Arbor Realty Trust Reports Second Quarter 2008 Results
Second Quarter Highlights:
- Net income of $11.7 million, or $0.56 per diluted common share
- Monetized a portion of equity interest in Prime, receiving $33 million in cash, and generated approximately $250 million in cash from equity kickers in 14 of 17 quarters since becoming a public company
- Declared quarterly dividend of $0.62 per share
- Recorded $2.0 million in loan loss reserves
UNIONDALE, N.Y., Aug. 8 /PRNewswire-FirstCall/ -- Arbor Realty Trust, Inc. (NYSE: ABR), a real estate investment trust focused on the business of investing in real estate related bridge and mezzanine loans, preferred and direct equity investments, mortgage-related securities and other real estate related assets, today announced financial results for the quarter ended June 30, 2008. Arbor reported net income for the quarter of $11.7 million, or $0.56 per diluted common share, compared to net income for the quarter ended June 30, 2007 of $31.7 million, or $1.75 per diluted common share. Excluding $0.4 million of net loss from Alpine Meadows, net income for the quarter ended June 30, 2008 was $12.1 million, or $0.58 per diluted common share. Excluding $19.7 million of net income from the 450 West 33rd Street, Toy building, and Prime transactions, net income for the quarter ended June 30, 2007 was $12.0 million, or $0.67 per diluted common share.(1)
Net income for the six months ended June 30, 2008 was $24.4 million, or $1.18 per diluted common share, compared to net income for the six months ended June 30, 2007 of $48.4 million, or $2.74 per diluted share. Excluding $0.4 million of net loss from Alpine Meadows for the six months ended June 30, 2008 and $25.8 million of net income from the 450 West 33rd Street, Toy building, Prime and On the Avenue transactions for the six months ended June 30, 2007, net income for the six months ended June 30, 2008 was $24.8 million, or $1.19 per diluted common share, compared to net income for the six months ended June 30, 2007 of $22.7 million, or $1.29 per diluted common share.(1)
In the second quarter of 2008, the Company monetized a portion of its equity interest in Prime Outlets ("Prime") and received approximately $33 million in cash. Under the terms of the agreement, the Company will transfer 16.67% of its 24.17% interest in Prime, at a value of approximately $37.0 million, in exchange for preferred and common operating partnership units of Lightstone Value Plus REIT L.P. Additionally, Arbor borrowed approximately $33 million from Lightstone Value Plus Real Estate Investment Trust, Inc., which is initially secured by its 16.67% interest in Prime, has an eight year term and bears interest at a fixed rate of 4.00%, with payment deferred until the closing of the transaction. Upon the closing of this transaction, which is expected to occur on or before June 26, 2009, the Company will exchange its 16.67% interest for the preferred and common operating partnership units, which will then collateralize the $33 million loan. The preferred units will pay a preferred return of 4.63% and after five years, the preferred units may be redeemed at par by Lightstone Value Plus REIT L.P. for cash and the loan would become due upon such redemption. The Company owns its 16.67% interest through a consolidated entity, which has a 25% interest in Prime, with a third party member owning the remaining 8.33%. In the second quarter of 2008, the Company recorded approximately $33 million of cash, $49.5 million of debt related to the proceeds received from the loan secured by the entity's 25% interest in Prime which was recorded in notes payable, a $16.5 million receivable from the third party member which was recorded in other assets and a deferred expense related to the incentive management fee of approximately $7.3 million. The transaction provides for a tax deferral for an estimated period of five years, subject to certain carve out provisions. In addition, Arbor retained a 7.5% ownership interest in Prime.
Additionally during the quarter, the Company recorded a $0.6 million loss from its $13.2 million equity investment in the Alpine Meadows unconsolidated joint venture. This amount reflects Arbor's portion of the joint venture's losses, including depreciation expense, and was recorded in loss from equity affiliates and as a reduction to the Company's investment in equity affiliates on the balance sheet.
1. See attached supplemental schedule of non-GAAP financial measures on page 8 & 9.
The net balance in the loan and investment portfolio was $2.5 billion at June 30, 2008, compared to $2.6 billion at March 31, 2008. The average balance of the loan and investment portfolio during the second quarter of 2008 was $2.6 billion and the average yield on these assets for the quarter was 7.91%, compared to $2.6 billion and 8.35% for the first quarter of 2008.
At June 30, 2008, the balance of debt financing on the loan and investment portfolio was $2.2 billion, mainly unchanged from March 31, 2008. The average balance of debt financing on the loan and investment portfolio during the second quarter of 2008 was $2.2 billion and the average cost of these borrowings was 5.06%, compared to $2.2 billion and 5.64% for the first quarter of 2008.
