3~~$52.2 million, which is net of accumulated depreciation of ~~$30.5~~$32.9 million, that is financed by ~~$64.8~~$63.6 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 ~~September 30, 2019,~~March 31, 2020, the book value of our investment in Grace Lake LLC was ~~$3.8~~$3.2 million.

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 Partner (the “Operating Partner”) to invest in a ground-up residential/retail condominium development and construction project located at 24 Second Avenue, New York, NY.

Due to the Company’s non-controlling equity interest in 24 Second Avenue, the Company accounts for the new loans as additional investments in the joint venture.

24 Second Avenue consists of 30 residential condominium units and one commercial condominium unit. 24 Second Avenue started closing on the existing sales contracts during the quarter ended March 31, 2019, upon receipt of New York City Building Department approvals and a temporary certificate of occupancy for a portion of the project. As of ~~September 30, 2019,~~March 31, 2020, 24 Second Avenue had sold 1719 residential condominium units for ~~$47.3 million in sales proceeds and one residential condominium unit was under contract for sale for $1.2~~$49.6 million in sales proceeds. As of ~~September 30, 2019, 24 Second Avenue is holding a 15% deposit on the sales contract. As of September 30, 2019,~~March 31, 2020, the Company had no remaining additional capital commitment to 24 Second Avenue. As of ~~September 30, 2019,~~March 31, 2020, the book value of the Company’s investment in 24 Second Avenue was ~~$47.6~~$45.4 million.

FHLB Stock. Tuebor Captive Insurance Company LLC (“Tuebor”) is a member of the ~~FHLB.~~Federal Home Loan Bank (“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 ~~September 30, 2019,~~March 31, 2020, the book value of our investment in FHLB Stock was $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.

In addition to cash flow from operations, we fund our ~~investments in commercial real estate loans~~operations and investment strategy through a diverse array of funding sources, including:

Unsecured corporate bonds

Secured loan and securities ~~through multiple sources, including the following:~~repurchase facilities

Loan sales and securitizations

~~$611.6 million of gross proceeds we raised in our initial equity private placement beginning in October 2008,~~CLO transactions

~~$257.4 million of gross proceeds we raised in our follow-on equity private placement in the third quarter of 2011,~~Non-recourse mortgage debt

~~$325.0 million of gross proceeds from the issuance of 2017 Notes in 2012,~~FHLB financing

~~$259.0 million of gross proceeds from the issuance of Class A common stock in 2014,~~Revolving credit facility

~~$300.0 million of gross proceeds from the issuance of 2021 Notes in 2014,~~Unencumbered assets available for financing

~~$500.0 million of gross proceeds from the issuance of 2022 Notes in 2017,~~

~~$400.0 million of gross 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, and~~

~~existing debt facilities, and other borrowing programs in which we participate.~~Equity

~~We finance~~From time to time, we may add financing counterparties that we believe will complement our ~~portfolio~~business, although the agreements governing our indebtedness may limit our ability and the ability of commercial real estate loans using committed term facilities provided by multiple financial institutions, with total commitments of $1.8 billion at September 30, 2019, a $266.4 million Revolving Credit Facility, CLO transactionsour present and ~~through our FHLB membership. As of September 30, 2019, there was $760.5 million outstanding under the committed term facilities. We finance our securities portfolio, including CMBS~~future subsidiaries to incur additional indebtedness. Our amended and ~~U.S. Agency Securities, through our FHLB membership, a $400.0 million committed term master repurchase agreement from a leading domestic financial institution~~restated charter and uncommitted master repurchase agreements with numerous counterparties. As of September 30, 2019, we had total outstanding balances of $1.0 billion under all securities master repurchase agreements. We finance our real estate investments with non-recourse first mortgage loans. As of September 30, 2019, we had outstanding balances of $723.3 million on these non-recourse mortgage loans.

~~In addition to the amounts outstanding~~by-laws do not impose any threshold limits on our other facilities, we had $1.1 billion of borrowings from the FHLB outstanding at September 30, 2019. As of September 30, 2019, we also had a $266.4 million Revolving Credit Facility, with no borrowings outstanding, and $1.2 billion of Notes issued and outstanding. Seeability to use leverage. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 7 Debt Obligations, Net in our consolidated financial statements included elsewhere in this Quarterly Report for more information about our financing arrangements.

Unsecured Corporate Bonds

As of March 31, 2020, we had $1.9 billion of unsecured corporate bonds outstanding. This unsecured financing was comprised of $265.2 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”), $395.9 million in aggregate principal amount of 5.25% senior notes due 2025 (the “2025 Notes”) and $730.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the “2027 Notes,” collectively with the 2021 Notes, the 2022 Notes and the 2025 Notes, the “Notes”).

Due in large part to devoting such a large portion of the Company’s capital structure to equity and unsecured corporate bond debt, Ladder maintains a $2.6 billion pool of unencumbered assets, comprised primarily of first mortgage loans as of March 31, 2020.

Committed Loan Financing Facilities

We are parties to multiple committed loan repurchase agreement facilities, totaling $1.6 billion of credit capacity. As of March 31, 2020, the Company had $537.0 million of borrowings outstanding, with an additional $1.0 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to first mortgage whole mortgage loans, mezzanine loans 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 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 lender establishes a 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.

Securities Repurchase Facilities

We are a party to a committed term master repurchase agreement with a major U.S. banking institution for CMBS, totaling $400.0 million of credit capacity, or more depending on our utilization of a loan repurchase facility with the same lender. 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 March 31, 2020, the Company had $477.7 million borrowings outstanding, with an additional $231.2 million of committed financing available.

Additionally, we are party to multiple uncommitted 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 typically AAA-rated CMBS with relatively short duration and significant subordination. The lenders have sole discretion to determine the market value of the collateral on a daily basis, and, if the estimated market value of the collateral declines, the lenders have the right to require additional cash collateral, and if the estimated market value of the collateral subsequently increases, we have the right to call back excess cash collateral.

Revolving Credit Facility

The Company’s revolving credit facility (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. On November 25, 2019, the Company amended the Revolving Credit Facility to add two additional one-year extension options, extending the final maturity date, including all extension options, to February 2025. The amendment also provided for a reduction in the interest rate to one-month LIBOR plus 3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in January 2020.

FHLB Financing

We have maintained membership in the FHLB since 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). As of March 31, 2020, Tuebor had $1.0 billion of borrowings outstanding from the FHLB (with an additional $938.2 million of committed term financing available), with terms of overnight to 4.5 years, interest rates of 0.54% to 2.95%, and advance rates of 0.0% on ineligible collateral to 100% on cash collateral. As of March 31, 2020, collateral for the borrowings was comprised of $465.0 million of CMBS and U.S. Agency Securities. $141.7 million of cash and $847.3 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.1 billion for the three months ended March 31, 2020. FHLB advances amounted to 17.7% of the Company’s outstanding debt obligations as of March 31, 2020.

Mortgage Loan Financing

We generally finance our real estate using long-term non-recourse mortgage financing. During the three months ended March 31, 2020, we executed five term debt agreements to finance real estate. All of our mortgage loan financings have fixed rates ranging from 3.75% - 6.75%, mature between 2020 - 2030 and total $806.2 million at March 31, 2020. These long-term non-recourse mortgages include net unamortized premiums of $5.3 million at March 31, 2020, 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 $0.3 million of premium amortization, which decreased interest expense, for the three months ended March 31, 2020. The loans are collateralized by real estate and related lease intangibles, net, of $967.8 million as of March 31, 2020.

Hedging Strategies

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.

Financing Strategy in Current Market Conditions

–

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term, typically 30-day maturity repurchase agreements with various bank counterparties. Beginning in late March 2020 and extending through April 2020, the Company has been able to continue to access securities repurchase funding. While the Company was successful in refinancing its securities and extending the terms of the majority of its securities repurchase financing to periods ranging from three to six months from certain key counterparties, the funding received generally reflected higher costs of financing and lower advance rates than prevailed during times of market stability.

In March, as a result of the COVID-19 pandemic, trading volumes for CRE CLO securities fell significantly and prices for CRE CLO securities declined. As a result, the Company experienced margin calls on its securities repurchase financing, all of which were successfully satisfied in cash in a timely manner. As the securities markets stabilized somewhat in April, the Company received rebates of much of the previously posted cash margin and applied other margin funds to reduce securities repurchase debt outstanding as repurchase financing transactions were extended in term. Management plans to continue to work with its bank counterparties to roll and extend such maturities. Given the credit quality and short duration of the securities portfolio, extension of term would allow for such securities to pay off at par or allow for sales in an orderly manner.

–

FHLB Financing: As discussed above, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of FHLB borrowings outstanding by February of 2021. As the COVID-19 crisis unfolded, management maintained an active dialogue with the FHLB and subsequent to March 31, 2020, the Company completed a non-mark to market private CLO financing transaction (refer to below and Note 18, Subsequent Events) and also sold securities and loans previously serving as collateral at the FHLB. A portion of the proceeds of the CLO financing transaction and asset sales were used to pay down FHLB advances, reducing the amount of the Company’s financing that is mark to market. As of May 1, 2020, FHLB advances outstanding were $487.0 million, reflecting a reduction of approximately $520.6 million since March 31, 2020. The Company maintains ongoing discussions with the FHLB about further reducing its outstanding advances to ensure a smooth and timely transition from FHLB membership. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral.

–

Loan Repurchase Financing: The Company has maintained a consistent dialogue with its loan financing counterparties as the COVID-19 crisis has unfolded. The Company has drawn additional funds from certain loan repurchase facilities since the start of the crisis in mid-March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, subsequent to March 31, 2020, we have paid off over $123.0 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a private CLO financing transaction (refer to below). As of May 1, 2020, the Company had $414.0 million of loan repurchase debt outstanding with five separate bank counterparties. We continue to maintain an active dialogue with our bank counterparties as we expect loan collateral on each of their lines to experience some measure of forbearance.

–

New Secured Financing Facility: On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with Koch Real Estate Investments, LLC (“Koch”), an affiliate of Koch Industries, under which Koch will provide the Company with approximately $206.4 million in senior secured financing (the “Koch Facility”) to fund transitional and land loans. Koch Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature after 36 months, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million minus the aggregate sum of all interest payments made under the Koch Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Koch Facility is non-recourse, subject to limited exceptions, and does not contain mark to market provisions. Additionally, the Koch Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

Pursuant to the Purchase Right, Koch has agreed to a customary standstill until December 31, 2020 or the date on which Koch has exercised the Purchase Right in full, if earlier. In addition, Koch has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and Koch entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to Koch. (Refer to Note 18, Subsequent Events.)

–

Completion of Private CLO: On April 27, 2020, we completed a private CLO financing transaction with Goldman Sachs Bank USA which generated $310.2 million of gross proceeds to Ladder, financing $481.3 million of loans at a 64.5% advance rate on a matched term, non-mark to market and non-recourse basis. The Company will retain a 35% subordinate and controlling interest in the collateral, which affords for broad discretion in managing these loans in light of the COVID-19 pandemic and preserving or increasing their value. Proceeds from the transaction were used to pay off other secured debt including loan repurchase and FHLB financing that was subject to mark to market provisions. (Refer to Note 18, Subsequent Events.)

Financial Covenants

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 September 30, 2019,~~We generally seek to match fund our debt-to-equity ratio was 3.0:1.0. Our adjusted leverage, a non-GAAP financial measure, was 2.9:1.0 as of September 30, 2019. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of adjusted leverageassets according to their liquidity characteristics and ~~a reconciliation to debt obligations, net.~~expected hold period. We believe that the defensive positioning of our predominantly senior secured assets and our ~~moderate leverage provide~~financing strategy has allowed us to maintain financial flexibility to ~~be able to~~ capitalize on an attractive range of market opportunities as they ~~arise.~~have arisen.

Our borrowings under certain financing agreements and our committed repurchase facilities are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from 3.50 to 1.00 to 4.00 to 1.00, or a maximum ratio based on our asset composition at the time of determination), minimum net worth requirements (ranging from $300.0 million to $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), 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. These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and exceptions.

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, wecertain of these financing arrangements and loans may ~~add~~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.

As the COVID-19 crisis evolved, management set out a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark to market financing. The Company’s cash and cash equivalents and restricted cash totaled $622.2 million as of March 31, 2020, including $358.4 million of unrestricted cash and cash equivalents to mitigate uncertainty in liquidity needs in light of current market conditions and $263.9 million of cash margin posted as collateral against securities repurchase financing obligations and for other borrowings as of March 31, 2020. Partly as a result of maintaining such cash levels, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders as of March 31, 2020 but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements) with various counterparties that ~~we believe will complement our business, although the agreements governing our indebtedness may limit our ability and the ability~~totaled in excess 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 stable demand for fixed and floating rate mortgage financing supported bystable property values in most parts~~$830.0 million as 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. $2.1 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. Although spreads continued to tighten into the beginning of 2018, they mostly widened during the rest of the year. Still, the U.S. CMBS new issuance market was active in 2018, with issuance totaling $77.0 billion during the year, a decrease of 12.3% compared to 2017, but an increase of 11.4% compared to 2016. Spreads generally tightened during the first half of 2019, and then widened to a small extent during the three months ended September 30, 2019. U.S. CMBS new issuance totaled $57.8 billion during the nine months ended September 30, 2019, which was relatively flat versus the same period in 2018.April 28, 2020.

We ~~believe the CMBS market will continue to play an important role~~were in compliance with all remaining covenants as described in the ~~financing~~Company’s Annual Report, as 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.March 31, 2020.

Reflected in all of these lending and financing capabilities that Ladder applies in its daily operations is its ability to underwrite commercial real estate debt and equity investments and 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.

Results of Operations

Three months ended ~~September 30, 2019~~March 31, 2020 compared to the three months ended ~~September 30, 2018~~March 31, 2019

The following table sets forth information regarding our consolidated results of operations ($ in thousands, except per share data):

Three Months Ended September 30, 2019 vs
2019 2018 2018

Net interest income

Interest income $ 82,251
$ 90,386
$ (8,135 )
Interest expense 51,397
51,476
(79 )
Net interest income 30,854
38,910
(8,056 )
Provision for loan losses —
10,300
(10,300 )
Net interest income after provision for loan losses 30,854
28,610
2,244

Other income (loss)

Operating lease income 24,405
24,997
(592 )
Sale of loans, net 11,247
1,861
9,386
Realized gain (loss) on securities 3,396
(2,554 ) 5,950
Unrealized gain (loss) on equity securities 254
—
254
Unrealized gain (loss) on Agency interest-only securities 16
142
(126 )
Realized gain (loss) on sale of real estate, net 2,082
63,704
(61,622 )
Fee and other income 5,166
4,851
315
Net result from derivative transactions (9,465 ) 7,115
(16,580 )
Earnings (loss) from investment in unconsolidated joint ventures 1,094
401
693
Gain (loss) on extinguishment/defeasance of debt —
(4,323 ) 4,323
Total other income (loss) 38,195
96,194
(57,999 )
Costs and expenses

Salaries and employee benefits 14,319
15,792
(1,473 )
Operating expenses 5,314
5,464
(150 )
Real estate operating expenses 6,270
7,152
(882 )
Fee expense 2,056
1,311
745
Depreciation and amortization 9,030
10,417
(1,387 )
Total costs and expenses 36,989
40,136
(3,147 )
Income (loss) before taxes 32,060
84,668
(52,608 )
Income tax expense (benefit) 1,112
1,204
(92 )
Net income (loss) 30,948
83,464
(52,516 )



	Three Months Ended March 31,						2020 vs
	2020			2019			2019

Net interest income
Interest income	$	72,589		$	86,466		$	(13,877	)
Interest expense	51,401			51,248			153
Net interest income	21,188			35,218			(14,030		)
Provision for loan losses	26,581			300			26,281
Net interest income after provision for loan losses	(5,393		)	34,918			(40,311		)

Other income (loss)
Operating lease income	26,328			28,921			(2,593		)
Sale of loans, net	1,005			7,079			(6,074		)
Realized gain (loss) on securities	3,011			2,865			146
Unrealized gain (loss) on equity securities	(533		)	2,078			(2,611		)
Unrealized gain (loss) on Agency interest-only securities	76			11			65
Realized gain (loss) on sale of real estate, net	10,529			4			10,525
Impairment of real estate	—			(1,350		)	1,350
Fee and other income	1,519			4,685			(3,166		)
Net result from derivative transactions	(15,435		)	(11,034		)	(4,401		)
Earnings (loss) from investment in unconsolidated joint ventures	441			959			(518		)
Gain (loss) on extinguishment/defeasance of debt	2,061			(1,070		)	3,131
Total other income (loss)	29,002			33,148			(4,146		)
Costs and expenses
Salaries and employee benefits	17,021			23,574			(6,553		)
Operating expenses	5,794			5,403			391
Real estate operating expenses	7,948			5,474			2,474
Fee expense	1,439			1,712			(273		)
Depreciation and amortization	10,009			10,227			(218		)
Total costs and expenses	42,211			46,390			(4,179		)
Income (loss) before taxes	(18,602		)	21,676			(40,278		)
Income tax expense (benefit)	(4,541		)	(2,854		)	(1,687		)
Net income (loss)	$	(14,061	)	$	24,530		$	(38,591	)

Investment Overview

Investment activity in the three months ended ~~September 30, 2019~~March 31, 2020 focused on loan, security and real estate activities. We originated and funded ~~$722.1~~$526.7 million in principal value of commercial mortgage loans, which was offset by $189.4 million of sales and $118.6 million of principal repayments in the three months ended ~~September 30, 2019.~~March 31, 2020. We acquired ~~$346.4~~$438.2 million of new securities, which was offset by ~~$153.8~~$107.5 million of sales and ~~$68.0~~$43.6 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of ~~$123.0~~$209.3 million during the three months ended ~~September 30,~~March 31, 2020. We also invested $27.8 million in real estate, which included $21.5 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $30.1 million.

