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Arbor Realty Trust Reports Fourth Quarter and Full Year 2018 Results and Declares Common Stock Dividend

Fourth Quarter Company Highlights:

  • GAAP net income of $0.47 per diluted common share; AFFO of $0.29, or $0.39 per share excluding a $10 million non-cash loss reserve on a legacy asset1
  • Declares a cash dividend on common stock of $0.27 per share, 29% higher than a year ago
  • Declared a special dividend of $0.15 per share of common stock
  • Raised $100.5 million of capital in a common stock offering

Agency Business

  • Segment income of $42.4 million
  • Loan originations of $1.62 billion, a 15% increase from 3Q18
  • Servicing portfolio of $18.60 billion, up 5% from 3Q18 and 15% for 2018

Structured Business

  • Segment income of $4.7 million
  • Loan originations of $447.5 million

Full Year Highlights:

  • GAAP net income of $1.50 and AFFO of $1.21 per diluted common share1
  • Record loan originations of $6.78 billion, with $5.12 billion from the agency business, a 15% increase over 2017
  • Improved funding sources by adding our tenth and largest collateralized securitization vehicle totaling $560.0 million, increased warehouse facility capacity and reduced pricing, issued $389.5 million of senior debt replacing $336.1 million of higher cost senior debt
  • Raised $217.1 million of capital through the issuance of common stock and debt
  • Structured portfolio growth of 24% from loan originations of $1.66 billion
  • Declared dividends on common stock of $1.13 per share, a 57% increase from 2017  
  • Significant return to shareholders of 30% for 2018
  • Market cap surpasses $1 billion mark
  • Recognized a $10 million gain from the settlement of a litigation

UNIONDALE, N.Y., Feb. 15, 2019 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (ABR), today announced financial results for the fourth quarter and year ended December 31, 2018.  Arbor reported net income for the quarter of $37.2 million, or $0.47 per diluted common share, compared to $21.9 million, or $0.35 per diluted common share for the quarter ended December 31, 2017.  Net income for the year was $108.3 million, or $1.50 per diluted common share, compared to $65.8 million, or $1.12 per diluted common share for the year ended December 31, 2017.  Adjusted funds from operations (“AFFO”) for the quarter was $28.9 million, or $0.29 per diluted common share, compared to $20.7 million, or $0.25 per diluted common share for the quarter ended December 31, 2017. AFFO for the year was $113.1 million, or $1.21 per diluted common share, compared to $83.9 million, or $1.04 per diluted common share for the year ended December 31, 2017.1

Agency Business

Loan Origination Platform

Agency Loan Volume  (in thousands) 
    Quarter Ended   Year Ended
    December 31,
 2018
  September 30,
 2018
  December 31,
 2018
  December 31,
 2017
Fannie Mae $   1,067,230   $   995,662   $   3,332,100   $   2,929,481
Freddie Mac     527,502       317,516       1,587,958       1,322,498
FHA       15,549       77,236       153,523       189,087
CMBS/Conduit     14,025       20,650       50,908       21,370
Total Originations $   1,624,306   $   1,411,064   $   5,124,489   $   4,462,436
                 
Total Loan Sales $   1,653,421   $   1,190,004   $   4,924,144   $   4,814,906
                 
Total Loan Commitments $   1,604,502   $   1,376,376   $   5,104,072   $   4,344,328

For the quarter ended December 31, 2018, the Agency Business generated revenues of $84.4 million, compared to $58.8 million for the third quarter of 2018.  Gain on sales, including fee-based services, net was $18.7 million for the quarter, reflecting a margin of 1.13% on loan sales, compared to $17.5 million and 1.47% for the third quarter of 2018. Income from mortgage servicing rights was $36.1 million for the quarter, reflecting a rate of 2.25% as a percentage of loan commitments, compared to $25.2 million and 1.83% for the third quarter of 2018. 

At December 31, 2018, loans held-for-sale was $481.7 million which was primarily comprised of unpaid principal balances totaling $473.0 million, with financing associated with these loans totaling $ 472.2 million.

Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $18.60 billion at December 31, 2018, an increase of 5% from September 30, 2018, primarily a result of $1.62 billion of new loan originations, net of $ 803.3 million in portfolio runoff during the quarter. Servicing revenue, net was $11.4 million for the quarter and consists of servicing revenue of $23.9 million, net of amortization of mortgage servicing rights totaling $12.5 million.

