Attached files
file | filename |
---|---|
EX-99.2 - EX-99.2 - ARBOR REALTY TRUST INC | a2229191zex-99_2.htm |
EX-99.1 - EX-99.1 - ARBOR REALTY TRUST INC | a2229191zex-99_1.htm |
EX-23.1 - EX-23.1 - ARBOR REALTY TRUST INC | a2229191zex-23_1.htm |
8-K - 8-K - ARBOR REALTY TRUST INC | a2229191z8-k.htm |
QuickLinks -- Click here to rapidly navigate through this document
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma consolidated balance sheet is presented as if the acquisition by Arbor Realty Trust, Inc. ("ART" or the "Company") of the agency platform (the "Agency Business") of Arbor Commercial Mortgage, LLC ("ACM"), referred to herein as the "Acquisition" and described below in Note 1, had occurred on March 31, 2016. The unaudited pro forma consolidated statements of income for the three months ended March 31, 2016 and year ended December 31, 2015 are presented as if the Acquisition had occurred on January 1, 2015.
The accompanying unaudited pro forma consolidated financial statements are based on the historical financial statements of the Company after giving pro forma effect to the Company's acquisition of ACM's Agency Business and its related assets, liabilities and personnel.
The unaudited pro forma consolidated financial statements have been prepared using the historical consolidated financial statements of the Company and the Agency Business of ACM. The unaudited pro forma consolidated financial information, including the notes thereto, should be read in conjunction with the following historical financial statements and accompanying notes for the applicable periods:
-
- The Company's unaudited consolidated financial statements for the three months ended March 31, 2016 included in our Quarterly
Report on Form 10-Q which we filed with the SEC on May 6, 2016;
-
- The Company's audited consolidated financial statements for the year ended December 31, 2015 included in our Annual Report on
Form 10-K which we filed with the SEC on February 26, 2016;
-
- The unaudited carve-out financial statements of the Agency Business of ACM for the three months ended March 31, 2016 included
herein; and
-
- The audited carve-out financial statements of the Agency Business of ACM for the year ended December 31, 2015 included herein.
The unaudited pro forma consolidated financial information has been prepared by management and is based upon available information, preliminary estimates and certain assumptions that management believes are reasonable and factually supportable to reflect the effects of the Acquisition. The unaudited pro forma consolidated financial information is preliminary and is being furnished solely for informational purposes and, therefore, is not necessarily indicative of the consolidated results of operations or financial position that might have been achieved by the consolidated company for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position of the consolidated company that may occur in the future.
The unaudited pro forma consolidated financial statements have been prepared using the acquisition method of accounting for business combinations under accounting principles generally acceptable in the United States, or GAAP. The unaudited pro forma adjustments related to the Acquisition are preliminary and do not reflect the final purchase price of the Acquisition. The completion of the valuation, accounting for the Acquisition, the allocation of the purchase price and the impact of ongoing integration activities could cause significant differences in the purchase price and allocation of the purchase price, which may affect the value assigned to the tangible or intangible assets and amount of depreciation and amortization expense.
The unaudited pro forma consolidated statement of income do not reflect any non-recurring revenues or charges related to integration activity that may be incurred by the Company or the Agency Business of ACM with respect to the Acquisition. The unaudited pro forma consolidated financial statements also do not reflect any cost savings or synergies that we may realize in connection with the Acquisition.
