Business Wire | Jul 30, 2020 04:15PM EDT

Ladder Capital Corp Reports Results for the Quarter Ended June 30, 2020

Jul. 30, 2020

NEW YORK--(BUSINESS WIRE)--Jul. 30, 2020--Ladder Capital Corp (NYSE: LADR) ("we," "Ladder," or the "Company") today announced operating results for the quarter ended June 30, 2020. GAAP loss before taxes for the three months ended June 30, 2020 was $5.7 million, and diluted loss per share was $0.04. Core earnings was $12.8 million, or $0.12 of core EPS. After-tax GAAP return on average equity was (1.2)% and after-tax core return on average equity was 4.0%.

"In the second quarter, we met our goal of strengthening our balance sheet. We accomplished this by reducing our debt by $727.5 million and finishing the quarter with $826.1 million in cash," said Brian Harris, Ladder's Chief Executive Officer. "We believe we are now well-positioned to take advantage of the opportunities that are beginning to present themselves."

Supplemental

The Company issued a supplemental presentation detailing its second quarter 2020 operating results, which can be viewed at http://ir.laddercapital.com/.

Conference Call and Webcast

We will host a conference call on Thursday, July 30, 2020 at 5:00 p.m. Eastern Time to discuss second quarter 2020 results. The conference call can be accessed by dialing (877) 407-4018 domestic or (201) 689-8471 international. Individuals who dial in will be asked to identify themselves and their affiliations. For those unable to participate, an audio replay will be available from 8:00 p.m. Eastern Time on Thursday, July 30, 2020 through midnight Thursday, August 13, 2020. To access the replay, please call (844) 512-2921 domestic or (412) 317-6671 international, access code 13706742. The conference call will also be webcast though a link on Ladder Capital Corp's Investor Relations website at ir.laddercapital.com/event. A web-based archive of the conference call will also be available at the above website.

About Ladder

Ladder Capital Corp is an internally-managed commercial real estate investment trust with over $6 billion of assets. Our investment objective is to preserve and protect shareholder capital while producing attractive risk-adjusted returns. As one of the nation's leading commercial real estate capital providers, we specialize in underwriting commercial real estate and offering flexible capital solutions within a sophisticated platform.

Ladder originates and invests in a diverse portfolio of commercial real estate and real estate-related assets, focusing on senior secured assets. Our investment activities include: (i) our primary business of originating senior first mortgage fixed and floating rate loans collateralized by commercial real estate with flexible loan structures; (ii) investing in investment grade securities secured by first mortgage loans on commercial real estate; and (iii) owning and operating commercial real estate, including net leased commercial properties.

Founded in 2008, and led by Brian Harris, the Company's Chief Executive Officer, Ladder is run by a highly experienced management team with extensive expertise in all aspects of the commercial real estate industry, including origination, credit, underwriting, structuring, capital markets and asset management. Members of Ladder's management and board of directors are highly aligned with the Company's investors, owning over 10% of the Company's equity.

Forward-Looking Statements & Coronavirus Risk

Certain statements in this release may constitute "forward-looking" statements. These statements are based on management's current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results. These forward-looking statements are only predictions, not historical fact, and involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity, performance, achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. While Ladder believes that its assumptions are reasonable, it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect actual results, including the impact of the COVID-19 pandemic on the Company's business. There are a number of risks and uncertainties that could cause actual results to differ materially from forward-looking statements made herein including, most prominently, the risks discussed under the heading "Risk Factors" in each of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and Quarterly Report on Form 10-Q for the period ended March 31, 2020, as well as its consolidated financial statements, related notes, and other financial information appearing therein, and its other filings with the U.S. Securities and Exchange Commission. Such forward-looking statements are made only as of the date of this release. Ladder expressly disclaims any obligation or undertaking to release any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with regard thereto or changes in events, conditions, or circumstances on which any such statement is based.

