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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

Or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to             

 

Commission file number: 001-32136

 

Arbor Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

 

Maryland

 

20-0057959

(State or other jurisdiction of
incorporation)

 

(I.R.S. Employer
Identification No.)

 

333 Earle Ovington Boulevard, Suite 900
Uniondale, NY

 


11553

(Address of principal executive offices)

 

(Zip Code)

 

(516) 506-4200

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

 

Accelerated filer  x

Non-accelerated filer

o

(Do not check if a smaller reporting company)

 

Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:GRAPHIC

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common stock, $0.01 par value per share: 50,943,002 outstanding (excluding 2,650,767 shares held in the treasury) as of May 1, 2015.

 

 

 



Table of Contents

 

ARBOR REALTY TRUST, INC.

 

FORM 10-Q

INDEX

 

PART I. FINANCIAL INFORMATION

 

2

Item 1. Financial Statements

 

2

Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014

 

2

Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

3

Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

4

Consolidated Statement of Changes in Equity (Unaudited) for the Three Months Ended March 31, 2015

 

5

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and 2014

 

6

Notes to Consolidated Financial Statements (Unaudited)

 

8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

38

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

49

Item 4. Controls and Procedures

 

49

PART II. OTHER INFORMATION

 

50

Item 1. Legal Proceedings

 

50

Item 1A. Risk Factors

 

50

Item 6. Exhibits

 

50

Signatures

 

51

 



Table of Contents

 

CAUTIONARY STATEMENTS

 

The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in Arbor Realty Trust, Inc.  We urge you to carefully review and consider the various disclosures made by us in this report.

 

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions.  Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information.  Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.  These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results.  Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in economic conditions generally and the real estate market specifically; adverse changes in the financing markets we access affecting our ability to finance our loan and investment portfolio; changes in interest rates; the quality and size of the investment pipeline and the rate at which we can invest our cash; impairments in the value of the collateral underlying our loans and investments; legislative/regulatory changes; the availability and cost of capital for future investments; competition; and other risks detailed from time to time in our  reports filed with the Securities and Exchange Commission (“SEC”). Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect management’s views as of the date of this report.  The factors noted above could cause our actual results to differ significantly from those contained in any forward-looking statement.  For a discussion of our critical accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Arbor Realty Trust, Inc. and Subsidiaries — Significant Accounting Estimates and Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Annual Report”).

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

 

i



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

105,434,483

 

$

50,417,745

 

Restricted cash (includes $26,093,170 and $216,405,894 from consolidated VIEs, respectively)

 

26,788,686

 

218,100,529

 

Loans and investments, net (includes $773,742,712 and $968,600,472 from consolidated VIEs, respectively)

 

1,610,535,691

 

1,459,475,650

 

Available-for-sale securities, at fair value

 

2,558,498

 

2,499,709

 

Investments in equity affiliates

 

21,183,938

 

4,869,066

 

Real estate owned, net (includes $31,951,950 and $80,732,144 from consolidated VIEs, respectively)

 

84,077,726

 

84,925,641

 

Real estate held-for-sale, net

 

 

14,381,733

 

Due from related party (includes $229,913 and $0 from consolidated VIEs, respectively)

 

10,995

 

36,515

 

Other assets (includes $12,960,749 and $14,949,956 from consolidated VIEs, respectively)

 

51,100,398

 

45,716,002

 

Total assets

 

$

1,901,690,415

 

$

1,880,422,590

 

 

 

 

 

 

 

Liabilities and Equity:

 

 

 

 

 

Credit facilities and repurchase agreements

 

$

397,975,374

 

$

180,386,200

 

Collateralized loan obligations (includes $500,250,000 and $458,250,000 from consolidated VIEs, respectively)

 

500,250,000

 

458,250,000

 

Collateralized debt obligations (includes $87,659,614 and $331,395,126 from consolidated VIEs, respectively)

 

87,659,614

 

331,395,126

 

Senior unsecured notes

 

97,860,025

 

97,860,025

 

Junior subordinated notes to subsidiary trust issuing preferred securities

 

159,969,563

 

159,833,260

 

Notes payable

 

2,300,000

 

1,300,000

 

Mortgage note payable – real estate owned

 

27,155,000

 

21,865,136

 

Mortgage note payable – real estate held-for-sale

 

 

9,119,221

 

Due to related party

 

1,448,332

 

2,653,333

 

Due to borrowers

 

29,983,064

 

32,972,606

 

Other liabilities (includes $1,823,701 and $7,385,474 from consolidated VIEs, respectively)

 

46,163,241

 

49,332,212

 

Total liabilities

 

1,350,764,213

 

1,344,967,119

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

 

 

Arbor Realty Trust, Inc. stockholders’ equity:

 

 

 

 

 

Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; 8.25%Series A, $38,787,500 aggregate liquidation preference; 1,551,500 shares issued and outstanding at March 31, 2015 and December 31, 2014; 7.75% Series B, $31,500,000 aggregate liquidation preference; 1,260,000 shares issued and outstanding at March 31, 2015 and December 31, 2014; 8.50% Series C, $22,500,000 aggregate liquidation preference; 900,000 shares issued and outstanding at March 31, 2015 and December 31, 2014

 

89,295,905

 

89,295,905

 

Common stock, $0.01 par value: 500,000,000 shares authorized; 53,593,769 shares issued, 50,943,002 shares outstanding at March 31, 2015 and 53,128,075 shares issued, 50,477,308 shares outstanding at December 31, 2014

 

535,937

 

531,280

 

Additional paid-in capital

 

631,568,183

 

629,880,774

 

Treasury stock, at cost – 2,650,767 shares at March 31, 2015 and December 31, 2014

 

(17,100,916

)

(17,100,916

)

Accumulated deficit

 

(144,038,797

)

(152,483,322

)

Accumulated other comprehensive loss

 

(9,334,110

)

(14,668,250

)

Total equity

 

550,926,202

 

535,455,471

 

Total liabilities and equity

 

$

1,901,690,415

 

$

1,880,422,590

 

 

See Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Interest income

 

$

27,209,395

 

$

24,911,855

 

Interest expense

 

13,927,367

 

10,591,378

 

Net interest income

 

13,282,028

 

14,320,477

 

Other revenue:

 

 

 

 

 

Property operating income

 

8,450,343

 

9,258,088

 

Other income, net

 

36,000

 

858,396

 

Total other revenue

 

8,486,343

 

