LADDER CAPITAL CORP 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 ofLadder Capital Corp included within 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 Annual Report and "Risk Factors" within this 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 this Annual Report. References to "Ladder," the "Company," and "we," "our" and "us" refer toLadder Capital Corp , aDelaware corporation incorporated in 2013, and its consolidated subsidiaries.Ladder Capital Corp is the sole general partner ofLadder Capital Finance Holdings LLLP ("LCFH") and, as a result of the serialization of LCFH onDecember 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, intoLadder Capital Corp's consolidated financial statements.
Overview
Ladder Capital is an internally-managed real estate investment trust ("REIT") that is a leader in commercial real estate finance. We originate and invest 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) owning and operating commercial real estate, including net leased commercial properties; and (iii) investing in investment grade securities secured by first mortgage loans on commercial real estate. 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.
COVID-19 Impact on the Organization
OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. We continue to actively manage the liquidity and operations of the Company in light of the market disruption and overall financial impact caused by the COVID-19 pandemic across most industries inthe United States . In view of the ongoing uncertainty related to the duration of the pandemic, its ultimate impact on our revenues, profitability and financial position is difficult to assess at this time. The Company has disclosed the impact of the COVID-19 global pandemic on our business throughout this Annual Report. 57
-------------------------------------------------------------------------------- Table of Contents Results of Operations A discussion regarding our results of operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 is presented below. A discussion regarding our results of operations for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 can be found in Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Year ended
The following table sets forth information regarding our consolidated results of
operations ($ in thousands):
Year Ended
December 31, 2021 2021 vs
2021 2020 2020
Net interest income
Interest income $ 176,099 $ 239,849 $ (63,750)
Interest expense 182,949 227,474 (44,525)
Net interest income (6,850) 12,375 (19,225)
Provision for (release of) loan loss reserves (8,713) 18,275 (26,988)
Net interest income (expense) after provision for (release of) loan losses
1,863 (5,900) 7,763
Other income (loss)
Real estate operating income 101,564 100,248 1,316
Sale of loans, net 8,398 (1,571) 9,969
Realized gain (loss) on securities 1,594 (12,410) 14,004
Unrealized gain (loss) on equity securities - (132) 132
Unrealized gain (loss) on Agency interest-only securities (91) 263 (354)
Realized gain (loss) on sale of real estate, net 55,766 32,102 23,664
Fee and other income 11,190 12,654 (1,464)
Net result from derivative transactions 1,749 (15,270) 17,019
Earnings (loss) from investment in unconsolidated joint ventures
1,579 1,821 (242)
Gain (loss) on extinguishment of debt - 22,250 (22,250)
Total other income (loss) 181,749 139,955 41,794
Costs and expenses
Compensation and employee benefits 38,347 58,101 (19,754)
Operating expenses 17,672 20,294 (2,622)
Real estate operating expenses 26,161 28,584 (2,423)
Fee expense 5,810 7,244 (1,434)
Depreciation and amortization 37,801 39,079 (1,278)
Total costs and expenses 125,791 153,302 (27,511)
Income (loss) before taxes 57,821 (19,247) 77,068
Income tax expense (benefit) 928 (9,789) 10,717
Net income (loss) $ 56,893 $ (9,458) $ 66,351 Investment Overview
Activity for the year endedDecember 31, 2021 included originating and funding$2.5 billion in principal value of commercial mortgage loans and$63.6 million of purchases of mortgage loans, which was offset by$305.6 million of sales and$1.1 billion of principal repayments. We acquired$247.0 million of new securities, which was offset by$438.6 million of sales and$164.5 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of$355.0 million during the year endedDecember 31, 2021 . We also invested$102.2 million in real estate, which included$81.8 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of$219.2 million . 58 -------------------------------------------------------------------------------- Table of Contents Activity for the year endedDecember 31, 2020 included originating and funding$566.5 million in principal value of commercial mortgage loans, which was offset by$582.8 million of sales and$961.2 million of principal repayments. We acquired$440.4 million of new securities, which was partially offset by$931.9 million of sales and$135.9 million of amortization in the portfolio, which partially contributed to a net decrease in our securities portfolio of$663.0 million during the year endedDecember 31, 2020 . We also invested$36.7 million in real estate, which included$29.3 million of real estate acquired via foreclosure, and received proceeds from the sale of real estate of$98.7 million .
Operating Overview
Net income (loss) totaled
•an increase in total other income (loss) of$41.8 million , primarily as a result of a$23.7 million increase in realized gain on sale of real estate, net, a$17.0 million increase in net results from derivative transactions, a$14.0 million increase as a result of realized gain on securities, and an increase of$10.0 million in sales of loans, partially offset by a decrease of$22.3 million of gain on extinguishment of debt; •an increase in net interest income after provision for loan losses of$7.8 million , as a result of a$27.0 million release of provision partially offset by a$19.2 million net decline of net interest income comprised of a$63.8 million decrease in interest income and a$44.5 million decrease in interest expense; •a decrease in total costs and expenses of$27.5 million compared to the prior year, primarily attributable to a$19.8 million decrease in compensation and employee benefits, a$2.6 million decrease in operating expenses and a$2.4 million decrease in real estate operating expenses; and •a decrease of$10.7 million in income tax expense (benefit) compared to the prior year is primarily as a result of taxable gain primarily as a result of loan sales in 2021 and net operating losses generating tax benefits in 2020.
Income (Loss) Before Taxes
Income (loss) before taxes totaled$57.8 million for the year endedDecember 31, 2021 , compared to$(19.2) million for the year endedDecember 31, 2020 . The significant components of the$77.1 million increase in income before taxes are described in the first four bullet points under operating overview above.
Distributable Earnings
Distributable earnings, a non-GAAP financial measure, totaled$61.3 million for the year endedDecember 31, 2021 , compared to$51.3 million for the year endedDecember 31, 2020 . The significant components of the$10.0 million increase in distributable earnings are primarily as a result of an increase of$14.0 million of realized gain (loss) on securities, an increase of$12.1 million in sale of loans, net, an increase of$6.7 million in net results from derivative transactions, an increase of$6.7 million in compensation and employee benefits and an increase in realized gain on sale of$2.8 million real estate, net. These increases were partially offset by a decrease of$22.3 million in gain (loss) on extinguishment of debt and a decrease of$10.1 million in net interest income after provision for loan losses comprised of a$63.8 million decrease in interest income, a$44.5 million decrease in interest expense, a decrease of$9.2 million in specific provision for loan losses and a decrease of$3.3 million in operating expenses. Our results of operations in the second quarter of 2020 were significantly impacted by the actions we took to generate liquidity and pay down mark-to-market debt in direct response to the highly volatile market conditions that occurred due to the COVID-19 pandemic. The actions taken by management had multiple impacts on distributable earnings for the three months endedJune 30, 2020 . In late March of 2020, as the COVID-19 crisis continued to unfold, the ability of repurchase financing counterparties to determine the value of collateral in the form of CMBS was impaired as trading volumes in the commercial real estate securities market were at depressed levels characterized by very few buyers and very few, typically distressed, sellers. As a result, the Company received margin calls on its securities repurchase financing, all of which were successfully satisfied by the Company in cash in a timely manner. Management and the board of directors, as stockholders owning over 10% of the Company and as accountable stewards of all stockholders' capital, elected to strategically position the Company for potential long-term volatility due to the COVID-19 pandemic. The Company therefore took decisive defensive actions, including halting new investment activity, selling performing loans and highly rated securities, paying down debt, including mark-to-market debt that was otherwise not due, as well as hiring professional service firms. These actions were significant strategic shifts to position the Company defensively against highly volatile market conditions caused by the COVID-19 pandemic. 59
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The financial impact of such actions aggregated to a$16.9 million net reduction to distributable earnings for the three months endedJune 30, 2020 . The reduction included$34.5 million of losses comprised of (i)$6.7 million of losses from sales of performing first mortgage loans included in sale of loans, net; (ii)$15.4 million of losses from sales of CMBS; (iii)$3.7 million of losses from conduit loan sales; (iv)$6.5 million of prepayment penalties related to pay downs of mark-to-market debt included in interest expense; (v)$2.1 million of professional fee expenses included in operating expenses primarily for advisory fees related to increasing liquidity and paying down debt with$20 thousand in fees related to employee health and safety, compliance with local, state and national guidelines, and head count reduction; and (vi)$0.2 million of severance costs included in compensation and employee benefits. The losses were partially offset by (vii)$19.0 million of gains from the repurchase of, and extinguishment of, unsecured corporate bond debt at a discount from par, net of (viii)$1.5 million of accelerated premium amortization included in interest expense.
Refer to "-Reconciliation of Non-GAAP Financial Measures" for our definition of distributable earnings and a reconciliation to income (loss) before taxes.
Net Interest Income
The$63.8 million decrease in interest income was primarily attributable to a decrease in our loan and securities portfolios due to paydowns and sales and timing of loan originations. The decline was also a result of the timing of our capital deployment primarily in the last nine months of 2021 which was at lower prevailing LIBOR rates. For the year endedDecember 31, 2021 , securities investments averaged$0.8 billion and loan investments averaged$2.5 billion . For the year endedDecember 31, 2020 , securities investments averaged$1.6 billion and loan investments averaged$3.0 billion . There was a$0.8 billion decrease in average securities, and a$0.5 billion decrease in average loan investments. The$44.5 million decrease in interest expense is primarily due to repayments made on our facilities including our secured financing facility, loan repurchase facilities, the FHLB, and our revolving credit facility and amortization of a CLO which reduced interest expense. There was also a net decline in our interest expense related to our Notes as we redeemed the 2021 and 2022 Notes during the year, replacing them with newly issued, lower cost, 2029 Notes inJune 2021 .
The increase in net interest income before provision for loan losses of
As ofDecember 31, 2021 , the weighted average yield on our mortgage loan receivables was 5.7%, compared to 6.6% as ofDecember 31, 2020 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 ofDecember 31, 2021 , the weighted average interest rate on borrowings against our mortgage loan receivables was 2.6%, compared to 5.4% as ofDecember 31, 2020 . The decrease in the rate on borrowings against our mortgage loan receivables fromDecember 31, 2020 toDecember 31, 2021 was primarily due to the utilization of new sources of financing at lower borrowing rates obtained and held during the twelve months endedDecember 31, 2021 . As ofDecember 31, 2021 , we had outstanding borrowings secured by our mortgage loan receivables equal to 39.0% of the carrying value of our mortgage loan receivables, compared to 33.4% as ofDecember 31, 2020 . As ofDecember 31, 2021 , the weighted average yield on our real estate securities was 1.7%, compared to 1.7% as ofDecember 31, 2020 . As ofDecember 31, 2021 , the weighted average interest rate on borrowings against our real estate securities was 0.9%, compared to 1.1% as ofDecember 31, 2020 . The decrease in the rate on borrowings against our real estate securities fromDecember 31, 2020 toDecember 31, 2021 was primarily due to lower prevailing market borrowing rates as ofDecember 31, 2021 compared toDecember 31, 2020 . As ofDecember 31, 2021 , we had outstanding borrowings secured by our real estate securities equal to 74.4% of the carrying value of our real estate securities, compared to 75.1% as ofDecember 31, 2020 . 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 ofDecember 31, 2021 , the weighted average interest rate on mortgage borrowings against our real estate was 4.9%, compared to 5.0% as ofDecember 31, 2020 . As ofDecember 31, 2021 , we had outstanding borrowings secured by our real estate equal to 77.9% of the carrying value of our real estate, compared to 77.8% as ofDecember 31, 2020 . 60
-------------------------------------------------------------------------------- Table of Contents Provision for (release of) Loan Loss Reserves OnJanuary 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 ofJanuary 1, 2020 . Upon adoption, the aggregated CECL reserve reduced total shareholder's equity by$5.8 million . The total change in reserve for provision for the year endedDecember 31, 2021 was a release of$8.7 million . The release represents a decline in the general reserve of loans held for investment of$8.6 million and the release on unfunded loan commitments of$0.1 million . The release during the year is primarily due to an improvement in macroeconomic assumptions along with newly issued loans with lower expected loss. For additional information, refer to "Allowance for Credit Losses and Non-Accrual Status" in Note 3, Mortgage Loan Receivables, to the consolidated financial statements. The total change in reserve for provision for the year endedDecember 31, 2020 was an addition of$18.3 million which included$9.1 million in the general reserve on both loans held for investment and the related unfunded commitments and$9.2 million in asset-specific provisions related to three loans. The increases during the year are primarily due the specific loss provisions on certain investments and macro economic assumptions that factored in the impact of the COVID-19 pandemic. For additional information, refer to "Allowance for Credit Losses and Non-Accrual Status" in Note 3, Mortgage Loan Receivables to the consolidated financial statements.
Real Estate Operating Income
The increase of
Sale of Loans, Net
Income (loss) from sale of loans, net, includes all loan sales, whether by securitization, whole loan sales or other means. Income (loss) from sale of loans, net also includes realized losses on loans related to lower of cost or market adjustments. During the year endedDecember 31, 2021 , we sold/transferred 16 conduit loans with an aggregate outstanding principal balance of$251.6 million and one balance sheet loan with an aggregate outstanding principal balance of$46.6 million resulting in a net gain of$8.4 million . During the year endedDecember 31, 2021 , we recorded no realized losses on loans related to lower of cost or market adjustments. During the year endedDecember 31, 2020 , we sold/transferred 31 conduit loans with an aggregate outstanding principal balance of$313.7 million and eight balance sheet mortgage loan receivables held for investment, net, at amortized cost, with an aggregate outstanding principal balance of$280.1 million resulting in a net loss of$1.6 million . During the year endedDecember 31, 2020 , 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.
Realized Gain (Loss) on Securities
The realized gain (loss) on securities for the year endedDecember 31, 2021 was$1.6 million compared to a realized loss of$(12.4) million forDecember 31, 2020 , which resulted in a net positive change of$14.0 million . For the year endedDecember 31, 2021 , we sold$438.6 million of securities, comprised of$408.2 million of CMBS and$30.4 million of Agency securities. For the year endedDecember 31, 2020 , we sold$931.9 million of securities, comprised of$913.3 million of CMBS,$4.0 million of corporate bonds and$14.6 million of equity securities. Other than temporary impairments on securities of$(0.1) million are included in realized gain (loss) on securities for the year endedDecember 31, 2021 , compared to$(0.5) million for the year endedDecember 31, 2020 .
Unrealized Gain (Loss) on
The Company had no equity security activity during the year endedDecember 31, 2021 , compared to unrealized gain (loss) of$(0.1) million for the year endedDecember 31, 2020 . 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.
Realized Gain (Loss) on Sale of Real Estate, Net
There was an increase of$23.7 million in realized gain (loss) on the sale of real estate. The increase was primarily as a result of the sale of six retail properties for a realized gain of$53.8 million , one apartment property for a realized gain of$4.0 million and a realized loss on a land parcel of$2.0 million which resulted in an aggregate$55.8 million realized gain (loss) for the year 61 -------------------------------------------------------------------------------- Table of Contents endedDecember 31, 2021 . The realized gain (loss) of$32.1 million for the year endedDecember 31, 2020 consisted primarily of gains on the sale of 11 diversified commercial real estate properties and one single-tenant net lease property of$27.7 million and$4.4 million , respectively.
Fee and Other Income
We generated fee income from origination fees, exit fees and other fees on the loans we originate and in which we invest, and dividend income on our FHLB stock. The$1.5 million decrease in fee and other income year-over-year was primarily due to a increase in exit fees, offset by a decrease in origination fees and dividend income. Also contributing was a realized loss on our investment in theLadder Select Bond Fund , which was liquidated onJune 22, 2020 .
Net Result from Derivative Transactions
Net result from derivative transactions of$1.7 million is composed of a realized gain of$1.7 million and an unrealized gain of$33.8 thousand for the year endedDecember 31, 2021 , compared to a loss of$15.3 million for the year endedDecember 31, 2020 , which was comprised of an unrealized loss of$0.3 million and a realized loss of$15.0 million resulting in a positive change of$17.0 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 gain in 2021 was primarily related to movement in interest rates during the year endedDecember 31, 2021 . The total net result from derivative transactions is comprised of hedging interest expense, realized gains/losses related to hedge terminations and unrealized gains/losses related to changes in the fair value of asset hedges.
Earnings (Loss) from Investment in
Earnings from our investment inGrace Lake LLC totaled$1.4 million , and$1.0 million for the year endedDecember 31, 2021 and 2020, respectively. Earnings (loss) from our investment in24 Second Avenue totaled$0.2 million and$0.8 million for the years endedDecember 31, 2021 and 2020, respectively. See Note 6, Investment in and Advances toUnconsolidated Joint Ventures , for further detail. Our maximum exposure to loss from these investments is limited to the carrying value of our investments. The gain in the year endedDecember 31, 2020 is attributable to equity and earnings on our investments.
Gain (Loss) on Extinguishment
We had no gain (loss) on extinguishment/defeasance of debt for the year endedDecember 31, 2021 . During the year endedDecember 31, 2021 , the Company redeemed$146.7 million of principal of the 2021 Notes at par and$465.9 million of principal of the 2022 Notes at par. Gain (loss) on extinguishment/defeasance of debt totaled$22.3 million for the year endedDecember 31, 2020 . During the year endedDecember 31, 2020 , the Company retired$98.2 million of principal of the 2027 Notes for a repurchase price of$83.9 million , recognizing a$12.9 million net gain on extinguishment of debt after recognizing$(1.3) million of unamortized debt issuance costs associated with the retired debt, the Company retired$52.0 million of principal of the 2025 Notes for a repurchase price of$45.1 million , recognizing a$6.4 million net gain on extinguishment of debt after recognizing$(0.5) million of unamortized debt issuance costs associated with the retired debt, the Company retired$34.2 million of principal of the 2022 Notes for a repurchase price of$33.2 million , recognizing a$0.7 million net gain on extinguishment of debt after recognizing$(0.2) million of unamortized debt issuance costs associated with the retired debt and, the Company retired$119.5 million of principal of the 2021 Notes for a repurchase price of$119.3 million , recognizing a$52.4 thousand net gain on extinguishment of debt after recognizing$(0.2) million of unamortized debt issuance costs associated with the retired debt.
Compensation and Employee Benefits
Compensation and employee benefits are comprised primarily of salaries, bonuses, equity based compensation and other employee benefits. The decrease of$19.8 million in compensation expense was primarily attributable to a reduction in compensation expense resulting from the timing of the payment of equity based compensation for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 along with a reduction in head count forDecember 31, 2021 as compared toDecember 31, 2020 . 62 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Operating expenses are primarily composed of professional fees, lease expense and technology expenses. The decrease of$2.6 million was primarily related to a decrease in professional fees.
Real Estate Operating Expenses
The decrease of
Fee Expense
Fee expense is comprised primarily of custodian fees, financing costs and servicing fees related to loans. The decrease of$1.4 million in fee expense was primarily attributable to decreased servicer fees as a result of a lower average loan balance due to the the timing of our loan originations in 2021.
Depreciation and Amortization
The
Income Tax (Benefit) Expense
Most of our consolidated income tax provision related to the business units held in our TRSs. The decrease in benefit of$10.7 million is primarily a result of an increase in income as a result of taxable gains primarily from the 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 thatLadder 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 and other non-mark-to-market loan financing; and (11) proceeds from the issuance of equity capital. We use these funding sources to meet our obligations on a timely basis and have the ability to use our significant unencumbered asset base to further finance our business. 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. 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. 63 -------------------------------------------------------------------------------- Table of Contents In addition, as a REIT, we are also required to make sufficient dividend payments to our shareholders in amounts at least sufficient to maintain our REIT status. UnderIRS 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. Our principal debt financing sources include: (1) long-term senior unsecured notes in the form of corporate bonds; (2) CLO issuances; (3) borrowings on both a short- and long-term committed basis, made by Tuebor from the FHLB; (4) long term non-recourse mortgage financing; (5) committed secured funding provided by banks and other lenders; and (6) 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 "Financial Covenants" and "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, refinanced or repaid at maturity or are incurred in the normal course of business (i.e., interest payments/loan funding obligations).
Cash, Cash Equivalents and Restricted Cash
We held cash, cash equivalents and restricted cash of
Cash Flows
The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash ($ in thousands):
Year Ended
2021 2020
Net cash provided by (used in) operating activities $ 79,739 $ 111,943
Net cash provided by (used in) investing activities (651,460) 1,542,265
Net cash provided by (used in) financing activities (91,017) (725,670)
Net increase (decrease) in cash, cash equivalents and restricted
cash $ (662,738) $ 928,538
We experienced a net decrease in cash, cash equivalents and restricted cash of
$(662.7) million for the year ended December 31, 2021 reflecting cash used in
operating activities of $79.7 million , cash provided by investing activities of
$(651.5) million and cash used in finance activities of $(91.0) million .
Net cash provided by operating activities of $79.7 million was primarily driven
by $(220.4) million of originations of mortgage loans held for sale and $(55.8)
million of realized gain on sale of real estate, partially offset by $259.1
million of proceeds from sales of mortgage loans held for sale and depreciation
and amortization of $37.8 million .
Net cash used in investing activities of $(651.5) million was driven by usage of
$(2.3) billion of origination of mortgage loans held for investment, $(247.0)
million in purchases of real estate securities, $(63.6) million of purchases of
mortgage loans held for investment, and $(20.5) million in purchases of real
estate. These uses were partially offset by $1.1 billion of repayment from
mortgage loan receivables, $438.6 million of proceeds from sale of real estate
securities, $190.9 million proceeds from the sale of real estate, $164.5 million
in repayments on securities, and $46.6 million of proceeds from the sale of
mortgage loan receivables held for investment.
Net cash used in financing activities of $(91.0) million was primarily as a
result of $(100.6) million of dividends payments, $(9.0) million in purchase of
treasury shares, $(4.5) million of shares acquired to satisfy minimum federal
and state tax withholdings on restricted stock, and $(3.2) million in deferred
financing costs partially offset by net borrowings of $25.5 million .
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We experienced a net increase in cash, cash equivalents and restricted cash of$928.5 million for the year endedDecember 31, 2020 reflecting cash provided by operating activities of$111.9 million , cash provided by investing activities of$1.5 billion and cash used in finance activities of$(725.7) million .
Net cash provided by operating activities of
Net cash provided by investing activities of$1.5 billion was driven by$891.7 million of repayment from mortgage loan receivables,$932.2 million of proceeds from sale of real estate securities,$270.5 million of proceeds from the sale of mortgage loan receivables held for investment, partially offset by$(440.6) million in purchases of real estate securities and$(353.7) million of origination of mortgage loans held for investment. Net cash used in financing activities of$(725.7) million was primarily as a result of net borrowings of$(593.4) million ,$(118.9) million of dividends payments,$(17.1) million of shares acquired to satisfy minimum federal and state tax withholdings on restricted stock and$(18.0) million in deferred financing costs, partially offset by$32.0 million of proceeds from issuance of common stock. Unencumbered Assets As ofDecember 31, 2021 , we held unencumbered cash of$0.5 billion , unencumbered loans of$1.7 billion , unencumbered securities of$150.9 million , unencumbered real estate of$85.9 million and$358.5 million of other assets not secured by any portion of secured indebtedness.
Borrowings under various financing arrangements
Our financing strategies are critical to the success and growth of our business.
We manage our leverage policies to complement our asset composition and to
diversify our exposure across multiple counterparties. Our borrowings under
various financing arrangements as of
December 31, 2021
Committed loan repurchase facilities $ 184,517
Committed securities repurchase facility 44,139
Uncommitted securities repurchase facilities 215,921
Total repurchase facilities 444,577
Revolving credit facility -
Mortgage loan financing(1) 693,797
Secured financing facility(2) 132,447
CLO debt(3) 1,054,774
Borrowings from the FHLB 263,000
Senior unsecured notes(4) 1,631,108
Total debt obligations, net $ 4,219,703
(1)Presented net of unamortized debt issuance costs of $0.3 million as of
December 31, 2021 .
(2)Presented net of unamortized debt issuance costs of $1.9 million and an
unamortized discount of $2.1 million related to the Purchase Right (described in
detail under Secured Financing Facility below) at December 31, 2021 .
(3)Presented net of unamortized debt issuance costs of $9.6 million as of
December 31, 2021 .
(4)Presented net of unamortized debt issuance costs of $18.7 million as of
December 31, 2021 .
The Company's repurchase facilities include covenants covering minimum net worth
requirements (ranging from $400.0 million to $871.4 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
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covenants as of December 31, 2021 and 2020. 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 a party to multiple committed loan repurchase agreement facilities, totaling$1.2 billion of credit capacity. As ofDecember 31, 2021 , the Company had$184.5 million of borrowings outstanding, with an additional$1.0 billion of committed financing available. As ofDecember 31, 2020 , the Company had$255.4 million of borrowings outstanding, with an additional$1.3 billion of committed financing available. Assets pledged as collateral under these facilities are generally limited to whole mortgage loans collateralized by first liens on commercial real estate, mezzanine loans collateralized by equity interests in entities that own commercial real estate, and certain interests in such first mortgage and mezzanine loans. Our repurchase facilities include covenants covering net worth requirements, minimum liquidity levels, and maximum debt/equity ratios. We believe we were in compliance with all covenants as ofDecember 31, 2021 . 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 facility
We are a party to a term master repurchase agreement with a majorU.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 ofDecember 31, 2021 , the Company had$44.1 million borrowings outstanding, with an additional$818.7 million of committed financing available. As ofDecember 31, 2020 , the Company had$149.6 million borrowings outstanding, with an additional$638.4 million of committed financing available.
Uncommitted securities facilities
We are a party to multiple master repurchase agreements with several counterparties to finance our investments inCMBS 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.
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. The Revolving Credit Facility has a current maturity date ofFebruary 11, 2022 , which may be extended by three 12-month periods subject to the satisfaction of customary conditions, including the absence of default. The Interest on the Revolving Credit Facility is one-month LIBOR plus 3.00% per annum payable monthly in arrears. There were no outstanding draws on the facility as ofDecember 31, 2021 . As ofDecember 31, 2020 , the Company had$266.4 million borrowings outstanding. 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. 66 -------------------------------------------------------------------------------- Table of Contents LCFH is subject to customary affirmative covenants and negative covenants, including limitations on the incurrence of additional debt, liens, restricted payments, sales of assets and affiliate transactions under the Revolving Credit Facility. In addition, under the Revolving Credit Facility, LCFH is required to comply with financial covenants relating to minimum net worth, maximum leverage, minimum liquidity, and minimum fixed charge coverage, consistent with our other credit facilities. Our ability to borrow under the Revolving Credit Facility will be dependent on, among other things, LCFH's compliance with the financial covenants. The Revolving Credit Facility contains customary events of default, including non-payment of principal or interest, fees or other amounts, failure to perform or observe covenants, cross-default to other indebtedness, the rendering of judgments against the Company or certain of our subsidiaries to pay certain amounts of money and certain events of bankruptcy or insolvency.
Mortgage Loan Financing
We generally finance our real estate using long-term non-recourse mortgage financing. During the year endedDecember 31, 2021 , we executed one term debt agreement to finance real estate. These non-recourse debt agreements provide for fixed rate financing at rates ranging from 3.75% to 6.16%, with anticipated maturity dates between 2022-2031 as ofDecember 31, 2021 . These loans have carrying amounts of$693.8 million and$766.1 million , net of unamortized premiums of$3.2 million and$4.6 million as ofDecember 31, 2021 andDecember 31, 2020 , 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$1.4 million ,$1.2 million and$1.6 million of premium amortization, which decreased interest expense for the years endedDecember 31, 2021 , 2020, and 2019 respectively. The mortgage loans are collateralized by real estate and related lease intangibles, net, of$805.0 million and$909.4 million as ofDecember 31, 2021 andDecember 31, 2020 , respectively.
Secured Financing Facility
OnApril 30, 2020 , the Company entered into a strategic financing arrangement with an American multinational corporation (the "Lender"), under which the Lender provided the Company with approximately$206.4 million in senior secured financing (the "Secured Financing Facility") to fund transitional and land loans. The Secured Financing Facility is secured on a first lien basis on a portfolio of certain of the Company's loans and will mature onMay 6, 2023 , and borrowings thereunder bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium clause, of which approximately$5.3 million remains as ofDecember 31, 2021 . The Secured Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Secured Financing 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, the Lender also had the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at$8.00 per share, subject to certain adjustments (the "Purchase Right"). The Purchase Right was exercised in full at$8.00 per share onDecember 29, 2020 . In addition, the Lender 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 the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender. The Purchase Right was classified as equity and the$200.9 million of net proceeds from the original issuance were allocated$192.5 million to the originally issued debt obligation and$8.4 million to the Purchase Right using the relative fair value method. The commitment to issue shares will not be subsequently remeasured. The$8.4 million allocated to the Purchase Right is being treated as a discount to the debt and amortized over the life of the Purchase Right to interest expense. As ofDecember 31, 2021 , the Company had$132.4 million of borrowings outstanding under the secured financing facility included in debt obligations on its consolidated balance sheets, net of unamortized debt issuance costs of$1.9 million and a$2.1 million unamortized discount related to the Purchase Right.
Collateralized Loan Obligations ("CLO") Debt
OnJuly 13, 2021 , a consolidated subsidiary of the Company completed a privately-marketed CLO transaction, which generated$498.2 million of gross proceeds to Ladder, financing$607.5 million of loans ("ContributedJuly 2021 Loans") at an 82% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 18% subordinate and controlling interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the ContributedJuly 2021 Loans, including the right to appoint and replace the special servicer 67 -------------------------------------------------------------------------------- Table of Contents under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 10, Consolidated Variable Interest Entities. OnDecember 2, 2021 , a consolidated subsidiary of the Company completed a privately marketed CLO transaction, which generated$566.2 million of gross proceeds to Ladder, financing$729.4 million of loans ("ContributedDecember 2021 Loans") at a maximum 77.6% advance rate on a matched term, non-mark-to-market and non-recourse basis. A consolidated subsidiary of the Company retained an 15.6% subordinate and controlling interest in the CLO. The Company also held two additional tranches as investments totaling 6.8% interest in the CLO. The Company retained consent rights over major decisions with respect to the servicing of the ContributedDecember 2021 Loans, including the right to appoint and replace the special servicer under the CLO. The CLO is a VIE and the Company was the primary beneficiary and, therefore, consolidated the VIE - See Note 10, Consolidated Variable Interest Entities. As ofDecember 31, 2021 , the Company had$1.1 billion of matched term, non-mark-to-market and non-recourse CLO debt included in debt obligations on its consolidated balance sheets. Unamortized debt issuance costs of$9.6 million were included in CLO debt as ofDecember 31, 2021 .
Borrowings from the
OnJuly 11, 2012 , Tuebor, a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. As ofFebruary 19, 2021 , pursuant to a final rule adopted by theFederal Housing Finance Agency (the "FHFA") regarding the eligibility of captive insurance companies, Tuebor's membership in the FHLB has been terminated, although outstanding advances may remain outstanding until their scheduled maturity dates. Funding for future advance paydowns is expected to be obtained from the natural amortization and/or sales of securities collateral, or from other financing sources. There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor's existing advances. As ofDecember 31, 2021 , Tuebor had$263.0 million of borrowings outstanding, with terms of 0.7 years to 2.75 years (with a weighted average of 1.95 years), interest rates of 0.36% to 2.74% (with a weighted average of 0.96%), and advance rates of 71.7% to 95.7% on eligible collateral. As ofDecember 31, 2021 , collateral for the borrowings was comprised of$259.3 million ofCMBS and U.S. Agency securities and$42.5 million of cash. 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$2.2 billion of the member's capital was restricted from transfer via dividend to Tuebor's parent without prior approval of state insurance regulators atDecember 31, 2021 . To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements. Senior unsecured notes As ofDecember 31, 2021 , the Company had$1.6 billion of unsecured corporate bonds outstanding. These unsecured financings were comprised of$348.0 million in aggregate principal amount of 5.25% senior notes due 2025 (the "2025 Notes"),$651.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the "2027 Notes") and$650.0 million in aggregate principal of 4.75% senior notes due 2029 (the "2029 Notes," and collectively with the 2025 Notes and the 2027 Notes, the "Notes"). 68 -------------------------------------------------------------------------------- Table of Contents OnJanuary 27, 2021 , the Company redeemed in full its 5.875% Senior Notes due 2021 (the "2021 Notes") for$150.9 million . The 2021 Notes were redeemed at par, plus accrued and unpaid interest to the redemption date, pursuant to the optional redemption provisions of the indenture governing the 2021 Notes. The redemption of a portion of the 2021 Notes was subject to the condition that the Company's subsidiary issuers of the 2021 Notes complete a notes offering of not less than$400 million . The issuers waived the condition prior to redeeming the 2021 Notes in full. OnSeptember 15, 2021 , the Company redeemed in full its 5.25% Senior Notes due 2022 (the "2022 Notes") for$478.1 million . The 2021 Notes were redeemed at par, plus accrued and unpaid interest to the redemption date, pursuant to the optional redemption provisions of the indenture governing the 2022 Notes. LCFH issued the Notes withLadder Capital Finance Corporation ("LCFC"), as co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary 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 believes it was in compliance with all covenants of the Notes as ofDecember 31, 2021 and 2020. Unamortized debt issuance costs of$18.7 million and$12.9 million are included in senior unsecured notes as ofDecember 31, 2021 andDecember 31, 2020 , respectively, in accordance with GAAP. 2025 Notes OnSeptember 25, 2017 , LCFH issued$400.0 million in aggregate principal amount of 5.250% senior notes dueOctober 1, 2025 (the "2025 Notes"). The 2025 Notes require interest payments semi-annually in cash in arrears onApril 1 andOctober 1 of each year, beginning onApril 1, 2018 . The 2025 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the 2025 Notes, in whole or in part, at any time, or from time to time, prior to their stated maturity upon not less than 15 nor more than 60 days' notice, at a redemption price as specified in the indenture governing the 2025 Notes, plus accrued and unpaid interest, if any, to the redemption date. OnMay 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. During the year endedDecember 31, 2020 , the Company retired$52.0 million of principal of the 2025 Notes for a repurchase price of$45.1 million , recognizing a$6.4 million net gain on extinguishment of debt after recognizing$(0.5) million of unamortized debt issuance costs associated with the retired debt. As ofDecember 31, 2021 , the remaining$348.0 million in aggregate principal amount of the 2025 Notes is dueOctober 1, 2025 .