Ladder Capital Corp

Consolidated Balance Sheets

(Dollars in Thousands)

June 30, 2020 December 31, (1) 2019(1)

(Unaudited)

Assets

Cash and cash equivalents $ 826,059 $ 58,171

Restricted cash 47,945 297,575

Mortgage loan receivables held for investment, net, at amortized cost:

Mortgage loans held by consolidated 2,955,084 3,257,036 subsidiaries

Allowance for loan losses (49,102 ) (20,500 )

Mortgage loan receivables held for sale 85,977 122,325

Real estate securities 1,506,713 1,721,305

Real estate and related lease intangibles, 1,042,210 1,048,081 net

Investments in and advances to unconsolidated 48,919 48,433 joint ventures

FHLB stock 61,619 61,619

Derivative instruments 380 693

Accrued interest receivable 18,783 21,066

Other assets 64,963 53,348

Total assets $ 6,609,550 $ 6,669,152

Liabilities and Equity

Liabilities

Debt obligations, net $ 4,953,514 $ 4,859,873

Dividends payable 23,583 38,696

Accrued expenses 55,616 72,397

Other liabilities 68,457 59,209

Total liabilities 5,101,170 5,030,175

Commitments and contingencies - -

Equity

Class A common stock, par value $0.001 pershare, 600,000,000 sharesauthorized; 117,473,057 and 110,693,832 116 108 shares issued and115,015,738 and 107,509,563 sharesoutstanding

Class B common stock, par value $0.001 pershare, 100,000,000 shares 5 12 authorized; 5,379,708 and 12,158,933 sharesissued and outstanding

Additional paid-in capital 1,649,170 1,532,384

Treasury stock, 2,457,319 and 3,184,269 (53,619 ) (42,699 ) shares, at cost

Retained earnings (dividends in excess of (120,082 ) (35,746 ) earnings)

Accumulated other comprehensive income (loss) (45,080 ) 4,218

Total shareholders' equity 1,430,510 1,458,277

Noncontrolling interest in operating 70,968 172,054 partnership

Noncontrolling interest in consolidated joint 6,902 8,646 ventures

Total equity 1,508,380 1,638,977



Total liabilities and equity $ 6,609,550 $ 6,669,152



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

Ladder Capital Corp

Consolidated Statements of Income

(Dollars in Thousands, Except Per Share and Dividend Data)

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Net interest income

Interest $ 62,096 $ 85,322 $ 134,686 $ 171,789 income

Interest 68,425 52,369 119,827 103,618 expense

Net interest (6,329 ) 32,953 14,859 68,171 income

Provision for/(release of) (729 ) 300 25,852 600 loan lossreserves

Net interestincome(expense)after (5,600 ) 32,653 (10,993 ) 67,571 provisionfor loanlosses



Other income (loss)

Operating 23,773 27,780 50,101 56,701 lease income

Sale of loans, (744 ) 20,264 261 27,342 net

Realized gain(loss) on (14,798 ) 4,464 (11,787 ) 7,329 securities

Unrealizedgain (loss) on 401 (990 ) (132 ) 1,088 equitysecurities

Unrealizedgain (loss) onAgency 98 11 174 22 interest-onlysecurities

Realized gain(loss) on sale (1 ) (1,124 ) 10,528 (1,119 ) of realestate, net

Impairment of - - - (1,350 ) real estate

Fee and other 3,505 7,196 5,024 11,882 income

Net resultfrom (813 ) (15,457 ) (16,248 ) (26,491 ) derivativetransactions

Earnings(loss) frominvestment in 471 1,564 912 2,522 unconsolidatedjoint ventures

Gain (loss) onextinguishment 19,017 - 21,077 (1,070 ) /defeasance ofdebt

Total other 30,909 43,708 59,910 76,856 income (loss)

Costs and expenses

Salaries andemployee 7,001 14,907 24,023 38,481 benefits

Operating 6,224 6,012 12,018 11,413 expenses

Real estateoperating 6,034 6,032 13,981 11,506 expenses

Fee expense 1,977 1,183 3,415 2,895

Depreciationand 9,816 9,935 19,825 20,162 amortization

Total costs 31,052 38,069 73,262 84,457 and expenses

Income (loss) (5,743 ) 38,292 (24,345 ) 59,970 before taxes

Income taxexpense (550 ) 2,219 (5,091 ) (634 ) (benefit)

