Arbor Realty Trust Reports Second Quarter 2018 Results and Declares Common Stock Dividend

Arbor Realty Trust Reports Second Quarter 2018 Results and Declares Common Stock Dividend

Company Highlights:

  • GAAP net income of $0.25 per diluted common share; AFFO of $0.29, or $0.31 per diluted common share excluding a one-time, non-cash expense from the early repayment of debt1
  • Raised $77.9 million of accretive capital through the issuance of common stock and unsecured senior notes
  • Declares a cash dividend on common stock of $0.25 per share

    Agency Business
  • Segment income of $13.5 million
  • Loan originations of $1.04 billion
  • Servicing portfolio of $17.11 billion, up 3% from 1Q18

    Structured Business
  • Segment income of $9.2 million
  • Significant portfolio growth of 13% on $606.9 million of loan originations
  • Closed a tenth collateralized securitization vehicle totaling $560.0 million with a four-year replenishment period

Recent Developments:

  • Market cap surpasses $1 billion mark
  • Issued $245.0 million of 5.25% convertible senior notes due in 2021 to exchange our 6.50% and 5.375% convertible senior notes
  • Received approximately $11 million from the settlement of a litigation

UNIONDALE, N.Y., Aug. 03, 2018 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (NYSE: ABR), today announced financial results for the second quarter ended June 30, 2018.  Arbor reported net income for the quarter of $17.2 million, or $0.25 per diluted common share, compared to $11.9 million, or $0.21 per diluted common share for the quarter ended June 30, 2017.  Adjusted funds from operations (“AFFO”) for the quarter was $26.4 million, or $0.29 per diluted common share, compared to $17.6 million, or $0.22 per diluted common share for the quarter ended June 30, 2017.1

Agency Business

  Loan Origination Platform

Agency Loan Volume  (in thousands)
  Quarter Ended 
  June 30,
 2018
 March 31,
 2018
 
Originations:     
Fannie Mae $  606,287 $  662,921 
Freddie Mac    434,789    308,151 
FHA    -     60,738 
CMBS/Conduit    -     16,233 
Total Originations $  1,041,076 $  1,048,043 
      
Total Loan Sales $  1,018,283 $  1,062,437 
      
Total Loan Commitments              $  1,079,478 $  1,043,715 
 

For the quarter ended June 30, 2018, the Agency Business generated revenues of $49.0 million, compared to $54.4 million for the first quarter of 2018.  Gain on sales, including fee-based services, net was $15.6 million for the quarter, reflecting a margin of 1.53% on loan sales, compared to $18.2 million and 1.71% for the first quarter of 2018. Income from mortgage servicing rights was $17.9 million for the quarter, reflecting a rate of 1.66% as a percentage of loan commitments, compared to $19.6 million and 1.88% for the first quarter of 2018.

At June 30, 2018, loans held-for-sale was $311.5 million which was primarily comprised of unpaid principal balances totaling $308.1 million, with financing associated with these loans totaling $307.7 million.

  Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $17.11 billion at June 30, 2018, an increase of 3% from March 31, 2018, primarily a result of $1.04 billion of new loan originations, net of $620.8 million in portfolio runoff during the quarter. Servicing revenue, net was $10.9 million for the quarter and consists of servicing revenue of $22.8 million, net of amortization of mortgage servicing rights totaling $11.9 million.

  Fee-Based Servicing Portfolio ($ in thousands)
  As of June 30, 2018 As of March 31, 2018
  UPBWtd. Avg. FeeWtd. Avg. Life (in years) UPBWtd. Avg. FeeWtd. Avg. Life (in years)
Fannie Mae$  12,794,2770.530%7.3 $  12,700,6350.535%7.2
Freddie Mac   3,730,9800.308%11.0    3,397,5350.304%10.7
FHA    585,0170.159%20.1    591,8360.162%20.0
Total $  17,110,2740.469%8.6 $  16,690,0060.475%8.4
 

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”). At June 30, 2018, the Company’s allowance for loss-sharing obligations was $31.4 million which consists of general loss sharing guaranty obligations of $30.4 million, representing 0.24% of the Fannie Mae servicing portfolio, and $1.0 million of loss-sharing obligations on specifically identified loans with losses determined to be probable and estimable.

Structured Business

  Portfolio and Investment Activity

  • 32 new loan originations totaling $606.9 million, of which 31 were bridge loans for $590.9 million
  • Payoffs and pay downs on 22 loans totaling $238.0 million
  • Significant portfolio growth of 13% from 1Q18

At June 30, 2018, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $3.14 billion, with a weighted average current interest pay rate of 6.76%, compared to $2.78 billion and 6.57% at March 31, 2018.  Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 7.40% at June 30, 2018, compared to 7.28% at March 31, 2018.