For the second quarter of 2008, Arbor's manager, Arbor Commercial Mortgage, LLC, earned $8.5 million of incentive compensation, of which $1.2 million was recorded as management fee expense and $7.3 million was recorded as deferred management fee related to the Prime transaction. Arbor Commercial Mortgage, LLC intends to exercise its option to receive 50% of the incentive compensation in shares of Arbor Realty Trust's common stock.
As of June 30, 2008, Arbor's financing facilities for its loan and investment portfolio totaled approximately $2.5 billion and borrowings outstanding under such facilities were $2.2 billion.
During the second quarter, the Company entered into an uncommitted master repurchase agreement with a financial institution for the purpose of financing the purchase of CRE CDO bond securities. The facility has a two-year term from the effective date of the agreement and bears interest at pricing over LIBOR.
In July 2008, a $60 million working capital facility was extended for one year to June 2009 and was amended to a $45 million facility. In addition, the amendment includes required paydowns of $3 million quarterly beginning October 1, 2008 and bears interest at a rate of approximately 500 basis points over Libor. At June 30, 2008, the facility had an aggregate outstanding balance of approximately $48 million.
During the quarter, Arbor originated two new bridge loans totaling $6 million and purchased seven CRE CDO bonds at a discounted price of approximately $58 million with a face amount of approximately $83 million.
During the quarter, 11 loans paid off on properties that were either sold or refinanced outside of Arbor with an outstanding balance of $152 million. Three loans were either refinanced or modified with Arbor totaling $86 million, of which one loan totaling $15 million was scheduled to repay during the quarter and another loan totaling approximately $64 million had a $1.0 million loan loss reserve recorded in the first quarter of 2008.
In addition, three loans totaling approximately $95 million were extended during the quarter in accordance with the extension options of the corresponding loan agreements.
At June 30, 2008, the loan and investment portfolio unpaid principal balance was $2.5 billion, with a weighted average current interest pay rate of 7.07%. At the same date, advances on financing facilities pertaining to the loan and investment portfolio totaled $2.2 billion, with a weighted average interest rate of 4.85% excluding financing and interest rate swap costs.
As of June 30, 2008, Arbor's loan portfolio consisted of 33% fixed-rate and 67% variable rate loans.
As previously disclosed, the Company had a $5.0 million mezzanine loan for which a $1.5 million provision for loan loss was established during the first quarter of 2008. In April 2008, the Company foreclosed on the property, which was subject to a $41.4 million first mortgage. As of June 30, 2008, the Company recorded this investment on its balance sheet as real estate owned at fair value which included the $1.5 million provision previously established, recorded the $41.4 million first lien in mortgage notes payable and recorded a net loss for the quarter of approximately $19,000 in selling and administrative expenses.
In addition, as previously disclosed, the Company had a $13.8 million bridge loan, which the Company established a $1.5 million provision for loan loss during the fourth quarter of 2007. In May 2008, the Company received $0.3 million from the borrower plus a $0.3 million note from the borrower, reducing the carrying amount to $11.7 million. In May 2008, the property was sold for approximately $11.8 million and the Company provided the purchaser with a $12.8 million loan and investment, of which approximately $11.3 million was funded as of June 30, 2008. The Company also received a 25% equity participation interest in the property. As a result of this transaction, the Company recorded a loss of approximately $1.7 million, of which $1.5 million was charged-off against the allowance for loan losses and approximately $0.2 million was recorded in selling and administrative expenses in the second quarter of 2008 related to additional expenses incurred.
During the second quarter, the Company recorded a $2.0 million loan loss reserve related to a loan with an outstanding principal balance of approximately $9.9 million. The loan loss reserve was the result of the Company's regular quarterly risk rating review process, which is based on several factors including current market conditions, real estate values and the operating status of each property. As previously mentioned, the Company had a $1.5 million provision for loan loss on a $5.0 million mezzanine loan that was reclassified to real estate owned during the second quarter of 2008. At June 30, 2008, the Company's total loan loss reserves were $3.5 million relating to three loans with an aggregate outstanding principal balance of approximately $75.2 million.
As of June 30, 2008, two loans with an outstanding principal balance of approximately $80.1 million were classified as non-performing. Income recognition has been suspended and will resume when the loans become contractually current and performance has recommenced. As previously disclosed, this amount included a $70.4 million bridge loan on a land development project in New York City which, effective April 1, 2008, income recognition had been suspended. During the second quarter of 2008, the Company received approximately $0.6 million, equal to approximately one month's interest on the loan. In July 2008, the Company elected to begin the foreclosure process on the entity that owns the property. The principal amount of this loan is not deemed to be impaired at this time and no loan loss reserve has been recorded to date. In addition, as of June 30, 2008, one of the three loans reserved for, with an outstanding principal balance of approximately $9.9 million, had been classified as non-performing.
