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Arbor Realty Trust Reports Third Quarter 2018 Results and Increases Quarterly Dividend to $0.27 per Share

November 2, 2018 8:00 AM

Company Highlights:

Agency Business

Structured Business

UNIONDALE, N.Y., Nov. 02, 2018 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (NYSE: ABR), today announced financial results for the third quarter ended September 30, 2018. Arbor reported net income for the quarter of $27.7 million, or $0.36 per diluted common share, compared to $16.4 million, or $0.26 per diluted common share for the quarter ended September 30, 2017. Adjusted funds from operations (“AFFO”) for the quarter was $36.4 million, or $0.37 per diluted common share, compared to $21.0 million, or $0.25 per diluted common share for the quarter ended September 30, 2017.1

Agency Business

Loan Origination Platform

Agency Loan Volume (in thousands)
Quarter Ended
September 30, 2018 June 30, 2018
Fannie Mae$995,662 $606,287
Freddie Mac 317,516 434,789
FHA 77,236 -
CMBS/Conduit 20,650 -
Total Originations$1,411,064 $1,041,076
Total Loan Sales$1,190,004 $1,018,283
Total Loan Commitments$1,376,376 $1,079,478

For the quarter ended September 30, 2018, the Agency Business generated revenues of $58.8 million, compared to $49.0 million for the second quarter of 2018. Gain on sales, including fee-based services, net was $17.5 million for the quarter, reflecting a margin of 1.47% on loan sales, compared to $15.6 million and 1.53% for the second quarter of 2018. Income from mortgage servicing rights was $25.2 million for the quarter, reflecting a rate of 1.83% as a percentage of loan commitments, compared to $17.9 million and 1.66% for the second quarter of 2018.

At September 30, 2018, loans held-for-sale was $500.3 million which was primarily comprised of unpaid principal balances totaling $493.0 million, with financing associated with these loans totaling $492.6 million.

Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $17.79 billion at September 30, 2018, an increase of 4% from June 30, 2018, primarily a result of $1.41 billion of new loan originations, net of $706.0 million in portfolio runoff during the quarter. Servicing revenue, net was $14.2 million for the quarter and consists of servicing revenue of $26.1 million, net of amortization of mortgage servicing rights totaling $11.9 million.

Fee-Based Servicing Portfolio ($ in thousands)
As of September 30, 2018 As of June 30, 2018
UPBWtd. Avg. FeeWtd. Avg. Life (in years) UPBWtd. Avg. FeeWtd. Avg. Life (in years)
Fannie Mae $13,195,6430.523%7.7 $12,794,2770.530%7.3
Freddie Mac 3,977,6190.308%11.0 3,730,9800.308%11.0
FHA 621,4190.157%20.1 585,0170.159%20.1
Total $17,794,6810.462%8.8 $17,110,2740.469%8.6

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”). At September 30, 2018, the Company’s allowance for loss-sharing obligations was $33.4 million, representing 0.25% of the Fannie Mae servicing portfolio.

Structured Business

Portfolio and Investment Activity

At September 30, 2018, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $3.17 billion, with a weighted average current interest pay rate of 6.88%, compared to $3.14 billion and 6.76% at June 30, 2018. Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 7.52% at September 30, 2018, compared to 7.40% at June 30, 2018. The increase in average costs was primarily due to an increase in LIBOR.

The average balance of the Company’s loan and investment portfolio during the third quarter of 2018, excluding loan loss reserves, was $3.26 billion with a weighted average yield on these assets of 7.37%, compared to $2.91 billion and 7.40% for the second quarter of 2018.

At September 30, 2018, the Company’s total loan loss reserves were $61.0 million on five loans with an aggregate carrying value before loan loss reserves of $131.9 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.

The Company recognized a net gain of approximately $10 million from the settlement of a litigation related to a prior investment.

Financing Activity

The balance of debt that finances the Company’s loan and investment portfolio at September 30, 2018 was $2.92 billion with a weighted average interest rate including fees of 5.03% as compared to $2.81 billion and a rate of 4.93% at June 30, 2018. The average balance of debt that finances the Company’s loan and investment portfolio for the third quarter of 2018 was $2.86 billion, as compared to $2.54 billion for the second quarter of 2018. The average cost of borrowings for the third quarter was 4.93%, compared to 5.46% for the second quarter of 2018. The decrease in average costs was primarily due to the acceleration of $2.9 million in fees related to the early repayment of debt in the second quarter of 2018.

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 September 30, 2018 and as of the most recent collateralized securitization vehicle determination dates in October 2018.