10,116,484

 

Other expenses:

 

 

 

 

 

Employee compensation and benefits

 

4,290,206

 

3,385,949

 

Selling and administrative

 

2,897,810

 

1,982,219

 

Property operating expenses

 

6,385,088

 

6,997,123

 

Depreciation and amortization

 

1,438,677

 

1,811,683

 

Impairment loss on real estate owned

 

 

250,000

 

Provision for loan losses (net of recoveries)

 

982,680

 

134,344

 

Management fee - related party

 

2,675,000

 

2,450,000

 

Total other expenses

 

18,669,461

 

17,011,318

 

Income before gain on acceleration of deferred income, loss on termination of swaps, gain on sale of real estate and income from equity affiliates

 

3,098,910

 

7,425,643

 

Gain on acceleration of deferred income

 

11,009,162

 

 

Loss on termination of swaps

 

(4,289,450

)

 

Gain on sale of real estate

 

3,984,364

 

 

Income from equity affiliates

 

3,095,913

 

40,048

 

Net income

 

16,898,899

 

7,465,691

 

Preferred stock dividends

 

1,888,430

 

1,590,930

 

Net income attributable to Arbor Realty Trust, Inc. common stockholders

 

$

15,010,469

 

$

5,874,761

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.30

 

$

0.12

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.30

 

$

0.12

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.13

 

$

0.13

 

 

 

 

 

 

 

Weighted average number of shares of common stock outstanding:

 

 

 

 

 

Basic

 

50,544,575

 

49,336,308

 

Diluted

 

50,832,736

 

49,752,813

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Net income

 

$

16,898,899

 

$

7,465,691

 

Unrealized gain (loss) on securities available-for-sale

 

58,789

 

(58,789

)

Reclassification of unrealized gain on securities available-for-sale realized into earnings

 

 

(431,476

)

Unrealized loss on derivative financial instruments, net

 

(741,571

)

(441,773

)

Reclassification of net realized loss on derivatives designated as cash flow hedges into loss on termination of swaps

 

4,285,995

 

 

Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings

 

1,730,927

 

3,440,877

 

Comprehensive income

 

22,233,039

 

9,974,530

 

Less:

 

 

 

 

 

Preferred stock dividends

 

1,888,430

 

1,590,930

 

Comprehensive income attributable to Arbor Realty Trust, Inc. common stockholders

 

$

20,344,609

 

$

8,383,600

 

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)

 

Three Months Ended March 31, 2015

 

 

 

Preferred
Stock
Shares

 

Preferred
Stock
Value

 

Common
Stock
Shares

 

Common
Stock
Par
Value

 

Additional
Paid-in
Capital

 

Treasury
Stock

Shares

 

Treasury
Stock

 

Accumulated
Deficit

 

Accumulated
Other
Comprehensive
Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — January 1, 2015

 

3,711,500

 

$

89,295,905

 

53,128,075

 

$

531,280

 

$

629,880,774

 

(2,650,767

)

$

(17,100,916

)

$

(152,483,322

)

$

(14,668,250

)

$

535,455,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

465,694

 

4,657

 

1,687,409

 

 

 

 

 

 

 

 

 

1,692,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions — common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,562,050

)

 

 

(6,562,050

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions —preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,888,430

)

 

 

(1,888,430

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions — preferred stock of private REIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,894

)

 

 

(3,894

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,898,899

 

 

 

16,898,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

58,789

 

58,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on derivative financial instruments, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(741,571

)

(741,571

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of net realized loss on derivatives designated as cash flow hedges into loss on termination of swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,285,995

 

4,285,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,730,927

 

1,730,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — March 31, 2015

 

3,711,500

 

$

89,295,905

 

53,593,769

 

$

535,937

 

$

631,568,183

 

(2,650,767

)

$

(17,100,916

)

$

(144,038,797

)

$

(9,334,110

)

$

550,926,202

 

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Operating activities:

 

 

 

 

 

Net income

 

$

16,898,899

 

$

7,465,691

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,438,677

 

1,811,683

 

Stock-based compensation

 

1,692,066

 

147,016

 

Gain on acceleration of deferred income

 

(11,009,162

)

 

Loss on termination of swaps

 

4,289,450

 

 

Gain on sale of real estate

 

(3,984,364

)

 

Gain on sale of securities

 

 

(518,640

)

Provision for loan losses (net of recoveries)

 

982,680

 

134,344

 

Impairment loss on real estate owned

 

 

250,000

 

Amortization and accretion of interest, fees and intangible assets, net

 

1,527,715

 

(1,393,654

)

Change in fair value of non-qualifying swaps and linked transactions

 

 

46,071

 

Income from equity affiliates

 

(3,095,913

)

(40,048

)

Changes in operating assets and liabilities:

 

 

 

 

 

Other assets

 

(3,866,294

)

(1,437,250

)

Distributions of operations from equity affiliates

 

40,048

 

40,048

 

Other liabilities

 

(2,461,713

)

83,686

 

Change in restricted cash

 

999,119

 

(179,394

)

Due to/from related party

 

(1,179,481

)

(1,836,582

)

Net cash provided by operating activities

 

$

2,271,727

 

$

4,572,971

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Loans and investments funded, originated and purchased, net

 

(329,471,068

)

(268,256,928

)

Payoffs and paydowns of loans and investments

 

174,980,791

 

228,173,239

 

Due to borrowers and reserves

 

 

(36,240

)

Deferred fees

 

1,450,479

 

2,566,938

 

Principal collections on securities, net

 

 

663,684

 

Investment in real estate, net

 

(894,119

)

(1,278,339

)

Contributions to equity affiliates

 

(13,259,007

)

 

Proceeds from sale of real estate, net

 

18,482,352

 

 

Proceeds from sale of available-for-sale securities

 

 

33,904,172

 

Net cash used in investing activities

 

$

(148,710,572

)

$

(4,263,474

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from repurchase agreements, loan participations, credit facilities and notes payable

 

409,849,941

 

132,087,708

 

Paydowns and payoffs of repurchase agreements, loan participations and credit facilities

 

(191,260,767

)

(28,007,831

)

Proceeds from mortgage note payable — real estate owned

 

27,155,000

 

 

Paydowns and payoffs of mortgage note payable — real estate owned

 

(30,984,357

)

 

Proceeds from collateralized loan obligations

 

219,000,000

 

 

Payoffs and paydowns of collateralized debt obligations

 