    Fee-Based Servicing Portfolio ($ in thousands)
    As of December 31, 2018   As of September 30, 2018
    UPB Wtd. Avg. Fee Wtd. Avg. Life (in years)   UPB Wtd. Avg. Fee Wtd. Avg. Life (in years)
Fannie Mae $   13,562,667 0.513 % 7.4   $   13,195,643 0.523 % 7.7
Freddie Mac     4,394,287 0.308 % 10.8       3,977,619 0.308 % 11.0
FHA     644,687 0.155 % 19.6       621,419 0.157 % 20.1
Total $   18,601,641 0.452 % 8.6   $   17,794,681 0.462 % 8.8
                 

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”). At December 31, 2018, the Company’s allowance for loss-sharing obligations was $34.3 million, representing 0.25% of the Fannie Mae servicing portfolio.

Structured Business

Portfolio and Investment Activity

Quarter ended December 31, 2018:

  • 21 new loan originations totaling $447.5 million, of which 18 were bridge loans for $404.9 million
  • Payoffs and pay downs on 23 loans totaling $271.4 million

Year ended December 31, 2018:

  • Portfolio growth of 24% was driven by loan origination volume consisting of 90 new loan originations totaling $1.66 billion, of which 84 were bridge loans for $1.55 billion
  • Payoffs and pay downs on 79 loans totaling $955.6 million

At December 31, 2018, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $3.28 billion, with a weighted average current interest pay rate of 7.02%, compared to $3.17 billion and 6.88% at September 30, 2018.  Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 7.66% at December 31, 2018, compared to 7.52% at September 30, 2018. The increase in average yield was primarily due to an increase in LIBOR.

The average balance of the Company’s loan and investment portfolio during the fourth quarter of 2018, excluding loan loss reserves, was $3.23 billion with a weighted average yield on these assets of 7.76%, compared to $3.26 billion and 7.37% for the third quarter of 2018. The increase in average yield was primarily due to higher fees on loan payoffs in the fourth quarter as compared to the third quarter, as well as an increase in LIBOR.

The Company recorded $10.1 million in loan loss reserves related to a loan with a carrying value of approximately $121.4 million, before loan loss reserves.  At December 31, 2018, the Company’s total loan loss reserves were $71.1 million on five loans with an aggregate carrying value before loan loss reserves of $131.8 million. The Company also had two non-performing loans with a carrying value of $2.5 million, net of related loan loss reserves of $1.7 million.

Financing Activity

The balance of debt that finances the Company’s loan and investment portfolio at December 31, 2018 was $2.89 billion with a weighted average interest rate including fees of 5.24% as compared to $2.92 billion and a rate of 5.03% at September 30, 2018. The average balance of debt that finances the Company’s loan and investment portfolio for the fourth quarter of 2018 was $2.89 billion, as compared to $2.86 billion for the third quarter of 2018. The average cost of borrowings for the fourth quarter was 5.13%, compared to 4.93% for the third quarter of 2018. The increase in average costs was primarily due to an increase in LIBOR.

The Company is subject to various financial covenants and restrictions under the terms of its collateralized securitization vehicles and financing facilities. The Company believes it was in compliance with all financial covenants and restrictions as of December 31, 2018 and as of the most recent collateralized securitization vehicle determination dates in January 2019.

Capital Markets

The Company issued 8.7 million shares of common stock in a public offering receiving net proceeds of $100.5 million. The Company intends to use the net proceeds to make investments and for general corporate purposes.

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.27 per share of common stock for the quarter ended December 31, 2018, representing an increase of 29% over the prior year dividend of $0.21 per share. The dividend is payable on March 20, 2019 to common stockholders of record on March 1, 2019. The ex-dividend date is February 28, 2019.

The Company also announced today that its Board of Directors has declared cash dividends on the Company's Series A, Series B and Series C cumulative redeemable preferred stock reflecting accrued dividends from December 1, 2018 through February 28, 2019. The dividends are payable on February 28, 2019 to preferred stockholders of record on February 15, 2019. The Company will pay total dividends of $0.515625, $0.484375 and $0.53125 per share on the Series A, Series B and Series C preferred stock, respectively.

In addition, the Board of Directors declared a special dividend of $0.15 per common share, which was paid in a combination of 80% common stock and 20% cash in January 2019.

Earnings Conference Call

The Company will host a conference call today at 10:00 a.m. Eastern Time. A live webcast of the conference call will be available at www.arbor.com in the investor relations area of the website. Those without web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (866) 516-5034 for domestic callers and (678) 509-7613 for international callers. Please use participant passcode 6283438.

After the live webcast, the call will remain available on the Company's website through March 31, 2019.  In addition, a telephonic replay of the call will be available until February 22, 2019. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use passcode 6283438.

