10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
or
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o |
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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)
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Maryland
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20-0057959 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation)
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Identification No.) |
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333 Earle Ovington Boulevard, Suite 900 |
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Uniondale, NY
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11553 |
(Address of principal executive offices)
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Zip Code |
(516) 832-8002
(Registrants 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 þ No o
Indicate by check mark whether the registrant is large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Securities Exchange Act). Yes
o No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the last practicable date. Common stock, $0.01 par value per share: 17,073,288 outstanding
(excluding 250,200 shares held in the treasury) as of November 3, 2006.
ARBOR REALTY TRUST, INC.
FORM 10-Q
INDEX
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, endeavor, seek, anticipate, estimate,
overestimate, underestimate, 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; changes in
the markets; legislative/regulatory changes; completion of pending investments; the availability
and cost of capital for future investments; competition within the finance and real estate
industries; and other risks detailed in our Annual Report on Form 10-K for the year ending December
31, 2005. Readers are cautioned not to place undue reliance on any of these forward-looking
statements, which reflect our managements 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 Managements
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 ending December 31, 2005.
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
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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2006 |
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2005 |
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(Unaudited) |
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Assets: |
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Cash and cash equivalents |
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$ |
8,508,391 |
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$ |
19,427,309 |
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Restricted cash |
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|
98,461,074 |
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|
35,496,276 |
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Loans and investments, net |
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|
1,575,067,216 |
|
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|
1,246,825,906 |
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Related party loans, net |
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36,005,627 |
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7,749,538 |
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Available-for-sale securities, at fair value |
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23,997,008 |
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29,615,420 |
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Investment in equity affiliates |
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23,513,847 |
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18,094,242 |
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Other assets |
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51,460,675 |
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|
38,866,666 |
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Total Assets |
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$ |
1,817,013,838 |
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|
$ |
1,396,075,357 |
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Liabilities and Stockholders Equity: |
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Repurchase agreements |
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$ |
466,297,860 |
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$ |
413,624,385 |
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Collateralized debt obligations |
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|
647,209,000 |
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|
299,319,000 |
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Junior subordinated notes to subsidiary
trust issuing preferred securities |
|
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222,962,000 |
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155,948,000 |
|
Notes payable |
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|
89,967,024 |
|
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115,400,377 |
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Notes payable related party |
|
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30,000,000 |
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Due to related party |
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4,977,465 |
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1,777,412 |
|
Due to borrowers |
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|
15,858,199 |
|
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|
10,691,355 |
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Other liabilities |
|
|
16,068,276 |
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|
18,014,755 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Total liabilities |
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|
1,463,339,824 |
|
|
|
1,044,775,284 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Minority interest |
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|
64,149,603 |
|
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|
63,691,556 |
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Stockholders equity: |
|
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|
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|
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Preferred stock, $0.01 par value: |
|
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|
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|
100,000,000 shares authorized; 3,776,069
shares issued and outstanding |
|
|
37,761 |
|
|
|
37,761 |
|
Common stock, $0.01 par value: 500,000,000
shares authorized; 17,323,488 shares
issued, 17,073,288 shares outstanding at
September 30, 2006 and 17,051,391 shares
issued and outstanding at December 31, 2005 |
|
|
173,235 |
|
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|
170,514 |
|
Additional paid-in capital |
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|
271,159,130 |
|
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|
264,691,931 |
|
Treasury stock, at cost 250,200 shares |
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(6,276,232 |
) |
|
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Retained earnings |
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|
23,262,914 |
|
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|
21,452,789 |
|
Accumulated other comprehensive income |
|
|
1,167,603 |
|
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|
1,255,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total stockholders equity |
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|
289,524,411 |
|
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|
287,608,517 |
|
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|
|
|
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|
|
|
|
|
|
|
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|
Total liabilities and stockholders equity |
|
$ |
1,817,013,838 |
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|
$ |
1,396,075,357 |
|
|
|
|
|
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|
See notes to consolidated financial statements.
2
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended September 30, 2006 and 2005
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenue: |
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Interest income |
|
$ |
40,897,083 |
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$ |
27,073,076 |
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$ |
120,434,185 |
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|
$ |
89,489,543 |
|
Income from swap
derivative |
|
|
696,960 |
|
|
|
|
|
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|
696,960 |
|
|
|
|
|
Other income |
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41,550 |
|
|
|
35,730 |
|
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|
161,947 |
|
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423,574 |
|
|
|
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|
|
|
|
|
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|
|
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Total revenue |
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|
41,635,593 |
|
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|
27,108,806 |
|
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|
121,293,092 |
|
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|
89,913,117 |
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Expenses: |
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Interest expense |
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|
23,405,789 |
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|
12,462,458 |
|
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|
63,332,763 |
|
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|
30,479,170 |
|
Employee compensation and
benefits |
|
|
1,120,596 |
|
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|
948,312 |
|
|
|
3,430,004 |
|
|
|
3,059,208 |
|
Stock based
compensation |
|
|
427,609 |
|
|
|
808,687 |
|
|
|
1,793,062 |
|
|
|
1,273,542 |
|
Selling and
administrative |
|
|
1,118,724 |
|
|
|
1,213,889 |
|
|
|
3,187,501 |
|
|
|
2,987,662 |
|
Management fee related
party |
|
|
2,327,012 |
|
|
|
1,322,643 |
|
|
|
8,530,712 |
|
|
|
10,313,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
28,399,730 |
|
|
|
16,755,989 |
|
|
|
80,274,042 |
|
|
|
48,113,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
and income from equity
affiliates |
|
|
13,235,863 |
|
|
|
10,352,817 |
|
|
|
41,019,050 |
|
|
|
41,799,627 |
|
Income from equity
affiliates |
|
|
|
|
|
|
|
|
|
|
2,909,292 |
|
|
|
8,453,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority
interest |
|
|
13,235,863 |
|
|
|
10,352,817 |
|
|
|
43,928,342 |
|
|
|
50,253,067 |
|
Income allocated to minority
interest |
|
|
2,379,607 |
|
|
|
1,881,055 |
|
|
|
7,921,687 |
|
|
|
9,209,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
$ |
10,856,256 |
|
|
$ |
8,471,762 |
|
|
$ |
36,006,655 |
|
|
$ |
41,043,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.63 |
|
|
$ |
0.50 |
|
|
$ |
2.10 |
|
|
$ |
2.44 |
|
|
|
|
|
|
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|
|
|
|
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|
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|
|
|
|
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|
|
|
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|
Diluted earnings per common
share |
|
$ |
0.63 |
|
|
$ |
0.50 |
|
|
$ |
2.09 |
|
|
$ |
2.44 |
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
Dividends declared per common
share |
|
$ |
0.57 |
|
|
$ |
0.57 |
|
|
$ |
1.99 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
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|
Weighted average number of shares
of common stock outstanding: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic |
|
|
17,226,496 |
|
|
|
17,003,174 |
|
|
|
17,185,737 |
|
|
|
16,812,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
21,067,847 |
|
|
|
20,803,163 |
|
|
|
21,021,218 |
|
|
|
20,636,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
3
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Nine Months Ended September 30, 2006
(Unaudited)
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Preferred |
|
Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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Other |
|
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|
|
Comprehensive |
|
Stock |
|
Stock Par |
|
Common |
|
Common Stock |
|
Additional Paid- |
|
Treasury |
|
Treasury |
|
Retained |
|
Comprehensive |
|
|
|
|
Income |
|
Shares |
|
Value |
|
Stock Shares |
|
Par Value |
|
in Capital |
|
Stock Shares |
|
Stock |
|
earnings |
|
Income |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance- January 1, 2006 |
|
|
|
|
|
|
3,776,069 |
|
|
$ |
37,761 |
|
|
|
17,051,391 |
|
|
$ |
170,514 |
|
|
$ |
264,691,931 |
|
|
|
|
|
|
|
|
|
|
$ |
21,452,789 |
|
|
$ |
1,255,522 |
|
|
$ |
287,608,517 |
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,847 |
|
|
|
1,778 |
|
|
|
4,609,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,611,595 |
|
Purchase of treasury stock . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,200 |
) |
|
|
(6,276,232 |
) |
|
|
|
|
|
|
|
|
|
|
(6,276,232 |
) |
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,695 |
|
|
|
947 |
|
|
|
(947 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793,062 |
|
Distributionscommon stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,196,530 |
) |
|
|
|
|
|
|
(34,196,530 |
) |
Forfeited unvested restricted
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(445 |
) |
|
|
(4 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to minority interest
from increased ownership in
ARLP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,263 |
|
Net income |
|
|
36,006,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,006,655 |
|
|
|
|
|
|
|
36,006,655 |
|
Net unrealized gain on securities available for
sale |
|
|
544,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544,581 |
|
|
|
544,581 |
|
Unrealized
loss on derivative
financial
instruments |
|
|
(632,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(632,500 |
) |
|
|
(632,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-September 30, 2006 |
|
$ |
35,918,736 |
|
|
|
3,776,069 |
|
|
$ |
37,761 |
|
|
|
17,323,488 |
|
|
$ |
173,235 |
|
|
$ |
271,159,130 |
|
|
|
(250,200 |
) |
|
$ |
(6,276,232 |
) |
|
$ |
23,262,914 |
|
|
$ |
1,167,603 |
|
|
$ |
289,524,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2006 and 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
36,006,655 |
|
|
$ |
41,043,776 |
|
Adjustments to reconcile net income to cash provided by operating activities |
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
1,793,062 |
|
|
|
1,273,542 |
|
Minority interest |
|
|
7,921,687 |
|
|
|
9,209,291 |
|
Amortization and accretion of interest |
|
|
(282,992 |
) |
|
|
597,562 |
|
Non-cash incentive compensation to manager |
|
|
4,812,445 |
|
|
|
4,077,739 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Others assets |
|
|
(5,442,729 |
) |
|
|
(2,073,372 |
) |
Other liabilities |
|
|
(1,946,478 |
) |
|
|
7,182,854 |
|
Deferred origination fees |
|
|
(264,321 |
) |
|
|
2,834,126 |
|
Due to related party |
|
|
(1,612,391 |
) |
|
|
(592,722 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
40,984,938 |
|
|
|
63,552,796 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Loans and investments originated and purchased, net |
|
|
(812,970,984 |
) |
|
|
(710,995,016 |
) |
Payoffs and paydowns of loans and investments |
|
|
458,044,580 |
|
|
|
460,461,722 |
|
Due to borrowers |
|
|
5,166,844 |
|
|
|
(3,535,598 |
) |
Prepayments on securities available for sale |
|
|
5,836,559 |
|
|
|
11,957,543 |
|
Change in restricted cash |
|
|
(62,964,798 |
) |
|
|
(52,663,234 |
) |
Contributions to equity affiliates |
|
|
(5,419,605 |
) |
|
|
(16,253,939 |
) |
Distributions from equity affiliates |
|
|
|
|
|
|
4,908,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(412,307,404 |
) |
|
|
(306,119,828 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from notes payable and repurchase agreements |
|
|
522,120,826 |
|
|
|
646,246,456 |
|
Payoffs and paydowns of notes payable and repurchase agreements |
|
|
(524,880,704 |
) |
|
|
(660,789,690 |
) |
Proceeds from issuance of collateralized debt obligation |
|
|
356,250,000 |
|
|
|
305,319,000 |
|
Payoffs and paydowns of collateralized debt obligations |
|
|
(8,360,000 |
) |
|
|
(4,000,000 |
) |
Proceeds from issuance of junior subordinated notes |
|
|
67,014,000 |
|
|
|
|
|
Issuance of common stock |
|
|
4,611,595 |
|
|
|
8,786,762 |
|
Purchases of treasury stock |
|
|
(6,276,232 |
) |
|
|
|
|
Distributions paid to minority interest |
|
|
(7,514,377 |
) |
|
|
(6,003,949 |
) |
Distributions paid on common stock |
|
|
(34,196,530 |
) |
|
|
(26,679,516 |
) |
Contributions from minority shareholders |
|
|
116,000 |
|
|
|
|
|
Payment of deferred financing costs |
|
|
(8,481,030 |
) |
|
|
(11,429,880 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
360,403,548 |
|
|
|
251,449,183 |
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
|
(10,918,918 |
) |
|
|
8,882,151 |
|
Cash and cash equivalents at beginning of period |
|
|
19,427,309 |
|
|
|
6,401,701 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
8,508,391 |
|
|
$ |
15,283,852 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash used to pay interest, net of capitalized interest |
|
$ |
56,620,261 |
|
|
$ |
27,226,225 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
5
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Note 1 Description of Business and Basis of Presentation
Arbor Realty Trust, Inc. (the Company) is a Maryland corporation that was formed in June
2003 to invest in real estate related bridge and mezzanine loans, preferred and direct equity and,
in limited cases, mortgage-backed securities, discounted mortgage notes and other real estate
related assets. The Company has not invested in any discounted mortgage notes for the periods
presented. The Company conducts substantially all of its operations through its operating
partnership, Arbor Realty Limited Partnership (ARLP), and its wholly-owned subsidiaries. The
Company is externally managed and advised by Arbor Commercial Mortgage, LLC (ACM).
The Company sold 6.8 million shares of its common stock in an initial public offering on April
13, 2004 for net proceeds of approximately $125.4 million, which the Company used to pay down
indebtedness. In addition, in May 2004 the underwriters exercised a portion of their over allotment
option, which resulted in the issuance of 0.5 million additional shares for net proceeds of
approximately $9.8 million. Additionally, in 2004, 1.3 million common stock warrants were
exercised, which resulted in the issuance of 1.0 million common shares and proceeds of $12.9
million. In October 2004, the Company received proceeds of approximately $9.4 million from the
exercise of warrants by ACM for a total of 0.6 million operating partnership units. In 2005,
approximately 0.6 million shares of common stock were issued from the exercise of warrants,
incentive management fee payments and grants of restricted stock to certain employees of the
Company and ACM. For the nine months ended September 30, 2006, the Company issued 0.3 million
shares from incentive management fee payments and grants of restricted stock to certain employees
of the Company and ACM. As of September 30, 2006, the Company had 17,073,288 shares of common stock
outstanding.
The Company is organized and conducts its operations to qualify as a real estate investment
trust (REIT) and to comply with the provisions of the Internal Revenue Code of 1986, as amended
with respect thereto. A REIT is generally not subject to Federal income tax on that portion of its
REIT taxable income (Taxable Income) which is distributed to its stockholders, provided that at
least 90% of Taxable Income is distributed and provided that certain other requirements are met.
Certain assets of the Company that produce non-qualifying income are held in taxable REIT
subsidiaries. Unlike other subsidiaries of a REIT, the income of a taxable REIT subsidiary is
subject to Federal and state income taxes. During the nine months ended September 30, 2006 the
Company recorded a $0.2 million provision for income taxes related to these assets that are held in
taxable REIT subsidiaries. This provision is included in selling and administrative expense on the
income statement.
The accompanying unaudited consolidated interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim financial
statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements, although management
believes that the disclosures presented herein are adequate to make the accompanying unaudited
consolidated interim financial statements presented not misleading. The accompanying unaudited
consolidated interim financial statements should be read in conjunction with the audited
consolidated annual financial statements and the related Managements Discussion and Analysis of
Financial Condition and Results of Operations included in the Companys Annual Report on Form 10-K
for the year ended December 31, 2005. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation have been included.
The results of operations for the three and nine months ended September 30, 2006 are not
necessarily indicative of results that may be expected for the entire year ending December 31,
2006.
Note 2 Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated interim financial statements in conformity with U.S. Generally
Accepted Accounting Principals (GAAP) requires management to make estimates and assumptions in
determining the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the
6
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
consolidated interim financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to current period presentation.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered
to be cash equivalents. The Company places its cash and cash equivalents in high quality financial
institutions. The consolidated account balances at each institution periodically exceeds FDIC
insurance coverage and the Company believes that this risk is not significant.
Restricted Cash
On September 30, 2006 and December 31, 2005, the Company had restricted cash of $98.5 million
and $35.5 million, respectively, on deposit with the trustees for the Companys collateralized debt
obligations (CDOs), see Note 6 Debt Obligations. The balance as of September 30, 2006 primarily
represents proceeds received from loan repayments, which will be used to purchase replacement loans
as collateral for the CDOs and interest payments received from loans in the CDOs, which are
remitted to the Company quarterly in the month following the quarter.
Capitalized Interest
The Company capitalizes interest in accordance with Statement of Financial Accounting
Standards (SFAS) No. 58 Capitalization of Interest Costs in Financial Statements that Include
Investments Accounted for by the Equity Method. This statement amended SFAS No. 34
Capitalization of Interest Costs to include investments (equity, loans and advances) accounted
for by the equity method as qualifying assets of the investor while the investee has activities in
progress necessary to commence its planned principal operations, provided that the investees
activities include the use of funds to acquire qualifying assets for its operations. One of the
Companys joint ventures which is accounted for using the equity method, is in the process of using
funds to acquire qualifying assets for its planned principal operations. During the three and nine
months ended September 30, 2006, the Company capitalized $0.2 million and $0.6 million,
respectively of interest relating to this investment. There was no capitalization of interest
during the three and nine months ended September 30, 2005.
Revenue Recognition
Interest Income - Interest income is recognized on the accrual basis as it is earned from
loans, investments and available-for-sale securities. In many instances, the borrower pays an
additional amount of interest at the time the loan is closed, an origination fee, and deferred
interest upon maturity. In some cases interest income may also include the amortization or
accretion of premiums and discounts arising at the purchase or origination. This additional income,
net of any direct loan origination costs incurred, is deferred and accreted into interest income on
an effective yield or interest method adjusted for actual prepayment activity over the life of
the related loan or available-for-sale security as a yield adjustment. Income recognition is
suspended for loans when in the opinion of management a full recovery of income and principal
becomes doubtful. Income recognition is resumed when the loan becomes contractually current and
performance is demonstrated to be resumed. Several of the loans provide for an accrual of interest
at specified rates, which differ from current payment terms. Interest is recognized on such loans
at the accrual rate subject to managements determination that accrued interest and outstanding
principal are ultimately collectible, based on the underlying collateral and operations of the
borrower. If management cannot make this determination regarding collectibility, interest income
above the current pay rate is recognized only upon actual receipt. Additionally, interest income is
recorded when earned from equity participation interests, referred to as equity kickers. These
equity kickers have the potential to generate additional revenues to the Company as a result of
excess cash flows being distributed and/or as appreciated properties are sold or refinanced. For
the three months ended September 30, 2006 and 2005, the Company recorded $0.0 million and for the
nine months ended September
7
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
30, 2006 and 2005, the Company recorded $8.3 million and $18.4 million, of interest on such loans
and investments, respectively. These amounts represent the difference between the pay rate of
interest and the all-in return rate based on the contractual agreements with the borrowers. Prior
to these periods, management was unable to determine if this interest was collectable.
Derivatives and Hedging Activities
The Company accounts for derivative financial instruments in accordance with Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities as amended by Statement of Financial Accounting Standards No. 138, collectively (SFAS
133). SFAS 133 requires an entity to recognize all derivatives as either assets or liabilities in
the consolidated balance sheets and to measure those instruments at fair value. Additionally, the
fair value adjustments will affect either other comprehensive income in stockholders equity until
the hedged item is recognized in earnings or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging
activity.
In the normal course of business, the Company may use a variety of derivative financial
instruments to manage, or hedge, interest rate risk. These derivative financial instruments must be
effective in reducing the Companys interest rate risk exposure in order to qualify for hedge
accounting. When the terms of an underlying transaction are modified, or when the underlying hedged
item ceases to exist, all changes in the fair value of the instrument are marked-to-market with
changes in value included in net income for each period until the derivative instrument matures or
is settled. Any derivative instrument used for risk management that does not meet the hedging
criteria is marked-to-market with the changes in value included in net income.
Derivatives are used for hedging purposes rather than speculation. The Company relies on
quotations from a third party to determine these fair values.
The following is a summary of the derivative financial instruments held by the Company as of
September 30, 2006 and December 31, 2005: (Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
Notional |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
Value |
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
September |
|
December 31, |
|
Expiration |
|
Designation\ |
|
September |
|
December 31, |
Date Executed |
|
30, 2006 |
|
2005 |
|
Date |
|
Cash Flow |
|
30, 2006 |
|
2005 |
|
December 21, 2004 |
|
$ |
374,420 |
|
|
$ |
338,095 |
|
|
January 2012 |
|
Non-Qualifying |
|
$ |
280 |
|
|
$ |
52 |
|
December 21, 2004 |
|
|
94,606 |
|
|
|
130,931 |
|
|
January 2009 |
|
Non-Qualifying |
|
|
189 |
|
|
|
183 |
|
June 22, 2005 |
|
|
25,000 |
|
|
|
25,000 |
|
|
March 2010 |
|
Non-Qualifying |
|
|
697 |
|
|
|
653 |
|
December 23, 2005 |
|
|
119,171 |
|
|
|
119,171 |
|
|
July 2015 |
|
Non-Qualifying |
|
|
224 |
|
|
|
(30 |
) |
December 23, 2005 |
|
|
111,000 |
|
|
|
111,000 |
|
|
July 2013 |
|
Non-Qualifying |
|
|
126 |
|
|
|
(24 |
) |
December 23, 2005 |
|
|
58,085 |
|
|
|
58,085 |
|
|
January 2013 |
|
Non-Qualifying |
|
|
53 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Qualifying |
|
|
782,282 |
|
|
|
782,282 |
|
|
|
|
|
|
|
|
|
1,569 |
|
|
|
821 |
|
|
June 16, 2005 |
|
|
25,000 |
|
|
|
25,000 |
|
|
April 2010 |
|
Qualifying |
|
|
624 |
|
|
|
556 |
|
December 23, 2005 |
|
|
134,050 |
|
|
|
134,050 |
|
|
October 2015 |
|
Qualifying |
|
|
1,060 |
|
|
|
(844 |
) |
December 23, 2005 |
|
|
5,922 |
|
|
|
5,922 |
|
|
November 2010 |
|
Qualifying |
|
|
27 |
|
|
|
(15 |
) |
February 28, 2006 |
|
|
5,000 |
|
|
|
|
|
|
September 2010 |
|
Qualifying |
|
|
(17 |
) |
|
|
|
|
March 2, 2006 |
|
|
20,000 |
|
|
|
|
|
|
November 2012 |
|
Qualifying |
|
|
(151 |
) |
|
|
|
|
March 10, 2006 |
|
|
10,000 |
|
|
|
|
|
|
March 2016 |
|
Qualifying |
|
|
(140 |
) |
|
|
|
|
March 14, 2006 |
|
|
7,200 |
|
|
|
|
|
|
April 2011 |
|
Qualifying |
|
|
(46 |
) |
|
|
|
|
March 15, 2006 |
|
|
9,000 |
|
|
|
|
|
|
November 2010 |
|
Qualifying |
|
|
(52 |
) |
|
|
|
|
March 15, 2006 |
|
|
3,763 |
|
|
|
|
|
|
November 2010 |
|
Qualifying |
|
|
(21 |
) |
|
|
|
|
May 17, 2006 |
|
|
9,000 |
|
|
|
|
|
|
June 2007 |
|
Qualifying |
|
|
(2 |
) |
|
|
|
|
8
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
Notional |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
Value |
|
|
|
|
|
|
|
Fair Value |
|
Fair Value |
|
|
September |
|
December 31, |
|
Expiration |
|
Designation\ |
|
September |
|
December 31, |
Date Executed |
|
30, 2006 |
|
2005 |
|
Date |
|
Cash Flow |
|
30, 2006 |
|
2005 |
|
June 1, 2006 |
|
|
1,899 |
|
|
|
|
|
|
June 2016 |
|
Qualifying |
|
|
(74 |
) |
|
|
|
|
June 2, 2006 |
|
|
15,000 |
|
|
|
|
|
|
June 2011 |
|
Qualifying |
|
|
(244 |
) |
|
|
|
|
July 21, 2006 |
|
|
7,215 |
|
|
|
|
|
|
July 2011 |
|
Qualifying |
|
|
(127 |
) |
|
|
|
|
July 28, 2006 |
|
|
25,000 |
|
|
|
|
|
|
July 2011 |
|
Qualifying |
|
|
(441 |
) |
|
|
|
|
August 4, 2006 |
|
|
5,165 |
|
|
|
|
|
|
August 2011 |
|
Qualifying |
|
|
(60 |
) |
|
|
|
|
August 15, 2006 |
|
|
25,000 |
|
|
|
|
|
|
July 2011 |
|
Qualifying |
|
|
(360 |
) |
|
|
|
|
September 21, 2006 |
|
|
25,000 |
|
|
|
|
|
|
January 2011 |
|
Qualifying |
|
|
(74 |
) |
|
|
|
|
September 27, 2006 |
|
|
7,000 |
|
|
|
|
|
|
June 2016 |
|
Qualifying |
|
|
13 |
|
|
|
|
|
September 27, 2006 |
|
|
6,500 |
|
|
|
|
|
|
May 2016 |
|
Qualifying |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Qualifying |
|
$ |
346,714 |
|
|
$ |
164,972 |
|
|
|
|
|
|
|
|
$ |
(72 |
) |
|
$ |
(303 |
) |
The fair value of Non-Qualifying Hedges as of September 30, 2006 and December 31, 2005
was $1.6 million and $0.8 million, respectively, and is recorded in other assets and other
liabilities on the Balance Sheet. For the nine months ended September 30, 2006 and 2005 the change
in unrealized fair value of the Non-Qualifying Swaps was $0.7 million and $0.1 million
respectively, and is recorded in interest expense on the Consolidated Income Statement.
The fair value of Qualifying Cash Flow Hedges as of September 30, 2006 and December 31, 2005
was $(0.1) million and $(0.3) million, respectively and is recorded in Other Comprehensive Income
and other assets on the Balance Sheet. As of September 30, 2006, the Company expects to reclassify
approximately $0.1 million of Other Comprehensive Income from Qualifying Cash Flow Hedges to
earnings over the next twelve months assuming interest rates on that date are held constant.
In December 2005, the Company terminated six interest rate swap derivatives at market value,
and recorded an unrealized deferred hedging gain in other comprehensive income. This gain is being
accreted to income over the original life of the hedging instruments as the hedged item was
designated as current and future outstanding LIBOR based debt, which has an indeterminate life. As
of September 30, 2006, and December 31, 2005, approximately $1.6 million and $1.8 million,
respectively, of such gains were deferred through other comprehensive income. The Company expects
to accrete approximately $0.3 million of this deferred income to earnings over the next twelve
months. For the nine months ended September 30, 2006, the Company recorded $0.2 million as a
reduction to interest expense related to the accretion of these gains. There were no deferred gains
relating to interest rate swaps as of September 30, 2005.
In June 2005, the Company
entered into an interest rate swap agreement on one of its junior
subordinated notes relating to one of its
series of Trust Preferred securities (Trust Preferred swap) that was accounted for as a cash flow
hedge under SFAS No. 133. The Company elected an abbreviated method (the short-cut method) of
documenting the effectiveness of the Trust Preferred swap as a hedge, which allowed the Company to assume no
ineffectiveness in this transaction as long as critical terms did not change. The Company recently
concluded that the Trust Preferred swap did not qualify for this method in prior periods. The
presence of an interest deferral feature in the Trust Preferred security, in retrospect, violated
short-cut method criteria. Hedge accounting under SFAS No. 133 is not allowed retrospectively
because the hedge documentation required for the long-haul method was not in place at the
inception of the hedge. Eliminating the application of cash flow hedge accounting reverses the fair
value adjustments that were made to the hedged item and results in the reclassification of
approximately $0.7 million of the cumulative fair value of the
Trust Preferred swap on the balance sheet to income
from swap derivative on the income statement. This is a result of a change in accounting treatment
according to a new technical clarification of accounting for interest rate swaps on Trust Preferred
securities and reflects the cumulative fair value of the Trust
Preferred swap at September 30, 2006. In addition,
the Company has re-designated the Trust Preferred swap as a cash flow hedge under the long haul
accounting method in order to qualify it for cash flow hedge accounting in future periods.
The cumulative amount of Other Comprehensive Income related to net unrealized gains (losses)
on derivatives designated as Cash Flow Hedges as of September 30, 2006 and December 31, 2005 of
$1.5 million and $2.2 million, respectively, is a combination of the fair value of qualifying cash
flow hedges of $(0.1) million and $0.4 million, respectively, and deferred gain on termination of
interest swaps of $1.6 million and $1.8 million,
respectively. The remaining portion included in Other Comprehensive Income is related to the Companys Available for
Sale Securities as discussed in Note 4 Available For Sale Securities of these Consolidated
Financial Statements.
9
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Variable Interest Entities
Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46R,
Consolidation of Variable Interest Entities (FIN 46), which requires a variable interest entity
(VIE) to be consolidated by its primary beneficiary (PB). The PB is the party that absorbs a
majority of the VIEs anticipated losses and/or a majority of the expected returns.
The Company has evaluated its loans and investments and investments in equity affiliates to
determine whether they are variable interests in a VIE. This evaluation resulted in the Company
determining that its bridge loans, mezzanine loans, preferred equity investments and investments in
equity affiliates were potential variable interests. For each of these investments, the Company has
evaluated (1) the sufficiency of the fair value of the entities equity investments at risk to
absorb losses, (2) that as a group the holders of the equity investments at risk have (a) the
direct or indirect ability through voting rights to make decisions about the entities significant
activities, (b) the obligation to absorb the expected losses of the entity and their obligations
are not protected directly or indirectly, (c) the right to receive the expected residual return of
the entity and their rights are not capped, (3) the voting rights of these investors are
proportional to their obligations to absorb the expected losses of the entity, their rights to
receive the expected returns of the equity, or both, and that substantially all of the entities
activities do not involve or are not conducted on behalf of an investor that has disproportionately
few voting rights. As of September 30, 2006, the Company has identified twenty loans and
investments which were made to entities determined to be VIEs.
The following is a summary of the identified VIEs as of September 30, 2006.
|
|
|
|
|
|
|
|
|
Type |
|
Carrying Amount |
|
Property |
|
Location |
Loan and investment |
|
$ |
60,000,000 |
|
|
Commercial |
|
California |
Loan and investment |
|
|
47,710,938 |
|
|
Office |
|
New York |
Loan |
|
|
30,653,000 |
|
|
Hotel |
|
Various |
Loan and investment |
|
|
26,287,775 |
|
|
Condo |
|
New York |
Loan |
|
|
25,000,000 |
|
|
Multifamily |
|
Various |
Loan |
|
|
17,050,000 |
|
|
Office |
|
New York |
Loan |
|
|
7,749,538 |
|
|
Multifamily |
|
Indiana |
Loan |
|
|
1,900,000 |
|
|
Multifamily |
|
New York |
Loan |
|
|
10,000,000 |
|
|
Office |
|
Pennsylvania |
Loan |
|
|
7,063,275 |
|
|
Multifamily |
|
South Carolina |
Loan |
|
|
4,017,137 |
|
|
Multifamily |
|
Indiana |
Loan |
|
|
7,000,000 |
|
|
Office |
|
Texas |
Loan |
|
|
2,800,000 |
|
|
Office |
|
Rhode Island |
Investment |
|
|
1,550,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
1,550,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
820,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
780,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
774,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
774,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
Investment |
|
|
464,000 |
|
|
Junior subordinated notes(1) |
|
N/A |
|
|
|
(1) |
|
These entities that issued the junior subordinated notes are VIEs. It is
not appropriate to consolidate these entities under the provisions of FIN 46 as equity interests
are variable interests only to the extent that the investment is considered to be at risk. Since
the Companys investments were funded by the entities that issued the junior subordinated notes, it
is not considered to be at risk. |
10
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
For the twenty VIEs identified, the Company has determined that they are not the
primary beneficiaries of the VIEs and as such the VIEs should not be consolidated in the
Companys financial statements. The Companys maximum exposure to loss would not exceed the
carrying amount of such investments. For all other investments, the Company has determined they
are not VIEs. As such, the Company has continued to account for these loans and investments as a
loan or investment in equity affiliate, as appropriate.
Recently Issued Accounting Pronouncements
In December 2004, the FASB published SFAS 123(R) entitled Share-Based Payment. It requires
all public companies to report share-based compensation expense at the grant date fair value of the
related share-based awards. The Company was required to adopt the provisions of the standard
effective for periods beginning after June 15, 2005. The Company believes that its current method
of accounting for share-based payments is consistent with SFAS 123(R).
Deferred compensation of $1.7 million for the period ending December 31, 2005, relating to
unvested restricted stock was reclassified to additional paid-in capital in accordance with SFAS
123(R). As of September 30, 2006, the Company has deferred unearned compensation related to its
unvested restricted stock of approximately $2.4 million.
In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R), that became effective
beginning third quarter of 2006. FSP FIN No. 46(R)-6 clarifies that the variability to be
considered in applying Interpretation 46(R) shall be based on an analysis of the design of the
variable interest entity. The Company believes that its current method of accounting for variable
interest entities is consistent with FIN 46(R)-6.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
prescribes a recognition threshold and measurement in the financial statements of a tax position
taken or expected to be taken in a tax return. The interpretation also provides guidance as to its
application and related transition, and is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the effect, if any; the adoption of FIN 48 may have on
the Companys Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS
157), Fair Value Measurements, which defines fair value, establishes guidelines for measuring
fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any
new fair value measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November
15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial
statements, including for interim periods, for that fiscal year. The Company is currently
evaluating the effect, if any; the adoption of SFAS 157 may have on the Companys Consolidated
Financial Statements.
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108 (SAB 108), Considering
the Effects of Prior Year Misstatements when Quantifying Current Year
Misstatements, effective for fiscal years ending after November
15, 2006. SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement for the purpose
of a materiality assessment. The Company is currently evaluating the
effect, if any; the adoption of SAB 108 may have on the
Companys Consolidated Financial Statements.
11
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Note 3 Loans and Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2006 |
|
|
At December 31, 2005 |
|
|
|
September 30, |
|
|
December 31, |
|
|
Loan |
|
|
Wtd. Avg. |
|
|
Loan |
|
|
Wtd. Avg. |
|
|
|
2006 |
|
|
2005 |
|
|
Count |
|
|
Pay Rate |
|
|
Count |
|
|
Pay Rate |
|
|
|
(Unaudited) |
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
Bridge loans |
|
$ |
719,098,186 |
|
|
$ |
405,702,234 |
|
|
|
33 |
|
|
|
8.85 |
% |
|
|
21 |
|
|
|
8.21 |
% |
Mezzanine loans |
|
|
835,892,604 |
|
|
|
821,454,043 |
|
|
|
48 |
|
|
|
9.66 |
% |
|
|
42 |
|
|
|
9.81 |
% |
Preferred equity
investments |
|
|
19,436,955 |
|
|
|
18,855,388 |
|
|
|
7 |
|
|
|
10.40 |
% |
|
|
4 |
|
|
|
9.64 |
% |
Other |
|
|
12,357,559 |
|
|
|
13,891,005 |
|
|
|
3 |
|
|
|
5.88 |
% |
|
|
4 |
|
|
|
5.63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,586,785,304 |
|
|
|
1,259,902,670 |
|
|
|
91 |
|
|
|
9.28 |
% |
|
|
71 |
|
|
|
9.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue |
|
|
(11,718,088 |
) |
|
|
(13,076,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net |
|
$ |
1,575,067,216 |
|
|
$ |
1,246,825,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2006, the Company originated a $60.0 million bridge loan secured by
approximately 769 acres of land, partially improved by an operating ski resort in Lake Tahoe,
California. The loan accrues interest on a monthly basis at a rate of 11.23%, requires a monthly
fixed interest payment at 9.14% and matures in June 2011. In addition, the Company has a 25.6%
equity kicker in the borrowing entity.