The average balance of the Company’s loan and investment portfolio during the second quarter of 2018, excluding loan loss reserves, was $2.91 billion with a weighted average yield on these assets of 7.40%, compared to $2.68 billion and 7.08% for the first quarter of 2018. The increase in average yield was primarily due to an increase in LIBOR.

At June 30, 2018, the Company’s total loan loss reserves were $58.7 million on four loans with an aggregate carrying value before loan loss reserves of $129.7 million. The Company also had two non-performing loans with a carrying value of $2.5 million, net of related loan loss reserves of $1.7 million.

In July 2018, we received approximately $11 million from the settlement of a litigation related to a prior investment, which we expect to record as a gain in the third quarter of 2018.

  Financing Activity

The Company completed its tenth collateralized securitization vehicle (“CLO X”) totaling $560.0 million of real estate related assets and cash. Investment grade-rated notes totaling $441.0 million were issued, and the Company retained subordinate interests in the issuing vehicle of $119.0 million. The facility has a four-year asset replenishment period and an initial weighted average interest rate of 1.45% over LIBOR, excluding fees and transaction costs.

The Company completed the unwind of CLO V, redeeming $267.8 million of outstanding notes which were repaid with proceeds received from the refinancing of CLO V’s outstanding assets within the Company’s existing financing facilities including CLO X. As a result of this transaction, the Company recognized an expense of $1.3 million from the acceleration of deferred fees.

The balance of debt that finances the Company’s loan and investment portfolio at June 30, 2018 was $2.81 billion with a weighted average interest rate including fees of 4.93% as compared to $2.45 billion and a rate of 5.09% at March 31, 2018. The average balance of debt that finances the Company’s loan and investment portfolio for the second quarter of 2018 was $2.54 billion, as compared to $2.30 billion for the first quarter of 2018. The average cost of borrowings for the second quarter was 5.46%, compared to 5.33% for the first quarter of 2018. The increase in average costs was primarily due to an increase in LIBOR as well as the acceleration of fees related to the early repayment of debt.

The Company is subject to various financial covenants and restrictions under the terms of its collateralized securitization vehicles and financing facilities. The Company believes it was in compliance with all financial covenants and restrictions as of June 30, 2018 and as of the most recent collateralized securitization vehicle determination dates in July 2018.

  Capital Markets

The Company issued 6.1 million shares of common stock receiving net proceeds of $52.9 million and used the net proceeds to make investments and for general corporate purposes.

The Company reopened its 5.625% convertible senior notes due May 2023 and issued an additional $25.0 million for a total outstanding principal amount of $125.0 million, including the initial $100.0 million from March 2018. The proceeds received by the Company were used to fund the redemption of the Company’s outstanding 7.375% senior notes due in 2021, to make investments in our business and for general corporate purposes.

In July 2018, the Company issued $245.0 million in aggregate principal amount of 5.25% convertible senior notes due 2021 (the “Notes”) through two private placements, including $15.0 million of the initial purchaser’s over-allotment option. The initial purchasers of the Notes have the option to purchase up to an additional $19.5 million of Notes solely to cover over-allotments. The Company received proceeds totaling $237.2 million, net of the underwriter’s discount and fees from these offerings. The Company used the net proceeds to exchange $99.8 million in aggregate principal amount of its 6.50% convertible senior notes due 2019 and $127.6 million in aggregate principal amount of its 5.375% convertible senior notes due 2020 for a combination of $219.8 million in cash and 6.8 million shares of the Company’s common stock to settle such exchanges. The remaining net proceeds were used for general corporate purposes.

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.25 per share of common stock for the quarter ended June 30, 2018. The dividend is payable on August 31, 2018 to common stockholders of record on August 15, 2018. The ex-dividend date is August 14, 2018.

The Company also announced today that its Board of Directors has declared cash dividends on the Company's Series A, Series B and Series C cumulative redeemable preferred stock reflecting accrued dividends from June 1, 2018 through August 31, 2018. The dividends are payable on August 31, 2018 to preferred stockholders of record on August 15, 2018. The Company will pay total dividends of $0.515625, $0.484375 and $0.53125 per share on the Series A, Series B and Series C preferred stock, respectively.