2027 Notes
OnJanuary 30, 2020 , LCFH issued$750.0 million in aggregate principal amount of 4.25% senior notes dueFebruary 1, 2027 . The 2027 Notes require interest payments semi-annually in cash in arrears onAugust 1 andFebruary 1 of each year, beginning onAugust 1, 2020 . The 2027 Notes are unsecured and are subject to an unencumbered assets to unsecured debt covenant. The Company may redeem the 2027 Notes, in whole, at any time, or from time to time, prior to their stated maturity. At any time on or afterFebruary 1, 2023 , the Company may redeem the 2027 Notes in whole or in part, upon not less than 15 nor more than 60 days' notice, at a redemption price defined in the indenture governing the 2027 Notes, plus accrued and unpaid interest, if any, to the redemption date. Net proceeds of the offering were used to repay secured indebtedness. OnFebruary 26, 2020 , the board of the directors authorized the Company to repurchase any or all of the 2027 Notes from time to time without further approval. During the year endedDecember 31, 2020 , the Company retired$98.2 million of principal of the 2027 Notes for a repurchase price of$83.9 million , recognizing a$12.9 million net gain on extinguishment of debt after recognizing$(1.3) million of unamortized debt issuance costs associated with the retired debt. As ofDecember 31, 2021 , the remaining$651.8 million in aggregate principal amount of the 2027 Notes is dueFebruary 1, 2027 . 2029 Notes OnJune 23, 2021 , LCFH issued$650.0 million in aggregate principal amount of 4.75% senior notes dueJune 15, 2029 . The 2029 Notes require interest payments semi-annually in cash in arrears onJune 15 andDecember 15 of each year, beginningDecember 15, 2021 . The 2029 Notes are unsecured and are subject to an unencumbered asset to unsecured debt covenant. The Company may redeem the 2029 Notes, in whole, at any time, or from time to time, prior to their stated maturity. At any time on or afterJune 15, 2024 , the Company may redeem the 2029 Notes in whole or in part, upon not less than 10 nor more than 60 days' notice, at a redemption price defined in the indenture governing the 2029 Notes, plus accrued and unpaid interest, if any, to the redemption date. Net proceeds of the offering were used for general corporate purposes, including funding the Company's pipeline of new loans, investments in its core business lines and repayment of indebtedness. OnJune 24, 2021 , the board of the directors authorized the Company to repurchase any or all of the 2029 Notes from time to time without further approval. As ofDecember 31, 2021 , the remaining$650.0 million in aggregate principal amount of the 2029 Notes is dueJune 15, 2029 . 69
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Stock Repurchases
On August, 4, 2021, the board of directors authorized the repurchase of$50.0 million of the Company's Class A common stock from time to time without further approval. This authorization increased the remaining authorization per theOctober 30, 2014 authorization at the time of$35.0 million to$50.0 million . 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 ofDecember 31, 2021 , the Company has a remaining amount available for repurchase of$44.1 million , which represents 2.9% in the aggregate of its outstanding Class A common stock, based on the closing price of$11.99 per share on such date. Refer to Item 1-"Financial Statements-Note 11, Equity Structure and Accounts" for disclosure of the Company's repurchase activity.
The following table is a summary of the Company's repurchase activity of its
Class A common stock during the year ended
Shares Amount(1)
Authorizations remaining as of December 31, 2020$ 38,102 Additional authorizations 15,027 Repurchases paid 822,928 (9,007) Repurchases unsettled - Authorizations remaining as of December 31, 2021 $
44,122
(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 aggregating to an amount approximating at least 90% of the REIT's annual net taxable income. Refer to Item 1 -"Financial Statements and Supplemental Data-Note 11, Equity Structure and Accounts" for disclosure of dividends declared.
Principal repayments on investments
We receive principal amortization on our loans and securities as part of the normal course of our business. Repayment of mortgage loan receivables provided net cash of$1.1 billion for the year endedDecember 31, 2021 and$892.1 million for the year endedDecember 31, 2020 . Repayment of real estate securities provided net cash of$164.5 million for the year endedDecember 31, 2021 and$146.2 million for the year endedDecember 31, 2020 .
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 and from time to time will sell balance sheet mortgage loans. There were$305.6 million of proceeds from sales of mortgage loans for the year endedDecember 31, 2021 and$582.8 million of sales of mortgage loans for the year endedDecember 31, 2020 .
Proceeds from the sale of securities
We sell our investments in CMBS,
Proceeds from the sale of real estate
Proceeds from sales of real estate provided net cash of$190.9 million for the year endedDecember 31, 2021 and$44.7 million for the year endedDecember 31, 2020 . 70 -------------------------------------------------------------------------------- Table of Contents Proceeds from the issuance of equity For the year endedDecember 31, 2021 , there were no proceeds realized in connection with the issuance of equity. For the year endedDecember 31, 2020 , we raised$32.0 million of proceeds in connection with the issuance of 4.0 million shares of our Class A common stock. We may issue additional equity in the future.
Other potential sources of financing
In the future, we may also use other sources of financing to fund the acquisition of our assets, including credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized, may involve one or more lenders and may accrue interest at either fixed or floating rates. We may also seek to raise further equity capital or issue debt securities in order to fund our future investments. Contractual obligations
Contractual obligations as of
Contractual Obligations (1)
Less than 1 More than 5
Year 1-3 Years 3-5 Years Years Total
Secured financings(2) $ - $ 914,442 $ 388,422 $ 232,084 $ 1,534,948
Senior unsecured notes - 347,956 1,301,838 1,649,794
Interest payable(3) 83,826 187,006 170,514 131,974 573,320
Other funding obligations(4) 26,715 - - - 26,715
Operating lease obligations - 1,060 - - 1,060
Total $ 110,541 $ 1,102,508 $ 906,892 $ 1,665,896 $ 3,785,837
(1) As more fully disclosed in Note 7, Debt Obligations, Net, the allocation
of repayments under our committed loan repurchase facilities and Secured
Financing Facility is based on the earlier of (i) the maturity date of each
agreement, or (ii) the maximum maturity date of the collateral loans, assuming
all extension options are exercised by the borrower.
(2) Total does not include $1.1 billion of consolidated CLO debt obligations
and the related debt issuance costs of $9.6 million , as the satisfaction of
these liabilities will not require cash outlays from us.
(3) Comprised of interest on secured financings and on senior unsecured
notes. For borrowings with variable interest rates, we used the rates in effect
as of December 31, 2021 to determine the future interest payment obligations.
(4) Comprised primarily of our off-balance sheet unfunded commitment to
provide additional first mortgage loan financing as of December 31, 2021 .
The table above does 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. We have made investments in
various unconsolidated joint ventures of which our maximum exposure to loss from
these investments is limited to the carrying value of our investments. Refer to
Note 6 - Investments in and advances made on unconsolidated joint ventures for
further detail.
Future Liquidity Needs
In addition to the future contractual obligations above, the Company, in the
coming year and beyond, as a part of its normal course of business will require
cash to fund unfunded loan commitments and new investments in a combination of
balance sheet mortgage loans, conduit loans, real estate investments and
securities as it deems appropriate as well as necessary expenses as a part of
general corporate purposes. These new investments and general corporate expenses
may be funded with existing cash, proceeds from loan and securities payoffs,
through financing using our revolving credit facility or loan and security
financing facilities, or these could be funded through additional debt or equity
facility raises. The Company has no known material cash requirements other than
its contractual obligations in the above table, unfunded commitments and future
general corporate expenses.
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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. These
commitments are not reflected on the consolidated balance sheets. As of
December 31, 2021 , our off-balance sheet arrangements consisted of $390.1
million of unfunded commitments of mortgage loan receivables held for
investment, 52% 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, 2020 , our off-balance sheet arrangements consisted of $148.8
million of unfunded commitments of mortgage loan receivables held for investment
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. 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. The COVID-19 pandemic has impacted the progress of work
generally and, depending on specific property locations, the progress of capital
expenditures, construction, and leasing, which have been delayed and/or slower
paced than originally anticipated. The progress of those particular projects
located in states or local municipalities with continuing restrictions on such
activities is anticipated to remain slower to complete than otherwise
underwritten at loan origination, and the timing and amounts of our future
funding commitments are likely to be slower and possibly diminished by our
clients' changing business plans to adapt to market conditions.
LIBOR Transition
We continue to develop and implement plans for the discontinuation of LIBOR. Specifically, we: (i) have implemented or are in the process of implementing fallback language for our LIBOR-based mortgage loans, bi-lateral committed repurchase facilities and revolving credit facility, including adjustments as applicable to maintain the anticipated economic terms of the existing contracts, (ii) continue to monitor the transition guidance provided by the ARRC, theInternational Swaps and Derivatives Association, Inc. , theFinancial Accounting Standards Board and other relevant regulators, agencies and industry working groups, and (iii) continue to engage with clients, lenders, market participants and other industry leaders as the transition from LIBOR progresses.
Interest Rate Environment
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 includes interest from both fixed and floating-rate debt. The percentage of the Company's assets and liabilities bearing interest at fixed and floating rates may change over time, and asset composition may differ materially from debt composition. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk for further disclosures surrounding the impact of rising or falling interest rate on our earnings.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires
management to make estimates and judgments in certain circumstances that affect
amounts reported as assets, liabilities, revenues and expenses. We have
established detailed policies and control procedures intended to ensure that
valuation methods, including any judgments made as part of such methods, are
well controlled, reviewed and applied consistently from period to period. We
base our estimates on historical corporate and industry experience and various
other assumptions that we believe to be appropriate under the circumstances. The
Company's critical accounting policies are those which require assumptions to be
made about matters that are highly uncertain. Different estimates could have a
material effect on the Company's financial results. For all of these estimates,
we caution that future events rarely develop exactly as forecasted, and
therefore, routinely require adjustment.
During 2021, management reviewed and evaluated these critical accounting
estimates and believes they are appropriate. Our significant accounting policies
are described in Item 8-"Financial Statements and Supplemental Data-Note 2." The
following is a list of accounting policies that require more significant
estimates and judgments:
•Current expected credit losses
•Acquisition of real estate
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•Impairment or disposal of long lived assets
•Identified intangible assets and liabilities
•Variable interest entities
•Valuation of financial instruments
The following is a summary of accounting policies that require more significant management estimates and judgments:
Current expected credit losses
The Company uses a current expected credit loss model ("CECL") for estimating
the provision for loan losses on its loan portfolio. The CECL model requires the
consideration of possible credit losses over the life of an instrument and
includes a portfolio-based component and an asset-specific component. In
compliance with the CECL reporting requirements, the Company has supplemented
the existing credit monitoring and management processes with additional
processes to support the calculation of 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 ("CRE") loss forecasting tool. It is
comprised of a probability of default ("PD") model and a loss given default
("LGD") model that, layered together with user's loan-level data, selected
forward-looking macroeconomic variables, and 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 reserves for losses on
individually impaired loans. The Company evaluates each loan for impairment at
least quarterly. Impairment occurs when it is deemed probable that the Company
will not be able to collect all amounts due according to the contractual terms
of the loan. If the loan is considered to be impaired, an allowance is recorded
to reduce the carrying value of the loan to the present value of the expected
future cash flows discounted at the loan's effective rate or the fair value of
the collateral, less the estimated costs to sell, if recovery of the Company's
investment is expected solely from the collateral. The Company generally will
use the direct capitalization rate valuation methodology or the sales comparison
approach to estimate the fair value of the collateral for such loans and in
certain 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 are generally based on current market conditions and are subject to
economic and market uncertainties.
The Company's loans are typically collateralized by real estate directly or
indirectly. As a result, the Company regularly evaluates the extent and impact
of any credit deterioration associated with the performance and/or value of the
underlying collateral property as well as the financial and operating capability
of the borrower/sponsor on a loan-by-loan basis. Specifically, a property's
operating results and any cash reserves are analyzed and used to assess
(i) whether cash flow from operations is sufficient to cover the debt service
requirements currently and into the future, (ii) the ability of the borrower to
refinance the loan at maturity, and/or (iii) the property's liquidation value.
The Company also evaluates the financial wherewithal of any loan guarantors as
well as the borrower's competency in managing and operating the properties. In
addition, the Company considers the overall economic environment, real estate
sector, and geographic 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 debtor
is experiencing financial difficulties. Impairments on TDR loans are generally
measured based on the present value of expected future cash flows discounted at
the effective interest rate of the original loans. Generally, when granting
concessions, the Company will seek to protect its position by requiring
incremental pay downs, additional collateral or guarantees and, in some cases,
lookback features or equity interests to offset concessions granted should
conditions impacting the loan improve. The Company's determination of credit
losses is impacted by TDRs whereby loans that have gone through TDRs are
considered impaired, assessed for specific reserves, and are not included in the
Company's assessment of 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 additional provision expense is
recorded to the extent necessary.
The Company designates non-accrual loans generally when (i) the principal or
coupon interest components of loan payments become 90-days past due or (ii) in
the opinion of the Company, it is doubtful the Company will be able to collect
all amounts due according to the contractual terms of the loan. Interest income
on non-accrual loans in which the Company reasonably expects a full recovery of
the loan's outstanding principal balance is recognized when received in cash.
Otherwise, income recognition will be suspended and any cash received will be
applied as a reduction to the amortized cost. A non-accrual loan is
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returned to accrual status at such time as the loan becomes contractually
current and future principal and coupon interest are reasonably assured to be
received in accordance with the contractual loan terms. A loan will be written
off when management has determined it is no longer realizable and deemed
non-recoverable.
The CECL accounting estimate is subject to uncertainty as a result of changing
macro-economic market conditions, as well as the vintage and location of the
underlying assets as disclosed in Note 3. Mortgage Loans Receivable. As a
result, the estimate changed from $42.1 million at December 31, 2020 to $32.2
million at December 31, 2021 . The estimate is sensitive to the assumptions used
to represent future expected economic conditions.
The provision for loan losses for the years ended December 31, 2021
and 2020 were $8.7 million and $18.3 million , respectively. The allowance for
loan losses as of December 31, 2021 and December 31, 2020 were $32.2 million and
$42.1 million , respectively.
Acquisition of real estate
We generally acquire real estate assets or land and development assets through
purchases and may also acquire such assets through foreclosure or deed-in-lieu
of foreclosure in full or partial satisfaction of defaulted loans. Purchased
properties are classified as real estate, net or land and development, net on
our consolidated balance sheets. When we intend to hold, operate or develop the
property for a period of at least 12 months, the asset is classified as real
estate, net, and when we intend to market a property for sale in the near term,
the asset is classified as real estate held for sale. Upon purchase, the
properties are recorded at cost. Foreclosed assets classified as real estate and
land and development are initially recorded at their estimated fair value and
assets classified as assets held for sale are recorded at their estimated fair
value less costs to sell. The excess of the carrying value of the loan over
these amounts is charged-off against the reserve for loan losses. In both cases,
upon acquisition, tangible and intangible assets and liabilities acquired are
recorded at their estimated fair values.
Impairment or disposal of long-lived assets
Real estate assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less costs to sell and are included in real estate held for sale on our consolidated balance sheets. The difference between the estimated fair value less costs to sell and the carrying value will be recorded as an impairment charge. Impairment for real estate assets are included in impairment of assets in our consolidated statements of operations. Once the asset is classified as held for sale, depreciation expense is no longer recorded. We periodically review real estate to be held and used and land and development assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The asset's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the asset (taking into account the anticipated holding period of the asset) is less than the carrying value. Such estimate of cash flows considers factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the property over the fair value of the asset and reflected as an adjustment to the basis of the asset. Impairments of real estate and land and development assets are recorded in impairment of assets in our consolidated statements of operations. We had one property classified held for sale atDecember 31, 2021 and no properties classified as held for sale atDecember 31, 2020 . We did not record any impairments of real estate for any of the years endedDecember 31, 2021 or 2020.
Identified intangible assets and liabilities
We record intangible assets and liabilities acquired at their estimated fair values, and determine whether such intangible assets and liabilities have finite or indefinite lives. As ofDecember 31, 2021 and 2020, all such acquired intangible assets and liabilities have finite lives. We amortize finite lived intangible assets and liabilities over the period which the assets and liabilities are expected to contribute directly or indirectly to the future cash flows of the business acquired. We review finite lived intangible assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If we determine the carrying value of an intangible asset is not recoverable we will record an impairment charge to the extent its carrying value exceeds its estimated fair value. Impairments of intangibles are recorded in impairment of assets in our consolidated statements of income. Variable interest entities 74
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We evaluate our investments and other contractual arrangements to determine if
our interests constitute variable interests in a variable interest entity
("VIE") and if we are the primary beneficiary. There is a significant amount of
judgment required to determine if an entity is considered a VIE and if we are
the primary beneficiary. We first perform a qualitative analysis, which requires
certain subjective decisions regarding our assessment, including, but not
limited to, which interests create or absorb variability, the contractual terms,
the key decision making powers, impact on the VIE's economic performance and
related party relationships. An iterative quantitative analysis is required if
our qualitative analysis proves inconclusive as to whether the entity is a VIE
or we are the primary beneficiary and consolidation is required.
Fair value of assets and liabilities
The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial and nonfinancial assets and liabilities that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore, when market data is not available, we would use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement.
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 8-"Financial Statements and Supplemental Data-Note 2. Significant Accounting Policies." Reconciliation of Non-GAAP Financial Measures
Distributable earnings
For the fourth quarter of 2020, the Company began utilizing distributable
earnings, a non-GAAP financial measure, as a supplemental measure of our
operating performance. We believe distributable earnings assists investors in
comparing our operating performance and our ability to pay dividends across
reporting periods on a more relevant and consistent basis by excluding from GAAP
measures certain non-cash expenses and unrealized results as well as eliminating
timing differences related to securitization gains and changes in the values of
assets and derivatives. In addition, we use distributable earnings: (i) to
evaluate our earnings from operations because management believes that it may be
a useful performance measure for us and (ii) because our board of directors
considers distributable earnings in determining the amount of quarterly
dividends. Distributable earnings replaced our prior presentation of core
earnings, and core earnings presentations from prior reporting periods have been
recast as distributable earnings.
We define distributable 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) unrealized provision for loan losses and unrealized real
estate impairment; (vi) realized provisions for loan losses and realized real
estate impairment; (vii) non-cash stock-based compensation; and (viii) certain
transactional items. For the purpose of computing distributable earnings,
management recognizes loan and real estate losses as being realized generally in
the period in which the asset is sold or the Company determines a decline in
value to be non-recoverable and the loss to be nearly certain.
For distributable earnings, we include adjustments for economic gains on loan
sales not recognized under GAAP accounting for which risk has substantially
transferred during the period and exclude the resultant GAAP recognition of the
related economics during the subsequent periods. This adjustment is reflected in
distributable earnings when there is a true risk transfer on the mortgage loan
transfer and settlement. Historically, this adjustment 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 distributable earnings purposes. Management believes
recognizing these amounts for distributable earnings purposes in the period of
transfer of economic risk is a reasonable supplemental measure of our
performance.
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As discussed in Note 2 to the consolidated financial statements included
elsewhere in this Annual 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 GAAP 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 distributable earnings until
the related asset is sold and the hedge position is considered "closed,"
whereupon they would then be included in distributable earnings in that period.
These are reflected as "Adjustments for unrecognized derivative results" for
purposes of computing distributable 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 Annual 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. With regard to securities valuation,
distributable earnings includes a decline in fair value deemed to be an
other-than-temporary impairment for GAAP purposes only if the decline is
determined to be nearly certain to be eventually realized. In those cases, an
impairment is included in distributable earnings for the period in which such
determination was made.
Set forth below is an unaudited reconciliation of income (loss) before taxes to distributable earnings ($ in thousands):
Year Ended December 31,
2021 2020
Income (loss) before taxes $ 57,821 $ (19,247) Net (income) loss attributable to noncontrolling interests in consolidated joint ventures (GAAP)(1)
(371) (5,559)
Our share of real estate depreciation, amortization and gain adjustments (2)
1,662 22,493
Adjustments for unrecognized derivative results (3) (7,534) 2,738
Unrealized (gain) loss on fair value securities 91 (225)
Adjustment for economic gain on loan sales not recognized under GAAP for which risk has been substantially transferred, net of reversal/amortization
3,063 912
Adjustment for impairment (4) (8,713) 9,125
Non-cash stock-based compensation 15,321 41,761
Transactional adjustment (5) - (680)
Distributable earnings $ 61,340 $ 51,318 (6)
(1) Prior to the final exchanges of the LCFH Limited Partners into Class A
shares in the third quarter of 2020, we considered the Class A common
shareholders of the Company and Continuing LCFH Limited Partners to have had
fundamentally equivalent interests in our pre-tax earnings. Accordingly, for
purposes of computing distributable earnings we start with pre-tax earnings and
adjust for other noncontrolling interests in consolidated joint ventures, but we
did not adjust for amounts attributable to noncontrolling interest held by
Continuing LCFH Limited Partners . As of December 31, 2021 , there are no
remaining Continuing LCFH Limited Partners . For the years ended December 31,
2021 and December 31, 2020 , $17 thousand and $16 thousand was included within
net (income) loss attributable to noncontrolling interests in consolidated joint
ventures on the consolidated statements of income, respectively.
(2) The following is a reconciliation of GAAP depreciation and amortization to
our share of real estate depreciation, amortization and gain adjustments
presented in the computation of distributable earnings in the preceding table ($
in thousands):
Year Ended December 31,
2021 2020
Total GAAP depreciation and amortization $ 37,801 $ 39,079
Less: Depreciation and amortization related to non-rental
property fixed assets (99) (99)
Less: Non-controlling interests in consolidated joint
ventures' share of accumulated depreciation and
amortization and unrecognized passive interest in
unconsolidated joint ventures (2,933) (2,377)
Our share of real estate depreciation and amortization 34,769 36,603
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Realized gain from accumulated depreciation and
amortization on real estate sold (refer to below) (31,219) (14,677)
Less: Non-controlling interests in consolidated joint
ventures' share of accumulated depreciation and
amortization on real estate sold - 2,667
Our share of accumulated depreciation and amortization on
real estate sold (a) (31,219) (12,010)
Less: Operating lease income on above/below market lease
intangible amortization (1,888) (2,100)
Our share of real estate depreciation, amortization and
gain adjustments $ 1,662 $ 22,493
(a) GAAP gains/losses on sales of real estate include the effects of
previously recognized real estate depreciation and amortization. For
purposes of distributable 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 distributable earnings ($ in thousands):
Year Ended December 31,
2021 2020
GAAP realized gain (loss) on sale of real estate, net $ 55,766 $ 32,102
Adjusted gain/loss on sale of real estate for purposes of
distributable earnings (24,547) (20,092)
Our share of accumulated depreciation and amortization on
real estate sold $ 31,219 $ 12,010
(3) The following is a reconciliation of GAAP net results from
derivative transactions to our unrecognized derivative result
presented in the computation of distributable earnings in the
preceding table ($ in thousands):
Year Ended December 31,
2021 2020
Net results from derivative transactions $ 1,749 $ (15,270)
Hedging interest expense 4,534 2,309
Hedging realized result 1,251 10,223
Adjustments for unrecognized derivative results $ 7,534 $ (2,738)
(4) For the year ended December 30, 2020, the Company recorded a CECL
provision for loan loss of $18.3 million of which $9.2 million was
determined to be non-recoverable. The adjustments reflect the
portion of such loan loss provision that management has determined
to be recoverable, and therefore both additional provisions and
releases of those provisions are excluded from distributable
earnings.
(5) The adjustment related to $0.7 million of income related to a tax
settlement recognized in the fourth quarter of 2020.
(6) Our results of operations in the second quarter of 2020 were
significantly impacted by the actions we took to generate liquidity
and pay down mark-to-market debt in direct response to the highly
volatile market conditions that occurred due to the COVID-19
pandemic. The actions taken by management had multiple impacts on
distributable earnings for the three months ended June 30, 2020 . In
late March of 2020, as the COVID-19 crisis continued to unfold, the
ability of repurchase financing counterparties to determine the
value of collateral in the form of CMBS was impaired as trading
volumes in the commercial real estate securities market were at
depressed levels characterized by very few buyers and very few,
typically distressed, sellers. As a result, the Company received
margin calls on its securities repurchase financing, all of which
were successfully satisfied by the Company in cash in a timely
manner. Management and the board of directors, as stockholders
owning over 10% of the Company and as accountable stewards of all
stockholders' capital, elected to strategically position the Company
for potential long-term volatility due to the COVID-19 pandemic. The
Company therefore took decisive defensive actions, including halting
new investment activity, selling performing loans and highly rated
securities, paying down debt, including mark-to-market debt that was
otherwise not due, as well as hiring professional service firms.
These actions were significant strategic shifts to position the
Company defensively against highly volatile market conditions caused
by the COVID-19 pandemic. The financial impact of such actions
aggregated to a $16.9 million net reduction to distributable
earnings for the three months ended June 30, 2020 . The reduction
included $34.5 million of losses comprised of (i) $6.7 million of
losses from sales of performing first mortgage loans included in
sale of loans, net; (ii) $15.4 million of losses from sales of CMBS;
(iii) $3.7 million of losses from conduit loan sales; (iv) $6.5
million of prepayment penalties related to pay downs of
mark-to-market debt included in interest expense; (v) $2.1 million
of professional fee expenses included in operating expenses
primarily for advisory fees related to increasing liquidity and
paying down debt with $20 thousand in fees related to employee
health and safety, compliance with local, state and national
guidelines, and head count reduction; and (vi) $0.2 million of
severance costs included in compensation and employee benefits. The
losses were partially offset by $19.0 million of gains from the
repurchase of, and extinguishment of, unsecured corporate bond debt
at a discount from par, net of $1.5 million of accelerated premium
amortization included in interest expense.
Distributable earnings has limitations as an analytical tool. Some of these limitations are:
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•Distributable 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 distributable earnings differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, distributable 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 addition, distributable earnings should not be considered to be the
equivalent to REIT taxable income calculated to determine the minimum amount of
dividends the Company is required to distribute to shareholders to maintain REIT
status. In order for the Company to maintain its qualification as a REIT under
the Code, we must annually distribute at least 90% of our REIT taxable income.
The Company has declared, and intends to continue declaring, regular quarterly
distributions to its shareholders in an amount approximating the REIT's net
taxable income.
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 distributable
earnings should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
For a discussion of current market conditions resulting from the COVID-19
pandemic, refer to Part II, Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and to Part I, 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 includes
interest from both fixed and floating-rate debt. The percentage of the Company's
assets and liabilities bearing interest at fixed and floating rates may change
over time, and asset composition may differ materially from debt 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 December 31, 2021 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 December 31, 2021 , both adjusted for the effects of our
interest rate hedging activities ($ in thousands):
Projected change
Projected change in portfolio
in net income(1) value
Change in interest rate:
Decrease by 1.00% $ (1,133) $ 3,787
Increase by 1.00% 20,413 (3,507)
(1) Subject to limits for floors on our floating rate investments and indebtedness.
Market Risk
As market volatility increases or liquidity decreases, the market value of the Company's assets may be adversely impacted.
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. We
continue to actively monitor the impacts of COVID-19 on our securities
portfolio.
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.
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.
79-------------------------------------------------------------------------------- Table of Contents 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, limiting the Company's ability to utilize cash held by Tuebor. Credit Risk The Company is subject to varying degrees of credit risk in connection with its investments. The Company seeks to manage credit risk by performing deep credit fundamental analyses of potential assets and through ongoing asset management. The Company's investment guidelines do not limit the amount of its equity that may be invested in any type of its assets; however, investments greater than a certain size are subject to approval by theRisk and Underwriting Committee of the board of directors. The continuing 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, which are in various stages of subsiding, may occur again in the future as a result of COVID-19 variants and the governmental responses thereto, and impair borrowers' ability to 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 ongoing impacts of the COVID-19 pandemic on our loans. Our portfolio's low weighted-average loan-to-value of 67.2% as ofDecember 31, 2021 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 toTreasury 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 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. 80 -------------------------------------------------------------------------------- Table of Contents 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.
We were in compliance with all covenants as described in this Annual Report as
of
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.
Regulatory Risk
Tuebor is subject to state regulation as a captive insurance company. If Tuebor fails to comply with regulatory requirements, it could be subject to loss of its licenses and registration and/or economic penalties. Effective as ofJuly 16, 2021 , LCAM is a registered investment adviser under the Advisors Act and currently provides investment advisory services solely to Ladder-sponsored collateralized loan obligation trusts ("CLO Issuers"). The CLO Issuers invest primarily in first mortgage loans secured by commercial real estate originated or acquired by Ladder and in participation interests in such loans. LCAM is entitled to receive a management fee connection with the advisory, administrative and monitoring services it performs for the CLO Issuer as the collateral manager; however, LCAM has waived this fee for so long as it or any of its affiliates serves as collateral manager for the CLO Issuers. A registered investment adviser is subject toU.S. federal and state laws and regulations primarily intended to benefit its clients. These laws and regulations include requirements relating to, among other things, fiduciary duties to clients, maintaining an effective compliance program, solicitation agreements, conflicts of interest, record keeping and reporting requirements, disclosure requirements, custody arrangements, limitations on agency cross and principal transactions between an investment adviser and its advisory clients and general anti-fraud prohibitions. In addition, these laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict us from conducting our advisory activities in the event we fail to comply with those laws and regulations. Sanctions that may be imposed for a failure to comply with applicable legal requirements include the suspension of individual employees, limitations on our engaging in various advisory activities for specified periods of time, disgorgement, the revocation of registrations, and other censures and fines.
We may become subject to additional regulatory and compliance burdens if our investment adviser subsidiary expands its product offerings and investment platform.
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Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )
83
Consolidated Balance Sheets 86
Consolidated Statements of Income 87
Consolidated Statements of Comprehensive Income 88
Consolidated Statements of Changes in Equity 89
Consolidated Statements of Cash Flows 92
Notes to Consolidated Financial Statements 95
Note 1. Organization and Operations 95
Note 2. Significant Accounting Policies 96
Note 3. Mortgage Loan Receivables 109
Note 4. Real Estate Securities 115
Note 5. Real Estate and Related Lease Intangibles, Net 117
Note 6. Investment in Unconsolidated Joint Ventures 122
Note 7. Debt Obligations, Net 124
Note 8. Derivative Instruments 131
Note 9. Offsetting Assets and Liabilities 133
Note 10. Consolidated Variable Interest Entities 134
Note 11. Equity Structure and Accounts 135
Note 12. Noncontrolling Interests 139
Note 13. Earnings Per Share 141
Note 14. Stock Based and Other Compensation Plans 142
Note 15. Fair Value of Financial Instruments 147
Note 16. Income Taxes 152
Note 17. Related Party Transactions 154
Note 18. Commitments and Contingencies 154
Note 19. Segment Reporting 156
Note 20. Subsequent Events 158
159
Schedule IV-Mortgage Loans on Real Estate as of December 31, 2021 170
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1), and the financial statement schedules listed in the index appearing under Item 15(a)(2), ofLadder Capital Corp and its subsidiaries (the "Company") (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as ofDecember 31, 2021 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2021 in conformity with accounting principles generally accepted inthe United States of America . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as ofDecember 31, 2021 , based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses in 2020.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's annual report on internal control over financial reporting appearing under Item 9A. Our responsibility is to express opinions on the Company's consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with thePublic Company Accounting Oversight Board (United States ) (PCAOB) and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of the Asset-Specific Provision for Loan Losses
As described in Notes 2 and 3 to the consolidated financial statements, the Company's consolidated mortgage loan receivables held for investment, at amortized cost were$3.5 billion , net of allowance for credit losses of$31.8 million , as ofDecember 31, 2021 . The provision for loan losses includes a portfolio-based, current expected credit loss ("CECL") component and an asset-specific component of$11.6 million and$20.2 million , respectively. The portfolio-based component of the provision for loan losses is calculated using a credit loss model, which is a forward-looking, econometric, commercial real estate loss forecasting tool. The model is comprised of a probability of default model and a loss given default model that, layered together with loan-level data, selected forward-looking macroeconomic variables, and pool-level mean loss rates, produces life of loan expected losses at the loan and portfolio level. Where management has determined that the credit loss model does not fully capture certain external factors, including portfolio trends or loan-specific factors, a qualitative adjustment to the reserve is recorded. The asset-specific reserve component relates to reserves for losses on individually impaired loans. Management considers a loan to be impaired when it is deemed probable the Company will be unable to collect all amounts due according to the contractual terms of the loan. If the loan is considered to be impaired, an allowance is recorded to reduce the carrying value of the loan to the present value of the expected future cash flows discounted at the loan's effective rate or the fair value of the collateral, less the estimated costs to sell, if recovery of the Company's investment is expected solely from the collateral. 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 recent comparable sales of similar properties. Such assumptions are generally based on current market conditions and are subject to economic and market uncertainties. The principal considerations for our determination that performing procedures relating to the valuation of the asset-specific provision for loan losses is a critical audit matter are (i) the significant judgment by management in estimating the fair value of the collateral of impaired loans for the asset-specific provision for loan losses, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to market capitalization rates used to estimate the fair value of the collateral of impaired loans for the asset-specific provision for loan losses. Also, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the asset-specific provision for loan losses, including the significant assumptions related to market capitalization rates used to estimate the fair value of the collateral for the asset-specific provision for loan losses. These procedures also included, among others (i) testing management's process relating to the valuation of the asset-specific provision for loan losses, (ii) for a selection of individually impaired loans, evaluating the appropriateness of the valuation methods used by management, (iii) testing the completeness and accuracy of the data used in the valuation methods, and (iv) for a selection of individually impaired loans, evaluating the reasonableness of the significant assumptions related to market capitalization rates by considering consistency with external market data. For a selection of individually impaired loans, professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the valuation methods used by management and (ii) the reasonableness of the significant assumptions related to market capitalization rates.
Valuation of Assets Acquired Through Foreclosure
As described in Notes 2 and 5 to the consolidated financial statements, the carrying value of the Company's consolidated real estate and related lease intangibles, net was$865.7 million as ofDecember 31, 2021 , inclusive of$38.0 million of real estate acquired through foreclosure in 2021. The Company generally acquires real estate assets or land and development assets through cash purchases and may also acquire such assets through foreclosure or deed-in-lieu of foreclosure in full or partial satisfaction of defaulted loans. Management records real estate acquired through foreclosure at fair value. In estimating the fair value of the tangible and intangible assets acquired, management considers information obtained about each property as a result of its due diligence and marketing and leasing activities, and utilizes various valuation methods. These methods may include discounted cash flow models, for which assumptions including cash flow projections, discount rate and capitalization rate, or market comparable transactions, which require management judgment in determining the appropriateness of recent comparable 84 -------------------------------------------------------------------------------- Table of Contents sales of similar properties. Management may also use the ground lease approach for land valuation, which requires judgment in determining comparable ground leases and related capitalization rates. The principal considerations for our determination that performing procedures relating to the valuation of assets acquired through foreclosure is a critical audit matter are (i) the significant judgment by management to estimate the fair value of the assets acquired through foreclosure, which in turn led to (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management's significant assumptions related to the cash flow projections, discount rate and capitalization rate used to estimate the fair value of assets acquired through foreclosure. Also, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of assets acquired through foreclosure, including the significant assumptions related to cash flow projections, discount rate and capitalization rate used to estimate the fair value of the assets acquired through foreclosure. These procedures also included, among others (i) testing management's process for estimating the fair value of assets acquired through foreclosure, (ii) evaluating the appropriateness of the valuation method used by management, (iii) testing the completeness and accuracy of the data used in the valuation method, and (iv) evaluating the reasonableness of the significant assumptions related to cash flow projections, discount rate and capitalization rate. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the valuation method used by management and (ii) the reasonableness of the significant assumptions related to cash flow projections, discount rate and capitalization rate. /s/PricewaterhouseCoopers LLP New York, New York February 11, 2022
We have served as the Company's or its predecessor's auditor since 2009.