In
July and August 2006, the Company originated two bridge and
preferred equity loans totaling $13.0 million. The
loans accrue interest based on LIBOR on a monthly basis and mature in 2011. In addition, the
Company has a 25% equity kicker in the borrowing entities. No income from the equity kickers has
been recognized for the nine months ended September 30, 2006.
Concentration of Borrower Risk
The Company is subject to concentration risk in that, as of September 30, 2006, the unpaid
principal balance related to 13 loans with five unrelated borrowers represented approximately 20%
of total assets. The Company had 91 loans and investments, including two related party loans, as of
September 30, 2006. As of September 30, 2006, 50.7%, 14.1%, and 6.9% of the outstanding balance of
the Companys loans and investments portfolio had underlying properties in New York, Florida and
California, respectively.
Note 4 Available-For-Sale Securities
The following is a summary of the Companys available-for-sale securities at September 30,
2006. (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face |
|
|
Amortized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Value |
|
|
Cost |
|
|
Loss |
|
|
Fair Value |
|
Federal Home Loan
Mortgage
Corporation,
variable rate
security, fixed
rate of interest
for three years at
3.779% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$79,863) |
|
$ |
12,858,690 |
|
|
$ |
12,938,554 |
|
|
$ |
(176,303 |
) |
|
$ |
12,762,251 |
|
Federal Home Loan
Mortgage
Corporation,
variable rate
security, fixed
rate of interest
for three years at
3.767% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$30,968) |
|
|
4,242,180 |
|
|
|
4,273,148 |
|
|
|
(83,995 |
) |
|
|
4,189,153 |
|
Federal National
Mortgage
Association,
variable rate
security, fixed
rate of interest
for three years at
3.823% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$55,014) |
|
|
7,081,008 |
|
|
|
7,136,023 |
|
|
|
(90,419 |
) |
|
|
7,045,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,181,878 |
|
|
$ |
24,347,725 |
|
|
$ |
(350,717 |
) |
|
$ |
23,997,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
The following is a summary of the Companys available-for-sale securities at December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face |
|
|
Amortized |
|
|
Unrealized |
|
|
Estimated |
|
|
|
Value |
|
|
Cost |
|
|
Loss |
|
|
Fair Value |
|
Federal Home Loan
Mortgage
Corporation,
variable rate
security, fixed
rate of interest
for three years at
3.797% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$226,895) |
|
$ |
15,228,360 |
|
|
$ |
15,455,255 |
|
|
$ |
(441,044 |
) |
|
$ |
15,014,211 |
|
Federal Home Loan
Mortgage
Corporation,
variable rate
security, fixed
rate of interest
for three years at
3.758% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$83,967) |
|
|
4,763,621 |
|
|
|
4,847,588 |
|
|
|
(156,909 |
) |
|
|
4,690,679 |
|
Federal National
Mortgage
Association,
variable rate
security, fixed
rate of interest
for three years at
3.800% and
adjustable rate
interest
thereafter, due
March 2034
(including
unamortized premium
of
$181,415) |
|
|
10,026,460 |
|
|
|
10,207,875 |
|
|
|
(297,345 |
) |
|
|
9,910,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,018,441 |
|
|
$ |
30,510,718 |
|
|
$ |
(895,298 |
) |
|
$ |
29,615,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006, all available-for-sale securities were carried at their
estimated fair market value based on current market quotes received from financial sources that
trade such securities. These securities were purchased in March 2004 and have been in an unrealized
loss position for more than twelve months. The estimated fair value of these securities fluctuate
primarily due to changes in interest rates and other factors; however, given that these securities
are guaranteed as to principal and/or interest by an agency of the U.S. Government, such
fluctuations are generally not based on the creditworthiness of the mortgages securing these
securities. The Company has the ability and intent to hold these investments until a recovery of
fair value, which may be maturity; the Company does not consider these investments to be
other-than-temporarily impaired at September 30, 2006.
During the three and nine months ended September 30, 2006, the Company received prepayments of
$2.5 million and $5.8 million on these securities and amortized $0.1 million and $0.3 million of
the premium paid for these securities against interest income. These securities are pledged as
collateral for borrowings under a repurchase agreement (See Note 6 Debt Obligations).
The cumulative amount of Other Comprehensive Income related to unrealized gains or (losses) on
these securities as of September 30, 2006 and December 31, 2005 was ($350,717) and ($895,298),
respectively.
Note 5 Investment in Equity Affiliates
In December 2003, the Company invested approximately $2.1 million in exchange for a 50%
non-controlling interest in Prime Outlets Member, LLC POM, which owns 15% of a real estate
holding company that owns and operates factory outlet shopping centers. The Company accounts for
this investment under the equity method. As of December 31, 2005, the Company had a mezzanine loan
outstanding to an affiliate entity of the joint venture for $30.1 million. In addition, the Company
had a $10.0 million junior loan participation interest outstanding to an affiliate entity of the
joint venture as of December 31, 2005. The loans require monthly interest payments based on one
month LIBOR and matured in January 2006. Additionally, the Company has a 16.7% carried profits
interest in the borrowing entity. In June 2005, POM refinanced the debt on a portion of the assets
in its portfolio, receiving proceeds in excess of the amount of the previously existing debt. The
excess proceeds were distributed to each of the partners in accordance with POMs operating
agreement. In accordance with this transaction, the joint venture members of POM agreed to
guarantee $38 million of the new debt. The guarantee expired at the earlier of maturity or
prepayment of the debt and would require performance by the members if not repaid in full. This
guarantee was allocated to the members in accordance with their ownership percentages. Of the
distribution received by the Company, $9.2 million was recorded as deferred revenue, representing
the Companys portion of the $38 million guarantee. In January 2006, POM refinanced the debt on a
portion of the assets in its portfolio and repaid in full the debt that was added in June 2005 and
the $30.1 million mezzanine loan and the $10.0 million junior loan participating interest that the
Company had outstanding as of December 31, 2005. As a result, the $38 million guarantee was removed
and the Company recognized the $9.2 million of deferred revenue, $6.3 million as interest
13
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
income representing the portion attributable to the 16.7% carried profits interest and $2.9 million
as income from equity affiliates representing the portion attributable to the 7.5% equity interest.
In 2005, the Company invested $10.0 million in exchange for a 20% ownership interest in 200
Fifth LLC, which owns an office property in New York City. It is intended that the property, with
over one million square feet of space, will be converted from an office property into condominium
units. In addition, the Company provided loans to three partners in the investor group totaling $13
million, of which $10.5 million is outstanding as of September 30, 2006. The loans are secured by
their ownership interest in the joint venture and mature in April 2008. In 2005, the Company
purchased three mezzanine loans totaling $137 million from the primary lender. These loans are
secured by the property, require monthly interest payments based on one month LIBOR and mature in
April 2008. The Company sold a participating interest in one of the loans for $59 million which was
recorded as a financing and is included in notes payable. For the nine months ended September 30,
2006 and the year ended December 31, 2005, the Company capitalized $0.6 million and $0.5 million,
respectively, of interest on its equity investment. During the third quarter 2006, the Company
contributed an additional $2.9 million to the joint venture increasing its equity investment to
approximately $13.9 million. In October 2006, the Company contributed an additional $0.4 million to
the joint venture increasing its equity investment to approximately $14.3 million.
During the second quarter 2006, the Company invested $2.0 million for 100% of the common
shares of two affiliate entities of the Company which were formed to facilitate the issuance of
$67.0 million of junior subordinate notes. These entities pay dividends on both the common shares
and preferred securities on a quarterly basis at a variable rate based on LIBOR. The financing
terms of these junior subordinate notes are presented in the notes payable table of Note 6. The
impact of these entities in accordance with FIN 46R Consolidation of Variable Interest Entities
is discussed in Note 2.
Note 6 Debt Obligations
Repurchase Agreements
The Company utilizes repurchase agreements, warehouse lines of credit, loan participations,
collateralized debt obligations and subordinated notes to finance certain of its loans and
investments. Borrowings underlying these arrangements are secured by certain of the Companys loans
and investments.
14
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
The following table outlines borrowings under the Companys repurchase agreements as of September
30, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
|
December 31, 2005 |
|
|
|
Debt |
|
|
Collateral |
|
|
Debt |
|
|
Collateral |
|
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Repurchase agreement,
Wachovia Bank National
Association, $550 million
committed line, expiration
March 2007, interest is
variable based on
one-month LIBOR; the
weighted average note rate
was 7.06% and 6.37%,
respectively |
|
$ |
374,549,694 |
|
|
$ |
456,028,193 |
|
|
$ |
380,544,323 |
|
|
$ |
554,322,023 |
|
Repurchase agreement,
financial institution,
$100 million committed
line, expiration July
2007, interest is variable
based on one-month LIBOR;
the weighted average note
rate was 5.53% and 4.48%,
respectively |
|
|
23,158,166 |
|
|
|
24,347,722 |
|
|
|
28,425,062 |
|
|
|
29,615,420 |
|
Repurchase agreement,
financial institution,
$100 million committed
line, expiration December
2006, interest is variable
based on one-month LIBOR;
the weighted average note
rate was 6.77% and 5.37%,
respectively |
|
|
68,590,000 |
|
|
|
87,237,545 |
|
|
|
4,655,000 |
|
|
|
4,834,000 |
|
Repurchase agreement,
financial institution, $50
million committed line,
expired July 2006,
interest is variable based
on one-month
LIBOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements |
|
$ |
466,297,860 |
|
|
$ |
567,613,460 |
|
|
$ |
413,624,385 |
|
|
$ |
588,771,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2006, the Wachovia Bank National Association repurchase agreement was amended
which temporarily increased the committed amount of this facility to
$550.0 million from $350.0 million
until March 2007.
In October 2006, the Company entered into a $150.0 million master repurchase agreement with a
financial institution. The facility has a rolling one year term not to exceed three years from the
effective date of the agreement and bears interest at a spread over LIBOR.
At
September 30, 2006, the $100.0 million repurchase agreement with a financial institution
entered into for the purpose of financing securities available for sale had current borrowings
equal to 97% of the estimated fair value of the securities (net of principal payment receivables of
approximately $0.4 million). If the estimated fair value of the securities decreases, the Company
may be required to pay down borrowings from the repurchase agreement due to such a decline in the
estimated fair value of the securities collateralizing the repurchase agreement. In July 2006, this
facility was extended for one year.
In certain circumstances, the Company has financed the purchase of investments from
counterparty through a repurchase agreement with that same counterparty. The Company currently
records these investments in the same manner as other investments financed with repurchase
agreements, with the investment recorded as an asset and the related borrowing under the repurchase
agreement as a liability on the Companys consolidated balance sheet. Interest income earned on the
investments and interest expense incurred on the repurchase obligations are reported separately on
the consolidated income statement. There is discussion, based upon a technical interpretation of
SFAS 140, that these transactions may not qualify as a purchase by the Company. The Company
believes, and it is industry practice, that the accounting for these transactions is recorded in an
appropriate manner. However, if these investments do not qualify as a purchase under SFAS 140, the
Company would be required to present the net investment on the balance sheet as a derivative with
the corresponding change in fair value of the derivative being recorded in the income statement.
The value of the derivative would reflect not only changes in the value of the underlying
investment, but also changes in the value of the underlying credit provided by the counterparty. As
of September 30, 2006, the Company has six such transactions, with a book value of the associated
assets of $162.1
15
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
million financed with repurchase obligations of $144.4 million. As of December 31, 2005 the Company
had eight such transactions, with a book value of the associated assets of $176.7 million financed
with repurchase obligations of $124.6 million. Adoption of the aforementioned treatment would
result in the Company recording these assets and liabilities net on its balance sheets.
Junior Subordinated Notes
The following table outlines borrowings under the Companys junior subordinated notes as of
September 30, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Debt |
|
|
Debt |
|
|
|
Carrying |
|
|
Carrying |
|
|
|
Value |
|
|
Value |
|
|
|
(Unaudited) |
|
|
|
|
|
Junior subordinated notes,
maturity March 2034, unsecured,
face amount of $27.1 million,
interest rate variable based on
three-month LIBOR, the weighted
average note rate was 9.11% and
8.28%, respectively |
|
$ |
27,070,000 |
|
|
$ |
27,070,000 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
March 2034, unsecured, face amount
of $25.8 million, interest rate
variable based on three-month
LIBOR, the weighted average note
rate was 8.74% and 7.49%,
respectively |
|
|
25,780,000 |
|
|
|
25,780,000 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
April 2035, unsecured, face amount
of $25.8 million, interest rate
variable based on three-month
LIBOR, the weighted average note
rate was 8.69% and 7.44%,
respectively |
|
|
25,774,000 |
|
|
|
25,774,000 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
July 2035, unsecured, face amount
of $25.8 million, interest rate
variable based on three-month
LIBOR, the weighted average note
rate was 8.74% and 7.49%,
respectively |
|
|
25,774,000 |
|
|
|
25,774,000 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
January 2036, unsecured, face
amount of $51.6 million, interest
rate variable based on three-month
LIBOR, the weighted average note
rate was 8.24% and 7.21%,
respectively |
|
|
51,550,000 |
|
|
|
51,550,000 |
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
July 2036, unsecured, face amount
of $51.6 million, interest rate
variable based on three-month
LIBOR, the weighted average note
rate was 8.09%. |
|
|
51,550,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated notes, maturity
June 2036, unsecured, face amount
of $15.5 million, interest rate
variable based on three-month
LIBOR, the weighted average note
rate was 7.88%. |
|
|
15,464,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total junior subordinated notes |
|
$ |
222,962,000 |
|
|
$ |
155,948,000 |
|
|
|
|
|
|
|
|
The junior subordinated notes are unsecured, have a maturity of 30 years, pay
interest quarterly at a floating rate of interest based on three-month LIBOR and, absent the
occurrence of special events, are not redeemable during the first five years.
In May and June 2006, the Company, through wholly-owned subsidiaries of the operating
partnership, issued $67.0 million of junior subordinated notes in two private placements.
At September 30, 2006 and December 31, 2005, the outstanding balance under these facilities
was $223.0 and $155.9 million with a current weighted average note rate of 8.45% and 7.53%,
respectively. The impact of these entities in accordance with FIN 46R Consolidation of Variable
Interest Entities is discussed in Note 2.
16
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Notes Payable
The following table outlines borrowings under the Companys notes payable as of September 30,
2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
|
December 31, 2005 |
|
|
|
Debt |
|
|
Collateral |
|
|
Debt |
|
|
Collateral |
|
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
|
Carrying |
|
|
|
Value |
|
|
Value |
|
|
Value |
|
|
Value |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Bridge loan
warehouse,
financial
institution, $50
million committed
line, expiration
August 2007,
interest rate
variable based on
Prime or LIBOR, the
weighted average
note rate was 7.58%
and 6.32% ,
respectively
|
|
$ |
17,761,653 |
|
|
$ |
20,896,063 |
|
|
$ |
46,490,512 |
|
|
$ |
55,244,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured term credit
facility Related
Party, financial
institution, $50
million committed
line, expiration
January 2006 with
two six-month
renewal options,
interest rate
variable based on
one-month LIBOR,
the weighted
average note rate
was 10.29% as of
December 31, 2005.
This facility was
paid in full in
January
2006
|
|
|
|
|
|
|
|
|
|
|
30,000,000 |
|
|
|
48,419,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing credit
facility, financial
institution, $50
million committed
line, expiration
December 2007,
interest is
variable based on
one-month LIBOR;
the weighted
average note rate
was 7.34% and
6.68%,
respectively
|
|
|
9,680,371 |
|
|
|
11,171,263 |
|
|
|
2,632,365 |
|
|
|
3,096,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior loan
participation,
maturity April
2008, secured by
Companys interest
in a second
mortgage loan with
a principal balance
of $60 million,
participation
interest is based
on a portion of the
interest received
from the loan, the
loans interest is
variable based on
one-month
LIBOR
|
|
|
59,400,000 |
|
|
|
59,400,000 |
|
|
|
59,400,000 |
|
|
|
59,400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior loan
participation,
maturity April
2008, secured by
Companys interest
in a second
mortgage loan with
a principal balance
of $35 million,
participation
interest is based
on a portion of the
interest received
from the loan, the
loans interest is
variable based on
one-month LIBOR.
The loan
participation was
paid in full in
July
2006
|
|
|
|
|
|
|
|
|
|
|
6,752,500 |
|
|
|
6,752,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior loan
participation,
maturity December
2008, secured by
Companys interest
in a first mortgage
loan with a
principal balance
of $68.5 million,
participation
interest is based
on a portion of the
interest received
from the loan, the
loans interest is
variable based on
one-month
LIBOR |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior loan
participation,
maturity April
2007, secured by
Companys interest
in a first mortgage
loan with a
principal balance
of $1.3 million,
participation
interest is based
on a portion of the
interest received
from the loan, the
loan has a fixed
rate of interest
|
|
|
125,000 |
|
|
|
125,000 |
|
|
|
125,000 |
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable |
|
$ |
89,967,024 |
|
|
$ |
94,592,326 |
|
|
$ |
145,400,377 |
|
|
$ |
173,039,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
October 2006, the $50.0 million warehouse credit facility was amended which
increased the committed amount of this facility to $75.0 million.
At December 31, 2005, the Company had a $50.0 million secured term credit facility with a
shareholder who beneficially owned approximately 2% of the Companys outstanding common stock. The
outstanding balance under this facility was $30.0 million at December 31, 2005 and was reflected in
Notes payable related party on the accompanying balance sheet. In January 2006, this facility was
paid in full.
17
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Collateralized Debt Obligations
On January 11, 2006, the Company completed its second collateralized debt obligation, or CDO
II, issuing to third party investors nine tranches of investment grade collateralized debt
obligations, through a newly-formed wholly-owned subsidiary, Arbor Realty Mortgage Securities
Series 2005-1, Ltd. (the Issuer II). The Issuer II holds assets, consisting primarily of bridge
loans, mezzanine loans and cash totaling approximately $475 million, which serve as collateral for
CDO II. The Issuer II issued investment grade rated notes with a principal amount of approximately
$356 million and a wholly-owned subsidiary of the Company purchased the preferred equity interests
of the Issuer II. The nine investment grade tranches were issued with floating rate coupons with an
initial combined weighted average rate of three-month LIBOR plus 0.74%. CDO II may be replenished
with substitute collateral for loans that are repaid during the first five years. Thereafter, the
outstanding debt balance will be reduced as loans are repaid. The Company incurred approximately
$6.7 million of issuance costs which is being amortized on a level yield basis over the average
life of CDO II. The Company accounts for this transaction on its balance sheet as a financing
facility. For accounting purposes, CDO II is consolidated in the Companys financial statements.
The nine investment grade tranches are treated as a secured financing, and are non-recourse to the
Company. Proceeds from the sale of the nine investment grade tranches issued in CDO II were used to
repay outstanding debt under the Companys repurchase agreements and notes payable. The assets
pledged as collateral were contributed from the Companys existing portfolio of assets. Proceeds
from CDO II are distributed quarterly with approximately $1.2 million being paid to investors as a
reduction of their capital invested. At September 30, 2006, the balance in the CDO II payable was
approximately $353.9 million with a weighted average rate of 6.26%.
In 2005, the Company issued to third party investors four tranches of investment grade
collateralized debt obligations (CDO I) through a newly-formed wholly-owned subsidiary of the
Company. The issuer holds assets, consisting primarily of bridge loans, mezzanine loans and cash
totaling approximately $469 million, which serve as collateral for CDO I. The issuer issued
investment grade rated notes with a principal amount of approximately $305 million and a
wholly-owned subsidiary of the Company purchased the preferred equity interests of the Issuer. The
four investment grade tranches were issued with floating rate coupons with a combined weighted
average rate of three-month LIBOR plus 0.77%. The combined weighted average rate at September 30,
2006 and December 31, 2005 was 6.25% and 4.93%, respectively. The Company accounts for this
transaction on its balance sheet as a financing facility. For accounting purposes, CDO I is
consolidated in the Companys financial statements. Proceeds from CDO I totaling $6.0 million were
recorded as a reduction of the CDOs liability. At September 30, 2006 and December 31, 2005, the
balance in CDO I was approximately $293.3 million and $299.3 million, respectively.
At September 30, 2006 and December 31, 2005, the Company had total outstanding note balances
in its CDOs of $647.2 million and $299.3 million, respectively.
Debt Covenants
Each of the credit facilities contains various financial covenants and restrictions, including
minimum net worth and debt-to-equity ratios. The Company was in compliance with all financial
covenants and restrictions for the periods presented.
Note 7 Minority Interest
On July 1, 2003, ACM contributed $213.1 million of structured finance assets and $169.2
million of borrowings supported by $43.9 million of equity in exchange for a commensurate equity
ownership in ARLP, the Companys operating partnership. This transaction was accounted for as
minority interest and entitled ACM to a 28% interest in ARLP. In April 2004, the Company issued
6,750,000 shares of its common stock in an initial public offering and a concurrent offering to one
of the Companys directors. In May 2004, the underwriters of the initial public offering exercised
a portion of their over-allotment option, which resulted in the issuance of 524,200 additional
shares.
For the nine months ended September 30, 2006, the Company issued 272,542 shares of common
stock, of which 177,847 common shares were payment for ACMs incentive management fee. In addition,
during the period the
18
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Company repurchased 250,200 shares of its common stock. This had a nominal effect on ACMs limited
partnership interest in ARLP at September 30, 2006. At September 30, 2006, minority interest was
increased by $0.1 million to properly reflect ACMs 18% limited partnership interest in ARLP and
its wholly-owned subsidiaries.
In order for the Companys wholly-owned private REIT, ARSR, Inc., to qualify as a REIT under
the Internal Revenue Code for the taxable year ending December 31, 2005, it was required to have at
least 100 stockholders by January 2006. Accordingly, ARSR, Inc. issued 116 shares of preferred
stock in a private offering to approximately 116 investors and certain employees of the Company and
ACM for $1,000 per share in January 2006. These shares have a par value of $0.01 and yield a
preferred annual return of 12.5%. For accounting purposes, $116,000 was recorded in the Companys
financial statements as minority interest.
Note 8 Commitments and Contingencies
Contractual Commitments
As of September 30, 2006, we had the following material contractual obligations (payments in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (1) |
|
|
2006 |
|
|
2007-2008 |
|
|
2009-2010 |
|
|
Thereafter |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
|
|
|
$ |
18,842 |
|
|
$ |
3,788 |
|
|
$ |
4,812 |
|
|
$ |
27,442 |
|
Collateralized debt obligations (2) |
|
|
|
|
|
|
|
|
|
|
293,319 |
|
|
|
353,890 |
|
|
|
647,209 |
|
Repurchase agreements |
|
|
25,402 |
|
|
|
335,881 |
|
|
|
78,750 |
|
|
|
26,265 |
|
|
|
466,298 |
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,962 |
|
|
|
222,962 |
|
Loan participations |
|
|
125 |
|
|
|
62,400 |
|
|
|
|
|
|
|
|
|
|
|
62,525 |
|
Outstanding unfunded commitments (3) |
|
|
5,728 |
|
|
|
30,312 |
|
|
|
14,751 |
|
|
|
1,832 |
|
|
|
52,623 |
|
Interest rate swaps, treated as hedges (4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Non-hedge
derivative obligations (4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Management fee (5) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
31,255 |
|
|
$ |
447,435 |
|
|
$ |
390,608 |
|
|
$ |
609,761 |
|
|
$ |
1,479,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts due based on contractual maturities. |
|
(2) |
|
Comprised of $293.3 million of CDO I debt and $353.9 million of CDO II debt with a weighted average remaining
maturity of 3.4 and 3.7 years, respectively, as of September 30, 2006. |
|
(3) |
|
In accordance with certain of our loans and investments, we have outstanding unfunded commitments of $52.6 million
as of September 30, 2006, that we are obligated to fund as the borrowers meet certain requirements. Specific
requirements include but are not limited to property renovations, building construction, and building conversions
based on criteria met by the borrower in accordance with the loan agreements. |
|
(4) |
|
These contracts do not have fixed and determinable payments. |
|
(5) |
|
This contract does not have fixed and determinable payments; refer to section entitled Management Agreement below. |
Litigation
The Company currently is neither subject to any material litigation nor, to managements
knowledge, is any material litigation currently threatened against the company.
Note 9 Stockholders Equity
Common Stock
The Companys charter provides for the issuance of up to 500 million shares of common stock,
par value $0.01 per share, and 100 million shares of preferred stock, par value $0.01 per share.
The Company was incorporated in June 2003 and was initially capitalized through the sale of 67
shares of common stock for $1,005.
On July 1, 2003 the Company completed a private placement for the sale of 1,610,000 units
(including an over-allotment option), each consisting of five shares of the Companys common stock
and one warrant to purchase one
19
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
share of common stock, at $75.00 per unit, for proceeds of approximately $110.1 million, net of
expenses. 8,050,000 shares of common stock were sold in the offering. In addition, the Company
issued 149,500 shares of restricted common stock under the stock incentive plan as described below
under Deferred Compensation.
On April 13, 2004, the Company issued 6,750,000 shares of its common stock in a public
offering at a price to the public of $20.00 per share, for net proceeds of approximately $125.4
million after deducting the underwriting discount and the other estimated offering expenses. The
Company used the proceeds to pay down indebtedness. In May, 2004, the underwriters exercised a
portion of their over-allotment option, which resulted in the issuance of 524,200 additional
shares. The Company received net proceeds of approximately $9.8 million after deducting the
underwriting discount. Additionally in 2004, ACM was paid its third quarter incentive management
fee in shares of common stock totaling 22,498. The Company issued 973,354 shares of common stock
from the exercise of warrants and received net proceeds of $12.9 million. After giving effect to
these transactions, the Company had approximately 16.5 million shares of common stock issued and
outstanding at December 31, 2004.
In 2005, the Company issued 282,776 shares of common stock from the exercise of warrants and
received net proceeds of $4.2 million. In addition, ACM was paid 191,342 common shares from
incentive management fees earned. Furthermore, in 2005, the Company issued 124,500 shares of
restricted common stock under the stock incentive plan to certain employees of the Company and of
ACM. After giving effect to these transactions, the Company had approximately 17,051,391 shares
issued and outstanding as of December 31, 2005.
In February 2006, 1,000 restricted shares were issued to each of three independent members of
the board of directors under the stock incentive plan. One third of the restricted stock granted to
each of these directors was vested as of the date of grant, another one third will vest in January
2007 and the remaining third will vest in January 2008.
In February 2006, upon the resignation of a member of the Companys board of directors, 445
shares of restricted stock were forfeited. The Company issued 1,445 shares of common stock to this
individual in conjunction with an advisory role taken with the Company. Furthermore, in February
2006, ACM was paid its fourth quarter 2005 incentive management fee in 57,370 shares of common
stock. After giving effect to these transactions, the Company had 17,112,761 shares issued and
outstanding.
In April 2006, 1,000 restricted shares were issued to an independent member of the board of
directors under the stock incentive plan. One third of the restricted stock grant to the director
was vested as of the date of grant, another one third will vest in April 2007 and the remaining
third will vest on April 2008.
In April 2006, the Company issued 89,250 shares of restricted common stock under the stock
incentive plan to certain employees of the Company and of ACM. One fifth of the restricted stock
granted to each of these employees were vested as of the date of grant, the second one-fifth will
vest in April 2007, the third one-fifth will vest in April 2008, the fourth one-fifth will vest in
April 2009, and the remaining one-fifth will vest in April 2010. Furthermore, in May 2006, ACM was
paid a portion of its first quarter 2006 incentive management fee in 64,891 shares of common stock.
After giving effect to these transactions, the Company had 17,267,902 shares issued and
outstanding.
In August 2006, the Board of Directors authorized a stock repurchase plan that enables the
Company to buy up to one million shares of its common stock. At managements discretion, shares may
be acquired on the open market, through privately negotiated transactions or pursuant to a Rule
10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might
otherwise be prevented from doing so. There is no guarantee as to the exact number of shares that
will be repurchased by the Company and the program may be terminated at any time. As of September
30, 2006, the Company repurchased 250,200 shares of its common stock in the open market and under a
10b5-1 plan at a total cost of $6.3 million (an average cost of $25.04 per share). Furthermore, in
August 2006, ACM was paid the second quarter 2006 incentive management fee in 55,586 shares of
common stock. After giving effect to these transactions, the Company had 17,073,288 shares
outstanding.
20
\
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Note 10 Earnings Per Share
Earnings per share (EPS) is computed in accordance with SFAS No. 128, Earnings Per Share.
Basic earnings per share is calculated by dividing net income by the weighted average number of
shares of common stock outstanding during each period inclusive of unvested restricted stock which
participate fully in dividends. Diluted EPS is calculated by dividing income adjusted for minority
interest by the weighted average number of shares of common stock outstanding plus the additional
dilutive effect of common stock equivalents during each period. The
Companys common stock equivalents are ARLPs operating partnership units, warrants to purchase
additional shares of common stock, warrants to purchase additional operating partnership units and
the potential settlement of incentive management fees in common stock. The dilutive effect of the
warrants is calculated using the treasury stock method.
The following is a reconciliation of the numerator and denominator of the basic and diluted
earnings per share computations for the three months ended September 30, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
September 30, 2006 |
|
|
September 30, 2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
Net income |
|
$ |
10,856,256 |
|
|
$ |
10,856,256 |
|
|
$ |
8,471,762 |
|
|
$ |
8,471,762 |
|
Add: Income allocated to
minority interest |
|
|
|
|
|
|
2,379,607 |
|
|
|
|
|
|
|
1,881,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per EPS calculation |
|
$ |
10,856,256 |
|
|
$ |
13,235,863 |
|
|
$ |
8,471,762 |
|
|
$ |
10,352,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding |
|
|
17,226,496 |
|
|
|
17,226,496 |
|
|
|
17,003,174 |
|
|
|
17,003,174 |
|
Weighted average number of
operating partnership units |
|
|
|
|
|
|
3,776,069 |
|
|
|
|
|
|
|
3,776,069 |
|
Dilutive effect of
incentive management fee
shares |
|
|
|
|
|
|
65,282 |
|
|
|
|
|
|
|
23,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average
common shares outstanding |
|
|
17,226,496 |
|
|
|
21,067,847 |
|
|
|
17,003,174 |
|
|
|
20,803,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
$ |
0.63 |
|
|
$ |
0.63 |
|
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the numerator and denominator of the basic and
diluted earnings per share computations for the nine months ended September 30, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, 2006 |
|
|
September 30, 2005 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
Net income |
|
$ |
36,006,655 |
|
|
$ |
36,006,655 |
|
|
$ |
41,043,776 |
|
|
$ |
41,043,776 |
|
Add: Income allocated to
minority interest |
|
|
|
|
|
|
7,921,687 |
|
|
|
|
|
|
|
9,209,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per EPS calculation |
|
$ |
36,006,655 |
|
|
$ |
43,928,342 |
|
|
$ |
41,043,776 |
|
|
$ |
50,253,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding |
|
|
17,185,737 |
|
|
|
17,185,737 |
|
|
|
16,812,537 |
|
|
|
16,812,537 |
|
Weighted average number of
operating partnership units |
|
|
|
|
|
|
3,776,069 |
|
|
|
|
|
|
|
3,776,069 |
|
Dilutive effect of
incentive management fee
shares |
|
|
|
|
|
|
59,412 |
|
|
|
|
|
|
|
23,360 |
|
Dilutive effect of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average
common shares outstanding |
|
|
17,185,737 |
|
|
|
21,021,218 |
|
|
|
16,812,537 |
|
|
|
20,636,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
$ |
2.10 |
|
|
$ |
2.09 |
|
|
$ |
2.44 |
|
|
$ |
2.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
Note 11 Related Party Transactions
As of September 30, 2006, we had a $7.75 million first mortgage loan that bore interest at a
variable rate of one month LIBOR plus 4.25% and was scheduled to mature in March 2007. This loan
was extended for one year with no other change in terms. This loan was made to a not-for-profit
corporation that holds and manages investment property from the endowment of a private academic
institution. Two of our directors are members of the board of trustees of the borrower and the
private academic institution. Interest income recorded from this loan for the three months ended
September 30, 2006 and 2005 was approximately $0.2 million and $0.1 million, respectively, and for
the nine months ended September 30, 2006 and 2005 was approximately $0.5 million and $0.3 million,
respectively.
ACM has a 50% non-controlling interest in an entity, which owns 15% of a real estate holding
company that owns and operates a factory outlet center. At September 30, 2006, ACMs investment in
this joint venture was approximately $0.2 million. At September 30, 2006, the Company had a $28.3
million preferred equity investment outstanding to this joint venture, which was collateralized by
a pledge of the ownership interest in this commercial real estate property. This loan was funded by
ACM in September 2005 and was purchased by us in March 2006. The loan required monthly interest
payments based on one month LIBOR and matures in September 2007. Interest income recorded from this
loan for the three and nine months ended September 30, 2006 was approximately $1.0 million and $2.0
million, respectively.
During the nine months ended September 30, 2005, ACM received a brokerage fee for services
rendered in arranging a loan facility for a borrower. The Company was credited $0.4 million of this
fee which represents its proportionate effort in facilitating the financing. The fee was included
in other income for the nine months ended September 30, 2005. No such fee was earned for the nine
months ended September 30, 2006.
During the first quarter 2006, ACM originated permanent financing of $31.5 million to a
borrower to repay an existing $30.0 million bridge loan with the Company. Pursuant to the terms of
the bridge loan agreement, the Company had a right of first offer to provide permanent financing, a
right of first refusal to match the terms and conditions from a third party lender and a potential
prepayment fee of $0.9 million. In August 2006, ACM received a $0.5 million fee for the
securitization of the $31.5 million permanent financing. This fee was remitted to the Company in
August 2006 in lieu of the Company waving its right of first refusal and potential prepayment fee
under the original terms of the bridge loan.