Earnings Conference Call

The Company will host a conference call today at 10:00 a.m. Eastern Time. A live webcast of the conference call will be available at www.arbor.com in the investor relations area of the website. Those without web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (866) 516-5034 for domestic callers and (678) 509-7613 for international callers. Please use participant passcode 7116809.

After the live webcast, the call will remain available on the Company's website through August 31, 2018.  In addition, a telephonic replay of the call will be available until August 10, 2018. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use passcode 7116809.

About Arbor Realty Trust, Inc.

Arbor Realty Trust, Inc. (NYSE:ABR) is a nationwide real estate investment trust and direct lender, providing loan origination and servicing for multifamily, seniors housing, healthcare, and other diverse commercial real estate assets. Headquartered in Uniondale, New York, Arbor manages a multibillion-dollar servicing portfolio, specializing in Fannie Mae, Freddie Mac, and other government-sponsored enterprises, as well as CMBS, bridge, mezzanine, and preferred equity lending. Rated by Standard and Poor’s and Fitch Ratings, Arbor is committed to building on its reputation for service, quality, and flexibility, and dedicated to providing our clients excellence over the entire life of a loan.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Arbor can give no assurance that its expectations will be attained.  Factors that could cause actual results to differ materially from Arbor’s expectations include, but are not limited to, continued ability to source new investments, changes in interest rates and/or credit spreads, changes in the real estate markets, and other risks detailed in Arbor’s Annual Report on Form 10-K for the year ended December 31, 2017 and its other reports filed with the SEC. Such forward-looking statements speak only as of the date of this press release. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor’s expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

1. Non-GAAP Financial Measures

During the quarterly earnings conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A supplemental schedule of non-GAAP financial measures and the comparable GAAP financial measure can be found on page 12 of this release.

Contacts:
Arbor Realty Trust, Inc.
Paul Elenio, Chief Financial Officer       
516-506-4422
[email protected]
Investors:
The Ruth Group
Lee Roth
646-536-7012
[email protected]

Media:
Bonnie Habyan, EVP of Marketing
516-506-4615
[email protected]
 


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES  
 CONSOLIDATED STATEMENTS OF INCOME - (UNAUDITED)  
($ in thousands—except share and per share data) 
           
   Quarter Ended Six Months Ended 
   June 30, June 30, 
    2018   2017   2018   2017  
           
Interest income $  59,295  $  34,468  $  110,908  $  67,993  
Interest expense    37,884     20,411     71,271     39,848  
 Net interest income    21,411     14,057     39,637     28,145  
           
Other revenue:         
Gain on sales, including fee-based services, net    15,622     18,830     33,815     38,001  
Mortgage servicing rights    17,936     17,254     37,571     37,284  
Servicing revenue, net    10,871     6,609     20,418     11,403  
Property operating income    2,964     2,863     5,874     6,086  
Other income, net    (470)    (821)    2,408     (1,707) 
 Total other revenue    46,923     44,735     100,086     91,067  
           
Other expenses:         
Employee compensation and benefits    26,815     21,825     56,309     41,666  
Selling and administrative    8,873     7,835     17,789     15,529  
Property operating expenses    2,856     2,622     5,652     5,260  
Depreciation and amortization    1,845     1,816     3,691     3,713  
Impairment loss on real estate owned    2,000     1,500     2,000     2,700  
Provision for loss sharing  (net of recoveries)    348     532     821     2,212  
Provision for loan losses (net of recoveries)    (2,127)    (1,760)    (1,802)    (2,456) 
Management fee - related party    -      2,673     -      6,673  
 Total other expenses    40,610     37,043     84,460     75,297  
           
Income before gain on extinguishment of debt, income (loss) from equity affiliates and income taxes    27,724     21,749     55,263     43,915  
Gain on extinguishment of debt    -      -      -      7,116  
Income (loss) from equity affiliates    1,387     (3)    2,132     760  
(Provision for) benefit from income taxes    (4,499)    (3,435)    4,285     (9,536) 
           
Net income    24,612     18,311     61,680     42,255  
           
Preferred stock dividends    1,888     1,888     3,777     3,777  
Net income attributable to noncontrolling interest    5,557     4,494     14,547     10,935  
Net income attributable to common stockholders    17,167  $  11,929  $  43,356  $  27,543  
           
Basic earnings per common share $  0.26  $  0.21  $  0.68  $  0.51  
Diluted earnings per common share $  0.25  $  0.21  $  0.66  $  0.50  
           
Weighted average shares outstanding:         
 Basic    65,683,057     56,652,334     63,773,306     54,071,085  
 Diluted    90,055,170     79,064,503     87,420,543     76,365,118  
           