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Ladder Capital Corp
Consolidated Balance Sheets
(Dollars in Thousands)
December 31, December 31,
2021(1) 2020(1)
Assets
Cash and cash equivalents $ 548,744 $ 1,254,432
Restricted cash 72,802 29,852
Mortgage loan receivables held for investment, net, at amortized cost: Mortgage loans receivable
3,553,737 2,354,059
Allowance for credit losses (31,752) (41,507)
Mortgage loan receivables held for sale - 30,518
Real estate securities 703,280 1,058,298
Real estate and related lease intangibles, net 865,694 985,304
Real estate held for sale 25,179 -
Investments in and advances to unconsolidated joint ventures 23,154 46,253
Derivative instruments 402 299
Accrued interest receivable 13,645 16,088
Other assets 76,367 147,633
Total assets $ 5,851,252 $ 5,881,229
Liabilities and Equity
Liabilities
Debt obligations, net $
4,219,703
Dividends payable 27,591 27,537 Accrued expenses 40,249 43,876 Other liabilities 50,090 51,527 Total liabilities 4,337,633 4,332,804 Commitments and contingencies (Note 18) - -
Equity
Class A common stock, par value
126 127
Additional paid-in capital 1,795,249 1,780,074
Treasury stock, 1,400,197 and 474,050 shares, at cost (76,324) (62,859)
Retained earnings (dividends in excess of earnings) (207,802) (163,717)
Accumulated other comprehensive income (loss) (4,112) (10,463)
Total shareholders' equity 1,507,137 1,543,162
Noncontrolling interests in consolidated joint ventures 6,482 5,263
Total equity 1,513,619 1,548,425
Total liabilities and equity $ 5,851,252 $ 5,881,229 (1)Includes amounts relating to consolidated variable interest entities. Refer to Note 2 and Note 10.
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share and Dividend Data)
Year Ended December 31,
2021 2020 2019
Net interest income
Interest income $ 176,099 $ 239,849 330,235
Interest expense 182,949 227,474 204,353
Net interest income (6,850) 12,375 125,882
Provision for (release of) loan loss reserves (8,713) 18,275 2,600
Net interest income (expense) after provision for (release of) loan losses
1,863 (5,900) 123,282
Other income (loss)
Real estate operating income 101,564 100,248 106,366
Sale of loans, net 8,398 (1,571) 54,758
Realized gain (loss) on securities 1,594 (12,410) 14,911
Unrealized gain (loss) on equity securities - (132) 1,737
Unrealized gain (loss) on Agency interest-only securities (91) 263 84
Realized gain (loss) on sale of real estate, net 55,766 32,102 1,392
Impairment of real estate - - (1,350)
Fee and other income 11,190 12,654 24,403
Net result from derivative transactions 1,749 (15,270) (30,011)
Earnings (loss) from investment in unconsolidated joint ventures
1,579 1,821 3,432
Gain (loss) on extinguishment of debt - 22,250 (1,070)
Total other income (loss) 181,749 139,955 174,652
Costs and expenses
Compensation and employee benefits 38,347 58,101 67,768
Operating expenses 17,672 20,294 22,595
Real estate operating expenses 26,161 28,584 23,323
Fee expense 5,810 7,244 6,090
Depreciation and amortization 37,801 39,079 38,511
Total costs and expenses 125,791 153,302 158,287
Income (loss) before taxes 57,821 (19,247) 139,647
Income tax expense (benefit) 928 (9,789) 2,646
Net income (loss) 56,893 (9,458) 137,001
Net (income) loss attributable to noncontrolling interests in consolidated joint ventures
(371) (5,544) 694
Net (income) loss attributable to noncontrolling interests in
- 557 (15,050)
Net income (loss) attributable to Class A common shareholders $ 56,522 $ (14,445) $ 122,645
Earnings per share:
Basic $ 0.46 $ (0.13) $ 1.16
Diluted $ 0.45 $ (0.13) $ 1.15
Weighted average shares outstanding:
Basic 123,763,843 112,409,615 105,455,849
Diluted 124,563,051 112,409,615 106,399,783
Dividends per share of Class A common stock $ 0.80 $ 0.94 $ 1.36
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
Year Ended December 31,
2021 2020 2019
Net income (loss) $ 56,893 $ (9,458) $ 137,001
Other comprehensive income (loss)
Unrealized gain (loss) on securities, net of tax:
Unrealized gain (loss) on real estate securities, available
for sale 8,005 (28,618) 24,678
Reclassification adjustment for (gain) loss included in net income (loss)
(1,654) 13,460 (14,748)
Total other comprehensive income (loss) 6,351 (15,158) 9,930
Comprehensive income (loss) 63,244 (24,616) 146,931
Comprehensive (income) loss attributable to noncontrolling interest in consolidated joint ventures
(371) (5,544) 694
Comprehensive income (loss) of combined Class A common
shareholders and
62,873 (30,160) $ 147,625 Comprehensive (income) loss attributable to noncontrolling interests in operating partnership
- 5,765 (16,195)
Comprehensive income (loss) attributable to Class A common
shareholders $ 62,873 $ (24,395) $ 131,430
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
Shareholders' Equity
Retained Earnings Accumulated
Class A Common Stock (Dividends in Other Noncontrolling Interests
Additional Paid- Excess of Comprehensive Consolidated
Shares Par in-Capital Treasury Stock Earnings) Income (Loss) Total Equity Joint Ventures
Balance,December 31, 2020 126,378$ 127 $ 1,780,074 $ (62,859) $ (163,717) $ (10,463) $ 5,263 $ 1,548,425 Contributions - - - - - - 1,631 1,631 Distributions - - (125) - - - (783) (908) Amortization of equity based compensation - - 15,300 - - - - 15,300 Purchase of treasury stock (823) (1) - (9,007) - - - (9,008) Re-issuance of treasury stock 748 1 - (1) - - - - Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units (440) - - (4,457) - - - (4,457) Forfeitures (410) (1) - - - - - (1) Dividends declared - - - - (100,607) - - (100,607) Net income (loss) - - - - 56,522 - 371 56,893 Other comprehensive income (loss) - - - - - 6,351 - 6,351 Balance,December 31, 2021 125,453$ 126 $ 1,795,249 $ (76,324) $ (207,802) $ (4,112) $ 6,482 $ 1,513,619
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
Shareholders' Equity
Retained Earnings Accumulated
Class A Common Stock Class B Common Stock (Dividends in Other Noncontrolling Interests
Additional Paid- Excess of Comprehensive Operating Consolidated
Shares Par Shares Par in-Capital Treasury Stock Earnings) Income (Loss) Partnership Joint Ventures Total Equity
Balance, December 31, 2019 107,509 $ 108 12,160 $ 12 $ 1,532,384 $ (42,699) $ (35,746) $ 4,218 $ 172,054 $ 8,646 $ 1,638,977
Contributions - - - - - - - - - 860 860
Distributions - - - - - - - - (6,698) (9,787) (16,485)
Amortization of equity based compensation - - - - 42,728 - - - - - 42,728
Issuance of common stock 4,000 4 - - 31,996 - - - - - 32,000
Issuance of Purchase Right - - - - 8,425 - - - - - 8,425
Grants of restricted stock - - - - - - Purchase of treasury stock (384) - - - - (3,035) - - - -
(3,035)
Re-issuance of treasury stock 4,423 4 - - (4) - - - - -
-
Shares acquired to satisfy minimum required federal and state tax withholding on vesting restricted stock and units (1,301) (1) - - - (17,125) - - - - (17,126) Forfeitures (28) - - - - - - - - - - Dividends declared - - - - - - (107,729) - - - (107,729) Exchange of noncontrolling interest for common stock 12,159 12 (12,160) (12) 165,788 - - (6,952) (158,613) - 223 CECL Adoption (refer to Note 3) - - - - - - (5,797) - - - (5,797) Net income (loss) - - - - - - (14,445) - (557) 5,544 (9,458) Other comprehensive income (loss) - - - - - - - (9,950) (5,208) -
(15,158)
Rebalancing of ownership percentage between Company andOperating Partnership - - - - (1,243) - - 2,221 (978) -
-
Balance,December 31, 2020 126,378$ 127 - $ -$ 1,780,074 $ (62,859) $ (163,717) $ (10,463) $ -$ 5,263 $ 1,548,425
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Changes in Equity
(Dollars and Shares in Thousands)
Shareholders' Equity
Retained Earnings Accumulated
Class A Common Stock Class B Common Stock (Dividends in Other Noncontrolling Interests
Additional Paid- Excess of Comprehensive Operating Consolidated
Shares Par Shares Par in-Capital Treasury Stock Earnings) Income (Loss) Partnership Joint Ventures Total Equity
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 - - - - - - - - (17,262) (1,213) (18,475)
Amortization of equity based compensation - - - - 21,777 - - - - - 21,777
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 (526) - - - - (9,247) - - - - (9,247) Forfeitures (9) - - - - - - - - - - Dividends declared - - - - - - (145,910) - - - (145,910) Stock dividends 1,434 1 181 - 23,822 - (23,823) - - - - Exchange of noncontrolling interest for common stock 1,139 1 (1,139) (1) 16,449 - - 65 (16,109) - 405 Net income (loss) - - - - - - 122,645 - 15,050 (694) 137,001 Other comprehensive income (loss) - - - - - - - 8,785 1,145 - 9,930 Rebalancing of ownership percentage between Company andOperating Partnership - - - - (820) - - 17 803 -
-
Balance,December 31, 2019 107,509$ 108 12,160$ 12 $ 1,532,384 $ (42,699) $ (35,746) $ 4,218 $ 172,054 $ 8,646$ 1,638,977
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Year Ended December 31,
2021 2020 2019
Cash flows from operating activities:
Net income (loss) $ 56,893 $ (9,458) $ 137,001
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
(Gain) loss on extinguishment of debt - (22,250) 1,070
Depreciation and amortization 37,801 39,079 38,511
Unrealized (gain) loss on derivative instruments (42) 269 (1,542)
Unrealized (gain) loss on equity securities - 132 (1,737)
Unrealized (gain) loss on Agency interest-only securities 91 (263) (84)
Unrealized (gain) loss on investment in mutual fund - (158) (405)
Provision for (release of) loan loss reserves (8,713) 18,275 2,600
Impairment of real estate - - 1,350
Amortization of equity based compensation 15,300 42,728 21,777
Amortization of deferred financing costs included in interest expense 21,530
18,730 10,987
Amortization of premium on mortgage loan financing (1,226) (1,160) (1,584)
Amortization of above- and below-market lease intangibles (1,888) (2,234) (1,359)
(Accretion)/amortization of discount, premium and other fees on loans (13,832)
(15,530) (17,845)
(Accretion)/amortization of discount, premium and other fees on securities
236 526 217
Realized (gain) loss on sale of mortgage loan receivables held for sale
(8,398) (8,026) (54,758)
Realized (gain) loss on sale of mortgage loan receivables held for investment
- 9,596 -
Realized (gain) loss on disposition of loan via foreclosure 26 (98) (2,250)
Realized (gain) loss on securities (1,594) 13,136 (14,911)
Realized (gain) loss on sale of real estate, net (55,766) (32,102) (1,392)
Realized gain on sale of derivative instruments - (108) 84
(Earnings) loss from investments in unconsolidated joint ventures in excess of distributions received
(1,462) (1,821) (3,432)
Insurance proceeds for remediation work due to property damage 2,092 - -
Insurance proceeds used for remediation work due to property damage (1,888)
- -
Origination of mortgage loan receivables held for sale (220,359) (212,845) (946,178)
Purchases of mortgage loan receivables held for sale - - (9,934)
Repayment of mortgage loan receivables held for sale 183 404 667
Proceeds from sales of mortgage loan receivables held for sale 259,092 312,273 1,024,357
Distributions from operations of investment in unconsolidated joint ventures
- - 3,317
Change in deferred tax asset (liability) 271 94 4,814
Changes in operating assets and liabilities:
Accrued interest receivable 649 4,895 5,556 Other assets 5,758 (8,778) 1,502 Accrued expenses and other liabilities (5,015) (33,363) (13,192) Net cash provided by (used in) operating activities 79,739 111,943 183,207
Cash flows from investing activities:
Origination of mortgage loan receivables held for investment (2,309,888) (353,662) (1,452,049) Purchases of mortgage loan receivables held for investment (63,600) - - Repayment of mortgage loan receivables held for investment 1,103,614 891,705 1,639,101
Proceeds from sale of mortgage loan receivables held for investment 46,557
270,491 -
Purchases of real estate securities (247,022) (440,612) (1,645,640)
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Year Ended December 31,
2021 2020 2019
Repayment of real estate securities 164,494 146,158 491,880
Basis recovery of interest-only securities 6,589 7,611 12,086
Proceeds from sales of real estate securities 438,594 932,158 855,618
Purchases of real estate (20,452) (7,440) (20,235)
Capital improvements of real estate (4,873) (6,103) (7,592)
Proceeds from sale of real estate 190,870 67,104 12,123
Capital contributions and advances to investment in unconsolidated joint ventures
- - (56,337)
Capital distribution from investment in unconsolidated joint ventures
24,561 4,002 48,514
Capitalization of interest on investment in unconsolidated joint ventures
- - (142)
Purchase of FHLB stock - - (3,704)
Proceeds from sale of FHLB stock 19,165 30,619 -
Purchase of derivative instruments (69) (196) (310)
Sale of derivative instruments - 430 100
Net cash provided by (used in) investing activities (651,460) 1,542,265 (126,587)
Cash flows from financing activities:
Deferred financing costs paid (3,221) (18,021) (6,910)
Proceeds from borrowings under debt obligations 4,519,064 10,021,156 14,402,852
Repayment of borrowings under debt obligations (4,493,566) (10,614,556) (14,022,875)
Cash dividends paid to Class A common shareholders (100,553) (118,888) (144,530)
Capital distributed to noncontrolling interests in operating partnership
- (6,698) (17,262)
Capital contributed by noncontrolling interests in consolidated joint ventures
1,506 860 498
Capital distributed to noncontrolling interests in consolidated joint ventures
(783) (9,787) (1,213)
Reissuance of treasury stock (1) - -
Payment of liability assumed in exchange for shares for the minimum withholding taxes on vesting restricted stock
(4,457) (17,126) (9,247)
Purchase of treasury stock (9,007) (3,035) (637)
Issuance of common stock 1 32,000 -
Issuance of Purchase Right - 8,425 -
Net cash provided by (used in) financing activities (91,017) (725,670) 200,676
Net increase (decrease) in cash, cash equivalents and restricted cash
(662,738) 928,538 257,296
Cash, cash equivalents and restricted cash at beginning of period
1,284,284 355,746 98,450
Cash, cash equivalents and restricted cash at end of period
Supplemental information: Cash paid for interest, net of amounts capitalized$ 173,128 $ 202,939 $ 195,061 Cash paid (received) for income taxes (2,527) 2,197 885 Non-cash investing and financing activities: Securities and derivatives purchased, not settled 18 - - Securities and derivatives sold, not settled 10 - -
Repayment in transit of mortgage loans receivable held for investment (other assets)
26,636 69,649 -
Settlement of mortgage loan receivable held for investment by real estate, net
(81,129) (28,903) (44,183)
Transfer from mortgage loans receivable held for sale to mortgage loans receivable held for investment, net, at amortized cost
- - 45,832
Real estate acquired in settlement of mortgage loan receivable held for investment, net
81,750 29,310 84,356
Transfer of real estate and related lease intangible, net into real estate held for sale
25,179 - -
Net settlement of sale of real estate, subject to debt -
real estate (29,827) (31,768) (11,943)
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Year Ended December 31,
2021 2020 2019Net settlement of sale of real estate, subject to debt - debt obligations
29,827 31,768 11,943
Exchange of noncontrolling interest for common stock - 158,625 16,110
Mortgage loan assumed in foreclosure of real estate - - (33,904)
Change in deferred tax asset related to exchanges of noncontrolling interest for common stock
- 223 394
Increase in amount payable pursuant to tax receivable agreement
- - (11)
Rebalancing of ownership percentage between Company and
- (978) 803
Dividends declared, not paid 27,591 27,537 38,696
Stock dividends - - 23,823
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):
December 31, December 31, December 31,
2021 2020 2019
Cash and cash equivalents $ 548,744 $ 1,254,432 $ 58,171
Restricted cash 72,802 29,852 297,575
Total cash, cash equivalents and restricted cash
shown in the consolidated statement of cash flows
Refer to the accompanying notes to consolidated financial statements.
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Ladder Capital Corp
Notes to Consolidated Financial Statements
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. We originate and invest 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.Ladder Capital Corp , as the general partner ofLadder Capital Finance Holdings LLLP ("LCFH" or the "Operating Partnership"), operates theLadder Capital business through LCFH and its subsidiaries. As ofDecember 31, 2021 ,Ladder Capital Corp has a 100.0% 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. In addition,Ladder Capital Corp , through certain subsidiaries which are treated as taxable REIT subsidiaries (each a "TRS"), is indirectly subject toU.S. federal, state and local income taxes. Other than such indirectU.S. federal, state and local income taxes, there are no material differences betweenLadder Capital Corp's consolidated financial statements and LCFH's consolidated financial statements.Ladder Capital Corp was formed as aDelaware corporation onMay 21, 2013 . The Company conducted its initial public offering ("IPO") which closed onFebruary 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."
COVID-19 Impact on the Organization
OnMarch 11, 2020 , theWorld Health Organization declared the novel strain of coronavirus ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. We continue to actively manage the liquidity and operations of the Company in light of the market conditions and the overall financial impact of COVID-19 across most industries inthe United States . In view of the ongoing uncertainty related to the duration of the pandemic, its ultimate impact on our revenues, profitability and financial position remains 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 ongoing COVID-19 pandemic on our business. 95 -------------------------------------------------------------------------------- Table of Contents 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Principles of Consolidation
The accompanying consolidated financial statements of the Company have been
prepared in accordance generally accepted accounting principles in
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 ("VIEs") 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 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. Refer to Note 10,
Consolidated Variable Interest Entities for further information on the Company's
consolidated variable interest entities.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP
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;
•valuation of real estate;
•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);
•determination of effective yield for recognition of interest income;
•adequacy of current expected credit losses ("CECL") including the valuation of
underlying collateral for collateral-dependent loans;
•determination of other than temporary impairment of real estate securities and
investments in and advances to unconsolidated joint ventures;
•certain estimates and assumptions used in the accrual of incentive compensation
and calculation of the fair value of equity compensation issued to employees;
•determination of the effective tax rate for income tax provision; and
•certain estimates and assumptions used in the allocation of revenue and
expenses for our segment reporting.
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Cash and Cash Equivalents
The Company considers all investments with original maturities of three months
or less, at the time of acquisition, to be cash equivalents. The Company
maintains cash accounts at several financial institutions, which are insured up
to a maximum of $250,000 per account as of December 31, 2021 and December 31,
2020 . At December 31, 2021 and December 31, 2020 , and at various times during
the years, the balances exceeded the insured limits.
Restricted Cash
Restricted cash includes accounts the Company maintains with brokers to facilitate financial derivative and repurchase agreement transactions in support of its loan and securities investments and risk management activities. Based on the value of the positions in these accounts and the associated margin requirements, the Company may be required to deposit additional cash into these broker accounts. The cash collateral held by broker is considered restricted cash. Restricted cash also includes tenant security deposits, deposits related to real estate sales and acquisitions and required escrow balances on credit facilities.
Mortgage Loan Receivables Held for Investment
Loans for which the Company has the intention and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding principal balances net of any unearned income, unamortized deferred fees or costs, premiums or discounts and an allowance for credit losses. Loan origination fees and direct loan origination costs are deferred and recognized in interest income over the estimated life of the loans using the effective interest method, adjusted for actual prepayments. Upon the decision to market such loans, the Company will evaluate if the loan meets held for sale criteria and then will transfer the loan from mortgage loan receivables held for investment to mortgage loan receivables held for sale at the lower of carrying value or fair value on the consolidated balance sheets.
Allowance for Credit Losses
The allowance for loan losses reflects the Company's estimate of loan losses
inherent in its loan portfolio as of the balance sheet date. The allowance for
loan losses includes a portfolio-based, current expected credit loss ("CECL")
component and an asset-specific component. In compliance with the CECL reporting
requirements, the Company has supplemented the existing credit monitoring and
management processes with additional processes to support the calculation of 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 loss forecasting
tool. It is comprised of a probability of default ("PD") model and a loss given
default ("LGD") model that, layered together with user's loan-level data,
selected forward-looking macroeconomic variables, and pool-level mean loss
rates, produces life of loan expected losses ("EL") at the loan and portfolio
level. Where management has determined that the credit loss model does not fully
capture certain external factors, including portfolio trends or loan-specific
factors, a qualitative adjustment to the reserve, is recorded. The CECL model
was implemented in 2020. Given the year ended 2019's loss model was based on the
incurred loss model, management notes that the 2019 period is not measured on a
comparable basis.
The asset-specific reserve component relates to reserves for losses on
individually impaired loans. The Company evaluates each loan for impairment at
least quarterly. Impairment occurs when it is deemed probable that the Company
will not be able to collect all amounts due according to the contractual terms
of the loan. If the loan is considered to be impaired, an allowance is recorded
to reduce the carrying value of the loan to the present value of the expected
future cash flows discounted at the loan's effective rate or the fair value of
the collateral, less the estimated costs to sell, if recovery of the Company's
investment is expected solely from the collateral. The Company generally will
use the direct capitalization rate valuation methodology or the sales comparison
approach to estimate the fair value of the collateral for such loans and in
certain 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 are generally based on current market conditions and are subject to
economic and market uncertainties.
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The Company's loans are typically collateralized by real estate directly or
indirectly. As a result, the Company regularly evaluates the extent and impact
of any credit deterioration associated with the performance and/or value of the
underlying collateral property as well as the financial and operating capability
of the borrower/sponsor on a loan-by-loan basis. Specifically, a property's
operating results and any cash reserves are analyzed and used to assess
(i) whether cash flow from operations is sufficient to cover the debt service
requirements currently and into the future, (ii) the ability of the borrower to
refinance the loan at maturity, and/or (iii) the property's liquidation value.
The Company also evaluates the financial wherewithal of any loan guarantors as
well as the borrower's competency in managing and operating the properties. In
addition, the Company considers the overall economic environment, real estate
sector, and geographic 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 debtor
is experiencing financial difficulties. Impairments on TDR loans are generally
measured based on the present value of expected future cash flows discounted at
the effective interest rate of the original loans. Generally, when granting
concessions, the Company will seek to protect its position by requiring
incremental pay downs, additional collateral or guarantees and, in some cases,
lookback features or equity interests to offset concessions granted should
conditions impacting the loan improve. The Company's determination of credit
losses is impacted by TDRs whereby loans that have gone through TDRs are
considered impaired, assessed for specific impairment, and are not included in
the Company's assessment of 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 additional provision for loan
loss is recorded to the extent necessary.
The Company designates non-accrual loans generally when (i) the principal or
coupon interest components of loan payments become 90-days past due or (ii) in
the opinion of the Company, it is doubtful the Company will be able to collect
all amounts due according to the contractual terms of the loan. Interest income
on non-accrual loans in which the Company reasonably expects a full recovery of
the loan's outstanding principal balance is recognized when received in cash.
Otherwise, income recognition will be suspended and any cash received will be
applied as a reduction to the amortized cost. A non-accrual loan is returned to
accrual status at such time as the loan becomes contractually current and future
principal and coupon interest are reasonably assured to be received in
accordance with the contractual loan terms. A loan will be written off when
management has determined it is no longer realizable and deemed non-recoverable.
Mortgage Loan Receivables Held for Sale
Mortgage loan receivables held for sale are first mortgage loans that are secured by cash-flowing commercial real estate and are available for sale to securitizations. Mortgage loan receivables held for sale are recorded at lower of cost or market value on an individual basis.
The Company classifies its real estate securities investments on the date of acquisition of the investment. Real estate securities that the Company does not hold for the purpose of selling in the near-term, but may dispose of prior to maturity, are designated as available-for-sale and are carried at estimated fair value with the net unrealized gains or losses on all securities, except forGovernment National Mortgage Association ("GNMA") interest-only and Federal Home Loan Mortgage Corp ("FHLMC") interest-only securities (collectively, "Agency interest-only securities") and equity securities, recorded as a component of other comprehensive income (loss) in shareholders' equity. As more fully described in Note 4, certain securities which were purchased from the LCCM LC-26 securitization trust are designated as risk retention securities under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") which are subject to transfer restrictions over the term of the securitization trust and are classified as held-to-maturity and reported at amortized cost. 98 -------------------------------------------------------------------------------- Table of Contents 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 earnings in the consolidated statements of income. The Company's recognition of interest income from its Agency interest-only and all other securities, including effective interest from amortization of premiums, follows the Company's Revenue Recognition policy, as disclosed within this Note for recognizing interest income on its securities. The interest income recognized from the Company's Agency interest-only securities is recorded in interest income on the consolidated statements of income. The Company uses the specific identification method when determining the cost of securities sold and the amount of gain (loss) on securities recognized in earnings. Unrealized losses on securities that, in the judgment of management, are other than temporary are charged against earnings as a loss in the consolidated statements of income.
Equity securities are classified as available-for-sale. 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.
When the estimated fair value of an available-for-sale security is less than amortized cost, the Company will consider whether there is an other-than-temporary impairment in the value of the security. An impairment will be considered other-than-temporary based on consideration of several factors, including (i) if the Company intends to sell the security, (ii) if it is more likely than not that the Company will be required to sell the security before recovering its cost, or (iii) the Company does not expect to recover the security's cost basis (i.e., a credit loss). A credit loss will have occurred if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis. If the Company intends to sell an impaired debt security or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis less any current period credit loss, the impairment is other-than-temporary and will be recognized currently in earnings equal to the entire difference between fair value and amortized cost. If a credit loss exists, but the Company does not intend to, nor is it more likely than not that it will be required to sell before recovery, the impairment is other-than-temporary and will be separated into (i) the estimated amount relating to the credit loss, and (ii) the amount relating to all other factors. Only the estimated credit loss amount is recognized currently in earnings, with the remainder of the loss recognized in other comprehensive income. Estimating cash flows and determining whether there is other-than-temporary impairment require management to exercise judgment and make significant assumptions, including, but not limited to, assumptions regarding estimated prepayments, loss assumptions, and assumptions regarding changes in interest rates. As a result, actual impairment losses, and the timing of income recognized on these securities, could differ from reported amounts. For cash flow statement purposes, receipts of interest from interest-only real estate securities are bifurcated between amortization of premium/(accretion) of discount and other fees on securities as part of cash flows from operations and basis recovery of Agency interest-only securities as part of cash flows from investing activities. The Company utilizes an internal model as its primary pricing source to develop its prices for its CMBS and other commercial real estate securities guaranteed by aU.S. governmental agency or by a government sponsored entity (together, "U.S. Agency securities"). Different judgments and assumptions could result in materially different estimates of fair value. To confirm its own valuations, the Company requests prices for each of itsCMBS and U.S. Agency securities investments from three different sources, including third parties that provide pricing services and brokers, although since broker quotes for the same or similar securities in which Ladder has invested are non-binding, the Company does not consider them to be a primary source for valuation. The Company may also develop a price for a security based on its direct observations of market activity and other observations. Typically, at least two prices per security are obtained. Prior to using a third-party pricing service for valuation, the Company develops an understanding of the valuation methodologies used by such pricing services through discussions with their representatives and review of their valuation methodologies used for different types of securities. The Company understands that the pricing services develop estimates of fair value forCMBS and U.S. Agency securities using various techniques, including discussion with their internal trading desks, proprietary models and matrix pricing approaches. The Company does not have access to, and is therefore not able to review in detail, the inputs used by the pricing services in developing their estimates of fair value. However, on at least a monthly basis as part of our closing process, the Company evaluates the fair value information provided by the pricing services by comparing this information for reasonableness against its direct observations of market activity for similar securities and anecdotal information obtained from market participants that, in its assessment, is relevant to the determination of fair value. This process may result in the Company "challenging" the estimate of fair value for a security if it is unable to reconcile the estimate provided by the pricing service with its assessment of fair value for the security. Accordingly, in following this approach, the Company's objective is to ensure that the information used by pricing services in their determination of fair value of securities is reasonable and appropriate.
In the extremely limited occasions where the prices received were challenged, the challenge resulted in the prices provided by the pricing services being updated to reflect current market updates or cash flow assumptions.
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Real Estate
The Company generally acquires real estate assets or land and development assets
through cash purchases and may also acquire such assets through foreclosure or
deed-in-lieu of foreclosure in full or partial satisfaction of defaulted loans.
Based on the Company's strategic plan to realize the maximum value from the real
estate acquired, properties are either classified as Real estate, net or Real
estate held for sale in the consolidated balance sheets. When the Company
intends to hold, operate or develop the property for a period of at least 12
months, assets are classified as Real estate, net. If the Company intends to
market these properties for sale in the near term, assets are evaluated against
the held for sale criteria and then may be classified as real estate held for
sale in the consolidated balance sheets. The Company records acquired real
estate at cost and makes assessments as to the useful lives of depreciable
assets. The Company records real estate acquired through foreclosure at fair
value. The Company considers the period of future benefit of the asset to
determine its appropriate useful lives. Depreciation is computed using a
straight-line method over the estimated useful life of 20 to 55 years for
buildings, four to 15 years for building fixtures and improvements and the
remaining lease term for acquired intangible lease assets or liabilities.
The Company classifies most of its investments in real estate as held and used.
The Company measures and records a property that is classified as held and used
at its carrying amount, adjusted for any depreciation expense and impairments,
as applicable and are included in Real estate, net in the consolidated balance
sheets.
Certain of the Company's real estate is leased to others on a net lease basis
where the tenant is generally responsible for payment of real estate taxes,
property, building and general liability insurance and property and building
maintenance. These leases are for fixed terms of varying length and provide for
annual rentals. Rental income from leases is recognized on a straight-line basis
over the term of the respective leases. The cumulative excess of rents
recognized over amounts contractually due pursuant to the underlying leases are
included in unbilled rent receivable within other assets in the consolidated
balance sheets.
Allocation of Purchase Price for
Upon acquisition of rental property, the Company estimates the fair value of
acquired tangible assets, consisting of land, building and improvements, and
identified intangible assets and liabilities assumed, generally consisting of
the fair value of (i) above and below market leases, (ii) in-place leases and
(iii) tenant relationships. The Company allocates the purchase price to the
assets acquired and liabilities assumed based on their fair values and real
estate acquisition costs are capitalized as a component of the cost of the
assets acquired for asset acquisitions. The Company records goodwill or a gain
on bargain purchase (if any) if the net assets acquired/liabilities assumed
exceed the purchase consideration of a transaction. In estimating the fair value
of the tangible and intangible assets acquired, the Company considers
information obtained about each property as a result of its due diligence and
marketing and leasing activities, and utilizes various valuation methods. These
methods may include discounted cash flow models, for which assumptions including
cash flow projections, discount and capitalization rates, or market comparable
transactions, which require management judgment in determining the
appropriateness of recent comparable sales of similar properties, or the ground
lease approach for land valuation, which requires management judgement in
determining comparable ground leases to forecast the economic ground rent and
apply capitalization rate to the forecast economic ground rent to estimate land
value. The Company may also utilize estimates of replacement costs net of
depreciation. The fair value of the tangible assets of an acquired property
considers the value of the property as if it were vacant.
Above-market and below-market lease values for acquired properties are initially
recorded based on the present value (using a discount rate which reflects the
risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to each in-place lease and (ii)
management's estimate of fair market lease rates for each corresponding in-place
lease, measured over a period equal to the remaining term of the lease for
above-market leases and the remaining initial term plus the term of any
below-market fixed rate renewal options for below-market leases. The capitalized
above-market lease values are amortized as a reduction of base rental revenue
over the remaining terms of the respective leases, and the capitalized
below-market lease values are amortized as an increase to base rental revenue
over the remaining initial terms plus the terms of any below-market fixed rate
renewal options of the respective leases. If a tenant with a below market rent
renewal does not renew, any remaining unamortized amount will be taken into
income at that time.
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Other intangible assets acquired include amounts for in-place lease values and
tenant relationship values, which are based on management's evaluation of the
specific characteristics of each tenant's lease and the Company's overall
relationship with the respective tenant. Factors to be considered by management
in its analysis of in-place lease values include an estimate of carrying costs
during hypothetical expected lease-up periods considering current market
conditions, and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses
and estimates of lost rentals at market rates during the expected lease-up
periods, depending on local market conditions. In estimating costs to execute
similar leases, management considers leasing commissions, legal and other
related expenses. Characteristics considered by management in valuing tenant
relationships include the nature and extent of the Company's existing business
relationships with the tenant, growth prospects for developing new business with
the tenant, the tenant's credit quality and expectations of lease renewals. The
value of in-place leases are amortized to expense over the remaining initial
terms of the respective leases. The value of tenant relationship intangibles are
amortized to expense over the anticipated life of the relationships but in no
event do the amortization periods for intangible assets exceed the depreciable
lives of the buildings. If a tenant terminates its lease, the unamortized
portion of the in-place lease value and tenant relationship intangibles are
charged to expense.
The fair value of other investments and debt assumed are valued using techniques
consistent with those disclosed in Note 15, depending on the nature of the
investments or debt. The fair value of other assumed assets and liabilities are
based on best information available at the time of the acquisition.