ARBOR REALTY TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 2016
(In thousands, except share and
per share data)
|
Historical ART |
Historical Agency Business |
Pro Forma Adjustments |
|
Pro Forma Total |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets: |
|||||||||||||||
Cash and cash equivalents |
$ | 145,133 | $ | 42,140 | $ | (110,433 | ) | A | $ | 76,840 | |||||
Restricted cash |
20,124 | 5,381 | (381 | ) | B | 25,124 | |||||||||
Loans held-for-sale |
| 267,024 | 3,916 | C | 270,940 | ||||||||||
Loans and investments, net |
1,581,622 | | | 1,581,622 | |||||||||||
Available-for-sale securities, at fair value |
412 | 4,027 | | 4,439 | |||||||||||
Investments in equity affiliates |
34,927 | | | 34,927 | |||||||||||
Real estate owned, net |
31,698 | | | 31,698 | |||||||||||
Real estate held-for-sale, net |
28,590 | | | 28,590 | |||||||||||
Due from related party |
436 | | | 436 | |||||||||||
Capitalized mortgage servicing rights, net |
| 163,769 | 52,090 | D | 215,859 | ||||||||||
Goodwill |
| | 20,618 | E | 20,618 | ||||||||||
Intangible assets |
| | 47,492 | F | 47,492 | ||||||||||
Other assets |
29,478 | 8,895 | | 38,373 | |||||||||||
| | | | | | | | | | | | | | | |
Total assets |
$ | 1,872,420 | $ | 491,236 | $ | 13,302 | $ | 2,376,958 | |||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Liabilities and Equity: |
|||||||||||||||
Credit facilities and repurchase agreements |
$ | 183,926 | $ | 272,972 | $ | 283 | G | $ | 457,181 | ||||||
Related party financing |
| | 50,000 | H | 50,000 | ||||||||||
Collateralized loan obligations |
759,734 | | | 759,734 | |||||||||||
Senior unsecured notes |
93,956 | | | 93,956 | |||||||||||
Junior subordinated notes |
157,305 | | | 157,305 | |||||||||||
Mortgage note payablereal estate held-for-sale |
27,113 | | | 27,113 | |||||||||||
Accounts payable and accrued expenses |
| 19,885 | | 19,885 | |||||||||||
Due to related party |
2,406 | | | 2,406 | |||||||||||
Due to borrowers |
42,020 | | | 42,020 | |||||||||||
Allowance for loss-sharing obligations |
| 29,398 | | 29,398 | |||||||||||
Other liabilities |
44,606 | | | 44,606 | |||||||||||
| | | | | | | | | | | | | | | |
Total liabilities |
1,311,066 | 322,255 | 50,283 | 1,683,604 | |||||||||||
| | | | | | | | | | | | | | | |
Noncontrolling interest in Operating Partnership |
| | 137,788 | I | 137,788 | ||||||||||
Equity: |
|
||||||||||||||
Preferred stock |
89,296 | | 212 | I | 89,508 | ||||||||||
Common stock, $0.01 par value |
514 | | | 514 | |||||||||||
Additional paid-in capital |
617,921 | | | 617,921 | |||||||||||
Accumulated deficit |
(142,632 | ) | | (6,000 | ) | J | (148,632 | ) | |||||||
Accumulated other comprehensive loss |
(3,745 | ) | | | (3,745 | ) | |||||||||
Invested equity |
| 168,981 | (168,981 | ) | K | | |||||||||
| | | | | | | | | | | | | | | |
Total equity |
561,354 | 168,981 | (174,769 | ) | 555,566 | ||||||||||
| | | | | | | | | | | | | | | |
Total liabilities and equity |
$ | 1,872,420 | $ | 491,236 | $ | 13,302 | $ | 2,376,958 | |||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
ARBOR REALTY TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the three months ended March 31, 2016
(In
thousands, except share and per share data)
|
Historical ART |
Historical Agency Business |
Pro Forma Adjustments |
|
Pro Forma Total |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest income |
$ | 25,818 | $ | 3,043 | $ | | $ | 28,861 | |||||||
Interest expense |
12,749 | 2,003 | 1,011 | L | 15,763 | ||||||||||
| | | | | | | | | | | | | | | |
Net interest income |
13,069 | 1,040 | (1,011 | ) | 13,098 | ||||||||||
| | | | | | | | | | | | | | | |
Other revenue: |
|||||||||||||||
Property operating income |
5,332 |
|
|
5,332 |
|||||||||||
Fee-based services, including gain on sales, net |
| 13,309 | | 13,309 | |||||||||||
Originated mortgage servicing rights |
| 15,811 | | 15,811 | |||||||||||
Servicing revenue, net |
| 9,237 | (1,760 | ) | M | 7,477 | |||||||||