Dividends declared per common share $  0.25  $  0.18  $  0.46  $  0.35  
           


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS 
($ in thousands—except share and per share data)
        
        
     June 30, December 31,
      2018   2017 
     (Unaudited)  
Assets:    
Cash and cash equivalents $  106,968  $  104,374 
Restricted cash    173,686     139,398 
Loans and investments, net    3,064,798     2,579,127 
Loans held-for-sale, net    311,487     297,443 
Capitalized mortgage servicing rights, net    257,021     252,608 
Securities held to maturity, net    50,342     27,837 
Investments in equity affiliates    24,144     23,653 
Real estate owned, net    14,650     16,787 
Due from related party    10,162     688 
Goodwill and other intangible assets    118,965     121,766 
Other assets     72,097     62,264 
  Total assets $  4,204,320  $  3,625,945 
        
Liabilities and Equity:    
Credit facilities and repurchase agreements    910,504     528,573 
Collateralized loan obligations    1,590,644     1,418,422 
Debt fund    68,270     68,084 
Senior unsecured notes    122,343     95,280 
Convertible senior unsecured notes, net    235,431     231,287 
Junior subordinated notes to subsidiary trust issuing preferred securities    139,909     139,590 
Related party financing    -      50,000 
Due to related party    335     -  
Due to borrowers    78,159     99,829 
Allowance for loss-sharing obligations    31,402     30,511 
Other liabilities    83,811     99,813 
  Total liabilities    3,260,808     2,761,389 
        
Equity:    
 Arbor Realty Trust, Inc. stockholders' equity:    
  Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000    
   shares authorized; special voting preferred shares; 21,230,769 shares    
   issued and outstanding; 8.25% Series A, $38,787,500 aggregate     
   liquidation preference; 1,551,500 shares issued and outstanding;     
   7.75% Series B, $31,500,000 aggregate liquidation preference;     
   1,260,000 shares issued and outstanding; 8.50% Series C, $22,500,000    
   aggregate liquidation preference; 900,000 shares issued and outstanding   89,508     89,508 
  Common stock, $0.01 par value: 500,000,000 shares authorized; 68,570,617   
   and 61,723,387 shares issued and outstanding, respectively    686     617 
  Additional paid-in capital    766,933     707,450 
  Accumulated deficit    (87,128)    (101,926)
  Accumulated other comprehensive income    -      176 
Total Arbor Realty Trust, Inc. stockholders’ equity    769,999     695,825 
        
Noncontrolling interest    173,513     168,731 
Total equity    943,512     864,556 
        
Total liabilities and equity $  4,204,320  $  3,625,945 
        


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 STATEMENT OF INCOME SEGMENT INFORMATION - (Unaudited) 
(in thousands)
          
          
   Quarter Ended June 30, 2018
          
   Structured Business Agency Business Other / Eliminations (1) Consolidated
          
Interest income $  54,177  $  5,118  $  -   $  59,295 
Interest expense    34,612     3,272     -      37,884 
 Net interest income    19,565     1,846     -      21,411 
          
Other revenue:        
Gain on sales, including fee-based services, net    -      15,622     -      15,622 
Mortgage servicing rights    -      17,936     -      17,936 
Servicing revenue    -      22,808     -      22,808 
Amortization of MSRs    -      (11,937)    -      (11,937)
Property operating income    2,964     -      -      2,964 
Other income, net    117     (587)    -      (470)
 Total other revenue    3,081     43,842     -      46,923 
          
Other expenses:        
Employee compensation and benefits    6,749     20,066     -      26,815 
Selling and administrative    3,497     5,376     -      8,873 
Property operating expenses    2,856     -      -      2,856 
Depreciation and amortization    444     1,401     -      1,845 
Impairment loss on real estate owned    2,000     -      -      2,000 
Provision for loss sharing (net of recoveries)    -      348     -      348 
Provision for loan losses (net of recoveries)    (2,127)    -      -      (2,127)
 Total other expenses    13,419     27,191     -      40,610 
          
Income before income from equity affiliates and        
 income taxes    9,227     18,497     -      27,724 
Income from equity affiliates    1,387     -      -      1,387 
Benefit from (provision for) income taxes    500     (4,999)    -      (4,499)
          
Net income $  11,114  $  13,498  $  -   $  24,612 
          
Preferred stock dividends    1,888     -      -      1,888 
Net income attributable to noncontrolling interest   -      -      5,557     5,557 
Net income attributable to common stockholders $  9,226  $  13,498  $  (5,557) $  17,167 
          
(1) Includes certain income or expenses not allocated to the two reportable segments. Amount reflects income attributable
  to the noncontrolling interest holders.        
          


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 BALANCE SHEET SEGMENT INFORMATION - (Unaudited) 
(in thousands)
          
          
     June 30, 2018
     Structured Business Agency Business Consolidated
Assets:       
Cash and cash equivalents $  78,997 $  27,971 $  106,968
Restricted cash    172,954    732    173,686
Loans and investments, net    3,064,798    -     3,064,798
Loans held-for-sale, net    -     311,487    311,487
Capitalized mortgage servicing rights, net   -     257,021    257,021
Securities held to maturity, net    -     50,342    50,342
Investments in equity affiliates    24,144    -     24,144
Goodwill and other intangible assets    12,500    106,465    118,965
Other assets     79,751    17,158    96,909
  Total assets $  3,433,144 $  771,176 $  4,204,320
          
Liabilities:      
Debt obligations    2,759,445    307,656    3,067,101
Allowance for loss-sharing obligations   -     31,402    31,402
Other liabilities    135,944    26,361    162,305
  Total liabilities $  2,895,389 $  365,419 $  3,260,808
          


         
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
Supplemental Schedule of Non-GAAP Financial Measures - (Unaudited) 
Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO") 
 ($ in thousands—except share and per share data)  
  
         
 Quarter Ended Six Months Ended 
June 30,June 30, 
  2018   2017   2018   2017  
 
         
Net income attributable to common stockholders$  17,167  $  11,929  $  43,356  $  27,543  
         
Adjustments:        
  Net income attributable to noncontrolling interest   5,557     4,494     14,547     10,935  
  Impairment loss on real estate owned    2,000     1,500     2,000     2,700  
  Depreciation - real estate owned    178     169     356     419  
  Depreciation - investments in equity affiliates    125     101     250     203  
         
Funds from operations  (1)$  25,027  $  18,193  $  60,509  $  41,800  
         
Adjustments:        
  Income from mortgage servicing rights    (17,936)    (17,254)    (37,571)    (37,284) 
  Impairment loss on real estate owned    (2,000)    (1,500)    (2,000)    (2,700) 
  Deferred tax provision (benefit)    185     (890)    (13,135)    937  
  Amortization and write-offs of MSRs    17,203     14,932     33,879     30,213  
  Depreciation and amortization    2,255     1,873     4,511     3,741  
  Net loss (gain) on changes in fair value of derivatives    587     1,552     (2,057)    2,549  
  Stock-based compensation    1,100     682     3,645     2,986  
         
Adjusted funds from operations  (1) (2)$  26,421  $  17,588  $  47,781  $  42,242  
         
 Diluted FFO per share  (1) $  0.28  $  0.23  $  0.69  $  0.55  
         
 Diluted AFFO per share  (1) (2) $  0.29  $  0.22  $  0.55  $  0.55  
         
 Diluted weighted average shares outstanding  (1)    90,055,170     79,064,503     87,420,543     76,365,118  
         
(1) Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at the Company's option for shares of the Company's common stock on a one-for-one basis. 
         
(2) Excluding the impact of $1.5 million of one-time, non-cash accelerated costs related to the exchange of our 6.50% convertible senior notes due 2019, AFFO for the second quarter of 2018 was $28.0 million, or $0.31 per diluted common share. 
         
The Company is presenting FFO and AFFO because management believes they are important supplemental measures of the Company’s operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs.  The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated real properties, plus impairments of depreciated real properties and real estate related depreciation and amortization, and after adjustments for unconsolidated ventures.  
  
The Company defines AFFO as funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from mortgage servicing rights ("MSRs"), changes in fair value of certain derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred tax (benefit) provision and the amortization of the convertible senior notes conversion option. The Company also adds back one-time charges such as acquisition costs and impairment losses on real estate and gains (losses) on sales of real estate. The Company is generally not in the business of operating real estate property and has obtained real estate by foreclosure or through partial or full settlement of mortgage debt related to the Company's loans to maximize the value of the collateral and minimize the Company's exposure.  Therefore, the Company deems such impairment and gains (losses) on real estate as an extension of the asset management of its loans, thus a recovery of principal or additional loss on the Company's initial investment. 
  
FFO and AFFO are not intended to be an indication of the Company's cash flow from operating activities (determined in accordance with GAAP) or a measure of its liquidity, nor is it entirely indicative of funding the Company's cash needs, including its ability to make cash distributions.  The Company’s calculation of FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability may be limited.