Impairment of Property Held for Use
On a periodic basis, management assesses whether there are any indicators that the value of the Company's properties classified as held for use may be impaired. In addition to identifying any specific circumstances which may affect a property or properties, management considers other criteria for determining which properties may require assessment for potential impairment. The criteria considered by management include reviewing low leased percentages, significant near-term lease expirations, recently acquired properties, current and historical operating and/or cash flow losses, near-term mortgage debt maturities or other factors that might impact the Company's intent and ability to hold the property. A property's value is impaired only if management's estimate of the aggregate future cash flows (undiscounted and without debt service charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the property over the fair value of the property. The Company's estimates of aggregate future cash flows expected to be generated by each property are based on a number of assumptions. These assumptions are generally based on management's experience in its local real estate markets and the effects of current market conditions. The assumptions are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates, and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter management's assumptions, the future cash flows estimated by management in its impairment analyses may not be achieved, and actual losses or impairments may be realized in the future.
Real Estate Held for Sale
In accordance with accounting guidance found in ASC Topic 360 - Property, Plant,
and Equipment ("ASC 360"), when assets meet the criteria for held for sale, the
Company discontinues depreciating the assets and estimates the sales price, net
of selling costs, of such assets. If, in management's opinion, the estimated
net sales price of the assets which have been identified as held for sale is
less than the net book value of the assets, an impairment charge will be
recorded in the consolidated statements of income.
If circumstances arise that previously were considered unlikely and, as a
result, the Company decides not to sell a property previously classified as held
for sale, the property is reclassified as held and used. A property that is
reclassified is measured and recorded individually at the lower of (a) its
carrying amount before the property was classified as held for sale, adjusted
for any depreciation (amortization) expense that would have been recognized had
the property been continuously classified as held and used, or (b) the fair
value at the date of the subsequent decision not to sell.
Sales of Real Estate
Gains on sales of real estate are recognized pursuant to the provisions included
in ASC 606-20, Revenue from Contracts with Customers ("ASC 606-20") or ASC
610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC
610-20"). Generally, the Company's sales of residential condominiums would be
governed by ASC 606-20 and the sales of rental properties under ASC 610-20.
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Investments in and Advances to Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures under
the equity method of accounting. The Company applies the equity method by
initially recording these investments at cost, as investments in unconsolidated
joint ventures, subsequently adjusted for equity in earnings and cash
contributions and distributions. In the event there is an outside basis portion
of the Company's joint ventures, it is amortized over the anticipated useful
lives of the underlying ventures' tangible and intangible assets acquired and
liabilities assumed. Generally, the Company would discontinue applying the
equity method when the investment (and any advances) is reduced to zero and
would not provide for additional losses unless the Company has guaranteed
obligations of the venture or is otherwise committed to providing further
financial support for the investee. If the venture subsequently generates
income, the Company only recognizes its share of such income to the extent it
exceeds its share of previously unrecognized losses. The Company classifies
distributions received from its investments in unconsolidated joint ventures
using the nature of the distribution approach.
On a periodic basis, management assesses whether there are any indicators that
the value of the Company's investments in unconsolidated joint ventures may be
impaired. An investment is impaired only if management's estimate of the value
of the investment is less than the carrying value of the investment, and such
decline in value is deemed to be other than temporary. To the extent impairment
has occurred, the loss shall be measured as the excess of the carrying amount of
the investment over the value of the investment. The Company's estimates of
value for each investment (particularly in commercial real estate joint
ventures) are based on a number of assumptions that are subject to economic and
market uncertainties including, among others, demand for space, competition for
tenants, changes in market rental rates, and operating costs. As these factors
are difficult to predict and are subject to future events that may alter
management's assumptions, the values estimated by management in its impairment
analyses may not be realized, and actual losses or impairment may be realized in
the future.
Capitalization of Interest
Capitalization of costs begins when the activities necessary to get the
development project ready for its intended use begins, which include costs
incurred before the beginning of construction. Capitalization of costs ceases
when the development project is substantially complete and ready for its
intended use. Determining when a development project commences, and when it is
substantially complete and ready for its intended use involves a degree of
judgment. We generally consider a development project to be substantially
complete and ready for its intended use upon receipt of a certificate of
occupancy. We cease cost capitalization if activities necessary for the
development of the property have been suspended. Capitalized costs are allocated
to the specific components of a project that are benefited.
Interest shall be capitalized for investments accounted for by the equity method
while the investee has activities in progress necessary to commence its planned
principal operations, provided that the investee's activities include the use of
funds to acquire qualifying assets for its operations. The investor's investment
in the investee, not the individual assets or projects of the investee, is the
qualifying asset for purposes of interest capitalization.
Valuation of Financial Instruments
Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, fair values are not necessarily indicative of the amounts the Company could realize upon disposition of the financial instruments. Financial instruments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of pricing observability and will therefore require a lesser degree of judgment to be utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and will require a higher degree of judgment in measuring fair value. Pricing observability is generally affected by such items as the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and overall market conditions. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
For a further discussion regarding the measurement of financial instruments see Note 15, Fair Value of Financial Instruments.
Valuation Hierarchy
In accordance with the authoritative guidance on fair value measurements and disclosures under ASC 820 - Fair Value Measurement, the methodologies used for valuing such instruments have been categorized into three broad levels as follows:
Level 1 - Quoted prices in active markets for identical instruments.
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Level 2 - Valuations based principally on other observable market parameters,
including:
•Quoted prices in active markets for similar instruments,
•Quoted prices in less active or inactive markets for identical or similar
instruments,
•Other observable inputs (such as interest rates, yield curves, volatilities,
prepayment speeds, loss severities, credit risks and default rates), and
•Market corroborated inputs (derived principally from or corroborated by
observable market data).
Level 3 - Valuations based significantly on unobservable inputs.
•Valuations based on third-party indications (broker quotes, counterparty quotes or pricing services) which were, in turn, based significantly on unobservable inputs or were otherwise not supportable as Level 2 valuations, and •Valuations based on internal models with significant unobservable inputs. Pursuant to the authoritative guidance, these levels form a hierarchy. The Company follows this hierarchy for its financial instruments measured at fair value on a recurring basis. The classifications are based on the lowest level of input that is significant to the fair value measurement. It is the Company's policy to determine when transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.
Tuebor/Federal Home Loan Bank Membership
Tuebor Captive Insurance Company LLC ("Tuebor"), was licensed inMichigan and approved to operate as a captive insurance company as well as being approved to become a member of theFederal Home Loan Bank ("FHLB"), with membership finalized with the purchase of stock, in the FHLB onJuly 11, 2012 . That approval allowed Tuebor to purchase capital stock in the FHLB, the prerequisite to obtaining financing on eligible collateral. 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 (5) 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. The Company records its investment in FHLB stock at its par value and the FHLB stock is expected to be repurchased by the FHLB at its par value. As ofDecember 31, 2021 and 2020, the carrying value of the FHLB stock was$11.8 million and$31.0 million respectively, which is included in other assets on the consolidated balance sheets.
Debt Issuance Costs
The Company recognizes debt issuance costs related to its senior unsecured notes on its consolidated balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company defers debt issuance costs associated with lines of credit and presents them as an asset and subsequently amortizes the debt issuance costs ratably over the term of the revolving debt arrangement. The Company considers its committed loan master repurchase facilities, borrowings under credit agreement and revolving credit facility to be revolving debt arrangements.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of
interest rate changes and may undertake a strategy to limit these risks through
the use of derivatives. To address exposure to interest rates, the Company uses
derivatives primarily to economically hedge the fair value variability of fixed
rate assets caused by interest rate fluctuations and overall portfolio market
risk. The Company may use a variety of derivative instruments that are
considered conventional, or "plain vanilla" derivatives, including interest rate
swaps, futures, caps, collars and floors, to manage interest rate risk.
To determine the fair value of derivative instruments, the Company uses a
variety of methods and assumptions that are based on market conditions and risks
existing at each balance sheet date. Standard market conventions and techniques
such as discounted cash flow analysis, option-pricing models, and termination
cost may be used to determine fair value. All such methods of
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measuring fair value for derivative instruments result in an estimate of fair
value, and such value may never actually be realized.
The Company recognizes all derivatives on the consolidated balance sheets at
fair value. The Company does not generally designate derivatives as hedges to
qualify for hedge accounting for financial reporting purposes and therefore any
net payments under, or fluctuations in the fair value of, these derivatives have
been recognized currently in net result from derivative transactions in the
accompanying consolidated statements of income. The Company records derivative
asset and liability positions on a gross basis with any collateral posted with
or received from counterparties recorded separately on the Company's
consolidated balance sheets.
Repurchase Agreements
The Company finances certain of its mortgage loan receivables held for sale, a portion of its mortgage loan receivables held for investment and the majority of its real estate securities using repurchase agreements. Under a repurchase agreement, an asset is sold to a counterparty to be repurchased at a future date at a predetermined price, which represents the original sales price plus interest. The Company accounts for these repurchase agreements as financings under ASC 860-10-40. Under this standard, for these transactions to be treated as financings, they must be separate transactions and not linked. If the Company finances the purchase of its mortgage loan receivables held for sale, mortgage loan receivables held for investment and real estate securities with repurchase agreements with the same counterparty from which the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed under GAAP to be part of the same arrangement, or a "Linked Transaction," unless certain criteria are met. As ofDecember 31, 2021 and 2020, none of the Company's repurchase agreements are accounted for as linked transactions.
Income Taxes
The Company has elected to be taxed as a REIT under the Code effectiveJanuary 1, 2015 . The Company is subject to federal income taxation at corporate rates on its REIT taxable income; however, the Company is allowed a deduction for the amount of dividends paid to its stockholders, thereby subjecting the distributed net income of the Company to taxation at the stockholder level only. Any income associated with a TRS is fully taxable because a TRS is subject to federal and state income taxes as a domestic C corporation based upon its taxable net income. The Company is also subject toU.S. federal income tax (and possibly state and local taxes) to the extent it recognizes any "built-in gains" that existed as ofJanuary 1, 2015 , the effective date of Company's election to be subject to tax as a REIT under the Code (the "REIT Election") for the five year period following the REIT Election. The Company intends to continue to operate in a manner consistent with and to elect to be treated as a REIT for tax purposes. The Company accounts for income taxes in accordance with ASC Topic 740 - Income Taxes ("ASC 740"), which requires the recognition of tax benefits or expenses on the temporary differences between financial reporting and tax bases of assets and liabilities. The Company determines whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement which could result in the Company recording a tax liability that would reduce shareholders' equity. The Company's policy is to classify interest and penalties associated with underpayment ofU.S. federal and state income taxes, if any, as a component of operating expense on its consolidated statements of income. For the years endedDecember 31, 2021 and 2020, the Company did not have material interest or penalties associated with the underpayment of any income taxes. The last three tax years remain open and subject to examination by tax jurisdictions. 104 -------------------------------------------------------------------------------- Table of Contents Interest Income Interest income is accrued based on the outstanding principal amount and contractual terms of the Company's loans and securities. Discounts or premiums associated with the purchase of loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on expected cash flows through the expected recovery period of the investment. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections. The Company has historically collected, and expects to continue to collect, all contractual amounts due on its originated loans. As a result, the Company does not adjust the projected cash flows to reflect anticipated credit losses for these loans. If the performance of a credit deteriorated security is more favorable than forecasted, the Company will generally accrete more credit discount into interest income than initially or previously expected. These adjustments are made prospectively beginning in the period subsequent to the determination that a favorable change in performance is projected. Conversely, if the performance of a credit deteriorated security is less favorable than forecasted, an other-than-temporary impairment may be taken, and the amount of discount accreted into income will generally be less than previously expected. The effective yield on securities is based on the projected cash flows from each security, which is estimated based on the Company's observation of the then current information and events and will include assumptions related to interest rates, prepayment rates and the timing and amount of credit losses. On at least a quarterly basis, the Company reviews and, if appropriate, makes adjustments to its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses (if applicable), and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield/interest income recognized on such securities. Actual maturities of the securities are affected by the contractual lives of the associated mortgage collateral, periodic payments of scheduled principal, and repayments of principal. Therefore, actual maturities of the securities will generally be shorter than stated contractual maturities. For loans classified as held for investment and that the Company has not elected to record at fair value under ASC 825, origination fees and direct loan origination costs are recognized in interest income over the loan term as a yield adjustment using the effective interest method. For loans classified as held for sale and that the Company has not elected to record at fair value under ASC 825, origination fees and direct loan origination costs are deferred adjusting the basis of the loan and are realized as a portion of the gain/(loss) on sale of loans when sold. As ofDecember 31, 2021 and 2020, the Company did not hold any loans for which the fair value option was elected. For our CMBS rated below AA, which represents 6% of the Company's CMBS portfolio as ofDecember 31, 2021 , cash flows from a security are estimated by applying assumptions used to determine the fair value of such security and the excess of the future cash flows over the investment are recognized as interest income under the effective yield method. The Company will review and, if appropriate, make adjustments to, its cash flow projections at least quarterly and monitor these projections based on input and analysis received from external sources and its judgment about interest rates, prepayment rates, the timing and amount of credit losses and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in interest income recognized and amortization of any premium or discount on, or the carrying value of, such securities. For investments purchased with evidence of deterioration of credit quality for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments receivable, the Company will apply the provisions of ASC 310-30 - Loans and Debt Securities Acquired with Deteriorated Credit Quality. ASC 310-30 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. ASC 310-30 limits the yield that may be accreted (accretable yield) to the excess of the investor's estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor's initial investment in the loan. ASC 310-30 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan's yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment. 105 -------------------------------------------------------------------------------- Table of Contents 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 arrangements are subject to the provisions of ASC 842. Any non-lease components are subject to other applicable accounting guidance. We 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 842 - Leases, will be applied to all new or modified leases executed on or afterJanuary 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. A lease is 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 sheet based on the present value of future lease payments relating to the use of the underlying asset during the lease term. Future lease payments include fixed lease payments as well as variable lease payments that depend upon an index or rate using the index or rate at the 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 options when the Company has determined, at or subsequent to lease commencement, generally due to limited asset availability or operating commitments, it 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 payments that vary based on future usage levels, the nature of leased asset activities, or certain other contingencies, are not included in the measurement of lease right-of-use assets and corresponding liabilities. The Company has elected not 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.
Transfers of Financial Assets
For a transfer of financial assets to be considered a sale, the transfer must meet the sale criteria of ASC 860, which, at the time of the transfer, require that the transferred assets qualify as recognized financial assets and the Company surrender control over the assets. Such surrender requires that the assets be isolated from the Company, even in bankruptcy or other receivership, the purchaser have the right to pledge or sell the assets transferred and the Company 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. InNovember 2017 , theSEC staff indicated that, despite transfer restrictions placed on qualified Third Party Purchasers by the risk retention rules of the Dodd-Frank Act, they would not take exception to a registrant treating transfers of financial instruments in a securitization as sales if the transfers otherwise met all the criteria for sale accounting. The Company believes treatment of such transfers as sales is consistent with the substance of such transactions and, accordingly, reflects such transfers as sales. We recognize gains on sale of loans net of any costs related to that sale.
Debt Issued
From time to time, a subsidiary of the Company will originate a loan (each, an
"Intercompany Loan," and collectively, "Intercompany Loans") to another
subsidiary of the Company to finance the purchase of real estate. The mortgage
loan receivable and the related obligation do not appear in the Company's
consolidated balance sheets as they are eliminated upon consolidation. Once the
Company issues (sells) an Intercompany Loan to a third-party securitization
trust (for cash), the related mortgage note is held for the first time by a
creditor external to the Company. The accounting for the securitization of an
Intercompany Loan-a financial instrument that has never been recognized in our
consolidated financial statements as an asset-is considered a financing
transaction under ASC 470 - Debt, and ASC 835 - Interest.
The periodic securitization of the Company's mortgage loans involves both
Intercompany Loans and mortgage loans made to third parties with the latter
recognized as financial assets in the Company's consolidated financial
statements as part of an integrated transaction. The Company receives aggregate
proceeds equal to the transaction's all-in securitization value and sales price.
In accordance with the guidance under ASC 835, when initially measuring the
obligation arising from an Intercompany Loan's securitization, the Company
allocates the proceeds from each securitization transaction between the
third-party loans and each Intercompany Loan so securitized on a relative fair
value basis determined in accordance with the guidance in ASC 820, Fair Value
Measurement. The difference between the amount allocated to each Intercompany
Loan and the loan's face
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Fee and Other Income
Fee and other income is composed of income from dividend income on our investment in FHLB stock, as well as from underwriting fees, exit fees and other fees on the loans we originate and in which we invest.
Fee Expense
Fee expense is composed primarily of fees related to financing arrangements, transaction related costs and financing arrangements and other investment related costs. Stock Based Compensation Plan The Company accounts for its equity-based compensation awards using the fair value method, which requires an estimate of fair value of the award at the time of grant. The Company recognizes the compensation expense related to the time-based vesting criteria on a straight-line basis over the requisite service period. 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. The Company made a policy election to account for forfeitures as they occur rather than on an estimated basis.
Recently Adopted Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
("ASU 2020-04"), and in January 2021, the FASB issued ASU 2021-01, Reference
Rate Reform (Topic 848)-Scope ("ASU 2021-01"). Both ASU 2020-04 and ASU 2021-01
provides optional expedients and exceptions for applying GAAP to contracts,
hedging relationships and other transactions that reference the London Interbank
Offered Rate ("LIBOR") or another reference rate expected to be discontinued
because of reference rate reform. ASU 2020-04 and ASU 2021-01 are effective upon
issuance for contract modifications and hedging relationships on a prospective
basis. While the Company is currently assessing the impact of ASU 2020-04 and
ASU 2021-01, the Company does not expect the adoptions to have a material impact
on the Company's consolidated financial statements.
In October 2020, the FASB issued ASU 2020-08, Codification Improvements to
Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs, ("ASU
2020-08"). This ASU clarifies that an entity should reevaluate whether a
callable debt security is within the scope of ASC paragraph 310-20-35-33 for
each reporting period. The guidance is effective for public business entities
for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2020. All entities should apply ASU 2020-08 on a prospective basis
as of the beginning of the period of adoption for existing or newly purchased
callable debt securities. The adoption of ASU 2020-08 did not have a material
impact on the Company's consolidated financial statements.
In July 2021, the FASB issued ASU 2021-05-Leases (Topic 842): Lessors-Certain
Leases with Variable Lease Payments ("ASU 2021-05"). The adoption of ASU 2021-05
is effective for fiscal years beginning after December 15, 2021. The Company is
currently evaluating the impact of ASU 2021-05 and does not expect this to have
a material impact on the Company's consolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which
updates various codification topics by clarifying or improving disclosure
requirements to align with the SEC's regulations. The adoption of ASU 2020-10
did not have a material impact on the Company's consolidated financial
statements.
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Recent Accounting Pronouncements Pending Adoption
In May 2021, the FASB issued ASU 2021-04-Earnings Per Share (Topic 260),
Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of
the FASB Emerging Issues Task Force). The amendments in this update are
effective for all entities for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. Early adoption is permitted
for all entities, including adoption in an interim period. The Company is
currently evaluating the impact of the update on the Company's 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.
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3. MORTGAGE LOAN RECEIVABLES
December 31, 2021 ($ in thousands)
Weighted Remaining
Outstanding Carrying Average Maturity
Face Amount Value Yield (1)(2) (years)(2)
Mortgage loan receivables held for
investment, net, at amortized cost:
First mortgage loans $ 3,482,715 $ 3,454,654 5.50 % 1.8
Mezzanine loans 99,204 99,083 10.92 % 1.9
Total mortgage loans receivable 3,581,919 3,553,737 5.65 % 1.8
Allowance for credit losses N/A (31,752)
Total mortgage loan receivables held
for investment, net, at amortized cost 3,581,919 3,521,985
Total $ 3,581,919 $ 3,521,985 (3) 5.65 % 1.8
(1)Includes the impact from interest rate floors. December 31, 2021 LIBOR rates
are used to calculate weighted average yield for floating rate loans.
(2)Excludes non-accrual loans of $80.2 million. Refer to "Non-Accrual Status"
below for further details.
(3)Includes $26.0 million of deferred origination fees and other items as of
December 31, 2021.
As of December 31, 2021, $3.3 billion, or 91.5%, 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 $3.3 billion, 100% of
these variable interest rate mortgage loan receivables were subject to interest
rate floors.
December 31, 2020 ($ in thousands)
Weighted Remaining
Outstanding Carrying Average Maturity
Face Amount Value Yield (1)(2) (years)(2)
Mortgage loan receivables held for
investment, net, at amortized cost:
First mortgage loans $ 2,243,639 $ 2,232,749 6.50 % 1.1
Mezzanine loans 121,565 121,310 10.83 % 2.7
Total mortgage loans receivable 2,365,204 2,354,059 6.65 % 1.2
Allowance for credit losses N/A (41,507)
Total mortgage loan receivables held
for investment, net, at amortized
cost 2,365,204 2,312,552
Mortgage loan receivables held for
sale:
First mortgage loans 30,478 30,518 4.05 % 9.2
Total $ 2,395,682 $ 2,343,070 (3) 6.74 % 1.3
(1)Includes the impact from interest rate floors. December 31, 2020 LIBOR rates
are used to calculate weighted average yield for floating rate loans.
(2)Excludes non-accrual loans of $175.0 million. Refer to "Non-Accrual Status"
below for further details.
(3)Includes $8.9 million of deferred origination fees and other items as of
December 31, 2020.
As of December 31, 2020, $1.9 billion, or 82.0%, 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 $1.9 billion, 100% of
these variable rate mortgage loan receivables were subject to interest rate
floors. As of December 31, 2020, $30.5 million, or 100%, of the outstanding face
amount of our mortgage loan receivables held for sale were at fixed interest
rates.
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Table of Contents For the years ended December 31, 2021 and 2020, the activity in our loan portfolio was as follows ($ in thousands):
Mortgage loan
receivables held for
investment, net, at
amortized cost:
Mortgage loan
Mortgage loans Allowance for receivables held
receivable credit losses for sale
Balance, December 31, 2020 $ 2,354,059 $ (41,507) $ 30,518
Origination of mortgage loan receivables 2,309,888 - 220,359
Purchases of mortgage loan receivables 63,600 -
Repayment of mortgage loan receivables (1,059,796) - (183)
Proceeds from sales of mortgage loan receivables (46,557) - (259,092)
Non-cash disposition of loans via foreclosure(1) (81,289) - -
Sale of loans, net - - 8,398
Accretion/amortization of discount, premium and other fees 13,832 - -
Release of asset-specific loan loss provision via foreclosure(1) - 1,150 -
Release of provision for current expected credit loss, net - 8,605 -
Balance, December 31, 2021 $ 3,553,737 $ (31,752) $ -
(1)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 loan
Mortgage loans Allowance for receivables held
receivable credit losses for sale
Balance, December 31, 2019 $ 3,257,036 $ (20,500) $ 122,325
Origination of mortgage loan receivables 353,661 - 212,845
Repayment of mortgage loan receivables (960,832) - (404)
Proceeds from sales of mortgage loan receivables (270,491) - (312,273)
Non-cash disposition of loan via foreclosure(1) (31,249) - -
Sale of loans, net (9,596) - 8,025
Accretion/amortization of discount, premium and other fees 15,530 - -
Release of asset-specific loan loss provision via foreclosure(1) - 2,500 -
Provision for current expected credit loss (implementation impact)(2)
- (4,964) -
Provision for current expected credit loss (impact to earnings)(2)
- (18,543) -
Balance, December 31, 2020 $ 2,354,059 $ (41,507) $ 30,518
(1)Refer to Note 5, Real Estate and Related Lease Intangibles, Net for further
detail on real estate acquired via foreclosure.
(2)During the year ended December 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 year ended December 31, 2020, is accounted for as
provision for (release of) loan losses in the consolidated statements of income.
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Mortgage loan receivables held for investment, net, at
amortized cost:
Mortgage loans
transferred but Mortgage loan
Mortgage loans not considered Allowance for receivables held
receivable sold credit losses for sale
Balance, December 31, 2018 $ 3,318,390 $ - $ (17,900) $ 182,439
Origination of mortgage loan receivables 1,452,049 - - 946,178
Purchases of mortgage loan receivables - - - 9,934
Repayment of mortgage loan receivables (1,531,551) - - (795)
Proceeds from sales of mortgage loan receivables(1) - (15,504) - (1,008,853)
Non-cash disposition of loan via foreclosure(2) (45,529) - - -
Sale of loans, net - - - 54,758
Transfer between held for investment and held for
sale(1) 45,832 15,504 - (61,336)
Accretion/amortization of discount, premium and other
fees 17,845 - - -
Provision for loan losses - - (2,600) -
Balance, December 31, 2019 $ 3,257,036 $ - $ (20,500) $ 122,325
(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 loans transferred but not
considered sold, at amortized cost, one loan with an outstanding face amount of
$15.4 million, a book value of $15.5 million (fair value at the date of
reclassification) and a remaining maturity of 9.8 years, which was sold to the
WFCM 2019-C49 securitization trust. Subsequent to March 31, 2019, the
controlling loan interest was sold to the UBS 2019-C16 securitization trust, and
as a result, the loan previously sold during the three months ended March 31,
2019 was accounted for as a sale during the year ended December 31, 2019.
(2)Refer to Note 5, Real Estate and Related Lease Intangibles, Net for further
detail on real estate acquired via foreclosure.
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Allowance for Credit Losses and Non-Accrual Status ($ in thousands)
Year Ended December 31,
Allowance for Credit Losses 2021 2020 2019
Allowance for credit losses at beginning of
period $ 41,507 $ 20,500 $ 17,900 Provision for current expected credit loss (implementation impact)(1)
- 4,964 -
Provision for (release of) current expected
credit loss, net (impact to earnings)(2) (8,605) 18,543 2,600
Foreclosure of loans subject to asset-specific
reserve (1,150) (2,500) -
Allowance for credit losses at end of period $ 31,752 $ 41,507 $ 20,500
(1)Additional provisions for current expected credit losses related to implementation of $0.8 million and $22.0 thousand related to unfunded commitments and held-to-maturity securities, respectively, were recorded on January 1, 2020 at implementation of CECL. (2)There was no asset specific reserves recorded in 2021. The total provision for 2020 and 2019 includes asset specific reserves of $9.2 million and $2.0 million respectively, as well as a general reserve component of $(8.6) million, $9.4 million, and $0.6 million for the years ended 2021, 2020, and 2019 respectively.
December 31, December 31,
Non-Accrual Status 2021 2020
Carrying value of loans on non-accrual status,
net of asset-specific reserve $ 80,229 (1) $ 175,022 (2)
(1) Includes two of the Company's loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $24.2 million, two loans with a combined carrying value of $25.6 million and one loan with a carrying value of $30.5 million. (2) Includes two of the Company's loans, which were originated simultaneously as part of a single transaction and had a combined carrying value of $24.2 million, two loans with a combined carrying value of $27.1 million, one loan with a carrying value of $36.4 million, one loan with a carrying value of $13.0 million, one loan with a carrying value of $30.6 million and one loan with a carrying value of $43.8 million which was foreclosed on and sold in 2021.
Current Expected Credit Loss ("CECL")
As of December 31, 2021, the Company has a $32.2 million allowance for current
expected credit losses, of which $31.8 million pertains to mortgage loan
receivables. This allowance includes threeloans that have an aggregate of $20.2
million of asset-specific reserves against a carrying value of $69.9 million as
of December 31, 2021. The Company concluded that none of its loans, other than
the three loans discussed in "Non-Accrual Status" below, are individually
impaired as of December 31, 2021.
The total change in reserve for provision for the year ended December 31, 2021
was a release of $8.7 million. The release represents a decline in the general
reserve of loans held for investment of $8.6 million and the release on unfunded
loan commitments of $0.1 million. The release during the year ended December 31,
2021 is primarily due to an improvement in macro economic assumptions.
As of December 31, 2020, the Company had a $42.1 million allowance for current
expected credit losses. This included four loans that had an aggregate of
$21.4 million of asset-specific reserves against a carrying value of
$116.4 million. The Company concluded that none of its loans, other than the
four loans discussed below, were individually impaired as of December 31, 2020.
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.
The total change in reserve for provision for the year ended December 31, 2020
was $18.3 million, which included $9.1 million in the general reserve on both
the loans held for investment and the related unfunded commitments and
$9.2 million in asset-specific provision related to three loans. The movement in
the reserve was primarily due to the update of the macro economic assumptions
used.
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Loan Portfolio by Geographic Region, Property Type and Vintage (amortized cost $
in thousands)
December 31, December 31,
Geographic Region 2021 2020
South $ 937,125 $ 313,759
Northeast 1,080,652 707,485
Midwest 434,157 462,602
West 530,599 316,620
Southwest 501,272 437,153
Subtotal mortgage loans receivable 3,483,805 2,237,619
Individually impaired loans(1) 69,932 116,440
Total mortgage loans receivable $ 3,553,737 $ 2,354,059
(1)Refer to "Individually Impaired Loans" below for further detail.
Management's method for monitoring credit is the performance of a loan. A loan
is impaired or not impaired based on the expectation that all amounts
contractually due under a loan will be collected when due. The primary credit
quality indicator management utilizes to assess its current expected credit loss
reserve is by viewing the Company's mortgage loan portfolio by collateral type.
The following tables summarize the amortized cost of the mortgage loan portfolio
by property type as of December 31, 2021 and December 31, 2020, respectively ($
in thousands):
Amortized Cost Basis by Origination Year as of December 31, 2021
2017 and
Collateral Type 2021 2020 2019 2018 Earlier Total
Office $ 784,556 $ 29,636 $ 121,346 $ 59,073 $ 73,911 $ 1,068,522
Mixed Use 538,949 84,600 140,926 - - 764,475
Multifamily 697,089 3,131 47,322 - - 747,542
Hospitality 41,635 - 43,666 90,132 110,890 286,323
Retail 105,362 - 89,058 - 25,486 219,906
Industrial 41,203 - 108,469 - - 149,672
Manufactured Housing 117,265 - 26,404 - 3,941 147,610
Other 26,801 - 8,768 20,743 - 56,312
Self-Storage 43,443 - - - - 43,443
Subtotal mortgage loans
receivable 2,396,303 117,367 585,959 169,948 214,228 3,483,805
Individually Impaired
loans (1) - - - - 69,932 69,932
Total mortgage loans
receivable (2) $ 2,396,303 $ 117,367
$ 585,959 $ 169,948 $ 284,160 $ 3,553,737
Amortized Cost Basis byOrigination Year as of December 31, 2020
2016 and
Collateral Type 2020 2019 2018 2017 Earlier Total
Office $ - $ 196,610 $ 249,330 $ 83,673 $ 50,935 $ 580,548
Multifamily 65,537 260,254 44,665 24,406 - 394,862
Hospitality - 43,000 139,394 67,307 78,694 328,395
Other 31,217 131,434 77,484 - - 240,135
Mixed Use 106,537 101,704 - 13,268 - 221,509
Retail - 110,492 - - 65,734 176,226
Industrial 46,130 114,630 - - 6,461 167,221
Manufactured Housing 4,553 57,305 11,718 - 3,961 77,537
Self-Storage - 35,986 15,200 - - 51,186
Subtotal mortgage loans
receivable 253,974 1,051,415 537,791 188,654 205,785 2,237,619
Individually Impaired
loans (1) - - 44,952 - 71,488 116,440
Total mortgage loans
receivable (3) $ 253,974 $ 1,051,415 $ 582,743 $ 188,654 $ 277,273 $ 2,354,059
113-------------------------------------------------------------------------------- Table of Contents (1)Refer to "Individually Impaired Loans" below for further detail. (2)Not included above is $12.6 million of accrued interest receivable on all loans at December 31, 2021. (3)Not included above is $14.5 million of accrued interest receivable on all loans at December 31, 2020.
Individually Impaired Loans
As of December 31, 2021, two loans with an amortized cost basis of $26.9 million and a combined carrying value of $24.2 million were impaired and on non-accrual status. The loans are collateralized by a mixed use property in the Northeast region, which were originated simultaneously as part of a single transaction and are directly and indirectly secured by the same property. In assessing these collateral-dependent loans for impairment, the most significant consideration is the fair value of the underlying real estate collateral, which includes an in-place long-dated retail lease. The value of such 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. The Company previously recorded an asset-specific provision for loss in 2018 on one of these loans, with a carrying value of $5.9 million, of $2.7 million to reduce the carrying value of the two loans collectively 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 December 31, 2021, the Company determined the loan was adequately provisioned based on the application of direct capitalization rates of 4.88% to 5.23%. In 2018, a loan secured by a mixed-use property in the Northeast region, with a carrying value of $45.0 million, was determined to be impaired and a reserve of $10.0 million was recorded to reduce the carrying value of the loan to the estimated fair value of the collateral, less the estimated costs to sell. In 2018, the loan experienced a maturity default and its terms were modified in a TDR, which 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. The reserve of $10.0 million was applied to the B-Note and the B-Note was placed on non-accrual status. For the three months ended March 31, 2020, management determined that the A-Note was impaired, reflecting a decline in collateral value due to: (i) new information available during the three months ended March 31, 2020 regarding two recent comparable sales and (ii) a change in market conditions driven by COVID-19 as capital flow to the tertiary markets shifted. 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 8.60%. The Company placed the A-Note on non-accrual status as of March 31, 2020. As of December 31, 2021, the amortized cost basis was $43.1 million, and after allowance for credit loss of the A-Note and the B-Note of $17.5 million, the carrying value of the combined mortgage loans was $25.6 million. As of December 31, 2021, the Company determined the loan was adequately provisioned based on the application of direct capitalization rates of 8.50% to 9.25%. For the three months ended December 31, 2020, management identified one loan secured by a hotel in the Southeast region with a carrying value of $45.0 million as impaired, reflecting a decline in the collateral value attributable to new information available related to a purchase offer on the property. A reserve of $1.2 million was recorded for this impaired loan in the three months ended December 31, 2020 to reduce the carrying value of the loan to the estimated fair value of the collateral, less the estimated costs to sell. In February 2021, the Company foreclosed on the asset and closed on the sale of the asset.
These non-recurring fair values are considered Level 3 measurements in the fair value hierarchy.
Other Loans on Non-Accrual Status
As of December 31, 2021, one other loan was on non-accrual status, with a
carrying value of $30.5 million. The Company put this loan on non-accrual status
in the fourth quarter of 2020 and performed a review of the collateral for the
loan. The review consisted of conversations with market participants familiar
with the property locations as well as reviewing market data and comparable
properties. There are no other loans on non-accrual status other than those
discussed above in Individually Impaired Loans as of December 31, 2021.
During the twelve months ended December 31, 2021, the Company resolved two of
its non-accrual loans. One loan with a carrying value of $12.0 million received
a full pay-off which included all accrued interest and fees and one loan with a
carrying value of $36.4 million completed foreclosure. Refer to Note 5 for
further disclosure of foreclosed real estate.