At September 30, 2006, $3.1 million of escrows received at loan closings were due to ACM and
were included in due to related party. This payment was remitted in October 2006. At December 31,
2005, escrows received by the Company at loan closings and expense payments made by ACM on behalf
of the Company totaling $0.1 million were included in due to related party and payment was remitted
in January 2006.
The Company is dependent upon its manager, ACM, to provide services to the Company that are
vital to its operations with whom it has conflicts of interest. The Companys chairman, chief
executive officer and president, Mr. Ivan Kaufman, is also the chief executive officer and
president of ACM, and, the Companys chief financial officer, Mr. Paul Elenio, is the chief
financial officer of ACM. In addition, Mr. Kaufman and the Kaufman entities together beneficially
own approximately 90% of the outstanding membership interests of ACM and certain of the Companys
employees and directors also hold an ownership interest in ACM. Furthermore, one of the Companys
directors also serves as the trustee of one of the Kaufman entities that holds a majority of the
outstanding membership interests in ACM and co-trustee of another Kaufman entity that owns an
equity interest in ACM. ACM currently holds an 18% limited partnership interest in the Companys
operating partnership and 18% of the voting power of its outstanding stock.
Note 12 Distributions
On October 25, 2006, the Company declared distributions of $0.58 per share of common stock,
payable with respect to the three months ended September 30, 2006, to stockholders of record at the
close of business on November 8, 2006. The Company intends to pay these distributions on November
22, 2006. In addition, on July 25,
22
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
2006, the Company declared distributions of $0.57 per share of common stock, payable with
respect to the three months ended June 30, 2006, to stockholders of record at the close of business
on August 7, 2006. These distributions were subsequently paid on August 21, 2006.
Note 13 Management Agreement
The Company, ARLP and Arbor Realty SR, Inc. have entered into a management agreement with ACM,
which provides that for performing services under the management agreement, the Company will pay
ACM an incentive compensation fee and base management fee. For the three months ended September 30,
2006 and 2005, ACM earned an incentive compensation installment totaling $1.7 million and $0.7
million, respectively, which were included in due to related party. The incentive compensation fee
is calculated as 25% of the amount by which ARLPs funds from operations exceeds a 9.5% return on
invested funds or the Ten Year U.S. Treasury Rate plus 3.5%, whichever is greater, as described in
the management agreement. For the three months ended September 30, 2005, ACM was paid its
management fee partially in 83,082 of common shares with the remainder paid in cash totaling $4.4
million, on August 3, 2005. For the three months ended September 30, 2006, ACM intends to elect to
be paid its incentive management fee in 65,282 of common shares, payable in November 2006. This
fee is subject to recalculation and reconciliation at fiscal year end in accordance with the
management agreement. For the three months ended September 30, 2006 and 2005, the Company recorded
$0.7 million and $0.6 million, respectively, of base management fees due to ACM of which $0.2
million and $0.6 million, respectively, were included in due to related party and paid in the month
subsequent to the respective periods.
Note 14 Due to Borrowers
Due to borrowers represents borrowers funds held by the Company to fund
certain expenditures or to be released at the Companys discretion upon the
occurrence of certain pre-specified events, and to serve as additional
collateral for borrowers loans. While retained, these balances earn interest
in accordance with the specific loan terms they are associated with.
23
|
|
|
Item 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with the unaudited consolidated
interim financial statements, and related notes included herein.
Overview
We are a Maryland corporation that was formed in June 2003 to invest in real estate-related
bridge and mezzanine loans, including junior participating interests in first mortgages, preferred
and direct equity and, in limited cases, discounted mortgage notes and other real estate-related
assets, which we refer to collectively as structured finance investments. We also invest in
mortgage-related securities. We conduct substantially all of our operations through our operating
partnership and its wholly-owned subsidiaries.
Our operating performance is primarily driven by the following factors:
|
|
|
Net interest income earned on our investments Net
interest income represents the amount by which the
interest income earned on our assets exceeds the
interest expense incurred on our borrowings. If the
yield earned on our assets increases or the cost of
borrowings decreases, this will have a positive
impact on earnings. Net interest income is also
directly impacted by the size of our asset
portfolio. |
|
|
|
|
Credit quality of our assets Effective asset and
portfolio management is essential to maximizing the
performance and value of a real estate/mortgage
investment. Maintaining the credit quality of our
loans and investments is of critical importance.
Loans that do not perform in accordance with their
terms may have a negative impact on earnings. |
|
|
|
|
Cost control We seek to minimize our operating
costs, which consist primarily of employee
compensation and related costs, management fees and
other general and administrative expenses. As the
size of the portfolio increases, certain of these
expenses, particularly employee compensation
expenses, may increase. |
We are organized and conduct our operations to qualify as a real estate investment
trust, or a REIT and to comply with the provisions of the Internal Revenue Code of 1986, as
amended, or the Code with respect thereto. A REIT is generally not subject to Federal income tax on
that portion of its REIT-taxable income that is distributed to its stockholders provided that at
least 90% of its REIT-taxable income is distributed and provided that certain other requirements
are met. Certain of our assets that produce non-qualifying income are held in taxable REIT
subsidiaries. Unlike other subsidiaries of a REIT, the income of a taxable REIT subsidiary is
subject to Federal and state income taxes. During the nine months ended September 30, 2006, we
recorded a $0.2 million provision for income taxes related to these assets that are held in taxable
REIT subsidiaries.
Changes in Financial Condition
During the quarter ended September 30, 2006, we originated 19 loans and investments totaling
$300.4 million, of which $287.7 million was funded as of September 30, 2006. Of the new loans and
investments, 10 were bridge loans totaling $222.4 million, three were mezzanine loans totaling
$20.0 million, three were junior participating interests totaling $55.5 million and three were
preferred equity investments totaling $2.5 million. We have received repayment in full on nine
loans totaling $202.2 million and partial repayment on eight loans totaling $10.0 million.
Our loan portfolio balance at September 30, 2006 was $1.61 billion, with a weighted average
current interest pay rate of 9.36% as compared to $1.25 billion, with a weighted average current
interest pay rate of 9.24% at December 31, 2005. At September 30, 2006, advances on financing
facilities totaled $1.4 billion, with a weighted average funding cost of 7.08% as compared to $1.0
billion, with a weighted average funding cost of 6.57% at December 31, 2005. Additionally, our
investment in equity affiliates at September 30, 2006 was $23.5 million as compared to $18.1
million at December 31, 2005.
24
On January 11, 2006, we completed our second non-recourse collateralized debt obligation (CDO
II) transaction, whereby a portfolio of real estate-related assets were contributed to a
consolidated subsidiary which issued $356 million of investment grade-rated floating-rate notes in
a private placement. The subsidiary retained an equity interest in the portfolio with a value of
approximately $119 million. The notes are secured by a portfolio of real estate-related assets,
consisting primarily of bridge loans, mezzanine loans and junior participating interests in first
mortgages, and restricted cash totaling approximately $475 million. The notes have an initial
weighted average spread of approximately 74 basis points over three-month LIBOR. The facility has a
five-year replenishment period that allows the principal proceeds from repayments of the collateral
assets to be reinvested in qualifying replacement assets, subject to certain conditions. We have
accounted for this transaction on our balance sheet as a financing. These proceeds were used to
repay outstanding debt with higher costs of funds. In connection with CDO II, we entered into an
interest rate swap agreement to hedge our exposure to the risk of changes in the difference between
three-month LIBOR and one-month LIBOR as well as interest rate swaps on current and future
projected LIBOR-based debt relating to certain fixed rate loans in our portfolio.
In April 2006, 1,000 restricted shares were issued to an independent member of the board of
directors under the stock incentive plan. One third of the restricted stock granted to this
director was vested as of the date of grant, another one third will vest in April 2007 and the
remaining third will vest in April 2008.
In April 2006, we issued 89,250 shares of restricted common stock under the stock incentive
plan to certain employees of ours and ACM. One fifth of the restricted stock granted to each of
these employees were vested as of the date of grant, the second one-fifth will vest in April 2007,
the third one-fifth will vest in April 2008, the fourth one-fifth will vest in April 2009, and the
remaining one-fifth will vest in April 2010. Furthermore, in May 2006, ACM was paid a portion of
its first quarter 2006 incentive management fee in 64,891 shares of common stock. After giving
effect to these transactions, we had 17,267,902 shares issued and outstanding.
In May and June 2006, we, through our wholly-owned subsidiaries of our operating partnership,
issued $67.0 million of junior subordinated notes in two private placements, described in Note 6
Debt Obligations of our consolidated financial statements, which appears in Financial Statements
of Arbor Realty Trust, Inc. and Subsidiaries. These securities are unsecured, have a maturity of
30 years, pay interest quarterly at a floating rate of interest based on three-month LIBOR and,
absent the occurrence of special events, are not redeemable during the first five years.
In August 2006, the Board of Directors authorized a stock repurchase plan that enables us to
buy up to one million shares of our common stock. At managements discretion, shares may be
acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1
plan. A Rule 10b5-1 plan permits us to repurchase shares at times when it might otherwise be
prevented from doing so. There is no guarantee as to the exact number of shares that will be
repurchased by us and the program may be terminated at any time. As of September 30, 2006, we
repurchased 250,200 shares of our common stock in the open market and under a 10b5-1 plan at a
total cost of $6.3 million (an average cost of $25.04 per share). Furthermore, in August 2006, ACM
was paid the second quarter 2006 incentive management fee in 55,586 shares of common stock. After
giving effect to these transactions, we had 17,073,288 shares outstanding.
Sources of Operating Revenues
We derive our operating revenues primarily through interest received from making real
estate-related bridge and mezzanine loans and preferred equity investments. For the three and nine
months ended September 30, 2006, interest income earned on these loans and investments represented
approximately 98% and 94% of our total revenues, respectively.
Interest income may also be derived from profits of equity participation interests. For the
three and nine months ended September 30, 2006, interest on these investments represented
approximately 0% and 5% of our total revenues, respectively.
We also derive interest income from our investments in mortgage related securities. For the
three and nine months ended September 30, 2006, interest on these investments represented less than
1% of our total revenues.
25
In
addition, we derived operating revenue from income from swap
derivative which represented income from interest rate swaps on
junior subordinated notes relating to trust preferred securities.
For the three and nine months ended September 30, 2006, income
from swap derivative represented approximately 2% and 1% of our total revenues, respectively.
Additionally, we derive operating revenues from other income that represents loan structuring
and miscellaneous asset management fees associated with our loans and investments portfolio. For
the three and nine months ended September 30, 2006, revenue from other income represented less than
1% of our total revenues.
Income from Equity Affiliates and Gain on Sale of Loans and Real Estate
We derive income from equity affiliates relating to joint ventures that were formed with
equity partners to acquire, develop and/or sell real estate assets. These joint ventures are not
majority owned or controlled by us, and are not consolidated in our financial statements. These
investments are recorded under the equity method of accounting. We record our share of net income
and losses from the underlying properties on a single line item in the consolidated income
statements as income from equity affiliates. We are not required to fund losses incurred by the
joint venture. Therefore, we only recognize our share of losses to the extent of our capital
investment. For the nine months ended September 30, 2006 and 2005, income from equity affiliates
totaled approximately $2.9 million and $8.5 million, respectively. The $2.9 million is the
recognition of previously deferred income from excess proceeds received from the refinance of a
property of one of our equity affiliates as described in Note 5 Investment in Equity Affiliates
of our consolidated financial statements, which appears in Financial Statements of Arbor Realty
Trust, Inc. and Subsidiaries.
We also may derive income from the gain on sale of loans and real estate. We may acquire (1)
real estate for our own investment and, upon stabilization, disposition at an anticipated return
and (2) real estate notes generally at a discount from lenders in situations where the borrower
wishes to restructure and reposition its short term debt and the lender wishes to divest certain
assets from its portfolio. No such income has been recorded to date.
Critical Accounting Policies
Please refer to the section of our Annual Report on Form 10-K for the year ended December 31,
2005 entitled Managements Discussion and Analysis of Financial Condition and Results of
Operations of Arbor Realty Trust and Subsidiaries Significant Accounting Estimates and Critical
Accounting Policies for a discussion of our critical accounting policies. During the nine months
ended September 30, 2006, there were no material changes to these policies, except for the updates
described below.
Revenue Recognition
Interest income is recognized on the accrual basis as it is earned from loans, investments and
available-for-sale securities. In many instances, the borrower pays an additional amount of
interest at the time the loan is closed, an origination fee, and deferred interest upon maturity.
In some cases interest income may also include the amortization or accretion of premiums and
discounts arising at the purchase or origination. This additional income, net of any direct loan
origination costs incurred, is deferred and accreted into interest income on an effective yield or
interest method adjusted for actual prepayment activity over the life of the related loan or
available-for-sale security as a yield adjustment. Income recognition is suspended for loans when
in the opinion of management a full recovery of income and principal becomes doubtful. Income
recognition is resumed when the loan becomes contractually current and performance is demonstrated
to be resumed. Several of the loans provide for accrual of interest at specified rates, which
differ from current payment terms. Interest is recognized on such loans at the accrual rate subject
to managements determination that accrued interest and outstanding principal are ultimately
collectible, based on the underlying collateral and operations of the borrower. If management
cannot make this determination regarding collectibility, interest income above the current pay rate
is recognized only upon actual receipt. Additionally, interest income is recorded when earned from
equity participation interests, referred to as equity kickers. These equity kickers have the
potential to generate additional revenues to us as a result of excess cash flows being distributed
and/or as appreciated properties are sold or refinanced. For the three months ended September 30,
2006 and 2005, we recorded $0.0 million and for the nine months ended September 30, 2006 and 2005,
we recorded $8.3 million and $18.4 million, of interest on such loans and investments,
respectively. These amounts represent the
26
difference between the pay rate of interest and the all-in return rate based on the contractual
agreements with the borrowers. Prior to these periods, management was unable to determine if this
interest was collectable.
Derivatives and Hedging Activities
In accordance with Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities, the carrying values of interest rate swaps and
caps, as well as the underlying hedged liability, if applicable, are reflected at their fair value.
We rely on quotations from a third party to determine these fair values. Derivatives that are not
hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivative are either offset against the
change in the fair value of the hedged liability through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a
derivatives change in fair value is immediately recognized in earnings. During the three and nine
months ended September 30, 2006 we entered into seven and sixteen additional interest rate swaps
that qualify as cash flow hedges, having a total combined notional
value of approximately $100.9 million and $181.7 million,
respectively. The fair value of our hedge portfolio has increased by
approximately $0.2 million from December 31, 2005 as a
result of these additional swaps and a change in the projected future
LIBOR rates.
In 2005, we entered into an
interest rate swap agreement on one of our junior subordinated notes relating to one of our series of
Trust Preferred securities (Trust Preferred swap) that was accounted for as a cash flow hedge under
SFAS No. 133. We elected an abbreviated method (the short-cut method) of documenting the
effectiveness of the Trust Preferred swap as a hedge, which allowed us to assume no ineffectiveness in this
transaction as long as critical terms did not change. We recently concluded that the Trust
Preferred swap did not qualify for this method in prior periods. The presence of an interest
deferral feature in the Trust Preferred security, in retrospect, violated short-cut method
criteria. Hedge accounting under SFAS No. 133 is not allowed retrospectively because the hedge
documentation required for the long-haul method was not in place at the inception of the hedge.
Eliminating the application of cash flow hedge accounting reverses the fair value adjustments that
were made to the hedged item and results in the reclassification of approximately $0.7 million of
the cumulative fair value of the Trust Preferred swap on the balance sheet to income from swap derivative on the
income statement. This is a result of a change in accounting treatment according to a new technical
clarification of accounting for interest rate swaps on Trust Preferred securities and reflects the
cumulative fair value of the Trust Preferred swap at September 30, 2006. In addition, we have re-designated the
Trust Preferred swap as a cash flow hedge under the long haul accounting method in order to
qualify it for cash flow hedge accounting in future periods.
Because the valuations of our hedging activities are based on estimates, the fair value may
change if our estimates are inaccurate. For the effect of hypothetical changes in market interest
rates on our interest rate swaps, see the Market Risk section of this Form 10-Q entitled
Quantitative and Qualitative Disclosures About Market Risk.
Recently Issued Accounting Pronouncements
In December 2004, the FASB published SFAS 123(R) entitled Share-Based Payment. It requires
all public companies to report share-based compensation expense at the grant date fair value of the
related share-based awards. We were required to adopt the provisions of the standard effective for
periods beginning after June 15, 2005. We believe that our current method of accounting for
share-based payments is consistent with SFAS 123(R). In addition, deferred compensation of $1.7
million for the period ending December 31, 2005, relating to unvested restricted stock was
reclassified to additional paid-in capital in accordance with SFAS 123(R). As of September 30,
2006, we have deferred unearned compensation related to our unvested restricted stock of
approximately $2.4 million.
In April 2006, the FASB issued FASB Staff Position (FSP) FIN 46(R)-6, Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R), that will become effective
beginning third quarter of 2006. FSP FIN No. 46(R)-6 clarifies that the variability to be
considered in applying Interpretation 46(R) shall be based on an analysis of the design of the
variable interest entity. We believe that our current method of accounting for variable interest
entities is consistent with FIN 46(R)-6.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
prescribes a recognition threshold and
27
measurement in the financial statements of a tax position taken or expected to be taken in a tax
return. The interpretation also provides guidance as to its application and related transition, and
is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the
effect, if any; the adoption of FIN 48 may have on our Consolidated Financial Statements.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157 (SFAS 157), Fair Value Measurements, which defines fair value, establishes guidelines
for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does
not require any new fair value measurements but rather eliminates inconsistencies in guidance found
in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial
statements, including for interim periods, for that fiscal year. We are currently evaluating the
effect, if any; the adoption of SFAS 157 may have on our Consolidated Financial Statements.
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108 (SAB 108), Considering
the Effects of Prior Year Misstatements when Quantifying Current Year
Misstatements, effective for fiscal years ending after November
15, 2006. SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement for the purpose
of a materiality assessment. We are currently evaluating the
effect, if any; the adoption of SAB 108 may have on our Consolidated Financial Statements.
Results of Operations
The following table sets forth our results of operations for the three months ended September
30, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase/(Decrease) |
|
|
|
2006 |
|
|
2005 |
|
|
Amount |
|
|
Percent |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
$ |
40,897,083 |
|
|
$ |
27,073,076 |
|
|
$ |
13,824,007 |
|
|
|
51 |
% |
Income from swap
derivative |
|
|
696,960 |
|
|
|
|
|
|
|
696,960 |
|
|
nm |
Other
income |
|
|
41,550 |
|
|
|
35,730 |
|
|
|
5,820 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
41,635,593 |
|
|
|
27,108,806 |
|
|
|
14,526,787 |
|
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
23,405,789 |
|
|
|
12,462,458 |
|
|
|
10,943,331 |
|
|
|
88 |
% |
Employee
compensation and
benefits
|
|
|
1,120,596 |
|
|
|
948,312 |
|
|
|
172,284 |
|
|
|
18 |
% |
Stock based
compensation
|
|
|
427,609 |
|
|
|
808,687 |
|
|
|
(381,078 |
) |
|
|
(47 |
%) |
Selling and
administrative |
|
|
1,118,724 |
|
|
|
1,213,889 |
|
|
|
(95,165 |
) |
|
|
(8 |
%) |
Management fee
related
party |
|
|
2,327,012 |
|
|
|
1,322,643 |
|
|
|
1,004,369 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
28,399,730 |
|
|
|
16,755,989 |
|
|
|
11,643,741 |
|
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and
income from equity
affiliates |
|
|
13,235,863 |
|
|
|
10,352,817 |
|
|
|
2,883,046 |
|
|
|
28 |
% |
Income from equity affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest |
|
|
13,235,863 |
|
|
|
10,352,817 |
|
|
|
2,883,046 |
|
|
|
28 |
% |
Income allocated to minority
interest |
|
|
2,379,607 |
|
|
|
1,881,055 |
|
|
|
498,552 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,856,256 |
|
|
$ |
8,471,762 |
|
|
$ |
2,384,494 |
|
|
|
28 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
nm not meaningful
Revenue
Interest income increased $13.8 million, or 51%, to $40.9 million for the three months ended
September 30, 2006 from $27.1 million for the three months ended September 30, 2005. This increase
was primarily due to a 42% increase in the average balance of loans and investments from $1.0
billion to $1.5 billion due to increased loans and investments originations, as well as a 5%
increase in the average yield on the assets from 10.11% to 10.63% as a result of increased interest
rates on our floating rate portfolio due to the rise in LIBOR, partially offset by margin
compression on new originations compared to loan payoffs from the same period in 2005 and 2006.
Interest income
28
from available for sale securities decreased $0.1 million, or 50%, to $0.1 million for the three
months ended September 30, 2006 from $0.2 million for the three months ended September 30, 2005.
This decrease is due to a decline in the average balances, as a result of prepayments received on
our investment.
Income
from swap derivative totaled $0.7 million and is the result of a
change in accounting treatment according to a new technical
clarification of accounting for interest rate swaps on one of our
junior subordinated notes relating to trust preferred securities.
This reflects the cumulative fair value of the swap at September 30, 2006.
Other income increased $5,820, or 16%, to $41,550 for the three months ended September 30,
2006 from $35,730 for the three months ended September 30, 2005. This is primarily due to increased
miscellaneous asset management fees on our loan and investment portfolio.
Expenses
Interest expense increased $10.9 million, or 88%, to $23.4 million for the three months ended
September 30, 2006 from $12.5 million for the three months ended September 30, 2005. This increase
was primarily due to a 68% increase in the average debt financing on our loans and investment
portfolio from $752.2 million for the three months ended September 30, 2005 to $1.3 billion for the
three months ended September 30, 2006 as a result of increased loan originations and increased
financing facilities and a 13% increase in the average cost of these borrowings from 6.40% to
7.24%, due to increased market interest rates, partially offset by income from interest rate swaps
on our variable rate debt associated with certain of our fixed rate loans. In addition, interest
expense on debt financing of our available for sale securities portfolio totaled $0.3 million for
the three months ended September 30, 2006 and September 30, 2005. There was a 35% decrease in the
weighted average borrowings from $34.1 million for the three months ended September 30, 2005, to
$24.4 million for the same period in 2006 as a result of prepayments received on our investment,
which was offset by a 50% increase in the average cost of debt due to increased interest rates from
the same period in 2005 to 2006.
Employee compensation and benefits expense increased $0.2 million, or 18%, to $1.1 million for
the three months ended September 30, 2006 from $0.9 million for the three months ended September
30, 2005. This increase was primarily due to the expansion of staffing needs associated with the
growth in our loan and investment portfolio. These expenses represent salaries, benefits, and
incentive compensation for those employed by us during these periods.
Stock-based compensation expense decreased $0.4 million, or 47%, to $0.4 million for the three
months ended September 30, 2006 from $0.8 million for the three months ended September 30, 2005.
These expenses represent the cost of restricted stock granted to certain of our employees,
directors and executive officers, and employees of our manager. This decrease was primarily due to
a decrease in the ratable portion of unvested restricted stock granted in 2006 as compared to the
three months ended September 30, 2005.
Selling and administrative expense decreased $0.1 million, or 8%, to $1.1 million for the
three months ended September 30, 2006 from $1.2 million for the three months ended September 30,
2005. This decrease is primarily attributable to a decrease in marketing expenses partially offset
by increased professional fees.
Management fees increased $1.0 million, or 76%, to $2.3 million for the three months ended
September 30, 2006 from $1.3 million for the three months ended September 30, 2005. These amounts
represent compensation in the form of base management fees and incentive management fees as
provided for in the management agreement with our manager. The base management fees increased
$8,000 mainly due to increased stockholders equity directly attributable to greater profits and
contributed capital over the same period in 2005. The incentive management fees increased by $1.0
million, or 148%, to $1.7 million for the three months ended September 30, 2006 from $0.7 million
for the three months ended September 30, 2005 due to increased profitability.
29
Income Allocated to Minority Interest
Income allocated to minority interest increased $0.5 million, or 27%, to $2.4 million for the
three months ended September 30, 2006 from $1.9 million for the three months ended September 30,
2005. These amounts represent the portion of our income allocated to our manager. This increase was
primarily due to a 28% increase in income before minority interest over the same periods.
The following table sets forth our results of operations for the nine months ended September 30,
2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Increase/(Decrease) |
|
|
|
2006 |
|
|
2005 |
|
|
Amount |
|
|
Percent |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
$ |
120,434,185 |
|
|
$ |
89,489,543 |
|
|
$ |
30,944,642 |
|
|
|
35 |
% |
Income from swap
derivative |
|
|
696,960 |
|
|
|
|
|
|
|
696,960 |
|
|
nm |
Other
income |
|
|
161,947 |
|
|
|
423,574 |
|
|
|
(261,627 |
) |
|
|
(62 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
121,293,092 |
|
|
|
89,913,117 |
|
|
|
31,379,975 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
63,332,763 |
|
|
|
30,479,170 |
|
|
|
32,853,593 |
|
|
|
108 |
% |
Employee
compensation and
benefits
|
|
|
3,430,004 |
|
|
|
3,059,208 |
|
|
|
370,796 |
|
|
|
12 |
% |
Stock based
compensation
|
|
|
1,793,062 |
|
|
|
1,273,542 |
|
|
|
519,520 |
|
|
|
41 |
% |
Selling and
administrative |
|
|
3,187,501 |
|
|
|
2,987,662 |
|
|
|
199,839 |
|
|
|
7 |
% |
Management fee
related
party |
|
|
8,530,712 |
|
|
|
10,313,908 |
|
|
|
(1,783,196 |
) |
|
|
(17 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
80,274,042 |
|
|
|
48,113,490 |
|
|
|
32,160,552 |
|
|
|
67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and
income from equity affiliates |
|
|
41,019,050 |
|
|
|
41,799,627 |
|
|
|
(780,577 |
) |
|
|
(2 |
%) |
Income from equity affiliates |
|
|
2,909,292 |
|
|
|
8,453,440 |
|
|
|
(5,544,148 |
) |
|
|
(66 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest |
|
|
43,928,342 |
|
|
|
50,253,067 |
|
|
|
(6,324,725 |
) |
|
|
(13 |
%) |
Income allocated to minority
interest |
|
|
7,921,687 |
|
|
|
9,209,291 |
|
|
|
(1,287,604 |
) |
|
|
(14 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
36,006,655 |
|
|
$ |
41,043,776 |
|
|
$ |
(5,037,121 |
) |
|
|
(12 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
nm not meaningful
Revenue
Interest income increased $30.9 million, or 35%, to $120.4 million for the nine months ended
September 30, 2006 from $89.5 million for the nine months ended September 30, 2005. Included in
interest income is the recognition of $6.3 million and $17.2 million of income for the nine months
ended September 30, 2006 and 2005, respectively from a 16.7% carried profits interest in a $30.1
million mezzanine loan that was repaid in January 2006. This income was a result of excess proceeds
from the refinance of a portfolio of properties securing the loan. Excluding these transactions,
interest income increased $41.9 million, or 58%, over the same period. This increase was primarily
due to a 52% increase in the average balance of loans and investments from $911.0 million to $1.4
billion due to increased originations, as well as a 1% increase in the average yield on assets from
10.5% to 10.6% as a result of increased interest rates on our floating rate portfolio due to the
rise in LIBOR, partially offset by margin compression on new originations compared to loan payoffs
from the same period in 2005 and 2006. Interest income from available for sale securities decreased
$0.2 million, or 27%, to $0.5 million for the nine months ended September 30, 2006 from $0.7
million for the nine months ended September 30, 2005. This decrease is primarily due to a decrease
in the average balance to $27.4 million for the nine months ended September 30, 2006 from $40.8
million for the nine months ended September 30, 2005, as a result of prepayments received on our
investment.
30
Income
from swap derivative totaled $0.7 million and is the result of a change in accounting
treatment according to a new technical clarification of accounting for interest rate swaps on trust
preferred securities. This reflects the cumulative fair value of the
swap at September 30, 2006.
Other income decreased $0.2 million, or 62%, to $0.2 million for the nine months ended
September 30, 2006 from $0.4 million for the nine months ended September 30, 2005. This was
primarily due to a $0.4 million structuring fee received for services rendered in arranging a loan
facility for a borrower in the nine months ended September 30, 2005 partially offset by increased
miscellaneous asset management fees on our loan and investment portfolio.
Expenses
Interest expense increased $32.9 million, or 108%, to $63.3 million for the nine months ended
September 30, 2006 from $30.5 million for the nine months ended September 30, 2005. This increase
was primarily due to a 68% increase in the average debt financing on our loans and investment
portfolio from $698.7 million for the nine months ended September 30, 2005 to $1.2 billion for the
nine months ended September 30, 2006 as a result of increased loan originations, increased
financing facilities, and a 20% increase in the average cost of these borrowings from 5.64% to
7.03% due to increased market interest rates, partially offset by income from interest rate swaps
on our variable rate debt associated with certain of our fixed rate loans. In addition, interest
expense on debt financing of our available for sale securities portfolio totaled $1.0 million and
$0.9 million for the nine months ended September 30, 2006 and 2005, respectively. There was a 33%
decrease in the weighted average borrowings from $38.7 million for the nine months ended September
30, 2005, to $26.1 million for the same period in 2006 as a result of prepayments received on our
investment, which was offset by a 59% increase in the average cost of debt due to increased
interest rates from the same period in 2005 to 2006.
Employee compensation and benefits expense increased $0.4 million, or 12%, to $3.4 million for
the nine months ended September 30, 2006 from $3.0 million for the nine months ended September 30,
2005. This increase was primarily due to the expansion of staffing needs associated with the growth
in our loan and investment portfolio. These expenses represent salaries, benefits, and incentive
compensation for those employed by us during these periods.
Stock-based compensation expense increased $0.5 million, or 41%, to $1.8 million for the nine
months ended September 30, 2006 from $1.3 million for the nine months ended September 30, 2005.
These expenses represent the cost of restricted stock granted to certain of our employees,
directors and executive officers, and employees of our manager. This increase was primarily due to
an increase in the ratable portion of unvested restricted stock granted as a result of 173,750
restricted stock shares granted since the nine months ended September 30, 2005.
Selling and administrative expense increased $0.2 million, or 7%, to $3.2 million for the nine
months ended September 30, 2006 from $3.0 for the nine months ended September 30, 2005. This
increase is directly attributable to professional fees, including legal, accounting services, and
consulting fees relating to investor relations and Sarbanes-Oxley compliance associated with
operating as a public company.
Management fees decreased $1.8 million, or 17%, to $8.5 million for the nine months ended
September 30, 2006 from $10.3 million for the nine months ended September 30, 2005. These amounts
represent compensation in the form of base management fees and incentive management fees as
provided for in the management agreement with our manager. The base management fees increased by
$0.1 million, or 5%, to $2.0 million for the nine months ended September 30, 2006 from $1.9 million
for the nine months ended September 30, 2005. The increase is primarily due to increased
stockholders equity and contributed capital over the same period in 2005. The incentive management
fees decreased by $1.9 million, or 22%, to $6.6 million for the nine months ended September 30,
2006 from $8.5 million for the nine months ended September 30, 2005. This decrease was due to the
recognition of $25.2 million of income for the nine months ended September 30, 2005 and $9.2
million for the nine months ended September 30, 2006 from a 16.7% carried profits interest in a
$30.1 million mezzanine loan that we had outstanding and income from our related equity investment.
The income was a result of excess proceeds from the refinance of a portfolio of properties securing
the loan and equity investment.
31
Income From Equity Affiliates
Income from equity affiliates decreased $5.5 million, or 66%, to $2.9 million for the nine
months ended September 30, 2006 from $8.4 million for the nine months ended September 30, 2005.
This decrease was primarily due to the recognition of $8.0 million and $2.9 million of income from
excess proceeds received from the refinance of a property of one of our investments in equity
affiliates for the nine months ended September 30, 2005 and September 30, 2006, respectively.
Income Allocated to Minority Interest
Income allocated to minority interest decreased by $1.3 million, or 14%, to $7.9 million for
the nine months ended September 30, 2006 from $9.2 million for the nine months ended September 30,
2005. These amounts represent the portion of our income allocated to our manager. This decrease was
primarily due to a 13% decrease in income before minority interest over the same periods.
Liquidity and Capital Resources
Sources of Liquidity
Liquidity is a measurement of the ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, pay dividends, fund loans and investments and other
general business needs. Our primary sources of funds for liquidity consist of funds raised from our
private equity offering in July 2003, net proceeds from our initial public offering of our common
stock in April 2004, the issuance of floating rate notes resulting from our CDOs (described below)
in January 2005 and January 2006, the issuance of junior subordinated notes to subsidiary trusts
issuing preferred securities, borrowings under credit agreements, net cash provided by operating
activities including cash from equity participation interests, repayments of outstanding loans and
investments, funds from junior loan participation arrangements and the future issuance of common,
convertible and/or preferred equity securities.
In 2003, we received gross proceeds from the private placement totaling $120.2 million, which
combined with ACMs equity contribution of $43.9 million, resulted in total contributed capital of
$164.1 million. These proceeds were used to pay down borrowings under our existing credit
facilities.
In 2004, we sold 6,750,000 shares of our common stock in a public offering on April 13, 2004
for net proceeds of approximately $125.4 million. We used the proceeds to pay down indebtedness. In
addition, in May 2004 the underwriters exercised a portion of their over allotment option, which
resulted in the issuance of 524,200 additional shares for net proceeds of approximately $9.8
million. Additionally, in 2004, 1.3 million common stock warrants were exercised which resulted in
proceeds of $12.9 million. Also, Arbor Realty Limited Partnership (ARLP), the operating
partnership of Arbor Realty Trust, received proceeds of $9.4 million from the exercise of ACMs
warrants for a total of 629,345 operating partnership units.
We also maintain liquidity through three master repurchase agreements, one warehouse credit
facility and one bridge loan warehousing credit agreement with four different financial
institutions. In addition, we have issued two collateralized debt obligations and seven separate
junior subordinated notes. London inter-bank offered rate, or LIBOR, refers to one-month LIBOR
unless specifically stated.
We have a $350.0 million master repurchase agreement with Wachovia Bank National Association,
dated December 2003, with a term of three years that bears interest at LIBOR plus pricing of 0.94%
to 3.50%, varying on the type of asset financed. In December 2005, we amended this facility on a
temporary basis to provide for an increase in the amount of financing available under this facility
from $350 million to $500 million. This increase expired in January of 2006 in conjunction with
the closing of CDO II, at which time $203 million of this facility was paid down (see below). In
September 2006, we amended this facility on a temporary basis to provide for an increase in the
amount of financing available under this facility from $350 million to $550 million. This increase
will expire in March of 2007. At September 30, 2006, the outstanding balance under this facility
was $374.5 million with a current weighted average note rate of 7.06%. In addition, we have a $100
million repurchase agreement with the same financial institution that we entered into for the
purpose of financing our securities available for sale. This agreement expires in July 2007 and has
an interest rate of LIBOR plus 0.20%. At September 30, 2006, the
32
outstanding balance under this facility was $23.2 million with a current weighted average note rate
of 5.53%. In July 2006, this facility was extended for one year.