Capital Markets

The Company issued $264.5 million in aggregate principal amount of 5.25% convertible senior notes due 2021 (the “Notes”) through two private placements, including $34.5 million of the initial purchaser’s over-allotment options. The Company received proceeds totaling $256.1 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. As a result of these exchanges, the Company recorded a $5.0 million loss on extinguishment of debt.

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.27 per share of common stock for the quarter ended September 30, 2018, representing an increase of 42% from a year ago and 8% over the prior quarter dividend of $0.25 per share. The dividend is payable on November 30, 2018 to common stockholders of record on November 15, 2018. The ex-dividend date is November 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 September 1, 2018 through November 30, 2018. The dividends are payable on November 30, 2018 to preferred stockholders of record on November 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 8190269.

After the live webcast, the call will remain available on the Company's website through November 30, 2018. In addition, a telephonic replay of the call will be available until November 9, 2018. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use passcode 8190269.

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 11 of this release.

Contacts:Arbor Realty Trust, Inc.Paul Elenio, Chief Financial Officer 516-506-4422 [email protected]Investors:The Ruth GroupLee Roth646-536-7012[email protected]
Media:Bonnie Habyan, EVP of Marketing516-506-4615[email protected]

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - (Unaudited)
($ in thousands—except share and per share data)
Quarter Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Interest income $67,500 $42,140 $178,408 $110,133
Interest expense 39,548 23,850 110,819 63,698
Net interest income 27,952 18,290 67,589 46,435
Other revenue:
Gain on sales, including fee-based services, net 17,451 17,126 51,266 55,127
Mortgage servicing rights 25,216 18,897 62,787 56,182
Servicing revenue, net 14,244 8,520 34,662 19,923
Property operating income 2,651 2,668 8,525 8,755
Other income, net (3,982) 778 (1,574) (931)
Total other revenue 55,580 47,989 155,666 139,056
Other expenses:
Employee compensation and benefits 27,775 25,194 84,084 66,861
Selling and administrative 9,994 7,607 27,783 23,136
Property operating expenses 2,437 2,583 8,089 7,843
Depreciation and amortization 1,848 1,829 5,539 5,542
Impairment loss on real estate owned - - 2,000 2,700
Provision for loss sharing (net of recoveries) 2,019 (2,617) 2,840 (405)
Provision for loan losses (net of recoveries) 836 2,000 (967) (457)
Litigation settlement gain (10,170) - (10,170) -
Management fee - related party - - - 6,673
Total other expenses 34,739 36,596 119,198 111,893
Income before extinguishment of debt, (loss) income
from equity affiliates and income taxes 48,793 29,683 104,057 73,598
(Loss) gain on extinguishment of debt (4,960) - (4,960) 7,116
(Loss) income from equity affiliates (1,028) 996 1,104 1,756
Provision for income taxes (5,381) (6,708) (1,096) (16,244)
Net income 37,424 23,971 99,105 66,226
Preferred stock dividends 1,888 1,888 5,665 5,665
Net income attributable to noncontrolling interest 7,799 5,662 22,347 16,597
Net income attributable to common stockholders $27,737 $16,421 $71,093 $43,964
Basic earnings per common share $0.37 $0.27 $1.05 $0.78
Diluted earnings per common share $0.36 $0.26 $1.03 $0.77
Weighted average shares outstanding:
Basic 74,802,582 61,582,796 67,490,132 56,602,504
Diluted 98,435,964 83,918,117 91,133,607 78,942,919
Dividends declared per common share $0.25 $0.18 $0.71 $0.53

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands—except share and per share data)
September 30, 2018 December 31, 2017
(Unaudited)
Assets:
Cash and cash equivalents $92,598 $104,374
Restricted cash 202,736 139,398
Loans and investments, net 3,097,689 2,579,127
Loans held-for-sale, net 500,281 297,443
Capitalized mortgage servicing rights, net 259,401 252,608
Securities held to maturity, net 50,520 27,837
Investments in equity affiliates 22,101 23,653
Real estate owned, net 14,563 16,787
Due from related party 97,505 688
Goodwill and other intangible assets 117,565 121,766
Other assets 79,301 62,264
Total assets $4,534,260 $3,625,945
Liabilities and Equity:
Credit facilities and repurchase agreements 1,169,586 528,573
Collateralized loan obligations 1,592,089 1,418,422
Debt fund 68,099 68,084
Senior unsecured notes 122,358 95,280
Convertible senior unsecured notes, net 263,653 231,287
Junior subordinated notes to subsidiary trust issuing preferred securities 140,084 139,590
Related party financing - 50,000
Due to related party 538 -
Due to borrowers 77,006 99,829
Allowance for loss-sharing obligations 33,405 30,511
Other liabilities 100,970 99,813
Total liabilities 3,567,788 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; 20,653,584 and 21,230,769 shares
issued and outstanding, respectively; 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; 75,684,964
and 61,723,387 shares issued and outstanding, respectively 757 617
Additional paid-in capital 785,364 707,450
Accumulated deficit (78,316) (101,926)
Accumulated other comprehensive income - 176
Total Arbor Realty Trust, Inc. stockholders’ equity 797,313 695,825
Noncontrolling interest 169,159 168,731
Total equity 966,472 864,556
Total liabilities and equity $4,534,260 $3,625,945