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4. REAL ESTATE SECURITIES
The Company invests in primarily AAA-rated real estate securities, typically
front pay securities, with relatively short duration and significant credit
subordination. Market conditions due to the COVID-19 pandemic and the resulting
economic disruption have broadly impacted the commercial real estate sector,
including real estate securities. We continue to actively monitor the impacts of
COVID-19 on our securities portfolio.
CMBS, CMBS interest-only securities, U.S. Agency securities, GNMA construction
securities, GNMA permanent securities and corporate bonds are classified as
available-for-sale and reported at fair value with changes in fair value
recorded in the current period in other comprehensive income. GNMA and FHLMC
securities are recorded at fair value with changes in fair value recorded in
current period earnings. Equity securities are reported at fair value with
changes in fair value recorded in current period earnings. The following is a
summary of the Company's securities at December 31, 2021 and December 31, 2020
($ in thousands):
December 31, 2021
Gross Unrealized Weighted Average
Remaining
Outstanding Amortized Carrying # of Duration
Asset Type Face Amount Cost Basis Gains Losses Value Securities Rating (1) Coupon % Yield % (years)
CMBS(2) $ 691,402 $ 691,026 $ 775 $ (5,508) $ 686,293 (3) 73 AAA 1.57 % 1.57 % 2.06
CMBS interest-only(2)(4) 1,302,551 15,268 617 - 15,885 (5) 13 AAA 0.45 % 5.67 % 1.88
GNMA interest-only(4)(6) 59,075 518 105 (64) 559 14 AA+ 0.38 % 4.97 % 3.64
Agency securities(2) 557 560 3 - 563 2 AA+ 2.47 % 1.58 % 0.69
Total debt securities $ 2,053,585 $ 707,372 $ 1,500 $ (5,572) $ 703,300 102 0.83 % 1.67 % 2.06
Allowance for current expected credit
losses N/A - - (20) (20)
Total real estate securities $ 2,053,585 $ 707,372 $ 1,500 $ (5,592) $ 703,280 102
December 31, 2020
Gross Unrealized Weighted Average
Remaining
Outstanding Amortized Carrying # of Duration
Asset Type Face Amount Cost Basis Gains Losses Value Securities Rating (1) Coupon % Yield % (years)
CMBS(2) $ 1,015,520 $ 1,015,282 $ 1,382 $ (13,363) $ 1,003,301 (3) 90 AAA 1.56 % 1.56 % 2.01
CMBS interest-only(2)(4) 1,498,181 21,567 672 (26) 22,213 (5) 15 AAA 0.44 % 3.53 % 2.19
GNMA interest-only(4)(6) 75,350 868 232 (100) 1,000 11 AA+ 0.43 % 5.06 % 3.59
Agency securities(2) 586 593 12 - 605 2 AA+ 2.55 % 1.64 % 1.26
GNMA permanent securities(2) 30,254 30,340 859 - 31,199 5 AA+ 3.87 % 3.49 % 1.98
Total debt securities $ 2,619,891 $ 1,068,650 $ 3,157 $ (13,489) $ 1,058,318 123 0.91 % 1.66 % 2.01
Allowance for current expected credit
losses N/A - - (20) (20)
Total real estate securities $ 2,619,891 $ 1,068,650 $ 3,157 $ (13,509) $ 1,058,298 123
(1)Represents the weighted average of the ratings of all securities in each
asset type, expressed as an S&P equivalent rating. For each security rated by
multiple rating agencies, the highest rating is used. Ratings provided were
determined by third-party rating agencies as of a particular date, may not be
current and are subject to change (including the assignment of a "negative
outlook" or "credit watch") at any time.
(2)CMBS, CMBS interest-only securities, Agency securities, GNMA permanent
securities and corporate bonds are classified as available-for-sale and reported
at fair value with changes in fair value recorded in the current period in other
comprehensive income.
(3)As of December 31, 2021 and December 31, 2020, respectively, includes $9.9
million and $11.1 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)As of December 31, 2021 and December 31, 2020, respectively, includes $0.5
million and $0.7 million of restricted securities which are designated as risk
retention securities under the Dodd-Frank Act and are therefore subject to
transfer restrictions over the term of the securitization trust and are
classified as held-to-maturity and reported at amortized cost.
(6)Agency interest-only securities are recorded at fair value with changes in
fair value recorded in current period earnings. The Company's Agency
interest-only securities are considered to be hybrid financial instruments that
contain embedded derivatives. As a result, the Company has elected to account
for them as hybrid instruments in their entirety at fair value
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with changes in fair value recognized in unrealized gain (loss) on Agency
interest-only securities in the consolidated statements of income in accordance
with ASC 815.
The following summarizes the carrying value of the Company's debt securities by remaining maturity based upon expected cash flows at December 31, 2021 and December 31, 2020 ($ in thousands):
December 31, 2021
Asset Type Within 1 year 1-5 years 5-10 years After 10 years Total
CMBS $ 304,357 $ 354,670 $ 10,307 $ 16,958 $ 686,292
CMBS interest-only 1,018 14,868 - - 15,886
GNMA interest-only 102 278 179 - 559
Agency securities 503 60 - - 563
Allowance for current expected
credit losses - - - - (20)
Total real estate securities $ 305,980 $ 369,876 $ 10,486 $ 16,958 $ 703,280
December 31, 2020
Asset Type Within 1 year 1-5 years 5-10 years After 10 years Total
CMBS $ 230,977 $ 748,953 $ 23,371 $ - $ 1,003,301
CMBS interest-only 1,572 20,641 - - 22,213
GNMA interest-only 65 647 288 - 1,000
Agency securities - 605 - - 605
GNMA permanent securities 67 31,132 - - 31,199
Allowance for current expected
credit losses - - - - (20)
Total real estate securities $ 232,681 $ 801,978 $ 23,659 $ - $ 1,058,298
During the year ended December 31, 2021 the Company did not have any sales of
equity securities. During the years ended December 31, 2020 and 2019 the Company
realized a gain (loss) on the sale of equity securities of $1.1 million and
$0.2 million which are included in realized gain (loss) on securities on the
Company's consolidated statements of income.
During the years ended December 31, 2021, 2020 and 2019 the Company recorded
other than temporary impairments of $0.1 million, $0.5 million and $0.1 million
respectively, which are included in realized gain (loss) on securities on the
Company's consolidated statements of income.
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5. REAL ESTATE AND RELATED LEASE INTANGIBLES, NET
The market conditions due to the COVID-19 pandemic and the resulting economic
disruption have broadly impacted the commercial real estate sector. As expected,
the net leased commercial real estate properties, which comprise the majority of
our portfolio, have remained minimally impacted as the majority of the net
leased properties in our real estate portfolio are necessity-based businesses
and have remained open and stable during the COVID-19 pandemic. We continue to
actively monitor the diversified commercial real estate properties for both the
immediate and long term impact of the pandemic on the buildings, the tenants,
the business plans and the ability to execute those business plans.
The following tables present additional detail related to our real estate portfolio, net ($ in thousands):
December 31,
2021 December 31, 2020
Land $ 186,940 $ 220,511
Building 765,690 838,542
In-place leases and other intangibles 142,335 157,176
Undepreciated real estate and related lease intangibles 1,094,965 1,216,229
Less: Accumulated depreciation and amortization (229,271) (230,925)
Real estate and related lease intangibles, net $ 865,694 $ 985,304
Below market lease intangibles, net (other liabilities)(1) $ (33,203) $ (36,952)
(1) Below market lease intangibles, net is inclusive of $12.8 million and $12.0 million of accumulated amortization as of December 31, 2021 and 2020, respectively.
Not included in the table above is $25.2 million of real estate held for sale as of December 31, 2021. This real estate is comprised of $0.9 million of land, $27.4 million of building, and $4.3 million of in-place leases and other intangibles to aggregate to $32.5 million of undepreciated real estate and lease intangibles. The property also includes $7.4 million of accumulated depreciation and amortization. The Company did not hold any real estate held for sale as of December 31, 2020.
At December 31, 2021 and December 31, 2020, the Company held foreclosed properties included in real estate and related lease intangibles, net with a carrying value of $97.3 million and $106.8 million, respectively.
The following table presents depreciation and amortization expense on real estate recorded by the Company ($ in thousands):
Year Ended December 31,
2021 2020 2019
Depreciation expense(1) $ 30,659 $ 32,383 $ 30,421
Amortization expense 7,142 6,696 7,991
Total real estate depreciation and amortization expense $ 37,801 $ 39,079 $ 38,412
(1)Depreciation expense on the consolidated statements of income also includes
$99 thousand, $99 thousand and $99 thousand of depreciation on corporate fixed
assets for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company's intangible assets are comprised of in-place leases, above market
leases and other intangibles. The following tables present additional detail
related to our intangible assets ($ in thousands):
December 31, 2021 December 31, 2020
Gross intangible assets(1) $ 146,593 $ 157,176
Accumulated amortization 67,500 66,014
Net intangible assets $ 79,093 $ 91,162
(1)Includes $3.8 million and $4.2 million of unamortized above market lease intangibles which are included in real estate and related lease intangibles, net on the consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively.
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The following table presents increases/reductions in operating lease income
related to the amortization of above or below market leases recorded by the
Company ($ in thousands):
Year Ended December 31,
2021 2020 2019
Reduction in operating lease income for amortization of above market lease intangibles acquired
$ (367) $ (367) $ (819) Increase in operating lease income for amortization of below market lease intangibles acquired
2,255 2,601 2,178
Total $ 1,888 $ 2,234 $ 1,359
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 December 31, 2021 ($ in thousands):
Adjustment to
Operating Lease
Period Ending December 31, Income Amortization Expense 2022 $ 891 $ 6,820 2023 891 5,241 2024 891 5,241 2025 891 5,241 2026 891 5,241 Thereafter 24,948 46,012 Total $ 29,403 $ 73,796
Rent Receivables, Unencumbered Real Estate, Operating Lease Income and Impairment of Real Estate
There were $0.4 million and $0.5 million of rent receivables included in other assets on the consolidated balance sheets as of December 31, 2021 and December 31, 2020, respectively.
There was unencumbered real estate of $85.9 million and $75.9 million as of December 31, 2021 and December 31, 2020, respectively.
During the years ended December 31, 2021, 2020 and 2019 the Company recorded $8.8 million, $5.6 million and $2.6 million respectively, of real estate operating income, which excludes rental income.
On January 10, 2019, the Company received $10.0 million prepayment of a lease on a single-tenant two-story office building inWayne, 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 $20 thousand. Refer to Note 15, Fair Value of Financial Instruments for further detail. 118 -------------------------------------------------------------------------------- Table of Contents The following is a schedule of non-cancellable, contractual, future minimum rent under leases (excluding property operating expenses paid directly by tenant under net leases) at December 31, 2021 ($ in thousands): Period Ending December 31, Amount 2022 $ 70,760 2023 61,388 2024 56,422 2025 55,110 2026 52,825 Thereafter 394,979 Total $ 691,484 Acquisitions
During the year ended December 31, 2021, the Company acquired the following properties ($ in thousands):
Purchase Price/Fair
Value on the Date
Acquisition Date Type Primary Location(s) of Foreclosure Ownership Interest (1)
Purchases of real estate
August 2021 Apartments Stillwater, OK 20,452 80.0%
Aggregate purchases of real estate $ 20,452
Real estate acquired via foreclosure
February 2021 (2) Hotel Miami, FL $ 43,750 100.0%
December 2021 (3) Hotel Schaumburg, IL 38,000 100.0%
Total real estate acquired via foreclosure 81,750
Total real estate acquisitions $ 102,202
(1)Properties were consolidated as of acquisition date.
(2)In February 2021, the Company acquired a hotel in Miami, FL via foreclosure,
recognizing a $25.8 thousand loss, which is included in its consolidated
statements of income. The property previously served as collateral for a
mortgage loan receivable held for investment with a basis of $45.1 million, net
of an asset-specific loan loss provision of $1.2 million recorded in the three
months ended December 31, 2020. In February 2021, the foreclosed property was
sold without any gain or loss. The Company recorded no revenues from its 2021
acquisitions for the year ended December 31, 2021.
(3)In December 2021, the Company acquired a hotel in Schaumburg, IL via
foreclosure. The property served as collateral for a mortgage loan receivable
held for investment with a basis of $38.0 million. The Company obtained a
third-party appraisal of the property. The $38.0 million fair value was
determined by using the sales comparison and income approaches. The appraiser
utilized a terminal capitalization rate of 8.0% and a discount rate of 10.0%.
There was no gain or loss resulting from the foreclosure of the loan.
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Table of Contents During the year ended December 31, 2020, the Company acquired the following properties ($ in thousands):
Purchase Price/Fair Gain/(Loss) on
Value on the Date of Loan
Acquisition Date Type Primary Location(s) Foreclosure Foreclosure Ownership Interest (1)
Aggregate purchases of net leased real estate $ 7,440
100.0%
Real estate acquired via foreclosure
March 2020 (2) Land Los Angeles, CA 21,535 - (2) 100.0% June 2020 (3) Hotel Winston-Salem, NC 3,900 - 100.0% December 2020 (4) Hotel South Bend, IN 3,875 - 100.0% Total real estate acquired via foreclosure 29,310 $ - Total real estate acquisitions $ 36,750 (1)Properties were consolidated as of acquisition date. (2)In March 2020, the Company acquired a development property inLos 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 December of 2021, the Company sold this property and recorded a $2.0 million loss on sale. Refer to "Sales" below. (3)In June 2020, the Company acquired a hotel inWinston-Salem, NC via foreclosure. This property previously served as collateral for a mortgage loan receivable held for investment with a net basis of $3.8 million. The Company obtained a third-party appraisal of the property. The $3.9 million fair value was determined using the ground lease approach and the income approach to value. The appraiser utilized a terminal capitalization rate of 9.50% and a discount rate of 13.50%. There was no gain or loss resulting from the foreclosure of the loan. In September 2020, the foreclosed property was sold for a gain of $0.8 million. (4)In December 2020, the Company acquired a hotel inSouth Bend, IN , via foreclosure. The property previously served as collateral for a mortgage loan receivable held for investment with a basis of $4.1 million, net of an asset-specific loan loss provision of $0.5 million. The Company recorded a gain of $0.1 million resulting from the foreclosure of the loan. In December 2020, the foreclosed property was sold without any gain or loss. The Company allocates purchase consideration based on relative fair values, and real estate acquisition costs are capitalized as a component of the cost of the assets acquired for asset acquisitions. During the years ended December 31, 2021 and December 31, 2020, all acquisitions were determined to be asset acquisitions.
Sales
The Company sold the following properties during the year ended December 31, 2021 ($ in thousands):
Net Sales Realized
Sales Date Type Primary Location(s) Proceeds Net Book Value Gain/(Loss) Properties
February 2021 Hotel Miami, FL $ 43,750 $ 43,750 $ - 1
June 2021 Net Lease North Dartmouth, MA 38,732 19,343 19,389 1
August 2021 Net Lease Pittsfield, MA 18,651 10,564 8,087 1
August 2021 Net Lease Ankeny, IA 19,021 13,341 5,680 1
August 2021 Apartments Arlington/Fort Worth, TX 26,496 22,498 3,998 2
November 2021 Net Lease Bessemer City, NC 33,447 21,333 12,114 1
December 2021 Land Los Angeles, CA 19,469 21,452 (1,983) 1
December 2021 Net Lease Snellville, GA 9,695 5,483 4,212 1
December 2021 Net Lease Columbia, SC 9,941 5,674 4,269 1
Totals $ 219,202 $ 163,438 $ 55,766
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The Company sold the following properties during the year ended December 31,
2020 ($ in thousands):
Net Sales Net Book Realized
Sales Date Type Primary Location(s) Proceeds Value Gain/(Loss) Properties Units Sold Units Remaining
Various Condominium Miami, FL $ 1,832 $ 1,821 $ 11 - 6 -
March 2020 Office Richmond, VA 22,527 14,829 7,698 7 - -
March 2020 Office Richmond, VA 6,932 4,109 2,823 1 - -
August 2020 Net Lease Bellport, NY 19,434 15,012 4,422 1 - -
September 2020 Warehouse Lithia Springs, GA 39,491 23,187 16,304 1 - -
September 2020 Hotel Winston Salem, NC 4,647 3,803 844 1 - -
December 2020 Hotel South Bend, IN 3,875 3,875 - 1 - -
Totals $ 98,738 $ 66,636 $ 32,102
The Company sold the following properties during the year ended December 31,
2019 ($ in thousands):
Net Sales Net Book Realized
Sales Date Type Primary Location(s) Proceeds Value Gain/(Loss) Properties Units Sold Units Remaining
November 2019 Condominium Las Vegas, NV $ 809 $ 415 $ 394 - 1 -
Various Condominium Miami, FL 4,715 4,282 433 - 16 6
April 2019 Office Wayne, NJ 1,729 4,799 (3,070) 1 - -
May 2019 Office Grand Rapids, MI 10,019 8,254 1,765 1 - -
August 2019 Industrial Grand Rapids, MI 6,970 4,920 2,050 1 - -
Totals $ 24,242 $ 22,670 $ 1,572
(1) Realized gain (loss) on the sale of real estate, net on the consolidated
statements of income also includes $1.4 million of realized loss on the disposal
of fixed assets for the year ended December 31, 2019.
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6. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
The following is a summary of the Company's investments in and advances to unconsolidated joint ventures, which we account for using the equity method, as of December 31, 2021 and December 31, 2020 ($ in thousands):
Entity December 31, 2021 December 31, 2020
Grace Lake JV, LLC $ 5,434 $ 4,023
24 Second Avenue Holdings LLC 17,720 42,230
Investment in unconsolidated joint ventures $ 23,154 $ 46,253
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
years ended December 31, 2021 and 2020 ($ in thousands):
Year Ended December 31,
Entity 2021 2020 2019
Grace Lake JV, LLC $ 1,411 $ 976 1,047
24 Second Avenue Holdings LLC 168 845 2,385
Earnings (loss) from investment in unconsolidated joint
ventures $ 1,579 $ 1,821 $ 3,432
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 LLC. The Company accounts for its
interest in Grace Lake LLC 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 holds its investment in Grace Lake LLC in a
TRS.
The Company's investment in Grace Lake LLC is an unconsolidated joint venture,
which is a variable interest entity ("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 year ended December 31, 2021, and December 31, 2020, the Company received no distributions from its investment in Grace Lake LLC.
24 Second Avenue Holdings LLC
On August 7, 2015, the Company entered into a joint venture, 24 Second Avenue
Holdings LLC ("24 Second Avenue"), with an operating partner (the "Operating
Partner") to invest in a ground-up residential/retail condominium 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.
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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. The
Company holds its investment in 24 Second Avenue in a TRS.
During the years ended December 31, 2021, 2020 and 2019, the Company recorded
$0.2 million, $0.8 million and $2.4 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 2019, the
Company capitalized $0.1 million interest related to the cost of its investment
in 24 Second Avenue using a weighted average interest rate, as 24 Second Avenue
had activities in progress necessary to construct and ultimately sell
condominium units. 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, 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.
The 24 Second Avenue investment consists of residential condominium units and
one commercial condominium unit. 24 Second Avenue commenced closing on the
existing sales contracts during the three months 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 December 31, 2021,
24 Second Avenue sold 28 residential condominium units for $79.5 million in
total gross sale proceeds and one residential condominium unit was under
contract for sale for $2.5 million in gross sales proceeds with a 10% deposit
down on the sales contract. As of December 31, 2021, the Company had no
additional remaining capital commitment to 24 Second Avenue. The Company
received $24.6 million and $4.0 million of distributions during the years ended
December 31, 2021 and 2020, respectively.
The Company's non-controlling investment in 24 Second Avenue is an
unconsolidated joint venture, which is a VIE for which the Company is not the
primary beneficiary. This joint venture was deemed to be a VIE primarily based
on (i) the fact that the total equity investment at risk (inclusive of the
additional financing the Company provided through the first mortgage and
mezzanine loans) is sufficient to permit the entities to finance activities
without additional subordinated financial support provided by any parties,
including equity holders; and (ii) the voting and economic rights are not
disproportionate within the joint venture. The Company determined that it was
not the primary beneficiary of this VIE because it does not have a controlling
financial interest.
Combined Summary Financial Information for Unconsolidated Joint Ventures
The following is a summary of the combined financial position of the unconsolidated joint ventures in which the Company had investment interests as of December 31, 2021 and December 31, 2020 ($ in thousands):
December 31, 2021 December 31, 2020
Total assets $ 109,873 $ 114,916
Total liabilities 66,387 75,775
Partners'/members' capital $ 43,486 $ 39,141
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 years ended December 31, 2021, 2020, and 2019 ($ in
thousands):
Year Ended December 31,
2021 2020 2019
Total revenues $ 18,870 $ 17,461 $ 7,630
Total expenses 13,132 14,206 14,930
Net income (loss) $ 5,738 $ 3,255 $ (7,300)
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The details of the Company's debt obligations at December 31, 2021 and December 31, 2020 are as follows ($ in thousands):
December 31, 2021
Committed / Carrying Value of Committed but Remaining Carrying Amount Fair Value of
Debt Obligations Principal Amount Debt Obligations Unfunded Interest Rate at December 31, 2021(1) Current Term Maturity Extension Options Eligible Collateral of Collateral Collateral
Committed Loan Repurchase
Facility(2) $ 500,000 $ 37,207 $ 462,793 1.61% - 1.61% 12/19/2022 (3) (4) $ 82,966 $ 82,966
Committed Loan Repurchase
Facility 100,000 45,290 54,710 2.06% - 2.81% 2/26/2022 (5) (6) 62,972 62,972
Committed Loan Repurchase
Facility 300,000 75,837 224,163 1.86% - 2.86% 12/19/2022 (7) (8) 127,926 127,926
Committed Loan Repurchase
Facility 100,000 - 100,000 -% - -% 4/30/2024 (9) (4) - -
Committed Loan Repurchase
Facility 100,000 26,183 73,817 2.23% - 2.23% 1/3/2023 (3) (4) 48,720 48,720
Committed Loan Repurchase
Facility 100,000 - 100,000 -% - -% 10/21/2022 (10) (11) - -
Total Committed Loan
Repurchase Facilities 1,200,000 184,517 1,015,483 322,584 322,584
Committed Securities
Repurchase Facility(2) 862,794 44,139 818,655 0.65% - 1.05% 5/27/2023 N/A (12) 50,522 50,522
Uncommitted Securities
Repurchase Facility N/A (13) 215,921 N/A (13) 0.54% - 2.06% 1/2022 - 6/2022 N/A (12) 242,629 242,629 (14)
Total Repurchase
Facilities 1,600,000 444,577 1,371,344 615,735 615,735
Revolving Credit Facility 266,430 - 266,430 -% - -% 2/11/2022 (15) N/A (16) N/A (16) N/A (16)
Mortgage Loan Financing 690,927 693,797 - 3.75% - 6.16% 2022 - 2031(17) N/A (18) 805,007 1,033,372 (19)
Secured Financing
Facility 136,444 132,447 (20) - 10.75% - 10.75% 5/6/2023 N/A (21) 244,399 244,553
CLO Debt 1,064,365 1,054,774 (22) - 1.66% - 1.75% 2024 - 2026(23) N/A (4) 1,299,116 1,299,116
Borrowings from the FHLB 263,000 263,000 - 0.36% - 2.74% 2022 - 2024 N/A (24) 301,792 301,792 (25)
Senior Unsecured Notes 1,649,794 1,631,108 (26) - 4.25% - 5.25% 2025 - 2029 N/A N/A (27) N/A (27) N/A (27)
Total Debt Obligations,
Net $ 5,670,960 $ 4,219,703 $ 1,637,774 $ 3,266,049 $ 3,494,568
(1)LIBOR rates in effect as of December 31, 2021 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)Two 12-month extension 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)Two 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)Three additional 364-day periods at Company's option.
(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)One additional 12-month extension period and two additional 6-month extension
periods at Company's option.
(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 first mortgage
commercial real estate loans collateralizing such securities.
(13)Represents uncommitted securities repurchase facilities for which there is
no committed amount subject to future advances.
(14)Includes $2.1 million of restricted securities under the risk retention
rules of the Dodd-Frank Act. These securities are accounted for as
held-to-maturity and recorded at amortized cost basis.
(15)Three additional 12-month periods at Company's option.
(16)The obligations under the Revolving Credit Facility are guaranteed by the
Company and certain of its subsidiaries and secured by equity pledges in certain
Company subsidiaries.
(17)Anticipated repayment dates.
(18)Certain of our real estate investments serve as collateral for our mortgage
loan financing.
(19)Using undepreciated carrying value of commercial real estate to approximate
fair value.
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(20)Presented net of unamortized debt issuance costs of $1.9 million and an
unamortized discount of $2.1 million related to the Purchase Right (described in
detail under Secured Financing Facility below) at December 31, 2021.
(21)First mortgage commercial real estate loans. Substitution of collateral and
conversion of loan collateral to mortgage collateral are permitted with lender's
approval.
(22)Presented net of unamortized debt issuance costs of $9.6 million at
December 31, 2021.
(23)Represents the estimated maturity date based on the remaining reinvestment
period and underlying loan maturities.
(24)Investment grade commercial real estate securities and cash. It does not
include the first mortgage commercial real estate loans collateralizing such
securities.
(25)Includes $7.5 million of restricted securities under the risk retention
rules of the Dodd-Frank Act. These securities are accounted for as
held-to-maturity and recorded at amortized cost basis.
(26)Presented net of unamortized debt issuance costs of $18.7 million at
December 31, 2021.
(27)The obligations under the senior unsecured notes are guaranteed by the
Company and certain of its subsidiaries.
December 31, 2020
Committed / Carrying Value of Committed but Remaining Carrying Amount Fair Value of
Debt Obligations Principal Amount Debt Obligations Unfunded Interest Rate at December 31, 2020(1) Current Term Maturity Extension Options
Eligible Collateral of Collateral Collateral
Committed Loan Repurchase
Facility(2) $ 500,000 $ 112,004 $ 387,996 1.91% - 2.16% 12/19/2022 (3) (4) $ 180,416 $ 180,416
Committed Loan Repurchase
Facility 250,000 - 250,000 -% - -% 2/26/2021 (5) (6) - -
Committed Loan Repurchase
Facility 300,000 90,197 209,803 1.91% - 2.91% 12/16/2021 (7) (8) 154,850 154,850
Committed Loan Repurchase
Facility 300,000 11,312 288,688 2.19% - 2.19% 11/6/2022 (9) (4) 28,285 28,285
Committed Loan Repurchase
Facility 100,000 26,183 73,817 2.28% - 2.28% 1/3/2023 (10) (4) 45,235 45,235
Committed Loan Repurchase
Facility 100,000 15,672 84,328 2.66% - 3.50% 10/24/2021 (11) (12) 30,600 30,600
Total Committed Loan
Repurchase Facilities 1,550,000 255,368 1,294,632 439,386 439,386
Committed Securities
Repurchase Facility(2) 787,996 149,633 638,363 0.86% - 1.11% 12/23/2021 N/A (13) 226,008 226,008
Uncommitted Securities
Repurchase Facility N/A (14) 415,836 N/A (14) 0.73% - 2.84% 1/2021-3/2021 N/A (13) 502,476 502,476 (15)
Total Repurchase Facilities 1,950,000 820,837 1,544,999 1,167,870 1,167,870
Revolving Credit Facility 266,430 266,430 - 3.15% 3.15% 2/11/2022 (16) N/A (17) N/A (17) N/A (17)
Mortgage Loan Financing 761,793 766,064 - 3.75% - 6.16% 2021 - 2030(18) N/A (19) 909,406 1,133,703 (20)
Secured Financing Facility 206,350 192,646 (21) - 10.75% - 10.75% 5/6/2023 N/A (22) 327,769 328,097
CLO Debt 279,156 276,516 (23) - 5.50% - 5.50% 5/16/2024 N/A (4) 362,600 362,600
Borrowings from the FHLB 1,500,000 288,000 1,212,000 0.41% - 2.74% 2021 - 2024 N/A (24) 388,400 392,212 (25)
Senior Unsecured Notes 1,612,299 1,599,371 (26) - 4.25% - 5.88% 2021 - 2027 N/A N/A (27) N/A (27) N/A (27)
Total Debt Obligations $ 6,576,028 $ 4,209,864 $ 2,756,999 $ 3,156,045 $ 3,384,482
(1)LIBOR rates in effect as of December 31, 2020 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)Two 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)Three 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)Two additional 364-day periods at Company's option.
(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)One additional 12-month extension period and two additional 6-month extension
periods at Company's option.
(10)Two 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 first mortgage
commercial real estate loans collateralizing such securities.
(14)Represents uncommitted securities repurchase facilities for which there is
no committed amount subject to future advances.
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(15)Includes $2.1 million of restricted securities under the risk retention
rules of the Dodd-Frank Act. These securities are accounted for as
held-to-maturity and recorded at amortized cost basis.
(16)Three 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 $7.2 million and an
unamortized discount of $6.6 million related to the Purchase Right (described in
detail under Secured Financing Facility below) at December 31, 2020.
(22)First mortgage commercial real estate loans. Substitution of collateral and
conversion of loan collateral to mortgage collateral are permitted with Lender's
approval.
(23)Presented net of unamortized debt issuance costs of $2.6 million at
December 31, 2020.
(24)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.
(25)Includes $9.4 million of restricted securities under the risk retention
rules of the Dodd-Frank Act. These securities are accounted for as
held-to-maturity and recorded at amortized cost basis.
(26)Presented net of unamortized debt issuance costs of $12.9 million at
December 31, 2020.
(27)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 six committed master repurchase agreements, as
outlined in the December 31, 2021 table above, totaling $1.2 billion of credit
capacity in order to finance its lending activities. 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 $862.8
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 was in compliance with all
covenants as of December 31, 2021 and December 31, 2020.
The Company has the option to extend some of the current facilities subject to a
number of conditions, including satisfaction of certain notice requirements, the
absence of an event of default, and the absence of a margin deficit, all as
defined in the repurchase facility agreements. The lenders have sole discretion
with respect to the inclusion of collateral in these facilities and the
determination of 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 21, 2022, the Company entered into a committed loan repurchase
facility with a major
On November 2, 2021, the Company amended a committed loan repurchase facility with a major banking institution to, among other things, extend the final maturity date to October 21, 2022.
On September 27, 2021, the Company amended a committed loan repurchase facility with a majorU.S. banking institution to, among other things, extend the final maturity date to December 19, 2025. On May 25, 2021, the Company amended a committed loan repurchase facility with a major banking institution to, among other things, reduce the maximum facility amount from $250 million to $100 million. On May 19, 2021, the Company amended a committed loan repurchase facility with a majorU.S. banking institution to, among other things, reduce the maximum facility amount from $300 million to $100 million and extend the initial term thereof from November 6, 2022 to April 30, 2024.
Revolving Credit Facility
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The Company's 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 to February 2025. The amendment also provided for a
reduction of the interest rate to one-month LIBOR plus 3.00% upon the upgrade of
the Company's credit ratings, which occurred in January 2020. As of December 31,
2021, interest on the Revolving Credit Facility is one-month LIBOR plus 3.00%
per annum payable monthly in arrears. As of December 31, 2021, the Company had
no outstanding borrowings on the Revolving Credit Facility but still maintains
the ability to draw $266.4 million.
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.
The Company 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,
the Company 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 is dependent on, among other things, 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 of December 31, 2021 and December 31, 2020, the amount of unamortized costs relating to our master repurchase facilities and Revolving Credit Facility were $2.9 million and $5.8 million, respectively, and are included in other assets in the consolidated balance sheets.
Uncommitted Securities Repurchase Facilities
The Company has also entered into multiple uncommitted 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, which is primarily AAA-rated securities.
Mortgage Loan Financing
These non-recourse debt agreements provide for secured financing at rates ranging from 3.75% to 6.16%, with anticipated maturity dates between 2022-2031 as of December 31, 2021. These loans have carrying amounts of $693.8 million and $766.1 million, net of unamortized premiums of $3.2 million and $4.6 million as of December 31, 2021 and December 31, 2020, 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 $1.4 million, $1.2 million and $1.6 million of premium amortization, which decreased interest expense for the years ended December 31, 2021, 2020, and 2019 respectively. The mortgage loans are collateralized by real estate and related lease intangibles, net, of $805.0 million and $909.4 million as of December 31, 2021 and December 31, 2020, respectively. During the years ended December 31, 2021, 2020, and 2019, the company executed 1, 10 and 22 term debt agreements, respectively, to finance properties in its real estate portfolio.
Secured Financing Facility
On April 30, 2020, the Company entered into a strategic financing arrangement with aU.S. multinational corporation (the "Lender"), under which the Lender provided the Company with $206.4 million in senior secured financing (the "Secured Financing Facility") to fund transitional and land loans. The Secured Financing Facility is secured on a first lien basis on a portfolio of certain of the Company's loans and matures on May 6, 2023, and borrowings thereunder bear interest at LIBOR (or a minimum of 0.75% if greater) plus 10.0%, with a minimum interest premium clause, of which approximately $5.3 million remains as of December 31, 2021. The Senior Financing Facility is non-recourse, subject to limited exceptions, and does not contain mark-to-market provisions. Additionally, the Senior Financing Facility provides the Company optionality to modify or restructure loans or forbear in exercising remedies, which maximizes the Company's financial flexibility. 127 -------------------------------------------------------------------------------- Table of Contents As part of the strategic financing, the Lender also had the ability to make an equity investment in the Company of up to 4.0 million Class A common shares at $8.00 per share, subject to certain adjustments (the "Purchase Right"). The Purchase Right was exercised in full at $8.00 per share on December 29, 2020. In addition, the Lender 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 the Lender entered into a registration rights agreement, pursuant to which the Company has agreed to provide customary demand and piggyback registration rights to the Lender. The Purchase Right was classified as equity and the $200.9 million of net proceeds from the original issuance were allocated $192.5 million to the originally issued debt obligation and $8.4 million to the Purchase Right using the relative fair value method. The commitment to issue shares will not be subsequently remeasured. The $8.4 million allocated to the Purchase Right was treated as a discount to the debt and amortized over the expected maturity of the Purchase Right to interest expense. As of December 31, 2021, the Company had $132.4 million of borrowings outstanding under the secured financing facility included in debt obligations on its consolidated balance sheets, net of unamortized debt issuance costs of $1.9 million and a $2.1 million unamortized discount related to the Purchase Right.