(232,650,676

)

(119,668,296

)

Payoffs and paydowns of collateralized loan obligations

 

(177,000,000

)

 

Change in restricted cash

 

190,312,724

 

(42,020,140

)

Payments on financial instruments underlying linked transactions

 

 

(45,881,649

)

Receipts on financial instruments underlying linked transactions

 

 

52,385,881

 

Payments on swaps and margin calls to counterparties

 

(290,000

)

(347,106

)

Receipts on swaps and margin calls from counterparties

 

1,270,000

 

3,646,010

 

Proceeds from issuance of common stock

 

 

6,800,000

 

Expenses paid on issuance of common stock

 

 

(206,000

)

Proceeds from issuance of preferred stock

 

 

22,500,000

 

Expenses paid on issuance of preferred stock

 

 

(764,553

)

Distributions paid on common stock

 

(6,562,050

)

(6,387,720

)

Distributions paid on preferred stock

 

(1,888,430

)

(1,410,305

)

Distributions paid on preferred stock of private REIT

 

(3,894

)

(4,132

)

Payment of deferred financing costs

 

(5,491,908

)

(716,744

)

Net cash provided by (used in) financing activities

 

$

201,455,583

 

$

(27,994,877

)

Net increase (decrease) in cash and cash equivalents

 

$

55,016,738

 

$

(27,685,380

)

Cash and cash equivalents at beginning of period

 

50,417,745

 

60,389,552

 

Cash and cash equivalents at end of period

 

$

105,434,483

 

$

32,704,172

 

 

See Notes to Consolidated Financial Statements.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Cash used to pay interest

 

$

12,091,253

 

$

10,928,537

 

Cash used for taxes

 

$

215,331

 

$

6,706

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

Distributions accrued on 8.25% Series A preferred stock

 

$

266,664

 

$

266,664

 

Distributions accrued on 7.75% Series B preferred stock

 

$

203,438

 

$

203,438

 

Distributions accrued on 8.50% Series C preferred stock

 

$

159,375

 

$

180,625

 

Accrued and unpaid expenses on preferred stock offerings

 

$

 

$

94,197

 

Accrued and unpaid expenses on common stock offerings

 

$

 

$

80,000

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

Note 1 —Description of Business

 

Arbor Realty Trust, Inc. is a Maryland corporation that was formed in June 2003 to invest in a diversified portfolio of multifamily and commercial real estate related assets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgage loans, preferred and direct equity.  We may also directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.  We conduct substantially all of our operations through our operating partnership, Arbor Realty Limited Partnership (“ARLP”), and ARLP’s wholly-owned subsidiaries.  We are externally managed and advised by Arbor Commercial Mortgage, LLC (our “Manager”).  We organize and conduct our operations to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.

 

Our charter provides for the issuance of up to 500 million shares of common stock, with a par value of $0.01 per share, and 100 million shares of preferred stock, with a par value of $0.01 per share.

 

Note 2 — Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), for interim financial statements and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, certain information and footnote disclosures normally included in the consolidated financial statements prepared under GAAP have been condensed or omitted.  In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature.  The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2014 Annual Report, which was filed with the SEC.

 

The accompanying unaudited consolidated financial statements include our financial statements, our wholly owned subsidiaries, and partnerships or other joint ventures in which we own a voting interest of greater than 50 percent, and variable interest entities (“VIEs”) of which we are the primary beneficiary.  VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.  Current accounting guidance requires us to present a) assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE, and b) liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary.  As a result of this guidance, we have separately disclosed parenthetically the assets and liabilities of our collateralized debt obligation (“CDO”) and collateralized loan obligation (“CLO”) subsidiaries on our consolidated balance sheets.  Entities in which we have significant influence are accounted for primarily under the equity method.

 

As a REIT, we are generally not subject to federal income tax on our REIT—taxable income that we distribute to our stockholders, provided that we distribute at least 90% of our REIT—taxable income and meet certain other requirements.  As of March 31, 2015 and 2014, we were in compliance with all REIT requirements and, therefore, have not provided for income tax expense for the three months ended March 31, 2015 and 2014.  Certain of our assets that produce non-qualifying income are owned by our taxable REIT subsidiaries, the income of which is subject to federal and state income taxes.  During the three months ended March 31, 2015 and 2014, we did not record any provision for income taxes for these taxable REIT subsidiaries as we expect any income to be offset by available federal and state net operating loss carryforwards.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

 

Certain prior year amounts have been reclassified to conform to current period presentation.  In the second quarter of 2014, we reclassified a property from real estate held-for-sale to real estate owned when it was determined that a sale of the property would not take place, resulting in reclassifications of the property’s operating activity and related depreciation for all prior periods presented from discontinued operations to property operating income and property operating expenses.

 

Significant Accounting Policies

 

As of March 31, 2015, our significant accounting policies, which are detailed in our 2014 Annual Report, have not changed materially.

 

Recently Issued Accounting Pronouncements

 

In April 2015, the Financial Accounting Standards Board (“FASB”) amended its guidance on the balance sheet presentation of debt issuance costs.  The guidance is effective for the first quarter of 2016 and we do not expect it to have a material effect on our consolidated financial statements other than the balance sheet presentation of debt and other assets.

 

In February 2015, the FASB amended its guidance on the consolidation analysis of variable interest entities.  The guidance is effective for the first quarter of 2016 and we are currently evaluating the impact it may have on our consolidated financial statements.

 

In January 2015, the FASB eliminated the concept of extraordinary items and thus the requirement to assess whether an event or transaction requires extraordinary classification on the financial statements.  The guidance is effective for the first quarter of 2016.  We early adopted this new guidance in the first quarter of 2015 and it did not have a material effect on our consolidated financial statements.