About Arbor Realty Trust, Inc.

Arbor Realty Trust, Inc. (ABR) is a nationwide real estate investment trust and direct lender, providing loan origination and servicing for multifamily, seniors housing, healthcare, and other diverse commercial real estate assets. Headquartered in Uniondale, New York, Arbor manages a multibillion-dollar servicing portfolio, specializing in Fannie Mae, Freddie Mac, and other government-sponsored enterprises, as well as CMBS, bridge, mezzanine, and preferred equity lending. Rated by Standard and Poor’s and Fitch Ratings, Arbor is committed to building on its reputation for service, quality, and flexibility, and dedicated to providing our clients excellence over the entire life of a loan.

Safe Harbor Statement

Certain items in this press release may constitute forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements are based on management’s current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Arbor can give no assurance that its expectations will be attained.  Factors that could cause actual results to differ materially from Arbor’s expectations include, but are not limited to, continued ability to source new investments, changes in interest rates and/or credit spreads, changes in the real estate markets, and other risks detailed in Arbor’s Annual Report on Form 10-K for the year ended December 31, 2018 and its other reports filed with the SEC. Such forward-looking statements speak only as of the date of this press release. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor’s expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

1. Non-GAAP Financial Measures

During the quarterly earnings conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A supplemental schedule of non-GAAP financial measures and the comparable GAAP financial measure can be found on page 11 of this release.

Contacts:  
Arbor Realty Trust, Inc.
Paul Elenio, Chief Financial Officer
516-506-4422
pelenio@arbor.com
Investors:
The Ruth Group
Lee Roth
646-536-7012
lroth@theruthgroup.com
   
Media:
Bonnie Habyan, EVP of Marketing
516-506-4615
bhabyan@arbor.com
 


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME 
($ in thousands—except share and per share data)
                   
      Quarter Ended   Year Ended
      December 31,   December 31,
        2018       2017       2018       2017  
      (Unaudited)   (Unaudited)        
Interest income   $   73,360     $   46,045     $   251,768     $   156,177  
Interest expense       42,999         26,374         153,818         90,072  
  Net interest income       30,361         19,671         97,950         66,105  
                   
Other revenue:                
Gain on sales, including fee-based services, net       18,735         17,672         70,002         72,799  
Mortgage servicing rights       36,052         20,638         98,839         76,820  
Servicing revenue, net       11,372         9,287         46,034         29,210  
Property operating income       1,569         2,219         10,095         10,973  
Other income, net       9,736         1,615         8,161         685  
  Total other revenue       77,464         51,431         233,131         190,487  
                   
Other expenses:                
Employee compensation and benefits       26,386         25,265         110,470         92,126  
Selling and administrative       9,291         7,605         37,074         30,738  
Property operating expenses       2,342         2,639         10,431         10,482  
Depreciation and amortization       1,914         1,843         7,453         7,385  
Impairment loss on real estate owned       -         500         2,000         3,200  
Provision for loss sharing  (net of recoveries)       1,003         147         3,843         (259 )
Provision for loan losses (net of recoveries)       9,319         -         8,353         (456 )
Litigation settlement gain       -         -         (10,170 )       -  
Management fee - related party       -         -         -         6,673  
  Total other expenses       50,255         37,999         169,454         149,889  
                   
Income before extinguishment of debt, income from                
  equity affiliates and income taxes       57,570         33,103         161,627         106,703  
(Loss) gain on extinguishment of debt       (82 )       -         (5,041 )       7,116  
Income (loss) from equity affiliates       91         (4,706 )       1,196         (2,951 )
(Provision for) benefit from income taxes       (8,635 )       2,885         (9,731 )       (13,359 )
                   
Net income       48,944         31,282         148,051         97,509  
                   
Preferred stock dividends       1,888         1,888         7,554         7,554  
Net income attributable to noncontrolling interest       9,838         7,524         32,185         24,120  
Net income attributable to common stockholders       37,218     $   21,870     $   108,312     $   65,835  
                   
Basic earnings per common share   $   0.48     $   0.35     $   1.54     $   1.14  
Diluted earnings per common share   $   0.47     $   0.35     $   1.50     $   1.12  
                   
Weighted average shares outstanding:                
  Basic       78,273,633         61,712,782         70,208,165         57,890,574  
  Diluted       101,148,081         84,361,612         93,642,168         80,311,252  
                   
Dividends declared per common share   $   0.42     $   0.19     $   1.13     $   0.72  
                   