Net income (5,193 ) 36,073 (19,254 ) 60,604 (loss)

Net (income)lossattributableto 250 307 (1,269 ) 754 noncontrollinginterest inconsolidatedjoint ventures

Net (income)lossattributableto 754 (4,136 ) 605 (6,939 ) noncontrollinginterest inoperatingpartnership

Net income(loss)attributable $ (4,189 ) $ 32,244 $ (19,918 ) $ 54,419 to Class Acommonshareholders



Earnings per share:

Basic $ (0.04 ) $ 0.31 $ (0.19 ) $ 0.52

Diluted $ (0.04 ) $ 0.30 $ (0.19 ) $ 0.51



Weightedaverage shares outstanding:

Basic 106,809,987 105,511,385 106,569,892 104,888,925

Diluted 106,809,987 105,892,420 106,569,892 105,742,589



Dividends pershare of Class $ 0.200 $ 0.340 $ 0.540 $ 0.680 A common stock

Non-GAAP Financial Measures

We present core earnings, core EPS, and after-tax core return on average equity ("after-tax core ROAE"), which are non-GAAP financial measures, as supplemental measures of our performance. We believe core earnings, core EPS and after-tax core ROAE assist investors in comparing our performance across reporting periods on a more relevant and consistent basis by excluding certain non-cash expenses and unrecognized results as well as eliminating timing differences related to securitization gains and changes in the values of assets and derivatives. In addition, we use core earnings, core EPS and after-tax core ROAE: (i) to evaluate our earnings from operations and (ii) because management believes that they may be useful performance measures for us. Core earnings is also used as a factor in determining the annual incentive compensation of our senior managers and other employees.

We define core earnings as income before taxes adjusted for (i) real estate depreciation and amortization, (ii) the impact of derivative gains and losses related to the hedging of assets on our balance sheet as of the end of the specified accounting period, (iii) unrealized gains/(losses) related to our investments in fair value securities and passive interest in unconsolidated joint ventures, (iv) economic gains on loan sales not recognized under GAAP accounting for which risk has substantially transferred during the period and the exclusion of resultant GAAP recognition of the related economics during the subsequent periods, (v) adjustment for CECL reserves, (vi) non-cash stock-based compensation, and (vii) certain transactional items.

Core EPS is defined as after-tax core earnings divided by the adjusted weighted average diluted shares outstanding during the period. The adjusted weighted average diluted shares outstanding is defined as the GAAP weighted average diluted shares outstanding, adjusted for shares issuable upon conversion of all Class B shares, if excluded from the GAAP measure because they would have an anti-dilutive effect. The inclusion of shares issuable upon conversion of Class B shares is consistent with the inclusion of income attributable to noncontrolling interest in operating partnership in core earnings and after-tax core earnings.

Our results of operations were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the unfavorable market conditions that occurred near the onset of the COVID-19 pandemic. The actions taken by management had multiple impacts on core earnings, core EPS and after-tax core ROAE for the three months ended June 30, 2020. Management believes the actions taken were prompted by the unusual market conditions and therefore outside of Ladder's core operations. Management believes adjusting for certain transactional charges/gains related to the impact of COVID-19 on its performance measures provides a more useful guide to assess the ongoing core operations of the Company.