Collateralized Loan Obligations ("CLO") Debt
On July 13, 2021, a consolidated subsidiary of the Company completed a
privately-marketed CLO transaction, which generated $498.2 million of gross
proceeds to Ladder, financing $607.5 million of loans ("Contributed July 2021
Loans") at an 82% advance rate on a matched term, non-mark-to-market and
non-recourse basis. A consolidated subsidiary of the Company retained an 18%
subordinate and controlling interest in the CLO. The Company retained consent
rights over major decisions with respect to the servicing of the Contributed
July 2021 Loans, including the right to appoint and replace the special servicer
under the CLO. The CLO is a VIE and the Company is the primary beneficiary and,
therefore, consolidated the VIE - Refer to Note 10, Consolidated Variable
Interest Entities.
On December 2, 2021, a consolidated subsidiary of the Company completed a
privately marketed CLO transaction, which generated $566.2 million of gross
proceeds to Ladder, financing $729.4 million of loans ("Contributed December
2021 Loans") at a maximum 77.6% advance rate on a matched term,
non-mark-to-market and non-recourse basis. A consolidated subsidiary of the
Company retained an 15.6% subordinate and controlling interest in the CLO. The
Company also held two additional tranches as investments totaling 6.8% interest
in the CLO. The Company retained consent rights over major decisions with
respect to the servicing of the Contributed December 2021 Loans, including the
right to appoint and replace the special servicer under the CLO. The CLO is a
VIE and the Company is the primary beneficiary and, therefore, consolidated the
VIE - Refer to Note 10, Consolidated Variable Interest Entities.
As of December 31, 2021, the Company had $1.1 billion of matched term,
non-mark-to-market and non-recourse CLO debt included in debt obligations on its
consolidated balance sheets which includes unamortized debt issuance costs of
$9.6 million.
Borrowings from the Federal Home Loan Bank ("FHLB")
On July 11, 2012, Tuebor, a consolidated subsidiary of the Company, became a member of the FHLB and subsequently drew its first secured funding advances from the FHLB. As of February 19, 2021, pursuant to a final rule adopted by theFederal Housing Finance Agency (the "FHFA") regarding the eligibility of captive insurance companies, Tuebor's membership in the FHLB has been terminated, although outstanding advances may remain outstanding until their scheduled maturity dates. Funding for future advance paydowns is expected to be obtained from the natural amortization and/or sales of securities collateral, or from other financing sources. There is no assurance that the FHFA or the FHLB will not take actions that could adversely impact Tuebor's existing advances. As of December 31, 2021, Tuebor had $263.0 million of borrowings outstanding, with terms of 0.69 years to 2.75 years (with a weighted average of 1.95 years), and interest rates of 0.36% to 2.74% (with a weighted average of 0.96%). As of December 31, 2021, collateral for the borrowings was comprised of $259.3 million of CMBS andU.S. Agency securities (with advance rates of 71.7% to 95.7%) and $42.5 million of cash. 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 $2.2 billion of the member's capital was restricted from transfer via dividend to Tuebor's parent without prior approval of state insurance regulators at December 31, 2021. To facilitate intercompany cash funding of operations and investments, Tuebor and its parent maintain regulator-approved intercompany borrowing/lending agreements. 128
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Senior Unsecured Notes
As of December 31, 2021, the Company had $1.6 billion of unsecured corporate
bonds outstanding. These unsecured financings were comprised of $348.0 million
in aggregate principal amount of 5.25% senior notes due 2025 (the "2025 Notes"),
$651.8 million in aggregate principal amount of 4.25% senior notes due 2027 (the
"2027 Notes") and $650.0 million in aggregate principal of 4.75% senior notes
due 2029 (the "2029 Notes," collectively with the 2025 Notes and the 2027 Notes,
the "Notes").
On January 27, 2021, the Company redeemed in full its 5.875% Senior Notes due
2021 (the "2021 Notes") for $150.9 million. The 2021 Notes were redeemed at par,
plus accrued and unpaid interest to the redemption date, pursuant to the
optional redemption provisions of the indenture governing the 2021 Notes. The
redemption of a portion of the 2021 Notes was subject to the condition that the
Company's subsidiary issuers of the 2021 Notes complete a notes offering of not
less than $400 million. The issuers waived the condition prior to redeeming the
2021 Notes in full.
On September 15, 2021, the Company redeemed in full its 5.25% Senior Notes due
2022 (the "2022 Notes") for $478.1 million. The 2021 Notes were redeemed at par,
plus accrued and unpaid interest to the redemption date, pursuant to the
optional redemption provisions of the indenture governing the 2022 Notes.
LCFH issued the Notes with Ladder Capital Finance Corporation ("LCFC"), as
co-issuers on a joint and several basis. LCFC is a 100% owned finance subsidiary
of 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 was in compliance with all covenants of the
Notes as of December 31, 2021 and 2020. Unamortized debt issuance costs of $18.7
million and $12.9 million are included in senior unsecured notes as of
December 31, 2021 and December 31, 2020, respectively, in accordance with GAAP.
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 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 are unsecured and are subject to an
unencumbered assets to unsecured debt covenant. The Company may redeem the 2025
Notes, in whole or in part, at any time, or from time to time, prior to their
stated maturity upon not less than 15 nor more than 60 days' notice, at a
redemption price as specified in the indenture governing the 2025 Notes, plus
accrued and unpaid interest, if any, to the redemption date. On May 2, 2018, the
board of the directors authorized the Company to repurchase any or all of the
2025 Notes from time to time without further approval. During the year ended
December 31, 2020, the Company retired $52.0 million of principal of the 2025
Notes for a repurchase price of $45.1 million, recognizing a $6.4 million net
gain on extinguishment of debt after recognizing $(0.5) million of unamortized
debt issuance costs associated with the retired debt. As of December 31, 2021,
the remaining $348.0 million in aggregate principal amount of the 2025 Notes is
due October 1, 2025.
2027 Notes
On January 30, 2020, LCFH issued $750.0 million in aggregate principal amount of
4.25% senior notes due February 1, 2027. The 2027 Notes require interest
payments semi-annually in cash in arrears on August 1 and February 1 of each
year, beginning on August 1, 2020. The 2027 Notes are unsecured and are subject
to an unencumbered assets to unsecured debt covenant. The Company may redeem the
2027 Notes, in whole, at any time, or from time to time, prior to their stated
maturity. At any time on or after February 1, 2023, the Company may redeem the
2027 Notes in whole or in part, upon not less than 15 nor more than 60 days'
notice, at a redemption price defined in the indenture governing the 2027 Notes,
plus accrued and unpaid interest, if any, to the redemption date. Net proceeds
of the offering were used to repay secured indebtedness. On February 26, 2020,
the board of the directors authorized the Company to repurchase any or all of
the 2027 Notes from time to time without further approval. During the year ended
December 31, 2020, the Company retired $98.2 million of principal of the 2027
Notes for a repurchase price of $83.9 million, recognizing a $12.9 million net
gain on extinguishment of debt after recognizing $(1.3) million of unamortized
debt issuance costs associated with the retired debt. As of December 31, 2021,
the remaining $651.8 million in aggregate principal amount of the 2027 Notes is
due February 1, 2027.
2029 Notes
On June 23, 2021, LCFH issued $650.0 million in aggregate principal amount of
4.75% senior notes due June 15, 2029. The 2029 Notes require interest payments
semi-annually in cash in arrears on June 15 and December 15 of each year,
beginning December 15, 2021. The 2029 Notes are unsecured and are subject to an
unencumbered asset to unsecured debt covenant. The
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Company may redeem the 2029 Notes, in whole, at any time, or from time to time,
prior to their stated maturity. At any time on or after June 15, 2024, the
Company may redeem the 2029 Notes in whole or in part, upon not less than 10 nor
more than 60 days' notice, at a redemption price defined in the indenture
governing the 2029 Notes, plus accrued and unpaid interest, if any, to the
redemption date. Net proceeds of the offering were used for general corporate
purposes, including funding the Company's pipeline of new loans, investments in
its core business lines and repayment of indebtedness. On June 24, 2021, the
board of the directors authorized the Company to repurchase any or all of the
2029 Notes from time to time without further approval. As of December 31, 2021,
the remaining $650.0 million in aggregate principal amount of the 2029 Notes is
due June 15, 2029.
Combined Maturity of Debt Obligations
The following schedule reflects the Company's contractual payments under all borrowings by maturity ($ in thousands):
Borrowings by
Period ending December 31, Maturity(1)
2022 $ 483,937
2023 281,702
2024 406,476
2025 478,704
Thereafter 1,533,922
Subtotal 3,184,741
Debt issuance costs included in senior unsecured notes (18,686)
Debt issuance costs included in secured financing facility
(1,911)
Discount on secured financing facility related to Purchase Right
(2,087)
Debt issuance costs included in mortgage loan financing
(280)
Premiums included in mortgage loan financing(3) 3,151 Total (2) $ 3,164,928 (1)The allocation of repayments under our committed loan repurchase facilities and Secured Financing Facility is based on the earlier of (i) the maturity date of each agreement, or (ii) the maximum maturity date of the collateral loans, assuming all extension options are exercised by the borrower. (2)Total does not include $1.1 billion of consolidated CLO debt obligations and the related debt issuance costs of $9.6 million, as the satisfaction of these liabilities will be paid through cash flow from loan collateral including amortization and will not require cash outlays from us. (3)Represents deferred gains on intercompany loans, secured by our own real estate, sold into securitizations. These premiums are amortized as a reduction to interest expense. Financial Covenants The Company's debt facilities are subject to covenants which require the Company to maintain a minimum level of total equity. Largely as a result of this restriction, approximately $871.4 million of the total equity is restricted from payment as a dividend by the Company at December 31, 2021.
We were in compliance with all covenants described in the financial statements as of December 31, 2021.
LIBOR Transition We continue to develop and implement plans for the discontinuation of LIBOR. Specifically, we: (i) have implemented fallback language for our bi-lateral committed repurchase facilities and revolving credit facility, including adjustments as applicable to maintain the anticipated economic terms of the existing contracts, (ii) continue to monitor the transition guidance provided by the ARRC, the International Swaps and Derivatives Association, Inc., theFinancial Accounting Standards Board and other relevant regulators, agencies and industry working groups, and (iii) continue to engage with clients, lenders, market participants and other industry leaders as the transition from LIBOR progresses. 130
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8. DERIVATIVE INSTRUMENTS
The Company uses derivative instruments primarily to economically manage the
fair value variability of fixed rate assets caused by interest rate fluctuations
and overall portfolio market risk. The following is a breakdown of the
derivatives outstanding as of December 31, 2021 and December 31, 2020 ($ in
thousands):
December 31, 2021
Fair Value Remaining
Maturity
Contract Type Notional Asset(1) Liability(1) (years)
Caps
1 Month LIBOR $ 84,621 $ 60 $ - 0.57
Futures
5-year Swap 6,500 76 - 0.25
10-year Swap 23,000 266 - 0.25
Total futures 29,500 342 -
Total derivatives $ 114,121 $ 402 $ -
(1)Shown as derivative instruments, at fair value, in the accompanying
consolidated balance sheets.
December 31, 2020
Fair Value Remaining
Maturity
Contract Type Notional Asset(1) Liability(1) (years)
Caps
1 Month LIBOR $ 69,571 $ - $ - 0.35
Futures
5-year Swap 23,800 108 - 0.25
10-year Swap 41,800 191 - 0.25
Total futures 65,600 299 -
Total derivatives $ 135,171 $ 299 $ -
(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 years ended December 31, 2021, 2020, and 2019
($ in thousands):
Year Ended December 31, 2021
Net Result
from
Unrealized Realized Derivative
Contract Type Gain/(Loss) Gain/(Loss) Transactions
Caps $ (8) $ - $ (8)
Futures 42 1,715 1,757
Total $ 34 $ 1,715 $ 1,749
Year Ended December 31, 2020
Net Result
from
Unrealized Realized Derivative
Contract Type Gain/(Loss) Gain/(Loss) Transactions
Futures $ (379) $ (15,113) $ (15,492)
Credit Derivatives 111 111 222
Total $ (268) $ (15,002) $ (15,270)
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Year Ended December 31, 2019
Net Result
from
Unrealized Realized Derivative
Contract Type Gain/(Loss) Gain/(Loss) Transactions
Futures $ 1,653 $ (31,469) $ (29,816)
Credit Derivatives (111) (84) (195)
Total $ 1,542 $ (31,553) $ (30,011)
Futures
Collateral posted with our futures counterparties is segregated in the Company's
books and records. Interest rate futures are centrally cleared by the Chicago
Mercantile Exchange ("CME") through a futures commission merchant. Interest rate
futures that are governed by an International Swaps and Derivatives Association
("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.
Variation margin pledged on the Company's centrally cleared interest rate
futures is settled against the realized results of these futures. The Company's
counterparties held $0.5 million, $0.8 million, and $3.5 million of cash margin
as collateral for derivatives as of December 31, 2021, 2020 and 2019
respectively, which is included in restricted cash in the consolidated balance
sheets.
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9. OFFSETTING ASSETS AND LIABILITIES
The following tables present both gross information and net information about
derivatives and other instruments eligible for offset in the statement of
financial position as of December 31, 2021 and December 31, 2020. The Company's
accounting policy is to record derivative asset and liability positions on a
gross basis; therefore, the following tables present the gross derivative asset
and liability positions recorded on the balance sheets, while also disclosing
the eligible amounts of financial instruments and cash collateral to the extent
those amounts could offset the gross amount of derivative asset and liability
positions. The actual amounts of collateral posted by or received from
counterparties may be in excess of the amounts disclosed in the following tables
as the following only disclose amounts eligible to be offset to the extent of
the recorded gross derivative positions.
The following table represents offsetting financial assets and derivative assets as of December 31, 2021 ($ in thousands):
Net amounts of Gross amounts not offset in the
Gross amounts assets presented balance sheet
Gross amounts of offset in the in the balance Financial Cash collateral
Description recognized assets balance sheet sheet instruments received/(posted) Net amount
Derivatives $ 402 $ - $ 402 $ - $ (526) $ 402
Total $ 402 $ - $ 402 $ - $ (526) $ 402
The following table represents offsetting of financial liabilities and derivative liabilities as of December 31, 2021 ($ in thousands):
Gross amounts not offset in the
Net amounts of balance sheet
Gross amounts of Gross amounts liabilities Financial
recognized offset in the presented in the instruments Cash collateral
Description liabilities balance sheet balance sheet collateral posted/(received)(1) Net amount
Repurchase agreements $ 444,577 $ - $ 444,577 $ 444,577 $ 1,975 $ 442,603 Total $ 444,577 $ - $ 444,577 $ 444,577 $ 1,975 $ 442,603
(1)Included in restricted cash on consolidated balance sheets.
The following table represents offsetting of financial assets and derivative assets as of December 31, 2020 ($ in thousands):
Net amounts of Gross amounts not offset in the
Gross amounts assets presented balance sheet
Gross amounts of offset in the in the balance Financial Cash collateral
Description recognized assets balance sheet sheet instruments received/(posted)(1) Net amount
Derivatives $ 299 $ - $ 299 $ - $ - $ 299
Total $ 299 $ - $ 299 $ - $ - $ 299
(1)Included in restricted cash on consolidated balance sheets.
The following table represents offsetting of financial liabilities and derivative liabilities as of December 31, 2020 ($ in thousands):
Gross amounts not offset in the
Net amounts of balance sheet
Gross amounts of Gross amounts liabilities Financial
recognized offset in the presented in the instruments Cash collateral
Description liabilities balance sheet balance sheet collateral posted/(received)(1) Net amount
Repurchase agreements $ 820,837 $ - $ 820,837 $ 820,837 $ - $ -
Total $ 820,837 $ - $ 820,837 $ 820,837 $ - $ -
(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 December 31, 2021 and
December 31, 2020 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.
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10. CONSOLIDATED VARIABLE INTEREST ENTITIES
The Company consolidates on its balance sheet two CLOs that are considered VIEs
as of December 31, 2021 and one CLO that was considered a VIE as of December 31,
2020 ($ in thousands):
December 31, 2021 December 31, 2020
Notes 3 & 7
Restricted cash $ 369 $ 3,925
Mortgage loan receivables held for investment, net, at amortized cost
1,299,116 362,600
Accrued interest receivable 4,587 1,382
Other assets 26,636 69,649
Total assets $ 1,330,708 $ 437,556
Debt obligations, net $ 1,054,774 $ 276,516
Accrued expenses 1,218 682
Other liabilities 65 -
Total liabilities 1,056,057 277,198
Net equity in VIEs (eliminated in consolidation) 274,651 160,358
Total equity 274,651 160,358
Total liabilities and equity $ 1,330,708 $ 437,556
134-------------------------------------------------------------------------------- Table of Contents 11. EQUITY STRUCTURE AND ACCOUNTS The Company has one outstanding class of common stock, Class A as of December 31, 2021 and 2020. Prior to September 30, 2020, the Company also had Class B common stock. The Class A and Class B common stock are described as follows: Class A Common Stock Voting Rights Holders of shares of Class A common stock are entitled to one vote per share on all matters on which stockholders generally are entitled to vote. The holders of Class A common stock do not have cumulative voting rights in the election of directors. Dividend Rights Subject to the rights of the holders of any preferred stock that may be outstanding and any contractual or statutory restrictions, holders of Class A common stock are entitled to receive equally and ratably, share for share, dividends as may be declared by the board of directors out of funds legally available to pay dividends. Dividends upon Class A common stock may be declared by the board of directors at any regular or special meeting and may be paid in cash, in property, or in shares of capital stock.
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 our Class A common stock are fully paid and non-assessable. Class B Common Stock Voting Rights Holders of shares of Class B common stock are entitled to one vote for each share on all matters on which stockholders generally are entitled to vote. Holders of shares of our Class B common stock vote together with holders of our Class A common stock on all such matters. Our stockholders do not have cumulative voting rights in the election of directors. We do not currently have any shares of Class B common stock outstanding.
No Dividend or Liquidation Rights
Holders of Class B common stock do not have any right to receive dividends or to
receive a distribution upon a liquidation or winding up of
Exchange for Class A Common Stock
We are a holding company and have no material assets other than our direct and
indirect ownership of Series REIT limited partnership units ("Series REIT LP
Units") and Series TRS limited partnership units ("Series TRS LP Units," and,
collectively with Series REIT LP Units, "Series Units") of LCFH. Series TRS LP
Units are exchangeable for the same number of limited liability company
interests of LC TRS I LLC ("LC TRS I Shares"), which is a limited liability
company that is a TRS as well as a general partner of Series TRS. 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 I LLC Share, subject to equitable
adjustments for stock splits, stock dividends and reclassifications. As of
September 30, 2020, all shares of Class B common stock, Series REIT LP Units and
Series TRS LP Units have been exchanged for shares of Class A common stock and
no Class B common stock is outstanding as of December 31, 2021. As of
December 31, 2021, the Company held a 100% interest in LCFH.
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During the year ended December 31, 2020, 12,158,933 Series REIT LP Units and
12,158,933 Series TRS LP Units were collectively exchanged for 12,158,933 shares
of Class A common stock and 12,158,933 shares of Class B common stock were
canceled. We received no other consideration in connection with these exchanges.
As of December 31, 2020, the Company held a 100.0% interest in LCFH.
Stock Repurchases
On August 4, 2021, the board of directors authorized the repurchase of $50.0
million of the Company's Class A common stock from time to time without further
approval. This authorization increased the remaining authorization per the
October 30, 2014 authorization at the time from $35.0 million to $50.0 million.
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 December 31, 2021, the Company
has a remaining amount available for repurchase of $44.1 million, which
represents 2.9% in the aggregate of its outstanding Class A common stock, based
on the closing price of $11.99 per share on such date.
The following table is a summary of the Company's repurchase activity of its
Class A common stock during the years ended December 31, 2021 and 2020 ($ in
thousands):
Shares Amount(1)
Authorizations remaining as of December 31, 2020 $ 38,102
Additional authorizations(2) 15,027
Repurchases paid 822,928 (9,007)
Repurchases unsettled -
Authorizations remaining as of December 31, 2021 $ 44,122
(1)Amount excludes commissions paid associated with share repurchases. (2)On August 4, 2021, the Board authorized additional repurchases of up to $50.0 million in aggregate.
Shares Amount(1)
Authorizations remaining as of December 31, 2019 $ 41,132 Additional authorizations - Repurchases paid 384,251 (3,030) Repurchases unsettled - Authorizations remaining as of December 31, 2020 $ 38,102
(1)Amount excludes commissions paid associated with share repurchases.
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 December 31, 2019 $
41,132
(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 order to continue to qualify as a REIT.
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Consistent withIRS guidance, the Company may, subject to a cash/stock election by its shareholders, pay a portion of its dividends in stock, to provide for meaningful capital retention; however, the REIT distribution requirements limit its ability to retain earnings and thereby replenish or increase capital for operations. The timing and amount of future distributions is based on a number of factors, including, among other things, the Company's future operations and earnings, capital requirements and surplus, general financial condition and contractual restrictions. All dividend declarations are subject to the approval of the Company's board of directors. Generally, the Company expects its distributions to be taxable as ordinary dividends to its shareholders, whether paid in cash or a combination of cash and common stock, and not as a tax-free return of capital or a capital gain (although for taxable years beginning after December 31, 2017 and before January 1, 2026, generally stockholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends distributed by us, subject to certain limitations). The Company believes that its significant capital resources and access to financing will provide the financial flexibility at levels sufficient to meet current and anticipated capital requirements, including funding new investment opportunities, paying distributions to its shareholders and servicing our debt obligations. The following table presents dividends declared (on a per share basis) of Class A common stock for the years ended December 31, 2021, 2020 and 2019: Declaration Date Dividend per Share March 15, 2021 $ 0.20 June 15, 2021 0.20 September 15, 2021 0.20 December 15, 2021 $ 0.20 Total $ 0.80 February 27, 2020 $ 0.34 May 28, 2020 0.20 August 31, 2020 0.20 December 31, 2020 $ 0.20 Total $ 0.94 February 27, 2019 $ 0.34 May 30, 2019 0.34 August 22, 2019 0.34 November 26, 2019 0.34 Total $ 1.36 The following table presents the tax treatment for our aggregate distributions per share of common stock paid for the years ended December 31, 2021, 2020 and 2019: Dividend per Ordinary Qualified Unrecaptured
1250 Return of Section 199A
Record Date Payment Date Share Dividends Dividends Capital Gain Gain Capital Dividends
December 31, 2020 January 15, 2021 (1) $ 0.200 $ 0.053 $ 0.001 $ 0.095 $ 0.039 $ 0.052 $ 0.053 March 31, 2021
April 15, 2021 $ 0.200 $ 0.053 $ 0.001 $ 0.095 $ 0.039 $ 0.052 $ 0.053 June 30, 2021
July 15, 2021 0.200 0.053 0.001 0.095 0.039 0.052 0.053
September 30, 2021 October 15, 2021 0.200 0.053 0.001 0.095 0.039 0.052 0.053
December 31, 2021 January 18, 2022 (2) - - - - - - -
Total $ 0.800 $ 0.212 $ 0.004 $ 0.380 $ 0.156 $ 0.208 $ 0.212
(1)The fourth quarter dividend paid on January 15, 2021 was $0.200 and is
considered a 2021 dividend for
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Dividend per Ordinary Qualified Unrecaptured 1250 Return of Section 199A
Record Date Payment Date Share Dividends Dividends Capital Gain Gain Capital Dividends
March 10, 2020 April 1, 2020 $ 0.340 $ 0.230 $ - $ 0.039 $ 0.016 $ 0.071 $ 0.230
June 10, 2020 July 1, 2020 0.200 0.135 - 0.023 0.009 0.042 0.135
September 10, 2020 October 1, 2020 0.200 0.135 - 0.023 0.009 0.042 0.135
December 31, 2020 January 15, 2021 (1) - - - - - - -
Total $ 0.740 $ 0.500 $ - $ 0.085 $ 0.034 $ 0.155 $ 0.500
(1)The fourth quarter dividend paid on January 15, 2021 was $0.200 and is
considered a 2021 dividend for
Dividend per Ordinary Qualified Unrecaptured 1250
Record Date Payment Date Share Dividends Dividends Capital Gain Gain
March 11, 2019 April 1, 2019 $ 0.340 $ 0.324 $ 0.054 $ 0.016 $ 0.005
June 10, 2019 July 1, 2019 0.340 0.324 0.054 0.016 0.005
September 10, 2019 October 1, 2019 0.340 0.324 0.054 0.016 0.005
December 10, 2019 January 3, 2020 (1) 0.340 0.324 0.054 0.016 0.005
Total $ 1.360 $ 1.296 $ 0.216 $ 0.064 $ 0.020
(1) The $0.340 fourth quarter dividend paid on January 3, 2020 is considered a
2019 dividend for
Stock Dividend
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 elected, subject to the cash/stock election by its shareholders described below, to pay its fourth quarter 2018 dividend in a mix of cash and stock and have such dividend be treated as a taxable distribution to its shareholders forU.S. federal income tax purposes. Pursuant toIRS guidance, shareholders had the option to elect to receive the fourth quarter 2018 dividend in all cash (a "Cash Election"), or all shares of Ladder's Class A common stock (a "Share Election"). Shareholderswho did not return an election form, orwho otherwise failed to properly complete an election form, were deemed to have made a Share Election. The total amount of cash paid to all shareholders was limited to a maximum of 20% of the total value of each of the fourth quarter 2018 dividend (the "Cash Amount"). The aggregate amount of the dividends owed to shareholderswho made Cash Elections exceeded the Cash Amount, and accordingly, the Cash Amount was prorated among such shareholders, with the remaining portion of the fourth quarter 2018 dividend, as applicable, paid to such shareholders in shares of Ladder's Class A common stock plus cash in lieu of any fractional shares. Shareholders making Stock Elections received the full amount of the dividend in shares of Ladder's Class A common stock plus cash in lieu of any fractional shares. On January 24, 2019, the Company paid an aggregate of $34.9 million in cash to its Class A shareholders, accrued for dividends payable on unvested restricted stock and unvested options with dividend equivalent rights of $0.5 million and issued 1,434,297 shares of its Class A common stock, equivalent to $23.9 million, in connection with the fourth quarter 2018 dividend totaling $0.570 per share. The total number of shares of Class A common stock distributed pursuant to the fourth quarter 2018 dividend was determined based on shareholder elections and the volume weighted average price of $16.67 per share of Class A common stock on the New York Stock Exchange for the three trading days after January 10, 2019, the date that election forms were due. The Company also issued 180,925 shares of its Class B common stock and each of Series REIT and Series TRS of LCFH issued 1,615,222 of their respective Series LP units corresponding to the aggregate number of Class A and Class B shares issued by the Company. The Company believes that the total value of its 2018 dividend was sufficient to fully distribute its 2018 taxable income. 138
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The following table presents changes in accumulated other comprehensive income related to the cumulative difference between the fair market value and the amortized cost basis of securities classified as available for sale for the years ended December 31, 2021, 2020 and 2019 ($ in thousands):
Accumulated Other
Comprehensive
Accumulated Other Income (Loss) of Total Accumulated
Comprehensive Income Noncontrolling Other Comprehensive
(Loss) Interests Income (Loss)
December 31, 2020 $ (10,463) $ (2) $ (10,465)
Other comprehensive income (loss) 6,351 - 6,351
December 31, 2021 $ (4,112) $ (2) $ (4,114)
Accumulated Other
Comprehensive
Accumulated Other Income (Loss) of Total Accumulated
Comprehensive Income Noncontrolling Other Comprehensive
(Loss) Interests Income (Loss)
December 31, 2019 $ 4,218 $ 475 $ 4,693
Other comprehensive income (loss) (9,950) (5,208) (15,158)
Exchange of noncontrolling interest for
common stock (6,952) 6,952 -
Rebalancing of ownership percentage
between Company and Operating Partnership 2,221 (2,221) -
December 31, 2020 $ (10,463) $ (2) $ (10,465)
Accumulated Other
Comprehensive
Accumulated Other Income (Loss) of Total Accumulated
Comprehensive Income Noncontrolling Other Comprehensive
(Loss) Interests Income (Loss)
December 31, 2018 $ (4,649) $ (588) $ (5,237)
Other comprehensive income (loss) 8,785 1,145 9,930
Exchange of noncontrolling interest for
common stock 65 (65) -
Rebalancing of ownership percentage
between Company and Operating Partnership 17 (17) -
December 31, 2019 $ 4,218 $ 475 $ 4,693
12. NONCONTROLLING INTERESTS
There are two main types of noncontrolling interest reflected in the Company's consolidated financial statements: (i) noncontrolling interests in consolidated joint ventures and (ii) noncontrolling interest in the operating partnership.
Noncontrolling Interests in Consolidated Joint Ventures
As of December 31, 2021, the Company consolidates five ventures and in each, there are different noncontrolling investors, which own between 10.0% - 25.0% of such ventures. These ventures hold investments in a 40-building student housing portfolio inIsla Vista, CA with a book value of $80.7 million, 11 office buildings inRichmond, VA with a book value of $70.3 million, a single-tenant office building inOakland County, MI with a book value of $8.3 million, an apartment complex inMiami, FL with a book value of $37.5 million, and an apartment complex inStillwater, OK with a book value of $19.0 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. 139
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Noncontrolling Interest in the Operating Partnership
As more fully described in Note 1, certain of the predecessor equity owners held 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 common stock held by these investors, were exchangeable for Class A common stock of the Company. The roll-forward of the Operating Partnership's LP Units followed the Class B common stock of the Company as disclosed in the consolidated statements of changes in equity. As of September 30, 2020, all shares of Class B common stock have been exchanged for shares of Class A common stock, and the Company held a 100% interest in LCFH. 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. There were no changes in ownership interest for the twelve months ended December 31, 2021.
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 used 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 was computed (as more fully described in LCFH's Third Amended and Restated LLLP Agreement) for each partner as the product of (x) theU.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 blendedU.S. federal, state and local income tax rate (or alternative minimum taxable rate, as applicable) applicable to an individual residing inNew York, NY , taking into account, forU.S. federal income tax purposes, the deductibility of state and local taxes; provided that Series TRS of LCFH took 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 required 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 was required to make a corresponding distribution of cash to each of their partners (other than the Company) on a pro-rata basis. As of December 31, 2020, all shares of Class B common stock have been exchanged for shares of Class A common stock, and the Company held a 100% interest in LCFH. Due to the expiration of the partnership the above will no longer be applicable prospectively. Income and losses and comprehensive income were 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. 140 -------------------------------------------------------------------------------- Table of Contents 13. EARNINGS PER SHARE
The Company's net income (loss) and weighted average shares outstanding for the years ended December 31, 2021, 2020 and 2019 consist of the following:
Year Ended December 31,
($ in thousands except share amounts) 2021 2020 2019
Basic and Diluted Net income (loss) available for Class A common shareholders
$ 56,522 $ (14,445) $ 122,645
Weighted average shares outstanding Basic 123,763,843 112,409,615 105,455,849 Diluted 124,563,051 112,409,615 106,399,783
The calculation of basic and diluted net income (loss) per share amounts for the years ended December 31, 2021, 2020 and 2019 consist of the following:
Year Ended December 31,
(In thousands except share and per share amounts) 2021 2020(1) 2019(1)
Basic Net Income (Loss) Per Share of Class A Common Stock Numerator: Net income (loss) attributable to Class A common shareholders
$ 56,522 $ (14,445) $ 122,645
Denominator:
Weighted average number of shares of Class A common stock outstanding
123,763,843 112,409,615 105,455,849
Basic net income (loss) per share of Class A common stock $ 0.46 $ (0.13) $ 1.16
Diluted Net Income (Loss) Per Share of Class A Common Stock Numerator: Net income (loss) attributable to Class A common shareholders
$ 56,522 $ (14,445) $ 122,645
Diluted net income (loss) attributable to Class A common shareholders
56,522 (14,445) $ 122,645
Denominator:
Basic weighted average number of shares of Class A common stock outstanding
123,763,843 112,409,615 105,455,849
Add - dilutive effect of:
Incremental shares of unvested Class A restricted stock(2) 799,208 - 943,934
Diluted weighted average number of shares of Class A common stock outstanding
124,563,051 112,409,615 106,399,783
Diluted net income (loss) per share of Class A common stock $ 0.45 $ (0.13) $ 1.15
(1)For the years ended December 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. There were no Class B shares outstanding during the year
ended December 31, 2021.
(2)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 for the period of time that Class B common stock was outstanding.
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14. STOCK BASED AND OTHER COMPENSATION PLANS
Summary of Stock and Shares Unvested/Outstanding
The following table summarizes the impact on the consolidated statement of
operations of the various stock based compensation plans and other compensation
plans ($ in thousands):
Year Ended December 31,
2021 2020 2019
Stock Based Compensation Expense $ 15,300 $ 42,728 $ 21,777
Phantom Equity Investment Plan 22 (1,238) 1,341
Stock Options Exercised - 270 -
Total Stock Based Compensation Expense $ 15,322 $ 41,760 $ 23,118
A summary of the grants is presented below:
Year Ended December 31,
2021 2020 2019
Weighted Weighted Weighted
Average Average Average
Number Fair Value Number Fair Value Number Fair Value
of Shares Per Share of Shares Per Share of Shares/Options Per Share
Grants - Class A Common Stock 747,713 $ 9.81 4,423,215 $ 12.84 1,569,694 $ 17.54
Grants - Class A Common Stock dividends - - - - 11,113 16.61
Stock Options - - - - 12,073 -
The table below presents the number of unvested shares of Class A common stock
and outstanding stock options at December 31, 2021 and changes during 2021 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, 2020 2,800,824 681,102 Granted 747,713 - Exercised - - Vested (992,667) - Forfeited (410,490) - Expired - (57,314) Nonvested/Outstanding at December 31, 2021 2,145,380
623,788
Exercisable at December 31, 2021 (1) 623,788
(1) The weighted-average exercise price of outstanding options, warrants and rights is $14.84 at December 31, 2021.
At December 31, 2021 there was $11.1 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 24 months, with a weighted-average remaining vesting period of 20 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 2019 with Respect to 2018 Performance
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For 2018 performance, certain employees received stock-based incentive equity on
February 18, 2019. Fair value for all restricted and unrestricted stock grants
was calculated using the most recent closing stock price prior to the grant date
(due to markets being closed on grant date). Compensation expense for
unrestricted stock grants was expensed immediately. The Company 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. Restricted stock subject
to performance criteria is eligible to vest in three equal installments upon the
compensation committee's confirmation that the Company achieves a return on
equity, based on distributable earnings divided by the Company's average book
value of equity, equal to or greater than 8% for such year (the "Performance
Target") for the years ended December 31, 2019, 2020 and 2021, 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
three 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 distributable 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 subject to continued employment on the applicable
vesting date (the "Catch-Up Provision"). 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.