We have a $100.0 million master repurchase agreement with a second financial institution,
effective December 2005, that has a term expiring in December 2006 and bears interest at LIBOR plus
pricing of 1.00% to 3.00%, varying on the type of asset financed. At September 30, 2006, the
outstanding balance under this facility was $68.6 million with a current weighted average note rate
of 6.77%.
We have a $50.0 million bridge loan warehousing credit agreement with a third financial
institution to provide financing for bridge loans. This agreement expires in August 2007 and bears
a variable rate of interest, payable monthly, based on Prime plus 0% or 1,2,3 or 6-month LIBOR plus
1.75%, at our option. At September 30, 2006, the outstanding balance under this facility was $17.8
million with a current weighted average note rate of 7.58%. In August 2006, this facility was
extended for a year. In October 2006, we amended the amount of financing available under this
facility to $75 million from $50 million.
We have a $50.0 million warehousing credit facility with a fourth financial institution,
effective December 2005, which has a term expiring in December 2007 and bears interest at LIBOR
plus pricing of 1.50% to 2.50%, varying on the type of asset financed. At September 30, 2006, the
outstanding balance under this facility was $9.7 million with a current weighted average note rate
of 7.34%.
We had a $50.0 million master repurchase agreement with a fifth financial institution, dated
as of July 1, 2003, which expired in July 2006 and bore interest at LIBOR plus pricing of 1.75% to
3.50%, varying on the type of asset financed. This facility had not been utilized.
We had a $50.0 million warehouse credit facility with a sixth financial institution, who
beneficially owned approximately 2% of our outstanding common stock as of December 31, 2005 which
was terminated in January 2006. This agreement had a term of one year with two six-month extension
periods and bore interest at LIBOR plus 6.00%.
We have a non-recourse collateralized debt obligation transaction, or CDO, which closed on
January 19, 2005, whereby $469.0 million of real estate related and other assets were contributed
to a newly-formed consolidated subsidiary which issued $305.0 million of investment grade-rated
floating-rate notes in a private placement. These notes are secured by the portfolio of assets and
pay interest quarterly at a weighted average rate of approximately 77 basis points over a floating
rate of interest based on three-month LIBOR. The CDO may be replenished with substitute collateral
for loans that are repaid during the first four years. Thereafter, the outstanding debt balance
will be reduced as loans are repaid. Proceeds from the CDO were used to repay outstanding debt
under our existing facilities totaling $267.0 million. By contributing these real estate assets to
the CDO, this transaction resulted in a decreased cost of funds relating to the CDO assets and
created capacity in our existing credit facilities. Proceeds from the repayment of assets which
serve as collateral for our CDO must be retained in the CDO structure until such collateral can be
replaced or used to paydown the secured notes and therefore not available to fund current cash
needs. If such cash is not used to replenish collateral, it could have a negative impact on our
anticipated returns. For accounting purposes, CDO is consolidated in our financial statements. At
September 30, 2006, the outstanding balance under this facility was $293.3 million with a weighted
average current note rate of 6.25%.
On January 11, 2006, we completed our second non-recourse collateralized debt obligation
transaction, or CDO II, whereby $475.0 million of real estate related and other assets were
contributed to a newly-formed consolidated subsidiary which issued $356.0 million of investment
grade-rated floating-rate notes in a private placement. These notes are secured by the portfolio of
assets and pay interest quarterly at a weighted average rate of approximately 74 basis points over
a floating rate of interest based on three-month LIBOR. CDO II may be replenished with substitute
collateral for loans that are repaid during the first five years. Thereafter, the outstanding debt
balance will be reduced as loans are repaid. Proceeds from CDO II were used to repay outstanding
debt under our existing facilities totaling $301.0 million. By contributing these real estate
assets to CDO II, this transaction resulted in a decreased cost of funds relating to CDO IIs
assets and created capacity in our existing credit facilities. Proceeds from the repayment of
assets which serve as collateral for CDO II must be retained in its structure until such collateral
can be replaced and therefore not available to fund current cash needs. If such cash is not used
to replenish collateral, it could have a negative impact on our anticipated returns. For accounting
purposes, CDO II is
33
consolidated in our financial statements. At September 30, 2006, the outstanding note balance under
this facility was $353.9 million with a weighted average current note rate of 6.26%.
In 2005, we, through newly-formed wholly-owned subsidiaries of our operating partnership,
issued a total of $155.9 million of junior subordinated notes in five separate private placements,
described in Note 6 Debt Obligations of our consolidated financial statements, which appears in
Financial Statements of Arbor Realty Trust, Inc. and Subsidiaries. These securities are
unsecured, have a maturity of 29 to 30 years, pay interest quarterly at a floating rate of interest
based on three-month LIBOR and, absent the occurrence of special events, are not redeemable during
the first five years.
In May and June 2006, we, through our wholly-owned subsidiaries of our operating partnership,
issued $67.0 million of junior subordinated notes in two private placements, described in Note 6
Debt Obligations of our consolidated financial statements, which appears in Financial Statements
of Arbor Realty Trust, Inc. and Subsidiaries. These securities are unsecured, have a maturity of
30 years, pay interest quarterly at a floating rate of interest based on three-month LIBOR and,
absent the occurrence of special events, are not redeemable during the first five years.
At September 30, 2006, the outstanding balance under our junior subordinated note facilities
was $223.0 million with a current weighted average note rate of 8.45%.
The warehouse credit agreement, bridge loan warehousing credit agreement, and the master
repurchase agreements require that we pay interest monthly, based on pricing over LIBOR. The amount
of our pricing over LIBOR varies depending upon the structure of the loan or investment financed
pursuant to the specific agreement.
The warehouse credit agreement, bridge loan warehousing credit agreement, and the master
repurchase agreements require that we pay down borrowings under these facilities pro-rata as
principal payments on our loans and investments are received. In addition, if upon maturity of a
loan or investment we decide to grant the borrower an extension option, the financial institutions
have the option to extend the borrowings or request payment in full on the outstanding borrowings
of the loan or investment extended. The financial institutions also have the right to request
immediate payment of any outstanding borrowings on any loan or investment that is at least 60 days
delinquent.
As of September 30, 2006, these facilities had an aggregate capacity of $1.8 billion and
borrowings were approximately $1.4 billion.
In October 2006, we entered into a $150.0 million master repurchase agreement with a financial
institution. The facility has a rolling one year term not to exceed three years from the effective
date of the agreement and bears interest at a spread over LIBOR.
Each of the credit facilities contains various financial covenants and restrictions, including
minimum net worth and debt-to-equity ratios. In addition to the financial terms and capacities
described above, our credit facilities generally contain covenants that prohibit us from effecting
a change in control, disposing of or encumbering assets being financed and restrict us from making
any material amendment to our underwriting guidelines without approval of the lender. If we violate
these covenants in any of our credit facilities, we could be required to repay all or a portion of
our indebtedness before maturity at a time when we might be unable to arrange financing for such
repayment on attractive terms, if at all. Violations of these covenants may result in our being
unable to borrow unused amounts under our credit facilities, even if repayment of some or all
borrowings is not required. As of September 30, 2006, we are in compliance with all covenants and
restrictions under these credit facilities.
We have three junior loan participations with a total outstanding balance at September 30,
2006 of $62.5 million. These participation borrowings have maturity dates equal to the
corresponding mortgage loans and are secured by the participants interests in the mortgage loans.
Interest expense is based on a portion of the interest received from the loans.
We believe our existing sources of funds will be adequate for purposes of meeting our
short-term liquidity (within one year) and long-term liquidity needs. Our short-term and long-term
liquidity needs include ongoing commitments to repay borrowings, fund future investments, fund
operating costs and fund distributions to our
34
stockholders. Our loans and investments are financed under existing credit facilities and their
credit status is continuously monitored; therefore, these loans and investments are expected to
generate a generally stable return. Our ability to meet our long-term liquidity and capital
resource requirements is subject to obtaining additional debt and equity financing. If we are
unable to renew our sources of financing on substantially similar terms or at all, it would have an
adverse effect on our business and results of operations. Any decision by our lenders and investors
to enter into such transactions with us will depend upon a number of factors, such as our financial
performance, compliance with the terms of our existing credit arrangements, industry or market
trends, the general availability of and rates applicable to financing transactions, such lenders
and investors resources and policies concerning the terms under which they make such capital
commitments and the relative attractiveness of alternative investment or lending opportunities.
To maintain our status as a REIT under the Internal Revenue Code, we must distribute annually
at least 90% of our taxable income. These distribution requirements limit our ability to retain
earnings and thereby replenish or increase capital for operations. However, we believe that our
significant capital resources and access to financing will provide us with financial flexibility
and market responsiveness at levels sufficient to meet current and anticipated capital
requirements, including expected new lending and investment opportunities.
In order to maximize the return on our funds, cash generated from operations is generally used
to temporarily pay down borrowings under credit facilities whose primary purpose is to fund our new
loans and investments. When making distributions, we borrow the required funds by drawing on credit
capacity available under our credit facilities. To date, all distributions have been funded in this
manner. All funds borrowed to make distributions have been repaid by funds generated from
operations.
Share Repurchase Plan
In August 2006, the Board of Directors authorized a stock repurchase plan that enables us to
buy up to one million shares of our common stock. At managements discretion, shares may be
acquired on the open market, through privately negotiated transactions or pursuant to a Rule 10b5-1
plan. A Rule 10b5-1 plan permits us to repurchase shares at times when it might otherwise be
prevented from doing so. There is no guarantee as to the exact number of shares that will be
repurchased by us and the program may be terminated at any time. As of September 30, 2006, we
repurchased 250,200 shares of our common stock in the open market and under a 10b5-1 plan at a
total cost of $6.3 million (an average cost of $25.04 per share).
Contractual Commitments
As of September 30, 2006, we had the following material contractual obligations (payments in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (1) |
|
|
|
2006 |
|
|
2007-2008 |
|
|
2009-2010 |
|
|
Thereafter |
|
|
Total |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
|
|
|
$ |
18,842 |
|
|
$ |
3,788 |
|
|
$ |
4,812 |
|
|
$ |
27,442 |
|
Collateralized debt obligations (2) |
|
|
|
|
|
|
|
|
|
|
293,319 |
|
|
|
353,890 |
|
|
|
647,209 |
|
Repurchase agreements |
|
|
25,402 |
|
|
|
335,881 |
|
|
|
78,750 |
|
|
|
26,265 |
|
|
|
466,298 |
|
Trust preferred securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,962 |
|
|
|
222,962 |
|
Loan participations |
|
|
125 |
|
|
|
62,400 |
|
|
|
|
|
|
|
|
|
|
|
62,525 |
|
Outstanding unfunded commitments (3) |
|
|
5,728 |
|
|
|
30,312 |
|
|
|
14,751 |
|
|
|
1,832 |
|
|
|
52,623 |
|
Interest rate swaps, treated as hedges (4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Non-hedge
derivative obligations (4) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Management fee (5) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
31,255 |
|
|
$ |
447,435 |
|
|
$ |
390,608 |
|
|
$ |
609,761 |
|
|
$ |
1,479,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents amounts due based on contractual maturities. |
|
(2) |
|
Comprised of $293.3 million of CDO I debt and $353.9 million of CDO II debt with a weighted average remaining
maturity of 3.4 and 3.7 years, respectively, as of September 30, 2006. |
35
|
|
|
(3) |
|
In accordance with certain of our loans and investments, we have outstanding unfunded commitments of $52.6 million
as of September 30, 2006, that we are obligated to fund as the borrowers meet certain requirements. Specific
requirements include but are not limited to property renovations, building construction, and building conversions
based on criteria met by the borrower in accordance with the loan agreements. |
|
(4) |
|
These contracts do not have fixed and determinable payments. |
|
(5) |
|
This contract does not have fixed and determinable payments; refer to section entitled Management Agreement below. |
Management Agreement
Base Management Fees. In exchange for the services that ACM provides us pursuant to the
management agreement, we pay our manager a monthly base management fee in an amount equal to:
(1) 0.75% per annum of the first $400 million of our operating partnerships equity (equal to the
month-end value computed in accordance with GAAP of total partners equity in our operating
partnership, plus or minus any unrealized gains, losses or other items that do not affect realized
net income),
(2) 0.625% per annum of our operating partnerships equity between $400 million and $800 million,
and
(3) 0.50% per annum of our operating partnerships equity in excess of $800 million.
The base management fee is not calculated based on the managers performance or the types of
assets its selects for investment on our behalf, but it is affected by the performance of these
assets because it is based on the value of our operating partnerships equity. We incurred $0.7
million in base management fees for services rendered in the three months ended September 30, 2006.
Incentive Compensation. Pursuant to the management agreement, our manager is also entitled to
receive incentive compensation in an amount equal to:
(1) |
|
25% of the amount by which: |
|
(a) |
|
our operating partnerships funds from operations
per operating partnership unit, adjusted for certain gains and losses, exceeds |
|
|
(b) |
|
the product of (x) the greater of
9.5% per annum or the Ten Year U.S.
Treasury Rate plus 3.5%, and (y)
the weighted average of (i) $15.00,
(ii) the offering price per share
of our common stock (including any shares of common stock issued upon
exercise of warrants or options) in
any subsequent offerings (adjusted
for any prior capital dividends or
distributions), and (iii) the issue
price per operating partnership
unit for subsequent contributions
to our operating partnership,
multiplied by |
(2) |
|
the weighted average of our operating partnerships outstanding operating partnership
units. |
For the three months ended September 30, 2006, our manager earned a total of $1.7 million of
incentive compensation and intends to elect to receive it in 65,282 shares of common stock.
We pay the annual incentive compensation in four installments, each within 60 days of the end
of each fiscal quarter. The calculation of each installment is based on results for the 12 months
ending on the last day of the fiscal quarter for which the installment is payable. These
installments of the annual incentive compensation are subject to recalculation and potential
reconciliation at the end of such fiscal year. Subject to the ownership limitations in our charter,
at least 25% of this incentive compensation is payable to our manager in shares of our common stock
having a value equal to the average closing price per share for the last 20 days of the fiscal
quarter for which the incentive compensation is being paid.
The incentive compensation is accrued as it is earned. In accordance with Issue 4(b) of EITF
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services, the expense incurred for incentive compensation
paid in common stock is determined using the valuation method described above and the quoted market
price of our common stock on the last day of each quarter. At December 31 of each year, we
remeasure the incentive compensation paid to our manager in the form of common
36
stock in accordance with Issue 4(a) of EITF 96-18 which discusses how to measure at the measurement
date when certain terms are not known prior to the measurement date. Accordingly, the expense
recorded for such common stock is adjusted to reflect the fair value of the common stock on the
measurement date when the final calculation of the annual incentive compensation is determined. In
the event that the annual incentive compensation calculated as of the measurement date is less than
the four quarterly installments of the annual incentive compensation paid in advance, our manager
will refund the amount of such overpayment in cash and we would record a negative incentive
compensation expense in the quarter when such overpayment is determined.
Origination Fees. Our manager is entitled to 100% of the origination fees paid by borrowers
under each of our bridge loan and mezzanine loans that do not exceed 1% of the loans principal
amount. We retain 100% of the origination fee that exceeds 1% of the loans principal amount.
Term and Termination. The management agreement has an initial term of two years and is
renewable automatically for an additional one year period every year thereafter, unless terminated
with six months prior written notice. If we terminate or elect not to renew the management
agreement in order to manage our portfolio internally, we are required to pay a termination fee
equal to the base management fee and incentive compensation for the 12-month period preceding the
termination. If, without cause, we terminate or elect not to renew the management agreement for any
other reason, including a change of control of us, we are required to pay a termination fee equal
to two times the base management fee and incentive compensation paid for the 12-month period
preceding the termination.
Related Party Transactions
As of September 30, 2006, we had a $7.75 million first mortgage loan that bore interest at a
variable rate of one month LIBOR plus 4.25% and was scheduled to mature in March 2007. This loan
was extended for one year with no other change in terms. This loan was made to a not-for-profit
corporation that holds and manages investment property from the endowment of a private academic
institution. Two of our directors are members of the board of trustees of the borrower and the
private academic institution. Interest income recorded from this loan for the three months ended
September 30, 2006 and 2005 was approximately $0.2 million and $0.1 million, respectively and for
the nine months ended September 30, 2006 and 2005 was approximately $0.5 million and $0.3 million,
respectively.
ACM has a 50% non-controlling interest in an entity, which owns 15% of a real estate holding
company that owns and operates a factory outlet center. At September 30, 2006, ACMs investment in
this joint venture was approximately $0.2 million. At September 30, 2006, we had a $28.3 million
preferred equity investment outstanding to this joint venture, which was collateralized by a pledge
in the ownership interest in this commercial real estate property. This loan was funded by ACM in
September 2005 and was purchased by us in March 2006. The loan required monthly interest payments
based on one month LIBOR and matures in September 2007. Interest income recorded from this loan for
the three and nine months ended September 30, 2006 was approximately $1.0 million and $2.0 million,
respectively.
During the nine months ended September 30, 2005, ACM received a brokerage fee for services
rendered in arranging a loan facility for a borrower. We were credited $0.4 million of this fee
which represents our proportionate effort in facilitating the financing. The fee was included in
other income for the nine months ended September 30, 2005. No such fee was earned in the nine
months ended September 30, 2006.
During the first quarter 2006, ACM originated permanent financing of $31.5 million to a
borrower to repay an existing $30.0 million bridge loan with us. Pursuant to the terms of the
bridge loan agreement, we had a right of first offer to provide permanent financing, a right of
first refusal to match the terms and conditions from a third party lender and a potential
prepayment fee of $0.9 million. In August 2006, ACM received a $0.5 million fee for the
securitization of the $31.5 million permanent financing. This fee was remitted to us in August 2006
in lieu of waving our right of first refusal and potential prepayment fee under the original terms
of the bridge loan.
At September 30, 2006, $3.1 million of escrows received at loan closings were due to ACM and
were included in due to related party. This payment was remitted in October 2006. At December 31,
2005, escrows received by us at loan closings and expense payments made by ACM on our behalf
totaling $0.1 million were included in due to related party and payment was remitted in January
2006.
37
We are dependent upon our manager, ACM, to provide services to us that are vital to our
operations with whom we have conflicts of interest. Our chairman, chief executive officer and
president, Mr. Ivan Kaufman, is also the chief executive officer and president of ACM, and, our
chief financial officer, Mr. Paul Elenio, is the chief financial officer of ACM. In addition, Mr.
Kaufman and the Kaufman entities together beneficially own approximately 90% of the outstanding
membership interests of ACM and certain of our employees and directors, also hold an ownership
interest in ACM. Furthermore, one of the our directors also serves as the trustee of one of the
Kaufman entities that holds a majority of the outstanding membership interests in ACM and
co-trustee of another Kaufman entity that owns an equity interest in ACM. ACM currently holds an
18% limited partnership interest in our operating partnership and 18% of the voting power of its
outstanding stock.
38
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and real estate values. The primary market risks
that we are exposed to are real estate risk, interest rate risk, market value risk and prepayment
risk.
Real Estate Risk
Commercial mortgage assets may be viewed as exposing an investor to greater risk of loss than
residential mortgage assets since such assets are typically secured by larger loans to fewer
obligors than residential mortgage assets. Multi-family and commercial property values and net
operating income derived from such properties are subject to volatility and may be affected
adversely by a number of factors, including, but not limited to, national, regional and local
economic conditions (which may be adversely affected by industry slowdowns and other factors),
local real estate conditions (such as an oversupply of housing, retail, industrial, office or other
commercial space); changes or continued weakness in specific industry segments; construction
quality, age and design; demographic factors; retroactive changes to building or similar codes; and
increases in operating expenses (such as energy costs). In the event net operating income
decreases, a borrower may have difficulty repaying our loans, which could result in losses to us.
In addition, decreases in property values reduce the value of the collateral and the potential
proceeds available to a borrower to repay our loans, which could also cause us to suffer losses.
Even when the net operating income is sufficient to cover the related propertys debt service,
there can be no assurance that this will continue to be the case in the future.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including governmental monetary and
tax policies, domestic and international economic and political considerations and other factors
beyond our control.
Our operating results will depend in large part on differences between the income from our
loans and our borrowing costs. The majority of our loans and borrowings are variable-rate
instruments, based on LIBOR. The objective of this strategy is to minimize the impact of interest
rate changes on our net interest income. In addition, we have various fixed rate loans in our
portfolio, which are financed with variable rate LIBOR borrowings. We have entered into various
interest swaps (as discussed below) to hedge our exposure to interest rate risk on our variable
rate LIBOR borrowings as it relates to our fixed rate loans. A few of our loans are subject to
various interest rate floors. As a result, the impact of a change in interest rates may be
different on our interest income than it is on our interest expense.
Based on our loans, liabilities, and related interest rate swaps as of September 30, 2006 and
assuming the balances of these items remain unchanged for the subsequent twelve months, a 1%
increase in LIBOR would increase our annual net income and cash flows by approximately $1.8
million, due to the principal amount of loans subject to interest rate adjustment exceeding the
liabilities that would be subject to an interest rate adjustment. This is primarily due to our
interest rate swaps that convert approximately $371.7 million of variable rate LIBOR based debt to
a fixed basis that is not subject to a 1% increase. Based on our loans, liabilities, and related
interest rate swaps as of September 30, 2006 and assuming the balances of these items remain
unchanged for the subsequent twelve months, a 1% decrease in LIBOR would decrease our annual net
income and cash flows by approximately $1.6 million. This is primarily due to our interest rate
swaps that effectively convert a portion of the variable rate LIBOR based debt to a fixed basis
that is not subject to a 1% decrease, partially offset by loans currently subject to interest rate
floors (and, therefore, not be subject to the full downward interest rate adjustment).
Based on the loans and liabilities as of December 31, 2005, and assuming the balances of these
loans and liabilities remain unchanged for the subsequent twelve months, a 1% increase in LIBOR
would increase our annual net income and cash flows by approximately $2.0 million primarily due to
the fact that the principal amount of loans subject to interest rate adjustment exceeds the
liabilities that would be subject to an interest rate adjustment. This is primarily due to our
interest rate swaps that effectively convert a portion of the variable rate LIBOR based debt to a
fixed basis that is not subject to a 1% increase. Based on the loans and liabilities as of December
31, 2005, and assuming the balances of these loans and liabilities remain unchanged for the
subsequent twelve months, a 1% decrease in LIBOR would decrease our annual net income and cash
flows by approximately $1.1 million. This is
39
primarily due to our interest rate swaps that effectively convert a portion of the variable rate
LIBOR based debt to a fixed basis that is not subject to a 1% decrease, partially offset by loans
currently subject to interest rate floors (and, therefore, not be subject to the full downward
interest rate adjustment).
In the event of a significant rising interest rate environment and/or economic downturn,
defaults could increase and result in credit losses to us, which could adversely affect our
liquidity and operating results. Further, such delinquencies or defaults could have an adverse
effect on the spreads between interest-earning assets and interest-bearing liabilities.
We invest in securities, which are designated as available-for-sale. These securities are
adjustable rate securities that have a fixed component for three years and, thereafter, generally
reset annually. These securities are financed with a repurchase agreement that bears interest at a
rate of one month LIBOR plus .20%. Since the re-pricing of the debt obligations occurs more quickly
than the re-pricing of the securities, on average, our cost of borrowings will rise more quickly in
response to an increase in market interest rates than the earnings rate on the securities. This
would result in a reduction to our net interest income and cash flows related to these securities.
Based on the securities and borrowings as of September 30, 2006, and December 31, 2005, and
assuming the balances of these securities and borrowings remain unchanged for the subsequent twelve
months, a 1% increase in LIBOR would reduce our annual net income and cash flows by approximately
$0.2 million and $0.3 million, respectively. A 1% decrease in LIBOR would increase our annual net
income and cash flows by approximately $0.2 million and $0.3 million, respectively.
In connection with our CDOs described in Managements Discussion and Analysis of Financial
Condition and Results of Operations, we entered into interest rate swap agreements to hedge the
exposure to the risk of changes in the difference between three-month LIBOR and one-month LIBOR
interest rates. These interest rate swaps became necessary due to the investors return being paid
based on a three-month LIBOR index while the assets contributed to the CDOs are yielding interest
based on a one-month LIBOR index.
These swaps were executed on December 21, 2004 and December 22, 2005 having notional values of
$469.0 million and $288.3 million, respectively. The market value of these interest rate swaps is
dependent upon existing market interest rates and swap spreads, which change over time. As of
September 30, 2006, and December 31, 2005, if there were a 50 basis point increase in forward
interest rates, the value of these interest rate swaps would have increased by approximately
$16,000 and $0.1 million, respectively. If there were a 50 basis point decrease in forward interest
rates, the value of these interest rate swaps would have decreased by approximately $21,000 and
$0.1 million, respectively.
In connection with the issuance of variable rate junior subordinate notes during 2006 and
2005, we entered into various interest rate swap agreements. These swaps had total notional values
of $140.0 million and $50.0 million, respectively, as of September 30, 2006 and December 31, 2005.
The market value of these interest rate swaps is dependent upon existing market interest rates and
swap spreads, which change over time. As of September 30, 2006, and December 31, 2005, if there had
been a 50 basis point increase in forward interest rates, the fair market value of these interest
rate swaps would have increased by approximately $2.7 million and $0.9 million, respectively. If
there were a 50 basis point decrease in forward interest rates, the fair market value of these
interest rate swaps would have decreased by approximately $2.6 million and $0.9 million,
respectively.
As of September 30, 2006, we had fourteen interest rate swap agreements outstanding that have
a combined notional value of $231.7 million, as of December 31, 2005 we had two interest rate swap
agreements outstanding with combined notional values of $140.0 million to hedge current and
outstanding LIBOR based debt relating to certain fixed rate loans within our portfolio. The fair
market value of these interest rate swaps is dependent upon existing market interest rates and swap
spreads, which change over time. As of September 30, 2006, and December 31, 2005, if there had been
a 50 basis point increase in forward interest rates, the fair market value of these interest rate
swaps would have increased by approximately $6.1 million and $4.7 million respectively. If there
were a 50 basis point decrease in forward interest rates, the fair market value of these interest
rate swaps would have decreased by approximately $6.4 million and $4.7 million, respectively.
Our hedging transactions using derivative instruments also involve certain additional risks
such as counterparty credit risk, the enforceability of hedging contracts and the risk that
unanticipated and significant changes in interest
40
rates will cause a significant loss of basis in the contract. The counterparties to our derivative
arrangements are major financial institutions with high credit ratings with which we and our
affiliates may also have other financial relationships. As a result, we do not anticipate that any
of these counterparties will fail to meet their obligations. There can be no assurance that we will
be able to adequately protect against the foregoing risks and will ultimately realize an economic
benefit that exceeds the related amounts incurred in connection with engaging in such hedging
strategies.
We utilize interest rate swaps to limit interest rate risk. Derivatives are used for hedging
purposes rather than speculation. We do not enter into financial instruments for trading purposes.
Market Value Risk
Our available-for-sale securities are reflected at their estimated fair value with unrealized
gains and losses excluded from earnings and reported in other comprehensive income pursuant to SFAS
No. 115 Accounting for Certain Investments in Debt and Equity Securities. The estimated fair
value of these securities fluctuate primarily due to changes in interest rates and other factors;
however, given that these securities are guaranteed as to principal and/or interest by an agency of
the U.S. Government, such fluctuations are generally not based on the creditworthiness of the
mortgages securing these securities. Generally, in a rising interest rate environment, the
estimated fair value of these securities would be expected to decrease; conversely, in a decreasing
interest rate environment, the estimated fair value of these securities would be expected to
increase.
Prepayment Risk
As we receive repayments of principal on these securities, premiums paid on such securities
are amortized against interest income using the effective yield method through the expected
maturity dates of the securities. In general, an increase in prepayment rates will accelerate the
amortization of purchase premiums, thereby reducing the interest income earned on the securities.
41
Item 4. CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and chief financial
officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the Exchange Act)) as of the end of the period covered by this report. Based upon such
evaluation, our chief executive officer and chief financial officer have concluded that, as of the
end of such period, our disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by us in the
reports we file or submit under the Exchange Act and are effective in ensuring that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934
is accumulated and communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required disclosure.
There have not been any changes in our internal controls over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
42
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 1A. RISK FACTORS
Not applicable.
Item 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) During
the nine months ended September 30, 2006, the Company issued a total of
177,847 shares of its common stock to Arbor Commercial Mortgage, LLC (the
Manager) pursuant to the Amended and Restated Management Agreement, dated
January 19, 2005 (the Management Agreement), by and among the Company, the
Manager, Arbor Realty Limited Partnership and Arbor Realty SR, Inc. Pursuant to
the Management Agreement, in return for the services that ACM provides to the
Company, the Manager is entitled to an incentive fee in certain circumstances
and can elect to receive the incentive fee in shares of common stock of the
Company.
The
issuance and sale of the shares of common stock pursuant to the
Management Agreement was not registered under the Securities Act in reliance on
the exemption from registration provided by Section 4(2) thereof. These
transactions did not involve any public offering of common stock, the Manager
had adequate access to information about the Company, and an appropriate legend
was placed on the certificates evidencing the shares of common stock issued.
(c) Share
Repurchases
During the three months ended September 30, 2006, we made the following purchases of shares of
our common stock that are registered pursuant to Section 12(b) of the Securities Exchange Act of
1934.
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(c) Total Number |
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(d) Maximum |
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of Shares |
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Number of |
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Purchased as Part |
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Shares that May |
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(a) Total Number |
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of Publicly |
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Yet be |
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of Shares |
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(b) Average Price |
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Announced Plans |
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Purchased Under |
Period |
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Purchased |
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Paid per Share |
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or Programs |
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the Plan 1 |
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July 1, 2006
through August 1,
2006 |
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August 1, 2006
through September
1, 2006 |
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118,800 |
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24.88 |
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118,800 |
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881,200 |
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September 1, 2006
through September
30, 2006 |
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131,400 |
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25.23 |
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250,200 |
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749,800 |
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1 |
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In August 2006, the Board of Directors authorized a stock repurchase plan that enables the
Company to buy up to one million shares of its common stock. At managements discretion,
shares may be acquired on the open market, through privately negotiated transactions or
pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at
times when it might otherwise be prevented from doing so. There is no guarantee as to the
exact number of shares that will be repurchased by the Company and the program may be
terminated at any time. Included in the total shares purchased are 15, 000 shares that were
purchased in the open market. |
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS
Not applicable.
43
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Exhibit |
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Number |
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Description |
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2.1 |
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Contribution Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc.,
Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership* |
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2.2 |
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Guaranty, dated July 1, 2003, made by Arbor Commercial Mortgage, LLC and certain
wholly-owned subsidiaries of Arbor Commercial Mortgage, LLC in favor of Arbor
Realty Limited Partnership, ANMB Holdings, LLC and ANMB Holdings II, LLC* |
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2.3 |
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Indemnity Agreement, dated July 1, 2003 by and among Arbor Realty Trust, Inc.,
Arbor Commercial Mortgage, LLC, Ivan Kaufman and Arbor Realty Limited Partnership* |
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3.1 |
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Articles of Incorporation of the Registrant* |
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3.2 |
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Articles of Amendment to Articles of Incorporation of the Registrant. |
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3.3 |
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Articles Supplementary of the Registrant* |
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3.4 |
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Bylaws of the Registrant* |
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4.1 |
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Form of Certificate for Common Stock* |
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4.2 |
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Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust,
Inc. and JMP Securities, LLC* |
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10.1 |
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Amended and Restated Management Agreement, dated January 19, 2005, by and among
Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Arbor Realty Limited
Partnership and Arbor Realty SR, Inc. |
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10.2 |
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Services Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc.,
Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership* |
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10.3 |
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Non-Competition Agreement, dated July 1, 2003, by and among Arbor Realty Trust,
Inc., Arbor Realty Limited Partnership and Ivan Kaufman* |
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10.4 |
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Second Amended and Restated Agreement of Limited Partnership of Arbor Realty
Limited Partnership, dated January 19, 2005, by and among Arbor Commercial
Mortgage, LLC, Arbor Realty Limited Partnership, Arbor Realty LPOP, Inc. and Arbor
Realty GPOP, Inc. |
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10.5 |
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Warrant Agreement, dated July 1, 2003, between Arbor Realty Limited Partnership,
Arbor Realty Trust, Inc. and Arbor Commercial Mortgage Commercial Mortgage, LLC* |
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10.6 |
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Registration Rights Agreement, dated July 1, 2003, between Arbor Realty Trust,
Inc. and Arbor Commercial Mortgage, LLC* |
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10.7 |
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Pairing Agreement, dated July 1, 2003, by and among Arbor Realty Trust, Inc.,
Arbor Commercial Mortgage, LLC Arbor Realty Limited Partnership, Arbor Realty
LPOP, Inc. and Arbor Realty GPOP, Inc.* |
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10.8 |
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2003 Omnibus Stock Incentive Plan, (as amended and restated on July 29, 2004)* |
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10.9 |
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Amendment No. 1 to the 2003 Omnibus Stock Incentive Plan (as amended and restated)* |
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10.10 |
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Form of Restricted Stock Agreement* |
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10.11 |
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Benefits Participation Agreement, dated July 1, 2003, between Arbor Realty Trust,
Inc. and Arbor Management, LLC* |
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10.12 |
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Form of Indemnification Agreement* |
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10.13 |
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Structured Facility Warehousing Credit and Security Agreement, dated July 1, 2003,
between Arbor Realty Limited Partnership and Residential Funding Corporation* |
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10.14 |
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Amended and Restated Loan Purchase and Repurchase Agreement, dated July 12, 2004,
by and among Arbor Realty Funding LLC, as seller, Wachovia Bank, National
Association, as purchaser, and Arbor Realty Trust, Inc., as guarantor.** |
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10.15 |
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Master Repurchase Agreement, dated as of November 18, 2002, by and between Nomura
Credit and Capital, Inc. and Arbor Commercial Mortgage, LLC* |
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10.16 |
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Assignment and Assumption Agreement, dated as of July 1, 2003, by and between
Arbor Commercial Mortgage, LLC and Arbor Realty Limited Partnership* |
44
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Exhibit |
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Number |
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Description |
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10.17 |
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Subscription Agreement between Arbor Realty Trust, Inc. and Kojaian Ventures, L.L.C.* |
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10.18 |
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Revolving Credit Facility Agreement, dated as of December 7, 2004, by and between
Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and Watershed
Administrative LLC and the lenders named therein. |
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10.19 |
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Indenture, dated January 19, 2005, by and between Arbor Realty Mortgage Securities
Series 2004-1, Ltd., Arbor Realty Mortgage Securities Series 2004-1 LLC, Arbor
Realty SR, Inc. and Lasalle Bank National Association. |
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10.20 |
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Note Purchase Agreement, dated January 19, 2005, by and between Arbor Realty
Mortgage Securities Series 2004-1, Ltd., Arbor Realty Mortgage Securities Series
2004-1 LLC and Wachovia Capital Markets, LLC. |
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10.21 |
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Indenture, dated January 11, 2006, by and between Arbor Realty Mortgage Securities
Series 2005-1, Ltd., Arbor Realty Mortgage Securities Series 2005-1 LLC, Arbor
Realty SR, Inc. and Lasalle Bank National Association. |
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10.22 |
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Note Purchase Agreement, dated January 11, 2006, by and between Arbor Realty
Mortgage Securities Series 2005-1, Ltd., Arbor Realty Mortgage Securities Series
2005-1 LLC and Wachovia Capital Markets, LLC. |
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10.23 |
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Master
Repurchase Agreement, dated as of October 26, 2006, by and between
Column Financial, Inc. and Arbor Realty Sr, Inc. and Arbor TRS
Holding Company Inc., as sellers, Arbor Realty Trust, Inc. Arbor
Realty Limited Partnership, as guarantors, and Arbor Realty Mezzanine
LLC |
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31.1 |
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Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14. |
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31.2 |
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Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14. |
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32.1 |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
|
Incorporated by reference to the Registrants Registration Statement
on Form S-11 (Registration No. 333-110472), as amended. Such
registration statement was originally filed with the Securities and
Exchange Commission on November 13, 2003. |
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** |
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Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2004. |
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Incorporated by reference to the Registrants Annual Report of Form
10-K for the year ended December 31, 2004. |
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Incorporated by reference to the Registrants Annual Report of Form
10-K for the year ended December 31, 2005. |
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
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ARBOR REALTY TRUST, INC.