Set forth below is an unaudited reconciliation of net income to after-tax core earnings, and an unaudited computation of core EPS (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Net income (loss) $ (5,193 ) $ 36,073 $ (19,254 ) $ 60,604

Income tax expense (550 ) 2,219 (5,091 ) (634 ) (benefit)

Income (loss) before (5,743 ) 38,292 (24,345 ) 59,970 taxes

Net (income) lossattributable tononcontrolling 246 299 (1,276 ) 738 interest inconsolidated jointventures (GAAP)(1)

Our share of realestate depreciation,amortization 8,875 6,590 10,248 12,257 and gain adjustments(2)(3)

Adjustments forunrecognized (8,630 ) 2,187 8,959 11,302 derivative results(4)

Unrealized (gain)loss on fair value (1,649 ) 861 (137 ) (1,227 ) securities

Adjustment foreconomic gain onloan sales notrecognized underGAAP for which risk 189 (645 ) (45 ) (648 ) has beensubstantiallytransferred, net ofreversal/amortization

Adjustment for CECL (729 ) - 17,852 - reserves

Non-cash stock-based 3,272 3,371 15,431 15,465 compensation

Transactionaladjustments 16,939 - 16,939 - (response to COVID-19)(5)

Core earnings 12,770 50,955 43,626 97,857

Core estimatedcorporate tax 2,044 22 2,334 316 benefit (expense)(6)

After-tax core $ 14,814 $ 50,977 $ 45,960 $ 98,173 earnings

Adjusted weightedaverage diluted 118,895 118,565 119,211 118,678 sharesoutstanding(7)

Core EPS $ 0.12 $ 0.43 $ 0.39 $ 0.83

Includes $4 thousand and $7 thousand of net income which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three and(1) six months ended June 30, 2020, respectively. Includes $8 thousand and $16 thousand of net income which are included in net (income) loss attributable to noncontrolling interest in operating partnership on the consolidated statements of income for the three and six months ended June 30, 2019, respectively.

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

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019



Total GAAP depreciation $ 9,816 $ 9,935 $ 19,825 $ 20,162 and amortization

Less: Depreciation andamortization related to (25 ) (25 ) (50 ) (49 ) non-rental propertyfixed assets

Less: Non-controllinginterest inconsolidatedjoint ventures' shareof accumulateddepreciation and (349 ) (1,070 ) (941 ) (1,976 ) amortization andunrecognizedpassive interest inunconsolidated jointventures

Our share of realestate depreciation and 9,442 8,840 18,834 18,137 amortization



Realized gain fromaccumulateddepreciation (40 ) (1,935 ) (9,679 ) (5,421 ) and amortization onreal estate sold (seebelow)

Less: Non-controllinginterest inconsolidatedjoint ventures' share - 42 2,147 42 of accumulateddepreciation andamortization on realestate sold

Our share ofaccumulateddepreciation and (40 ) (1,893 ) (7,532 ) (5,379 ) amortization on realestate sold



Less: Operating leaseincome on above/below (527 ) (357 ) (1,054 ) (501 ) market lease intangibleamortization



Our share of realestate depreciation, $ 8,875 $ 6,590 $ 10,248 $ 12,257 amortization and gainadjustments

GAAP gains/losses on sales of real estate include the effects of previously recognized real estate depreciation and amortization. For purposes of core earnings, our share of real estate depreciation and amortization is eliminated and, accordingly, the resultant gains/losses also must be adjusted. Following is a reconciliation of the related consolidated GAAP amounts to the amounts reflected in core earnings ($ in thousands):

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019



GAAP realized gain (loss) on sale of real $ (1 ) $ (1,124 ) $ 10,528 $ (1,119 ) estate, net

Adjusted gain/loss on sale of real estate for 41 3,017 (2,996 ) 6,498 purposes of core earnings

Our share of accumulated depreciation and $ 40 $ 1,893 $ 7,532 $ 5,379 amortization on real estate sold

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(3) Wayne, NJ. This property was sold on May 1, 2019. For core earnings, the Company recognized the net impact of these events in the period the sale was realized. Accordingly, the $3.3 million net impact of the income and losses discussed above were excluded from core earnings for the three months ended March 31, 2019 and are included in core earnings for the three and six months ended June 30, 2019.