In view of the adverse impacts of COVID-19 on the Company's operations and
investments and the resulting intensified corporate focus on defensive actions,
including maintaining high levels of unrestricted cash liquidity and refinancing
debt with more expensive non-mark-to-market funding sources, the Company no
longer classified the 2020 Performance Target as probable as of May 27, 2020 and
reversed $1.0 million of previous compensation expense relating to grants of
restricted stock with a December 2020 performance hurdle as their last vesting
date (not available to take advantage of the Catch-Up Provision). However,
recognizing that Ladder's employees took these actions that, while in the best
interests of the Company and its shareholders, would not produce earnings
consistent with the Performance Target in their deferred compensation
arrangements, on May 27, 2020, the compensation committee of the board of
directors used its discretion to waive the Performance Target for shares
eligible to vest based on the Company's performance in 2020 and 2021, subject to
continued employment on the applicable vesting dates (the "Performance Waiver").
The Company recorded $0.1 million of incremental compensation cost during the
year ended December 31, 2020 as a result of this modification. As of
December 31, 2021, there were 39 Ladder employees and one consultant eligible
for the 2021 Performance Waiver.
On February 18, 2019, in connection with 2018 compensation, annual stock awards
were granted to management employees (each, a "Management Grantee") with an
aggregate value of $11.7 million which represented 666,288 shares of Class A
common stock. The award to Mr. Harris, and 50% of the awards to Mr. Fox, Mr.
Harney, and Mr. Perelman, were unrestricted. For Ms. McCormack, 50% of her award
became fully vested on her executive retirement eligibility date, December 8,
2019. The other 50% of incentive equity awarded to Mr. Fox, Mr. Harney, Ms.
McCormack, and Mr. Perelman is restricted stock subject to attainment of the
Performance Target for the applicable years and also subject to the Performance
Waiver and Catch-Up Provision, each described above.
On February 18, 2019, in connection with 2018 compensation, annual 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 mostly restricted Class A common stock. Fifty percent of most stock
awards granted is subject to time-based vesting criteria, and the remaining 50%
of each stock award is subject to attainment of the Performance Target for the
applicable years and is also subject to the Performance Waiver and Catch-Up
Provision, each described above. The time-vesting restricted stock granted to
Non-Management Grantees will vest in three installments on February 18 of each
of 2020, 2021 and 2022 subject to continued employment on the applicable vesting
dates.
Other 2019 Restricted Stock Awards
On February 18, 2019, certain members of the board of directors each received
annual restricted stock awards with a grant date fair value of $0.4 million,
representing 25,626 shares of restricted Class A common stock, which 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 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 vested
with the time-vesting 2016 options they are associated with, subject to the
Retirement Eligibility Date of the respective member of management. Compensation
expense was recognized on a straight-line basis over the requisite service
period.
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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 three equal
installments on each of the first three anniversaries of the date of grant,
subject to continued service on the board of directors. Compensation expense for
restricted stock subject to time-based vesting criteria granted to the director
will be expensed 1/3 each year, for three years on an annual basis following
such grant.
On 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 and is also subject to the Performance Waiver and Catch-Up
Provision, each described above. The time-vesting restricted stock granted will
vest in three 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 three 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 subject to the Performance Waiver. 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.
Annual Incentive Awards Granted in 2020 with Respect to 2019 Performance
For 2019 performance, certain employees received stock-based incentive 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 was expensed immediately. 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. Restricted stock subject to performance criteria is eligible to vest in three equal installments upon the compensation committee's confirmation that the Company achieves the Performance Target for the years ended December 31, 2020, 2021 and 2022, respectively. Restricted stock subject to performance criteria is also subject to the Performance Waiver and the Catch-Up Provision, each described above. 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 February 18, 2020, in connection with 2019 compensation, annual stock awards were granted to Management Grantees, other than Ms. Porcella, with an aggregate fair value of $12.0 million which represents 639,690 shares of Class A common stock. The grant to 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 that total. The grant to Mr. Harris, and 50% of the grants to Mr. Fox, Ms. McCormack and Mr. Perelman, were unrestricted. The other 50% of incentive equity granted to Mr. Fox, Ms. McCormack and Mr. Perelman is restricted stock subject to attainment of the Performance Target for the applicable years and is also subject to the Performance Waiver and Catch-Up Provision, each described above. On February 18, 2020, in connection with 2019 compensation, annual stock awards were granted to Ms. Porcella and Non-Management Grantees with an aggregate value of $15.0 million which represents 802,611 shares of mostly restricted Class A common stock. Fifty percent of most stock awards is subject to time-based vesting criteria, and the remaining 50% of these stock awards is subject to attainment of the Performance Target for the applicable years and is also subject to the Performance Waiver and Catch-Up Provision, each described above. The time-vesting restricted stock will vest in three installments on February 18 of each of 2021, 2022 and 2023 subject to continued employment on the applicable vesting dates.
Other 2020 Restricted Stock Awards
On February 18, 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 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. On March 26, 2020, 5,803 shares of
restricted Class A common stock were forfeited when a member resigned from the
board of directors.
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Annual Incentive Awards Granted in 2020 with Respect to 2020 Performance
For 2020 performance, certain employees received stock-based incentive equity in
December 2020. 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 was expensed immediately. 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. Restricted stock subject
to performance criteria is eligible to vest in three equal installments upon the
compensation committee's confirmation that the Company achieves the Performance
Target for the years ended December 31, 2021, 2022 and 2023, respectively.
Restricted stock subject to performance criteria is also subject to the
Performance Waiver and the Catch-Up Provision, each described above. 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 December 17, 2020, in connection with 2020 compensation, annual stock awards
were granted to Management Grantees, other than Ms. Porcella, with an aggregate
fair value of $14.5 million, which represents 1,463,039 shares of Class A common
stock. The grant to 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 the total. The grant to Mr. Harris and approximately 2/3
of the grants to Mr. Fox, Ms. McCormack and Mr. Perelman were unrestricted. The
other 1/3 of incentive equity granted to Mr. Fox, Ms. McCormack and Mr. Perelman
is restricted stock subject to attainment of the Performance Target for the
applicable years and is also subject to the Performance Waiver and Catch-Up
Provision, each described above.
On December 17, 2020, in connection with 2020 compensation, annual stock awards
were granted to Ms. Porcella and Non-Management employees with an aggregate fair
value of $14.8 million, which represents 1,493,839 shares of Class A common
stock. Approximately 1/3 of the awards to Ms. Porcella and Non-Management
Grantees employees were unrestricted, with another 1/3 of the awards subject to
time-based vesting criteria, and the remaining 1/3 subject to attainment of the
Performance Target for the applicable years. The 1/3 of awards subject to
attainment of the Performance Target is also subject to the Performance Waiver
and Catch-Up Provision, each described above. The time-vesting restricted stock
will vest in three installments on February 18 of each of 2022, 2023 and 2024
subject to continued employment on the applicable vesting dates.
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Annual Incentive Awards Granted in 2021 with respect to 2020 Performance
On January 1, 2021, in connection with 2020 compensation, annual stock awards
were granted to non-management employees ("Non-Management Grantees") with an
aggregate fair value of $7.0 million, which represents 711,653 shares of Class A
common stock. Approximately one-third of the awards to Non-Management Grantees
were unrestricted, with another one-third of the awards subject to time-based
vesting criteria, and the remaining one-third subject to attainment of the
Performance Target for the applicable years. The one-third of awards subject to
attainment of the Performance Target is also subject to the Performance Waiver
and Catch-Up Provision, each described below. The time-vesting restricted stock
will vest in three installments on February 18 of each of 2022, 2023 and 2024,
subject to continued employment on the applicable vesting dates. Fair value for
all restricted and unrestricted stock grants was calculated using the most
recent closing stock price prior to the grant date (due to markets being closed
on the grant date). Compensation expense for unrestricted stock grants was
expensed immediately. 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. 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.
Other 2021 Restricted Stock Awards
On February 18, 2021, certain members of the board of directors each received annual restricted stock awards with a grant date fair value of $0.4 million, representing 36,060 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.
Change in Control
Upon a change in control (as defined in the respective award agreements), restricted stock awards to Mr. Miceli, Ms. McCormack and Mr. Perelman will become fully vested if (1) 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, such Management Grantee's employment is terminated without cause or due to death or disability or the Management Grantee resigns for Good Reason, as defined in each Management Grantee's employment agreement. 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 awards granted.
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 (or be forfeited) in accordance with the performance conditions.
Ladder Capital Corp Deferred Compensation Plan
As of December 31, 2020, there were 165,735 phantom units outstanding in the 2014 Deferred Compensation Plan, all of which were vested, resulting in a liability of $1.6 million, which is included in accrued expenses on the consolidated balance sheets. As of March 31, 2021, the deferred compensation plan ended as the liability had been fully paid.
Bonus Payments
For 2021, total bonus compensation awarded in 2022 was $43.6 million of which
$32.6 million consisted of equity based compensation. During the year ended
December 31, 2021, the Company recorded $11.0 million of compensation expense
related to cash bonuses that were paid in January 2022.
For 2020, bonus compensation awarded was $36.8 million of which $35.7 million
consisted of equity based compensation. Of the total, there was $29.4 million of
equity based compensation granted in 2020. During the year ended December 31,
2021, the Company recorded $11.0 million of compensation expense related to cash
bonuses that were paid in January 2022. For the year ended December 31, 2020,
the Company recorded $1.1 million of bonus expense that was paid in the first
quarter of 2021.
146-------------------------------------------------------------------------------- Table of Contents 15. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is based upon internal models, using market quotations, broker quotations, counterparty quotations or pricing services quotations, which provide valuation estimates based upon reasonable market order indications and are subject to significant variability based on market conditions, such as interest rates, credit spreads and market liquidity. The fair value of the mortgage loan receivables held for sale is based upon a securitization model utilizing market data from recent securitization spreads and pricing.
Fair Value Summary Table
The carrying values and estimated fair values of the Company's financial
instruments, which are both reported at fair value on a recurring basis (as
indicated) or amortized cost/par, at December 31, 2021 and December 31, 2020 are
as follows ($ in thousands):
December 31, 2021
Weighted Average
Amortized
Principal Cost Basis/Purchase Yield Remaining
Amount Price Fair Value Fair Value Method % Maturity/Duration (years)
Assets:
CMBS(1) $ 691,402 $ 691,026 $ 686,293 Internal model, third-party inputs 1.57 % 2.06
CMBS interest-only(1) 1,302,551 (2) 15,268 15,885 Internal model, third-party inputs 5.67 % 1.88
GNMA interest-only(3) 59,075 (2) 518 559 Internal model, third-party inputs 4.97 % 3.64
Agency securities(1) 557 560 563 Internal model, third-party inputs 1.58 % 0.69
Mortgage loan receivables held for investment,
net, at amortized cost(4) 3,581,919 3,553,737 3,494,254 Discounted Cash Flow(5) 5.65 % 1.76
FHLB stock(6) 11,835 11,835 11,835 (6) 3.25 % N/A
Nonhedge derivatives(1)(7) 114,121 402 402 Counterparty quotations N/A 0.30
Liabilities:
Repurchase agreements - short-term 418,394 418,394 418,394 Discounted Cash Flow(8) 0.89 % 0.46
Repurchase agreements - long-term 26,183 26,183 26,183 Discounted Cash Flow(9) 2.21 % 1.01
Mortgage loan financing 690,927 693,797 709,695 Discounted Cash Flow 4.83 % 3.3
Secured financing facility 136,444 132,447 133,389 Discounted Cash Flow(8) 10.75 % 1.35
CLO debt 1,064,365 1,054,774 1,054,774 Discounted Cash Flow(9) 2.04 % 16.92
Borrowings from the FHLB 263,000 263,000 263,414 Discounted Cash Flow 0.91 % 1.95
Senior unsecured notes 1,649,794 1,631,108 1,677,039 Internal model, third-party inputs 4.66 % 5.74
(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)Balance does not include impact of allowance for current expected credit
losses of $31.8 million at December 31, 2021.
(5)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.
(6)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.
(7)The outstanding face amount of the nonhedge derivatives represents the
notional amount of the underlying contracts.
(8)Fair value for repurchase agreement liabilities - short term borrowings under
the Secured Financing Facility and borrowings under the Revolving Credit
Facility 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.
(9)For repurchase agreements - long term and CLO debt, 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.
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December 31, 2020
Weighted Average
Amortized Yield Remaining
Principal Amount Cost Basis Fair Value Fair Value Method % Maturity/Duration (years)
Assets:
Internal model, third-party
CMBS(1) $ 1,015,520 $ 1,015,282 $ 1,003,301 inputs 1.56 % 2.01
Internal model, third-party
CMBS interest-only(1) 1,498,181 (2) 21,567 22,213 inputs 3.53 % 2.19
Internal model, third-party
GNMA interest-only(3) 75,350 (2) 868 1,001 inputs 5.06 % 3.59
Internal model, third-party
Agency securities(1) 586 593 605 inputs 1.64 % 1.26
Internal model, third-party
GNMA permanent securities(1) 30,254 30,340 31,199 inputs 3.49 % 1.98
Mortgage loan receivables held for investment,
net, at amortized cost(4) 2,365,204 2,354,059 2,328,441 Discounted Cash Flow(5) 6.67 % 1.07
Internal model, third-party
Mortgage loan receivables held for sale 30,478 30,518 32,082 inputs(6) 4.05 % 9.18
FHLB stock(7) 31,000 31,000 31,000 (7) 3.00 % N/A
Nonhedge derivatives(1)(8) 65,600 N/A 299 Counterparty quotations N/A 0.25
Liabilities:
Repurchase agreements - short-term 708,833 708,833 708,833 Discounted Cash Flow(9) 1.16 % 0.34
Repurchase agreements - long-term 112,004 112,004 112,004 Discounted Cash Flow(10) 9.47 % 2.21
Revolving credit facility 266,430 266,430 266,430 Discounted Cash Flow(9) 3.15 % 0.07
Mortgage loan financing 761,793 766,064 786,405 Discounted Cash Flow 4.84 % 4.04
Secured financing facility 206,350 192,646 192,646 Discounted Cash Flow(9) 10.75 % 2.35
CLO debt 279,156 276,516 276,516 Discounted Cash Flow(10) 5.50 % 3.38
Borrowings from the FHLB 288,000 288,000 289,091 Discounted Cash Flow 1.12 % 2.76
Internal model, third-party
Senior unsecured notes 1,612,299 1,599,371 1,607,930 inputs 4.90 % 3.89
(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)Balance does not include impact of allowance for current expected credit
losses of $41.5 million at December 31, 2020.
(5)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.
(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 - short term borrowings under
the secured financing facility and borrowings under the revolving credit
facility 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 CLO debt 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.
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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 December 31, 2021 and December 31, 2020 ($ in thousands):
December 31, 2021
Financial Instruments Reported at Fair Value
Fair Value on Consolidated Principal
Statements of Financial Condition Amount Level 1 Level 2 Level 3 Total
Assets:
CMBS(1) $ 681,076 $ - $ - $ 676,398 $ 676,398
CMBS interest-only(1) 1,293,181 (2) - - 15,344 15,344
GNMA interest-only(3) 59,075 (2) - - 559 559
Agency securities(1) 557 - - 563 563
Nonhedge derivatives(4) 114,121 - 402 - 402
$ - $ 402 $ 692,864 $ 693,266
Financial Instruments Not
Reported at Fair Value on Fair Value
Consolidated Statements of Principal
Financial Condition Amount Level 1 Level 2 Level 3 Total
Assets:
Mortgage loan receivable held for
investment, net, at amortized
cost:
Mortgage loan receivables held
for investment, net, at amortized
cost(5) $ 3,581,920 $ - $ - $ 3,494,254 $ 3,494,254
CMBS(6) 10,326 - - 9,894 9,894
CMBS interest-only(6) 9,370 - - 541 541
FHLB stock 11,835 - - 11,835 11,835
$ - $ - $ 3,516,524 $ 3,516,524
Liabilities:
Repurchase agreements -
short-term 418,394 $ - $ - $ 418,394 $ 418,394 Repurchase agreements - long-term
26,183 - - 26,183 26,183
Mortgage loan financing 690,927 - - 709,695 709,695
Secured financing facility 136,444 - - 133,389 133,389
CLO debt 1,064,365 - - 1,054,774 1,054,774
Borrowings from the FHLB 263,000 - - 263,414 263,414
Senior unsecured notes 1,649,794 - - 1,677,039 1,677,039
$ - $ - $ 4,282,888 $ 4,282,888
(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)Balance does not include impact of allowance for current expected credit
losses of $31.8 million at December 31, 2021.
(6)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.
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December 31, 2020
Financial Instruments Reported at Fair Value
Fair Value on Consolidated Outstanding Face
Statements of Financial Condition Amount Level 1 Level 2 Level 3 Total
Assets:
CMBS(1) $ 1,003,998 $ - $ - $ 992,227 $ 992,227
CMBS interest-only(1) 1,487,616 (2) - - 21,538 21,538
GNMA interest-only(3) 75,350 (2) - - 1,001 1,001
Agency securities(1) 586 - - 605 605
GNMA permanent securities(1) 30,254 - - 31,199 31,199
Nonhedge derivatives(4) 65,600 - 299 - 299
$ - $ 299 $ 1,046,570 $ 1,046,869
Financial Instruments Not
Reported at Fair Value on Fair Value
Consolidated Statements of Outstanding Face
Financial Condition Amount Level 1 Level 2 Level 3 Total
Assets:
Mortgage loan receivable held for investment, net, at amortized cost: Mortgage loan receivables held for investment, net, at amortized cost(5) $ 2,365,204 $
- $ - $ 2,328,441 $ 2,328,441
Mortgage loan receivables held
for sale 30,478 - - 32,082 32,082
CMBS(6) 11,523 - - 11,074 11,074
CMBS interest-only(6) 10,566 (2) - - 675 675
FHLB stock 31,000 - - 31,000 31,000
$ - $ - $ 2,403,272 $ 2,403,272
Liabilities:
Repurchase agreements -
short-term 708,833 $ - $ - $ 708,833 $ 708,833 Repurchase agreements - long-term
112,004 - - 112,004 112,004
Revolving credit facility 266,430 - - 266,430 266,430
Mortgage loan financing 761,793 - - 786,405 786,405
Secured financing facility 206,350 - - 200,343 200,343
CLO debt 276,516 - - 276,516 276,516
Borrowings from the FHLB 288,000 - - 289,091 289,091
Senior unsecured notes 1,612,299 - - 1,607,930 1,607,930
$ - $ - $ 4,247,552 $ 4,247,552
(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)Balance does not include impact of allowance for current expected credit
losses of $41.5 million at December 31, 2020.
(6)Restricted securities which are designated as risk retention securities under
the Dodd-Frank Act and are therefore subject to transfer restrictions over the
term of the securitization trust, which are classified as held-to-maturity and
reported at amortized cost.
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The following table summarizes changes in Level 3 financial instruments reported
at fair value on the consolidated statements of financial condition for the
years ended December 31, 2021 and 2020 ($ in thousands):
Year Ended December 31,
Level 3 2021 2020
Balance at January 1, $ 1,046,570 $ 1,695,913
Transfer from level 2 - -
Purchases 247,040 439,735
Sales (438,594) (917,372)
Paydowns/maturities (163,297) (135,341)
Amortization of premium/discount (6,708) (8,073)
Unrealized gain/(loss) 6,259 (14,896)
Realized gain/(loss) on sale(1) 1,594 (13,396)
Balance at December 31, $ 692,864 $ 1,046,570
(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):
December 31, 2021
Weighted
Financial Instrument Carrying Value Valuation Technique Unobservable Input Minimum Average Maximum
CMBS(1) $ 676,398 Discounted cash flow Yield (4) 0.77 % 1.51 % 5.28 %
Duration (years)(5) 0 1.93 8.39
CMBS interest-only(1) 15,344 (2) Discounted cash flow Yield (4) - % 5.7 % 9.34 %
Duration (years)(5) 0.03 1.81 2.58
Prepayment speed (CPY)(5) 100.00 100.00 100.00
GNMA interest-only(3) 559 (2) Discounted cash flow Yield (4) - % 4.97 % 10.00 %
Duration (years)(5) 0 2.72 5.56
Prepayment speed (CPJ)(5) 5 17.41 35.00
Agency securities(1) 563 Discounted cash flow Yield (4) 1.44 % 1.58 % 2.78 %
Duration (years)(5) 0 0.42 0.47
Total $ 692,864
December 31, 2020
Weighted
Financial Instrument Carrying Value Valuation Technique Unobservable Input Minimum Average Maximum
CMBS(1) $ 992,226 Discounted cash flow Yield (3) - % 2.09 % 23.85 %
Duration (years)(4) 0.00 2.68 5.82
CMBS interest-only(1) 21,537 (2) Discounted cash flow Yield (3) 0.56 % 2.51 % 9.94 %
Duration (years)(4) 0.12 2.23 3.15
Prepayment speed (CPY)(4) 100.00 100.00 100.00
GNMA interest-only(3) 1,001 (2) Discounted cash flow Yield (4) - % 7.93 % 35.82 %
Duration (years)(5) 0.00 2.80 6.79
Prepayment speed (CPJ)(5) 5.00 17.78 35.00
Agency securities(1) 605 Discounted cash flow Yield (4) 0.44 % 11.31 % 72.00 %
Duration (years)(5) 0.00 1.23 1.44
GNMA permanent securities(1) 31,199 Discounted cash flow Yield (4) - % 2.99 % 3.47 %
Duration (years)(5) 1.57 9.74 14.57
Total $ 1,046,568
(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.
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(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 be impaired. 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. Refer to Note 3, Mortgage Loan Receivables and Note 5, Real Estate and Related Lease Intangibles, Net for disclosure of level 3 inputs.
16. INCOME TAXES
The Company elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with the taxable year
ended December 31, 2015. As such, the Company's income is generally not subject
to U.S. federal, state and local corporate income taxes other than as described
below.
Certain of the Company's subsidiaries have elected to be treated as TRSs. TRSs
permit the Company to participate in certain activities from which REITs are
generally precluded, as long as these activities meet specific criteria, are
conducted within the parameters of certain limitations established by the Code,
and are conducted in entities which elect to be treated as taxable subsidiaries
under the Code. To the extent these criteria are met, the Company will continue
to maintain its qualification as a REIT. The Company's TRSs are not consolidated
for U.S. federal income tax purposes, but are instead taxed as corporations. For
financial reporting purposes, a provision for current and deferred taxes is
established for the portion of earnings recognized by the Company with respect
to its interest in TRSs.
Components of the provision for income taxes consist of the following ($ in
thousands):
Year Ended December 31,
2021 2020 2019
Current expense (benefit)
U.S. federal $ (280) $ (8,087) $ (1,772)
State and local 936 (1,796) (396)
Total current expense (benefit) 656 (9,883) (2,168)
Deferred expense (benefit)
U.S. federal 311 119 3,824
State and local (39) (25) 990
Total deferred expense (benefit) 272 94 4,814
Provision for income tax expense (benefit) $ 928 $ (9,789) $ 2,646
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A reconciliation between the U.S. federal statutory income tax rate and the
effective tax rate for the years ended December 31, 2021, 2020 and 2019 is as
follows:
Year Ended December 31,
2021 2020 2019
US statutory tax rate 21.00 % 21.00 % 21.00 %
REIT income not subject to corporate income tax (17.72) % 65.98 % (21.89) %
Increase due to state and local taxes (0.46) % 9.85 % (0.25) %
Change in valuation allowance (1.20) % 6.91 % 3.26 %
Offshore non-taxable income (3.75) % (41.96) % (0.24) %
Uncertain tax position released - % (2.54) % (0.46) %
Section 163 (j) interest expense limitation 0.27 % (7.12) % - %
REIT income taxes (0.31) % (2.59) % - %
Return to provision 1.64 % (1.25) % - %
Net operating loss carryback benefit - % 4.54 % - %
Other 2.14 % (1.96) % 0.45 %
Effective income tax rate 1.61 % 50.86 % 1.87 %
The differences between the Company's statutory rate and effective tax rate are
largely determined by the amount of income subject to tax by the Company's TRS
subsidiaries. The Company expects that its future effective tax rate will be
determined in a similar manner.
As of December 31, 2021 and 2020, the Company's net deferred tax assets
(liabilities) were $(2.3) million and $(2.0) million, respectively, and are
included in other assets (liabilities) in the Company's consolidated balance
sheets. The Company believes it is more likely than not that the net deferred
tax assets will be realized in the future. Realization of the net deferred tax
assets (liabilities) 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 net deferred tax assets
considered realizable is subject to adjustment in future periods if estimates of
future taxable income change.
The Company has recorded deferred tax assets related to net operating losses in
the taxable REIT subsidiaries that are expected to be fully utilized in future
periods. The net operating loss subject to unlimited carryforward is $27.1
million as of December 31, 2021
The components of the Company's deferred tax assets and liabilities are as follows ($ in thousands):
December 31, 2021 December 31, 2020
Deferred Tax Assets
Net operating loss carryforward $ 6,766 $ 6,222
Net unrealized losses - 986
Capital losses carryforward 6,005 5,664
Valuation allowance (6,005) (5,664)
Interest expense limitation 1,647 1,370
Valuation allowance (1,647) (1,370)
Total Deferred Tax Assets $ 6,766 $ 7,208
=
December 31, 2021 December 31, 2020
Deferred Tax Liability
Basis difference in operating partnerships $ 9,048 $ 9,218
Total Deferred Tax Liability $ 9,048 $ 9,218
153-------------------------------------------------------------------------------- Table of Contents As of December 31, 2021, the Company had $6.0 million of deferred tax assets relating to capital losses which it may only use to offset capital gains. As of December 31, 2020, the Company had $5.7 million of deferred tax assets relating to capital losses which it may only use to offset capital gains. These tax attributes will begin to expire if unused in 2022. As the realization of these assets are not more likely than not before their expiration, the Company has provided a full valuation allowance against these deferred tax assets. The Company's tax returns are subject to audit by taxing authorities. Generally, as of December 31, 2021, the tax years 2017-2021 remain open to examination by the major taxing jurisdictions in which the Company is subject to taxes. 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, a settlement was reached with New York State pertaining to an audit of these corporate entities for the years 2013-2015. As a result of the settlement, management recorded income tax expense in the amount of $3.3 million and a corresponding payable to the State of New York in 2018. Pursuant to the indemnification, management expected to recover $2.5 million of the $3.3 million from indemnity counterparties and, accordingly, recorded fee and other income in the amount of $2.5 million as well as a corresponding receivable from the indemnity counterparties. As of July 31, 2019, the Company collected all amounts owed by the 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 2012-2013. 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. As of December 31, 2021 there was no unrecognized tax benefit. As of December 31, 2020 the Company's unrecognized tax benefit is a liability for $0.7 million, and is included in the accrued expenses in the Company's consolidated balance sheets. This unrecognized tax benefit, if recognized, would have a favorable impact on our effective income tax rate in future periods. As of December 31, 2021, the Company has not recognized a significant amount of any interest or penalties related to uncertain tax positions. In addition, the Company does not believe that it has any tax positions for which it is reasonably possible that it will be required to record a significant liability for unrecognized tax benefits within the next twelve months.
Tax Receivable Agreement
Upon consummation of the IPO, the Company entered into a Tax Receivable Agreement with the Continuing LCFH Limited Partners (the "TRA Members"). Under the Tax Receivable Agreement the Company generally is required to pay to the TRA Members 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. To determine the current amount of the payments due, the Company estimated the amount of the Tax Receivable Agreement payments to be made within twelve months of the balance sheet date. As of December 31, 2021 the Company had no liability pursuant to the Tax Receivable Agreement. In 2020, the Company had a liability $0.9 million included in other liabilities in the consolidated balance sheets for TRA Members. Following the remaining partners' exchange during the three months ended September 30, 2020, the Company elected to compute Early Termination Payments for each exchanging partner as provided under the terms of the Tax Receivable Agreement. All of the participants were notified of the payments to which they would be entitled, including those entitled to no payment. The Early Termination Payments totaling $0.9 million were executed during the first quarter of 2021.
17. RELATED PARTY TRANSACTIONS
The Company has no material related party relationships to disclose. 18. COMMITMENTS AND CONTINGENCIES
Leases
As of December 31, 2021, the Company had a $1.0 million lease liability and a
$1.1 million right-of-use asset on its consolidated balance sheets found within
other liabilities and other assets, respectively. Tenant reimbursements, which
consist
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of real estate taxes and other municipal charges paid by us which were
reimbursable by our tenants pursuant to the terms of the net lease agreements,
were $5.0 million, $5.5 million, and $6.4 million for the years ended
December 31, 2021, 2020, and 2019, respectively, and are included in operating
lease income on the Company's consolidated statements of income.
Investments in Unconsolidated Joint Ventures
We have made investments in various unconsolidated joint ventures. Refer to 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 December 31, 2021, the Company's off-balance sheet arrangements consisted
of $390.1 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, 52% 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, 2020, the
Company's off-balance sheet arrangements consisted of $148.8 million of unfunded
commitments on mortgage loan receivables held for investment to provide
additional first mortgage loan 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. The COVID-19 pandemic has impacted the progress of work
generally and, depending on specific property locations, the progress of capital
expenditures, construction, and leasing, which have been delayed and/or slower
paced than originally anticipated. The progress of those particular projects
located in states or local municipalities with continuing restrictions on such
activities is anticipated to remain slower to complete than otherwise
underwritten at loan origination, and the timing and amounts of our future
funding commitments is likely to be slower and possibly diminished by our
clients' changing business plans to adapt to market conditions. These
commitments are not reflected on the consolidated balance sheets.
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19. SEGMENT REPORTING
The Company has determined that it has three reportable segments based on how
the chief operating decision makers review and manage 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, student housing
portfolios, hotels, industrial buildings, a shopping center and condominium
units. Corporate/other includes certain of 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):
Company
Year ended December 31, 2021 Loans Securities Real Estate (1) Corporate/Other(2) Total
Interest income $ 162,349 $ 13,101 $ 1 $ 648 $ 176,099
Interest expense (53,414) (2,403) (36,075) (91,057) (182,949)
Net interest income (expense) 108,935 10,698 (36,074) (90,409) (6,850)
(Provision for) release of loan loss
reserves 8,713 - - 8,713
Net interest income (expense) after
provision for (release of) loan reserves 117,648 10,698 (36,074) (90,409) 1,863
Real estate operating income - - 101,564 - 101,564
Sale of loans, net 8,398 - - - 8,398
Realized gain (loss) on securities - 1,594 - - 1,594
Unrealized gain (loss) on Agency
interest-only securities - (91) - - (91)
Realized gain on sale of real estate, net - - 55,766 - 55,766
Fee and other income 10,507 - 50 633 11,190
Net result from derivative transactions 507 1,250 (8) - 1,749
Earnings (loss) from investment in
unconsolidated joint ventures 335 - 1,244 - 1,579
Total other income (loss) 19,747 2,753 158,616 633 181,749
Compensation and employee benefits - - - (38,347) (38,347)
Operating expenses(3) 127 - - (17,799) (17,672)
Real estate operating expenses - - (26,161) - (26,161)
Fee expense (2,341) (217) (849) (2,403) (5,810)
Depreciation and amortization - - (37,702) (99) (37,801)
Total costs and expenses (2,214) (217) (64,712) (58,648) (125,791)
Income tax (expense) benefit - - - (928) (928)
Segment profit (loss) $ 135,181 $ 13,234 $ 57,830 $ (149,352) $ 56,893
Total assets as of December 31, 2021 $ 3,521,986 $ 703,280
$ 914,027 $ 711,959 $ 5,851,252
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Company
Year ended December 31, 2020 Loans Securities Real Estate (1) Corporate/Other(2) Total
Interest income $ 205,640 $ 32,904 $ 13 $ 1,292 $ 239,849
Interest expense (48,084) (21,554) (39,396) (118,440) (227,474)
Net interest income (expense) 157,556 11,349 (39,383) (117,148) 12,374
(Provision for) release of loan loss
reserves (18,277) 2 - - (18,275)
Net interest income (expense) after provision for (release of) loan reserves 139,279 11,351 (39,383) (117,148) (5,901) Real estate operating income - - 100,248 - 100,248 Sale of loans, net (1,571) - - - (1,571) Realized gain (loss) on securities - (12,410) - -
(12,410)
Unrealized gain (loss) on Agency interest-only securities - 263 - - 263 Realized gain on sale of real estate, net - - 32,102 - 32,102 Fee and other income 9,142 403 25 3,084 12,654 Net result from derivative transactions (11,264) (4,006) - -
(15,270)
Earnings (loss) from investment in unconsolidated joint ventures - - 1,821 - 1,821 Gain (loss) on extinguishment of debt - - - 22,250 22,250 Total other income (loss) (3,693) (15,882) 134,196 25,334
139,955
Compensation and employee benefits - - - (58,101) (58,101) Operating expenses(3) 3 - - (20,297) (20,294) Real estate operating expenses - - (28,584) - (28,584) Fee expense (6,124) (236) (884) - (7,244) Depreciation and amortization - - (38,980) (99) (39,079) Total costs and expenses (6,121) (236) (68,448) (78,497) (153,302) Income tax (expense) benefit - - - 9,789 9,789 Segment profit (loss) $ 129,465 $ (4,767) $ 26,365 $ (160,523) $ (9,459)
Total assets as of December 31, 2020 $ 2,343,070 $ 1,058,298
$ 1,031,557 $ 1,448,304 $ 5,881,229
Company
Year ended December 31, 2019 Loans Securities Real Estate (1) Corporate/Other(2) Total Interest income $ 270,239 $ 58,880 $ 32 $ 1,084 330,235 Interest expense (50,293) (19,248) (37,226) (97,586) (204,353) Net interest income (expense) 219,946 39,632 (37,194) (96,502) 125,882 Provision for (release of) loan loss reserves (2,600) - - -
(2,600)
Net interest income (expense) after provision for (release of) loan reserves 217,346 39,632 (37,194) (96,502) 123,282 Real estate operating income - - 106,366 - 106,366 Sale of loans, net 54,758 - - - 54,758 Realized gain (loss) on securities - 14,911 - - 14,911 Unrealized gain (loss) on equity securities - 1,737 - - 1,737 Unrealized gain (loss) on Agency interest-only securities - 84 - - 84 Realized gain on sale of real estate, net - - 1,392 - 1,392 Impairment of real estate - - (1,350) - (1,350) Fee and other income 19,188 1,592 8 3,615 24,403 Net result from derivative transactions (16,160) (13,851) - -
(30,011)
Earnings (loss) from investment in unconsolidated joint ventures - - 3,432 - 3,432 Gain (loss) on extinguishment of debt - - (1,070) - (1,070) Total other income (loss) 57,786 4,473 108,778 3,615 174,652 Compensation and employee benefits - - - (67,768) (67,768) Operating expenses(3) - - - (22,595) (22,595) Real estate operating expenses - - (23,323) - (23,323) Fee expense (4,602) (350) (1,138) - (6,090) Depreciation and amortization - - (38,412) (99) (38,511) Total costs and expenses (4,602) (350) (62,873) (90,462) (158,287) Income tax (expense) benefit - - - (2,646) (2,646) Segment profit (loss) $ 270,530 $ 43,755 $ 8,711 $ (185,995) $ 137,001
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 $23.2 million, $46.3 million and $48.4 million as of December 31,
2021, 2020, and 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 $11.8 million, $31.0 million, and $61.6 million as of December 31, 2021
and December 31, 2020, and December 31, 2019, respectively, and the Company's
senior unsecured notes of $1.6 billion, $1.6 billion, and $1.2 billion at
December 31, 2021 and December 31, 2020 and December 31, 2019, respectively.