(Registrant) |
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By:
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/s/ Ivan Kaufman
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Name: Ivan Kaufman |
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Title: Chief Executive Officer |
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By:
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/s/ Paul Elenio |
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Name: Paul Elenio |
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Title: Chief Financial Officer |
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Date:
November 8, 2006
46
EX-10.23
Exhibit 10.23
MASTER REPURCHASE AGREEMENT
COLUMN FINANCIAL, INC., as buyer (the Buyer) and
ARBOR REALTY SR, INC., as a seller (Seller), and
ARBOR TRS HOLDING COMPANY INC., as a seller (Seller), and
ARBOR REALTY TRUST INC. (ART), as a guarantor (a Guarantor), and
ARBOR REALTY LIMITED PARTNERSHIP, as a guarantor (a Guarantor, and together with
ARBOR REALTY TRUST INC., the Guarantors), and
ARBOR REALTY MEZZANINE LLC (Mezzanine Loan Subsidiary)
Dated October 26, 2006
TABLE OF CONTENTS
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Page |
1.
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APPLICABILITY
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1 |
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2.
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DEFINITIONS
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1 |
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3.
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PROGRAM; INITIATION OF TRANSACTIONS
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22 |
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4.
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REPURCHASE
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24 |
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5.
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PRICE DIFFERENTIAL
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26 |
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6.
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MARGIN MAINTENANCE
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26 |
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7.
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INCOME PAYMENTS
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28 |
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8.
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SECURITY INTEREST
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30 |
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9.
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PAYMENT AND TRANSFER
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32 |
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10.
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CONDITIONS PRECEDENT
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32 |
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11.
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PROGRAM; COSTS
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36 |
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12.
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SERVICING
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37 |
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13.
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REPRESENTATIONS AND WARRANTIES
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38 |
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14.
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COVENANTS
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45 |
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15.
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EVENTS OF DEFAULT; TERMINATION EVENTS
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50 |
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16.
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REMEDIES UPON DEFAULT
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53 |
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17.
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REPORTS
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56 |
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18.
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REPURCHASE TRANSACTIONS
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58 |
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- i -
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19.
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SINGLE AGREEMENT
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59 |
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20.
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NOTICES AND OTHER COMMUNICATIONS
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59 |
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21.
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ENTIRE AGREEMENT; SEVERABILITY
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61 |
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|
|
|
|
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|
|
22.
|
|
NON ASSIGNABILITY
|
|
|
61 |
|
|
|
|
|
|
|
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23.
|
|
SET-OFF
|
|
|
62 |
|
|
|
|
|
|
|
|
24.
|
|
BINDING EFFECT; GOVERNING LAW; JURISDICTION
|
|
|
62 |
|
|
|
|
|
|
|
|
25.
|
|
NO WAIVERS, ETC.
|
|
|
63 |
|
|
|
|
|
|
|
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26.
|
|
INTENT
|
|
|
63 |
|
|
|
|
|
|
|
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27.
|
|
DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
|
|
|
64 |
|
|
|
|
|
|
|
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28.
|
|
POWER OF ATTORNEY
|
|
|
64 |
|
|
|
|
|
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|
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29.
|
|
BUYER MAY ACT THROUGH AFFILIATES
|
|
|
64 |
|
|
|
|
|
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|
|
30.
|
|
INDEMNIFICATION; OBLIGATIONS; RECOURSE
|
|
|
64 |
|
|
|
|
|
|
|
|
31.
|
|
COUNTERPARTS
|
|
|
65 |
|
|
|
|
|
|
|
|
32.
|
|
CONFIDENTIALITY
|
|
|
66 |
|
|
|
|
|
|
|
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33.
|
|
RECORDING OF COMMUNICATIONS
|
|
|
66 |
|
|
|
|
|
|
|
|
34.
|
|
EXIT FEE
|
|
|
66 |
|
|
|
|
|
|
|
|
35.
|
|
ADMINISTRATION FEE
|
|
|
67 |
|
|
|
|
|
|
|
|
36.
|
|
PERIODIC DUE DILIGENCE REVIEW
|
|
|
67 |
|
|
|
|
|
|
|
|
37.
|
|
RESERVED
|
|
|
67 |
|
|
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|
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|
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|
38.
|
|
AUTHORIZATIONS
|
|
|
67 |
|
- ii -
|
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|
|
|
|
|
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|
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39.
|
|
DOCUMENTS MUTUALLY DRAFTED
|
|
|
68 |
|
|
|
|
|
|
|
|
40.
|
|
GENERAL INTERPRETIVE PRINCIPLES
|
|
|
68 |
|
SCHEDULES
|
|
|
|
|
Schedule 1 Representations and Warranties with Respect to Purchased Assets |
|
|
|
|
|
Schedule 2 Authorized Representatives |
|
|
|
|
|
EXHIBITS |
|
|
|
|
|
Exhibit A |
|
Form of Transaction Request |
|
|
|
|
|
|
|
Annex 1 Purchased Asset Schedule |
|
|
|
|
|
|
|
Annex 2 Summary Diligence Materials |
|
|
|
|
|
Exhibit B |
|
Form of Purchase Confirmation |
|
|
|
|
|
Exhibit C |
|
Form of Closing Data Tape |
|
|
|
|
|
Exhibit D |
|
Form of Officers Compliance Certificate |
|
|
|
|
|
Exhibit E |
|
Form of Custodial Delivery Letter |
|
|
|
|
|
Exhibit F |
|
Form of Opinion of Sellers and Guarantors and
Mezzanine Loan Subsidiarys counsel |
|
|
|
|
|
Exhibit G |
|
Officers Certificate of the Sellers, Guarantors and
Mezzanine Loan Subsidiary and Corporate Resolutions of
Sellers, Guarantor, and Mezzanine Loan Subsidiary |
|
|
|
|
|
Exhibit H |
|
Form of Servicer Notice |
|
|
|
|
|
Exhibit I |
|
Form of Asset File |
|
|
|
|
|
Exhibit J |
|
Form of Trust Receipt |
|
|
|
|
|
Exhibit K |
|
Form of Distribution Worksheet |
|
|
|
|
|
Exhibit L |
|
Form of Servicing Report |
|
|
|
|
|
Exhibit M |
|
Form of Mezzanine Loan Subsidiary Acknowledgment |
|
|
|
|
|
Exhibit N |
|
Form of Notice to Borrower |
|
|
|
|
|
Exhibit O |
|
Form of Irrevocable Instruction Letter |
- iii -
1. Applicability
From time to time the parties hereto may enter into transactions in which a Seller agrees to
transfer to Buyer Purchased Assets and the Mezzanine Loan Subsidiary Interests (valued from time to
time based on the Mezzanine Loans owned by the Mezzanine Loan Subsidiary) (as hereinafter defined)
against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to such
Seller such Purchased Assets, Mezzanine Loan Subsidiary Interests and Mezzanine Loans at a date
certain or on demand, against the transfer of funds by such Seller. Each such transaction shall be
referred to herein as a Transaction and, unless otherwise agreed in writing, shall be governed by
this Agreement, including any supplemental terms or conditions contained in any annexes identified
herein, as applicable hereunder.
On the initial Purchase Date, Buyer will purchase the Mezzanine Loan Subsidiary Interests from
the applicable Seller in connection with the initial Transaction.
After the initial Purchase Date, as part of separate Transactions Sellers may request and
Buyer will fund, subject to the terms and conditions of this Repurchase Agreement, an increase in
the Purchase Price for the Mezzanine Loan Subsidiary Interests based upon the acquisition of
additional Mezzanine Loans by the Mezzanine Loan Subsidiary.
2. Definitions
Whenever used in this Agreement, the following words and phrases, unless the context otherwise
requires, shall have the following meanings:
1933 Act has the meaning set forth in Section 16(l) hereof.
1934 Act means the Securities Exchange Act of 1934, as amended from time to time.
Accepted Servicing Practices means, with respect to any Purchased Asset, those
servicing practices of prudent institutions which service assets of the same type as such Purchased
Asset in the jurisdiction where the related Mortgaged Property or underlying asset is located.
Accrual Period means, with respect to the first Price Differential Payment Date, the
period from and including the applicable Purchase Date to but excluding such first Price
Differential Payment Date, and, with respect to any subsequent Price Differential Payment Date, the
period from and including the previous Price Differential Payment Date to but excluding such
subsequent Price Differential Payment Date.
Act of Insolvency means, with respect to any Person or its Affiliates, (i) the
filing of a petition, commencing, or authorizing the commencement of any case or proceeding, or the
voluntary joining of any case or proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law relating to the protection of creditors, or suffering any
such petition or proceeding to be commenced by another which is consented to, not
timely contested or results in entry of an order for relief; (ii) the seeking of the
appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or
any substantial part of the property of either; (iii) the appointment of a receiver, conservator,
or manager for such party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so; (iv) the making or offering by such party or an Affiliate of a composition
with its creditors or a general assignment for the benefit of creditors; (v) the admission by such
party or an Affiliate of such party of its inability to pay its debts or discharge its obligations
as they become due or mature; or (vi) that any governmental authority or agency or any person,
agency or entity acting or purporting to act under governmental authority shall have taken any
action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial
part of the property of such party or of any of its Affiliates, or shall have taken any action to
displace the management of such party or of any of its Affiliates or to curtail its authority in
the conduct of the business of such party or of any of its Affiliates.
Adjusted Tangible Net Worth means, for any Person, Net Worth of such Person plus
Subordinated Debt, minus all intangible assets, including capitalized servicing rights, goodwill,
patents, tradenames, trademarks, copyrights, franchises, any organizational expenses, deferred
expenses, prepaid expenses, prepaid assets, receivables from shareholders, Affiliates or employees,
and any other asset as shown as an intangible asset on the balance sheet of such Person on a
consolidated basis as determined at a particular date in accordance with GAAP.
Administration Fee has the meaning set forth in the Fee Letter.
Affiliate means, with respect to any Person, any affiliate of such Person, as such
term is defined in the Bankruptcy Code. Notwithstanding the foregoing, an entity in which such
Person holds only a preferred equity interest shall not be deemed an Affiliate of such Person.
Agent means Column Financial, Inc. or any affiliate or successor thereto.
Agreement means this Master Repurchase Agreement, as it may be amended, supplemented
or otherwise modified from time to time.
ALTA means the American Land Title Association or any successor in interest thereto.
Appraised Value means the value set forth in an appraisal made in connection with
the origination of the related Mortgage Loan as the value of the Mortgaged Property or Underlying
Mortgaged Property, as applicable.
Asset File means, the documents specified on Exhibit I, together with any
additional documents and information required to be delivered to Buyer or its designee (including
the Custodian) pursuant to this Agreement.
Asset Value means with respect to each Eligible Asset, the applicable Purchase Price
Percentage for the related Purchased Asset multiplied by the lesser of (a) the Market Value of such
Purchased Asset and (b) the outstanding principal balance of such Purchased Asset.
- 2 -
(a) Without limiting the generality of the foregoing, each Seller acknowledges that the Asset
Value of a Purchased Asset may be reduced to zero by Buyer if:
(i) such Purchased Asset ceases to be an Eligible Asset;
(ii) such Purchased Asset (other than a Purchased Asset that is a Physical
Security) has been released from the possession of the Custodian under the Custodial
Agreement (other than to a Bailee pursuant to a Bailee Agreement) for a period in
excess of 10 calendar days;
(iii) such Purchased Asset (other than a Purchased Asset that is a Physical
Security) has been released from the possession of the Custodian under the Custodial
Agreement to a Bailee pursuant to a Bailee Agreement for a period in excess of 20
calendar days;
(iv) such Purchased Asset is a Non-Performing Asset;
(v) such Purchased Asset contains a breach of a representation or warranty made
by a Seller in this Agreement or the Custodial Agreement;
(vi) on or after the Concentration Limit Trigger Date, when the Purchase Price
for such Purchased Asset is added to other Purchased Assets, a breach of a
Concentration Limit occurs;
(vii) when the Purchase Price for such Purchased Asset is added to any two (2)
other Purchased Assets, such Purchased Assets shall have a combined Purchase Price
greater than $125 million; or
(viii) which is a Table Funded Purchased Asset in respect of which the Asset
Files have not been delivered to the Custodian within three (3) Business Days
following the Purchase Date.
Asset Value Margin Call has the meaning specified in Section 6(a) hereof.
Asset Value Margin Deficit has the meaning specified in Section 6(a) hereof.
Assignment and Acceptance has the meaning set forth in Section 22 hereof.
Assignment of Leases means, with respect to any Mortgage, an assignment of leases
thereunder, notice of transfer or equivalent instrument in recordable form, sufficient under the
laws of the jurisdiction wherein the Underlying Mortgaged Property is located to reflect the
assignment of leases.
Assignment of Mortgage means an assignment of the Mortgage, notice of transfer or
equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the sale of the Mortgage to Buyer.
- 3 -
Backup Servicer means KeyCorp Real Estate Capital Markets, Inc. d/b/a KeyBank Real
Estate Capital or any other servicer approved by Buyer and Sellers in accordance with the terms of
the Backup Servicing Agreement.
Backup Servicing Agreement means that certain backup servicing agreement, dated as
of the date hereof, among the Buyer, the Sellers and the Backup Servicer as the same may be amended
from time to time.
Bailee means, with respect to each Table Funded Purchased Asset, the related title
company or other settlement agent, in each case, approved in writing by the Buyer in its sole
discretion.
Bailee Agreement means the Bailee Agreement among the Sellers, the Buyer and the
Bailee in the form of Exhibit 11 to the Custodial Agreement.
Bailees Trust Receipt means a Trust Receipt in the form of Attachment 2 to the
Bailee Agreement.
Balloon Payment means, for any Purchased Asset for which the final principal payment
is substantially greater than periodic scheduled principal payments due thereunder, the payment due
on its maturity date.
Bank means North Folk Bank or such other party specified by Buyer and agreed to by
Sellers, which approval shall not be unreasonably withheld.
Bankruptcy Code means the United States Bankruptcy Code of 1978, as amended from
time to time.
Basic Mortgage Asset Document means respect to (i) any Commercial Mortgage Loan, the
original executed Mortgage Note and the original Assignment of Mortgage, (ii) any Mezzanine Loan,
the original executed Mezzanine Loan note, the second mortgage and pledge agreement, the original
stock certificates or other evidence of the pledged interests (if applicable) and the assignment of
the foregoing, and (iii) any Junior Interest, the original executed note.
Breakage Costs has the meaning set forth in Section 4(d) hereof.
Business Day means any day other than (i) a Saturday or Sunday; (ii) a public or
bank holiday in New York City or (iii) any day on which the New York Stock Exchange is closed.
Buyer means Column Financial, Inc., and any successor or assign hereunder.
Capital Lease Obligations means, for any Person, all obligations of such Person to
pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property
to the extent such obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the
- 4 -
amount of such obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
Capital Stock means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all equivalent equity
ownership interests in a Person which is not a corporation, including, without limitation, any and
all member or other equivalent interests in any limited liability company, and any and all warrants
or options to purchase any of the foregoing.
Care Facility means a congregate care facility or assisted living facility, nursing
home, hospice, hospital or other healthcare facility.
CDO Transaction means a CDO transaction of a Seller or an Affiliate of a Seller with
respect to any of the Purchased Assets for which Credit Suisse First Boston or an Affiliate thereof
acts as co-lead manager/underwriter.
Change in Control means:
(A) any transaction or event as a result of which any Guarantor ceases to own,
beneficially or of record, 100% of the stock interests any Seller;
(B) any transaction or event as a result of which Ivan Kaufman, members of his
immediate family and/or entities owned by, or trusts established for the benefit of,
Ivan Kaufman and the members of his immediate family cease to own greater than 50%
of Arbor Commercial Mortgage LLC;
(C) any transaction or event as a result of which ART and/or Arbor Commercial
Mortgage LLC, collectively, cease to own, beneficially or of record, 100% of the
membership interests of Arbor Realty Limited Partnership;
(D) any transaction or event as a result of which Arbor Commercial Mortgage LLC
ceases to be the manager of ART;
(E) the sale, transfer, or other disposition of all or substantially all any
Sellers or any Guarantors assets (excluding any such action taken in connection
with this Agreement or any securitization transaction); or
(F) any transaction or event as a result of which a person or group (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the Exchange Act)) other than Arbor Commercial Mortgage LLC shall become,
or obtain rights (whether by means of warrants, options or otherwise) to become, the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of a percentage of the total voting power of all classes of
capital stock of ART entitled to vote generally in the election of directors of 20%
or more.
- 5 -
Closed Asset means an asset as to which (a) the related note and mortgaged have been
delivered to a Seller and (b) funds have been disbursed to the mortgagor, in each case, prior to
the related Purchase Date.
Closing Data Tape means, with respect to any Transaction as of any Purchase Date, a
computer tape or other electronic medium generated by a Seller or any of its Affiliates and
delivered to Buyer and Custodian, which provides, with respect to each Purchased Asset that is the
subject of such Transaction, each of the data fields set forth on Exhibit C attached hereto
and the information responsive to each such field, as well as any and all new, modified or updated
information with respect to such Purchased Asset that has been provided to Buyer prior to the
applicable Purchase Date and as to which the Purchase Price or any other information set forth in
the Purchase Confirmation for such Transaction has been based, in each case in a format that has
previously been approved by Buyer and is otherwise acceptable to Buyer.
Code means the Internal Revenue Code of 1986, as amended.
Column Assets means any Eligible Asset issued or extended by Buyer or an Affiliate
of Buyer.
Commercial Mortgage Loan means a Mortgage Loan (a) secured by a first mortgage lien
on an Office Building, a Retail property, a Hotel or Motel or other commercial or Multifamily
property, (b) with a Loan-to-Value Ratio of 82% or less and (c) as to which the representations and
warranties in Schedule 1(a) hereof are correct.
Complete Submission means with respect to any Transaction, the Summary Diligence
Materials together with a Preliminary Data Tape.
Concentration Limit means:
(a) The aggregate Purchase Price of all Mezzanine Loans that are Purchased Assets shall not
exceed 35% of the Maximum Aggregate Purchase Price; or
(b) The aggregate Purchase Price of all Purchased Assets that are secured by Office Buildings
that are Eligible Assets shall not exceed 60% of the aggregate outstanding Purchase Price; or
(c) The aggregate Purchase Price of all Purchased Assets that are secured by Retail properties
that are Eligible Assets shall not exceed 60% of the aggregate outstanding Purchase Price; or
(d) The aggregate Purchase Price of all Purchased Assets that are secured by Multifamily
properties that are Eligible Assets shall not exceed 75% of the aggregate outstanding Purchase
Price; or
(e) The aggregate Purchase Price of all Purchased Assets that are secured by Hotels or Motels
that are Eligible Assets shall not exceed 40% of the aggregate outstanding Purchase Price; or
- 6 -
(f) The aggregate Purchase Price of all Purchased Assets that are secured by Condo Conversion
properties that are Eligible Assets shall not exceed 15% of the aggregate outstanding Purchase
Price; or
(g) The aggregate Purchase Price of all Purchased Assets that are secured by properties other
than Office Buildings, Retail, Multifamily, Hotels, Motels or Condo Conversion properties that are
expressly approved by Buyer in its sole discretion shall not exceed 10% of the aggregate
outstanding Purchase Price; or
(h) The aggregate Purchase Price of all Purchased Assets with Underlying Mortgaged Property
located in the State of New York shall not exceed 60% of the aggregate outstanding Purchase Price;
or
(i) The aggregate Purchase Price of all Purchased Assets with Underlying Mortgaged Property
located in the State of California shall not exceed 50% of the aggregate outstanding Purchase
Price; or
(j) The aggregate Purchase Price of all Purchased Assets with Underlying Mortgaged Property
located in the District of Columbia shall not exceed 30% of the aggregate outstanding Purchase
Price; or
(k) The aggregate Purchase Price of all Purchased Assets with Underlying Mortgaged Property
located in the State of Florida shall not exceed 25% of the aggregate outstanding Purchase Price;
or
(l) The aggregate Purchase Price of all Purchased Assets with Underlying Mortgaged Property
located in any one State (other than New York, California, Florida or the District of Columbia)
shall not exceed 20% of the aggregate outstanding Purchase Price; or
(m) The aggregate Purchase Price of all Table Funded Purchased Assets that are Purchased
Assets shall not exceed the greater of (a) 25% of the Maximum Aggregate Purchase Price and (b) the
Purchase Price of a single Purchased Asset.
Concentration Limit Margin Call has the meaning specified in Section 6(b) hereof.
Concentration Limit Margin Deficit has the meaning specified in Section 6(b) hereof.
Concentration Limit Trigger Date means the date which follows the date hereof, and
follows the date of any CDO Transaction which is the earlier of (a) six (6) months from the date
hereof or the date of any CDO Transaction, as applicable, and (b) the first date on which the
outstanding Purchase Price exceeds 50% of the Maximum Aggregate Purchase Price.
Condo Conversion means a Multifamily which is secured by a Mortgaged Property that
is in the process of being converted to and/or sold as condominium units in a condominium project.
- 7 -
Control Account Agreement means that certain Control Account Agreement, dated as of
the date hereof, among Buyer, the Sellers, the Servicer and Bank, as amended.
Custodial Agreement means the custodial agreement dated as of the date hereof, among
Sellers, Buyer and Custodian as the same may be amended from time to time.
Custodial Delivery Letter means the form executed by Sellers in order to deliver the
Purchased Asset Schedule and the Purchased Assets to the Custodian pursuant to Section 10(b)(4), a
form of which is attached hereto as Exhibit E.
Custodian means LaSalle Bank, National Association or such other party specified by
Buyer and agreed to by Sellers, which approval shall not be unreasonably withheld.
Default means an Event of Default or an event that with notice or lapse of time or
both would become an Event of Default.
Distribution Worksheet means a worksheet setting forth the amounts and recipients of
remittances to be made on the next succeeding Price Differential Payment Date, substantially in the
form of Exhibit K.
Dollars and $ means dollars in lawful currency of the United States of
America.
Due Diligence Costs has the meaning specified in Section 36 hereof.
Effective Date means the date upon which the conditions precedent set forth in
Section 10 shall have been satisfied.
Eligible Asset means any Commercial Mortgage Loan, Mezzanine Loan or Junior
Interest that, in each case, is acceptable to Buyer in its sole discretion, and conforms with the
applicable representations and warranties on Schedule 1.
Environmental Law means any federal, state, foreign or local statute, law, rule,
regulation, ordinance, code, guideline, written policy and rule of common law now or hereafter in
effect and in each case as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment, relating to the
environment, employee health and safety or hazardous materials, including, without limitation,
CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.;
the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Clean Air Act, 42
U.S.C. § 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 3803 et
seq.; the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 U.S.C. § 11001 et
seq.; the Hazardous Material Transportation Act, 49 U.S.C. § 1801 et seq.
and the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; and any state
and local or foreign counterparts or equivalents, in each case as amended from time to time.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from
time to time.
- 8 -
ERISA Affiliate means any corporation or trade or business that is a member of any
group of organizations (i) described in Section 414(b) or (c) of the Code of which a Seller is a
member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and
Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which a Seller is a member.
Event of Default has the meaning specified in Section 15 hereof.
Event of Termination means with respect to any Seller or any Guarantor (i) with
respect to any Plan, a reportable event, as defined in Section 4043 of ERISA, as to which the PBGC
has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified with
30 days of the occurrence of such event, or (ii) the withdrawal of any Seller, any Guarantor or any
ERISA Affiliate thereof from a Plan during a plan year in which it is a substantial employer, as
defined in Section 4001(a)(2) of ERISA, or (iii) the failure by any Seller, any Guarantor or any
ERISA Affiliate thereof to meet the minimum funding standard of Section 412 of the Code or Section
302 of ERISA with respect to any Plan, including, without limitation, the failure to make on or
before its due date a required installment under Section 412(m) of the Code or Section 302(e) of
ERISA, or (iv) the distribution under Section 4041 of ERISA of a notice of intent to terminate any
Plan or any action taken by any Seller, any Guarantor or any ERISA Affiliate thereof to terminate
any plan, or (v) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of
the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of
which such Plan is a part if any Seller, any Guarantor or any ERISA Affiliate thereof fails to
timely provide security to the Plan in accordance with the provisions of said sections, or (vi) the
institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or (vii) the receipt by any Seller, any Guarantor
or any ERISA Affiliate thereof of a notice from a Multiemployer Plan that action of the type
described in the previous clause (vi) has been taken by the PBGC with respect to such Multiemployer
Plan, or (viii) any event or circumstance exists which may reasonably be expected to constitute
grounds for any Seller, any Guarantor or any ERISA Affiliate thereof to incur liability under Title
IV of ERISA or under Sections 412(c)(11) or 412(n) of the Code with respect to any Plan.
Exit Fee has the meaning set forth in the Fee Letter.
Facility Fee has the meaning set forth in the Fee Letter.
Fannie Mae means Fannie Mae, the government sponsored enterprise formerly known as
the Federal National Mortgage Association.
FDIA has the meaning set forth in Section 26(c) hereof.
FDICIA has the meaning set forth in Section 26(d) hereof.
Fee Letter means the Fee Letter, dated as of even date herewith, between Buyer, the
Guarantors and Sellers, as amended, modified, waived, supplemented, extended, restated or replaced
from time to time.
- 9 -
Fidelity Insurance means insurance coverage with respect to employee errors,
omissions, dishonesty, forgery, theft, disappearance and destruction, robbery and safe burglary,
property (other than money and securities) and computer fraud in an aggregate amount acceptable to
Sellers regulators.
Fitch means Fitch Ratings, Inc., or any successor thereto.
Freddie Mac means the Federal Home Loan Mortgage Corporation or any successor
thereto.
GAAP means generally accepted accounting principles in effect from time to time in
the United States of America and applied on a consistent basis.
Governmental Authority means any nation or government, any state or other political
subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or
administrative functions over any Seller, Servicer, any Guarantor or Buyer, as applicable.
Ground Lease means a lease for all or any portion of the real property comprising
the Mortgaged Property, the lessees interest in which is held by the Mortgagor of the related
Mortgage Loan.
Ground Lessee means the ground lessee under a Ground Lease.
Guarantee means, as to any Person, any obligation of such Person directly or
indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the
payment of any Indebtedness of any other Person or otherwise protecting the holder of such
Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise);
provided that the term Guarantee shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations to make servicing
advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged
Property, to the extent required by Buyer. The amount of any Guarantee of a Person shall be deemed
to be an amount equal to the stated or determinable amount of the primary obligation in respect of
which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith. The terms
Guarantee and Guaranteed used as verbs shall have correlative meanings.
Guarantor means each of Arbor Realty Trust Inc. and Arbor Realty Limited
Partnership, in its capacity as guarantor under the Guaranty.
Guaranty means the guaranty of the Guarantors dated as of the date hereof as the
same may be amended from time to time.
Hotel or Motel means a real estate development owned by the Mortgagor or
for which the Mortgagor is a Ground Lessee, which constitutes a full operational hotel or motel
which is part of a national reservation system (determined by the Buyer in its sole good faith
discretion), including all land, amenities and improvements, with individual rooms principally for
short-term rental to tenants occupying same.
- 10 -
Income means with respect to any Purchased Asset at any time until repurchased by
the Sellers, any principal received thereon or in respect thereof and all interest, dividends or
other distributions thereon.
Indebtedness means, for any Person: (a) obligations created, issued or incurred by
such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the
sale of Property to another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of
business, so long as such trade accounts payable are payable within 90 days of the date the
respective goods are delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so
secured has been assumed by such Person, provided, if such Person has not assumed or become liable
for the payment of such Indebtedness, then for the purposes of this definition the amount of such
Indebtedness shall not exceed the market value of the property subject to such Lien; (d)
obligations (contingent or otherwise) of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for the account of such
Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under
repurchase agreements, sale/buy-back agreements or like arrangements; (g) Indebtedness of others
Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the
acquisition or carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.
Indemnified Party has the meaning set forth in Section 30(a) hereof.
Industrial Property means a property owned by the Mortgagor or for which the
Mortgagor is a Ground Lessee, which constitutes a full operational property, held partially or
principally for lease to commercial tenants in connection with manufacturing.
Interest Rate Protection Agreement means, with respect to any or all of the
Purchased Assets, any short sale of a US Treasury Security, or futures contract, or mortgage
related security, or Eurodollar futures contract, or options related contract, or interest rate
swap, cap or collar agreement, or similar arrangement providing for protection against fluctuations
in interest rates or the exchange of nominal interest obligations, either generally or under
specific contingencies, entered into by a Seller and a party acceptable to Buyer in its sole
discretion, which agreement is acceptable to Buyer in its sole discretion.
Irrevocable Instruction Letter means an irrevocable instruction letter substantially
in the form of Exhibit O hereto.
Junior Interest means (a) a junior B participation interest or certificate in a
Commercial Mortgage Loan or Mezzanine Loan or (b) a B note in an A/B structure of a Commercial
Mortgage Loan or Mezzanine Loan, in each case with a Loan-to-Value Ratio of 85% or less and as to
which the representations and warranties in Schedule 1(b) hereof are correct.
- 11 -
LIBOR Period means, the period from and including the immediately preceding Price
Differential Payment Date (or, with respect to the first LIBOR Period for the Transaction, from and
including the Purchase Date) to but excluding such Price Differential Payment Date, unless
otherwise agreed to by the Buyer and the Sellers in writing.
LIBOR means, with respect to each day during the applicable LIBOR Period, the rate
per annum equal to the one month London Inter-Bank Offered Rate for United States Dollar deposits
as reported on the display designated as BBAM Page 1229a on Bloomberg (or such other display as
may replace BBAM Page 1229a on Bloomberg), as of 8:00 a.m., New York City time, on the date two
(2) Business Days prior to the commencement of such LIBOR Period, and if such rate shall not be so
quoted, the rate per annum at which the Buyer or its Affiliate is offered dollar deposits at or
about 8:00 a.m., New York City time, on the date two (2) Business Days prior to the commencement of
the such LIBOR Period, by prime banks in the interbank eurodollar market where the eurodollar and
foreign currency exchange operations in respect of its Transactions are then being conducted for
delivery on such day for a period corresponding to that set forth above or such other period as
agreed upon in writing by the Buyer and the Sellers and in an amount comparable to the amount of
the Transactions outstanding on such day.
Lien means any mortgage, lien, pledge, charge, security interest or similar
encumbrance.
Limited Liability Company Agreement means the organizational documents governing any
Mezzanine Loan Subsidiary as contemplated by this Repurchase Agreement.
Loan Security Agreement means as to any Purchased Asset, any contract, instrument or
other document related to security for repayment thereof (other than in the case of a Mortgage
Loan, the related Mortgage and Mortgage Note), executed by the obligor and/or others in connection
with such Mortgage Loan, including without limitation, any security agreement, guaranty, title
insurance policy, hazard insurance policy, chattel mortgage, letter of credit or certificate of
deposit or other pledged accounts, and any other documents and records relating to any of the
foregoing.
Loan-to-Value Ratio means with respect to any Eligible Asset, the ratio of the
current outstanding principal amount of the Eligible Asset to the lesser of (a) the Appraised Value
of the Mortgaged Property or Underlying Mortgaged Property at origination or (b) if the Mortgaged
Property or Underlying Mortgaged Property was purchased within 12 months of the origination of the
Eligible Asset, the purchase price of the Mortgaged Property or Underlying Mortgaged Property.
Margin Call has the meaning specified in Section 6(c) hereof.
Margin Deadline has the meaning specified in Section 6(d) hereof.
Margin Deficit has the meaning specified in Section 6(c) hereof.
Market Value means, as of any date with respect to any Purchased Asset, the price at
which such Purchased Asset could readily be sold as determined by the Buyer in its good
- 12 -
faith discretion. For purposes of determining the Market Value of the Mezzanine Loan
Subsidiary Interests, the Buyer shall use the Market Value of the Mezzanine Loans owned by the
Mezzanine Loan Subsidiary. Without limiting the generality of the foregoing, Buyer will deem the
Market Value for any Purchased Asset no greater than its outstanding principal balance.
Material Adverse Effect means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, condition (financial or otherwise) or
prospects of any Seller, any Guarantor or any Affiliate that is a party to any Program Agreement
taken as a whole; (b) a material impairment of the ability of any Seller, any Guarantor or any
Affiliate that is a party to any Program Agreement to perform under any Program Agreement and to
avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability of any Program Agreement against any Seller, any Guarantor or any
Affiliate that is a party to any Program Agreement.
Maximum Aggregate Purchase Price means ONE HUNDRED FIFTY MILLION DOLLARS
($150,000,000). Subject to the terms hereof, the Maximum Aggregate Purchase Price may increase in
accordance with the terms of Section 3(g) hereof.
Mezzanine Borrower has the meaning set forth in paragraph 13 of Schedule 1(c).