Operating Partnership Units Redemption
In June 2008, the Company's external manager, Arbor Commercial Mortgage ("ACM"), exercised its right to redeem its approximate 3.8 million operating partnership units ("OP units") in the Company's operating partnership for shares of the Company's common stock on a one-for-one basis.
Consequently, this resulted in the elimination of the accounting for minority interest as it relates to ACM's operating partnership ownership interest in the Company. In addition, the special voting preferred shares paired with each OP unit, pursuant to a pairing agreement, were redeemed simultaneously and cancelled by the Company.
As previously announced, the Board of Directors declared a dividend of $0.62 per share for the quarter ended June 30, 2008, to be paid on August 26, 2008 to shareholders of record on August 15, 2008.
Equity Participation Interests
Attached as an exhibit to this press release is a schedule of certain data pertaining to the Company's investments with equity participation interests. As previously disclosed, the Company has entered into an agreement to transfer 16.67% of its 24.17% interest in Prime for preferred and common operating partnership units in another REIT. Upon the closing of this transaction, which is expected to occur prior to the third quarter of 2009, the Company expects to recognize approximately $26 million of net income. In addition during the second quarter, as previously disclosed, the Company refinanced a loan for $12.8 million and received a 25% equity participation interest in the property, and recorded a $0.6 million loss from its equity interest in the Alpine Meadows investment.
Earnings Conference Call
Management will host a conference call today at 10:00 a.m. EDT. A live webcast of the conference call will be available online at www.arborrealtytrust.com. Web participants are encouraged to go to Arbor's Web site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. Listening to the webcast requires speakers and RealPlayer(TM) software, downloadable without charge at www.real.com. Those without Web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (866) 202-0886 for domestic callers and (617) 213-8841 for international callers. The participant passcode for both is 21706816.
After the live webcast, the call will remain available on Arbor's Web site, www.arborrealtytrust.com through September 5, 2008. In addition, a telephonic replay of the call will be available until August 15, 2008. The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. Please use passcode: 46256143.
About Arbor Realty Trust, Inc.
Arbor Realty Trust, Inc. is a real estate investment trust, which invests in a diversified portfolio of multi-family and commercial real estate related bridge and mezzanine loans, preferred equity investments, mortgage related securities and other real estate related assets. Arbor commenced operations in July 2003 and conducts substantially all of its operations through its operating partnership, Arbor Realty Limited Partnership and its subsidiaries. Arbor is externally managed and advised by Arbor Commercial Mortgage, LLC, a national commercial real estate finance company operating through 11 offices in the US that specializes in debt and equity financing for multi-family and commercial real estate.
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, 2007 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.
Contacts: Investors: Arbor Realty Trust, Inc. Stephanie Carrington Paul Elenio, Chief Financial Officer The Ruth Group 516-506-4422 646-536-7017 firstname.lastname@example.org email@example.com Media: Bonnie Habyan, SVP of Marketing 516-506-4615 firstname.lastname@example.org ARBOR REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Unaudited) Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Revenue: Interest income $51,869,164 $74,800,274 $107,285,494 $141,260,927 Other income 28,629 17,186 49,322 23,356 Total revenue 51,897,793 74,817,460 107,334,816 141,284,283 Expenses: Interest expense 27,857,322 38,527,983 59,161,421 70,640,502 Employee compensation and benefits 2,686,002 2,753,662 4,663,345 4,484,017 Selling and administrative 2,793,161 1,593,494 4,331,227 2,814,866 Provision for loan losses 2,000,000 - 5,000,000 - Management fee - related party 2,153,838 10,645,065 4,733,272 15,518,747 Total expenses 37,490,323 53,520,204 77,889,265 93,458,132 Income before (loss) income from equity affiliates, minority interest and provision for income taxes 14,407,470 21,297,256 29,445,551 47,826,151 (Loss) income from equity