(3)Includes $8.8 million, $11.6 million and $12.4 million of professional fees
and $3.4 million, $3.2 million and $3.6 million of information technology
expenses for the years ended December 31, 2021, 2020 and 2019, respectively.
20. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of the financial statements and determined that no additional disclosure is necessary.
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Table of Contents
Schedule III-Real Estate and Accumulated Depreciation
Ladder Capital Corp
December 31, 2021
($ in thousands)
Life on which
Initial Cost to Company Costs Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Real Estate:
Retail Property in
Newburgh, IN $ 863 $ 126 $ 954 $ 178 $ - $ 126 $ 954 $ 178 $ 1,258 $ (37) 10/13/20 2020 45 years
Retail Property in
Newburgh, IN 924 213 873 220 - 213 873 220 1,306 (57) 03/16/20 2020 45 years
Retail Property in
Isanti, MN 1,011 249 894 297 - 249 894 297 1,440 (54) 03/16/20 2020 55 years
Retail Property in
Little Falls, MN 865 199 783 249 - 199 783 249 1,231 (50) 03/10/20 2020 55 years
Retail Property in
Waterloo, IA 871 130 896 214 - 130 896 214 1,240 (60) 01/30/20 2019 45 years
Retail Property in
Sioux City, IA 928 220 876 222 - 220 876 222 1,318 (61) 01/30/20 2019 45 years
Retail Property in
Wardsville, MO 983 257 919 202 - 257 919 202 1,378 (69) 11/22/19 2019 40 years
Retail Property in
Kincheloe, MI 890 58 939 229 - 58 939 229 1,226 (69) 11/22/19 2019 45 years
Retail Property in
Clinton, IN 1,040 269 954 204 - 269 954 204 1,427 (66) 11/22/19 2019 44 years
Retail Property in
Saginaw, MI 955 96 1,014 210 - 96 1,014 210 1,320 (80) 10/04/19 2019 45 years
Retail Property in
Rolla, MO 942 110 1,011 188 - 110 1,011 188 1,309 (80) 10/04/19 2019 40 years
Retail Property in
Sullivan, IL 1,177 340 981 257 - 340 981 257 1,578 (73) 09/13/19 2019 50 years
Retail Property in
Becker, MN 940 136 922 188 - 136 922 188 1,246 (67) 09/13/19 2019 55 years
Retail Property in
Adrian, MO 860 136 884 191 - 136 884 191 1,211 (70) 09/13/19 2019 45 years
Retail Property in
Chillicothe, IL 1,026 227 1,047 245 - 227 1,047 245 1,519 (80) 09/05/19 2019 50 years
Retail Property in
Poseyville, IN 870 160 947 194 - 160 947 194 1,301 (75) 08/13/19 2019 44 years
Retail Property in
Dexter, MO 878 141 890 177 - 141 890 177 1,208 (75) 07/09/19 2019 40 years
Retail Property in
Hubbard Lake, MI 918 40 1,017 203 - 40 1,017 203 1,260 (87) 07/09/19 2019 40 years
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Life on which
Initial Cost to Company Costs
Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Fayette, MO 1,089 107 1,168 219 - 107 1,168 219 1,494 (100) 06/26/19 2019 40 years
Retail Property in
Centralia, IL 947 200 913 193 - 200 913 193 1,306 (91) 04/25/19 2019 40 years
Retail Property in
Trenton, MO 890 396 628 202 - 396 628 202 1,226 (94) 02/26/19 2019 30 years
Retail Property in
Houghton Lake, MI 961 124 939 241 - 124 939 241 1,304 (99) 02/26/19 2018 40 years
Retail Property in
Pelican Rapids, MN 914 78 1,016 169 - 78 1,016 169 1,263 (134) 12/26/18 2018 30 years
Retail Property in
Carthage, MO 842 225 766 176 - 225 766 176 1,167 (87) 12/26/18 2018 40 years
Retail Property in
Bolivar, MO 891 186 876 182 - 186 876 182 1,244 (97) 12/26/18 2018 40 years
Retail Property in
Pinconning, MI 946 167 905 221 - 167 905 221 1,293 (91) 12/06/18 2018 45 years
Retail Property in New
Hampton, IA 1,011 177 1,111 187 - 177 1,111 187 1,475 (136) 11/30/18 2018 35 years
Retail Property in
Ogden, IA 856 107 931 153 - 107 931 153 1,191 (122) 10/03/18 2018 35 years
Retail Property in
Wonder Lake, IL 940 221 888 214 - 221 888 214 1,323 (129) 04/12/18 2017 39 years
Retail Property in
Moscow Mills, MO 988 161 945 203 - 161 945 203 1,309 (126) 04/12/18 2018 45 years
Retail Property in
Foley, MN 883 238 823 172 - 238 823 172 1,233 (132) 04/12/18 2018 35 years
Retail Property in
Kirbyville, MO 869 98 965 155 - 98 965 155 1,218 (126) 04/02/18 2018 40 years
Retail Property in
Gladwin, MI 883 88 951 203 - 88 951 203 1,242 (118) 04/02/18 2017 45 years
Retail Property in
Rockford, MN 888 187 850 207 - 187 850 207 1,244 (176) 12/08/17 2017 30 years
Retail Property in
Winterset, IA 937 272 830 200 - 272 830 200 1,302 (139) 12/08/17 2017 35 years
Retail Property in
Kawkawlin, MI 920 242 871 179 - 242 871 179 1,292 (162) 10/05/17 2017 30 years
Retail Property in
Aroma Park, IL 948 223 869 164 - 223 869 164 1,256 (136) 10/05/17 2017 35 years
Retail Property in East
Peoria, IL 1,018 233 998 161 - 233 998 161 1,392 (153) 10/05/17 2017 40 years
Retail Property in
Milford, IA 985 254 883 217 - 254 883 217 1,354 (145) 09/08/17 2017 40 years
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Table of Contents
Life on which
Initial Cost to Company Gross Amount at which Carried at Close of Period Depreciation in
Costs Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Jefferson City, MO 944 164 966 205 - 164 966 205 1,335 (158) 06/02/17 2016 40 years
Retail Property in Denver,
IA 898 198 840 191 - 198 840 191 1,229 (153) 05/31/17 2017 35 years
Retail Property in Port
O'Connor, TX 949 167 937 200 - 167 937 200 1,304 (171) 05/25/17 2017 35 years
Retail Property in
Wabasha, MN 964 237 912 214 - 237 912 214 1,363 (182) 05/25/17 2016 35 years
Office in Jacksonville, FL 82,978 13,290 106,601 21,362 5,539 13,290 112,140 21,362 146,792 (21,734) 05/23/17 1989 36 years
Retail Property in
Shelbyville, IL 863 189 849 199 - 189 849 199 1,237 (148) 05/23/17 2016 40 years
Retail Property in Jesup,
IA 884 119 890 191 - 119 890 191 1,200 (162) 05/05/17 2017 35 years
Retail Property in Hanna
City, IL 865 174 925 132 - 174 925 132 1,231 (161) 04/11/17 2016 39 years
Retail Property in
Ridgedale, MO 991 250 928 187 - 250 928 187 1,365 (163) 03/09/17 2016 40 years
Retail Property in Peoria,
IL 903 209 933 133 - 209 933 133 1,275 (173) 02/06/17 2016 35 years
Retail Property in Carmi,
IL 1,099 286 916 239 - 286 916 239 1,441 (166) 02/03/17 2016 40 years
Retail Property in
Springfield, IL 1,001 391 784 227 - 393 789 224 1,406 (153) 11/16/16 2016 40 years
Retail Property in
Fayetteville, NC 4,878 1,379 3,121 2,472 - 1,379 3,121 2,471 6,971 (1,221) 11/15/16 2008 37 years
Retail Property in Dryden
Township, MI 910 178 893 201 - 178 899 202 1,279 (165) 10/26/16 2016 40 years
Retail Property in Lamar,
MO 900 164 903 171 - 164 903 171 1,238 (171) 07/22/16 2016 40 years
Retail Property in Union,
MO 944 267 867 207 - 267 867 207 1,341 (183) 07/01/16 2016 40 years
Retail Property in Pawnee,
IL 944 249 775 206 - 249 775 206 1,230 (167) 07/01/16 2016 40 years
Retail Property in Linn,
MO 858 89 920 183 - 89 920 183 1,192 (179) 06/30/16 2016 40 years
Retail Property in Cape
Girardeau, MO 1,029 453 702 217 - 453 702 217 1,372 (156) 06/30/16 2016 40 years
Retail Property in
Decatur-Pershing, IL 1,049 395 924 155 - 395 924 155 1,474 (178) 06/30/16 2016 40 years
Retail Property in
Rantoul, IL 922 100 1,023 178 - 100 1,023 178 1,301 (185) 06/21/16 2016 40 years
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Life on which
Initial Cost to Company Gross Amount at which Carried at Close of Period Depreciation in
Costs Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in Flora
Vista, NM 1,000 272 864 198 - 272 864 198 1,334 (220) 06/06/16 2016 35 years
Retail Property in Mountain
Grove, MO 979 163 1,026 212 - 163 1,026 212 1,401 (205) 06/03/16 2016 40 years
Retail Property in
Decatur-Sunnyside, IL 952 182 954 139 - 182 954 139 1,275 (182) 06/03/16 2016 40 years
Retail Property in
Champaign, IL 1,015 365 915 149 - 365 915 149 1,429 (170) 06/03/16 2016 40 years
Retail Property in San
Antonio, TX 893 252 703 196 - 251 702 196 1,149 (174) 05/06/16 2015 35 years
Retail Property in Borger,
TX 789 68 800 181 - 68 800 181 1,049 (174) 05/06/16 2016 40 years
Retail Property in Dimmitt,
TX 1,060 86 1,077 236 - 85 1,074 236 1,395 (224) 04/26/16 2016 40 years
Retail Property in St.
Charles, MN 968 200 843 226 - 200 843 226 1,269 (223) 04/26/16 2016 30 years
Retail Property in Philo,
IL 931 160 889 189 - 160 889 189 1,238 (171) 04/26/16 2016 40 years
Retail Property in Radford,
VA 1,129 411 896 256 - 411 896 256 1,563 (251) 12/23/15 2015 40 years
Retail Property in Rural
Retreat, VA 1,023 328 811 260 - 328 811 260 1,399 (218) 12/23/15 2015 40 years
Retail Property in Albion,
PA 1,109 100 1,033 392 - 100 1,033 392 1,525 (369) 12/23/15 2015 50 years
Retail Property in Mount
Vernon, AL 930 187 876 174 - 187 876 174 1,237 (211) 12/23/15 2015 44 years
Retail Property in Malone,
NY 1,079 183 1,154 - - 183 1,154 - 1,337 (209) 12/16/15 2015 39 years
Retail Property in
Mercedes, TX 832 257 874 132 - 257 874 132 1,263 (174) 12/16/15 2015 45 years
Retail Property in
Gordonville, MO 771 247 787 173 - 247 787 173 1,207 (177) 11/10/15 2015 40 years
Retail Property in Rice, MN 816 200 859 184 - 200 859 184 1,243 (257) 10/28/15 2015 30 years
Retail Property in Bixby,
OK 7,946 2,609 7,776 1,765 - 2,609 7,776 1,765 12,150 (1,793) 10/27/15 2012 37 years
Retail Property in
Farmington, IL 895 96 1,161 150 - 96 1,161 150 1,407 (229) 10/23/15 2015 40 years
Retail Property in Grove,
OK 3,621 402 4,364 817 - 402 4,364 817 5,583 (1,056) 10/20/15 2012 37 years
Retail Property in Jenks,
OK 8,791 2,617 8,694 2,107 - 2,617 8,694
2,107 13,418 (2,126) 10/19/15 2009 38 years
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Life on which
Initial Cost to Company Costs Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Bloomington, IL 816 173 984 138 - 173 984 138 1,295 (206) 10/14/15 2015 40 years
Retail Property in
Montrose, MN 777 149 876 169 - 149 876 169 1,194 (259) 10/14/15 2015 30 years
Retail Property in
Lincoln County , MO 738 149 800 188 - 149 800 188 1,137 (181) 10/14/15 2015 40 years
Retail Property in
Wilmington, IL 901 161 1,078 160 - 161 1,078 160 1,399 (224) 10/07/15 2015 40 years
Retail Property in
Danville, IL 738 158 870 132 - 158 870 132 1,160 (171) 10/07/15 2015 40 years
Retail Property in
Moultrie, GA 930 170 962 173 - 170 962 173 1,305 (278) 09/22/15 2014 44 years
Retail Property in Rose
Hill, NC 1,000 245 972 203 - 245 972 203 1,420 (269) 09/22/15 2014 44 years
Retail Property in
Rockingham, NC 821 73 922 163 - 73 922 163 1,158 (241) 09/22/15 2014 44 years
Retail Property in
Biscoe, NC 860 147 905 164 - 147 905 164 1,216 (245) 09/22/15 2014 44 years
Retail Property in De
Soto, IA 704 139 796 176 - 139 796 176 1,111 (194) 09/08/15 2015 35 years
Retail Property in
Kerrville, TX 768 186 849 200 - 186 849 200 1,235 (243) 08/28/15 2015 35 years
Retail Property in
Floresville, TX 814 268 828 216 - 268 828 216 1,312 (246) 08/28/15 2015 35 years
Retail Property in
Minot, ND 4,695 1,856 4,472 618 - 1,856 4,472 618 6,946 (963) 08/19/15 2012 38 years
Retail Property in
Lebanon, MI 820 359 724 178 - 359 724 178 1,261 (172) 08/14/15 2015 40 years
Retail Property in
Effingham County, IL 820 273 774 205 - 273 774 205 1,252 (200) 08/10/15 2015 40 years
Retail Property in
Ponce, Puerto Rico 6,518 1,365 6,662 1,318 - 1,365 6,662 1,318 9,345 (1,462) 08/03/15 2012 37 years
Retail Property in
Tremont, IL 785 164 860 168 - 164 860 168 1,192 (213) 06/25/15 2015 35 years
Retail Property in
Pleasanton, TX 861 311 850 216 - 311 850 216 1,377 (247) 06/24/15 2015 35 years
Retail Property in
Peoria, IL 851 180 934 179 - 180 934 179 1,293 (232) 06/24/15 2015 35 years
Retail Property in
Bridgeport, IL 818 192 874 175 - 192 874 175 1,241 (216) 06/24/15 2015 35 years
Retail Property in
Warren, MN 696 108 825 157 - 108 825 157 1,090 (247) 06/24/15 2015 30 years
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Life on which
Initial Cost to Company Costs Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Canyon Lake, TX 903 291 932 220 - 291 932 220 1,443 (258) 06/18/15 2015 35 years
Retail Property in
Wheeler, TX 713 53 887 188 - 53 887 188 1,128 (244) 06/18/15 2015 35 years
Retail Property in
Aurora, MN 626 126 709 157 - 126 709 157 992 (175) 06/18/15 2015 40 years
Retail Property in Red
Oak, IA 779 190 839 179 - 190 839 179 1,208 (255) 05/07/15 2014 35 years
Retail Property in
Zapata, TX 747 62 998 145 - 62 998 145 1,205 (317) 05/07/15 2015 35 years
Retail Property in St.
Francis, MN 734 105 911 163 - 105 911 163 1,179 (308) 03/26/15 2014 35 years
Retail Property in
Yorktown, TX 785 97 1,005 199 - 97 1,005 199 1,301 (334) 03/25/15 2015 35 years
Retail Property in
Battle Lake, MN 721 136 875 157 - 136 875 157 1,168 (322) 03/25/15 2014 30 years
Retail Property in
Paynesville, MN 805 246 816 192 - 246 816 192 1,254 (268) 03/05/15 2015 40 years
Retail Property in
Wheaton, MO 643 73 800 97 - 73 800 97 970 (227) 03/05/15 2015 40 years
Retail Property in
Rotterdam, NY 8,964 2,530 7,924 2,165 - 2,530 7,924 2,165 12,619 (4,335) 03/03/15 1996 20 years
Retail Property in
Hilliard, OH 4,524 654 4,870 860 - 654 4,870 860 6,384 (1,238) 03/02/15 2007 41 years
Retail Property in
Niles, OH 3,676 437 4,084 680 - 437 4,084 680 5,201 (1,031) 03/02/15 2007 41 years
Retail Property in
Youngstown, OH 3,811 380 4,363 658 - 380 4,363 658 5,401 (1,125) 02/20/15 2005 40 years
Retail Property in
Iberia, MO 885 130 1,033 165 - 130 1,033 165 1,328 (299) 01/23/15 2015 39 years
Retail Property in Pine
Island, MN 761 112 845 185 - 112 845 185 1,142 (289) 01/23/15 2014 40 years
Retail Property in
Isle, MN 716 120 787 171 - 120 787 171 1,078 (279) 01/23/15 2014 40 years
Retail Property in
Jacksonville, NC 5,619 1,863 5,749 1,020 - 1,863 5,749 1,020 8,632 (1,582) 01/22/15 2014 44 years
Retail Property in
Evansville, IN 6,357 1,788 6,348 864 - 1,788 6,348 864 9,000 (1,850) 11/26/14 2014 35 years
Retail Property in
Woodland Park, CO 2,781 668 2,681 620 - 668 2,681 620 3,969 (987) 11/14/14 2014 35 years
Retail Property in
Springfield, MO 8,263 3,658 6,296 1,870 - 3,658 6,296 1,870 11,824 (2,216) 11/04/14 2011 37 years
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Life on which
Initial Cost to Company Costs Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Cedar Rapids, IA 7,745 1,569 7,553 1,878 - 1,569 7,553 1,878 11,000 (2,860) 11/04/14 2012 30 years
Retail Property in
Fairfield, IA 7,533 1,132 7,779 1,800 - 1,132 7,779 1,800 10,711 (2,473) 11/04/14 2011 37 years
Retail Property in
Owatonna, MN 7,041 1,398 7,125 1,564 - 1,398 7,125 1,564 10,087 (2,368) 11/04/14 2010 36 years
Retail Property in
Muscatine, IA 5,050 1,060 6,636 1,307 - 1,060 6,636 1,307 9,003 (2,351) 11/04/14 2013 29 years
Retail Property in
Sheldon, IA 3,037 633 3,053 708 - 633 3,053 708 4,394 (1,012) 11/04/14 2011 37 years
Retail Property in
Memphis, TN 3,890 1,986 2,800 803 - 1,986 2,800 803 5,589 (1,930) 10/24/14 1962 15 years
Retail Property in
Bennett, CO 2,475 470 2,503 563 - 470 2,503 563 3,536 (947) 10/02/14 2014 34 years
Retail Property in
Conyers, GA 22,797 876 27,396 4,258 - 876 27,396 4,258 32,530 (7,351) 08/28/14 2014 45 years
Retail Property in
O'Fallon, IL 5,677 2,488 5,388 1,064 - 2,488 5,388 1,064 8,940 (3,719) 08/08/14 1984 15 years
Retail Property in El
Centro, CA 2,978 569 3,133 575 - 569 3,133 575 4,277 (907) 08/08/14 2014 50 years
Retail Property in
Durant, OK 3,246 594 3,900 498 - 594 3,900 498 4,992 (1,168) 01/28/13 2007 40 years
Retail Property in
Gallatin, TN 3,318 1,725 2,616 721 - 1,725 2,616 721 5,062 (1,044) 12/28/12 2007 40 years
Retail Property in Mt.
Airy, NC 2,947 729 3,353 621 - 729 3,353 621 4,703 (1,192) 12/27/12 2007 39 years
Retail Property in
Aiken, SC 3,881 1,588 3,480 858 - 1,588 3,480 858 5,926 (1,271) 12/21/12 2008 41 years
Retail Property in
Johnson City, TN 3,449 917 3,607 739 - 917 3,607 739 5,263 (1,281) 12/21/12 2007 40 years
Retail Property in
Palmview, TX 4,485 938 4,837 1,044 - 938 4,837 1,044 6,819 (1,467) 12/19/12 2012 44 years
Retail Property in
Ooltewah, TN 3,756 903 3,957 843 - 903 3,957 843 5,703 (1,370) 12/18/12 2008 41 years
Retail Property in
Abingdon, VA 3,016 682 3,733 666 - 682 3,733 666 5,081 (1,306) 12/18/12 2006 41 years
Retail Property in
Wichita, KS 4,700 1,187 4,850 1,163 - 1,187 4,850 1,163 7,200 (2,206) 12/14/12 2012 34 years
Retail Property in
Vineland, NJ 13,662 1,482 17,742 3,282 - 1,482 17,742 3,282 22,506 (7,927) 09/21/12 2003 30 years
Retail Property in
Saratoga Springs, NY 12,275 748 13,936 5,538 - 748 13,936 5,538 20,222 (7,443) 09/21/12 1994 27 years
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Life on which
Initial Cost to Company Costs Gross Amount at which Carried at Close of Period Depreciation in
Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Waldorf, MD 11,414 4,933 11,684 2,882 - 4,933 11,684 2,882 19,499 (6,328) 09/21/12 1999 25 years
Retail Property in
Mooresville, NC 10,710 2,615 12,462 2,566 - 2,615 12,462 2,566 17,643 (6,676) 09/21/12 2000 24 years
Retail Property in
Sennett, NY 4,697 1,147 4,480 1,848 - 1,147 4,480 1,848 7,475 (2,949) 09/21/12 1996 23 years
Retail Property in
DeLeon Springs, FL 803 239 782 221 - 239 782 221 1,242 (462) 08/13/12 2011 35 years
Retail Property in
Orange City, FL 798 229 853 235 - 229 853 235 1,317 (480) 05/23/12 2011 35 years
Retail Property in
Satsuma, FL 721 79 821 192 - 79 821 192 1,092 (462) 04/19/12 2011 35 years
Retail Property in
Greenwood, AR 3,351 1,038 3,415 694 - 1,038 3,415 694 5,147 (1,257) 04/12/12 2009 43 years
Retail Property in
Millbrook, AL 4,517 970 5,972 - - 970 5,972 - 6,942 (1,836) 03/28/12 2008 32 years
Retail Property in
Spartanburg, SC 3,355 828 2,567 772 - 828 2,567 772 4,167 (1,258) 01/14/11 2007 42 years
Retail Property in
Tupelo, MS 4,526 1,120 3,070 939 - 1,120 3,070 939 5,129 (1,439) 08/13/10 2007 47 years
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Life on which
Initial Cost to Company Gross Amount at which Carried at Close of Period Depreciation in
Costs Capitalized Accumulated Latest Statement
Subsequent to Depreciation and of Income is
Description Encumbrances Land Building Intangibles Acquisition Land Building Intangibles Total Amortization Date Acquired Year Built Computed
Retail Property in
Lilburn, GA - 1,090 3,673 1,028 - 1,090 3,673 1,028 5,791 (1,662) 08/12/10 2007 47 years
Retail Property in
Douglasville, GA 4,730 1,717 2,705 987 - 1,717 2,705 987 5,409 (1,312) 08/12/10 2008 48 years
Retail Property in
Elkton, MD 4,387 963 3,049 860 - 963 3,049 860 4,872 (1,387) 07/27/10 2008 49 years
Retail Property in
Lexington, SC 4,119 1,644 2,219 869 - 1,644 2,219 869 4,732 (1,177) 06/28/10 2009 48 years
Total Net Lease $ 445,479 $ 98,255 $ 478,590 $ 104,329 $ 5,539 $ 98,255 $ 484,136 $ 104,326 $ 686,717 $ (145,671)
Hotel in Schaumburg, IL $ - $ 8,029 $ 29,971 $ - $ - $ 8,029 $ 29,971 $ - $ 38,000 $ (100) 12/17/21 1983 25 years
Apartments in
Stillwater, OK - 1,448 16,344 2,659 - 1,448 16,344 2,659 20,451 (1,447) 08/17/21 2000 30 years
Hotel in San Diego, CA 32,530 7,469 34,781 - - 7,469 35,678 - 43,147 (5,445) 12/17/19 1970 23 years
Hotel in Omaha, NE - 2,963 15,237 - - 2,963 15,483 - 18,446 (2,298) 02/27/19 1969 35 years
Apartments in Isla
Vista, CA 69,571 36,274 47,694 1,118 1,182 36,274 49,046 1,118 86,438 (5,782) 05/01/18 2009 42 years
Office in Crum Lynne, PA 6,020 1,403 7,518 1,666 - 1,403 7,518 1,666 10,587 (1,295) 09/29/17 1999 35 years
Apartment Building in
Miami, FL 34,195 12,643 24,533 968 4,824 12,643 29,172 968 42,783 (5,239) 08/31/17 1987 35 years
Office in Peoria, IL - 940 439 1,508 1,002 1,174 1,442 1,508 4,124 (944) 10/21/16 1926 15 years
Office in Wayne, NJ 21,553 2,744 20,212 8,323 - 2,744 20,212 8,323 31,279 (6,932) 08/04/16 2009 45 years
Shopping Center in
Carmel, NY - 2,041 3,632 1,033 606 2,041 4,238 1,033 7,312 (1,807) 10/14/15 1985 20 years
Office in Richmond, VA 66,512 14,632 87,629 17,658 11,054 12,227 83,090 15,064 110,381 (40,129) 06/07/13 1984 41 years
Office in Oakland
County, MI 17,934 1,147 7,707 9,932 9,056 1,145 16,757 9,928 27,830 (19,533) 02/01/13 1989 35 years
Total Diversified $ 248,315 $ 91,733 $ 295,697 $ 44,865 $ 27,724 $ 89,560 $ 308,951 $ 42,267 $ 440,778 $ (90,951)
Total Condominium - - - - - - - - - -
Total Real Estate $ 693,794 $ 189,988 $ 774,287 $ 149,194 $ 33,263 $ 187,815 $ 793,087 $ 146,593 $ 1,127,495 (1) $ (236,622)
(1) The aggregate cost for U.S. federal income tax purposes is $0.9 billion at December 31, 2021.
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Reconciliation of Real Estate:
The following table reconciles real estate from December 31, 2020 to December
31, 2021 $ in thousands):
Total Real Estate
Balance at December 31, 2020 $ 1,216,229
Acquisitions 20,452
Acquisitions through foreclosures 81,750
Improvements 4,871
Dispositions and write-offs (195,807)
Balance at December 31, 2021 $ 1,127,495
The following table reconciles real estate from December 31, 2019 to December
31, 2020 ($ in thousands):
Total Real Estate
Balance at December 31, 2019 $ 1,254,163
Acquisitions 7,793
Acquisitions through foreclosures 29,310
Improvements 6,101
Dispositions and write-offs (81,138)
Balance at December 31, 2020 $ 1,216,229
The following table reconciles real estate from December 31, 2018 to December
31, 2019 $ in thousands):
Total Real Estate
Balance at December 31, 2018 $ 1,171,960
Acquisitions 21,544
Acquisitions through foreclosures 84,356
Improvements 7,591
Dispositions and write-offs (29,938)
Impairments (1,350)
Balance at December 31, 2019 $ 1,254,163
167-------------------------------------------------------------------------------- Table of Contents Reconciliation of Accumulated Depreciation and Amortization Expense:
The following table reconciles accumulated depreciation and amortization from December 31, 2020 to December 31, 2021 ($ in thousands):
Total Real Estate
Balance at December 31, 2020 $ 230,925
Depreciation and amortization expense 38,069
Dispositions/write-offs (32,372)
Balance at December 31, 2021 $ 236,622
The following table reconciles accumulated depreciation and amortization from December 31, 2019 to December 31, 2020 ($ in thousands):
Total Real Estate
Balance at December 31, 2019 $ 206,082
Depreciation and amortization expense 39,346
Dispositions/write-offs (14,503)
Balance at December 31, 2020 $ 230,925
The following table reconciles accumulated depreciation and amortization from December 31, 2018 to December 31, 2019 ($ in thousands):
Total Real Estate
Balance at December 31, 2018 $ 173,938
Depreciation and amortization expense 39,231
Dispositions/write-offs (7,087)
Balance at December 31, 2019 $ 206,082
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Schedule IV-Mortgage Loans on Real Estate
Ladder Capital Corp
December 31, 2021
($ in thousands)
Principal
Amount of
Mortgages
Subject to
Delinquent
Periodic Payment Face amount of Carrying Amount Principal or
Type of Loan Underlying Property Type Interest Rates (1) Effective Maturity Dates Terms (2) Prior Liens Mortgages of Mortgages Interest (3)
First Mortgages individually >3% First Mortgage Office, Industrial 3.75% - 6.50% 2022 - 2024 IO $ - $ 542,185 $ 538,614 $ -
First Mortgages individually <3%
Mixed, Office,
Multi-Family, Industrial,
Hotel, Mobile Home Park,
Self Storage, Retail,
First Mortgage Land, Other 3.45% - 10.00% 2022 - 2027 IO, P&I - 2,940,530 2,916,040 100,429
Total First Mortgages - 3,482,715 3,454,654 100,429Subordinated Mortgages individually <3%
Retail, Hotel, Office,
Subordinate Mortgage Mobile Home Park 6.04% - 12.00% 2022 - 2027 IO, P&I 833,281 99,204 99,083 -
Total Subordinated Mortgages 833,281 99,204 99,083 -
Total Mortgages 833,281 3,581,919 3,553,737 100,429
Allowance for credit losses N/A N/A (31,752) (4) N/A
Total Mortgages after Allowance for Credit Losses $ 833,281 $ 3,581,919 $ 3,521,985 (5) $ 100,429
(1) Interest rates as of December 31, 2021.
(2) IO = Interest only.
P&I = Principal and interest.
(3) Represents principal amount of loans on non-accrual status. The carrying
value of loans on non-accrual status was $80.2 million as of December 31, 2021.
Refer to Allowance for Credit Losses and Non-Accrual Status in Note 3, Mortgage
Loan Receivables, to the consolidated financial statements for further
disclosure.
(4) Refer to Note 3, Mortgage Loan Receivables for further detail.
(5) The aggregate cost for U.S. federal income tax purposes is $3.6 billion.
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Reconciliation of mortgage loans on real estate:
The following tables reconcile mortgage loans on real estate from December 31, 2018 to December 31, 2021 ($ in thousands):
Mortgage loan
receivables held for
investment, net, at
amortized cost:
Mortgage loan Total
Mortgage loans Allowance for receivables held Mortgage loan
receivable credit losses for sale receivables
Balance December 31, 2020 $ 2,354,059 $ (41,507) $ 30,518 $ 2,343,070
Origination of mortgage loan receivables 2,309,888 - 220,359 2,530,247
Purchases of mortgage loan receivables 63,600 - 63,600
Repayment of mortgage loan receivables (1,059,796) - (183) (1,059,979)
Proceeds from sales of mortgage loan receivables (46,557) - (259,092) (305,649)
Non-cash disposition of loan via foreclosure (81,289) - - (81,289)
Realized gain on sale of mortgage loan receivables - - 8,398 8,398
Accretion/amortization of discount, premium and other fees 13,832
- - 13,832
Release of asset-specific loan loss provision via
foreclosure(1) - 1,150 - 1,150
Release of provision for current expected credit loss, net - 8,605 - 8,605
Balance December 31, 2021 $ 3,553,737 $ (31,752) $ - $ 3,521,985
(1)Refer to Note 5 Real Estate and Related Lease Intangibles, Net for further detail on foreclosure of real estate.
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Mortgage loan
receivables held for
investment, net, at
amortized cost:
Total
Mortgage loans Allowance for Mortgage loan Mortgage loan
receivable credit losses receivables held receivables
Balance December 31, 2019 $ 3,257,036 $ (20,500) $ 122,325 $ 3,358,861
Origination of mortgage loan receivables 353,661 - 212,845 566,506
Repayment of mortgage loan receivables (960,832) - (404) (961,236)
Proceeds from sales of mortgage loan receivables (270,491) - (312,273) (582,764)
Non-cash disposition of loan via foreclosure (31,249) - - (31,249)
Realized gain on sale of mortgage loan receivables (9,596) - 8,025 (1,571)
Accretion/amortization of discount, premium and other fees 15,530
- - 15,530
Release of asset-specific loan loss provision via
foreclosure(1) - 2,500 - 2,500
Provision for current expected credit loss (implementation impact)(2)
- (4,964) - (4,964)
Provision for current expected credit loss (impact to
earnings)(2) - (18,543) - (18,543)
Balance December 31, 2020 $ 2,354,059 $ (41,507) $ 30,518 $ 2,343,070
(1)Refer to Note 5 Real Estate and Related Lease Intangibles, Net for further
detail on foreclosure of real estate.
(2)During the year ended December 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, including the period to
date change for the year ended December 31, 2020, is accounted for as provision
for current expected credit loss in the consolidated statements of income.
Mortgage loan receivables held for investment, net, at
amortized cost:
Mortgage loans
transferred but Mortgage loan Total
Mortgage loans not considered Allowance for receivables held Mortgage loan
receivable sold credit losses for sale receivables
Balance December 31, 2018 $ 3,318,390 $ - $ (17,900) $ 182,439 $ 3,482,929 Origination of mortgage loan receivables
1,452,049 - - 946,178 2,398,227
Purchases of mortgage loan receivables - - - 9,934
9,934
Repayment of mortgage loan receivables (1,531,551) - - (795)
(1,532,346)
Proceeds from sales of mortgage loan receivables - (15,504) - (1,008,853)
(1,024,357)
Non-cash disposition of loan via foreclosure (45,529) - - -
(45,529)
Realized gain on sale of mortgage loan receivables - - - 54,758
54,758
Transfer between held for investment and held for sale 45,832 15,504 - (61,336)
-
Accretion/amortization of discount, premium and
other fees 17,845 - - - 17,845
Provision for loan loss - - (2,600) - (2,600)
Balance December 31, 2019 $ 3,257,036 $ - $ (20,500) $ 122,325 $ 3,358,861
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