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS 
($ in thousands—except share and per share data)
               
               
          December 31,   December 31,
            2018       2017  
               
Assets:        
Cash and cash equivalents   $   160,063     $   104,374  
Restricted cash       180,606         139,398  
Loans and investments, net       3,200,145         2,579,127  
Loans held-for-sale, net       481,664         297,443  
Capitalized mortgage servicing rights, net       273,770         252,608  
Securities held to maturity, net       76,363         27,837  
Investments in equity affiliates       21,580         23,653  
Real estate owned, net       14,446         16,787  
Due from related party       1,287         688  
Goodwill and other intangible assets       116,165         121,766  
Other assets        86,086         62,264  
  Total assets   $   4,612,175     $   3,625,945  
               
Liabilities and Equity:        
Credit facilities and repurchase agreements       1,135,627         528,573  
Collateralized loan obligations       1,593,548         1,418,422  
Debt fund       68,183         68,084  
Senior unsecured notes       122,484         95,280  
Convertible senior unsecured notes, net       254,768         231,287  
Junior subordinated notes to subsidiary trust issuing preferred securities       140,259         139,590  
Related party financing       -          50,000  
Due to borrowers       78,662         99,829  
Allowance for loss-sharing obligations       34,298         30,511  
Other liabilities       118,780         99,813  
  Total liabilities       3,546,609         2,761,389  
               
Equity:        
  Arbor Realty Trust, Inc. stockholders' equity:        
    Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000        
      shares authorized; special voting preferred shares; 20,653,584 and 21,230,769 shares    
      issued and outstanding, respectively; 8.25% Series A, $38,787,500 aggregate     
      liquidation preference; 1,551,500 shares issued and outstanding;         
      7.75% Series B, $31,500,000 aggregate liquidation preference;         
      1,260,000 shares issued and outstanding; 8.50% Series C, $22,500,000        
      aggregate liquidation preference; 900,000 shares issued and outstanding     89,502         89,508  
    Common stock, $0.01 par value: 500,000,000 shares authorized; 83,987,707      
      and 61,723,387 shares issued and outstanding, respectively       840         617  
    Additional paid-in capital       879,029         707,450  
    Accumulated deficit       (74,133 )       (101,926 )
    Accumulated other comprehensive income       -         176  
Total Arbor Realty Trust, Inc. stockholders’ equity       895,238         695,825  
               
Noncontrolling interest       170,328         168,731  
Total equity       1,065,566         864,556  
               
Total liabilities and equity   $   4,612,175     $   3,625,945  
               

 

 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 STATEMENT OF INCOME SEGMENT INFORMATION - (Unaudited) 
(in thousands)
                   
      Quarter Ended December 31, 2018
                   
      Structured Business   Agency Business   Other / Eliminations (1)   Consolidated
                   
Interest income   $   64,105     $   9,255     $   -     $   73,360  
Interest expense       37,395         5,604         -         42,999  
  Net interest income       26,710         3,651         -         30,361  
                   
Other revenue:                
Gain on sales, including fee-based services, net       -         18,735         -         18,735  
Mortgage servicing rights       -         36,052         -         36,052  
Servicing revenue       -         23,857         -         23,857  
Amortization of MSRs       -         (12,485 )       -         (12,485 )
Property operating income       1,569         -         -         1,569  
Other income, net       734         9,002         -         9,736  
  Total other revenue       2,303         75,161         -         77,464  
                   
Other expenses:                
Employee compensation and benefits       6,437         19,949         -         26,386  
Selling and administrative       4,142         5,149         -         9,291  
Property operating expenses       2,342         -         -         2,342  
Depreciation and amortization       514         1,400         -         1,914  
Provision for loss sharing (net of recoveries)       -         1,003         -         1,003  
Provision for loan losses (net of recoveries)       9,319         -         -         9,319  
  Total other expenses       22,754         27,501         -         50,255  
                   
Income before extinguishment of debt, income from              
  equity affiliates and income taxes       6,259         51,311         -         57,570  
Loss on extinguishment of debt       (82 )       -         -         (82 )
Income from equity affiliates       91         -         -         91  
Benefit from (provision for) income taxes       273         (8,908 )       -         (8,635 )
                   
Net income       6,541         42,403         -         48,944  
                   
Preferred stock dividends       1,888         -         -         1,888  
Net income attributable to noncontrolling interest       -         -         9,838         9,838  
Net income attributable to common stockholders   $   4,653     $   42,403     $   (9,838 )   $   37,218  
                   
(1) Includes certain income or expenses not allocated to the two reportable segments. Amount reflects income attributable to the noncontrolling interest holders.
                 