Other income, net |
90 | | | 90 | |||||||||||
| | | | | | | | | | | | | | | |
Total other revenue |
5,422 | 38,357 | (1,760 | ) | 42,019 | ||||||||||
| | | | | | | | | | | | | | | |
Other expenses: |
|||||||||||||||
Employee compensation and benefits |
4,328 |
14,338 |
(1,577 |
) |
N |
17,089 |
|||||||||
Selling and administrative |
5,765 | 3,296 | (3,315 | ) | O | 5,746 | |||||||||
Property operating expenses |
4,317 | | | 4,317 | |||||||||||
Depreciation and amortization |
878 | | 2,226 | P | 3,104 | ||||||||||
Provision for loss sharing |
| 1,045 | | 1,045 | |||||||||||
Provision for loan losses (net of recoveries) |
(15 | ) | | | (15 | ) | |||||||||
Management feerelated party |
2,700 | | 1,557 | Q | 4,257 | ||||||||||
| | | | | | | | | | | | | | | |
Total other expenses |
17,973 | 18,679 | (1,109 | ) | 35,543 | ||||||||||
| | | | | | | | | | | | | | | |
Income from operations, net |
518 | 20,718 | (1,662 | ) | 19,574 | ||||||||||
Gain on sale of real estate |
608 | | | 608 | |||||||||||
Income from equity affiliates |
1,897 | | | 1,897 | |||||||||||
Provision for income taxes |
| | (2,300 | ) | R | (2,300 | ) | ||||||||
| | | | | | | | | | | | | | | |
Net income |
3,023 | 20,718 | (3,962 | ) | 19,779 | ||||||||||
Preferred stock dividends |
1,888 | | | 1,888 | |||||||||||
Net income attributable to noncontrolling interest |
| | 5,255 | 5,255 | |||||||||||
| | | | | | | | | | | | | | | |
Net income attributable to common stockholders |
$ | 1,135 | $ | 20,718 | $ | (9,217 | ) | $ | 12,636 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Basic earnings per common share |
$ | 0.02 | $ | 0.25 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Diluted earnings per common share |
$ | 0.02 | $ | 0.25 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Weighted average number of shares of common stock outstanding: |
|||||||||||||||
Basic |
51,045,219 | | 51,045,219 | ||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Diluted |
51,095,128 | 21,230,769 | S | 72,325,897 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
ARBOR REALTY TRUST, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 2015
(In
thousands, except share and per share data)
|
Historical ART |
Historical Agency Business |
Pro Forma Adjustments |
|
Pro Forma Total |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Interest income |
$ | 106,769 | $ | 10,126 | $ | | $ | 116,895 | |||||||
Other interest income, net |
7,884 | | | 7,884 | |||||||||||
Interest expense |
49,720 | 7,070 | 3,750 | T | 60,540 | ||||||||||
| | | | | | | | | | | | | | | |
Net interest income |
64,933 | 3,056 | (3,750 | ) | 64,239 | ||||||||||
| | | | | | | | | | | | | | | |
Other revenue: |
|||||||||||||||
Property operating income |
27,666 |
|
|
27,666 |
|||||||||||
Fee-based services, including gain on sales, net |
| 51,317 | | 51,317 | |||||||||||
Originated mortgage servicing rights |
| 47,614 | | 47,614 | |||||||||||
Servicing revenue, net |
| 27,822 | (7,039 | ) | U | 20,783 | |||||||||
Other income, net |
270 | | | 270 | |||||||||||
| | | | | | | | | | | | | | | |
Total other revenue |
27,936 | 126,753 | (7,039 | ) | 147,650 | ||||||||||
| | | | | | | | | | | | | | | |
Other expenses: |
|||||||||||||||
Employee compensation and benefits |
17,500 |
54,616 |
(5,835 |
) |
V |
66,281 |
|||||||||
Selling and administrative |
12,526 | 14,626 | (3,515 | ) | W | 23,637 | |||||||||
Property operating expenses |
23,238 | | | 23,238 | |||||||||||
Depreciation and amortization |
5,436 | | 8,876 | X | 14,312 | ||||||||||
Provision for loss sharing |
| 3,785 | | 3,785 | |||||||||||
Provision for loan losses (net of recoveries) |
4,467 | | | 4,467 | |||||||||||
Management feerelated party |
10,900 | | 5,343 | Y | 16,243 | ||||||||||
| | | | | | | | | | | | | | | |
Total other expenses |
74,067 | 73,027 | 4,869 | 151,963 | |||||||||||
| | | | | | | | | | | | | | | |
Income from operations, net |
18,802 | 56,782 | (15,658 | ) | 59,926 | ||||||||||