 

Note 3 — Loans and Investments

 

The following table sets forth the composition of our loan and investment portfolio at March 31, 2015 and December 31, 2014:

 

 

 

March 31,
 2015

 

Percent
of Total

 

Loan
Count

 

Wtd.
Avg. Pay
Rate (1)

 

Wtd. Avg.
Remaining

Months to
Maturity

 

First
Dollar

LTV
Ratio (2)

 

Last
Dollar

LTV
Ratio (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridge loans

 

$

1,460,398,282

 

84

%

105

 

5.32

%

17.2

 

0

%

73

%

Mezzanine loans

 

64,289,959

 

4

%

14

 

9.73

%

41.2

 

45

%

80

%

Junior participation loans

 

104,088,985

 

6

%

4

 

4.62

%

10.2

 

84

%

87

%

Preferred equity investments

 

110,153,007

 

6

%

16

 

5.82

%

48.4

 

58

%

80

%

 

 

1,738,930,233

 

100

%

139

 

5.47

%

19.6

 

11

%

74

%

Unearned revenue

 

(11,924,542

)

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(116,470,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Loans and investments, net

 

$

1,610,535,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

 

 

December 31,
2014

 

Percent
of Total

 

Loan
Count

 

Wtd.
Avg. Pay
Rate (1)

 

Wtd. Avg.
Remaining

Months to
Maturity

 

First
Dollar

LTV
Ratio (2)

 

Last
Dollar

LTV
Ratio (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bridge loans

 

$

1,273,439,238

 

80

%

101

 

5.19

%

19.8

 

0

%

74

%

Mezzanine loans

 

76,392,650

 

5

%

17

 

9.78

%

37.1

 

47

%

81

%

Junior participation loans

 

104,091,952

 

7

%

4

 

4.62

%

12.3

 

86

%

88

%

Preferred equity investments

 

133,505,658

 

8

%

17

 

6.11

%

45.5

 

62

%

84

%

 

 

1,587,429,498

 

100

%

139

 

5.45

%

22.3

 

13

%

76

%

Unearned revenue

 

(12,466,528

)

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(115,487,320

)

 

 

 

 

 

 

 

 

 

 

 

 

Loans and investments, net

 

$

1,459,475,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)          “Weighted Average Pay Rate” is a weighted average, based on the unpaid principal balances of each loan in our portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements.  Certain loans and investments that require an additional rate of interest “Accrual Rate” to be paid at the maturity are not included in the weighted average pay rate as shown in the table.

(2)          The “First Dollar LTV Ratio” is calculated by comparing the total of our senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will absorb a total loss of our position.

(3)          The “Last Dollar LTV Ratio” is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.

 

During the first quarter of 2015, we acquired a $116.0 million defaulted first mortgage, at par (included in bridge loans in the table above).  We financed this acquisition primarily with a new $87.0 million warehouse repurchase facility.  In April 2015, the first mortgage paid off and as a result, we repaid the $87.0 million warehouse facility and expect to recognize approximately $6.5 million of income in the second quarter of 2015.

 

Concentration of Credit Risk

 

We operate in one portfolio segment, commercial mortgage loans and investments.  Commercial mortgage loans and investments can potentially subject us to concentrations of credit risk.  We are subject to concentration risk in that, at both March 31, 2015 and December 31, 2014, the unpaid principal balance (“UPB”) related to 31 loans with five different borrowers represented approximately 23% of total assets.  We measure our relative loss position for our mezzanine loans, junior participation loans, and preferred equity investments by determining the point where we will be exposed to losses based on our position in the capital stack as compared to the fair value of the underlying collateral.  We determine our loss position on both a first dollar loan-to-value (“LTV”) and a last dollar LTV basis.  First dollar LTV is calculated by comparing the total of our senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will absorb a total loss of our position.  Last dollar LTV is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.

 

We assign a credit risk rating to each loan and investment.  Individual ratings range from one to five, with one being the lowest risk and five being the highest.  Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves.  Other factors such as guarantees, market strength, remaining loan term, and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan.  This metric provides a helpful snapshot of portfolio quality and credit risk.  Given our asset management approach, however, the risk rating process does not result in differing levels of diligence contingent upon credit rating.  That is because all portfolio assets are subject to the level of scrutiny and ongoing analysis consistent with that of a “high-risk” loan.  Assets are subject to, at minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed.  Generally speaking, given our typical loan and investment profile, a risk rating of three suggests that we expect the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired.  A risk rating of four indicates we anticipate that the loan will require a

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

modification of some kind.  A risk rating of five indicates we expect the loan to underperform over its term, and there could be loss of interest and/or principal.  Ratings of 3.5 and 4.5 generally indicate loans that have characteristics of both the immediately higher and lower classifications.  Further, while the above are the primary guidelines used in determining a certain risk rating, subjective items such as borrower strength, condition of the market of the underlying collateral, additional collateral or other credit enhancements, or loan terms, may result in a rating that is higher or lower than might be indicated by any risk rating matrix.

 

As a result of the loan review process at March 31, 2015 and December 31, 2014, we identified loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of approximately $190.0 million and $189.4 million, respectively, and a weighted average last dollar LTV ratio of 94% for both periods.

 

A summary of the loan portfolio’s weighted average internal risk ratings and LTV ratios by asset class as of March 31, 2015 and December 31, 2014 is as follows:

 

 

 

March 31, 2015

 

Asset Class

 

Unpaid
Principal
Balance

 

Percentage
of Portfolio

 

Wtd. Avg.
Internal
Risk Rating

 

 First Dollar
LTV Ratio

 

Last Dollar
LTV Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

$

1,173,551,778

 

67.5

%

2.9

 

8

%

72

%

Office

 

336,785,253

 

19.3

%

3.4

 

17

%

75

%

Land

 

157,509,869

 

9.1

%

3.8

 

5

%

86

%

Hotel

 

66,250,000

 

3.8

%

3.5

 

32

%

83

%

Retail

 

3,133,333

 

0.2

%

2.5

 

72

%

80

%

Commercial

 

1,700,000

 

0.1

%

3.5

 

63

%

67

%

Total

 

$

1,738,930,233

 

100.0

%

3.1

 

11

%

74

%

 

 

 

December 31, 2014

 

Asset Class

 

Unpaid
Principal
Balance

 

Percentage
of Portfolio

 

Wtd. Avg.
Internal
Risk Rating

 

First Dollar
LTV Ratio

 

Last Dollar
LTV Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

$

1,157,462,400

 

72.9

%

2.9

 

10

%

73

%

Office

 

230,491,164

 

14.5

%

3.3

 

29

%

79

%

Land

 

128,367,601

 

8.1

%

3.9

 

6

%

88

%

Hotel

 

66,250,000

 

4.2

%

3.5

 

32

%

83

%

Retail

 

3,158,333

 

0.2

%

2.5

 

72

%

80

%

Commercial

 

1,700,000

 

0.1

%

3.5

 

63

%

67

%

Total

 

$

 1,587,429,498

 

100.0

%

3.1

 

13

%

76

%

 

Geographic Concentration Risk

 

As of March 31, 2015, 22%, 12% and 12% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Florida and Texas, respectively.  As of December 31, 2014, 28%, 14% and 10% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Florida and Texas, respectively.