affiliates (562,000) 26,025,788 (562,000) 26,025,788 Income before minority interest and provision for income taxes 13,845,470 47,323,044 28,883,551 73,851,939 Income allocated to minority interest 2,117,464 6,638,020 4,450,754 10,318,334 Income before provision for income taxes 11,728,006 40,685,024 24,432,797 63,533,605 Provision for income taxes - 9,000,000 - 15,085,000 Net income $11,728,006 $31,685,024 $24,432,797 $48,448,605 Basic earnings per common share $0.56 $1.76 $1.18 $2.75 Diluted earnings per common share $0.56 $1.75 $1.18 $2.74 Dividends declared per common share $0.62 $0.62 $1.24 $1.22 Weighted average number of shares of common stock outstanding: Basic 20,906,383 17,993,924 20,739,081 17,590,860 Diluted 24,721,660 21,873,322 24,562,520 21,453,969 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES (Unaudited) Quarter Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Total revenue, GAAP basis $51,897,793 $74,817,460 $107,334,816 $141,284,283 Subtract: Prime transaction - (4,166,666) - (4,166,666) On the Avenue transaction - - - (15,997,843) 450 West 33rd Street transaction - (10,425,579) - (10,425,579) Total revenue, as adjusted $51,897,793 $60,225,215 $107,334,816 $110,694,195 Net income, GAAP basis $11,728,006 $31,685,024 $24,432,797 $48,448,605 Subtract: Prime transaction - (3,783,988) - (3,783,988) On the Avenue transaction - - - (6,099,372) Toy transaction - (9,342,631) - (9,342,631) 450 West 33rd Street transaction - (6,529,699) - (6,529,699) Add: Alpine Meadows 372,229 - 372,229 - Net income, as adjusted $12,100,235 $12,028,706 $24,805,026 $22,692,915 Diluted earnings per common share, GAAP basis $0.56 $1.75 $1.18 $2.74 Diluted earnings per common share, as adjusted $0.58 $0.67 $1.19 $1.29 Diluted weighted average shares outstanding 24,721,660 21,873,322 24,562,520 21,453,969 a.) Given the magnitude of the Prime, On the Avenue, Toy and 450 West 33rd Street transactions and the nature of the Alpine Meadows operation, Arbor has elected to report adjusted revenues, net income and earnings per share for the affected periods to help ensure the comparability of the reporting periods. Management considers these non-GAAP financial measures to be effective indicators, for both management and investors, of Arbor's financial performance. Arbor's management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES - Continued (Unaudited) June 30, 2008 GAAP Stockholders' Equity $469,178,986 Add: 450 West 33rd Street transaction - deferred revenue 77,123,133 Unrealized loss on derivative instruments 26,121,426 Subtract: 450 West 33rd Street transaction - prepaid management fee (19,047,949) Adjusted Stockholders' Equity $553,375,596 Adjusted book value per share $22.37 GAAP book value per share $18.97 Common shares outstanding 24,737,696 b.) Given the magnitude and the deferral structure of the 450 West 33rd Street transaction combined with the change in the fair value of certain derivative instruments, Arbor has elected to report adjusted book value per share for the affected period to currently reflect the future impact of the 450 West 33rd Street transaction on the company's financial condition as well as the evaluation of Arbor without the effects of unrealized losses from certain of the Company's derivative instruments. Management considers this non-GAAP financial measure to be an effective indicator, for both management and investors, of Arbor's financial performance. Arbor's management does not advocate that investors consider this non-GAAP financial measure in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. ARBOR REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 2008 2007 (Unaudited) (Audited) Assets: Cash and cash equivalents $46,195,338 $22,219,541 Restricted cash 144,099,637 139,136,105 Loans and investments, net 2,444,641,847 2,592,093,930 Available-for-sale securities, at fair value 10,111,759 15,696,743 Securities held to maturity, net 58,498,406 - Investment in equity affiliates 28,850,691 29,590,190 Real estate owned, net 46,891,971 - Deferred management fee - related party 7,292,448 - Prepaid management fee - related party 19,047,949 19,047,949 Other assets 96,439,720 83,709,076 Total assets $2,902,069,766 $2,901,493,534 Liabilities and Stockholders' Equity: Repurchase agreements $198,755,637 $244,937,929 Collateralized debt obligations 1,129,649,000 1,151,009,000 Junior subordinated notes to subsidiary trust issuing preferred securities 276,055,000 276,055,000 Notes payable 635,388,432 596,160,338 Mortgage note payable 41,440,000 - Due to related party 7,914,458 