Gain on acceleration of deferred income |
19,172 | | | 19,172 | |||||||||||
Loss on termination of swaps |
(4,630 | ) | | | (4,630 | ) | |||||||||
Gain on sale of real estate |
7,784 | | | 7,784 | |||||||||||
Income from equity affiliates |
12,301 | | | 12,301 | |||||||||||
Provision for income taxes |
| | (6,300 | ) | Z | (6,300 | ) | ||||||||
| | | | | | | | | | | | | | | |
Net income |
53,429 | 56,782 | (21,958 | ) | 88,253 | ||||||||||
Preferred stock dividends |
7,554 | | | 7,554 | |||||||||||
Net income attributable to noncontrolling interest |
| | 23,767 | 23,767 | |||||||||||
| | | | | | | | | | | | | | | |
Net income attributable to common stockholders |
$ | 45,875 | $ | 56,782 | $ | (45,725 | ) | $ | 56,932 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Basic earnings per common share |
$ | 0.90 | $ | 1.12 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Diluted earnings per common share |
$ | 0.90 | $ | 1.12 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Weighted average number of shares of common stock outstanding: |
|||||||||||||||
Basic |
50,857,750 | | 50,857,750 | ||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Diluted |
51,007,328 | 21,230,769 | AA | 72,238,097 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1Description of Transaction
On February 25, 2016, the Company entered into an asset purchase agreement ("Asset Purchase Agreement") to acquire the Agency Business of ACM. ACM is the Company's external manager and a related party to the Company. On July 14, 2016, the Company completed the Acquisition of the Agency Business for $276.0 million. The purchase price was paid with $138.0 million in stock, $88.0 million in cash and with the issuance of a $50.0 million seller financing instrument. The equity component of the purchase price consists of 21.23 million operating partnership units which are redeemable for cash, or at the Company's option, for shares of the Company's common stock on a one-for-one basis ("OP Units"), and was based on a stock price of $6.50 per share. Each of the OP Units was paired with a share of newly designated special voting preferred stock of the Company which entitles ACM to one vote per share on any matter submitted to a vote of the Company's stockholders. The OP Units are entitled to receive distributions if and when the Company's Board of Directors authorizes and declares common stock distributions. The purchase price is subject to potential adjustment based on changes in the value of ACM's servicing portfolio acquired on the closing date. All of the ACM employees directly related to the Agency Business (approximately 240 employees) are part of the Company as of the closing.
The Agency Business of ACM is comprised of its (i) underwriting, originating, selling and servicing multifamily mortgages under the Federal National Mortgage Association ("FNMA") delegated underwriting and servicing ("DUS"), U.S. Department of Housing and Urban Development ("HUD")/Federal Housing Administration ("FHA"), Government National Mortgage Association ("GNMA"), Federal Home Loan Mortgage Corporation ("Freddie Mac") and conduit/commercial mortgage-backed securities ("CMBS") programs, and (ii) certain assets and liabilities related to the Agency Business primarily consisting of the mortgage servicing rights related to the agency servicing portfolio, agency loans held for sale, warehouse financing of agency loans held for sale and other assets and liabilities directly related to the Agency Business.
In addition, pursuant to the Asset Purchase Agreement, ACM has provided a two year option for the Company to purchase the existing management contract and fully internalize the Company's management structure for $25.0 million (increasing to $27.0 million in the second year). The exercise of this option is at the discretion of the special committee of the Company's board of directors, which has no obligation to exercise its option.