 

Impaired Loans and Allowance for Loan Losses

 

We perform an evaluation of the loan portfolio quarterly to assess the performance of our loans and whether a reserve for impairment should be recorded.  We consider a loan impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due for both principal and interest according to the contractual terms of the loan agreement.

 

During the three months ended March 31, 2015, we recognized provision for loan losses totaling $1.0 million. During the period, we also recorded net recoveries of previously recorded loan losses totaling less than $0.1 million, resulting in a provision for loan losses, net of recoveries totaling $1.0 million.

 

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Table of Contents

 

ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

During the three months ended March 31, 2014 we recognized a provision for loan losses totaling $1.0 million. During the period, we also recorded net recoveries of previously recorded loan losses totaling $0.9 million, resulting in a provision for loan losses, net of recoveries totaling $0.1 million.

 

The provision for loan losses recorded in the first quarter of 2015 was comprised of two loans with an aggregate carrying value before loan loss reserves of $13.0 million, while the provision for the first quarter of 2014 was comprised of one loan with a carrying value before loan loss reserves of $4.8 million.

 

A summary of the changes in the allowance for loan losses is as follows:

 

 

 

Three
Months Ended

 

Three
Months Ended

 

 

 

March 31, 2015

 

March 31, 2014

 

 

 

 

 

 

 

Allowance at beginning of the period

 

$

115,487,320

 

$

122,277,411

 

Provision for loan losses

 

1,000,000

 

1,000,000

 

Charge-offs

 

 

(5,668,342

)

Recoveries of reserves

 

(17,320

)

(865,657

)

Allowance at end of the period

 

$

116,470,000

 

$

116,743,412

 

 

A summary of charge-offs and recoveries is as follows:

 

 

 

Three Months Ended

 

 

 

March 31, 2015

 

March 31, 2014

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

Multi-family

 

$

 

$

(5,668,342

)

Total

 

$

 

$

(5,668,342

)

 

 

 

 

 

 

Recoveries:

 

 

 

 

 

Multi-family

 

$

(17,320

)

$

(865,657

)

Total

 

$

(17,320

)

$

(865,657

)

 

 

 

 

 

 

Net Recoveries (Charge-offs)

 

$

17,320

 

$

(4,802,685

)

 

 

 

 

 

 

Ratio of net charge-offs during the period to average loans and investments outstanding during the period

 

0.0

%

0.3

%

 

There were no loans for which the fair value of the collateral securing the loan was less than the carrying value of the loan for which we had not recorded a provision for loan loss as of March 31, 2015 and 2014.

 

We have six loans with a UPB totaling approximately $117.5 million at March 31, 2015, which mature in September 2017, that are collateralized by a land development project.  The loans do not carry a pay rate of interest, but four of the loans with a UPB totaling approximately $101.9 million entitle us to a weighted average accrual rate of interest of approximately 9.60%.  We suspended the recording of the accrual rate of interest on these loans, as these loans were impaired and management deemed the collection of this interest to be doubtful.  We have recorded cumulative allowances for loan losses of $46.5 million related to these loans as of March 31, 2015.  The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the development’s outputs upon completion of the project, and litigation risk.  Additionally, these loans were not classified as non-performing as the borrower is in compliance with all of the terms and conditions of the loans.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

A summary of our impaired loans by asset class is as follows:

 

 

 

March 31, 2015

 

Three Months Ended
 March 31, 2015

 

Asset Class

 

Unpaid
Principal
Balance

 

Carrying
Value (1)

 

Allowance
for Loan
Losses

 

Average
Recorded
Investment (2)

 

Interest
Income
Recognized

 

Multi-family

 

$

39,222,574

 

$

39,302,539

 

$

36,952,574

 

$

39,231,234

 

$

70,089

 

Office

 

36,086,582

 

30,750,821

 

24,472,444

 

36,086,582

 

274,853

 

Land

 

122,336,882

 

117,878,639

 

51,344,982

 

122,073,641

 

 

Hotel

 

34,750,000

 

34,418,503

 

3,700,000

 

34,750,000

 

257,130

 

Total

 

$

232,396,038

 

$

222,350,502

 

$

116,470,000

 

$

232,141,457

 

$

602,072

 

 

 

 

December 31, 2014

 

Three Months Ended
 March 31, 2014

 

Asset Class

 

Unpaid
Principal
Balance

 

Carrying
Value (1)

 

Allowance
for Loan
Losses

 

Average
Recorded
Investment (2)

 

Interest
Income
Recognized

 

Multi-family

 

$

39,239,894

 

$

39,232,710

 

$

36,469,894

 

$

62,468,774

 

$

213,741

 

Office

 

36,086,582

 

30,498,273

 

23,972,444

 

36,086,582

 

274,795

 

Land

 

121,810,400

 

117,621,457

 

51,344,982

 

116,264,564

 

 

Hotel

 

34,750,000

 

34,249,959

 

3,700,000

 

 

 

Total

 

$

231,886,876

 

$

221,602,399

 

$

115,487,320

 

$

214,819,920

 

$

488,536

 

 


(1) Represents the UPB of impaired loans less unearned revenue and other holdbacks and adjustments by asset class. Comprised of 10 loans at both March 31, 2015 and December 31, 2014.

 

(2) Represents an average of the beginning and ending UPB of each asset class.

 

As of March 31, 2015, three loans with an aggregate net carrying value of approximately $6.5 million, net of related loan loss reserves on two of the loans of $34.5 million, were classified as non-performing.  Income from non-performing loans is generally recognized on a cash basis only to the extent it is received.  Full income recognition will resume when the loan becomes contractually current and performance has recommenced.  As of December 31, 2014, three loans with an aggregate net carrying value of approximately $7.0 million, net of related loan loss reserves on the two loans of $34.0 million, were classified as non-performing.