Mezzanine Collateral means the collateral pledged in respect of a Mezzanine Loan.
Mezzanine Loan means a loan (a)(i) secured by a second mortgage lien on commercial
real property to an entity that directly owns such commercial real property or (ii) to an entity
owning an interest in a special purpose entity that directly owns commercial real property and such
loan is secured by a pledge of excess cash flow after first mortgage debt service or equity
interests in the owner of such commercial real property (b) with a Loan-to-Value Ratio of 90% or
less and (c) as to which the representations and warranties in Schedule 1(c) hereof are correct.
Mezzanine Loan Documents means the documentation governing a Mezzanine Loan.
Mezzanine Loan Subsidiary shall mean Arbor Realty Mezzanine LLC, a wholly owned
Subsidiary of the Sellers that is a Special Purpose Entity formed for the sole purpose of holding
Mezzanine Loans.
Mezzanine Loan Subsidiary Agreement shall mean that certain Mezzanine Loan
Subsidiary Agreement, dated as of the date hereof, executed and delivered by a duly authorized
officer of the Mezzanine Loan Subsidiary in favor of the Buyer.
Mezzanine Loan Subsidiary Interests shall mean any and all of each Sellers
interests, including units of membership interest, in Mezzanine Loan Subsidiary including, without
limitation, all its rights to participate in the operation or management of Mezzanine Loan
Subsidiary and all its rights to properties, assets, member interests and distributions under the
Limited Liability Company Agreement in respect of such member interests. LLC Interests
- 13 -
also include (i) all accounts receivable arising out of the applicable Limited Liability
Company Agreement; (ii) all general intangibles arising out of the applicable Limited Liability
Company Agreement; and (iii) to the extent not otherwise included, all proceeds of any and all the
foregoing (including within proceeds, whether or not otherwise included therein, and any and all
contractual rights of the Sellers under any revenue sharing or similar agreement to receive all or
any portion of the revenues or profits of such Mezzanine Loan Subsidiary ).
Moodys means Moodys Investors Service, Inc. or any successors thereto.
Mortgage means, with respect to each Mortgage Loan, each mortgage, assignment of
rents, security agreement and fixture filing, or deed of trust, assignment of rents, security
agreement and fixture filing, deed to secure debt, assignment of rents, security agreement and
fixture filing, or similar instrument creating and evidencing a lien on real property and other
property and rights incidental thereto.
Mortgage Interest Rate means the rate of interest borne on a Mortgage Loan from time
to time in accordance with the terms of the related Mortgage Note.
Mortgage Loan means a Commercial Mortgage Loan or a Junior Interest in a Commercial
Mortgage Loan.
Mortgage Note means the promissory note or other evidence of the indebtedness of a
Mortgagor secured by a Mortgage.
Mortgaged Property means the real property securing repayment of the debt evidenced
by a Mortgage Note.
Mortgagor means the obligor or obligors on a Mortgage Note, including any person who
has assumed or guaranteed the obligations of the obligor thereunder.
Multiemployer Plan means a multiemployer plan defined as such in Section 3(37) of
ERISA to which contributions have been or are required to be made by a Seller or any ERISA
Affiliate and that is covered by Title IV of ERISA.
Multifamily means a Commercial Mortgage Loan secured by a first mortgage lien on a
five-or-more family residential property, as to which the representations and warranties in
Schedule 1(a) hereof are correct.
Net Income means, for any Person for any period, the Net Income of such Person for
such period as determined in accordance with GAAP.
Non-Performing Asset means (i) any Eligible Asset for which any payment of principal
or interest is (or has been in the preceding 12 months) more than twenty-nine (29) days past due,
(ii) any Eligible Asset with respect to which the related obligor is in bankruptcy or (iii) any
Eligible Asset with respect to which the related Mortgaged Property is in foreclosure.
Notice Date has the meaning given to it in Section 3(b) hereof.
- 14 -
Notice to Borrower means a notice, substantially in the form of Exhibit N
hereto, which the Buyer may instruct the Backup Servicer to send to each borrower of a Purchased
Asset subject to a Transaction after the occurrence and continuance of an Event of Default.
Obligations means (a) all of a Sellers indebtedness, obligations to pay the
Repurchase Price on the Repurchase Date, the Price Differential on each Price Differential Payment
Date, and other obligations and liabilities, to Buyer, its Affiliates or Custodian arising under,
or in connection with, the Program Agreements, whether now existing or hereafter arising; (b) any
and all sums paid by Buyer or on behalf of Buyer in order to preserve any Purchased Asset or its
interest therein; (c) in the event of any proceeding for the collection or enforcement of any of a
Sellers indebtedness, obligations or liabilities referred to in clause (a), the reasonable
expenses of retaking, holding, collecting, preparing for sale, selling or otherwise disposing of or
realizing on any Purchased Asset, or of any exercise by Buyer of its rights under the Program
Agreements, including, without limitation, attorneys fees and disbursements and court costs; and
(d) all of a Sellers indemnity obligations to Buyer or Custodian or both pursuant to the Program
Agreements.
OFAC has the meaning set forth in Section 13(a)(26) hereof.
Office Building means a building owned by the Mortgagor or for which the Mortgagor
is a Ground Lessee, which constitutes a full operational office building, including all land,
amenities and improvements, with individual office space held principally for lease to commercial
tenants and not principally for lease to recreational or residential tenants.
PBGC means the Pension Benefit Guaranty Corporation or any entity succeeding to any
or all of its functions under ERISA.
Permitted Amount means, the lesser of (a) one percent (1%) of the aggregate
outstanding Purchase Price and (b) ONE MILLION DOLLARS ($1,000,000).
Permitted Investments means any one or more of the following obligations or
securities having at the time of purchase, or at such other time as may be specified, the required
ratings, if any, provided for in this definition:
(a) direct obligations of, or guaranteed as to timely payment of principal and interest by,
the United States of America or any agency or instrumentality thereof; provided that such
obligations are backed by the full faith and credit of the United States of America;
(b) direct obligations of, or guaranteed as to timely payment of principal and interest by,
Freddie Mac, Fannie Mae or the Federal Farm Credit System, provided that any such
obligation, at the time of purchase or contractual commitment providing for the purchase thereof,
is qualified by any rating agency as an investment of funds backing securities rated at least AA
(or such comparable rating);
(c) demand and time deposits in or certificates of deposit of, or bankers acceptances issued
by, any bank or trust company, savings and loan association or savings bank, provided that,
in the case of obligations that are not fully FDIC-insured deposits, the commercial
- 15 -
paper or long-term unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company) have one of the two highest
rating available for such securities by any rating agency;
(d) general obligations of or obligations guaranteed by any state of the United States or the
District of Columbia receiving one of the two highest long-term debt rating available for such
securities by any rating agency; and
(e) commercial or finance company paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a specified date not more than
one year after the date of issuance hereof) that is rated by any rating agency in highest
short-term unsecured rating category at the time of such investment, and is issued by a corporation
the outstanding senior long-term debt obligations of which are then rated by any such rating agency
in one of its two highest short-term unsecured rating category and its highest long-term unsecured
rating category.
provided, however, that no instrument shall be a Permitted Investment if it
represents, (1) the right to receive only interest payments with respect to the underlying debt
instrument, (2) the right to receive both principal and interest payments derived from obligations
underlying such instrument and the principal and interest payments with respect to such instrument
provide a yield to maturity greater than 120% of the yield to maturity at par of such underlying
obligations, (3) an obligation that has a remaining maturity of greater than three hundred
sixty-five (365) days from the date of acquisition thereof. If an obligation is rated by S&P, then
such obligation must be limited to those instruments that have a predetermined fixed dollar of
principal due at maturity that cannot vary or change or, if rated, the obligation should not have
an r highlighter affixed to its rating, and interest thereon may either be fixed or variable and
should be tied to a single interest rate index plus a single fixed spread (if any) and move
proportionately with that index.
Person means an individual, partnership, corporation (including a business trust),
limited liability company, joint stock company, trust, unincorporated association, joint venture or
other entity, or a government or any political subdivision or agency thereof.
Plan means an employee benefit or other plan established or maintained by any Seller
or any ERISA Affiliate and covered by Title IV of ERISA, other than a Multiemployer Plan.
PML has the meaning set forth in paragraph 22 of Schedule 1(a).
Pool Advance Rate means an amount equal to the aggregate Purchase Price of all
Purchased Assets divided by the aggregate Market Value of all Purchased Assets.
Pool Advance Rate Margin Call has the meaning specified in Section 6(c) hereof.
- 16 -
Pool Advance Rate Margin Deficit means the Pool Advance Rate is greater than the
percentages below relating to the percentage of Purchased Assets that are Commercial Mortgage
Loans:
|
|
|
|
|
Percentage of all Purchased Assets (measured by Market |
|
|
Value) that are Commercial Mortgage Loans |
|
Pool Advance Rate |
20% or less |
|
|
80.0 |
% |
21% - 30% |
|
|
81.0 |
% |
31% - 40% |
|
|
82.0 |
% |
41% - 50% |
|
|
83.5 |
% |
51% - 65% |
|
|
85.0 |
% |
66% - 80% |
|
|
88.5 |
% |
81% or more |
|
|
91.5 |
% |
Post Default Rate means an annual rate of interest equal to the greater of (a) the
Pricing Rate plus 4% or (b) the Mortgage Interest Rate.
Preliminary Data Tape means a preliminary version of the Closing Data Tape, which
shall be attached to the Summary Diligence Materials as part of the Complete Submission.
Price Differential means with respect to any Transaction as of any date of
determination, an amount equal to the product of (a) the Pricing Rate for such Transaction and (b)
the Purchase Price for such Transaction, calculated daily on the basis of a 360-day year for the
actual number of days during the Accrual Period.
Price Differential Payment Date means, with respect to a Purchased Asset, the
18th day of the month following the related Purchase Date and each succeeding 18th day
of the month thereafter; provided, that, with respect to such Purchased Asset, the final
Price Differential Payment Date shall be the related Repurchase Date; and provided,
further, that if any such day is not a Business Day, the Price Differential Payment Date
shall be the next succeeding Business Day.
Pricing Rate has the meaning set forth in the Fee Letter.
Principal Prepayment means, for any Purchased Asset, (i) any amount applied to
reduce the principal or other invested amount of such Purchased Asset, other than a scheduled
principal payment, including (i) principal prepayments from any source and of any nature
whatsoever, (ii) net insurance or net condemnation proceeds, to the extent applied to reduce the
principal amount or other invested amount of the related Purchased Asset, and (iii) any net
proceeds from any sale, refinancing, liquidation or other disposition of the underlying real
- 17 -
property or interest relating to such Purchased Asset to the extent applied to reduce the
principal amount or the invested amount of the related Purchased Asset.
Program Agreements means, collectively, the Backup Servicing Agreement, the
Servicing Agreement, the Servicer Notice, the Custodial Agreement, this Agreement, the Guaranty,
the Mezzanine Loan Subsidiary Acknowledgement, the Mezzanine Loan Subsidiary Agreement, the Control
Account Agreement and all executed Purchase Confirmations.
Prohibited Person has the meaning set forth in Section 13(a)(26) hereof.
Property means any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible.
Purchase Confirmation means a confirmation of a Transaction, in the form attached as
Exhibit B hereto.
Purchase Date means the date on which Purchased Assets are to be transferred by a
Seller to Buyer.
Purchase Price means:
(a) on the Purchase Date, the price at which each Purchased Asset is transferred by a Seller
to Buyer which shall equal the Asset Value of such Purchased Asset on such Purchase Date minus any
amounts required to be applied pursuant to Sections 6(b) or (c); and
(b) on any day after the Purchase Date, except where Buyer and the Sellers agree otherwise,
the amount determined under the immediately preceding clauses (a) decreased by the amount of any
cash transferred by the Sellers to Buyer pursuant to Sections 4(c) and (d) hereof or applied to
reduce the Sellers obligations under clause (ii) of Section 4(c) and Section 4(f) hereof or under
Section 6 hereof.
Purchase Price Decrease means a decrease in the Purchase Price for a Purchased Asset
related to the removal of a Mezzanine Loan from the Mezzanine Loan Subsidiary, and the decrease in
value of the Mezzanine Loan Subsidiary Interests related thereto.
Purchase Price Increase shall mean an increase in the Purchase Price for the
Mezzanine Loan Subsidiary Interests based upon Mezzanine Loan Subsidiary acquiring additional
Mezzanine Loan , as requested by Sellers pursuant to Section 3(b) hereof.
Purchase Price Percentage has the meaning set forth in the Fee Letter.
Purchased Asset Schedule means with respect to any Transaction as of any date, a
schedule in the form of Annex 1 to Exhibit A attached hereto. The Purchased Asset
Schedule shall be attached to each Trust Receipt and Custodial Delivery Letter.
Purchased Assets means the collective reference to Eligible Assets (other than
Mezzanine Loans) and Mezzanine Loan Subsidiary Interests, together with the Repurchase
- 18 -
Assets related to such Eligible Assets transferred by a Seller to Buyer in a Transaction
hereunder, listed on the related Closing Data Tape attached to the related Transaction Request;
provided, that for purposes other than the sale or pledge of the Purchased Assets, in the
case of the Mezzanine Loan Subsidiary Interests, Purchased Assets shall be deemed to include any
and all Mezzanine Loans owned by the Mezzanine Loan Subsidiary.
Rated means the rating of an Eligible Asset by a Rating Agency without regard to any
pluses and minuses reflecting gradations within any generic grades.
Rating Agency means any of S&P, Moodys or Fitch.
Records means all instruments, agreements and other books, records, and reports and
data generated by other media for the storage of information maintained by Sellers, Guarantors,
Servicer or any other person or entity with respect to a Purchased Asset. Records shall include
the Mortgage Notes, any Mortgages, the Asset Files, the credit files related to the Purchased Asset
and any other instruments necessary to document or service a Mortgage Loan.
REIT means a real estate investment trust, as defined in Section 856 of the Code.
REMIC means a real estate mortgage investment conduit, within the meaning of Section
860D(a) of the Code.
REMIC Provisions means provisions of the federal income tax law relating to real
estate mortgage investment conduits, which appear at Sections 860A through 860G of subchapter M of
Chapter 1 of the Code, and related provisions, and regulations (including any applicable proposed
regulations) and rulings promulgated thereunder, as the foregoing may be in effect from time to
time.
Reporting Date means the day prior to the Payment Date of each month or, if such day
is not a Business Day, the next succeeding Business Day.
Repurchase Assets has the meaning assigned thereto in Section 8 hereof.
Repurchase Date means the earlier of (i) the Termination Date, (ii) the date set
forth in the applicable Purchase Confirmation or (iii) the date determined by application of
Section 16 hereof.
Repurchase Price means the price at which Purchased Assets are to be transferred
from Buyer to Sellers upon termination of a Transaction, which will be determined in each case
(including Transactions terminable upon demand) as the sum of the Purchase Price and the accrued
but unpaid Price Differential as of the date of such determination.
Requirement of Law means, with respect to any Person, any law, treaty, rule or
regulation or determination of an arbitrator, a court or other governmental authority, applicable
to or binding upon such Person or any of its property or to which such Person or any of its
property is subject.
- 19 -
Reset Date shall mean the last day of the related LIBOR Period.
Responsible Officer means as to any Person, the chief executive officer or, with
respect to financial matters, the chief financial officer of such Person.
Retail means a property owned by the Mortgagor or for which the Mortgagor is a
Ground Lessee, which constitutes a full operational retail store, held principally for lease to a
commercial retail tenant within a shopping center or mall and not principally for lease to
recreational or residential tenants.
Rolling Termination Date means, with respect to any date, the date which is 364 days
from such date not to exceed three (3) years from the Effective Date; unless, the Buyer delivers to
the Sellers written notice that the Buyer shall no longer roll the Rolling Termination Date forward
(the Rolling Termination Notice Date), at which point the Rolling Termination Date shall
be fixed at 364 days following the Rolling Termination Notice Date.
S&P means Standard & Poors Ratings Services, or any successor thereto.
SEC means the Securities and Exchange Commission, or any successor thereto.
Securities Account means the account established by the Servicer for the benefit of
Buyer, into which all collections and proceeds on or in respect of the Purchased Assets shall be
deposited by Servicer, and which is subject to the Control Account Agreement.
Seller means each of Arbor Realty SR, Inc. and Arbor TRS Holding Company Inc. or its
permitted successors and assigns.
Servicer means Arbor Commercial Mortgage LLC or any other servicer approved by Buyer
in its sole discretion, which may be a Seller.
Servicer Notice means the notice acknowledged by the Servicer substantially in the
form of Exhibit H hereto.
Servicing Agreement means the Amended and Restated Management and Advisory Agreement
dated as of January 18, 2005 by and among Guarantors, Arbor Realty SR, Inc., and Servicer as the
same may be amended from time to time.
Servicing Report means a report remitted by the Servicer monthly, substantially in
the form of Exhibit L hereto.
SIPA means the Securities Investor Protection Act of 1970, as amended from time to
time.
Special Purpose Entity means a Person, other than an individual, which is formed or
organized solely for the purpose of holding, directly or indirectly, an ownership interest in one
or more Mezzanine Loans, does not engage in any business unrelated to the Mezzanine Loans, does not
have any assets other than as otherwise expressly permitted by this Repurchase Agreement, has its
own separate books and records and will not commingle its funds
- 20 -
in each case which are separate and apart from the books and records of any other Person, and
is subject to all of the limitations on the powers set forth in the organizational documentation of
the Sellers or such Mezzanine Loan Subsidiary, as the case may be, as in effect on each Purchase
Date, and holds itself out as a Person separate and apart from any other Person and otherwise
complies with all of the covenants set forth in Section 14(v).
Statement Date has the meaning set forth in Section 13(a)(5) hereof.
Subordinated Debt means, Indebtedness of Sellers which is (i) unsecured, (ii) no
part of the principal of such Indebtedness is required to be paid (whether by way of mandatory
sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the date which is
one year following the Termination Date and (iii) the payment of the principal of and interest on
such Indebtedness and other obligations of Sellers in respect of such Indebtedness are subordinated
to the prior payment in full of the principal of and interest (including post-petition obligations)
on the Transactions and all other obligations and liabilities of Sellers to Buyer hereunder on
terms and conditions approved in writing by Buyer and all other terms and conditions of which are
satisfactory in form and substance to Buyer.
Subsidiary means, with respect to any Person, any corporation, partnership or other
entity of which at least a majority of the securities or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
Summary Diligence Materials means the items described on Annex 2 to
Exhibit A hereto for each Eligible Asset proposed to be sold to Buyer in accordance with,
and subject to the terms and conditions of, this Agreement.
Table Funded Purchased Asset means a Purchased Asset which is sold to the Buyer (and
held by a Bailee pursuant to a Bailee Agreement) simultaneously with the origination or acquisition
thereof, which origination or acquisition, pursuant to the Sellers request, is financed with the
Purchase Price and paid directly to a title company or other settlement agent, in each case,
approved in writing by the Buyer in its sole discretion, for disbursement to the parties entitled
thereto in connection with such origination or acquisition. A Purchased Asset shall cease to be a
Table Funded Purchased Asset after the Custodian has delivered a Trust Receipt to the Buyer
certifying its receipt of the Asset File therefor.
Table Funded Trust Receipt means a Trust Receipt in the form of Exhibit 12 to the
Custodial Agreement.
Term means the period commencing on the date hereof and ending on the Termination
Date.
Termination Event shall have the meaning set forth in Section 15.02 hereof.
- 21 -
Termination Date means the earlier of (a) the Rolling Termination Date, and (b) the
date of the occurrence of an Event of Default.
Testing Date has the meaning set forth in paragraph 26 of Schedule 1(a).
Third Party Servicer means any servicer of the Purchased Assets or a portion
thereof, other than the Servicer who is the primary servicer and administrator of the Purchased
Assets.
Title Exceptions has the meaning set forth in paragraph 17 of Schedule 1(a).
Transaction has the meaning set forth in Section 1 hereof.
Transaction Request means a request from a Seller to Buyer, in the form attached as
Exhibit A hereto, to enter into a Transaction.
Trust Receipt means a trust receipt, substantially in the form attached hereto as
Exhibit J, issued by Custodian to Buyer confirming the Custodians possession of certain
Asset Files which are the property of and held by Custodian for the benefit of Buyer (or any other
holder of such trust receipt) or a bailment arrangement with counsel or other third party
acceptable to Buyer in its sole and absolute discretion.
Underlying Mortgage Loan means, with respect to any Junior Interest or Mezzanine
Loan, a mortgage loan made in respect of the related Underlying Mortgaged Property.
Underlying Mortgaged Property means in the case of any:
(a) Commercial Mortgage Loan, the Mortgaged Property securing such Commercial Mortgage Loan;
(b) Junior Interest, the Mortgaged Property securing the Mortgage Loan in which such Junior
Interest represents a junior participation (if the Junior Interest is of the type described in
clause (a) of the definition thereof) or the Mortgaged Property securing such Junior Interest (if
the Junior Interest is of the type described in clause (b) of the definition thereof); and
(c) Mezzanine Loan, the real property that is directly or indirectly owned by the Person the
Capital Stock of which is pledged as collateral security for such Mezzanine Loan.
Uniform Commercial Code means the Uniform Commercial Code as in effect on the date
hereof in the State of New York or the Uniform Commercial Code as in effect in the applicable
jurisdiction.
3. Program; Initiation of Transactions
a. From time to time, in the sole discretion of Buyer, Buyer may purchase from
Sellers certain Eligible Assets that have been originated or purchased by Sellers.
All Purchased Assets shall be serviced by Servicer subject to the Buyers rights
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herein or in the Servicing Agreement. The aggregate Purchase Price of Purchased
Assets subject to outstanding Transactions shall not exceed the Maximum Aggregate
Purchase Price.
b. With respect to each Transaction Sellers shall give Buyer, Backup Servicer and
Custodian at least seven (7) Business Days prior notice of any proposed Purchase
Date (the date on which such notice is given, the Notice Date). On the
Notice Date, Sellers shall (i) request that Buyer enter into a Transaction by
furnishing to Buyer and Backup Servicer a Transaction Request accompanied by a
Complete Submission and (ii) deliver to Buyer, Backup Servicer and Custodian a
proposed Purchased Asset Schedule. In the event the Purchased Asset Schedule
provided by Sellers contains erroneous computer data, is not formatted properly or
the computer fields are otherwise improperly aligned, Buyer shall provide written or
electronic notice to Sellers describing such error and Sellers shall correct the
computer data, reformat the Eligible Assets or properly align the computer fields.
c. Following receipt of a Transaction Request and a Complete Submission, Buyer
shall, as hereinafter provided, inform Sellers of its election to purchase any
Eligible Assets proposed to be sold to Buyer by Sellers hereunder. Buyer shall have
the right to review all Eligible Assets proposed to be sold to Buyer and conduct its
own due diligence investigation of such Eligible Assets as Buyer determines. Buyer
shall conduct its diligence review within the following time frame beginning on the
Business Day following receipt of the Complete Submission: in the case of a
proposed Transaction of (i) up to five (5) Eligible Assets, ten (10) Business Days;
(ii) more than five (5) but no more than twenty-five (25) Eligible Assets, twenty
(20) Business Days, and (iii) more than twenty-five (25) Eligible Assets, a time
frame to be mutually agreed upon by Buyer and Sellers. If, with respect to any
Eligible Asset, Buyer does not respond to Sellers within the time frames specified
in the preceding sentence, Buyer shall be deemed to have elected not to purchase
such Eligible Asset. Upon completion of its review, Buyer shall in its sole
discretion determine whether to purchase such Eligible Assets and consistent with
this Agreement, specify the terms for such proposed Transaction, including the
Purchase Price or Purchase Price Increase, Purchase Price Percentage, the Asset
Value, the Pricing Rate, and the Repurchase Date for such Transaction. The terms
thereof shall be set forth in the Purchase Confirmation to be delivered to Sellers
on or prior to the Purchase Date.
d. Upon the satisfaction of the applicable conditions precedent set forth in Section
10 hereof, all of each Sellers interest in the Repurchase Assets shall pass to
Buyer on the Purchase Date, against the transfer of the Purchase Price or Purchase
Price Increase to Sellers. Upon transfer of the Purchased Assets to Buyer as set
forth in this Section and until termination of any related Transactions as set forth
in Sections 4 or 16 of this Agreement, ownership of each Purchased Asset, including
each document in the related Asset File and Records, is vested in Buyer;
provided that, prior to the recordation by the Custodian as provided for in
the Custodial Agreement record title in the name of the applicable Seller to each
- 23 -
Purchased Asset shall be retained by such Seller in trust, for the benefit of Buyer,
for the sole purpose of facilitating the servicing and the supervision of the
servicing of the Purchased Assets.
e. Upon transfer of the Mezzanine Loan Subsidiary Interests to Buyer as set forth
herein and until termination of any related Transactions as set forth herein,
ownership of the Mezzanine Loan Subsidiary Interests is vested in the Buyer, and
record title to each Mezzanine Loan shall be retained by the Mezzanine Loan
Subsidiary or a Servicer for liquidation purposes, for the benefit of Buyer.
f. This Agreement is not a commitment by Buyer to enter into Transactions with
Sellers but rather sets forth the procedures to be used in connection with periodic
requests for Buyer to enter into Transactions with Sellers. Each Seller hereby
acknowledges that Buyer is under no obligation to agree to enter into, or to enter
into, any Transaction pursuant to this Agreement.
g. The Sellers may by written notice to the Buyer elect to request at any time prior
to the Termination Date an increase to the existing Maximum Aggregate Purchase Price
by an amount equal to $50,000,000. Such written notice shall be delivered to the
Buyer at least fifteen (15) days before the requested effective date thereof. Such
request shall only be effective (i) if there exists no Default or Event of Default
and (ii) the Sellers shall have paid to Buyer in consideration of such increase in
the existing Maximum Aggregate Purchase Price, in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, an amount equal to the product of
(a) 0.125% and (b) the amount of such increase to the Maximum Aggregate Purchase
Price and (c) a fraction, the numerator of which is the number of days remaining in
the Term and the denominator of which is the total number of days in the Term.
4. Repurchase
a. Sellers shall repurchase the related Purchased Assets from Buyer on each related
Repurchase Date. Such obligation to repurchase exists without regard to any prior
or intervening liquidation or foreclosure with respect to any Purchased Asset (but
liquidation or foreclosure proceeds received by Buyer shall be applied to reduce the
Repurchase Price for such Purchased Asset on each Price Differential Payment Date
except as otherwise provided herein). Sellers are obligated to repurchase and take
physical possession of the Purchased Assets from Buyer or its designee (including
the Custodian) at Sellers expense on the related Repurchase Date. If any Purchased
Asset is repurchased on any date other than the Reset Date for such Transaction, the
Sellers shall pay to the Buyer any Breakage Costs (as defined below) relating
thereto.
b. Provided that no Default or Event of Default shall have occurred and is
continuing, and Buyer has received the related Repurchase Price upon repurchase of
the Purchased Assets, Buyer agrees to release its ownership interest hereunder
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in the Purchased Assets (including, the Repurchase Assets related thereto) at the
request of Sellers.
c. With respect to prepayments in full or part by the related Mortgagor or obligor
of a Purchased Asset or Mezzanine Loan, Sellers agree to (i) provide Buyer with a
copy of a report from the related Servicer indicating that such Purchased Asset or
Mezzanine Loan has been paid in full or part, (ii) pay to Buyer the portion of the
Repurchase Price payable pursuant to Paragraph 4(a) above within one Business Day of
receipt of such prepayment and (iii) provide Buyer a notice specifying each
Purchased Asset or Mezzanine Loan that has been prepaid. With respect to Purchased
Assets or Mezzanine Loan being serviced by Third Party Servicers, any Seller or
Mezzanine Loan Subsidiary, as applicable, and Servicer shall forward all payments to
the Buyer to the extent received from the underlying obligor and Third Party
Servicer. Buyer agrees to release its ownership interest in Purchased Assets or
Mezzanine Loans which have been prepaid in full after receipt of evidence of
compliance with clauses (i) through (iii) of the immediately preceding sentence.
d. The Sellers may voluntarily repurchase Purchased Mortgage Loans or request a
Purchase Price Decrease without penalty or premium on any Business Day. If the
Sellers intends to make such a repurchase or Purchase Price Decrease, the Sellers
shall give two (2) Business Days prior written notice thereof to the Buyer,
designating the Purchased Assets to be repurchased or Mezzanine Loans to be
reconveyed, which notice is irrevocable if not revoked prior to the date one (1)
Business Day prior to the proposed Repurchase Date or date of the Purchase Price
Decrease. If such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, and, on receipt, such amount shall be
applied to the Repurchase Price for the designated Purchased Assets.
e. If the Sellers repurchase, in whole or in part, Purchased Assets or causes a
Purchase Price Decrease on any day which is not the Repurchase Date or a Price
Differential Payment Date (as determined at the time the Buyer locked in the rate of
LIBOR) for such Purchased Assets, the Sellers shall indemnify the Buyer and hold the
Buyer harmless from any losses, costs and/or expenses which the Buyer sustains or
incurs arising from the reemployment of funds obtained by the Buyer hereunder or
from fees payable to terminate the deposits from which such funds were obtained, in
each case for the remainder of the applicable LIBOR Period (Breakage
Costs). The Buyer shall deliver to the Sellers a statement setting forth the
amount and basis of determination of any Breakage Costs in such detail as determined
in good faith by the Buyer to be adequate, it being agreed that such statement and
the method of its calculation shall be adequate and shall be conclusive and binding
upon the Sellers, absent manifest error.
f. Sellers may at any time, and from time to time, effectuate a decrease in Purchase
Price (a Purchase Price Reduction) by sending a Transaction Request to the
Buyer at least one (1) Business Day prior to the date that the Sellers intend to
effectuate such Purchase Price Reduction, specifying the date of the Purchase
- 25 -
Price Reduction (a Purchase Price Reduction Date). The Purchase Price
Reduction amount shall be due and payable in cash on the Purchase Price Reduction
Date specified therein. Notwithstanding the foregoing, any Purchase Price Reduction
must be in an amount not less than $1,000,000.
5. Price Differential
a. On the beginning of each LIBOR Period that a Transaction is outstanding, the
Pricing Rate shall be reset and, unless otherwise agreed, the accrued and unpaid
Price Differential shall be settled in cash on each related Price Differential
Payment Date. Two Business Days prior to the Price Differential Payment Date, Buyer
shall give Sellers written or electronic notice of the amount of the Price
Differential due on such Price Differential Payment Date. On the Price Differential
Payment Date, Sellers shall pay to Buyer (to the extent not paid on such date
through the distributions required pursuant to Sections 7(d) or 7(e) hereof) the
accrued but unpaid Price Differential and the accrued but unpaid Administration Fee
for such Price Differential Payment Date (along with any other amounts to be paid
pursuant to Section 7 and Section 34), by wire transfer in immediately available
funds.
b. If Sellers fail to pay all or part of the Price Differential by 3:00 p.m. (New
York City time) on the related Price Differential Payment Date, with respect to any
Purchased Asset, Sellers shall be obligated to pay to Buyer (in addition to, and
together with, the amount of such Price Differential) interest on the unpaid
Repurchase Price at a rate per annum equal to the Post Default Rate until the Price
Differential is received in full by Buyer.
6. Margin Maintenance.
a. If at any time the Asset Value of the Purchased Assets subject to Transactions is
less than the Purchase Price for then outstanding Transactions (an Asset Value
Margin Deficit), then, if such Asset Value Margin Deficit (combined with any
Concentration Limit Margin Deficit and any Pool Advance Rate Margin Deficit) is
greater than the Permitted Amount, Buyer may by notice to Sellers require Sellers to
transfer to Buyer cash or other Eligible Assets acceptable to Buyer in its
discretion in an amount at least equal to the Margin Deficit (such requirement, an
Asset Value Margin Call). Notwithstanding the foregoing, in the event
that Sellers dispute an Asset Value Margin Deficit because it disagrees with Buyers
determination of Asset Value, Buyer will enter into good faith discussions with
Sellers regarding such Asset Value Margin Deficit so long as Sellers have already
transferred to Buyer cash in an amount at least equal to such Asset Value Margin
Deficit.
b. If at any time after the Concentration Limit Trigger Date, the Concentration
Limit is exceeded (the amount of such excess, a Concentration Limit Margin
Deficit), then, if such Concentration Limit Margin Deficit (combined with any
Asset Value Margin Deficit and any Pool Advance Rate Margin Deficit) is greater
- 26 -
than the Permitted Amount, Buyer may by notice to Sellers require Sellers to
transfer to Buyer cash or other Eligible Assets acceptable to Buyer in its
discretion in an amount such that the Purchased Assets would be in compliance with
such Concentration Limit (such requirement, a Concentration Limit Margin
Call) and the Buyer shall apply such cash to the outstanding Purchase Price of
all Purchased Assets on a weighted average, pro rata, basis in the category of the
Purchased Assets that exceeded its respective Concentration Limit.
c. If at any time after the Concentration Limit Trigger Date the Buyer determines in
its sole good faith discretion that a Pool Advance Rate Margin Deficit exists
(together with an Asset Value Margin Deficit and a Concentration Limit Margin
Deficit, a Margin Deficit), then, if such Pool Advance Rate Margin Deficit
(combined with any Concentration Limit Margin Deficit and any Asset Value Margin
Deficit) is greater than the Permitted Amount, Buyer may by notice to Sellers
require Sellers to transfer to Buyer cash or other Eligible Assets acceptable to
Buyer in its sole discretion in an amount such that no Pool Advance Rate Margin
Deficit exists, as determined by Buyer (such requirement, a Pool Advance Rate
Margin Call and together with an Asset Value Margin Call and a Concentration
Limit Margin Call a Margin Call) and the Buyer shall apply such cash or
other Eligible Assets to the outstanding Purchase Price of all Purchased Assets on a
weighted average, pro rata, basis.
d. Notice delivered pursuant to Section 6(a) may be given by any written means. Any
notice given before 5:00 p.m. (New York City time) on a Business Day shall be met,
and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time)
on the next Business Day; notice given after 5:00 p.m. (New York City time) on a
Business Day shall be met, and the related Margin Call satisfied, no later than 5:00
p.m. (New York City time) on the following (2) Business Days (the foregoing time
requirements for satisfaction of a Margin Call are referred to as the Margin
Deadlines). The failure of Buyer, on any one or more occasions, to exercise
its rights hereunder, shall not change or alter the terms and conditions to which
this Agreement is subject or limit the right of Buyer to do so at a later date.