The sources for the Acquisition purchase price are as follows (in thousands):
Issuance of 21,230,769 OP Units at $6.50 per share |
$ | 138,000 | ||
Cash on hand |
88,000 | |||
Borrowings from seller financing |
50,000 | |||
| | | | |
Total Sources |
$ | 276,000 | ||
| | | | |
| | | | |
| | | | |
Note 2Fair Value of Assets Acquired, Liabilities Assumed and Calculation of Goodwill.
The total purchase price has been allocated in the accompanying unaudited pro forma consolidated financial statements based upon (i) the amounts reported in the historical carve-out financial statements of the Agency Business of ACM for any assets that are reported at fair value in accordance with ACM's historical accounting policies, or (ii) management's preliminary estimates of fair value. The preliminary allocation of the Agency Business's tangible and intangible assets and
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2Fair Value of Assets Acquired, Liabilities Assumed and Calculation of Goodwill. (Continued)
liabilities under this methodology as if the Acquisition occurred on March 31, 2016, is as follows (in thousands):
Assets Acquired |
||||
Cash and cash equivalents |
$ | 42,140 | ||
Less: Working capital adjustment |
(16,433 | ) | ||
Restricted cash |
5,381 | |||
Less: FNMA restricted cash |
(381 | ) | ||
Loans held-for-sale |
270,940 | |||
Investments available-for-sale |
4,027 | |||
Capitalized mortgage servicing rights, net |
215,859 | |||
Finite-lived intangible assets (a) |
40,012 | |||
Infinite-lived intangible assets (a) |
7,480 | |||
Other assets |
8,895 | |||
Liabilities Assumed |
||||
Credit facilities and repurchase agreements |
(273,255 | ) | ||
Accounts payable and accrued expenses |
(19,885 | ) | ||
Allowance for loss-sharing obligations |
(29,398 | ) | ||
| | | | |
Net assets acquired |
$ | 255,382 | ||
| | | | |
| | | | |
| | | | |
- (a)
- The following table summarizes the estimated fair values of the Company's identifiable intangible assets, their estimated useful lives and amortization expense under the straight line method, if applicable (dollars in thousands):
|
Estimated Fair Value |
Estimated Useful Life in Years |
3 Mos. Ended Mar. 31, 2016 Amortization Expense |
Annual 2015 Amortization Expense |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Finite-lived intangible assets: |
|||||||||||||
Broker relationships |
$ | 35,709 | 5.0 | $ | 1,786 | $ | 7,144 | ||||||
Borrower relationships |
4,303 | 5.0 | 215 | 860 | |||||||||
| | | | | | | | | | | | | |
|
$ | 40,012 | 5.0 | $ | 2,001 | $ | 8,004 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Infinite-lived intangible assets: |
|||||||||||||
FNMA DUS license |
$ | 6,324 | |||||||||||
Freddie Mac Program Plus license |
578 | ||||||||||||
FHA license |
578 | ||||||||||||
| | | | | | | | | | | | | |
|
$ | 7,480 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts that will be calculated after completing a detailed valuation analysis, and the difference could have a material impact on the accompanying unaudited pro forma consolidated financial statements. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill of approximately $4.7 million and annual amortization expense of approximately $0.8 million.
Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed. This determination of
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2Fair Value of Assets Acquired, Liabilities Assumed and Calculation of Goodwill. (Continued)
goodwill is preliminary, and is subject to change when the evaluation is complete. A preliminary determination of the goodwill is as follows (in thousands):
Total purchase price |
$ | 276,000 | ||
Preliminary estimate of the fair value of net assets acquired |
(255,382 | ) | ||
| | | | |
Goodwill |
$ | 20,618 | ||
| | | | |
Note 3Pro Forma Adjustments
The pro forma adjustments included in the accompanying information do not reflect the final Acquisition purchase price. The allocation of consideration transferred to the various tangible and intangible assets acquired and liabilities assumed is preliminary and is subject to change.
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2016:
- A)
- To reflect the cash consideration payment of $88.0 million upon consummation of the Acquisition.