 

A summary of our non-performing loans by asset class as of March 31, 2015 and December 31, 2014 is as follows:

 

 

 

March 31, 2015

 

December 31, 2014

 

Asset Class

 

Carrying
Value

 

Less Than
90 Days
Past Due

 

Greater
Than 90
Days Past
Due

 

Carrying
Value

 

Less Than
 90 Days
 Past Due

 

Greater
Than 90
Days Past
Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-family

 

$

32,765,799

 

$

 

$

32,765,799

 

$

32,765,799

 

$

765,799

 

$

32,000,000

 

Office

 

8,277,739

 

 

8,277,739

 

8,277,757

 

 

8,277,757

 

Total

 

$

41,043,538

 

$

 

$

41,043,538

 

$

41,043,556

 

$

765,799

 

$

40,277,757

 

 

At March 31, 2015, we did not have any loans contractually past due 90 days or more that are still accruing interest.

 

During the quarter ended March 31, 2015, we had not refinanced and/or modified any loans which we considered to be a troubled debt restructuring, however, we extended one loan for four months with a UPB of $6.2 million which we considered to be a troubled debt restructuring.  During the quarter ended March 31, 2014, we had not refinanced and/or modified or extended any loans which we considered to be troubled debt restructurings.  We had no unfunded commitments on the extended loan which were considered a troubled debt restructuring as of March 31, 2015.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

A summary of loan modifications and extensions by asset class that we considered to be troubled debt restructurings during the three months ended March 31, 2015 and 2014 were as follows:

 

 

 

Three Months Ended March 31, 2015

 

Three Months Ended March 31, 2014

 

Asset Class

 

Number
of Loans

 

Original
Unpaid
Principal
Balance

 

Original
Rate of
Interest

 

Modified
Unpaid
Principal
Balance

 

Modified
Weighted
Average
Rate of
Interest

 

Number
of Loans

 

Original
Unpaid
Principal
Balance

 

Original
Weighted
Average
Rate of
Interest

 

Modified
Unpaid
Principal
Balance

 

Modified
Weighted
Average
Rate of
Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multifamily

 

1

 

$

6,192,666

 

5.93

%

$

6,192,666

 

5.93

%

 

$

 

 

$

 

 

 

There were no loans in which we considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of March 31, 2015 and 2014 and no additional loans were considered to be impaired due to our troubled debt restructuring analysis for the three months ended March 31, 2015 and 2014.  These loans were modified to increase the total recovery of the combined principal and interest from the loan.

 

Given the transitional nature of some of our real estate loans, we may require funds to be placed into an interest reserve, based on contractual requirements, to cover debt service costs.  As of March 31, 2015, we had total interest reserves of $15.7 million on 48 loans with an aggregate UPB of $726.8 million.

 

Note 4 — Securities

 

The following is a summary of our securities classified as available-for-sale at March 31, 2015:

 

 

 

Face

 

Amortized

 

Cumulative
Unrealized

 

Carrying
Value /
 Estimated

 

 

 

Value

 

Cost

 

(Loss) / Gain

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-backed security (CMBS)

 

$

2,100,000

 

$

2,100,000

 

$

(100,000

)

$

2,000,000

 

Common equity securities

 

 

58,789

 

499,709

 

558,498

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

2,100,000

 

$

2,158,789

 

$

399,709

 

$

2,558,498

 

 

The following is a summary of our securities classified as available-for-sale at December 31, 2014:

 

 

 

Face

 

Amortized

 

Cumulative
Unrealized

 

Carrying
Value /
 Estimated

 

 

 

Value

 

Cost

 

(Loss) / Gain

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-backed security (CMBS)

 

$

2,100,000

 

$

2,100,000

 

$

(100,000

)

$

2,000,000

 

Common equity securities

 

 

58,789

 

440,920

 

499,709

 

 

 

 

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

2,100,000

 

$

2,158,789

 

$

340,920

 

$

2,499,709

 

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

We own a CMBS investment, purchased at a premium in 2010 for $2.1 million, which is collateralized by a portfolio of hotel properties.  The CMBS investment bears interest at a spread of 89 basis points over LIBOR, has a stated maturity of six years, but has an estimated life of approximately one year based on the extended maturity of the underlying asset and a fair value of $2.0 million at both March 31, 2015 and December 31, 2014.

 

Our available-for-sale debt security had an underlying credit rating of CCC- based on the rating published by Standard & Poor’s at both March 31, 2015 and December 31, 2014.

 

We own 2,939,465 shares of common stock of CV Holdings, Inc., formerly Realty Finance Corporation, a commercial real estate specialty finance company, which had a fair value of $0.6 million and $0.5 million at March 31, 2015 and December 31, 2014, respectively.

 

Available-for-sale securities are carried at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive loss.  We evaluate these securities periodically to determine whether a decline in their value is other-than-temporary, though such a determination is not intended to indicate a permanent decline in value.  Our evaluation is based on our assessment of cash flows, which is supplemented by third-party research reports, internal review of the underlying assets securing the investments, levels of subordination and the ratings of the securities and the underlying collateral.  No other-than-temporary impairment was recorded on our available-for-sale securities for the three months ended March 31, 2015 and 2014.

 

In the first quarter of 2014, we sold all of our residential mortgage backed securities (“RMBS”) investments, which had an aggregate carrying value of $33.4 million, for approximately $33.9 million and recorded a net gain of $0.5 million to other income, net on our consolidated statement of income, which includes the reclassification of a net unrealized gain of $0.4 million from accumulated other comprehensive loss on our consolidated balance sheet.  Included in these sales were two RMBS investments with deteriorated credit quality that had an aggregate carrying value of $25.8 million and that were sold for $25.9 million.  The RMBS investments were financed with two repurchase agreements totaling $25.3 million which were repaid with the proceeds.  See Note 7 — “Debt Obligations” for further details.

 

The weighted average yield on our CMBS and RMBS investments based on their face values was 1.07% and 2.25%, including the amortization of premium and the accretion of discount, for the three months ended March 31, 2015 and 2014, respectively.

 

Note 5 — Investments in Equity Affiliates

 

The following is a summary of our investments in equity affiliates at March 31, 2015 and December 31, 2014:

 

 

 

Investment in Equity Affiliates at

 

UPB of Loans to
Equity Affiliates at

 

Equity Affiliates

 

March 31, 2015

 

December 31, 2014

 

March 31, 2015

 

 

 

 

 

 

 

 

 

Arbor Residential Investor LLC

 

$

16,294,803

 

$

 

$

 

Lightstone Value Plus REIT L.P.

 

1,894,727

 

1,894,727

 

 

West Shore Café

 

1,892,661

 

1,872,661

 

1,687,500

 

Issuers of Junior Subordinated Notes

 

578,000

 

578,000

 

 

JT Prime

 

425,000

 

425,000

 

 

East River Portfolio

 

98,647

 

98,578

 

4,994,166

 

Lexford Portfolio

 

100

 

100

 

94,640,000

 

Ritz-Carlton Club

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

21,183,938

 

$

4,869,066

 

$

101,321,666

 

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

We account for all investments in equity affiliates under the equity method.

 

Arbor Residential Investor LLC (“ARI”) — In the first quarter of 2015, we invested $9.6 million for 50% of our Manager’s indirect interest in a joint venture with a third party that was formed to invest in a residential mortgage banking business.  Our Manager retained a promote of 25% over a 10% return on this investment.  As a result of this transaction, we currently own a 22.5% indirect interest in the mortgage banking business, which is subject to dilution upon attaining certain profit hurdles of the business.  In the first quarter of 2015, we recorded $3.1 million to income from equity affiliates in our consolidated statements of income related to this investment.

 

Also during the quarter, we invested $1.7 million through ARI for 100% of our Manager’s investment in non-qualified residential mortgages purchased from the mortgage banking business’s origination platform, resulting in a non-controlling ownership interest of 50% in this investment.  We also funded $1.9 million of additional mortgage purchases for a total investment of $3.6 million as of March 31, 2015.  In the first quarter of 2015, we recorded a loss of less than $0.1 million to income from equity affiliates in our consolidated statements of income related to this investment.

 

Note 6 — Real Estate Owned and Held-For-Sale

 

Our real estate assets were comprised of three multifamily properties (the “Multifamily Portfolio”) and four hotel properties (the “Hotel Portfolio”) at March 31, 2015 and four multifamily properties and five hotel properties at December 31, 2014.

 

As of March 31, 2015 and December 31, 2014, the Multifamily Portfolio had a mortgage note payable of $27.2 million and $31.0 million, respectively.  See Note 7 — “Debt Obligations” for further details.

 

Real Estate Owned

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

Multifamily
Portfolio

 

Hotel
Portfolio

 

Total

 

Multifamily
Portfolio

 

Hotel
Portfolio

 

Total

 

Land

 

$

5,538,844

 

$

9,393,651

 

$

14,932,495

 

$

5,538,844

 

$

9,393,651

 

$

14,932,495

 

Building and intangible assets

 

32,953,328

 

59,110,681

 

92,064,009

 

31,249,869

 

58,818,891

 

90,068,760

 

Less: accumulated depreciation and amortization

 

(9,281,627

)

(13,637,151

)

(22,918,778

)

(7,414,267

)

(12,661,347

)

(20,075,614

)

Real estate owned, net

 

$

29,210,545

 

$

54,867,181

 

$

84,077,726

 

$

29,374,446

 

$

55,551,195

 

$

84,925,641

 

 

As of March 31, 2015 and December 31, 2014, our Multifamily Portfolio had a weighted average occupancy rate of approximately 91% and 90%, respectively.

 

For the three months ended March 31, 2015 and 2014, our Hotel Portfolio had a weighted average occupancy rate of approximately 63% and 58%, respectively, a weighted average daily rate of approximately $103 and $102, respectively, and a weighted average revenue per available room of approximately $64 and $59, respectively.

 

Our real estate assets had restricted cash balances totaling $0.7 million and $1.7 million as of March 31, 2015 and December 31, 2014, respectively, due to escrow requirements.

 

Real Estate Held-For-Sale

 

In the first quarter of 2015, we sold a property in our Multifamily Portfolio as well as a property in the Hotel Portfolio classified as held-for-sale for a total of $18.8 million and recognized a gain of $4.0 million.  There were no sales of property in the first quarter of 2014.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

The results of operations for properties sold or classified as held-for-sale are summarized as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Revenue:

 

 

 

 

 

Property operating income

 

$

354,187

 

$

1,084,354

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

Property operating expense

 

345,529

 

763,205

 

Depreciation

 

13,040

 

228,955

 

Net (loss) income

 

$

(4,382

)

$

92,194

 

 

Note 7 — Debt Obligations

 

We utilize various forms of short-term and long-term financing agreements to finance certain of our loans and investments.  Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and investments.

 

Credit Facilities and Repurchase Agreements

 

The following table outlines borrowings under our credit facilities and repurchase agreements as of March 31, 2015 and December 31, 2014:

 

 

 

March 31, 2015

 

December 31, 2014

 

 

Debt

 

Collateral

 

Weighted

 

Debt

 

Collateral

 

Weighted

 

 

 

Carrying

 

Carrying

 

Average

 

Carrying

 

Carrying

 

Average

 

 

 

Value

 

Value

 

Note Rate

 

Value

 

Value

 

Note Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$150 million warehouse repurchase facility

 

$

132,505,286

 

$

218,741,287

 

2.42

%

$

 

$

 

 

$100 million warehousing credit facility

 

58,643,095

 

87,717,666

 

2.46

%

92,520,637

 

128,593,000

 

2.45

%

$87 million warehouse repurchase facility

 

87,024,993

 

115,763,996

 

2.79

%

 

 

 

$75 million warehousing credit facility

 

56,622,000

 

75,500,000

 

2.46

%

42,975,000

 

58,000,000

 

2.45

%

$60 million warehousing credit facility

 

38,460,000

 

51,705,000

 

2.21

%

29,890,563

 

45,422,236

 

2.20

%

$25 million term credit facility

 

9,720,000

 

12,200,000

 

2.21

%

 

 

 

$15 million term credit facility

 

15,000,000

 

 

7.50

%

15,000,000

 

 

7.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total credit facilities and repurchase agreements

 

$

397,975,374

 

$

561,627,949

 

2.68

%

$

180,386,200

 

$

232,015,236

 

2.84

%

 

At March 31, 2015 and December 31, 2014, the weighted average interest rate for our credit facilities and repurchase agreements was 2.68% and 2.84%, respectively.  Including certain fees and costs, the weighted average interest rate was 2.97% and 3.06% at March 31, 2015 and December 31, 2014, respectively. There were no interest rate swaps on these facilities at March 31, 2015 and December 31, 2014.

 

In January 2015, we entered into a $150.0 million warehouse repurchase facility with a financial institution to finance a significant portion of the unwind of our CDO I and CDO II vehicles.  The facility bears interest at a rate of 212.5 basis points over LIBOR on senior mortgage loans, 350.0 basis points over LIBOR on junior mortgage loans, and matures in January 2017 with a one-year extension option.  The facility also has a structuring fee of 50 basis points, is subject to mark-to-market provisions, and contains certain financial covenants and restrictions, including a minimum liquidity requirement of $20.0 million and minimum tangible net worth of $300.0 million plus 75% of the net cash proceeds of any equity issuance that occurs after the closing date.  See “Collateralized Debt Obligations” below.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

In July 2011, we entered into a two year, $50.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties.  In 2013, we amended the facility increasing the committed amount to $75.0 million, decreased the rate of interest from 275 basis points over LIBOR to 225 basis points over LIBOR, decreased certain commitment, warehousing and non-use fees and extended the maturity to April 2015, which was subsequently extended to May 2015, with a maturity of April 2016 for the outstanding advances only.  In March 2014, the facility’s committed amount was increased to $110.0 million, which included a temporary increase of $10.0 million that was repaid in April 2014 as part of the issuance of our third CLO, and required a 0.13% commitment fee, which was increased to 0.35% upon an amendment in August 2014 that included the elimination of advance fees.  The facility has a maximum advance rate of 75% and contains several restrictions including full repayment of an advance if a loan becomes 60 days past due, is in default or is written down by us.  The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth which includes junior subordinated notes as equity of $150.0 million, maximum total liabilities less subordinate debt of $2.0 billion, as well as certain other debt service coverage ratios and debt to equity ratios.  The facility has a compensating balance requirement of $50.0 million to be maintained by us and our affiliates.

 

In March 2015, we entered into an $87.0 million warehouse repurchase facility with a financial institution to finance the acquisition of a first mortgage note.  The facility bore interest at a rate of 250 basis points over a LIBOR floor of .25%, had a commitment fee of .25% and a maturity in March 2016.  The facility also contained certain financial covenants and restrictions including a minimum liquidity requirement of $20.0 million and minimum tangible net worth of $275.0 million.  The facility was repaid in April 2015.

 

In February 2013, we entered into a one year, $50.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties.  In April 2014, we amended the facility, increasing the committed amount to $75.0 million.  The facility bears interest at a rate of 225 basis points over LIBOR which was originally 250 basis points over LIBOR, upon closing, requires a 17.5 basis point commitment fee, which was originally 12.5 basis points, upon closing, had a maturity in March 2015 that was extended to May 2015, has warehousing and non-use fees and allows for an original warehousing period of up to 24 months from the initial advance on an asset.  The facility has a maximum advance rate of 75% and contains certain restrictions including partial prepayment of an advance if a loan becomes 90 days past due or in the process of foreclosure, subject to certain conditions.  The facility has various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth which includes junior subordinated notes as equity of $150.0 million, maximum total liabilities less subordinate debt of $2.0 billion, as well as certain other debt service coverage ratios and debt to equity ratios.

 

In June 2013, we entered into a one year, $40.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties, including a $10.0 million sublimit to finance retail and office properties.  In February 2014, we amended the facility, increasing the committed amount to $45.0 million, and in April 2014 the committed amount was increased to $60.0 million.  The facility bears interest at a rate of 200 basis points over LIBOR, matures in April 2015, has warehousing fees and allows for an original warehousing period of up to 24 months from the initial advance on an asset.  The facility also has a maximum advance rate of 70% or 75%, depending on the property type, and contains certain restrictions including prepayment of an advance if a loan becomes 60 days past due or in the process of foreclosure, subject to certain conditions.  The facility also includes various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth of $150.0 million, as well as a minimum debt service coverage ratio.  In April 2015, the facility was extended to April 2016 and the committed amount was increased to $75.0 million.

 

In February 2015, we entered into a $25.0 million warehouse facility with a financial institution to finance first mortgage loans on multifamily properties.  The facility bears interest at a rate of 200 basis points over LIBOR, matures in February 2016, and has warehousing fees.  The facility also includes various financial covenants including a minimum liquidity requirement of $20.0 million, minimum tangible net worth of $150.0 million, as well as maximum total liabilities less subordinate debt of $2.0 billion.

 

In August 2014, we entered into a $15.0 million term facility with a maturity in August 2015 and a fixed interest rate of 7.5%.  The facility is secured by a portion of the bonds originally issued by our CDO III entity that we repurchased.

 

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ARBOR REALTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2015

 

Collateralized Loan Obligations (CLOs)

 

The following table outlines borrowings and the corresponding collateral under our CLOs as of March 31, 2015:

 

 

 

Debt

 

Collateral

 

 

 

 

 

 

 

Loans

 

Cash

 

 

 

 

 

Face

 

Carrying

 

Unpaid

 

Carrying

 

Restricted

 

Collateral

 

 

 

Value

 

Value

 

Principal

 

Value

 

Cash (1)

 

At-Risk (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO III

 

$

281,250,000

 

$

281,250,000

 

$

363,222,090

 

$

361,637,105

 

$

7,237,093

 

$

 

CLO IV

 

219,000,000

 

219,000,000

 

293,955,425

 

293,094,777

 

6,044,575

 

 

Total CLOs

 

$

500,250,000

 

$

500,250,000

 

$

657,177,515

 

$

654,731,882

 

$

13,281,668

 

$

 

 

The following table outlines borrowings and the corresponding collateral under our CLOs as of December 31, 2014:

 

 

 

Debt

 

Collateral

 

 

 

 

 

 

 

Loans

 

Cash

 

 

 

 

 

Face

 

Carrying

 

Unpaid

 

Carrying

 

Restricted

 

Collateral

 

 

 

Value

 

Value

 

Principal

 

Value

 

Cash (1)

 

At-Risk (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO II

 

$

177,000,000

 

$

177,000,000

 

$

252,353,210

 

$

251,658,406

 

$

7,284,919

 

$

 

CLO III

 

281,250,000

 

281,250,000

 

315,390,280

 

313,932,084

 

59,245,183

 

 

Total CLOs

 

$

458,250,000

 

$

458,250,000

 

$

567,743,490

 

$

565,590,490

 

$

66,530,102

 

$

 

 

CLO II — Issued two investment grade tranches in January 2013 and a stated maturity date of February 2023.  Interest was variable based on three-month LIBOR; the weighted average note rate was 2.56%.

 

CLO III — Issued three investment grade tranches in April 2014 with a replacement period through October 2016 and a stated maturity date of May 2024.  Interest is variable based on three-month LIBOR; the weighted average not