2,429,109 Due to borrowers 8,392,612 18,265,906 Deferred revenue 77,123,133 77,123,133 Other liabilities 58,172,508 67,395,776 Total liabilities 2,432,890,780 2,433,376,191 Minority interest - 72,854,258 Stockholders' equity: Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2008 and 3,776,069 shares issued and outstanding at December 31, 2007 - 37,761 Common stock, $0.01 par value: 500,000,000 shares authorized; 25,017,096 shares issued, 24,737,696 shares outstanding at June 30, 2008 and 20,798,735 shares issued, 20,519,335 shares outstanding at December 31, 2007 250,171 207,987 Additional paid-in capital 442,592,734 365,376,136 Treasury stock, at cost - 279,400 shares (7,023,361) (7,023,361) Retained earnings 64,362,458 65,665,951 Accumulated other comprehensive loss (31,003,016) (29,001,389) Total stockholders' equity 469,178,986 395,263,085 Total liabilities and stockholders' equity $2,902,069,766 $2,901,493,534 Arbor Realty Trust, Inc. Summary of Equity and Profit Interests (all dollar amounts in thousands) Unaudited Current Initial ART Cash Investment Investment Equity Name Amount Date Investment 80 Evergreen $384 3Q03 $201 930 Flushing 1,126 3Q03 322 Prime Portfolio 2,100 4Q03 - Prime Portfolio - 450 W. 33rd St 1,500 4Q03 1,137 823 Park Avenue - 3Q04 - York Avenue 540 3Q04 - Toy Building 10,000 2Q05 5,720 Homewood Mtn Resort - 2Q06 - Richland Terrace Apartments - 3Q06 - Ashley Court Apartments - 3Q06 - Nottingham Village - 1Q07 - Extended Stay Hotel Portfolio 115,000 2Q07 115,000 Alpine Meadows 13,220 3Q07 13,220 St. John's Development 500 4Q07 500 Windrush Village Apartments - 2Q08 445 Approximate Square Property Name Profit % Footage Type 80 Evergreen 12.50% 77,680 Warehouse 930 Flushing 12.50% 304,080 Warehouse Prime Portfolio 7.50% 6,700,000 Retail Outlets Prime Portfolio 16.67%(5) 6,700,000 Retail Outlets 450 W. 33rd St 0.58%(1) 1,746,734 Office 823 Park Avenue 20.00% 52,374 Conversion York Avenue 8.70% 45,200 Conversion Toy Building 10.00% 320,000 Conversion Homewood Mtn Resort 25.60% 1,224 (3) Land Richland Terrace Apartments 25.00% 342,152 Multi Family Ashley Court Apartments 25.00% 177,892 Multi Family Nottingham Village 25.00% 285,900 Multi Family Extended Stay Hotel Portfolio 16.17% 684 (4) Hotel Alpine Meadows 39.00% 2,163 (3) Land St. John's Development 50.00% 23 (3) Land Windrush Village Apartments 25.00% 221,726 Multi Family Current Debt Balance Name Location on Property Comments 80 Evergreen Brooklyn, NY $5,000 Property refinanced June 2008 930 Flushing Brooklyn, NY 24,789 Property refinanced July 2005 Prime Portfolio Multi-state 1,200,700 Properties refinanced Prime Portfolio Multi-state - All equity returned to investors 450 W. 33rd St New York City 517,000 823 Park Avenue New York City 5,169 Condo conversion - investment held in Taxable REIT Subsidiary ("TRS") York Avenue New York City 32,000 Property refinanced Dec 2005 Toy Building New York City 343,400 (2) Condo conversion - investment held in Taxable REIT Subsidiary ("TRS") Homewood Mtn Resort Homewood, CA 114,157 Profits interest held in TRS Richland Terrace Apartments Columbia, SC 9,094 Ashley Court Apartments Fort Wayne, IN 5,452 Nottingham Village Indianapolis, IN 6,626 Extended Stay Hotel Portfolio Multistate 7,400,000 Preferred return of 12% on equity Alpine Meadows Alpine Meadows, CA 30,500 Preferred return of 18% on equity St. John's Development Jacksonville, FL 25,000 Windrush Village Apartments Tallahassee, FL 12,800 (1) Represents approximately 29% of the 2% retained interest in the property. In addition, Arbor has approximately 29% of a 50% interest in the property's air rights. (2) Debt balance represents anticipated debt financing required to complete condominium conversion project. (3) Amount represents approximate acreage of property. (4) Amount represents approximately 684 properties in 44 states and Canada with approximately 76,000 rooms. (5) The Company has agreed to transfer its 16.67% interest for preferred and common operating partnership units of another REIT, which is expected to occur on or prior to June 26, 2009. The Company currently has $33 million in debt related to this transaction that is collateralized by the Company's 16.67% interest in Prime.
SOURCE Arbor Realty Trust, Inc.
CONTACT: Paul Elenio, Chief Financial Officer of Arbor Realty Trust, Inc., +1-516-506-4422, email@example.com; or Investors, Stephanie Carrington of The Ruth Group, +1-646-536-7017, firstname.lastname@example.org; or Media, Bonnie Habyan, SVP of Marketing, +1-516-506-4615, email@example.com -0- Aug/08/2008 12:30 GMT