Sellers and Buyer each agree that a failure or delay by Buyer to exercise its rights
hereunder shall not limit or waive Buyers rights under this Agreement or otherwise
existing by law or in any way create additional rights for Sellers.
e. To the extent that the aggregate Asset Value of the Purchased Assets subject to
Transactions exceeds the then outstanding aggregate Purchase Price of all
Transactions (a Margin Excess), so long as no Margin Call, Default or
Event of Default has occurred and is continuing or will result therefrom, the Buyer
shall, upon receipt of a Transaction Request from a Seller sent at least one (1)
Business Day prior to such date, remit cash in amount equal to the lesser of (i) the
amount requested by the Sellers and (ii) such Margin Excess to Sellers. To the
extent that the Buyer remits cash to the Sellers, such cash shall be additional
Purchase Price with respect to the Transactions, subject in all respects to the
Maximum Aggregate Purchase Price.
- 27 -
f. Buyer shall not be obligated to remit an amount requested pursuant to a request
for Margin Excess which (i) Buyer determines is based on erroneous information or
would result in a Transaction other than in accordance with the terms of this
Repurchase Agreement, (ii) does not reflect the current determination of Asset Value
as provided in the definition thereof or (iii) exceeds the Maximum Aggregate
Purchase Price.
7. Income Payments
a. The Securities Account shall be established by the Servicer in accordance with
the terms and conditions of the Control Account Agreement concurrently with the
execution and delivery of this Agreement by Sellers and Buyer. Buyer shall have
sole dominion and control over the Securities Account. All Income (other than
amounts deposited in escrow accounts pursuant to the Servicing Agreement) in respect
of the Purchased Assets and any payments in respect of associated Interest Rate
Protection Agreements, as well as any interest received from the reinvestment of
such Income, shall be deposited into the Securities Account within two (2) Business
Days of receipt by Servicer and shall be remitted by Servicer from the Securities
Account in accordance with this Agreement and the Servicing Agreement. All such
Income shall be held in trust for Buyer, shall constitute the property of Buyer and
once deposited into the Securities Account shall not be commingled with other
property of any Seller, any Affiliate of any Seller, or Servicer. Servicer shall
have the right at all times, subject to the provisions of the Control Account
Agreement, to access and remove funds in the Securities Account to the extent
permitted by the Servicing Agreement. Such amounts may be invested in Permitted
Investments that mature on the succeeding Price Differential Payment Date.
b. Servicer shall deposit all Income (other than amounts deposited in escrow
accounts), derived from the Purchased Assets, whether constituting collections
thereon or proceeds of sale thereof, into the Securities Account within two (2)
Business Days of receipt by Servicer.
c. In addition, with respect to each Purchased Asset, Sellers shall deliver to the
Custodian an instruction letter from Buyer, signed by the Servicer, with respect to
such Purchased Asset, instructing the Servicer, as applicable, to remit all sums
required to be remitted to the holder of such Purchased Asset under the loan
documents to the Securities Account or as otherwise directed in a written notice
signed by Buyer. Upon the occurrence of an Event of Default, Buyer may deliver such
instruction letter to the Servicer. With respect to Third Party Servicers, the
parties shall comply with Section 12(d) hereof.
d. Unless an Event of Default shall have occurred, all Balloon Payments and
Principal Prepayments deposited into the Securities Account shall, after notice to
Buyer, be applied by Buyer on the date of such deposit or, if such deposit is made
after 3:00 p.m. (New York time), on the following Business Day, to reduce the
Purchase Price of the related Purchased Asset by an amount equal to the lesser of
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(i) the amount of such payment and (ii) the Purchase Price of the related Purchased
Asset. The balance of such Balloon Payments and Principal Prepayments in excess of
the Repurchase Price of the related Purchased Asset shall be paid to Sellers on such
date.
e. Funds deposited in the Securities Account during any LIBOR Period (except as
provided in Section 7(d) above) shall be held therein until the next Price
Differential Payment Date. On or before 3:00 p.m. (New York time) on the day prior
to the Price Differential Payment Date, Servicer shall deliver to Buyer and the Bank
a Distribution Worksheet. Subject to the terms of the Control Account Agreement,
Sellers or Servicer shall withdraw any funds on deposit in the Securities Account
and distribute such funds as follows:
(1) first, to Buyer in payment of any accrued and unpaid Price Differential to
the extent not paid by Sellers to Buyer pursuant to Section 5;
(2) second, to Buyer in payment of any accrued and unpaid Administration Fee to
the extent not paid by Sellers and Buyer pursuant to Section 5;
(3) third, without limiting the rights of Buyer under Section 6 of this
Agreement, to Buyer, in the amount of any unpaid Margin Deficit;
(4) fourth, to Buyer in reduction of the Purchase Price of each Purchased
Asset, the full amount of any payments of principal or other invested amount
received on or with respect to such Purchased Asset;
(5) fifth, to the payment of all other costs and fees payable to Buyer pursuant
to this Agreement; and
(6) sixth, any remainder shall be paid to Sellers.
f. Notwithstanding the preceding provisions, if an Event of Default shall have
occurred hereunder, all funds in the Securities Account shall be withdrawn and
applied:
(1) first, in the same order of priority as Sections (e)(1), (2), (3) and (4)
above;
(2) second, to reduction of the Repurchase Price until reduced to zero;
(3) third, to payment of all costs and fees and any other Obligations payable
to Buyer pursuant to this Agreement; and
(4) fourth, any remainder shall be paid to Sellers.
- 29 -
g. Buyer shall offset against the accrued and outstanding Price Differential all
Price Differential payments actually received by Buyer pursuant to Section 5,
excluding the portion in excess of the Pricing Rate with respect to any amounts paid
pursuant to any Price Differential payments made at the Post Default Rate.
8. Security Interest
a. Although the parties intend that all Transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to be loans,
each Seller hereby pledges to Buyer as security for the performance by such Seller
of its Obligations and hereby grants, assigns and pledges to Buyer a fully perfected
first priority security interest in the Purchased Assets, the Records, and all
related servicing rights, the Program Agreements (to the extent such Program
Agreements and any Sellers right thereunder relate to the Purchased Assets), any
Property relating to the Purchased Assets, all insurance policies and insurance
proceeds relating to any Purchased Asset or the related Mortgaged Property,
including, but not limited to, any payments or proceeds under any related primary
insurance, hazard insurance and, Income, the Securities Account, Interest Rate
Protection Agreements, Loan Security Agreements, accounts (including any interest of
any Seller in escrow accounts) and any other contract rights, instruments, accounts,
payments, rights to payment (including payments of interest or finance charges)
general intangibles and other assets relating to the Purchased Assets (including,
without limitation, any other accounts) or any interest in the Purchased Assets, and
any proceeds (including the related securitization proceeds) and distributions with
respect to any of the foregoing and any other property, rights, title or interests
as are specified on a Transaction Request and/or Trust Receipt, in all instances,
whether now owned or hereafter acquired, now existing or hereafter created
(collectively, the Repurchase Assets). Sellers agree to execute, deliver
and/or file such documents and perform such acts as may be reasonably necessary to
fully perfect Buyers security interest created hereby. Furthermore, each Seller
hereby authorizes the Buyer to file financing statements relating to the Repurchase
Assets, as the Buyer, at its option, may deem appropriate. The Sellers shall pay
the filing costs for any financing statement or statements prepared pursuant to this
Section.
b. The parties acknowledge and agree that the Mezzanine Loan Subsidiary Interests
constitute general intangibles (as defined in Section 9-102(a)(42) of the Uniform
Commercial Code); and each Seller therefore covenants and agrees that (a) the
Mezzanine Loan Subsidiary Interests are not and will not be dealt in or traded on
securities exchanges or securities markets, (b) the terms of the Mezzanine Loan
Subsidiary Interests do not and will not provide that they are securities governed
by the Uniform Commercial Code and (c) the Mezzanine Loan Subsidiary Interests are
not and will not be investment company securities within the meaning of Section 8
103 of the Uniform Commercial Code.
If any Seller shall, as a result of its interest in the Mezzanine Loan Subsidiary Interests,
becomes entitled to receive or shall receive any certificate evidencing any limited liability
company
- 30 -
interest or other equity interest, any option rights, or any equity interest in Mezzanine Loan
Subsidiary , whether in addition to, in substitution for, as a conversion of, or in exchange for
the Mezzanine Loan Subsidiary Interests, or otherwise in respect thereof, such Seller shall accept
the same as the Buyers agent, hold the same in trust for the Buyer and deliver the same forthwith
to the Buyer in the exact form received, duly endorsed by such Seller to the Buyer, if required,
together with an undated transfer power, if required, covering such certificate duly executed in
blank, to be held by the Buyer subject to the terms hereof as additional security for the
Obligations. Any sums paid upon or in respect of the Mezzanine Loan Subsidiary Interests upon the
liquidation or dissolution of Mezzanine Loan Subsidiary shall be paid over to the Buyer as
additional security for any outstanding Obligations. If following the occurrence and during the
continuation of an Event of Default any sums of money or property so paid or distributed in respect
of the Mezzanine Loan Subsidiary Interests shall be received by Sellers, Sellers shall, until such
money or property is paid or delivered to the Buyer, hold such money or property in trust for the
Buyer segregated from other funds of Sellers, as additional security for the Obligations.
Unless an Event of Default shall have occurred and be continuing, Sellers shall be permitted to
receive all cash dividends or other cash distributions paid in respect of the Mezzanine Loan
Subsidiary Interests and to exercise all voting and member rights with respect to the Mezzanine
Loan Subsidiary Interests; provided, however, that no vote shall be cast or member
right exercised or other action taken which would impair the Mezzanine Loan Subsidiary Interests or
which would be inconsistent with or result in a violation of any provision of this Repurchase
Agreement. Without the prior consent of the Buyer, Sellers will not (i) vote to enable, or take
any other action to permit Mezzanine Loan Subsidiary to issue any membership interests of any
nature or to issue any other membership interests convertible into or granting the right to
purchase or exchange for any membership interests of Mezzanine Loan Subsidiary, or (ii) sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, the
Mezzanine Loan Subsidiary Interests or (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, the Mezzanine Loan Subsidiary Interests, or
any interest therein, except for the Lien provided for by this Repurchase Agreement, or (iv) enter
into any agreement (other than the Limited Liability Company Agreement and this Repurchase
Agreement) or undertaking restricting the right or ability of Sellers to sell, assign or transfer
any of the Mezzanine Loan Subsidiary Interests.
The Sellers agree to pay, and to save the Buyer harmless from, any and all liabilities with respect
to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Mezzanine Loan Subsidiary
Interests.
c. The Buyer, Sellers and Mezzanine Loan Subsidiary each hereby agrees that in order
to further secure each Sellers Obligations hereunder, each Seller and Mezzanine
Loan Subsidiary each hereby pledges to Buyer as security for the performance by each
Seller of its Obligations and hereby grants, assigns and pledges to Buyer a security
interest in the Mezzanine Loans, the Records related to such Mezzanine Loans, and
all related servicing rights, the Program Agreements (to the extent such Program
Agreements and any Sellers right thereunder relate to the Mezzanine Loans), any
Property relating to the Mezzanine
- 31 -
Loans, all insurance policies and insurance proceeds relating to any Mezzanine Loans
or the related Mortgaged Property, including, but not limited to, any payments or
proceeds under any related primary insurance, hazard insurance and, Income, accounts
(including any interest of Mezzanine Loans in escrow accounts) and any other
contract rights, instruments, accounts, payments, rights to payment (including
payments of interest or finance charges) general intangibles and other assets
relating to the Mezzanine Loans (including, without limitation, any other accounts)
or any interest in the Mezzanine Loans, and any proceeds (including the related
securitization proceeds) and distributions with respect to any of the foregoing, in
all instances, whether now owned or hereafter acquired, now existing or hereafter
created (collectively, the Mezzanine Loan Assets). All Mezzanine Loan
Assets shall be deemed to be part of the Repurchase Assets. Sellers agree to
execute, deliver and/or file such documents and perform such acts as may be
reasonably necessary to fully perfect Buyers security interest created hereby.
Furthermore, each Seller hereby authorizes the Buyer to file financing statements
relating to the Mezzanine Loan Assets, as the Buyer, at its option, may deem
appropriate. Sellers shall pay the filing costs for any financing statement or
statements prepared pursuant to this paragraph. The foregoing paragraph is intended
to constitute a security agreement or other arrangement or other credit enhancement
related to the Agreement and transactions hereunder as defined under Section
101(47)(v) of the Bankruptcy Code.
d. The parties acknowledge and agree that the Mezzanine Loan Subsidiary is acquiring
the Mezzanine Loans subject to and subordinate to Buyers security interest.
9. Payment and Transfer
Unless otherwise mutually agreed in writing, all transfers of funds to be made by Sellers
hereunder shall be made in Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to Buyer at the following account maintained by Buyer: Account No. 066213630, ABA No.
021000021, Name of Bank: JPMorgan Chase, Bank City and State: New York, NY, Acct Name: Column
Financial, Inc. or such other account as Buyer shall specify to Sellers in writing. Each Seller
acknowledges that it has no rights of withdrawal from the foregoing account. All Purchased Assets
transferred by one party hereto to the other party shall be in the case of a purchase by Buyer in
suitable form for transfer or shall be accompanied by duly executed instruments of transfer or
assignment in blank and such other documentation as Buyer may reasonably request. All Purchased
Assets shall be evidenced by a Trust Receipt. Any Repurchase Price received by Buyer after 2:00
p.m. (New York City time) shall be deemed received on the next succeeding Business Day.
10. Conditions Precedent
a. Initial Transaction. As conditions precedent to the initial Transaction,
Buyer shall have received on or before the day of such initial Transaction the
following, in form and substance satisfactory to Buyer and duly executed by each
Seller, Guarantors, Mezzanine Loan Subsidiary and each other party thereto:
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(1) Program Agreements. The Program Agreements (including without
limitation the Guaranty and a Custodial Agreement in a form acceptable to Buyer)
duly executed and delivered by the parties thereto and being in full force and
effect, free of any modification, breach or waiver.
(2) Security Interest. Evidence that all other actions necessary or,
in the opinion of Buyer, desirable to perfect and protect Buyers interest in the
Purchased Assets and other Repurchase Assets have been taken, including, without
limitation, duly authorized and filed Uniform Commercial Code financing statements
on Form UCC-1.
(3) Organizational Documents. A certificate of the corporate secretary
of each of Sellers, Guarantors, and Mezzanine Loan Subsidiary substantially in the
form of Exhibit G hereto, attaching certified copies of Sellers,
Guarantors and Mezzanine Loan Subsidiarys organizational documents and resolutions
approving the Program Agreements and transactions thereunder (either specifically or
by general resolution) and all documents evidencing other necessary corporate action
or governmental approvals as may be required in connection with the Program
Agreements.
(4) Good Standing Certificate. A certified copy of a good standing
certificate from the jurisdiction of organization of Sellers, Guarantors and
Mezzanine Loan Subsidiary, dated as of no earlier than the date 10 Business Days
prior to the Purchase Date with respect to the initial Transaction hereunder.
(5) Incumbency Certificate. An incumbency certificate of the corporate
secretary of each of Sellers, Guarantors and Mezzanine Loan Subsidiary, certifying
the names, true signatures and titles of the representatives duly authorized to
request transactions hereunder and to execute the Program Agreements.
(6) Opinions of Counsel. An opinion of Sellers, Guarantors and
Mezzanine Loan Subsidiarys counsel, in form and substance substantially as set
forth in Exhibit F attached hereto.
(7) Fees. Payment of any fees due to Buyer hereunder, including the
Facility Fee.
(8) Insurance. Evidence that Sellers or Guarantors have added Buyer as
an additional loss payee under the Sellers Fidelity Insurance.
b. All Transactions. The obligation of Buyer to enter into each Transaction
pursuant to this Agreement is subject to the following conditions precedent:
(1) Due Diligence Review. Without limiting the generality of Sections
3(c) and 36 hereof, Buyer shall have completed, to its satisfaction, its due
diligence review of the related Eligible Assets, Sellers, Guarantors, Mezzanine Loan
Subsidiary and the Servicer.
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(2) Transaction Documents. Buyer or its designee shall have received
on or before the day of such Transaction (unless otherwise specified in this
Agreement) the following, in form and substance satisfactory to Buyer and (if
applicable) duly executed:
(a) A Transaction Request delivered pursuant to Section 3(c) hereof and a
Purchase Confirmation;
(b) The Trust Receipt or Table Funded Trust Receipt;
(c) The Closing Data Tape;
(d) Such certificates, opinions of counsel or other documents as Buyer may
reasonably request.
(3) Asset File.
(a) On or before each Purchase Date with respect to each Closed Asset, Sellers
shall deliver or cause to be delivered to Buyer or its designee (initially, the
Custodian) the Custodial Delivery Letter in the form attached hereto as Exhibit
D. In connection with each sale, transfer, conveyance and assignment of a
Closed Asset, on or prior to each Purchase Date with respect to such Closed Asset,
Sellers shall deliver or cause to be delivered and released to the Custodian the
documents set forth in the Asset File, pertaining to each of the Closed Assets
identified in the Custodial Delivery Letter delivered therewith.
(b) With respect to each Table Funded Purchased Asset, the Sellers shall cause
the Bailee to deliver to the Custodian with a copy to the Buyer no later than 11:00
a.m. on the Purchase Date by facsimile or by other electronic means acceptable to
the parties the related Basic Mortgage Asset Documents, the insured closing letter
(if any), the escrow instructions (if any), a fully executed Bailee Agreement, a
Bailees Trust Receipt issued by the Bailee thereunder and such other evidence
satisfactory to the Buyer in its discretion that all documents necessary to effect a
transfer of the Table Funded Purchased Assets to the Buyer have been delivered to
Bailee. With respect to each Table Funded Purchased Asset, the Custodian shall
deliver to the Buyer a Table Funded Trust Receipt no later than 1:00 p.m. on the
Purchase Date, which documents shall be acceptable to the Buyer in its sole
discretion. In the case of a Table Funded Purchased Asset, Sellers shall deliver or
cause to be delivered and released to the Custodian the documents set forth in the
Asset File pertaining to the Table Funded Purchased Assets identified in the
Custodial Delivery Letter delivered therewith within three (3) Business Days
following the applicable Purchase Date, and on the second (2nd) Business Day
following the Custodians receipt of the Asset File, the Custodian shall deliver to
the Buyer a Trust Receipt certifying its receipt of the documents required to be
delivered pursuant to the Custodial Agreement, together with a Purchased Asset
Schedule and exception report relating to the Basic Mortgage Asset Documents, with
any exceptions identified by the Custodian as of
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the date and time of delivery of such Purchased Asset Schedule and exception
report.
(4) No Default. No Termination Event, Default or Event of Default
shall have occurred and be continuing;
(5) Requirements of Law. Buyer shall not have determined that the
introduction of or a change in any Requirement of Law or in the interpretation or
administration of any Requirement of Law applicable to Buyer has made it unlawful,
and no Governmental Authority shall have asserted that it is unlawful, for Buyer to
enter into Transactions with a Pricing Rate based on LIBOR.
(6) Representations and Warranties. Both immediately prior to the
related Transaction and also after giving effect thereto and to the intended use
thereof, the representations and warranties made by each Seller in each Program
Agreement shall be true, correct and complete on and as of such Purchase Date in all
material respects with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have been made as
of a specific date, as of such specific date).
(7) Minimum Amount. Each Eligible Asset subject to a Transaction
Request shall be for a Purchase Price not less than $2,000,000.
(8) Maximum Amount. Each Eligible Asset that is a Commercial Mortgage
Loan subject to a Transaction Request shall be for a Purchase Price less than or
equal to $60 million. Each Eligible Asset other than a Commercial Mortgage Loan
subject to a Transaction Request shall be for a Purchase Price less than or equal to
$40 million.
(9) Material Adverse Change. None of the following shall have occurred
and/or be continuing:
(a) an event or events shall have occurred in the good faith determination of
Buyer resulting in the effective absence of a repo market or comparable lending
market for financing debt obligations secured by mortgage loans or securities or an
event or events shall have occurred resulting in Buyer not being able to finance
Purchased Assets through the repo market or lending market with traditional
counterparties at rates which would have been reasonable prior to the occurrence of
such event or events; or
(b) an event or events shall have occurred resulting in the effective absence
of a securities market for securities backed by mortgage loans or an event or
events shall have occurred resulting in Buyer not being able to sell securities
backed by mortgage loans at prices which would have been reasonable prior to such
event or events; or
(c) there shall have occurred a material adverse change in the financial
condition of Buyer which affects (or can reasonably be expected to affect)
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materially and adversely the ability of Buyer to fund its obligations under
this Agreement.
(10) Notice to Borrowers. The Sellers shall deliver to the Backup
Servicer a completed and signed Notice to Borrower, substantially in the form of
Exhibit N hereto, with respect to each Purchased Asset subject to a
Transaction.
c. Transaction Request. Each Transaction Request delivered by a Seller
hereunder shall constitute a certification by the Sellers that all the conditions
set forth in Section 10(b) (other than clause (9) thereof) have been satisfied (both
as of the date of such notice or request and as of the date of such purchase). Each
Purchase Confirmation, together with this Agreement, shall be evidence of the terms
of the Transaction(s) covered thereby unless specific objection is made no less than
two (2) Business Days after the date thereof and Sellers acceptance of the related
proceeds shall constitute Sellers agreement to the terms of such Purchase
Confirmation. An objection sent by a Seller with respect to any Purchase
Confirmation (as to which such Seller has not accepted or has returned the related
proceeds) must state specifically that the writing is an objection, must specify the
provision(s) of such Purchase Confirmation being objected to by such Seller, must
set forth such provision(s) in the manner that such Seller believes such provisions
should be stated, and must be received by Buyer no more than two (2) Business Days
after such Purchase Confirmation is received by Seller.
11. Program; Costs
a. Sellers shall reimburse Buyer for any of Buyers reasonable out-of-pocket costs,
including due diligence review costs and reasonable attorneys fees, incurred by
Buyer in determining the acceptability to Buyer of any Eligible Assets. Sellers
shall also pay, or reimburse Buyer if Buyer shall pay, any termination fee, which
may be due any servicer. Sellers shall pay the fees and expenses of Buyers counsel
in connection with the Program Agreements. Legal fees for any subsequent amendments
to this Agreement or related documents shall be borne by Sellers. Sellers shall pay
ongoing custodial and bank fees and expenses and any other ongoing fees and expenses
under any other Program Agreement.
b. If Buyer determines that, due to the introduction of, any change in, or the
compliance by Buyer with (i) any eurocurrency reserve requirement or (ii) the
interpretation of any law, regulation or any guideline or request from any central
bank or other Governmental Authority (whether or not having the force of law), there
shall be an increase in the cost to Buyer in engaging in the present or any future
Transactions, then Sellers agree to pay to Buyer, from time to time, upon demand by
Buyer (with a copy to Custodian) the actual cost of additional amounts as specified
by Buyer to compensate Buyer for such increased costs.
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c. With respect to any Transaction, Buyer may conclusively rely upon, and shall
incur no liability to any Seller in acting upon, any request or other communication
that Buyer reasonably believes to have been given or made by a person authorized to
enter into a Transaction on a Sellers behalf, whether or not such person is listed
on the certificate delivered pursuant to Section 10(a)(5) hereof. In each such
case, each Seller hereby waives the right to dispute Buyers record of the terms of
the Purchase Confirmation, request or other communication.
d. Notwithstanding the assignment of the Program Agreements with respect to each
Purchased Asset to Buyer, each Seller agrees and covenants with Buyer to enforce
diligently Sellers rights and remedies set forth in the Program Agreements.
e. Any payments made by any Seller, any Guarantor or Mezzanine Loan Subsidiary to
Buyer shall be free and clear of, and without deduction or withholding for, any
taxes; provided, however, that if such payer shall be required by
law to deduct or withhold any taxes from any sums payable to Buyer, then such payer
shall (A) make such deductions or withholdings and pay such amounts to the relevant
authority in accordance with applicable law, (B) pay to Buyer the sum that would
have been payable had such deduction or withholding not been made, and (C) at the
time Price Differential is paid, pay to Buyer all additional amounts as specified by
Buyer to preserve the after-tax yield Buyer would have received if such tax had not
been imposed, and otherwise indemnify Buyer for any such taxes imposed.
12. Servicing
a. Sellers and Buyer shall contract with Servicer to service the Purchased Assets
pursuant to the Servicing Agreement, consistent with the degree of skill and care
that Servicer customarily requires with respect to similar Purchased Assets owned or
managed by it and in accordance with Accepted Servicing Practices. The Servicing
Agreement shall require, inter alia, that: Servicer (i) comply with all applicable
federal, state and local laws and regulations, (ii) maintain all state and federal
licenses necessary for it to perform its servicing responsibilities hereunder and
(iii) not impair the rights of Buyer in any Purchased Assets or any payment
thereunder. In addition, the Servicing Agreement shall require that the Servicer
deposit all collections of Income (other than amounts deposited in escrow accounts
pursuant to the Servicing Agreement) received by Servicer on account of the
Purchased Assets in the Securities Account no later than two Business Days following
receipt. On the Reporting Date the Servicer shall deliver all servicing and account
information it receives with respect to the Purchased Assets (including the
Servicing Report) to the Backup Servicer.
b. Upon the occurrence of any of (i) an Event of Default hereunder or (ii) an event
of default under the Servicing Agreement (beyond any applicable notice and cure
period), Buyer shall have the right to (i) immediately terminate the Servicers
right to service the Purchased Assets without payment of any penalty
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or termination fee and (ii) send or instruct the Backup Servicer to send a
Irrevocable Instruction Letter to each Mortgagor or payor related to the Purchased
Assets. Sellers and Servicer shall cooperate in transferring the servicing of the
Purchased Assets to a successor servicer appointed by Buyer in its sole discretion.
c. If any Seller should discover that, for any reason whatsoever, Servicer or any
entity responsible for managing or servicing any Purchased Assets has failed to
perform in all material respects any of the obligations of such entities with
respect to the Purchased Assets, or that an event of default under the Servicing
Agreement has occurred, Sellers shall promptly notify Buyer.
d. In the event that the Servicer is a master servicer of a Purchased Asset which is
serviced by a Third Party Servicer, the Sellers shall provide promptly to Buyer a
Servicer Notice addressed to and agreed to by the Third Party Servicer of the
related Purchased Assets, advising such Third Party Servicer of such matters as
Buyer may reasonably request, including, without limitation, recognition by the
master servicer of Buyers interest in such Purchased Assets and the Third Party
Servicers agreement that upon receipt of notice of an Event of Default from Buyer,
it will follow the instructions of Buyer with respect to the Purchased Assets and
any related Income with respect thereto.
e. Sellers shall not employ sub-servicers (other than the Servicer or Affiliates
thereof or Third Party Servicers) to service the Purchased Assets without the prior
written approval of Buyer, which such approval shall not be unreasonably withheld.
If the Purchased Assets are serviced, in whole or in part, by a sub-servicer (i)
Servicer shall nevertheless remain primarily liable to Buyer for the servicing of
the Purchased Assets under the Servicing Agreement; and (ii) any agreement with a
subservicer shall entitle Buyer to terminate such subservicer without fee or penalty
in the event that Servicer is replaced.
f. Upon the occurrence and continuance of, but not prior to, an Event of Default
hereunder the Buyer shall inform the Backup Servicer that an Event of Default has
occurred and shall instruct the Backup Servicer to deliver a Notice to Borrower with
respect to each Purchased Asset subject to a Transaction.
13. Representations and Warranties.
a. Each of each Seller, each Guarantor and Mezzanine Loan Subsidiary represents and
warrants to Buyer as of the date hereof and as of each Purchase Date for any
Transaction that:
(1) Sellers, Guarantors and Mezzanine Loan Subsidiary Existence. Arbor
Realty SR, Inc. has been duly organized and is validly existing as a corporation in
good standing under the laws of the State of Maryland. Arbor TRS Holding Company
Inc. has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware. Mezzanine Loan Subsidiary has
been duly organized and is validly existing as a limited
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liability company in good standing under the laws of the State of Delaware.
Arbor Realty Trust Inc. has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland. Arbor Realty
Limited Partnership has been duly organized and is validly existing as a limited
partnership in good standing under the laws of the State of Delaware.
(2) Licenses. Each of each Seller, each Guarantor and Mezzanine Loan
Subsidiary is duly licensed or is otherwise qualified in each jurisdiction in which
it transacts business for the business which it conducts and is not in default of
any applicable federal, state or local laws, rules and regulations unless, in either
instance, the failure to take such action is not reasonably likely (either
individually or in the aggregate) to cause a Material Adverse Effect and is not in
default of such states applicable laws, rules and regulations. Each of each
Seller, each Guarantor and Mezzanine Loan Subsidiary has the requisite power and
authority and legal right to originate and purchase Eligible Assets (as applicable)
and to own, sell and grant a lien on all of its right, title and interest in and to
the Eligible Assets, and to execute and deliver, engage in the transactions
contemplated by, and perform and observe the terms and conditions of, this
Agreement, each Program Agreement and any Transaction Request or Purchase
Confirmation.
(3) Power. Each of each Seller, each Guarantor and Mezzanine Loan
Subsidiary has all requisite corporate or other power, and has all governmental
licenses, authorizations, consents and approvals necessary to own its assets and
carry on its business as now being or as proposed to be conducted, except where the
lack of such licenses, authorizations, consents and approvals would not be
reasonably likely to have a Material Adverse Effect.
(4) Due Authorization. Each of each Seller, each Guarantor and
Mezzanine Loan Subsidiary has all necessary corporate or other power, authority and
legal right to execute, deliver and perform its obligations under each of the
Program Agreements, as applicable. This Agreement, any Transaction Request,
Purchase Confirmation and the Program Agreements have been (or, in the case of
Program Agreements and any Transaction Request, Purchase Confirmation not yet
executed, will be) duly authorized, executed and delivered by each Seller, each
Guarantor and Mezzanine Loan Subsidiary, all requisite or other corporate action
having been taken, and each is valid, binding and enforceable against each Seller,
each Guarantor and Mezzanine Loan Subsidiary in accordance with its terms except as
such enforcement may be affected by bankruptcy, by other insolvency laws, or by
general principles of equity.
(5) Financial Statements. ART has heretofore furnished to Buyer a copy
of (a) its consolidated balance sheet and the consolidated balance sheets of its
consolidated Subsidiaries for the fiscal year of ART ended December 31, 2005 and the
related consolidated statements of income and retained earnings and of cash flows
for ART and its consolidated Subsidiaries for such fiscal year, setting forth in
each case in comparative form the figures for the previous year, with the
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opinion thereon of Ernst & Young LLP and (b) its consolidated balance sheet and
the consolidated balance sheets of its consolidated Subsidiaries for the quarterly
fiscal periods of ART ended March 31, 2006 and June 30, 2006 and the related
consolidated statements of income and retained earnings and of cash flows for ART
and its consolidated Subsidiaries for such quarterly fiscal periods, setting forth
in each case in comparative form the figures for the previous year. All such
financial statements are complete and correct and fairly present, in all material
respects, the consolidated financial condition of ART and its Subsidiaries and the
consolidated results of their operations as at such dates and for such fiscal
periods, all in accordance with GAAP applied on a consistent basis. Since December
31, 2005, there has been no material adverse change in the consolidated business,
operations or financial condition of ART and its consolidated Subsidiaries taken as
a whole from that set forth in said financial statements nor is ART aware of any
state of facts which (with notice or the lapse of time) would or could result in any
such material adverse change. ART has, on the date of the statements delivered
pursuant to this Section (the Statement Date) no liabilities, direct or
indirect, fixed or contingent, matured or unmatured, known or unknown, or
liabilities for taxes, long-term leases or unusual forward or long-term commitments
not disclosed by, or reserved against in, said balance sheet and related statements,
and at the present time there are no material unrealized or anticipated losses from
any loans, advances or other commitments of ART except as heretofore disclosed to
Buyer in writing.
(6) Event of Default. There exists no Event of Default under Section
15(b) hereof, which default gives rise to a right to accelerate indebtedness as
referenced in Section 15(b) hereof, under any mortgage, borrowing agreement or other
instrument or agreement pertaining to indebtedness for borrowed money or to the
repurchase of mortgage loans or securities.
(7) Solvency. Each of each Seller, each Guarantor and Mezzanine Loan
Subsidiary is solvent and will not be rendered insolvent by any Transaction and,
after giving effect to such Transaction, will not be left with an unreasonably small
amount of capital with which to engage in its business. Neither any Seller, any
Guarantor or Mezzanine Loan Subsidiary intends to incur, nor believes that it has
incurred, debts beyond its ability to pay such debts as they mature and is not
contemplating the commencement of insolvency, bankruptcy, liquidation or
consolidation proceedings or the appointment of a receiver, liquidator, conservator,
trustee or similar official in respect of such entity or any of its assets. The
amount of consideration being received by Sellers upon the sale of the Purchased
Assets to Buyer constitutes reasonably equivalent value and fair consideration for
such Purchased Assets. Neither any Seller, any Guarantor or Mezzanine Loan
Subsidiary is transferring any Purchased Assets with any intent to hinder, delay or
defraud any of its creditors.
(8) No Conflicts. The execution, delivery and performance by each of
each Seller, each Guarantor and Mezzanine Loan Subsidiary of this Agreement, any
Transaction Request or Purchase Confirmation hereunder and the
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Program Agreements do not conflict with any term or provision of the
certificate of incorporation or by laws of any Seller, any Guarantor or Mezzanine
Loan Subsidiary or any law, rule, regulation, order, judgment, writ, injunction or
decree applicable to any Seller, any Guarantor or Mezzanine Loan Subsidiary of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over any Seller, any Guarantor or Mezzanine Loan Subsidiary, which
conflict would have a Material Adverse Effect and will not result in any violation
of any such mortgage, instrument, agreement or obligation to which any Seller, any
Guarantor or Mezzanine Loan Subsidiary is a party.
(9) True and Complete Disclosure. All information, reports, exhibits,
schedules, financial statements or certificates of each Seller, each Guarantor,
Mezzanine Loan Subsidiary, or any Affiliate thereof or any of their officers
furnished or to be furnished to Buyer in connection with the initial or any ongoing
due diligence of Sellers, Guarantors, Mezzanine Loan Subsidiary, or any Affiliate or
officer thereof, negotiation, preparation, or delivery of the Program Agreements are
true and complete and do not omit to disclose any material facts necessary to make
the statements herein or therein, in light of the circumstances in which they are
made, not misleading. All financial statements have been prepared in accordance
with GAAP.
(10) Approvals. No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required under applicable law in connection with the execution, delivery and
performance by any Seller, any Guarantor or Mezzanine Loan Subsidiary of this
Agreement, any Transaction Request, Purchase Confirmation and the Program
Agreements.