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
STATEMENT OF INCOME SEGMENT INFORMATION - (Unaudited)
(in thousands)
Quarter Ended September 30, 2018
Structured Business Agency Business Other / Eliminations (1) Consolidated
Interest income $61,232 $6,268 $- $67,500
Interest expense 35,508 4,040 - 39,548
Net interest income 25,724 2,228 - 27,952
Other revenue:
Gain on sales, including fee-based services, net - 17,451 - 17,451
Mortgage servicing rights - 25,216 - 25,216
Servicing revenue - 26,082 - 26,082
Amortization of MSRs - (11,838) - (11,838)
Property operating income 2,651 - - 2,651
Other income, net 406 (4,388) - (3,982)
Total other revenue 3,057 52,523 - 55,580
Other expenses:
Employee compensation and benefits 6,683 21,092 - 27,775
Selling and administrative 4,465 5,529 - 9,994
Property operating expenses 2,437 - - 2,437
Depreciation and amortization 447 1,401 - 1,848
Provision for loss sharing (net of recoveries) - 2,019 - 2,019
Provision for loan losses (net of recoveries) 836 - - 836
Litigation settlement gain (10,170) - - (10,170)
Total other expenses 4,698 30,041 - 34,739
Income before extinguishment of debt, loss from
equity affiliates and income taxes 24,083 24,710 - 48,793
Loss on extinguishment of debt (4,960) - - (4,960)
Loss from equity affiliates (1,028) - - (1,028)
Provision for income taxes - (5,381) - (5,381)
Net income $18,095 $19,329 $- $37,424
Preferred stock dividends 1,888 - - 1,888
Net income attributable to noncontrolling interest - - 7,799 7,799
Net income attributable to common stockholders $16,207 $19,329 $(7,799) $27,737
(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)
September 30, 2018
Structured Business Agency Business Consolidated
Assets:
Cash and cash equivalents $45,001 $47,597 $92,598
Restricted cash 202,736 - 202,736
Loans and investments, net 3,097,689 - 3,097,689
Loans held-for-sale, net - 500,281 500,281
Capitalized mortgage servicing rights, net - 259,401 259,401
Securities held to maturity, net - 50,520 50,520
Investments in equity affiliates 22,101 - 22,101
Goodwill and other intangible assets 12,500 105,065 117,565
Other assets 172,078 19,291 191,369
Total assets $3,552,105 $982,155 $4,534,260
Liabilities:
Debt obligations 2,863,267 492,603 3,355,870
Allowance for loss-sharing obligations - 33,405 33,405
Other liabilities 140,661 37,852 178,513
Total liabilities $3,003,928 $563,860 $3,567,788

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 Nine Months Ended
September 30,September 30,
2018 20172018 2017
Net income attributable to common stockholders$27,737 $16,421 $71,093 $43,964
Adjustments:
Net income attributable to noncontrolling interest 7,799 5,661 22,347 16,596
Impairment loss on real estate owned - - 2,000 2,700
Depreciation - real estate owned 177 173 533 592
Depreciation - investments in equity affiliates 125 101 374 305
Funds from operations (1)$35,838 $22,356 $96,347 $64,157
Adjustments:
Income from mortgage servicing rights (25,216) (18,897) (62,787) (56,182)
Impairment loss on real estate owned - - (2,000) (2,700)
Deferred tax (benefit) provision (1,319) (922) (14,454) 15
Amortization and write-offs of MSRs 18,989 15,927 52,868 46,140
Depreciation and amortization 2,525 1,883 7,035 5,623
Net loss (gain) on changes in fair value of derivatives 4,388 (237) 2,331 2,313
Stock-based compensation 1,192 847 4,838 3,833
Adjusted funds from operations (1) (2)$36,397 $20,957 $84,178 $63,199
Diluted FFO per share (1)$0.36 $0.27 $1.06 $0.81
Diluted AFFO per share (1) (2)$0.37 $0.25 $0.92 $0.80
Diluted weighted average shares outstanding (1) 98,435,964 83,918,117 91,133,607 78,942,919
(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 a $5.0 million loss on extinguishment of debt related to the exchange of our 6.50% and 5.375% convertible senior notes, AFFO for the third quarter of 2018 was $41.4 million, or $0.42 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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Source: Arbor Realty Trust

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