The following is a reconciliation of GAAP net results from derivative(4) transactions to our unrecognized derivative result presented in the computation of core earnings in the preceding table ($ in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019



Net results from derivative $ (813 ) $ (15,457 ) $ (16,248 ) $ (26,491 ) transactions

Hedging interest (843 ) 1,640 (311 ) 1,491 expense

Hedging realized 10,286 11,630 7,600 13,698 result

Adjustments for unrecognized $ 8,630 $ (2,187 ) $ (8,959 ) $ (11,302 ) derivative results

The impact from COVID-19 included adjustments related to the unusual market conditions and actions taken by management including: (a) $6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net, (b) $15.4 million of losses from sales of CMBS, (c) $3.7 million of losses from conduit loan sales, (d) $6.5 million of prepayment penalties related to paydowns of mark-to-market debt included in interest expense, (e) $2.1 million of professional fee expenses(5) included in operating expenses and (f) $0.2 million of severance costs included in salaries and employee benefits. The $34.5 million total of the preceding amounts was partially offset by (g) $19.0 million of gains from the repurchase of and extinguishment of unsecured corporate bond debt at a discount from par net of (h) $1.5 million of accelerated premium amortization included in interest expense. Set forth below is a reconciliation of certain of the above COVID-19 losses to the most comparable GAAP financial measure ($ in thousands):

Three and six months ended

June 30, 2020

(b) Losses from sales of CMBS

Loss on sale of securities - COVID-19 related $ (14,670)

Hedge (loss) related to sale of securities, included innet results from (698)derivative transactions

Losses from sales of CMBS $ (15,368)



(c) Losses from conduit loan sales

Income from sales of loans, net - COVID-19 related $ (1,680)

Hedge (loss) related to sales of loans, included in netresults from (1,994)derivative transactions

Losses from conduit loan sales $ (3,674)

Core estimated corporate tax benefit (expense) based on effective tax rate(6) applied to core earnings generated by the activity within our taxable REIT subsidiary.

Set forth below is an unaudited reconciliation of weighted average diluted(7) shares outstanding to adjusted weighted average diluted shares outstanding (in thousands):

Three Months Ended Six Months Ended June June 30, 30,

2020 2019 2020 2019



Weighted average diluted shares 106,810 105,892 106,570 105,743 outstanding

Weighted average shares issuableto converted 12,085 12,673 12,641 12,935 Class B shareholders

Adjusted weighted average dilutedshares 118,895 118,565 119,211 118,678 outstanding

After-tax core ROAE is presented on an annualized basis and is defined as after-tax core earnings divided by the average total shareholders' equity and noncontrolling interest in operating partnership during the period. The inclusion of noncontrolling interest in operating partnership is consistent with the inclusion of income attributable to noncontrolling interest in operating partnership in after-tax core earnings. Set forth below is an unaudited computation of after-tax core ROAE ($ in thousands):

Three Months Ended June Six Months Ended June 30, 30,

2020 2019 2020 2019



After-tax core earnings $ 14,814 $ 50,977 $ 45,960 $ 98,173

Average shareholders'equity and NCI in 1,497,567 1,636,730 1,529,780 1,635,414 operating partnership

After-tax core ROAE 4.0 % 12.5 % 6.0 % 12.0 %

Non-GAAP Measures - Limitations

Our non-GAAP financial measures have limitations as analytical tools. Some of these limitations are:

* core earnings, core EPS and after-tax core ROAE do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations and are not necessarily indicative of cash necessary to fund cash needs; * core EPS and after-tax core ROAE are based on a non-GAAP estimate of our effective tax rate, including the impact of Unincorporated Business Tax and the impact of our election to be taxed as a REIT effective January 1, 2015, assuming the conversion of all shares of Class B common stock into shares of Class A common stock. Our actual tax rate may differ materially from this estimate; and * other companies in our industry may calculate non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, our non-GAAP financial measures should not be considered in isolation or as a substitute for net income (loss) attributable to shareholders, earnings per share or book value per share, or any other performance measures calculated in accordance with GAAP. Our non-GAAP financial measures should not be considered an alternative to cash flows from operations as a measure of our liquidity.

In the future, we may incur gains and losses that are the same as or similar to some of the adjustments in this presentation. Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

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