Adjustment also reflects a $16.4 million reduction to the ACM cash balance pursuant to the terms of the excess working capital adjustment outlined in the Asset Purchase Agreement. Additionally,
adjustment reflects a $6.0 million reduction representing the estimated remaining transaction costs related to the Acquisition at March 31, 2016.
- B)
- To reflect $0.4 million of cash posted as collateral under the FNMA DUS program refunded to ACM. As
per the Asset Purchase Agreement, ACM is entitled to any FNMA restricted cash less than or equal to $2.5 million.
- C)
- To reflect the fair value adjustment necessary to write-up Loans held-for-sale to equal the independent third
party estimated fair value of $270.9 million at March 31, 2016.
- D)
- To reflect the preliminary fair value adjustment necessary to write-up Capitalized mortgage servicing rights,
net to equal the independent third party estimated fair value of $215.9 million at March 31, 2016. The fair value adjustment includes estimated capitalized mortgage servicing rights of
$6.6 million related to the Agency Business of ACM's loans held-for-sale at March 31, 2016.
- E)
- To reflect the establishment of goodwill of $20.6 million estimated as a result of the preliminary
purchase price allocation detailed above.
- F)
- To reflect the preliminary purchase price allocation recognition of certain intangible assets including
broker and borrower relationships and all GSE licenses (see Note 2 above).
- G)
- To reflect the fair value adjustment necessary to write-up Credit facilities and repurchase agreements to
equal the independent third party estimated fair value of $273.3 million at March 31, 2016.
- H)
- To reflect the financing of $50.0 million upon consummation of the Acquisition. In connection with the
closing of the Acquisition, a subsidiary of the Company entered into a $50.0 million financing with ACM, which was used to satisfy a portion of the cash component of the purchase price. This
debt has a five year maturity with an interest pay rate of 7% for the first six months, 8% for the next year, and increasing by 1% per annum thereafter. Additionally, after 18 months the
principal balance due is scheduled to increase over time with $62.5 million due if the debt remained outstanding until the end of the five-year term.
- I)
- To reflect the value of the 21.23 million OP Units issued at an offering price of $6.50 per share to raise the $138.0 million of capital needed ($276.0 million purchase price of which
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3Pro Forma Adjustments (Continued)
- J)
- To reflect $6.0 million of estimated remaining transaction costs related to the Acquisition (see
Note A).
- K)
- To reflect the elimination of the ACM Agency Business's Invested equity balance in consolidation.
$138.0 million is in cash and $138.0 million is in stock). Each of these OP Units are paired with one share of the Company's Special Voting Preferred Stock having a par value of $0.01 per share and entitling ACM to one vote on any matter submitted to the Company's stockholders.
Unaudited Pro Forma Consolidated Statement of Income for the Three Months Ended March 31, 2016:
- L)
- To reflect the additional interest expense associated with the financing of $50.0 million upon
consummation of the Acquisition (see Note H above). The debt has an interest pay rate of 7% for the first six months and 8% for the following year. The adjustment of $1.0 million is
based on the $50.0 million principal balance and an interest rate of 8%.
- M)
- To reflect an increase in amortization of originated mortgage servicing rights based on a projected fair
value adjustment to Capitalized mortgage servicing rights, net on the balance sheet over the estimated life of approximately 7.4 years.
- N)
- To reflect the reallocation of compensation related to certain employees based on the portion of their
allocable time spent working on the ACM Agency Business, which was previously recorded in Employee compensation and benefits on the historical financial statements of the ACM Agency Business. As a
result of the Acquisition, these employees will be retained by ACM and their allocable portion of time spent working on the ACM Agency Business will be charged through the Management fee (see
Note Q below).
- O)
- To reflect a $3.1 million decrease for non-recurring, one-time transaction costs recorded by the
Company in the first quarter of 2016 related to the Acquisition. Additionally, the adjustment includes a $0.2 million decrease related to the reclassification of depreciation (see Note P
below). These decreases were partially offset by a less than $0.1 million reallocation of the Selling and administrative portion of the Management fee (see Note Q below). The pro forma
adjustment represents the increase in Selling and administrative expenses related to non-compensation costs (i.e. rent, utilities) that are captured within the Management fee.