 ARBOR REALTY TRUST, INC. AND SUBSIDIARIES 
 BALANCE SHEET SEGMENT INFORMATION - (Unaudited) 
(in thousands)
                   
          December 31, 2018
          Structured Business   Agency Business   Consolidated
Assets:              
Cash and cash equivalents   $   89,457   $   70,606   $   160,063
Restricted cash       180,606       -       180,606
Loans and investments, net       3,200,145       -       3,200,145
Loans held-for-sale, net       -       481,664       481,664
Capitalized mortgage servicing rights, net     -       273,770       273,770
Securities held to maturity, net       -       76,363       76,363
Investments in equity affiliates       21,580       -       21,580
Goodwill and other intangible assets       12,500       103,665       116,165
Other assets        81,494       20,325       101,819
  Total assets   $   3,585,782   $   1,026,393   $   4,612,175
                   
Liabilities:            
Debt obligations       2,842,688       472,181       3,314,869
Allowance for loss-sharing obligations     -       34,298       34,298
Other liabilities       159,413       38,029       197,442
  Total liabilities   $   3,002,101   $   544,508   $   3,546,609
                   

 

               
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
Supplemental Schedule of Non-GAAP Financial Measures - (Unaudited)
Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO")
 ($ in thousands—except share and per share data) 
               
  Quarter Ended   Year Ended
December 31, December 31,
    2018       2017       2018       2017  
 
Net income attributable to common stockholders $   37,218     $   21,870     $   108,312     $   65,835  
               
Adjustments:              
  Net income attributable to noncontrolling interest     9,838         7,524         32,185         24,120  
  Impairment loss on real estate owned      -         500         2,000         3,200  
  Depreciation - real estate owned      176         177         708         769  
  Depreciation - investments in equity affiliates      125         102         499         406  
               
Funds from operations  (1) $   47,357     $   30,173     $   143,704     $   94,330  
               
Adjustments:              
  Income from mortgage servicing rights      (36,052 )       (20,638 )       (98,839 )       (76,820 )
  Impairment loss on real estate owned      -         (500 )       (2,000 )       (3,200 )
  Deferred tax provision (benefit)      2,421         (7,414 )       (12,033 )       (7,399 )
  Amortization and write-offs of MSRs      20,314         16,894         73,182         63,034  
  Depreciation and amortization      2,582         2,073         9,618         7,697  
  Net (gain) loss on changes in fair value of derivatives      (9,002 )       (914 )       (6,672 )       1,398  
  Stock-based compensation      1,257         1,007         6,095         4,840  
               
Adjusted funds from operations  (1) (2) $   28,877     $   20,681     $   113,055     $   83,880  
               
 Diluted FFO per share  (1)  $   0.47     $   0.36     $   1.53     $   1.17  
               
 Diluted AFFO per share  (1) (2)  $   0.29     $   0.25     $   1.21     $   1.04  
               
 Diluted weighted average shares outstanding  (1)      101,148,081         84,361,612         93,642,168         80,311,252  
               
(1) Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at the Company's option for shares of the Company's common stock on a one-for-one basis.
               
(2) Excluding the impact of a non-cash $10.1 million loan loss reserve related to a legacy pre-crisis asset, AFFO for the quarter ended December 31, 2018 was $39.0 million, or $0.39 per diluted common share.

The Company is presenting FFO and AFFO because management believes they are important supplemental measures of the Company’s operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs.  The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated real properties, plus impairments of depreciated real properties and real estate related depreciation and amortization, and after adjustments for unconsolidated ventures. 

The Company defines AFFO as funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from mortgage servicing rights ("MSRs"), changes in fair value of certain derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred tax (benefit) provision and the amortization of the convertible senior notes conversion option. The Company also adds back one-time charges such as acquisition costs and impairment losses on real estate and gains (losses) on sales of real estate. The Company is generally not in the business of operating real estate property and has obtained real estate by foreclosure or through partial or full settlement of mortgage debt related to the Company's loans to maximize the value of the collateral and minimize the Company's exposure.  Therefore, the Company deems such impairment and gains (losses) on real estate as an extension of the asset management of its loans, thus a recovery of principal or additional loss on the Company's initial investment.

FFO and AFFO are not intended to be an indication of the Company's cash flow from operating activities (determined in accordance with GAAP) or a measure of its liquidity, nor is it entirely indicative of funding the Company's cash needs, including its ability to make cash distributions.  The Company’s calculation of FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability may be limited.