Investment activity in the three months ended March 31, 2019 focused on loan, security and real estate activities. We originated and funded $399.7 million in principal value of commercial mortgage loans, which was offset by $159.4 million of sales and $245.8 million of principal repayments in the three months ended March 31, 2019. We acquired $432.9 million of new securities, which was partially offset by $214.7 million of sales and $24.2 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $209.0 million during the three months ended March 31, 2019. We also invested ~~$8.8~~$20.6 million in real estate and received proceeds from the sale of real estate of ~~$7.2 million.~~

Investment activity in the three months ended September 30, 2018 focused on loan, security and real estate activities. We originated and funded $676.7 million in principal value of commercial mortgage loans in the three months ended September 30, 2018. We acquired $59.1 million of new securities, which was offset by $144.6 million of sales and $36.5 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $128.1 million during the three months ended September 30, 2018. We also received proceeds from the sale of real estate of $112.5$1.7 million.

Operating Overview

Net income (loss) attributable to Class A common shareholders totaled ~~$27.6~~$(15.7) million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$66.6~~$22.2 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The most significant drivers of the ~~$39.1~~$37.9 million decrease are as follows:

•

a decrease in total other income (loss) of $58.0 million, primarily as a result of a $61.6 million decrease in realized gain (loss) on opportunistic sales of real estate, net, a $16.6 million decrease in net results from derivative transactions, partially offset by an increase of ~~$9.4 million in sale of loans, net and a $6.0 million increase in realized gain (loss) on securities;~~

a decrease in net interest income after provision for loan losses of $40.3 million, primarily as a result of the $26.3 million increase in provision for loan losses and a decrease of $13.9 million in interest income;

a decrease in total other income (loss) of $4.1 million, primarily as a result of a decrease of $6.1 million in sale of loans, net, a decrease of $4.4 million in net results from derivative transactions, a decrease of $3.2 million in fee and other income and a decrease of $2.6 million in unrealized gain (loss) on equity securities, partially offset by an increase of $10.5 million in realized gain on sale of real estate, an increase of $3.1 million in gain (loss) on extinguishment of debt and no impairment of real estate was taken in 2020;

a decrease in net interest income of ~~$8.1~~$14.0 million, primarily as a result of lower average loan balances and lower interest expense attributable to the increase in LIBOR rates ~~throughout 2018~~during 2019 and the decrease in the average yield on the securities portfolio year-over-year;

a decrease in total costs and expenses of ~~$3.1~~$4.2 million compared to the prior year, primarily as a result of a ~~$1.5~~$6.6 million decrease in salaries and employee benefits, ~~and a $1.4~~partially offset by an increase of $2.5 million ~~decrease~~ in ~~depreciation and amortization;~~real estate operating expenses; and

~~a decrease~~an increase in income tax expense (benefit) of ~~$0.1 million~~($1.7 million) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled ~~$32.1~~$(18.6) million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$84.7~~$21.7 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The significant components of the ~~$52.6~~$40.3 million decrease in income (loss) before taxes are described in the first ~~three~~four bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled ~~$44.1~~$30.9 million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$63.4~~$46.9 million for the three months ended ~~September 30, 2018.~~March 31, 2019. The significant components of the ~~$19.3~~$16.0 million decrease in core earnings are ~~a decrease in realized gain on~~ the ~~sale of real estate, net of $42.4 million, a decrease in net results from derivative transactions of $11.1 million, the $8.1~~$14.0 million decrease in net interest income discussed above and the $7.7 million increase in provision for loan losses, partially offset by a decrease of $4.2 million in total costs and expenses, an increase of ~~$9.2~~$3.4 million in ~~sale of loans, net, an increase of $6.0 million in gain (loss) on securities, a decrease in salaries and employee benefits of $2.6 million~~total other income and a ~~$1.4~~$2.0 million decrease in ~~depreciation and amortization.~~net (income) loss attributable to noncontrolling interest in consolidated joint ventures. 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 $82.3 million for the three months ended September 30, 2019, compared to $90.4 million for the three months ended September 30, 2018.~~ The ~~$8.1~~$13.9 million decrease in interest income was primarily attributable to ~~the increase in~~higher prevailing LIBOR rates ~~throughout 2018, and~~during 2019, partially offset by the investment mix composition, with lower yields on securities investments versus higher yields on loan investments. For the three months ended ~~September 30, 2019,~~March 31, 2020, securities investments averaged $1.9 billion and loan investments averaged ~~$3.3~~$3.4 billion. For the three months ended ~~September 30, 2018,~~March 31, 2019, securities investments averaged ~~$1.1~~$1.5 billion and loan investments averaged ~~$4.0~~$3.6 billion. There was a ~~$723.9~~$153.0 million decrease in loan investments, offset by a ~~$811.7~~$351.2 million increase in securities investments.

~~Interest expense totaled $51.4~~

The $0.2 million ~~for the three months ended September 30, 2019, compared to $51.5 million for the three months ended September 30, 2018. The $0.1 million decrease~~increase in interest expense was primarily attributable to ~~higher~~an increase in interest expense on corporate bonds and an increase in the cost of financing real estate acquired during 2019, partially offset by a decrease in cost of repurchase facility financing due to lower prevailing LIBOR rates ~~in 2018, a decreased~~during 2020 and lower reliance on ~~FHLB~~repurchase facility financing ~~and an increased reliance on mortgage loan financing.~~due to the issuance of the 2027 Notes.

~~Net interest income after provision for loan losses totaled $30.9~~The $40.3 million ~~for the three months ended September 30, 2019, compared to $28.6 million for the three months ended September 30, 2018. The $2.2 million increase~~decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income discussed above, offset by the increase in interest expense discussed above and the ~~$10.3~~$26.3 million ~~decrease~~increase in provision for loan losses discussed below.

Cost of funds, a non-GAAP financial measure, totaled $51.8 million for the three months ended September 30, 2019, compared to $52.8 million for the three months ended September 30, 2018. The $1.0 million decrease in cost of funds was primarily attributable to the increase in LIBOR rates throughout 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 ~~September 30, 2019,~~March 31, 2020, the weighted average yield on our mortgage loan receivables was ~~7.2%~~6.7%, compared to ~~7.5%~~7.6% as of ~~September 30, 2018~~March 31, 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of ~~September 30, 2019,~~March 31, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was ~~3.6%~~2.6%, compared to ~~3.8%~~4.1% as of ~~September 30, 2018.~~March 31, 2019. The decrease in the rate on borrowings against our mortgage loan receivables from ~~September 30, 2018~~March 31, 2019 to ~~September 30, 2019~~March 31, 2020 was primarily due to lower prevailing market borrowing rates. As of ~~September 30, 2019,~~March 31, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to ~~39.4%~~31.9% of the carrying value of our mortgage loan receivables, compared to ~~48.6%~~44.6% as of ~~September 30, 2018.~~March 31, 2019.

As of ~~September 30, 2019,~~March 31, 2020, the weighted average yield on our real estate securities was ~~3.2%~~2.3%, compared to ~~3.1%~~3.3% as of ~~September 30, 2018.~~March 31, 2019 as the weighted average yield on securities that were acquired was lower than the weighted average yield on securities that were sold or paid off. As of ~~September 30, 2019,~~March 31, 2020, the weighted average interest rate on borrowings against our real estate securities was ~~2.7%~~2.8%, compared to ~~2.5%~~2.9% as of September 30, 2018. The increase in the rate on borrowings against our real estate securities from September 30, 2018 to September 30, 2019 was primarily due to a decreased reliance on FHLB financing and an increased reliance on repurchase financing as of September 30, 2019 versus the prior year period.March 31, 2019. As of ~~September 30, 2019,~~March 31, 2020, we had outstanding borrowings secured by our real estate securities equal to ~~86.1%~~83.3% of the carrying value of our real estate securities, compared to ~~85.5%~~78.2% as of ~~September 30, 2018.~~March 31, 2019.

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 ~~September 30, 2019,~~March 31, 2020, the weighted average interest rate on mortgage borrowings against our real estate was ~~5.0%~~4.9%, compared to 5.1% as of ~~September 30, 2018.~~March 31, 2019. As of ~~September 30, 2019,~~March 31, 2020, we had outstanding borrowings secured by our real estate equal to ~~73.7%~~77.0% of the carrying value of our real estate, compared to ~~74.3%~~73.5% as of ~~September 30, 2018.~~March 31, 2019.

Provision for Loan Losses

~~We originate~~In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and ~~invest primarily in~~management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans ~~with high credit quality,~~that previously had an aggregate of $14.7 million of asset-specific reserves and ~~we sell our conduit~~a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock). As of March 31, 2020, the Company recorded additional CECL reserves of $18.6 million for a total CECL reserve of $30.2 million. This excludes four loans that previously had an aggregate of $20.7 million of asset-specific reserves and a carrying value of $56.4 million as of March 31, 2020. The change of $18.6 million in the ~~ordinary course~~quarter is reflected as an increase of ~~business. We estimate our loan loss~~reserve to provision ~~based~~expense of $18.0 million, and an increase in reserve on ~~our historical loss experience and our expectation~~unfunded commitments of ~~losses inherent~~$0.6 million. These increases are primarily due to the update of the macro economic assumptions used in the ~~investment portfolio but not yet realized. To ensure~~Company’s CECL evaluation in the current quarter to reflect a recessionary macro economic scenario instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the ~~risk exposures are properly measured and~~January 1, 2020 CECL reserve analysis. In addition to the ~~appropriate reserves are taken,~~CECL reserve, the Company ~~assesses a loan loss provision balance~~determined that ~~will grow over time with its portfolio~~an asset-specific reserve of $8.0 million was required relating to two of the Company’s loans for the three months ended March 31, 2019. For additional information, refer to “Allowance for Loan Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the ~~related risk as the assets approach maturity and ultimate refinancing where applicable.~~consolidated financial statements.

We determined that noa provision expense for loan losses ~~was required for the three months ended September 30, 2019~~of ~~and a provision expense of $10.3~~$0.3 million was required for the three months ended ~~September 30, 2018~~. ~~This~~March 31, 2019. The provision consisted of a portfolio-based, general reserve of ~~$0.3~~$0.3 million ~~to provide reserves~~ for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, and anno 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 3 Mortgage Loan Receivables to the consolidated financial statements.reserve.

Operating Lease Income

~~Operating lease income totaled $24.4 million for the three months ended September 30, 2019, compared to $25.0 million for the three months ended September 30, 2018.~~ The decrease of ~~$0.6~~$2.6 million in operating lease income was primarily attributable to ~~the timing~~income related to a one time lease termination payment received in 2019. This decrease was partially offset by income on properties acquired in 2020 and a full period of ~~the real estate sales during each quarter and real estate purchases subsequent to September 30, 2018.~~operations on properties acquired in 2019. Tenant recoveries are included in operating lease income.

Sales of Loans, Net

~~We recorded $11.2 million income~~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 September 30, 2019, compared to $1.9 million for the three months ended September 30, 2018, an increase of $9.4 million.~~means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended ~~September 30, 2019,~~March 31, 2020, we ~~participated in one securitization transaction, transferring 10~~sold/transferred 20 loans with an aggregate outstanding principal balance of ~~$140.7~~$185.3 million. In the three months ended ~~September 30, 2018,~~March 31, 2019, we ~~participated in one securitization transaction, transferring 13~~sold /transferred 14 loans with an aggregate outstanding principal balance of ~~$102.0~~$169.7 million. During the three months ended ~~September 30,~~March 31, 2020, we recorded $7.6 million of realized losses on loans related to lower of cost or market adjustments. During the three months ended March 31, 2019 ~~and September 30, 2018,~~ we recorded no 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 ~~$6.2~~$6.1 million income (loss) from ~~sales~~sale of ~~securitized~~ loans, net of hedging for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$2.3~~$5.9 million income (loss) from ~~sales~~sale of ~~securitized~~ loans, net of hedging for the three months ended ~~September 30, 2018.~~March 31, 2019. The ~~$3.9~~$0.3 million increase was predominantly due to an 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 $3.4~~We sold $107.5 million for the three months ended September 30, 2019, compared to $(2.6) million for the three months ended September 30, 2018, a $6.0 million increase. Included in realized gain (loss) on securities are $(0.6) million of ~~other than temporary impairments on~~ securities for the three months ended ~~September 30, 2018, compared to $(0.1)~~March 31, 2020. We sold $214.7 million of securities for the three months ended ~~September 30,~~March 31, 2019. ~~For the three months ended September 30, 2019, we sold $153.8~~The increase of $0.1 million ofin realized gain (loss) on securities ~~comprised of $143.5 million of CMBS and $10.3 million of corporate bonds. For the three months ended September 30, 2018, we sold $144.6 million of CMBS. The increase~~ reflects higher margin on sale of securities ~~in 2019 as compared to 2018, the~~resulting from a decrease in interest rates ~~throughout 2019 and a reduction~~ in ~~other than temporary impairments on securities recorded during the three months ended September 30, 2019~~2020 as compared to ~~the three months ended September 30, 2018.~~2019.

Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented a ~~gain~~loss of $~~0.3~~0.5 million for the three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~none~~$2.1 million for the three months ended ~~September 30, 2018.~~March 31, 2019. 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 $16 thousand for the three months ended September 30, 2019, compared to a gain of $0.1 million for the three months ended September 30, 2018. The ~~negative~~positive change of $0.1 million in unrealized gain (loss) on Agency interest-only securities was due to ~~amortization~~change in fair value of ~~our securities portfolio.~~the securities.

Realized Gain (Loss) on Sale of Real Estate, Net

~~Income~~The increase of $10.5 million in realized gain (loss) ~~from sales~~on sale of real estate, net ~~totaled $2.1 million for the three months ended September 30, 2019, compared to $63.7 million for the three months ended September 30, 2018. The decrease of $61.6 million~~ was primarily a result of the commercial real estate and residential condominium sales discussed below.

During the three months ended ~~September 30, 2019 and 2018,~~March 31, 2020, we sold ~~no single-tenant net leased properties.~~

During the three months ended September 30, 2019, we sold one diversified commercial real estate property resulting in a net gain (loss) on sale of $2.1 million. During the three months ended September 30, 2018, we sold a portfolio of foureight diversified commercial real estate properties resulting in a net gain (loss) on sale of ~~$61.6~~$10.5 million. During the three months ended March 31, 2019, we sold no diversified commercial real estate properties.

During the three months ended ~~September 30, 2019, income from sales of residential condominiums totaled $32 thousand. We~~March 31, 2020, we sold ~~one~~two residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of ~~$32~~$7 thousand. During the three months ended ~~September 30, 2018, income from sales of residential condominiums totaled $0.8 million. We~~March 31, 2019, 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~~ six residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.2 million.

~~Fee and Other Income~~

Fee and other income totaled $5.2 million for the three months ended September 30, 2019, compared to $4.9 million for the three months ended September 30, 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 and equity securities. The $0.3 million increase in fee and other income year-over-year was primarily due to an increase in dividend income and other fees relating to mortgage loan receivables.

~~Net Result from Derivative Transactions~~

Net result from derivative transactions represented a loss of $9.5 million for the three months ended September 30, 2019, which was comprised of an unrealized loss of $0.6 million and a realized loss of $8.9 million, compared to a gain of $7.1 million for the three months ended September 30, 2018, which was comprised of an unrealized loss of $1.0 million and a realized gain of $8.1 million, resulting in a negative change of $16.6 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 loss in 2019 was primarily related to the movement in interest rates during the three months ended September 30, 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 $1.1 million for the three months ended September 30, 2019, compared to $0.4 million for the three months ended September 30, 2018. Earnings from our investment in Grace Lake JV totaled $0.5 million and $0.6 million for the three months ended September 30, 2019 and 2018, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.6 million and $(0.2) million for the three months ended September 30, 2019 and 2018, respectively. The loss for the three months ended September 30, 2018 is due to a negative return related to upfront sales costs on the investment. The gain in the three months ended September 30, 2019 is due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

~~Gain (Loss) on Extinguishment/Defeasance of Debt~~

There was no gain (loss) on extinguishment/defeasance of debt totaled for the three months ended September 30, 2019. There was $(4.3) million gain (loss) on extinguishment/defeasance of debt for the three months ended September 30, 2018. 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.

~~Salaries and Employee Benefits~~

Salaries and employee benefits totaled $14.3 million for the three months ended September 30, 2019, compared to $15.8 million for the three months ended September 30, 2018. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $1.5 million in compensation expense was primarily attributable to a decrease in bonus expense, partially offset by an increase in equity based compensation expense.

~~Operating Expenses~~

Operating expenses totaled $5.3 million for the three months ended September 30, 2019, compared to $5.5 million for the three months ended September 30, 2018. Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The decrease of $0.2 million was primarily related to a decrease in tax and consulting fees, partially offset by an increase in information technology costs.

~~Real Estate Operating Expenses~~

Real estate operating expenses totaled $6.3 million for the three months ended September 30, 2019, compared to $7.2 million for the three months ended September 30, 2018. The decrease of $0.9 million in real estate operating expenses primarily relates to the sale of real estate in 2018 and a decrease in operating expenses for condominium properties.

~~Fee Expense~~

Fee expense totaled $2.1 million for the three months ended September 30, 2019, compared to $1.3 million for the three months ended September 30, 2018. Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The increase of $0.8 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 our mortgage loan receivables held for investment, net, at amortized cost.

~~Depreciation and Amortization~~

Depreciation and amortization totaled $9.0 million for the three months ended September 30, 2019, compared to $10.4 million for the three months ended September 30, 2018. The $1.4 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 $1.1 million for the three months ended September 30, 2019, compared to $1.2 million for the three months ended September 30, 2018. The decrease of $0.1 million is primarily attributable to a decrease in forecasted GAAP income in our TRSs.

~~Results of Operations~~

~~Nine months ended September 30, 2019 compared to the nine months ended September 30, 2018~~

~~The following table sets forth information regarding our consolidated results of operations ($ in thousands, except per share data):~~

Nine Months Ended September 30, 2019 vs
2019 2018 2018

Net interest income

Interest income $ 254,040
$ 253,822
$ 218
Interest expense 155,015
144,606
10,409
Net interest income 99,025
109,216
(10,191 )
Provision for loan losses 600
13,600
(13,000 )
Net interest income after provision for loan losses 98,425
95,616
2,809

Other income (loss)

Operating lease income 81,106
79,306
1,800
Sale of loans, net 38,589
12,893
25,696
Realized gain (loss) on securities 10,726
(4,896 ) 15,622
Unrealized gain (loss) on equity securities 1,341
—
1,341
Unrealized gain (loss) on Agency interest-only securities 38
456
(418 )
Realized gain (loss) on sale of real estate, net 963
96,341
(95,378 )
Impairment of real estate (1,350 ) —
(1,350 )
Fee and other income 17,047
17,579
(532 )
Net result from derivative transactions (35,956 ) 29,156
(65,112 )
Earnings (loss) from investment in unconsolidated joint ventures 3,617
466
3,151
Gain (loss) on extinguishment/defeasance of debt (1,070 ) (4,392 ) 3,322
Total other income (loss) 115,051
226,909
(111,858 )
Costs and expenses

Salaries and employee benefits 52,800
46,754
6,046
Operating expenses 16,727
16,608
119
Real estate operating expenses 17,776
23,806
(6,030 )
Fee expense 4,951
2,953
1,998
Depreciation and amortization 29,192
31,896
(2,704 )
Total costs and expenses 121,446
122,017
(571 )
Income (loss) before taxes 92,030
200,508
(108,478 )
Income tax expense (benefit) 478
5,679
(5,201 )
Net income (loss) 91,552
194,829
(103,277 )

~~Investment Overview~~

Investment activity in the nine months ended September 30, 2019 focused on loan, security and real estate activities. We originated and funded $1.5 billion in principal value of commercial mortgage loans, which was offset by $574.3 million of sales and $1.1 billion of principal repayments in the nine months ended September 30, 2019. We acquired $1.2 billion of new securities, which was partially offset by $538.2 million of sales and $178.5 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $501.3 million during the nine months ended September 30, 2019. We also invested $32.1 million in real estate and received proceeds from the sale of real estate of $22.9 million.

Investment activity in the nine months ended September 30, 2018 focused on loan, security and real estate activities. We originated and funded $2.4 billion in principal value of commercial mortgage loans, which was offset by $926.4 million of sales and $788.5 million of principal repayments in the nine months ended September 30, 2018. We acquired $303.0 million of new securities, which was offset by $306.1 million of sales and $93.2 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of $128.2 million during the nine months ended September 30, 2018. We also invested $115.5 million in real estate and received proceeds from the sale of real estate of $213.1 million.

~~Operating Overview~~

Net income (loss) attributable to Class A common shareholders totaled $82.0 million for the nine months ended September 30, 2019, compared to $155.9 million for the nine months ended September 30, 2018. The most significant drivers of the $73.9 million decrease are as follows:

a decrease in total other income (loss) of $111.9 million, primarily as a result of a $95.4 million decrease in profits on sale of real estate and $65.1 million decrease in net results from derivative transactions, partially offset by an increase of $25.7 million in sales of loans, net, an increase of $15.6 million in realized gains on securities and an increase of $3.2 million in earnings (loss) from investment in unconsolidated joint ventures;

a decrease in total costs and expenses of $0.6 million compared to the prior year, primarily as a result of a $6.0 million increase in salaries and employee benefits relating to equity compensation, offset by a $6.0 million decrease in real estate operating expenses; and


•	~~a decrease~~ ~~in income tax expense (benefit) of~~ ~~$5.2 million~~ ~~compared to the prior year, primarily as a result of a significant reduction in real estate sales and net interest income in our TRSs.~~

~~Income (Loss) Before Taxes~~

Income (loss) before taxes totaled $92.0 million for the nine months ended September 30, 2019, compared to $200.5 million for the nine months ended September 30, 2018. The significant components of the $108.5 million decrease in income (loss) before taxes are described in the first two bullet points under operating overview above.

~~Core Earnings~~

Core earnings, a non-GAAP financial measure, totaled $142.0 million for the nine months ended September 30, 2019, compared to $177.6 million for the nine months ended September 30, 2018. The significant components of the $35.6 million decrease in core earnings are a decrease in total other income (loss) of $67.1 million, primarily as a result of a decrease of $78.8 million in sale of real estate, net and a decrease of $35.6 million in net results from derivative transactions, partially offset by an increase of $25.4 million in sale of loans, net, an increase of $15.6 million in gain (loss) on securities and, an increase of $1.8 million in operating lease income and the changes in 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 $254.0 million for the nine months ended September 30, 2019, compared to $253.8 million for the nine months ended September 30, 2018. The $0.2 million increase in interest income was primarily attributable to higher prevailing 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 nine months ended September 30, 2019, securities investments averaged $1.7 billion and loan investments averaged $3.5 billion. For the nine months ended September 30, 2018, securities investments averaged $1.1 billion and loan investments averaged $3.9 billion. There was a $438.4 million decrease in loan investments, offset by a $642.0 million increase in securities investments.

Interest expense totaled $155.0 million for the nine months ended September 30, 2019, compared to $144.6 million for the nine months ended September 30, 2018. The $10.4 million increase in interest expense was primarily attributable to an increase in LIBOR rates throughout 2018, a decreased reliance on FHLB financing, and an increased reliance on mortgage loan financing. Our interest expense related to mortgage loan financing increased by $1.2 million from $27.5 million for the nine months ended September 30, 2018 to $28.7 million for the nine months ended September 30, 2019, primarily as a result of our increase in average outstanding mortgage loan financing of $735.6 million for the nine months ended September 30, 2019 compared to $732.4 million for the nine months ended September 30, 2018.

Net interest income after provision for loan losses totaled $98.4 million for the nine months ended September 30, 2019, compared to $95.6 million for the nine months ended September 30, 2018. The $2.8 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 $156.9 million for the nine months ended September 30, 2019, compared to $150.4 million for the nine months ended September 30, 2018. The $6.5 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.

~~Interest Spreads~~

As of September 30, 2019, the weighted average yield on our mortgage loan receivables was 7.2%, compared to 7.5% as of September 30, 2018 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of September 30, 2019, the weighted average interest rate on borrowings against our mortgage loan receivables was 3.6%, compared to 3.8% as of September 30, 2018. The decrease in the rate on borrowings against our mortgage loan receivables from September 30, 2018 to September 30, 2019 was primarily due to lower prevailing market borrowing rates as of September 30, 2019 compared to September 30, 2018. As of September 30, 2019, we had outstanding borrowings secured by our mortgage loan receivables equal to 39.4% of the carrying value of our mortgage loan receivables, compared to 48.6% as of September 30, 2018.

As of September 30, 2019, the weighted average yield on our real estate securities was 3.2%, compared to 3.1% as of September 30, 2018. As of September 30, 2019, the weighted average interest rate on borrowings against our real estate securities was 2.7%, compared to 2.5% as of September 30, 2018. The increase in the rate on borrowings against our real estate securities from September 30, 2018 to September 30, 2019 was primarily due to a decreased reliance on FHLB financing and an increased reliance on repurchase financing as of September 30, 2019 versus the prior period year end. As of September 30, 2019, we had outstanding borrowings secured by our real estate securities equal to 86.1% of the carrying value of our real estate securities, compared to 85.5% as of September 30, 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 September 30, 2019, the weighted average interest rate on mortgage borrowings against our real estate was 5.0%, compared to 5.1% as of September 30, 2018. As of September 30, 2019, we had outstanding borrowings secured by our real estate equal to 73.7% of the carrying value of our real estate, compared to 74.3% as of September 30, 2018.

~~Provision for Loan Losses~~

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 a provision expense for loan losses of $0.6 million was required for the nine months ended September 30, 2019. 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. We determined that a provision expense for loan losses of $13.6 million was required for the nine months ended September 30, 2018. The provision consisted of a portfolio-based, general reserve of $0.9 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, 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 3 Mortgage Loan Receivables to the consolidated financial statements.

~~Operating Lease Income~~

Operating lease income totaled $81.1 million for the nine months ended September 30, 2019, compared to $79.3 million for the nine months ended September 30, 2018. The increase of $1.8 million was primarily attributable to real estate purchases subsequent to September 30, 2018. Tenant recoveries are included in operating lease income.

~~Sale of Loans, Net~~

We recorded $38.6 million income (loss) from sale of loans, net, which includes all loan sales, whether by securitization, whole loan sales or other means, for the nine months ended September 30, 2019, compared to $12.9 million for the nine months ended September 30, 2018, an increase of $25.7 million. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2019, we participated in four separate securitization transactions, selling/transferring 46 loans with an aggregate outstanding principal balance of $548.1 million. During the nine months ended September 30, 2019, we recorded no realized losses on loans related to lower of cost or market adjustments. During the nine months ended September 30, 2018, we participated in six separate securitization transactions, selling/transferring 80 loans with an aggregate outstanding principal balance of $939.3 million. In addition, in the nine months ended September 30, 2018, we recorded $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 $23.2 million income from sales of securitized loans, net of hedging for the nine months ended September 30, 2019 compared to $22.7 million for the nine months ended September 30, 2018. The $0.5 million increase was predominantly due to declining interest rates in 2019, higher overall profit on the sale of loans, offset by a lower volume of loans sold.

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 $10.7 million for the nine months ended September 30, 2019, compared to $(4.9) million for the nine months ended September 30, 2018, an increase of $15.6 million. Other than temporary impairments on securities of $(0.1) million are included in realized gain (loss) on securities for the nine months ended September 30, 2019, compared to $(2.2) million for the nine months ended September 30, 2018, a reduction of $2.1 million. For the nine months ended September 30, 2019, we sold $538.2 million of CMBS securities, comprised of $500.8 million of CMBS, no U.S. Agency Securities, $33.0 million of corporate bonds and $4.4 million of equity securities. For the nine months ended September 30, 2018, we sold $306.1 million of CMBS securities, comprised of $305.6 million of CMBS and $0.5 million U.S. Agency Securities. The increase reflects higher margin on sale of securities in 2019 as compared to 2018 and the decrease in interest rates throughout 2019.

~~Unrealized Gain (Loss) on Equity Securities~~

Unrealized gain (loss) on equity securities represented a gain of $1.3 million for the nine months ended September 30, 2019, compared to none for the nine months ended September 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 $38 thousand for the nine months ended September 30, 2019, compared to a gain of $0.5 million for the nine months ended September 30, 2018. The negative change of $0.4 million in unrealized gain (loss) on Agency interest-only securities was due to the amortization of our securities portfolio.

~~Realized Gain (Loss) on Sale of Real Estate, Net~~

For the nine months ended September 30, 2019, income (loss) from sales of real estate, net totaled $1.0 million, compared to $96.3 million for the nine months ended September 30, 2018. The decrease of $95.4 million was a result of the commercial real estate and residential condominium sales discussed below.

~~During the nine months ended September 30, 2019 and 2018, there were no sales of single-tenant net lease properties.~~

During the nine months ended September 30, 2019, we sold three diversified commercial real estate properties, resulting in a net gain (loss) on sale of $0.7 million. During the nine months ended September 30, 2018, we sold six diversified commercial real estate properties resulting in a net gain (loss) on sale of $90.4 million.

During the nine months ended September 30, 2019, income from sales of residential condominiums totaled $0.4 million. We sold no residential condominium units from Veer Towers in Las Vegas, NV, and 14 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.4 million. During the nine months ended September 30, 2018, income from sales of residential condominiums totaled $4.0 million. We sold eight residential condominium units from Veer Towers in Las Vegas, NV, resulting in a net gain on sale of $3.1 million, and 18 residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.9 million.

Impairment of Real Estate

Impairment of real estate of $1.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 is attributable to ~~the receipt of a lease termination payment on~~ a single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and Related Lease Intangibles, Net ~~and Note 15, Fair Value of Financial Instruments~~ for further detail. There was no impairment of real estate for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2020.

Fee and Other Income

~~Fee~~We generate fee and other ~~income totaled $17.0 million for the nine months ended September 30, 2019, compared to $17.6 million for the nine months ended September 30, 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 and equity securities. The ~~$0.5~~$3.2 million decrease in fee and other income year-over-year was primarily due to a decrease in ~~HOA fee income.~~exit fees and an unrealized loss on our investment in the Ladder Select Bond Fund (the “Fund”), a mutual fund.

Net Result from Derivative Transactions

Net result from derivative transactions represented a loss of ~~$36.0~~$15.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020, which was comprised of an unrealized gain of $0.4 million and a realized loss of $15.8 million, compared to a loss of $11.0 million for the three months ended March 31, 2019, which was comprised of an unrealized gain of ~~$0.9~~$2.5 million and a realized loss of ~~$36.9 million, compared to a gain of $29.2 million, for the nine months ended September 30, 2018, which was comprised of an unrealized gain of $1.4 million and a realized gain of $27.8~~$13.5 million, resulting in a negative change of ~~$65.1~~$4.4 million. The hedge positions were related to fixed rate conduit loans and securities investments. 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 loss in ~~2019~~2020 was primarily related to movement in interest rates during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The total net result from derivative transactions is ~~comprised~~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~~Earnings (loss) ~~from investment in unconsolidated joint ventures totaled $3.6 million and $0.5 million for the nine months ended September 30, 2019 and 2018, respectively. Earnings~~ from our investment in Grace Lake ~~LLC~~JV totaled ~~$1.5~~$0.2 million and ~~$1.1~~$0.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. Earnings (loss) from our investment in 24 Second Avenue totaled ~~$2.1~~$0.3 million and ~~$(0.7)~~$0.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The loss for the nine months ended September 30, 2018 is due to a negative return related to upfront sales costs on the investment. The gain in the nine months ended September 30, 2019 is due to a recapitalization of our investment in 24 Second Avenue. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

~~Gain~~There was a $2.1 million gain (loss) on extinguishment/defeasance of debt totaled ~~$(1.1) million~~ for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company ~~paid off $6.6~~retired $19.2 million of ~~mortgage loan financing,~~principal of the 2027 Notes for a repurchase price of $17.2 million, recognizing a ~~loss~~$1.7 million net gain on extinguishment of debt after recognizing $(0.3) million of ~~$(1.1) million.~~unamortized debt issuance costs associated with the retired debt, the Company retired $4.1 million of principal of the 2025 Notes for a repurchase price of $4.0 million, recognizing a $5.8 thousand net gain on extinguishment of debt after recognizing $(39.9) thousand of unamortized debt issuance costs associated with the retired debt, and the Company retired $1.0 million of principal of the 2021 Notes for a repurchase price of $1.0 million, recognizing a $1.8 thousand net gain on extinguishment of debt after recognizing $(3.2) thousand of unamortized debt issuance costs associated with the retired debt. There was a ~~$(4.4)~~$(1.1) million gain (loss) on extinguishment/defeasance of debt for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. During the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019, the Company retired ~~$5.9~~$47.0 million of principal of mortgage loan financing in connection with the ~~CLO debt, via the purchase~~sale of ~~related CLO securities, for a repurchase price of~~ ~~$6.0 million~~,real estate, recognizing a ~~$(0.1)~~$4.3 million net loss on extinguishment of debt after ~~recognizing~~ ~~$0.1~~paying $4.3 million of ~~unamortized debt issuance~~defeasance costs associated with the retired debt.

Salaries and Employee Benefits

Salaries and employee benefits totaled ~~$52.8~~$17.0 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, compared to ~~$46.8~~$23.6 million for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The ~~increase~~decrease of ~~$6.0~~$6.6 million in compensation expense was primarily attributable to ~~an increase in equity based~~the fact that the Company recorded no compensation expense ~~(due in part~~related to bonuses due to the ~~payment of some compensation awards~~significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in ~~December of 2017, that would normally have been paid in early 2018), partially offset by a decrease in bonus expense.~~the commercial real estate market and overall economy during the three months ended March 31, 2020.

Operating Expenses

~~Operating expenses totaled $16.7 million for the nine months ended September 30, 2019, compared to $16.6 million for the nine months ended September 30, 2018.~~ Operating expenses are primarily ~~composed~~comprised of professional fees, lease expense and technology expenses. The increase of ~~$0.1~~$0.4 million was primarily related to an increase in professional fees, partially offset by a decrease in other operating ~~expenses.~~expenses during the three months ended March 31, 2020.

Real Estate Operating Expenses

~~Real estate operating expenses totaled $17.8 million for the nine months ended September 30, 2019, compared to $23.8 million for the nine months ended September 30, 2018.~~ The ~~decrease~~increase of ~~$6.0~~$2.5 million in real estate operating ~~expense~~expenses primarily relates to the ~~sale~~acquisition of real estate in ~~2018 and~~2019, partially offset by a decrease in operating expenses for condominium properties.

Fee Expense

~~Fee expense totaled $5.0 million for the nine months ended September 30, 2019, compared to $3.0 million for the nine months ended September 30, 2018.~~ Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The ~~increase~~decrease of ~~$2.0~~$0.3 million in fee expense was primarily attributable to an increase in legal fees ~~on mortgage~~in the three months ended March 31, 2019 and a decrease in loan ~~receivables and an increase~~repurchase financing underwriting costs in ~~servicing fees related~~the three months ended March 31, 2020 compared to ~~our mortgage loan receivables held for investment, net, at amortized cost.~~the same period in 2019.

Depreciation and Amortization

~~Depreciation and amortization totaled $29.2 million for the nine months ended September 30, 2019, compared to $31.9 million for the nine months ended September 30, 2018.~~ The ~~$2.7~~$0.2 million decrease in depreciation and amortization iswas primarily attributable to the timing of the real estate sales during each quarter.

Income Tax (Benefit) Expense

Most of our consolidated income tax provision ~~relates~~related to the business units held in our TRSs. ~~Income tax (benefit) expense totaled $0.5 million for the nine months ended September 30, 2019, compared to $5.7 million for the nine months ended September 30, 2018.~~ The ~~decrease~~increase of ~~$5.2~~$1.7 million is primarily asattributable to a ~~result of significant~~ reduction in ~~real estate sales and~~ net interest income in our ~~TRSs.~~TRSs as well as the decrease in income from sale of loans.

Liquidity and Capital Resources

~~Our financing~~The management of our liquidity and capital diversity and allocation strategies ~~are~~is critical to the success and growth of our business. We manage our ~~financing~~sources of liquidity 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~~asset composition 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) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; ~~(4)~~(5) principal repayments on investments including mortgage loans and securities; ~~(5) proceeds from the issuance of CLO 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;~~CLO debt; (11) a significant and ~~(11)~~financeable unencumbered asset base; and (12) 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.

AOur principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds, (2) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB, (3) long term non-recourse mortgage financing, (4) committed secured funding provided by banks, and (5) uncommitted secured funding sources, including asset repurchase agreements with a number of banks.

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.

Refer to our “Financing Strategy in the Current Market Conditions” and “Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of our diverse financing sources and, for a summary of our financial obligations, ~~is provided below in our~~refer to the Contractual Obligations ~~table.~~table below. All of our existing financial obligations due within the following year can 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 September 30, 2019, we had unrestricted cash and cash equivalents of $83.1 million, unencumbered loans of $1.3 billion, unencumbered securities of $38.7 million, unencumbered real estate of $90.8 million and $374.3 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, $1.9 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 September 30, 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, $2.6 million of LCS’s member’s capital was restricted from transfer to LCS’s parent without prior approval of regulators at September 30, 2019.

Cash, Cash Equivalents and Restricted Cash

We held cash, cash equivalents and restricted cash of $622.2 million at March 31, 2020, of which $358.4 million was unrestricted cash and cash equivalents ~~of $83.1~~and $263.9 million ~~and $67.9 million at September 30, 2019 and December 31, 2018, respectively. We held~~was restricted cash of $38.7 million and $30.6 million at September 30, 2019 and December 31, 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.cash. We held cash, cash equivalents and restricted cash of ~~$121.8 million and $98.5~~$355.7 million at ~~September 30, 2019 and~~ December 31, ~~2018, respectively.~~2019, of which $58.2 million was unrestricted cash and cash equivalents and $297.6 million was restricted cash.

~~Cash Flows~~Revolving Credit Facility

The Company’s revolving credit facility (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. On November 25, 2019, the Company amended the Revolving Credit Facility to add two additional one-year extension options, extending the final maturity date, including all extension options, to February 2025. The amendment also provided for a reduction in the interest rate to one-month LIBOR plus 3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in January 2020.

FHLB Financing

We have maintained membership in the FHLB since 2012 through our subsidiary, Tuebor Captive Insurance Company LLC (“Tuebor”). As of March 31, 2020, Tuebor had $1.0 billion of borrowings outstanding from the FHLB (with an additional $938.2 million of committed term financing available), with terms of overnight to 4.5 years, interest rates of 0.54% to 2.95%, and advance rates of 0.0% on ineligible collateral to 100% on cash collateral. As of March 31, 2020, collateral for the borrowings was comprised of $465.0 million of CMBS and U.S. Agency Securities. $141.7 million of cash and $847.3 million of first mortgage commercial real estate loans. The ~~following table provides a breakdown~~weighted-average borrowings outstanding were $1.1 billion for the three months ended March 31, 2020. FHLB advances amounted to 17.7% of the Company’s outstanding debt obligations as of March 31, 2020.

Mortgage Loan Financing

We generally finance our real estate using long-term non-recourse mortgage financing. During the three months ended March 31, 2020, we executed five term debt agreements to finance real estate. All of our mortgage loan financings have fixed rates ranging from 3.75% - 6.75%, mature between 2020 - 2030 and total $806.2 million at March 31, 2020. These long-term non-recourse mortgages include net ~~change in our cash, cash equivalents,~~unamortized premiums of $5.3 million at March 31, 2020, 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 $0.3 million of premium amortization, which decreased interest expense, for the three months ended March 31, 2020. The loans are collateralized by real estate and ~~restricted cash ($ in thousands):~~related lease intangibles, net, of $967.8 million as of March 31, 2020.

Nine Months Ended September 30,
2019 2018

Net cash provided by (used in) operating activities $ 64,245
$ (51,339 )
Net cash provided by (used in) investing activities (285,759 ) (320,031 )
Net cash provided by (used in) financing activities 244,817
273,600
Net increase (decrease) in cash and cash equivalents $ 23,303
$ (97,770 )
Hedging Strategies

We ~~experienced~~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 net increase in cash and cash equivalents of $23.3 million for the nine months ended September 30, 2019, compared to a net decrease in cash and cash equivalents of $97.8 million for the nine months ended September 30, 2018. During the nine months ended September 30, 2019, we received (i) $1.2 billion of proceeds from repayment ofduration longer than five years, including newly-originated conduit first mortgage loans, ~~receivable, (ii) $574.3~~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.

Financing Strategy in Current Market Conditions

In March 2020, as the COVID-19 health crisis rapidly transformed into a financial crisis, management took swift action to increase liquidity resources and actively manage its financing arrangements with its bank partners. In an abundance of caution, the Company first drew down on its $266.4 million ~~of proceeds from the sales of loans, (iii) $534.2 million of proceeds from the sales of real estate securities, (iv) $178.5 million of repayment of real estate securities~~unsecured revolving credit facility, which continues to be fully-drawn, and ~~(v) $415.7 million net borrowings under debt obligations. We used~~ the proceeds ~~from these activities~~continue to ~~(i) originate $1.5 billion of new loans and (ii) purchase $1.2 billion of real estate securities.~~

~~Borrowings Under Various Financing Arrangements~~

~~Our financing strategies are critical to~~be held as unrestricted cash on 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 arrangementsCompany’s balance sheet as of ~~September 30, 2019 and December 31, 2018 are set forth in the table below ($ in thousands):~~May 1, 2020.

September 30, 2019 December 31, 2018

Committed loan repurchase facilities $ 760,521
$ 497,531
Committed securities repurchase facility 85,457
—
Uncommitted securities repurchase facilities 940,070
166,154
Total repurchase facilities 1,786,048
663,685
Revolving credit facility —
—
Mortgage loan financing(1) 723,313
743,902
CLO debt(2) 117,760
601,543
Participation financing - mortgage loan receivable —
2,453
Borrowings from the FHLB 1,076,449
1,286,000
Senior unsecured notes(3) 1,157,117
1,154,991
Total debt obligations, net $ 4,860,687
$ 4,452,574

~~(1)~~–

~~Presented net~~

Securities Repurchase Facilities: The Company invests in AAA-rated CRE CLO securities, typically front pay securities, with relatively short duration and significant subordination. These securities have historically been financed with short-term, typically 30-day maturity repurchase agreements with various bank counterparties. Beginning in late March 2020 and extending through April 2020, the Company has been able to continue to access securities repurchase funding. While the Company was successful in refinancing its securities and extending the terms of ~~unamortized debt issuance~~the majority of its securities repurchase financing to periods ranging from three to six months from certain key counterparties, the funding received generally reflected higher costs of ~~$0.4 million~~financing and ~~$0.7 million as~~lower advance rates than prevailed during times of ~~September 30, 2019 and December 31, 2018, respectively.~~market stability.


~~(2)~~	~~Presented net of unamortized debt issuance costs of $0.4 million and $2.6 million as of September 30, 2019 and December 31, 2018, respectively.~~

~~(3)~~–

~~Presented net~~

FHLB Financing: As discussed above, in 2016, the FHFA adopted a final rule that limited our captive insurance subsidiary’s membership in the FHLB, requiring us to significantly reduce the amounts of ~~unamortized~~FHLB borrowings outstanding by February of 2021. As the COVID-19 crisis unfolded, management maintained an active dialogue with the FHLB and subsequent to March 31, 2020, the Company completed a non-mark to market private CLO financing transaction (refer to below and Note 18, Subsequent Events) and also sold securities and loans previously serving as collateral at the FHLB. A portion of the proceeds of the CLO financing transaction and asset sales were used to pay down FHLB advances, reducing the amount of the Company’s financing that is mark to market. As of May 1, 2020, FHLB advances outstanding were $487.0 million, reflecting a reduction of approximately $520.6 million since March 31, 2020. The Company maintains ongoing discussions with the FHLB about further reducing its outstanding advances to ensure a smooth and timely transition from FHLB membership. Funding for future advance paydowns would be obtained from the natural amortization of securities over time, loan pay offs and/or sales of loan and securities collateral.

–

Loan Repurchase Financing: The Company has maintained a consistent dialogue with its loan financing counterparties as the COVID-19 crisis has unfolded. The Company has drawn additional funds from certain loan repurchase facilities since the start of the crisis in mid-March 2020. In addition to using proceeds from the Company’s 2027 Notes offering in January to reduce secured debt, ~~issuance costs~~subsequent to March 31, 2020, we have paid off over $123.0 million on such loan repurchase financing through loan collateral pay offs and loans securitized through a private CLO financing transaction (refer to below). As of ~~$9.1~~May 1, 2020, the Company had $414.0 million of loan repurchase debt outstanding with five separate bank counterparties. We continue to maintain an active dialogue with our bank counterparties as we expect loan collateral on each of their lines to experience some measure of forbearance.

–

New Secured Financing Facility: On April 30, 2020, the Company entered into a strategic financing arrangement (the “Agreement”) with Koch Real Estate Investments, LLC (“Koch”), an affiliate of Koch Industries, under which Koch will provide the Company with approximately $206.4 million in senior secured financing (the “Koch Facility”) to fund transitional and ~~$11.2~~land loans. Koch Facility will be secured on a first lien basis on a portfolio of certain of the Company’s loans and will mature after 36 months, and borrowings thereunder will bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium of approximately $39.2 million asminus the aggregate sum of ~~September 30, 2019~~all interest payments made under the Koch Facility prior to the date of payment of the minimum interest premium, which is payable upon the earlier of maturity or repayment in full of the loan. The Koch Facility is non-recourse, subject to limited exceptions, and ~~December 31, 2018, respectively.~~does not contain mark to market provisions. Additionally, the Koch Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company’s financial flexibility.

As part of the strategic financing, Koch also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The ~~Company’s~~Purchase Right will expire on December 31, 2020. The Company expects that any such investment would additionally benefit its liquidity position.

Pursuant to the Purchase Right, Koch has agreed to a customary standstill until December 31, 2020 or the date on which Koch has exercised the Purchase Right in full, if earlier. In addition, Koch has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and Koch entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to Koch. (Refer to Note 18, Subsequent Events.)

–

Financial Covenants

Our borrowings under certain financing agreements and our committed repurchase facilities ~~include covenants covering~~are subject to maximum consolidated leverage ratio limits (either a fixed ratio ranging from 3.50 to 1.00 to 4.00 to 1.00, or a maximum ratio based on our asset composition at the time of determination), minimum net worth requirements (ranging from $300.0 million to $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 September 30, 2019~~These restrictions, which would permit us to incur substantial additional debt, are subject to significant qualifications and ~~December 31, 2018.~~ exceptions.

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~~As the COVID-19 crisis evolved, management set out a plan to ~~multiple committed loan~~mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark to market financing. The Company’s cash and cash equivalents and restricted cash totaled $622.2 million as of March 31, 2020, including $358.4 million of unrestricted cash and cash equivalents to mitigate uncertainty in liquidity needs in light of current market conditions and $263.9 million of cash margin posted as collateral against securities repurchase ~~agreement facilities, totaling $1.8 billion~~financing obligations and for other borrowings as of ~~credit capacity. As~~March 31, 2020. Partly as a result of ~~September 30, 2019,~~maintaining such cash levels, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders as of March 31, 2020 but had ~~$760.5 million~~the benefit of ~~borrowings outstanding, with an additional $1.0 billion of committed financing available. As of December 31, 2018,~~a contractually provided 30-day cure period during which the Company ~~had $497.5~~cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements) with various counterparties that totaled in excess of $830.0 million as 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, 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. April 28, 2020.

We ~~believe we~~ were in compliance with all remaining covenants as ~~of September 30, 2019 and December 31, 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~~described in the ~~case~~Company’s Annual Report, as 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 September 30, 2019, the Company had $85.5 million borrowings outstanding, with an additional $314.5 million of committed financing available. As of DecemberMarch 31, ~~2018, the Company had no borrowings outstanding, with an additional $400.0 million of committed financing available.~~2020.

~~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~~Results of Operations

Three months ended March 31, 2020 compared to the three months ended March 31, 2019

The following table ~~presents the amount~~sets forth information regarding our consolidated results 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 quarteroperations ($ in ~~thousands)~~thousands, except per share data):

Collateralized Borrowings Under Repurchase Agreements (1)
Quarter Ended Quarter-end balance Average quarterly balance Maximum balance of any month-end

September 30, 2016 $ 1,458,327
$ 1,393,122
$ 1,468,013
December 31, 2016 1,107,185
1,397,061
1,555,941
March 31, 2017 1,039,356
1,073,893
1,119,863
June 30, 2017 1,149,605
1,264,948
1,373,953
September 30, 2017 913,137
1,126,201
1,301,334
December 31, 2017 473,410
739,721
892,081
March 31, 2018 754,377
721,139
773,383
June 30, 2018 819,962
787,568
819,962
September 30, 2018 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
September 30, 2019 1,786,048
1,599,183
1,786,048



	Three Months Ended March 31,						2020 vs
	2020			2019			2019

Net interest income
Interest income	$	72,589		$	86,466		$	(13,877	)
Interest expense	51,401			51,248			153
Net interest income	21,188			35,218			(14,030		)
Provision for loan losses	26,581			300			26,281
Net interest income after provision for loan losses	(5,393		)	34,918			(40,311		)

Other income (loss)
Operating lease income	26,328			28,921			(2,593		)
Sale of loans, net	1,005			7,079			(6,074		)
Realized gain (loss) on securities	3,011			2,865			146
Unrealized gain (loss) on equity securities	(533		)	2,078			(2,611		)
Unrealized gain (loss) on Agency interest-only securities	76			11			65
Realized gain (loss) on sale of real estate, net	10,529			4			10,525
Impairment of real estate	—			(1,350		)	1,350
Fee and other income	1,519			4,685			(3,166		)
Net result from derivative transactions	(15,435		)	(11,034		)	(4,401		)
Earnings (loss) from investment in unconsolidated joint ventures	441			959			(518		)
Gain (loss) on extinguishment/defeasance of debt	2,061			(1,070		)	3,131
Total other income (loss)	29,002			33,148			(4,146		)
Costs and expenses
Salaries and employee benefits	17,021			23,574			(6,553		)
Operating expenses	5,794			5,403			391
Real estate operating expenses	7,948			5,474			2,474
Fee expense	1,439			1,712			(273		)
Depreciation and amortization	10,009			10,227			(218		)
Total costs and expenses	42,211			46,390			(4,179		)
Income (loss) before taxes	(18,602		)	21,676			(40,278		)
Income tax expense (benefit)	(4,541		)	(2,854		)	(1,687		)
Net income (loss)	$	(14,061	)	$	24,530		$	(38,591	)

Investment Overview


~~(1)~~	~~Collateralized borrowings under repurchase agreements include all securities and loan financing under repurchase agreements.~~

Investment activity in the three months ended March 31, 2020 focused on loan, security and real estate activities. We originated and funded $526.7 million in principal value of commercial mortgage loans, which was offset by $189.4 million of sales and $118.6 million of principal repayments in the three months ended March 31, 2020. We acquired $438.2 million of new securities, which was offset by $107.5 million of sales and $43.6 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $209.3 million during the three months ended March 31, 2020. We also invested $27.8 million in real estate, which included $21.5 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $30.1 million.

Investment activity in the three months ended March 31, 2019 focused on loan, security and real estate activities. We originated and funded $399.7 million in principal value of commercial mortgage loans, which was offset by $159.4 million of sales and $245.8 million of principal repayments in the three months ended March 31, 2019. We acquired $432.9 million of new securities, which was partially offset by $214.7 million of sales and $24.2 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $209.0 million during the three months ended March 31, 2019. We also invested $20.6 million in real estate and received proceeds from the sale of real estate of $1.7 million.

Operating Overview

Net income (loss) attributable to Class A common shareholders totaled $(15.7) million for the three months ended March 31, 2020, compared to $22.2 million for the three months ended March 31, 2019. The most significant drivers of the $37.9 million decrease are as follows:

a decrease in net interest income of $14.0 million, primarily as a result of lower average loan balances and lower interest expense attributable to the increase in LIBOR rates during 2019 and the decrease in the average yield on the securities portfolio year-over-year;

a decrease in total costs and expenses of $4.2 million compared to the prior year, primarily as a result of a $6.6 million decrease in salaries and employee benefits, partially offset by an increase of $2.5 million in real estate operating expenses; and

an increase in income tax expense (benefit) of ($1.7 million) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $(18.6) million for the three months ended March 31, 2020, compared to $21.7 million for the three months ended March 31, 2019. The significant components of the $40.3 million decrease in income (loss) before taxes are described in the first four bullet points under operating overview above.

Core Earnings

Core earnings, a non-GAAP financial measure, totaled $30.9 million for the three months ended March 31, 2020, compared to $46.9 million for the three months ended March 31, 2019. The significant components of the $16.0 million decrease in core earnings are the $14.0 million decrease in net interest income discussed above and the $7.7 million increase in provision for loan losses, partially offset by a decrease of $4.2 million in total costs and expenses, an increase of $3.4 million in total other income and a $2.0 million decrease in net (income) loss attributable to noncontrolling interest in consolidated joint ventures. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of core earnings and a reconciliation to income (loss) before taxes.

Net Interest Income

The $13.9 million decrease in interest income was primarily attributable to higher prevailing LIBOR rates during 2019, partially offset by the investment mix composition, with lower yields on securities investments versus higher yields on loan investments. For the three months ended March 31, 2020, securities investments averaged $1.9 billion and loan investments averaged $3.4 billion. For the three months ended March 31, 2019, securities investments averaged $1.5 billion and loan investments averaged $3.6 billion. There was a $153.0 million decrease in loan investments, offset by a $351.2 million increase in securities investments.

The $0.2 million increase in interest expense was primarily attributable to an increase in interest expense on corporate bonds and an increase in the cost of financing real estate acquired during 2019, partially offset by a decrease in cost of repurchase facility financing due to lower prevailing LIBOR rates during 2020 and lower reliance on repurchase facility financing due to the issuance of the 2027 Notes.

The $40.3 million decrease in net interest income after provision for loan losses was primarily attributable to the decrease in net interest income discussed above, offset by the increase in interest expense discussed above and the $26.3 million increase in provision for loan losses discussed below.

As of ~~September 30,~~March 31, 2020, the weighted average yield on our mortgage loan receivables was 6.7%, compared to 7.6% as of March 31, 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of March 31, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 2.6%, compared to 4.1% as of March 31, 2019. The decrease in the rate on borrowings against our mortgage loan receivables from March 31, 2019 to March 31, 2020 was primarily due to lower prevailing market borrowing rates. As of March 31, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 31.9% of the carrying value of our mortgage loan receivables, compared to 44.6% as of March 31, 2019.

As of March 31, 2020, the weighted average yield on our real estate securities was 2.3%, compared to 3.3% as of March 31, 2019 as the weighted average yield on securities that were acquired was lower than the weighted average yield on securities that were sold or paid off. As of March 31, 2020, the weighted average interest rate on borrowings against our real estate securities was 2.8%, compared to 2.9% as of March 31, 2019. As of March 31, 2020, we had outstanding borrowings secured by our real estate securities equal to 83.3% of the carrying value of our real estate securities, compared to 78.2% as of March 31, 2019.

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 March 31, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 4.9%, compared to 5.1% as of March 31, 2019. As of March 31, 2020, we had outstanding borrowings secured by our real estate equal to 77.0% of the carrying value of our real estate, compared to 73.5% as of March 31, 2019.

Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock). As of March 31, 2020, the Company recorded additional CECL reserves of $18.6 million for a total CECL reserve of $30.2 million. This excludes four loans that previously had an aggregate of $20.7 million of asset-specific reserves and a carrying value of $56.4 million as of March 31, 2020. The change of $18.6 million in the quarter is reflected as an increase of reserve to provision expense of $18.0 million, and an increase in reserve on unfunded commitments of $0.6 million. These increases are primarily due to the update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter to reflect a recessionary macro economic scenario instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the January 1, 2020 CECL reserve analysis. In addition to the CECL reserve, the Company determined that an asset-specific reserve of $8.0 million was required relating to two of the Company’s loans for the three months ended March 31, 2019. For additional information, refer to “Allowance for Loan Losses and Non-Accrual Status” in Note 3, Mortgage Loan Receivables to the consolidated financial statements.

We determined that a provision expense for loan losses of $0.3 million was required for the three months ended March 31, 2019. The provision consisted of a portfolio-based, general reserve of $0.3 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, and no asset-specific reserve.

Operating Lease Income

The decrease of $2.6 million in operating lease income was primarily attributable to income related to a one time lease termination payment received in 2019. This decrease was partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. Tenant recoveries are included in operating lease income.

Sales of Loans, Net

Income (loss) from sales of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended March 31, 2020, we sold/transferred 20 loans with an aggregate outstanding principal balance of $185.3 million. In the three months ended March 31, 2019, we ~~had~~sold /transferred 14 loans with an aggregate outstanding principal balance of $169.7 million. During the three months ended March 31, 2020, we recorded $7.6 million of realized losses on loans related to lower of cost or market adjustments. During the three months ended March 31, 2019 we recorded no 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 $6.1 million income (loss) from sale of loans, net of hedging for the three months ended March 31, 2020, compared to $5.9 million income (loss) from sale of loans, net of hedging for the three months ended March 31, 2019. The $0.3 million increase was predominantly due to an increase in the profit margin on sales of 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 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 loans, net of hedging and a reconciliation to income (loss) from sale of loans, net.

Realized Gain (Loss) on Securities

We sold $107.5 million of securities for the three months ended March 31, 2020. We sold $214.7 million of securities for the three months ended March 31, 2019. The increase of $0.1 million in realized gain (loss) on securities reflects higher margin on sale of securities resulting from a decrease in interest rates in 2020 as compared to 2019.

Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented a loss of $0.5 million for the three months ended March 31, 2020, compared to $2.1 million for the three months ended March 31, 2019. 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

The positive change of $0.1 million in unrealized gain (loss) on Agency interest-only securities was due to change in fair value of the securities.

Realized Gain (Loss) on Sale of Real Estate, Net

The increase of $10.5 million in realized gain (loss) on sale of real estate, net was primarily a result of the commercial real estate and residential condominium sales discussed below.

During the three months ended March 31, 2020, we sold eight diversified commercial real estate properties resulting in a net gain (loss) on sale of $10.5 million. During the three months ended March 31, 2019, we sold no diversified commercial real estate properties.

During the three months ended March 31, 2020, we sold two residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $7 thousand. During the three months ended March 31, 2019, we sold six residential condominium units from Terrazas River Park Village in Miami, FL, resulting in a net gain on sale of $0.2 million.

Impairment of Real Estate

Impairment of real estate of $1.4 million for the three months ended March 31, 2019 is attributable to a single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and Related Lease Intangibles, Net for further detail. There was no impairment of real estate for the three months ended March 31, 2020.

Fee and Other Income

We generate fee and other income from origination fees, exit fees and other fees on the loans we originate and in which we invest, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock and equity securities. The $3.2 million decrease in fee and other income year-over-year was primarily due to a decrease in exit fees and an unrealized loss on our investment in the Ladder Select Bond Fund (the “Fund”), a mutual fund.

Net Result from Derivative Transactions

Net result from derivative transactions represented a loss of $15.4 million for the three months ended March 31, 2020, which was comprised of an unrealized gain of $0.4 million and a realized loss of $15.8 million, compared to a loss of $11.0 million for the three months ended March 31, 2019, which was comprised of an unrealized gain of $2.5 million and a realized loss of $13.5 million, resulting in a negative change of $4.4 million. The hedge positions were related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate 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 loss in 2020 was primarily related to movement in interest rates during the three months ended March 31, 2020. 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.

Earnings (Loss) from Investment in Unconsolidated Joint Ventures

Earnings (loss) from our investment in Grace Lake JV totaled $0.2 million and $0.4 million for the three months ended March 31, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.3 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

There was a $2.1 million gain (loss) on extinguishment/defeasance of debt totaled for the three months ended March 31, 2020. During the three months ended March 31, 2020, the Company retired $19.2 million of principal of the 2027 Notes for a repurchase price of $17.2 million, recognizing a $1.7 million net gain on extinguishment of debt after recognizing $(0.3) million of unamortized debt issuance costs associated with the retired debt, the Company retired $4.1 million of principal of the 2025 Notes for a repurchase price of $4.0 million, recognizing a $5.8 thousand net gain on extinguishment of debt after recognizing $(39.9) thousand of unamortized debt issuance costs associated with the retired debt, and the Company retired $1.0 million of principal of the 2021 Notes for a repurchase price of $1.0 million, recognizing a $1.8 thousand net gain on extinguishment of debt after recognizing $(3.2) thousand of unamortized debt issuance costs associated with the retired debt. There was a $(1.1) million gain (loss) on extinguishment/defeasance of debt for the three months ended March 31, 2019. During the three months ended March 31, 2019, 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.

Salaries and Employee Benefits

Salaries and employee benefits totaled $17.0 million for the three months ended March 31, 2020, compared to $23.6 million for the three months ended March 31, 2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $6.6 million in compensation expense was primarily attributable to the fact that the Company recorded no compensation expense related to bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the three months ended March 31, 2020.

Operating Expenses

Operating expenses are primarily comprised of professional fees, lease expense and technology expenses. The increase of $0.4 million was primarily related to an increase in professional fees, partially offset by a decrease in other operating expenses during the three months ended March 31, 2020.

Real Estate Operating Expenses

The increase of $2.5 million in real estate operating expenses primarily relates to the acquisition of real estate in 2019, partially offset by a decrease in operating expenses for condominium properties.

Fee Expense

Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The decrease of $0.3 million in fee expense was primarily attributable to an increase in legal fees in the three months ended March 31, 2019 and a decrease in loan repurchase financing underwriting costs in the three months ended March 31, 2020 compared to the same period in 2019.

Depreciation and Amortization

The $0.2 million decrease in depreciation and amortization 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. The increase of $1.7 million is primarily attributable to a reduction in net interest income in our TRSs as well as the decrease in income from sale of loans.

Liquidity and Capital Resources

The management of our liquidity and capital diversity and allocation strategies is critical to the success and growth of our business. We manage our sources of liquidity 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 asset composition 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) proceeds from the issuance of the unsecured bonds; (4) borrowings under repurchase agreements; (5) principal repayments on investments including mortgage loans and securities; (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 CLO debt; (11) a significant and financeable unencumbered asset base; and (12) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis.

Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds, (2) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB, (3) long term non-recourse mortgage financing, (4) committed secured funding provided by banks, and (5) uncommitted secured funding sources, including asset repurchase agreements with ~~10 counterparties, with total~~a number of banks.

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 ~~obligations outstanding of $1.8 billion. As of September 30, 2019, two counterparties, JP Morgan~~securities in order to fund our future investments.

Refer to our “Financing Strategy in the Current Market Conditions” and ~~Wells Fargo, held collateral that exceeded the amounts borrowed~~“Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related ~~repurchase agreements by more than $82.0 million, or 5%~~to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of our ~~total equity. As~~diverse financing sources and, for a summary of ~~September 30, 2019,~~our financial obligations, refer to the ~~weighted average haircut,~~Contractual Obligations table below. All of our existing financial obligations due within the following year can be extended for one or more additional years at our discretion or repaid at maturity using existing facilities or are incurred in the ~~percent~~normal course of ~~collateral value in excess of the~~ business (i.e., interest payments/loan ~~amount, under our repurchase agreements was 22.8%~~funding obligations). ~~There have been no significant fluctuations in haircuts across asset classes on our repurchase facilities.~~

Cash, Cash Equivalents and Restricted Cash

We held cash, cash equivalents and restricted cash of $622.2 million at March 31, 2020, of which $358.4 million was unrestricted cash and cash equivalents and $263.9 million was restricted cash. We held cash, cash equivalents and restricted cash of $355.7 million at December 31, 2019, of which $58.2 million was unrestricted cash and cash equivalents and $297.6 million was restricted cash.

Revolving Credit Facility

The Company’s revolving credit facility (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. On ~~January 15,~~November 25, 2019, the Company ~~extended the maturity date of~~amended the Revolving Credit Facility to ~~February 11, 2020. The Company has~~add two additional one-year extension options, ~~to extend~~extending the final maturity date, including all extension options, to February ~~2023. Interest on~~2025. The amendment also provided for a reduction in the ~~Revolving Credit Facility is~~interest rate to one-month LIBOR plus ~~3.25% per annum payable monthly~~3.00% on Eurodollar advances upon the upgrade of the Company’s credit ratings, which occurred in ~~arrears.~~January 2020.

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.

FHLB Financing

Mortgage Loan Financing

We generally finance our real estate using long-term non-recourse mortgage financing. During the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we executed ~~nine~~five term debt agreements to finance real estate. ~~Our total portfolio~~All of our mortgage loan financings ~~are~~have fixed ~~rate financing at~~ rates ranging from ~~4.25% to~~3.75% - 6.75%, ~~maturing~~mature between 2020 - ~~2029~~2030 and ~~totaling $723.3 million and $743.9~~total $806.2 million at ~~September 30, 2019 and December~~March 31, ~~2018, respectively.~~2020. These long-term non-recourse mortgages include net unamortized premiums of $5.3 million ~~and $5.8 million~~ at ~~September 30, 2019 and December~~March 31, ~~2018, respectively,~~2020, 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 ~~$1.3 million and $0.8~~$0.3 million of premium amortization, which decreased interest expense, for the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively.~~March 31, 2020. The loans are collateralized by real estate and related lease intangibles, net, of ~~$902.7 million and $939.4~~$967.8 million as of ~~September 30, 2019~~March 31, 2020.

Hedging Strategies

Financing Strategy in Current Market Conditions

–

As part of the strategic financing, Koch also has the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00, which amount and price may be proportionally adjusted in the event of equity distributions, stock splits, reclassifications and other similar events (the “Purchase Right”). The Purchase Right will expire on December 31, ~~2018, respectively.~~2020. The Company expects that any such investment would additionally benefit its liquidity position.

~~CLO Debt~~Pursuant to the Purchase Right, Koch has agreed to a customary standstill until December 31, 2020 or the date on which Koch has exercised the Purchase Right in full, if earlier. In addition, Koch has agreed not to sell, transfer, assign, pledge, hypothecate, mortgage, dispose of or in any way encumber the shares acquired as a result of exercising the Purchase Right for a period of time following the exercise date. In connection with the issuance of the Purchase Right, the Company and Koch entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to Koch. (Refer to Note 18, Subsequent Events.)