- P)
- To reflect a $2.0 million increase in amortization of intangibles calculated as the pro forma
adjustment to certain intangible assets on the balance sheet (see Note F above) divided by the useful life of those assets in years. The useful life is estimated as five years for both broker
and borrower relationships. All other intangible assets, such as all GSE licenses are considered to have an indefinite life and are not subject to amortization. Additionally, adjustment reflects
$0.2 million related to the reclassification of Depreciation from Selling and administrative expenses. Depreciation was originally recorded as part of Selling and administrative expenses on the
ACM Agency Business's historical financial statements.
- Q)
- To reflect the reallocation of Compensation and Selling and administrative expenses (see Notes N & O above), resulting in a net increase to the Management fee upon consolidation.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3Pro Forma Adjustments (Continued)
- R)
- To reflect the estimated income tax provision of $2.3 million related to the ACM Agency Business
historical net income for the first quarter of 2016, which represents an estimated effective tax rate for the ACM Agency Business of approximately 11%.
- S)
- To reflect the issuance of 21.23 million OP Units in connection with the Acquisition (see Note I above).
Unaudited Pro Forma Consolidated Statement of Income for the Year Ended December 31, 2015:
- T)
- To reflect the additional interest expense associated with the financing of $50.0 million upon
consummation of the Acquisition (see Note H above). The debt has an interest pay rate of 7% for the first six months and 8% for the following year. The adjustment of $3.8 million is
based on the $50.0 million principal balance and an average interest rate of 7.5%.
- U)
- To reflect an increase in amortization of originated mortgage servicing rights based on a projected fair
value adjustment to Capitalized mortgage servicing rights, net on the balance sheet over the estimated life of approximately 7.4 years.
- V)
- To reflect the reallocation of compensation related to certain employees based on the portion of their
allocable time spent working on the ACM Agency Business, which was previously recorded in Employee compensation and benefits on the historical financial statements of the ACM Agency Business. As a
result of the Acquisition, these employees will be retained by ACM and their allocable portion of time spent working on the ACM Agency Business will be charged through the Management fee (see
Note Y below).
- W)
- To reflect a $3.1 million decrease for non-recurring, one-time transaction costs recorded by the
Company in 2015 related to the Acquisition. Additionally, the adjustment includes a $0.9 million decrease related to the reclassification of depreciation (see Note X below). These
decreases were partially offset by a $0.5 million reallocation of the Selling and administrative portion of the Management fee (see Note Y below). The pro forma adjustment represents the
increase in Selling and administrative expenses related to non-compensation costs (i.e. rent, utilities) that are captured within the Management fee.
- X)
- To reflect an $8.0 million increase in amortization of intangibles calculated as the pro forma
adjustment to certain intangible assets on the balance sheet divided by the useful life of those assets in years. The useful life is estimated as five years for both broker and borrower relationships.
All other intangible assets, such as all GSE licenses are considered to have an indefinite life and are not subject to amortization. Additionally, adjustment reflects $0.9 million related to
the reclassification of Depreciation from Selling and administrative expenses. Depreciation was originally recorded as part of Selling and administrative expenses on the ACM Agency Business's
historical financial statements.
- Y)
- To reflect the reallocation of Compensation and Selling and administrative expenses (see
Notes V & W above), resulting in a net increase to the Management fee upon consolidation.
- Z)
- To reflect the estimated income tax provision of $6.3 million related to the ACM Agency Business
historical net income for 2015, which represents an estimated effective tax rate for the ACM Agency Business of approximately 11%.
- AA)
- To reflect the issuance of 21.23 million OP Units in connection with the Acquisition (see Note I above).
Unaudited Pro Forma Consolidated Financial Information
ARBOR REALTY TRUST, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of March 31, 2016 (In thousands, except share and per share data)
ARBOR REALTY TRUST, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the three months ended March 31, 2016 (In thousands, except share and per share data)
ARBOR REALTY TRUST, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the year ended December 31, 2015 (In thousands, except share and per share data)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS