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 shareAgency Business
  • Segment income of $13.5 million
  • Loan originations of $1.04 billion
  • Servicing portfolio of $17.11 billion, up 3% from 1Q18Structured 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
    UPB Wtd. Avg. Fee Wtd. Avg. Life (in years)   UPB Wtd. Avg. Fee Wtd. Avg. Life (in years)
Fannie Mae $   12,794,277 0.530 % 7.3   $   12,700,635 0.535 % 7.2
Freddie Mac     3,730,980 0.308 % 11.0       3,397,535 0.304 % 10.7
FHA       585,017 0.159 % 20.1       591,836 0.162 % 20.0
Total   $   17,110,274 0.469 % 8.6   $   16,690,006 0.475 % 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.

 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.   

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NEXT SpeakEasy amends and restates April 30, 2018 interim financial statements