–

Financial Covenants

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.

As the COVID-19 crisis evolved, management set out a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark to market financing. The Company’s cash and cash equivalents and restricted cash totaled $622.2 million as of March 31, 2020, including $358.4 million of unrestricted cash and cash equivalents to mitigate uncertainty in liquidity needs in light of current market conditions and $263.9 million of cash margin posted as collateral against securities repurchase financing obligations and for other borrowings as of March 31, 2020. Partly as a result of maintaining such cash levels, the Company was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders as of March 31, 2020 but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements) with various counterparties that totaled in excess of $830.0 million as of April 28, 2020.

We were in compliance with all remaining covenants as described in the Company’s Annual Report, as of March 31, 2020.

Results of Operations

Three months ended March 31, 2020 compared to the three months ended March 31, 2019

The ~~Company completed CLO issuances~~following table sets forth information regarding our consolidated results of operations ($ in thousands, except per share data):



	Three Months Ended March 31,						2020 vs
	2020			2019			2019

Net interest income
Interest income	$	72,589		$	86,466		$	(13,877	)
Interest expense	51,401			51,248			153
Net interest income	21,188			35,218			(14,030		)
Provision for loan losses	26,581			300			26,281
Net interest income after provision for loan losses	(5,393		)	34,918			(40,311		)

Other income (loss)
Operating lease income	26,328			28,921			(2,593		)
Sale of loans, net	1,005			7,079			(6,074		)
Realized gain (loss) on securities	3,011			2,865			146
Unrealized gain (loss) on equity securities	(533		)	2,078			(2,611		)
Unrealized gain (loss) on Agency interest-only securities	76			11			65
Realized gain (loss) on sale of real estate, net	10,529			4			10,525
Impairment of real estate	—			(1,350		)	1,350
Fee and other income	1,519			4,685			(3,166		)
Net result from derivative transactions	(15,435		)	(11,034		)	(4,401		)
Earnings (loss) from investment in unconsolidated joint ventures	441			959			(518		)
Gain (loss) on extinguishment/defeasance of debt	2,061			(1,070		)	3,131
Total other income (loss)	29,002			33,148			(4,146		)
Costs and expenses
Salaries and employee benefits	17,021			23,574			(6,553		)
Operating expenses	5,794			5,403			391
Real estate operating expenses	7,948			5,474			2,474
Fee expense	1,439			1,712			(273		)
Depreciation and amortization	10,009			10,227			(218		)
Total costs and expenses	42,211			46,390			(4,179		)
Income (loss) before taxes	(18,602		)	21,676			(40,278		)
Income tax expense (benefit)	(4,541		)	(2,854		)	(1,687		)
Net income (loss)	$	(14,061	)	$	24,530		$	(38,591	)

Investment Overview

Investment activity in the ~~two~~three months ended March 31, 2020 focused on loan, security and real estate activities. We originated and funded $526.7 million in principal value of commercial mortgage loans, which was offset by $189.4 million of sales and $118.6 million of principal repayments in the three months ended March 31, 2020. We acquired $438.2 million of new securities, which was offset by $107.5 million of sales and $43.6 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $209.3 million during the three months ended March 31, 2020. We also invested $27.8 million in real estate, which included $21.5 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of $30.1 million.

Investment activity in the three months ended March 31, 2019 focused on loan, security and real estate activities. We originated and funded $399.7 million in principal value of commercial mortgage loans, which was offset by $159.4 million of sales and $245.8 million of principal repayments in the three months ended March 31, 2019. We acquired $432.9 million of new securities, which was partially offset by $214.7 million of sales and $24.2 million of amortization in the portfolio, which partially contributed to a net increase in our securities portfolio of $209.0 million during the three months ended March 31, 2019. We also invested $20.6 million in real estate and received proceeds from the sale of real estate of $1.7 million.

Operating Overview

an increase in income tax expense (benefit) of ($1.7 million) compared to the prior year, primarily attributable to a decrease in forecasted GAAP income in our TRSs.

Income (Loss) Before Taxes

Income (loss) before taxes totaled $(18.6) million for the three months ended March 31, 2020, compared to $21.7 million for the three months ended March 31, 2019. The significant components of the $40.3 million decrease in income (loss) before taxes are described ~~below.~~in the first four bullet points under operating overview above.

Core Earnings

Net Interest Income

As of March 31, 2020, the weighted average yield on our mortgage loan receivables was 6.7%, compared to 7.6% as of March 31, 2019 as the weighted average yield on new loans originated was lower than the weighted average yield on loans that were securitized or paid off. As of March 31, 2020, the weighted average interest rate on borrowings against our mortgage loan receivables was 2.6%, compared to 4.1% as of March 31, 2019. The decrease in the rate on borrowings against our mortgage loan receivables from March 31, 2019 to March 31, 2020 was primarily due to lower prevailing market borrowing rates. As of March 31, 2020, we had outstanding borrowings secured by our mortgage loan receivables equal to 31.9% of the carrying value of our mortgage loan receivables, compared to 44.6% as of March 31, 2019.

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 March 31, 2020, the weighted average interest rate on mortgage borrowings against our real estate was 4.9%, compared to 5.1% as of March 31, 2019. As of March 31, 2020, we had outstanding borrowings secured by our real estate equal to 77.0% of the carrying value of our real estate, compared to 73.5% as of March 31, 2019.

Provision for Loan Losses

In compliance with the new CECL reporting requirements, adopted on January 1, 2020, the Company has supplemented the existing credit monitoring and management processes with additional processes to support the calculation of the CECL reserves. Based on the Company’s process, at adoption, on January 1, 2020, the Company recorded a CECL Reserve of $11.6 million, which equated to 0.36% of $3.2 billion carrying value of its held for investment loan portfolio. This reserve excluded three loans that previously had an aggregate of $14.7 million of asset-specific reserves and a carrying value of $39.8 million as of January 1, 2020. Upon adoption, the aggregated CECL Reserve reduced total shareholder’s equity by $5.8 million (or approximately $0.05 of book value per share of common stock). As of March 31, 2020, the Company recorded additional CECL reserves of $18.6 million for a total CECL reserve of ~~$117.8~~$30.2 million. This excludes four loans that previously had an aggregate of $20.7 million of asset-specific reserves and a carrying value of $56.4 million as of March 31, 2020. The change of $18.6 million in the quarter is reflected as an increase of reserve to provision expense of $18.0 million, and ~~$601.5~~an increase in reserve on unfunded commitments of $0.6 million. These increases are primarily due to the update of the macro economic assumptions used in the Company’s CECL evaluation in the current quarter to reflect a recessionary macro economic scenario instead of the more stable “Baseline” scenario from the Federal Reserve that was utilized in the January 1, 2020 CECL reserve analysis. In addition to the CECL reserve, the Company determined that an asset-specific reserve of $8.0 million was required relating to two of ~~floating rate, non-recourse CLO debt included~~the Company’s loans for the three months ended March 31, 2019. For additional information, refer to “Allowance for Loan Losses and Non-Accrual Status” in ~~debt obligations on its~~Note 3, Mortgage Loan Receivables to the consolidated ~~balance sheets as~~financial statements.

We determined that a provision expense for loan losses of ~~September 30, 2019~~$0.3 million was required for the three months ended March 31, 2019. The provision consisted of a portfolio-based, general reserve of $0.3 million for the expected losses over the remaining portfolio of mortgage loan receivables held for investment, and ~~December 31, 2018, respectively. Unamortized debt issuance costs~~no asset-specific reserve.

Operating Lease Income

The decrease of ~~$0.4 million and~~ $2.6 million in operating lease income was primarily attributable to income related to a one time lease termination payment received in 2019. This decrease was partially offset by income on properties acquired in 2020 and a full period of operations on properties acquired in 2019. Tenant recoveries are included in ~~CLO debt~~operating lease income.

Sales of Loans, Net

Income (loss) from sales of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income from sales of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the three months ended March 31, 2020, we sold/transferred 20 loans with an aggregate outstanding principal balance of $185.3 million. In the three months ended March 31, 2019, we sold /transferred 14 loans with an aggregate outstanding principal balance of $169.7 million. During the three months ended March 31, 2020, we recorded $7.6 million of realized losses on loans related to lower of cost or market adjustments. During the three months ended March 31, 2019 we recorded no 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 $6.1 million income (loss) from sale of ~~September 30, 2019 and December 31, 2018, respectively. As~~loans, net of ~~September 30, 2019, the CLO debt has interest rates of 3.4% to 5.62% (with a weighted average of 4.97%). As of September 30, 2019, collateral~~hedging for the ~~CLO debt comprised $274.1~~three months ended March 31, 2020, compared to $5.9 million income (loss) from sale of ~~first mortgage commercial mortgage real estate loans. In October 2019,~~loans, net of hedging for the ~~Company redeemed all outstanding debt obligations~~three months ended March 31, 2019. The $0.3 million increase was predominantly due to an increase in the profit margin on sales of 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 loans, net, a non-GAAP financial measure, represents the portion of income from sales of loans, net related to the ~~two CLO transactions.~~sale of loans into securitization trusts. See “—Reconciliation of Non-GAAP Financial Measures” for our definition of income from sale of loans, net of hedging and a reconciliation to income (loss) from sale of loans, net.

Realized Gain (Loss) on Securities

~~On October 17, 2017,~~Unrealized Gain (Loss) on Equity Securities

Unrealized gain (loss) on equity securities represented a ~~consolidated subsidiary~~loss of $0.5 million for the three months ended March 31, 2020, compared to $2.1 million for the three months ended March 31, 2019. 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

The positive change of $0.1 million in unrealized gain (loss) on Agency interest-only securities was due to change in fair value of the ~~Company consummated~~securities.

Realized Gain (Loss) on Sale of Real Estate, Net

The increase of $10.5 million in realized gain (loss) on sale of real estate, net was primarily 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~~result of the ~~Contributed Loans have future funding components that were not contributed to the CLO~~commercial real estate 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~~residential condominium sales discussed below.

During the three months ended March 31, ~~2017, the Company~~2020, we sold ~~a participating interest~~eight diversified commercial real estate properties resulting in a ~~first mortgage loan receivable~~net gain (loss) on sale of $10.5 million. During the three months ended March 31, 2019, we sold no diversified commercial real estate properties.

Impairment of Real Estate

Impairment of real estate of $1.4 million for the three months ended March 31, 2019 is attributable to a ~~third party. The sales proceeds~~single-tenant two-story office building in Wayne, NJ. See Note 5, Real Estate and Related Lease Intangibles, Net for further detail. There was no impairment of ~~$4.0 million were considered non-recourse secured borrowings~~real estate for the three months ended March 31, 2020.

Fee and ~~were recognized in debt obligations~~Other Income

We generate fee and other income from origination fees, exit fees and other fees on the ~~Company’s consolidated balance sheets with~~loans we originate and in which we invest, unrealized gains (losses) on our investment in mutual fund and dividend income on our investment in FHLB stock and equity securities. The $3.2 million decrease in fee and other income year-over-year was primarily due to a decrease in exit fees and an unrealized loss on our investment in the Ladder Select Bond Fund (the “Fund”), a mutual fund.

Net Result from Derivative Transactions

Net result from derivative transactions represented a loss of $15.4 million for the three months ended March 31, 2020, which was comprised of an unrealized gain of $0.4 million and a realized loss of $15.8 million, compared to a loss of $11.0 million for the three months ended March 31, 2019, which was comprised of an unrealized gain of $2.5 million ~~outstanding as~~and a realized loss of ~~December 31, 2018. There~~$13.5 million, resulting in a negative change of $4.4 million. The hedge positions were ~~no non-recourse secured borrowings recognized~~related to fixed rate conduit loans and securities investments. The derivative positions that generated these results were a combination of interest rate futures that we employed in ~~debt obligations~~an effort to hedge the interest rate risk on the ~~Company’s consolidated balance sheets as~~financing of ~~September 30, 2019, as~~our fixed rate assets and the ~~loan matured and~~net interest income we earn against the impact of changes in interest rates. The loss in 2020 was ~~repaid~~primarily related to movement in interest rates during the three months ended ~~June 30, 2019.~~March 31, 2020. The ~~Company recorded $0.2 million~~total net result from derivative transactions is composed of hedging interest expense, ~~for~~realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the ~~nine months ended September 30, 2019. The Company recorded $0.1~~fair value of asset hedges.

Earnings (Loss) from Investment in Unconsolidated Joint Ventures

Earnings (loss) from our investment in Grace Lake JV totaled $0.2 million and $0.4 million ~~of interest expense~~ for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2020 and 2019, respectively. Earnings (loss) from our investment in 24 Second Avenue totaled $0.3 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively. See Note 6, Investment in and Advances to Unconsolidated Joint Ventures for further detail.

Gain (Loss) on Extinguishment/Defeasance of Debt

~~FHLB Financing~~

~~On July 11, 2012, Tuebor became~~There was a ~~member~~$2.1 million gain (loss) on extinguishment/defeasance of the FHLB. As of September 30, 2019, Tuebor had $1.1 billion of borrowings outstanding (with an additional $869.3 million of committed term financing available from the FHLB), with terms of overnight to 5.0 years, interest rates of 1.47% to 2.95%, and advance rates of 61.0% to 95.7% of the collateral. As of September 30, 2019, collateraldebt totaled for the borrowings was comprised of $721.5 million of CMBS and U.S. Agency Securities and $689.5 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.2 billion for the ninethree months ended ~~September 30, 2019. On December 6, 2017, Tuebor’s advance limit was updated by~~March 31, 2020. During 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~~three months ended March 31, 2020, the ~~Set Dollar Limit will be $1.5 billion. Beginning January 1, 2021 through February 19, 2021,~~Company retired $19.2 million of principal of the ~~Set Dollar Limit will be $750.0 million. Tuebor is well-positioned to meet its obligations and pay down its advances in accordance~~2027 Notes for a repurchase price of $17.2 million, recognizing a $1.7 million net gain on extinguishment of debt after recognizing $(0.3) million of unamortized debt issuance costs associated with the ~~scheduled reduction in~~retired debt, 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, 2018, Tuebor had $1.3 billion of borrowings outstanding (with an additional $647.5~~Company retired $4.1 million of ~~committed term financing available from the FHLB), with terms~~principal of overnight to 5.75 years, interest rates of 1.18% to 3.01%, and advance rates of 56.4% to 95.2% of the collateral. As of December 31, 2018, collateral for the borrowings was comprised of $1.0 billion of CMBS and U.S. Agency Securities and $637.2 million of first mortgage commercial real estate loans. The weighted-average borrowings outstanding were $1.3 billion for the nine months ended December 31, 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 September 30, 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 22.1% of the Company’s outstanding debt obligations as of September 30, 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.

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, $1.9 billion of the member’s capital was restricted from transfer via dividend to Tuebor’s parent without prior approval of state insurance regulators at September 30, 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~~for a repurchase price of $4.0 million, recognizing a $5.8 thousand net gain on ~~a joint and several basis. LCFC is a 100% owned finance subsidiary~~extinguishment of ~~Series TRS~~debt after recognizing $(39.9) thousand 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 September 30, 2019, the Company has a 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. Unamortizedunamortized debt issuance costs ~~of $9.1 million~~associated with the retired debt, and ~~$11.2 million are included in senior unsecured notes as of September 30, 2019 and December 31, 2018, respectively.~~

~~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~~$1.0 million of principal of the 2021 Notes for a repurchase price of ~~$28.2~~$1.0 million, recognizing a ~~$5.1 million~~$1.8 thousand net gain on extinguishment of debt after recognizing ~~$(0.4) million~~$(3.2) thousand of unamortized debt issuance costs associated with the retired debt. AsThere was a $(1.1) million gain (loss) on extinguishment/defeasance of ~~September 30,~~debt for the three months ended March 31, 2019. During the three months ended March 31, 2019, the ~~remaining $266.2~~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.

Salaries and Employee Benefits

Salaries and employee benefits totaled $17.0 million for the three months ended March 31, 2020, compared to $23.6 million for the three months ended March 31, 2019. Salaries and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of $6.6 million in ~~aggregate principal amount~~compensation expense was primarily attributable to the fact that the Company recorded no compensation expense related to bonuses due to the significant market disruption caused by the COVID-19 pandemic and the substantial economic uncertainty present in the commercial real estate market and overall economy during the three months ended March 31, 2020.

Operating Expenses

Real Estate Operating Expenses

Fee Expense

Fee expense is ~~due August 1, 2021.~~comprised primarily of custodian fees, financing costs and servicing fees related to loans. The decrease of $0.3 million in fee expense was primarily attributable to an increase in legal fees in the three months ended March 31, 2019 and a decrease in loan repurchase financing underwriting costs in the three months ended March 31, 2020 compared to the same period in 2019.

Depreciation and Amortization

The $0.2 million decrease in depreciation and amortization was primarily attributable to the timing the real estate sales during each quarter.

Income Tax (Benefit) Expense

~~2022 Notes~~

Liquidity and Capital Resources

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 asset composition and capital structure; and our targeted liquidity profile and risks relating to our funding needs.

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,To ensure that Ladder Capital can effectively address the ~~2022 Notes are redeemable at the option~~funding needs 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,~~on a timely basis, we maintain a diverse array of liquidity sources including (1) cash and cash equivalents; (2) cash generated from operations; (3) proceeds from the ~~board~~issuance of the ~~directors authorized~~unsecured bonds; (4) borrowings under repurchase agreements; (5) principal repayments on investments including mortgage loans and securities; (6) borrowings under our revolving credit facility; (7) proceeds from securitizations and sales of loans; (8) proceeds from the ~~Company~~sale of securities; (9) proceeds from the sale of real estate; (10) proceeds from the issuance of CLO debt; (11) a significant and financeable unencumbered asset base; and (12) proceeds from the issuance of equity capital. We use these funding sources to ~~repurchase any~~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 ~~all~~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.

Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds, (2) borrowings on both a short- and long-term committed basis, made by Tuebor from ~~time~~the FHLB, (3) long term non-recourse mortgage financing, (4) committed secured funding provided by banks, and (5) uncommitted secured funding sources, including asset repurchase agreements with a number of banks.

In the future, we may also use other sources of financing to ~~time without~~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 ~~approval.~~equity capital or issue debt securities in order to fund our future investments.

~~2025 Notes~~Refer to our “Financing Strategy in the Current Market Conditions” and “Financial Covenants” for further disclosure surrounding management’s actions under the current market conditions related to the COVID-19 pandemic. Refer to “Our Financing Strategies” for further disclosure of our diverse financing sources and, for a summary of our financial obligations, refer to the Contractual Obligations table below. All of our existing financial obligations due within the following year can be extended for one or more additional years at our discretion or repaid at maturity using existing facilities or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).

~~On September 25, 2017, LCFH issued $400.0~~Cash, Cash Equivalents and Restricted Cash

Cash Flows

The following table provides a breakdown of the net change in ~~aggregate principal amount of 5.250% senior notes due October 1, 2025 (the “2025 Notes”). The 2025 Notes require interest payments semi-annually~~our cash, cash equivalents, and restricted cash ($ in thousands):



	Three Months Ended March 31,
	2020			2019

Net cash provided by (used in) operating activities	$	(41,092	)	$	(22,034	)
Net cash provided by (used in) investing activities	(477,465		)	(140,139		)
Net cash provided by (used in) financing activities	785,032			188,956
Net increase (decrease) in cash, cash equivalents and restricted cash	$	266,475		$	26,783

We experienced a net increase in cash, cash equivalents and restricted cash of $266.5 million for the three months ended March 31, 2020, compared to a net increase in ~~arrears on April 1~~cash, cash equivalents and ~~October 1~~restricted cash of ~~each year, beginning on April 1, 2018. The 2025 Notes will mature on October 1, 2025. The 2025 Notes are unsecured~~$26.8 million for the three months ended March 31, 2019. During the three months ended March 31, 2020, we received (i) $118.6 million of proceeds from repayment of mortgage loans receivable, (ii) $189.4 million of proceeds from the sales of loans, (iii) $106.4 million of proceeds from the sales of real estate securities, (iv) $43.6 million of repayment of real estate securities and ~~are subject to an unencumbered assets to unsecured~~(v) $852.0 million net borrowings under 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.obligations.

Unencumbered Assets

As of March 31, 2020, we held unencumbered loans of $1.9 billion, unencumbered securities of $43.5 million, unencumbered real estate of $79.6 million and $201.6 million of other assets not secured by any portion of secured indebtedness.

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 ~~September 30, 2019,~~March 31, 2020, the Company has a remaining amount available for repurchase of ~~$41.1~~$39.9 million, which represents ~~2.2%~~7.8% in the aggregate of its outstanding Class A common stock, based on the closing price of ~~$17.27~~$4.74 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 nine months ended September 30, 2019 and 2018 ($ in thousands):~~

~~(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~~income. Consistent with the guidance provided in Revenue Procedure 2017-45, we have paid several of our past dividends in a combination of cash and ~~for 2015, we had~~stock and may pay future distributions in such a manner; however, the REIT distribution requirements limit our ability to ~~distribute our undistributed accumulated~~retain earnings and ~~profits attributable~~thereby replenish or increase capital for operations. We believe that our significant capital resources and access to ~~taxable periods prior~~financing will provide us with financial flexibility at levels sufficient to ~~January 1, 2015 (the “E&P Distribution”). The Company made the E&P Distribution on January 21, 2016~~meet current and ~~has paid and in the future intend to declare regular quarterly~~anticipated capital requirements, including funding new investment opportunities, paying distributions to our shareholders ~~in an amount approximating~~and servicing our ~~net taxable income.~~debt obligations. Refer to Item 1—“Financial Statements—Note 10, Equity Structure and Accounts” for disclosure of dividends declared.

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. Refer to Item 1—“Financial Statements—Note ~~11,~~10, Equity Structure and ~~Accounts~~Accounts” for tax treatment of 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~~Our captive insurance company subsidiary, Tuebor, is subject to state regulations which require that dividends ~~declared (on~~may only be made with regulatory approval. Largely as a ~~per share basis)~~result of ~~Class A common stock for the nine months ended September 30, 2019~~this restriction, $2.0 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 March 31, 2020. To facilitate intercompany cash funding of operations and ~~2018:~~investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements.

~~Principal Repayments on Investments~~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, $0.3 million of LCS’s member’s capital was restricted from transfer to LCS’s parent without prior approval of regulators at March 31, 2020.

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 $1.2 billion for the nine months ended September 30, 2019 and $756.7 million for the nine months ended September 30, 2018. Repayment of real estate securities provided net cash of $178.5 million for the nine months ended September 30, 2019 and $93.2 million for the nine months ended September 30, 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 $574.3 million of proceeds from sales of mortgage loans for the nine months ended September 30, 2019 and $926.9 million sales of mortgage loans for the nine months ended September 30, 2018.

~~Proceeds from the Sale of Securities~~

We invest in CMBS, U.S. Agency Securities, corporate bonds and equity securities. Proceeds from sales of securities provided net cash of $534.2 million for the nine months ended September 30, 2019 and $306.1 million for the nine months ended September 30, 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 $10.8 million for the nine months ended September 30, 2019 and $153.4 million for the nine months ended September 30, 2018.

~~Proceeds from the Issuance of Equity~~

~~For the nine months ended September 30, 2019 and 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

Contractual Obligations

Contractual obligations as of ~~September 30, 2019~~March 31, 2020 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	$	1,586,058	(1)	$	1,223,774	$	519,246	$	369,924	$	3,699,002	$	2,267,843	(1)	$	387,405	$	567,312	$	313,336	$	3,535,896
Unsecured revolving credit facility												266,430		(1)	—		—		—		266,430
Senior unsecured notes	—			766,201		—		400,000		1,166,201		—			765,201		—		1,126,696		1,891,897
Interest payable(2)	123,167			158,852		44,805		31,500		358,324		144,991			180,093		106,008		84,750		515,842
Other funding obligations(3)	257,725			—		—		—		257,725		303,428			—		—		—		303,428
Payments pursuant to tax receivable agreement	104			208		208		1,039		1,559		104			208		208		1,039		1,559
Operating lease obligations	604			2,361		98		—		3,063		897			98		—		—		995
Total	$	1,967,658		$	2,151,396	$	564,357	$	802,463	$	5,485,874	$	2,983,693		$	1,333,005	$	673,528	$	1,525,821	$	6,516,047

(1) As more fully disclosed in Note 7, 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 ~~September 30, 2019~~March 31, 2020 to determine the future interest payment obligations. Represents amounts payable through contractual maturity, including short-term securities repurchase agreements.

(3) Comprised of our off-balance sheet unfunded commitment to provide additional first mortgage loan financing as of ~~September 30, 2019.~~March 31, 2020.

The ~~tables~~table above dodoes 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

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 ~~September 30, 2019,~~March 31, 2020, our off-balance sheet arrangements consisted of ~~$257.7~~$303.4 million of unfunded commitments of mortgage loan receivables held for investment, ~~all~~48% of which ~~was~~additional funds relate to ~~provide additional first mortgage loan financing.~~the occurrence of certain “good news” events, such as the owner concluding a lease agreement with a major tenant in the building or reaching some pre-determined net operating income. As of December 31, ~~2018,~~2019, our off-balance sheet arrangements consisted of ~~$379.8~~$286.5 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~~sheets. 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. As a result of the COVID-19 pandemic, the progress of capital expenditures, construction, and leasing is anticipated to be slower than otherwise expected, and the pace of future funding relating to these capital needs may be commensurately slower. These commitments are not reflected on ~~our~~the 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, ~~2018.~~2019.

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 fair value securities and passive interest in unconsolidated joint ventures; (iv) economic gains on ~~securitization transactions~~loan sales not recognized under GAAP accounting for which risk has substantially transferred during the period and the exclusion of resultant GAAP recognition of the related economics during the subsequent periods; (v) adjustment for CECL reserves; (vi) non-cash stock-based compensation; and ~~(vi)~~(vii) certain transactional items.

For core earnings, we include adjustments for ~~Economic Gains~~economic gains on ~~Securitization transactions~~loan sales 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/(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 fair 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 March 31,
		2019			2018			2019			2018				2020			2019

Income (loss) before taxes	Income (loss) before taxes	$	32,060		$	84,668		$	92,030		$	200,508		Income (loss) before taxes	$	(18,602	)	$	21,676
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures and operating partnership (GAAP)(1)		(71		)	(7,851		)	667			(16,155		)
Net (income) loss attributable to noncontrolling interest in consolidated joint ventures (GAAP)(1)														Net (income) loss attributable to noncontrolling interest in consolidated joint ventures (GAAP)(1)	(1,523		)	440
Our share of real estate depreciation, amortization and gain adjustments(2)(3)	Our share of real estate depreciation, amortization and gain adjustments(2)(3)	6,741			(12,435		)	18,999			2,398			Our share of real estate depreciation, amortization and gain adjustments(2)(3)	1,373			5,667
Adjustments for unrecognized derivative results(4)	Adjustments for unrecognized derivative results(4)	1,889			(3,614		)	13,191			(16,320		)	Adjustments for unrecognized derivative results(4)	17,590			9,115
Unrealized (gain) loss on fair value securities	Unrealized (gain) loss on fair value securities	(248		)	(142		)	(1,475		)	(456		)	Unrealized (gain) loss on fair value securities	1,512			(2,089		)
Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization		(168		)	7			(817		)	(530		)
Adjustment for economic gain on loan sales not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization														Adjustment for economic gain on loan sales not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization	(233		)	(3		)
Adjustment for CECL reserves														Adjustment for CECL reserves	18,581			—
Non-cash stock-based compensation	Non-cash stock-based compensation	3,918			2,763			19,383			8,186			Non-cash stock-based compensation	12,158			12,094
Core earnings	Core earnings	$	44,121		$	63,396		$	141,978		$	177,631		Core earnings	$	30,856		$	46,900

(1)

Includes $7$4 thousand and $8 thousand of net income ~~attributable to noncontrolling interest in consolidated joint ventures~~ which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three months ended ~~September 30, 2019~~March 31, 2020 and 2018, respectively. Includes $24 thousand and $23 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 nine months ended~~September 30,~~ 2019, ~~and~~ ~~2018,~~ respectively.

(2) The following is a reconciliation of GAAP depreciation and amortization to our share of real estate depreciation, amortization and gain adjustments presented in the computation of core earnings in the preceding table ($ in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Total GAAP depreciation and amortization $ 9,030
$ 10,417
$ 29,192
$ 31,896
Less: Depreciation and amortization related to non-rental property fixed assets (25 ) (18 ) (74 ) (56 )
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures (417 ) (1,076 ) (2,392 ) (2,447 )
Our share of real estate depreciation and amortization 8,588
9,323
26,726
29,393

Realized gain from accumulated depreciation and amortization on real estate sold (see below) (1,418 ) (22,066 ) (6,839 ) (27,553 )
Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold 41
653
83
1,844
Our share of accumulated depreciation and amortization on real estate sold (1,377 ) (21,413 ) (6,756 ) (25,709 )

Less: Operating lease income on above/below market lease intangible amortization (470 ) (345 ) (971 ) (1,286 )

Our share of real estate depreciation, amortization and gain adjustments $ 6,741
$ (12,435 ) $ 18,999
$ 2,398


(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 March 31,
															2020			2019

														Total GAAP depreciation and amortization	$	10,009		$	10,227
														Less: Depreciation and amortization related to non-rental property fixed assets	(25		)	(25		)
														Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization and unrecognized passive interest in unconsolidated joint ventures	(592		)	(906		)
														Our share of real estate depreciation and amortization	9,392			9,296

														Realized gain from accumulated depreciation and amortization on real estate sold (see below)	(9,639		)	(3,485		)
														Less: Non-controlling interest in consolidated joint ventures’ share of accumulated depreciation and amortization on real estate sold	2,146			—
														Our share of accumulated depreciation and amortization on real estate sold	(7,493		)	(3,485		)

														Less: Operating lease income on above/below market lease intangible amortization	(526		)	(144		)

														Our share of real estate depreciation, amortization and gain adjustments	$	1,373		$	5,667

	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):													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 March 31,
		2019			2018			2019			2018				2020			2019

	GAAP realized gain (loss) on sale of real estate, net	$	2,082		$	63,704		$	963		$	96,341		GAAP realized gain (loss) on sale of real estate, net	$	10,529		$	4
	Adjusted gain/loss on sale of real estate for purposes of core earnings	(705		)	$	(42,291	)	5,793			(70,632		)	Adjusted gain/loss on sale of real estate for purposes of core earnings	(3,036		)	$	3,481
	Our share of accumulated depreciation and amortization on real estate sold	$	1,377		$	21,413		$	6,756		$	25,709		Our share of accumulated depreciation and amortization on real estate sold	$	7,493		$	3,485

(3)	As more fully discussed in Note 5, Real Estate and Related Intangibles, Net, Note 7, Debt Obligations, Net and Note 15, Fair Value of Financial Instruments to the Company’s Consolidated Financial Statements for the three months ended March 31, 2019, the Company recognized $5.7 million of operating lease income from prepayment of a lease, a $1.1 million loss on extinguishment of debt and a $1.4 million impairment of real estate related to a single-tenant two-story office building in Wayne, NJ. This property was sold on May 1, 2019. For core earnings, the Company 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 nine months ended September 30, 2019.													As more fully discussed in Note 5, Real Estate and Related Intangibles, Net, Note 7, Debt Obligations, Net and Note 15, Fair Value of Financial Instruments to the Company’s Consolidated Financial Statements for the three months ended March 31, 2019, the Company recognized $5.7 million of operating lease income from prepayment of a lease, a $1.1 million loss on extinguishment of debt and a $1.4 million impairment of real estate related to a single-tenant two-story office building in Wayne, NJ. This property was sold on May 1, 2019. For core earnings, the Company 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 year ended December 31, 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):													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,							Three Months Ended March 31,
		2019			2018			2019			2018				2020			2019

	Net results from derivative transactions	$	(9,465	)	$	7,115		$	(35,956	)	$	29,156		Net results from derivative transactions	$	(15,435	)	$	(11,034	)
	Hedging interest expense	436			1,365			1,927			5,789			Hedging interest expense	532			(149		)
	Hedging realized result	7,140			(4,866		)	20,838			(18,625		)	Hedging realized result	(2,687		)	2,068
	Adjustments for unrecognized derivative results	$	(1,889	)	$	3,614		$	(13,191	)	$	16,320		Adjustments for unrecognized derivative results	$	(17,590	)	$	(9,115	)

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 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 loans, net to income from sales of securitized loans, net of hedging as well as core gain on sale of securitized loans ($ in thousands except for number of loans and securitizations):

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018

Number of loans 10
13
46
80
Face amount of loans sold into securitizations $ 140,673
$ 101,978
$ 548,125
$ 939,314
Number of securitizations 1
1
4
6

Income from sales of loans, net $ 11,247
$ 1,861
$ 38,589
$ 12,893
Realized losses on loans related to lower of cost or market adjustments —
—
—
463
Hedge gain/(loss) related to loans securitized(1) (5,039 ) 453
(15,371 ) 9,329
Income from sales of securitized loans, net of hedging 6,208
2,314
23,218
22,685
Adjustment for economic gain on securitization transactions not recognized under GAAP for which risk has been substantially transferred 357
265
483
232
Core gain on sale of securitized loans $ 6,565
$ 2,579
$ 23,701
$ 22,917


~~(1)~~	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,
2019 2018 2019 2018

Net results from derivative transactions $ (9,465 ) $ 7,115
$ (35,956 ) $ 29,156
Hedge gain/(loss) related to lending and securities positions 4,426
(6,662 ) 20,585
(19,827 )
Hedge gain/(loss) related to loans securitized $ (5,039 ) $ 453
$ (15,371 ) $ 9,329

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. (Refer to “Financing Strategy in Current Market Conditions” and “Financial Covenants” for further discussion about our compliance with covenants.)

Set forth below is an unaudited computation of adjusted leverage ($ in thousands):


	September 30, 2019			December 31, 2018			March 31, 2020		December 31, 2019

Debt obligations, net	$	4,860,687		$	4,452,574		$	5,681,020	$	4,859,873
Less: CLO debt~~(1)~~	(117,760		)	(601,543		)	—		—
Less: Liability for transfers not considered sales							—		—
Adjusted debt obligations	4,742,927			3,851,031			5,681,020		4,859,873

Total equity	1,639,250			1,643,635			1,500,827		1,638,977

Adjusted leverage	2.9			2.3			3.8		3.0


~~(1)~~	As more fully discussed in Note 7 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,
2019 2018 2019 2018

Interest expense $ (51,397 ) $ (51,476 ) $ (155,015 ) $ (144,606 )
Interest expense related to liability for transfers not considered sales(1) —
—
92
—
Net interest expense component of hedging activities(2) (436 ) (1,365 ) (1,927 ) (5,789 )
Cost of funds $ (51,833 ) $ (52,841 ) $ (156,850 ) $ (150,395 )

Interest income $ 82,251
$ 90,386
$ 254,040
$ 253,822
Interest income related to mortgage loans transferred but not considered sold(1) —
—
(92 ) —
Cost of funds (51,833 ) (52,841 ) (156,850 ) (150,395 )
Interest income, net of cost of funds $ 30,418
$ 37,545
$ 97,098
$ 103,427

(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 September 30, Nine Months Ended September 30,
2019 2018 2019 2018

(2) Net result from derivative transactions $ (9,465 ) $ 7,115
$ (35,956 ) $ 29,156
Hedging realized result 7,140
(4,866 ) 20,838
(18,625 )
Hedging unrecognized result 1,889
(3,614 ) 13,191
(16,320 )
Net interest expense component of hedging activities $ (436 ) $ (1,365 ) $ (1,927 ) $ (5,789 )

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of current market conditions resulting from the COVID-19 pandemic, refer to Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Part II, Item 1A. “Risk Factors”.

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 net interest income ~~stream~~includes interest from ~~loans~~both fixed and ~~securities is generally~~floating-rate debt. The percentage of the Company’s assets and liabilities bearing interest at fixed and floating rates may change over ~~the life of its assets, whereas it uses floating-rate~~time, and asset composition may differ materially from debt ~~to finance a significant portion of its investments.~~composition. 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 ~~September 30, 2019~~March 31, 2020 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 ~~September 30, 2019,~~March 31, 2020, 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%	$	(3,656	)	$	15,800		$	(6,635	)	$	15,105
Increase by 1.00%	13,311			(15,565		)	4,690			(15,125		)


(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~~COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in property renovations currently planned or underway. These negative conditions may persist into the future and impair borrowers’ ability to ~~varying degrees~~pay principal and interest due under our loan agreements. We maintain robust asset management relationships with our borrowers and have utilized these relationships to address the potential impacts of ~~credit risk in connection~~the COVID-19 pandemic on our loans secured by properties experiencing cash flow pressure, most significantly hospitality assets. Some of our borrowers have indicated that due to the impact of the COVID-19 pandemic, they will be unable to timely execute their business plans, have had to temporarily close their businesses, or have experienced other negative business consequences and have requested temporary interest deferral or forbearance, or other modifications of their loans. Accordingly, we have discussed with ~~its investments. The Company seeks to manage credit risk~~our borrowers potential near-term defensive loan modifications, which could include repurposing of reserves, temporary deferrals of interest, or performance test or covenant waivers on loans collateralized 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 approvaldirectly impacted by the ~~Risk~~COVID-19 pandemic, and ~~Underwriting Committee~~which would typically be coupled with an additional equity commitment and/or guaranty from sponsors.

Based on the limited loan modifications completed to date, we are encouraged by the tone of these conversations and our borrowers’ initial response to the ~~board~~COVID-19 pandemic’s impacts on their properties. We believe our loan sponsors are generally committed to supporting assets collateralizing our loans through additional equity investments. Our portfolio’s low weighted-average LTV of ~~directors.~~69.7% as of March 31, 2020 reflects significant equity value that our sponsors are motivated to protect through periods of cyclical disruption. While we believe the principal amounts of our loans are generally adequately protected by underlying collateral value, there is a risk that we will not realize the entire principal value of certain investments.

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.~~codes and rent regulations. 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 maintenance of unencumbered assets, 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 the COVID-19 crisis evolved, management set out a plan to mitigate uncertainty in financial markets by increasing liquidity and obtaining additional non-recourse and non-mark to market financing. The Company’s cash and cash equivalents and restricted cash totaled $622.2 million as of ~~September 30, 2019,~~March 31, 2020, including $358.4 million of unrestricted cash and cash equivalents to mitigate uncertainty in liquidity needs in light of current market conditions and $263.9 million of cash margin posted as collateral against securities repurchase financing obligations and for other borrowings as of March 31, 2020. Partly as a result of maintaining such cash levels, the Company ~~believes it~~ was not in compliance with its 3.5x maximum leverage covenant with certain of its lenders as of March 31, 2020 but had the benefit of a contractually provided 30-day cure period during which the Company cured such non-compliance by paying down debt (as defined in the relevant borrowing agreements) with various counterparties that totaled in excess of $830.0 million as of April 28, 2020.

We were in compliance with all ~~covenants.~~remaining covenants as described in the Company’s Annual Report, as of March 31, 2020.

Diversification Risk

The assets of the Company are concentrated in the commercial 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 commercial 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.

Capital Market Risks

The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets. U.S. financial markets, in particular, are experiencing limited liquidity, and forced selling by certain market participants to meet current obligations has put further downward pressure on asset prices. In reaction to these volatile and unpredictable market conditions, banks and other lenders have generally restricted lending activity and requested margin posting or repayments where applicable for secured loans collateralized by assets with depressed valuations. Ladder has satisfied all margin calls on a timely basis.

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 ~~September 30, 2019.~~March 31, 2020. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, as of ~~September 30, 2019,~~March 31, 2020, 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 changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended ~~September 30, 2019~~March 31, 2020 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 ~~September 30, 2019~~March 31, 2020 to the risk factors in Item 1A. in our Annual ~~Report.~~Report, except as set forth below:

The outbreak of the novel coronavirus (COVID-19) has had, and will continue to have for the foreseeable future, an adverse effect on our business, financial condition and results of operations, and we are unable to predict the full extent or nature of these impacts at this time.

In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization has declared the COVID-19 outbreak a pandemic and public health emergency of international concern. Public health officials have recommended and mandated precautions to mitigate the spread of COVID-19, including the closing of non-essential businesses, prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. As the COVID-19 pandemic develops, governments, businesses and other third parties will likely continue to implement restrictions or policies that adversely impact consumer spending, global capital markets, the global economy and stock prices.

The continued spread of COVID-19 globally has had, and is likely to continue to have for the foreseeable future, a material adverse effect on the global and U.S. economies as a whole, as well as on the states and cities where we own properties or have properties as collateral. A prolonged economic downturn could adversely and materially affect our business, results of operations and financial condition.

The COVID-19 outbreak is negatively impacting almost every industry, whether directly or indirectly. Businesses have been required by the local, state or federal authorities to cease or reduce operations, thereby preventing them from generating revenue. The extent of the effects will depend, in part, upon the duration of the economic shutdown. The effects on commercial real estate have varied by sector and market. Some properties securing our loans to borrowers or owned by us, including hotels and certain retail properties, are likely to experience material disruptions to their businesses from the end consumer and underlying property tenants. These disruptions could lead to a material decline in operating cash flows from these assets, and could impact our borrowers’ ability to pay debt service or property expenses or repay our loans to them at maturity or affect our ability to service our own borrowings secured by these loans or properties. Further, long-term structural changes may affect the value of certain businesses and properties. For example, restaurants have been required to reduce capacity and other businesses have moved to, and may continue, remote work arrangements, which may reduce the demand for certain types of office space.

In addition, the credit markets continue to experience significant disruptions and reduced liquidity, which may impact our ability to access capital on favorable terms, or at all. Our ability to execute on one or more of our business models, such as the origination of loans for securitization, may be adversely affected by the underlying economic and credit market disruptions. In addition, the effects of the outbreak on credit markets, tenants and borrowers have negatively affected, and may continue to negatively affect, the prices of securities that we hold, which resulted in, and may in the future result in, margin calls under our repurchase agreements. To the extent we are not able to satisfy such margin calls, it would result in a default under such repurchase agreements and could result in a default under our other debt instruments, including our senior secured credit agreement or the indentures governing our notes.

The ultimate extent of the COVID-19 outbreak and its impact on our business, global markets and overall economic activity are unknown and impossible to predict with certainty at this time.

Item 2. Unregistered ~~Sale~~Sales of Equity Securities and Use of Proceeds

Stock Repurchases

The following table is a summary of the Company’s repurchase activity of its Class A common stock during the three months ended ~~September 30, 2019~~March 31, 2020 ($ in thousands, except per share data and average price paid per share):

													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		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

July 1, 2019 - July 31, 2019	—	$	—	—	$	41,132
August 1, 2019 - August 31, 2019	—	—		—	41,132
September 1, 2019 - September 30, 2019	—	—		—	41,132
January 1, 2020 - January 31, 2020							—	$	—	—	$	41,132
February 1, 2020 - February 29, 2020							—	—		—	41,132
March 1, 2020 - March 31, 2020							146,153	8.22		146,153	39,931

Total	—	$	—	—	$	41,132	146,153	$	8.22	146,153	$	39,931


(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



EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION
4.1		Indenture for the 2027 Notes, dated January 30, 2020, among Ladder Capital Finance Holdings LLLP, Ladder Capital Finance Corporation, the guarantors party thereto and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on January 30, 2020)
4.2		Purchase Right, dated as of April 30, 2020, by and among Ladder Capital Corp and Beaverhead Capital, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on May 4, 2020)
4.3		Registration Rights Agreement, dated as of April 30, 2020, by and among Ladder Capital Corp and Beaverhead Capital, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on May 4, 2020)
31.1		Certification of Brian Harris pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Marc Fox pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Brian Harris pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Marc Fox pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
~~101.INS~~101		~~XBRL Instance Document - the instance document does not appear in the~~ Interactive Data ~~File because its XBRL tags are embedded within~~Files Pursuant to Rule 405 of Regulation S-T: (i) the ~~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, formatted~~Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019; (ii) the Consolidated Statements of Income for the three months ended March 31, 2020 and 2019; (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019; (iv) the Consolidated Statement of Changes in ~~iXBRL~~Equity for the three months ended March 31, 2020 and ~~contained in Exhibit 101~~2019; (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019; and (vi) the Notes to the Consolidated Financial Statements.

* 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.



	LADDER CAPITAL CORP
	(Registrant)


Date: ~~November 7, 2019~~May 5, 2020	By:	/s/ BRIAN HARRIS
		Brian Harris
		Chief Executive Officer

Date: ~~November 7, 2019~~May 5, 2020	By:	/s/ MARC FOX
		Marc Fox
		Chief Financial Officer

~~133~~97



	Purchase Price Allocation

Land	$	4,969
Building	25,571
Intangibles	2,309
Below Market Lease Intangibles	(745		)
Total purchase price	$	32,104



	September 30, 2019		December 31, 2018
	Notes 3 & 7		Notes 3 & 7

Mortgage loan receivables held for investment, net, at amortized cost	$	274,149	$	710,502
Accrued interest receivable	1,363		3,921
Other assets(1)	—		81,390
Total assets	$	275,512	$	795,813

Senior and unsecured debt obligations	$	117,760	$	607,440
Accrued expenses	306		1,471
Other liabilities	2		2
Total liabilities	118,068		608,913

Net equity in VIEs (eliminated in consolidation)	157,444		186,900
Total equity	157,444		186,900

Total liabilities and equity	$	275,512	$	795,813



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
Sullivan, IL	09/13/19	$	1,496	2019	5/31/34	10,566	$	1,577	$	—	$	1,577	$	65	100.0	%
Becker, MN	09/13/19	1,185		2019	7/31/34	9,002	1,244		—		1,244		52		100.0	%
Adrian, MO	09/13/19	1,138		2019	7/31/34	9,026	1,209		—		1,209		49		100.0	%
Chillicothe, IL	09/05/19	1,445		2019	6/30/34	10,640	1,516		—		1,516		91		100.0	%
Poseyville, IN	08/13/19	1,220		2019	5/31/34	10,566	1,297		—		1,297		88		100.0	%
Dexter, MO	07/09/19	1,150		2019	4/30/34	9,002	1,201		—		1,201		83		100.0	%
Hubbard Lake, MI	07/09/19	1,199		2019	4/30/34	9,026	1,252		—		1,252		87		100.0	%
Fayette, MO	06/26/19	1,423		2019	1/31/34	10,566	1,483		—		1,483		103		100.0	%
Centralia, IL	04/25/19	1,242		2019	2/28/34	9,002	1,290		—		1,290		90		100.0	%
Trenton, MO	02/26/19	1,164		2019	12/31/33	9,100	1,206		—		1,206		84		100.0	%
Houghton Lake, MI	02/26/19	1,242		2018	12/31/33	9,100	1,283		970		313		90		100.0	%



	Three Months Ended September 30,						2019 vs
	2019			2018			2018

Net interest income
Interest income	$	82,251		$	90,386		$	(8,135	)
Interest expense	51,397			51,476			(79		)
Net interest income	30,854			38,910			(8,056		)
Provision for loan losses	—			10,300			(10,300		)
Net interest income after provision for loan losses	30,854			28,610			2,244

Other income (loss)
Operating lease income	24,405			24,997			(592		)
Sale of loans, net	11,247			1,861			9,386
Realized gain (loss) on securities	3,396			(2,554		)	5,950
Unrealized gain (loss) on equity securities	254			—			254
Unrealized gain (loss) on Agency interest-only securities	16			142			(126		)
Realized gain (loss) on sale of real estate, net	2,082			63,704			(61,622		)
Fee and other income	5,166			4,851			315
Net result from derivative transactions	(9,465		)	7,115			(16,580		)
Earnings (loss) from investment in unconsolidated joint ventures	1,094			401			693
Gain (loss) on extinguishment/defeasance of debt	—			(4,323		)	4,323
Total other income (loss)	38,195			96,194			(57,999		)
Costs and expenses
Salaries and employee benefits	14,319			15,792			(1,473		)
Operating expenses	5,314			5,464			(150		)
Real estate operating expenses	6,270			7,152			(882		)
Fee expense	2,056			1,311			745
Depreciation and amortization	9,030			10,417			(1,387		)
Total costs and expenses	36,989			40,136			(3,147		)
Income (loss) before taxes	32,060			84,668			(52,608		)
Income tax expense (benefit)	1,112			1,204			(92		)
Net income (loss)	30,948			83,464			(52,516		)



	September 30, 2019		December 31, 2018

Committed loan repurchase facilities	$	760,521	$	497,531
Committed securities repurchase facility	85,457		—
Uncommitted securities repurchase facilities	940,070		166,154
Total repurchase facilities	1,786,048		663,685
Revolving credit facility	—		—
Mortgage loan financing(1)	723,313		743,902
CLO debt(2)	117,760		601,543
Participation financing - mortgage loan receivable	—		2,453
Borrowings from the FHLB	1,076,449		1,286,000
Senior unsecured notes(3)	1,157,117		1,154,991
Total debt obligations, net	$	4,860,687	$	4,452,574



	Collateralized Borrowings Under Repurchase Agreements (1)
Quarter Ended	Quarter-end balance		Average quarterly balance		Maximum balance of any month-end

September 30, 2016	$	1,458,327	$	1,393,122	$	1,468,013
December 31, 2016	1,107,185		1,397,061		1,555,941
March 31, 2017	1,039,356		1,073,893		1,119,863
June 30, 2017	1,149,605		1,264,948		1,373,953
September 30, 2017	913,137		1,126,201		1,301,334
December 31, 2017	473,410		739,721		892,081
March 31, 2018	754,377		721,139		773,383
June 30, 2018	819,962		787,568		819,962
September 30, 2018	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
September 30, 2019	1,786,048		1,599,183		1,786,048



(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 September 30,						Nine Months Ended September 30,
		2019			2018			2019			2018

(2)	Net result from derivative transactions	$	(9,465	)	$	7,115		$	(35,956	)	$	29,156
	Hedging realized result	7,140			(4,866		)	20,838			(18,625		)
	Hedging unrecognized result	1,889			(3,614		)	13,191			(16,320		)
	Net interest expense component of hedging activities	$	(436	)	$	(1,365	)	$	(1,927	)	$	(5,789	)