(11) Litigation. Except as disclosed in writing prior to the related
Purchase Date, there is no action, proceeding or investigation pending with respect
to which any Seller, any Guarantor, or Mezzanine Loan Subsidiary has received
service of process or, to the best of any Sellers, any Guarantors or Mezzanine
Loan Subsidiarys knowledge threatened against it before any court, administrative
agency or other tribunal (A) asserting the invalidity of this Agreement, any
Transaction, Transaction Request, Purchase Confirmation or any Program Agreement,
(B) seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, any Transaction Request, Purchase Confirmation or any Program
Agreement, (C) makes a claim individually in an amount greater than $1,000,000 or in
an aggregate amount greater than $5,000,000, (D) which requires filing with the
Securities and Exchange Commission in accordance with the 1934 Act or any rules
thereunder or (E) which might materially and adversely affect the validity of the
Mortgage Loans or the performance by it of its obligations under, or the validity or
enforceability of, this Agreement, any Transaction Request, Purchase Confirmation or
any Program Agreement.
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(12) Material Adverse Change. There has been no material adverse
change in the business, operations, financial condition, properties or prospects of
any Seller, any Guarantor, Mezzanine Loan Subsidiary or their Affiliates since the
date set forth in the most recent financial statements supplied to Buyer.
(13) Ownership. Upon payment of the Purchase Price and the filing of
the financing statement and delivery of the Asset Files to the Custodian and the
Custodians receipt of the related Purchased Asset Schedule, Buyer shall become the
sole owner of the Purchased Assets and related Repurchase Assets, free and clear of
all liens and encumbrances.
(14) Taxes. Each Seller, each Guarantor, Mezzanine Loan Subsidiary and
their Subsidiaries have timely filed all tax returns that are required to be filed
by them and have paid all taxes, except for any such taxes as are being
appropriately contested in good faith by appropriate proceedings diligently
conducted and with respect to which adequate reserves have been provided. The
charges, accruals and reserves on the books of Sellers, Guarantors, Mezzanine Loan
Subsidiary and their Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of Sellers or Guarantors or Mezzanine Loan Subsidiary, as
applicable, adequate.
(15) Investment Company. Neither any Seller, any Guarantor, Mezzanine
Loan Subsidiary nor any of their Subsidiaries is an investment company, or a
company controlled by an investment company, within the meaning of the
Investment Company Act of 1940, as amended.
(16) Chief Executive Office; Jurisdiction of Organization. On the
Effective Date, Arbor Realty SR, Inc.s chief executive office, is, and has been,
located at 333 Earle Ovington Boulevard, Uniondale, New York 11553. On the
Effective Date, Arbor Realty SR, Inc.s jurisdiction of organization is Maryland.
On the Effective Date, Arbor TRS Holding Company Inc.s chief executive office, is,
and has been, located at 333 Earle Ovington Boulevard, Uniondale, New York 11553.
On the Effective Date, Arbor TRS Holding Company Inc.s jurisdiction of organization
is Delaware. On the Effective Date, Mezzanine Loan Subsidiarys chief executive
office, is, and has been, located at 333 Earle Ovington Boulevard, Uniondale, New
York 11553. On the Effective Date, Mezzanine Loan Subsidiarys jurisdiction of
organization is Delaware. On the Effective Date, ARTs chief executive office, is,
and has been, located at 333 Earle Ovington Boulevard, Uniondale, New York 11553.
On the Effective Date, ARTs jurisdiction of organization is Maryland. On the
Effective Date, Arbor Realty Limited Partnerships chief executive office, is, and
has been, located at 333 Earle Ovington Boulevard, Uniondale, New York 11553. On
the Effective Date, Arbor Realty Limited Partnerships jurisdiction of organization
is Delaware. Sellers and Mezzanine Loan Subsidiary shall provide Buyer with thirty
days advance notice of any change in any Sellers or Mezzanine Loan Subsidiarys
principal office or place of business or jurisdiction. Neither any
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Seller nor Mezzanine Loan Subsidiary has any trade name. During the preceding
five years, neither any Seller nor Mezzanine Loan Subsidiary has been known by or
done business under any other name, corporate or fictitious, and has not filed or
had filed against it any bankruptcy receivership or similar petitions nor has it
made any assignments for the benefit of creditors.
(17) Location of Books and Records. The location where Sellers and
Mezzanine Loan Subsidiary keeps their books and records, including all computer
tapes and records relating to the Purchased Assets and the related Repurchase Assets
is its chief executive office.
(18) ERISA. Each Plan to which any Seller, Mezzanine Loan Subsidiary
or their Subsidiaries make direct contributions, and, to the knowledge of any Seller
or Mezzanine Loan Subsidiary, each other Plan and each Multiemployer Plan, is in
compliance in all material respects with, and has been administered in all material
respects in compliance with, the applicable provisions of ERISA, the Code and any
other Federal or State law.
(19) Adverse Selection. Neither any Seller nor Mezzanine Loan
Subsidiary has selected the Purchased Assets in a manner so as to adversely affect
Buyers interests.
(20) Agreements. Neither any Seller nor any Subsidiary of any Seller
is a party to any agreement, instrument, or indenture or subject to any restriction
materially and adversely affecting its business, operations, assets or financial
condition, except as disclosed in the financial statements described in Section
13(a)(5) hereof. Neither any Seller nor any Subsidiary of any Seller is in default
in the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement, instrument, or indenture which default
could have a material adverse effect on the business, operations, properties, or
financial condition of any Seller as a whole. No holder of any indebtedness of any
Seller or of any of its Subsidiaries has given notice of any asserted default
thereunder.
(21) Reserved.
(22) No Reliance. Each of each Seller, each Guarantor and Mezzanine
Loan Subsidiary has made its own independent decisions to enter into the Program
Agreements and each Transaction and as to whether such Transaction is appropriate
and proper for it based upon its own judgment and upon advice from such advisors
(including without limitation, legal counsel and accountants) as it has deemed
necessary. Neither any Seller, any Guarantor or Mezzanine Loan Subsidiary is
relying upon any advice from Buyer as to any aspect of the Transactions, including
without limitation, the legal, accounting or tax treatment of such Transactions.
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(23) Plan Assets. Neither any Seller nor Mezzanine Loan Subsidiary is
an employee benefit plan as defined in Section 3 of Title I of ERISA, or a plan
described in Section 4975(e)(1) of the Code, and the Purchased Assets are not plan
assets within the meaning of 29 CFR §2510.3-101 in any Sellers hands.
(24) No Prohibited Persons. Neither any Seller, Mezzanine Loan
Subsidiary nor any of their respective Affiliates, officers, directors, partners or
members, is an entity or person (or to any Sellers or Mezzanine Loan Subsidiarys
knowledge, owned or controlled by an entity or person): (i) that is listed in the
annex to, or is otherwise subject to the provisions of Executive Order 13224 issued
on September 24, 2001 (EO13224); (ii) whose name appears on the United
States Treasury Departments Office of Foreign Assets Control (OFAC) most
current list of Specifically Designated National and Blocked Persons (which list
may be published from time to time in various mediums including, but not limited to,
the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens
to commit or supports terrorism, as that term is defined in EO13224; or (iv) who
is otherwise affiliated with any entity or person listed above (any and all parties
or persons described in clauses (i) through (iv) above are herein referred to as a
Prohibited Person).
(25) Asset File. Each Asset File delivered by Sellers represents a
true and correct copy of the documents contained therein and each Purchased Asset
Schedule and Closing Data Tape, together with all other information contained
therein prepared by Sellers or their Affiliates and delivered by Sellers to Buyer
immediately prior to the Purchase Date, is true and correct and conforms in all
material respects to the Summary Diligence Materials and Preliminary Data Tape
previously provided to Buyer and pursuant to which Buyer has elected to enter into
the Transaction.
(26) Real Estate Investment Trust. ART has not engaged in any material
prohibited transactions as defined in Section 857(b)(6)(B)(iii) and (c) of the
Code. ART for its current tax year (as defined in the Code) is entitled to a
dividends paid deduction under the requirements of Section 857 of the Code with
respect to any dividends paid by it with respect to each such year for which it
claims a deduction in its Form 1120-REIT filed with the United States Internal
Revenue Service for such year.
b. With respect to every Purchased Asset and each Mezzanine Loan, each of each
Seller, each Guarantor and Mezzanine Loan Subsidiary represents and warrants to
Buyer as of the applicable Purchase Date for any Transaction and each date
thereafter that each representation and warranty set forth on Schedule 1 is
true and correct.
c. The representations and warranties set forth in this Agreement shall survive
transfer of the Purchased Assets to Buyer and shall continue for so long as the
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Purchased Assets and Mezzanine Loans are subject to this Agreement. Upon discovery
by any Seller, any Guarantor, Mezzanine Loan Subsidiary, Servicer or Buyer of any
breach of any of the representations or warranties set forth in this Agreement, the
party discovering such breach shall promptly give notice of such discovery to the
others. Buyer has the right to require, in its unreviewable discretion, Sellers to
repurchase within 1 Business Day after receipt of notice from Buyer any Purchased
Asset for which a breach of one or more of the representations and warranties
referenced in Section 13(b) exists and which breach has a material adverse effect on
the value of such Mortgage Loan or the interests of Buyer.
14. Covenants
Each of each Seller, each Guarantor, and Mezzanine Loan Subsidiary covenants with Buyer that,
during the term of this facility:
a. Litigation. Each Seller, each Guarantor, and Mezzanine Loan Subsidiary,
as applicable, will promptly, but no less frequently than monthly after service of
process on any of the following, give to Buyer notice of all litigation, actions,
suits, arbitrations, investigations (including, without limitation, any of the
foregoing which are threatened or pending) or other legal or arbitrable proceedings
affecting any Seller, any Guarantor, Mezzanine Loan Subsidiary or any of their
Subsidiaries or affecting any of the Property of any of them before any Governmental
Authority that (i) questions or challenges the validity or enforceability of any of
the Program Agreements or any action to be taken in connection with the transactions
contemplated hereby, (ii) makes a claim, with respect to the Sellers, in an
aggregate amount greater than $5 million, or with respect to the Guarantors, in an
aggregate amount greater than $10 million, or (iii) which, individually or in the
aggregate, if adversely determined, could be reasonably likely to have a Material
Adverse Effect. Each of Sellers, Guarantors, and Mezzanine Loan Subsidiary, as
applicable, will promptly provide notice of any judgment, which with the passage of
time, could cause an Event of Default hereunder.
b. Prohibition of Fundamental Changes. Neither any Seller, any Guarantor or
Mezzanine Loan Subsidiary shall enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer
any liquidation, winding up or dissolution) or sell all or substantially all of its
assets; provided, that (i) any Seller and any Guarantor may merge or
consolidate with (1) any wholly owned subsidiary of a Seller, or (2) any other
Person if the respective Seller or the respective Guarantor is the surviving
corporation; and provided further, that if after giving effect
thereto, no Default would exist hereunder; and (ii) a Seller may sell substantially
all of its assets (x) in a CDO Transaction, or (y) to Buyer pursuant to this
Agreement.
c. Servicer. Upon the occurrence of any of the following (a) the occurrence
and continuation of an Event of Default, (b) the fifth Business Day of each month,
or
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(c) upon the request of Buyer, Sellers shall cause Servicer to provide to Buyer,
electronically, in a format mutually acceptable to Buyer and Sellers, by no later
than the Reporting Date. Sellers shall not cause the Purchased Assets to be
serviced by any servicer other than a servicer expressly approved in writing by
Buyer, which approval shall be deemed granted by Buyer with respect to Sellers
and/or Arbor Commercial Mortgage LLC with the execution of this Agreement.
d. Insurance. The Sellers or Guarantors shall continue to maintain, for
Sellers and their Subsidiaries, Fidelity Insurance in an aggregate amount at least
equal to $5 million. The Sellers or Guarantors shall maintain, for Sellers and
their Subsidiaries, Fidelity Insurance in respect of its officers, employees and
agents, with respect to any claims made in connection with all or any portion of the
Repurchase Assets. The Sellers or Guarantors shall notify the Buyer of any material
change in the terms of any such Fidelity Insurance.
e. No Adverse Claims. Each Seller warrants and will defend, and shall cause
any Servicer to defend, the right, title and interest of Buyer in and to all
Purchased Assets and the related Repurchase Assets against all adverse claims and
demands.
f. Assignment. Except as permitted herein, neither any Seller nor any
Servicer shall sell, assign, transfer or otherwise dispose of, or grant any option
with respect to, or pledge, hypothecate or grant a security interest in or lien on
or otherwise encumber (except pursuant to the Program Agreements), any of the
Purchased Assets or any interest therein, provided that this Section shall
not prevent any transfer of Purchased Assets in accordance with the Program
Agreements.
g. Security Interest. Each Seller shall do all things necessary to preserve
the Purchased Assets and the related Repurchase Assets so that they remain subject
to a first priority perfected security interest hereunder. Without limiting the
foregoing, each Seller will comply with all rules, regulations and other laws of any
Governmental Authority and cause the Purchased Assets or the related Repurchase
Assets to comply with all applicable rules, regulations and other laws. Sellers
will not allow any default for which any Seller is responsible to occur under any
Purchased Assets or the related Repurchase Assets or any Program Agreement and
Sellers shall fully perform or cause to be performed when due all of its obligations
under any Purchased Assets or the related Repurchase Assets and any Program
Agreement.
h. Records.
(1) Sellers shall collect and maintain or cause to be collected and maintained
all Records relating to the Purchased Assets in accordance with industry custom and
practice for assets similar to the Purchased Assets, including those maintained
pursuant to the preceding subparagraph, and all such Records shall be in Custodians
possession unless Buyer otherwise approves. Sellers will not allow any such papers,
records or files that are an original or an only copy to leave Custodians
possession, except for individual items removed in connection
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with servicing a specific Mortgage Loan, in which event Sellers will obtain or
cause to be obtained a receipt from a financially responsible person for any such
paper, record or file. Sellers or the Servicer of the Purchased Assets will
maintain all such Records not in the possession of Custodian in good and complete
condition in accordance with industry practices for assets similar to the Purchased
Assets and preserve them against loss.
(2) For so long as Buyer has an interest in or lien on any Purchased Asset,
Sellers will hold or cause to be held all related Records in trust for Buyer.
Sellers shall notify, or cause to be notified, every other party holding any such
Records of the interests and liens in favor of Buyer granted hereby.
(3) Upon reasonable advance notice from Custodian or Buyer, Sellers shall (x)
make any and all such Records available to Custodian or Buyer to examine any such
Records, either by its own officers or employees, or by agents or contractors, or
both, and make copies of all or any portion thereof, and (y) permit Buyer or its
authorized agents to discuss the affairs, finances and accounts of any Seller with
its chief operating officer and chief financial officer and to discuss the affairs,
finances and accounts of any Seller with its independent certified public
accountants.
i. Books. Each Seller shall keep or cause to be kept in reasonable detail
books and records of account of its assets and business and shall clearly reflect
therein the transfer of Purchased Assets to Buyer.
j. Approvals. Each Seller shall maintain all licenses, permits or other
approvals necessary for such Seller to conduct its business and to perform its
obligations under the Program Agreements, and each Seller shall conduct its business
strictly in accordance with applicable law.
k. Material Change in Business. Neither any Seller, any Guarantor or
Mezzanine Loan Subsidiary shall make any material change in the nature of its
business as carried on at the date hereof. There shall be no material change in the
senior management of any Seller.
l. Distributions. Neither Seller shall pay any dividends greater than Net
Income in any given calendar year. Notwithstanding the foregoing, Sellers and
Guarantors, as applicable, may each declare and pay dividends in an amount necessary
to comply with any Requirements of Law governing real estate investment trusts so
long as no Default or Event of Default has occurred or will occur as a result
thereof. If an Event of Default has occurred and is continuing, neither any Seller,
any Guarantor or Mezzanine Loan Subsidiary shall pay any dividends with respect to
any capital stock or other equity interests in such entity, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of any Seller, any
Guarantor or Mezzanine Loan Subsidiary.
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m. Applicable Law. Each of each Seller, each Guarantor and Mezzanine Loan
Subsidiary shall comply with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority.
n. Existence. Each of each Seller, each Guarantor and Mezzanine Loan
Subsidiary shall preserve and maintain their legal existence and all of their
material rights, privileges, licenses and franchises.
o. Chief Executive Office; Jurisdiction of Organization. Neither Seller
shall move its chief executive office from the address referred to in Section
13(a)(17) or change its jurisdiction of organization from the jurisdiction referred
to in Section 13(a)(17) unless it shall have provided Buyer 30 days prior written
notice of such change.
p. Taxes. Each of each Seller, each Guarantor and Mezzanine Loan Subsidiary
shall timely file all tax returns that are required to be filed by them and shall
timely pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to the
date on which penalties attach thereto, except for any such tax, assessment, charge
or levy the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained.
q. Transactions with Affiliates. Neither Seller will enter into any
transaction, including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate unless such transaction
is (a) otherwise permitted under the Program Agreements, (b) in the ordinary course
of such Sellers business and (c) upon fair and reasonable terms no less favorable
to such Seller than it would obtain in a comparable arms length transaction with a
Person which is not an Affiliate, or make a payment that is not otherwise permitted
by this Section to any Affiliate.
r. Reserved.
s. Irrevocable Instruction Letter. To the extent that either Seller enters
into an Interest Rate Protection Agreement or similar arrangement with the Buyer or
its Affiliate, such Seller shall execute and deliver an Irrevocable Instruction
Letter to Buyer and its Affiliate.
t. True and Correct Information. All information, reports, exhibits,
schedules, financial statements or certificates of Sellers, Guarantors, Mezzanine
Loan Subsidiary, any Affiliate thereof or any of their officers furnished to Buyer
hereunder and during Buyers diligence of Sellers, Guarantors and Mezzanine Loan
Subsidiary are and will be true and complete and do not omit to disclose any
material facts necessary to make the statements herein or therein, in light of the
circumstances in which they are made, not misleading. All required financial
statements, information and reports delivered by Sellers to Buyer pursuant to this
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Agreement shall be prepared in accordance with U.S. GAAP, or, if applicable, to SEC
filings, the appropriate SEC accounting regulations.
u. Plan Assets. Neither Seller shall be an employee benefit plan as defined
in Section 3 of Title I of ERISA, or a plan described in Section 4975(e)(1) of the
Code and neither Seller shall use plan assets within the meaning of 29 CFR
§2510.3-101 to engage in this Agreement or any Transaction hereunder.
v. Mezzanine Loan Subsidiary Separateness Covenant. Mezzanine Loan
Subsidiary shall (a) own no assets, and will not engage in any business, other than
the assets and transactions specifically contemplated by this Agreement; (b) not
incur any Indebtedness or obligation, secured or unsecured, direct or indirect,
absolute or contingent (including guaranteeing any obligation), other than pursuant
hereto; (c) not make any loans or advances to any third party, and shall not acquire
obligations or securities of its affiliates; (d) pay its debts and liabilities
(including, as applicable, shared personnel and overhead expenses) only from its own
assets; (e) comply with the provisions of its organizational documents; (f) do all
things necessary to observe organizational formalities and to preserve its
existence, and will not amend, modify or otherwise change its organizational
documents, or suffer same to be amended, modified or otherwise changed, without the
prior written consent of Buyer; (g) maintain all of its books, records, financial
statements and bank accounts separate from those of its Affiliates; (h) be, and at
all times will hold itself out to the public as, a legal entity separate and
distinct from any other entity (including any Affiliate), shall correct any known
misunderstanding regarding its status as a separate entity, shall conduct business
in its own name, shall not identify itself or any of its affiliates as a division or
part of the other and shall maintain and utilize a separate telephone number and
separate stationery, invoices and checks; (i) maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations; (j) not engage in or suffer
any change of ownership, dissolution, winding up, liquidation, consolidation or
merger in whole or in part; (k) not commingle its funds or other assets with those
of any Affiliate or any other Person; (l) maintain its assets in such a manner that
it will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any affiliate or any other person; (m) not and will
not hold itself out to be responsible for the debts or obligations of any other
Person; (n) cause each of its direct and indirect owners to agree not to (i) file or
consent to the filing of any bankruptcy, insolvency or reorganization case or
proceeding with respect to Mezzanine Loan Subsidiary; institute any proceedings
under any applicable insolvency law or otherwise seek any relief under any laws
relating to the relief from debts or the protection of debtors generally with
respect to Mezzanine Loan Subsidiary; (ii) seek or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar
official for any Seller or a substantial portion of its properties; or (iii) make
any assignment for the benefit of Mezzanine Loan Subsidiarys creditors.
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w. Hedging. Each Seller shall enter into and maintain Interest Rate
Protection Agreements in an amount and in accordance with Sellers written policy as
approved by Buyer. No Seller shall amend such written policy without the prior
written consent of Buyer.
x. Financial Covenants:
(1) ART shall maintain a consolidated Adjusted Tangible Net Worth greater than
or equal to $200,000,000.
(2) ARTs consolidated ratio of (i) Indebtedness minus Subordinated Debt) to
(ii) consolidated Adjusted Tangible Net Worth shall not exceed 5:1.
15. Events of Default; Termination Events.
Section 15.01. Events of Default. Each of the following shall constitute an Event of
Default hereunder:
a. Payment Failure. Failure of Sellers to (i) make any payment of Price
Differential or Repurchase Price or any other sum which has become due, on a Price
Differential Payment Date or a Repurchase Date or otherwise, whether by acceleration
or otherwise, under the terms of this Agreement, any other warehouse and security
agreement or any other document evidencing or securing Indebtedness of any Seller to
Buyer or to any Affiliate of Buyer, or (ii) cure any Margin Deficit when due
pursuant to Section 6 hereof.
b. Cross Default. (i) any Seller, any Guarantor, Mezzanine Loan Subsidiary
or any of their Affiliates shall be in default under (i) any Indebtedness, in the
aggregate, in excess of $2,000,000 of any Seller, any Guarantor, Mezzanine Loan
Subsidiary or any of their Affiliates which default (1) involves the failure to pay
a matured obligation, or (2) permits the acceleration of the maturity of obligations
by any other party to or beneficiary with respect to such Indebtedness, or (ii) any
other contract or contracts, in the aggregate in excess of $2,000,000 to which any
Seller, any Guarantor, Mezzanine Loan Subsidiary or any of their Affiliates is a
party which default (1) involves the failure to pay a matured obligation, or (2)
permits the acceleration of the maturity of obligations by any other party to or
beneficiary of such contract.
c. Assignment. Assignment or attempted assignment by any Seller, any
Guarantor or Mezzanine Loan Subsidiary of this Agreement or any rights hereunder
without first obtaining the specific written consent of Buyer, or the granting by
any Seller of any security interest, lien or other encumbrances on any Purchased
Assets to any person other than Buyer.
d. Insolvency. An Act of Insolvency shall have occurred with respect to any
Seller, any Guarantor, Mezzanine Loan Subsidiary or any Affiliate.
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e. Material Adverse Change. Any material adverse change in the Property,
business, financial condition or operations of any Seller, any Guarantor, Mezzanine
Loan Subsidiary or any of its Affiliates shall occur, in each case as determined by
Buyer in its sole good faith discretion.
f. Breach of Identified Representation or Covenant or Obligation. A breach
by any Seller, any Guarantor or Mezzanine Loan Subsidiary of any of the
representations, warranties or covenants or obligations set forth in Sections
13(a)(1), 13(a)(7), 13(a)(19), 14b, 14n, 14t, 14u, 14v and 14x of this Agreement.
g. Breach of Non-Identified Representation or Covenant. A breach by any
Seller, any Guarantor or Mezzanine Loan Subsidiary of any other material
representation, warranty or covenant set forth in this Agreement (and not otherwise
specified in Section 15(f) above), if such breach is not cured within ten (10)
Business Days (other than the representations and warranties set forth in
Schedule 1, which shall be considered solely for the purpose of determining
the Market Value, the existence of a Margin Deficit and the obligation to repurchase
such Mortgage Loan) unless (i) such party shall have made any such representations
and warranties with knowledge that they were materially false or misleading at the
time made, (ii) any such representations and warranties have been determined by
Buyer in its sole discretion to be materially false or misleading on a regular
basis, or (iii) Buyer, in its sole discretion, determines that such breach of a
material representation, warranty or covenant materially and adversely affects (A)
the condition (financial or otherwise) of such party, its Subsidiaries or
Affiliates; or (B) Buyers determination to enter into this Agreement or
Transactions with such party, then such breach shall constitute an immediate Event
of Default and Sellers shall have no cure right hereunder).
h. Guarantor Breach. A breach by any Guarantor of any material
representation, warranty or covenant set forth in the Guaranty or any other Program
Agreement, any event of default by any Guarantor under the Guaranty (beyond any
applicable cure period), any repudiation of the Guaranty by any Guarantor, or if the
Guaranty is not enforceable against any Guarantor.
i. Change of Control. The occurrence of a Change in Control (other than
with respect to clause (f) of such definition).
j. Failure to Transfer. Sellers fail to transfer the Purchased Assets to
Buyer on the applicable Purchase Date (provided Buyer has tendered the related
Purchase Price).
k. Judgment. A final judgment or judgments (i) shall be rendered against
the Mezzanine Loan Subsidiary or (ii) for the payment of money in excess of
$2,000,000 individually or in the aggregate shall be rendered against any Seller,
any Guarantor, or Mezzanine Loan Subsidiary, in each case, by one or more courts,
administrative tribunals or other bodies having jurisdiction and the same
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shall not be satisfied, discharged (or provision shall not be made for such
discharge) or bonded, or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof.
l. Government Action. Any Governmental Authority or any person, agency or
entity acting or purporting to act under governmental authority shall have taken any
action to condemn, seize or appropriate, or to assume custody or control of, all or
any substantial part of the Property of any Seller, any Guarantor, Mezzanine Loan
Subsidiary or any Affiliate thereof, or shall have taken any action to displace the
management of any Seller, any Guarantor, Mezzanine Loan Subsidiary or any Affiliate
thereof or to curtail its authority in the conduct of the business of any Seller,
any Guarantor, Mezzanine Loan Subsidiary or any Affiliate thereof, or takes any
action in the nature of enforcement to remove, limit or restrict the approval of any
Seller, any Guarantor, Mezzanine Loan Subsidiary or Affiliate as an issuer, buyer or
a seller/servicer of Mortgage Loans or securities backed thereby, and such action
provided for in this subparagraph shall not have been discontinued or stayed within
30 days.
m. Inability to Perform. An officer of any Seller, any Guarantor or
Mezzanine Loan Subsidiary shall admit its inability to, or its intention not to,
perform any of any Sellers Obligations or any Guarantors obligations or Mezzanine
Loan Subsidiarys obligations hereunder or under the Guaranty.
n. Security Interest. This Agreement shall for any reason cease to create a
valid, first priority security interest in any material portion of the Purchased
Assets or other Repurchase Assets purported to be covered hereby.
o. Financial Statements. ARTs consolidated audited annual financial
statements or the notes thereto or other opinions or conclusions stated therein
shall be qualified or limited by reference to the status of ART as a going concern
or a reference of similar import.
p. Reserved.
q. Qualification as a REIT. The failure of Arbor Realty Trust Inc. (i) to
continue to be qualified as a REIT as defined in Section 856 of the Code or (ii) to
continue to be entitled to a dividend paid deduction under Section 857 of the Code
with respect to dividends paid by it with respect to each taxable year for which it
claims a deduction on its Form 1120- REIT filed with the United States Internal
Revenue Service for such year, or the entering into by Arbor Realty Trust Inc. of
prohibited transactions as defined in Sections 857(b)(6)(B)(iii) of the Code
(taking into account Sections 857(b)(6)(C), 857(b)(6)(d) and 857(b)(6)(e) of the
Code) or (iii) to satisfy any of the income or asset tests required to be satisfied
by a REIT.
An Event of Default shall be deemed to be continuing unless expressly waived by Buyer in
writing.
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Section 15.02.Termination Event. (a) If the following event (a Termination Event) occurs,
the Administrative Agent shall have the rights set forth in Section 15.02(b):
a. Change in Control as defined in clause (f) of the definition thereof shall have occurred.
(b) Upon the occurrence of the Termination Event, the Buyer shall have the
right, in its sole discretion, to immediately terminate the Buyers obligation to
enter into any additional Transactions. The Sellers shall repurchase any Purchased
Assets subject to a Transaction hereunder within 90 days following receipt of a
request therefor from the Buyer following the occurrence of a Termination Event.
16. Remedies Upon Default
In the event that an Event of Default shall have occurred:
a. Buyer may, at its option (which option shall be deemed to have been exercised
immediately upon the occurrence of an Act of Insolvency of any Seller or any
Guarantor), declare an Event of Default to have occurred hereunder and, upon the
exercise or deemed exercise of such option, the Repurchase Date for each Transaction
hereunder shall, if it has not already occurred, be deemed immediately to occur
(except that, in the event that the Purchase Date for any Transaction has not yet
occurred as of the date of such exercise or deemed exercise, such Transaction shall
be deemed immediately canceled). Buyer shall (except upon the occurrence of an Act
of Insolvency) give notice to Sellers, Guarantors and Mezzanine Loan Subsidiary of
the exercise of such option as promptly as practicable.
b. If Buyer exercises or is deemed to have exercised the option referred to in
subparagraph (a) of this Section, (i) Sellers obligations in such Transactions to
repurchase all Purchased Assets, at the Repurchase Price therefor on the Repurchase
Date determined in accordance with subparagraph (a) of this Section, shall thereupon
become immediately due and payable, (ii) all Income paid after such exercise or
deemed exercise shall be retained by Buyer and applied, in Buyers sole discretion,
to the aggregate unpaid Repurchase Prices for all outstanding Transactions and any
other amounts owing by Sellers hereunder, and (iii) Sellers shall immediately
deliver to Buyer the Asset Files relating to any Purchased Assets subject to such
Transactions then in Sellers possession or control.
c. Buyer also shall have the right to obtain physical possession, and to commence an
action to obtain physical possession, of all Records and files of Sellers relating
to the Purchased Assets and all documents relating to the Purchased Assets
(including, without limitation, any legal, credit or servicing files with respect to
the Purchased Assets) which are then or may thereafter come in to
the possession of Sellers or any third party acting for Sellers. To obtain physical
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possession of any Purchased Assets held by Custodian, Buyer shall present to
Custodian a Trust Receipt. Buyer shall be entitled to specific performance of all
agreements of Sellers contained in this Agreement.
d. Buyer shall have the right to direct all servicers then servicing any Purchased
Assets to remit all collections thereon to Buyer, and if any such payments are
received by Sellers, Sellers shall not commingle the amounts received with other
funds of Sellers and shall promptly pay them over to Buyer. Buyer shall also have
the right to terminate any one or all of the servicers then servicing any Purchased
Assets with or without cause. In addition, Buyer shall have the right to
immediately sell the Purchased Assets and liquidate all Repurchase Assets. Such
disposition of Purchased Assets may be, at Buyers option, on either a servicing
released or a servicing retained basis. Buyer shall not be required to give any
warranties as to the Purchased Assets with respect to any such disposition thereof.
Buyer may specifically disclaim or modify any warranties of title or the like
relating to the Purchased Assets. The foregoing procedure for disposition of the
Purchased Assets and liquidation of the Repurchase Assets shall not be considered to
adversely affect the commercial reasonableness of any sale thereof. Each Seller
agrees that it would not be commercially unreasonable for Buyer to dispose of the
Purchased Assets or the Repurchase Assets or any portion thereof by using Internet
sites that provide for the auction of assets similar to the Purchased Assets or the
Repurchase Assets, or that have the reasonable capability of doing so, or that match
buyers and sellers of assets. Buyer shall be entitled to place the Purchased Assets
in a pool for issuance of mortgage backed securities at the then prevailing price
for such securities and to sell such securities for such prevailing price in the
open market. Buyer shall also be entitled to sell any or all of such Purchased
Assets individually for the prevailing price. Buyer shall also be entitled, in its
sole discretion to elect, in lieu of selling all or a portion of such Purchased
Assets, to give the Sellers credit for such Purchased Assets and the Repurchase
Assets in an amount equal to the Market Value of the Purchased Assets against the
aggregate unpaid Repurchase Price and any other amounts owing by the Sellers
hereunder.
e. Upon the happening of one or more Events of Default, Buyer may apply any proceeds
from the liquidation of the Purchased Assets and Repurchase Assets to the Repurchase
Prices hereunder and all other Obligations in the manner Buyer deems appropriate in
its sole discretion.
f. Sellers shall be liable to Buyer for (i) the amount of all reasonable legal or
other expenses (including, without limitation, all costs and expenses of Buyer in
connection with the enforcement of this Agreement or any other agreement evidencing
a Transaction, whether in action, suit or litigation or bankruptcy, insolvency or
other similar proceeding affecting creditors rights generally, further including,
without limitation, the reasonable fees and expenses of counsel (including the costs
of internal counsel of Buyer) incurred in connection with or as a result of an Event
of Default, (ii) damages in an amount equal to the cost
(including all fees, expenses and commissions) of entering into replacement
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transactions and entering into or terminating hedge transactions in connection with
or as a result of an Event of Default, and (iii) any other loss, damage, cost or
expense directly arising or resulting from the occurrence of an Event of Default in
respect of a Transaction, but specifically excluding any special, indirect,
consequential or punitive damages, in each case, to the extent they are in excess of
any out of pocket amounts otherwise lost or expended by Buyer.
g. To the extent permitted by applicable law, Sellers shall be liable to Buyer for
interest on any amounts owing by Sellers hereunder, from the date Sellers become
liable for such amounts hereunder until such amounts are (i) paid in full by Sellers
or (ii) satisfied in full by the exercise of Buyers rights hereunder. Interest on
any sum payable by Sellers under this Section 16(g) shall be at a rate equal to the
Post Default Rate.
h. Buyer shall have, in addition to its rights hereunder, any rights otherwise
available to it under any other agreement or applicable law.
i. Buyer may exercise one or more of the remedies available to Buyer immediately
upon the occurrence of an Event of Default and, except to the extent provided in
subsections (a) and (d) of this Section, at any time thereafter without notice to
Sellers. All rights and remedies arising under this Agreement as amended from time
to time hereunder are cumulative and not exclusive of any other rights or remedies
which Buyer may have.
j. Buyer may enforce its rights and remedies hereunder without prior judicial
process or hearing, and each Seller hereby expressly waives any defenses such Seller
might otherwise have to require Buyer to enforce its rights by judicial process.
Each Seller also waives any defense (other than a defense of payment or performance)
such Seller might otherwise have arising from the use of nonjudicial process,
enforcement and sale of all or any portion of the Repurchase Assets, or from any
other election of remedies. Each Seller recognizes that nonjudicial remedies are
consistent with the usages of the trade, are responsive to commercial necessity and
are the result of a bargain at arms length.
k. Buyer shall have the right to perform reasonable due diligence with respect to
Sellers and the Purchased Assets, which review shall be at the expense of Sellers.
l. Each Seller recognizes the Buyer may be unable to effect a public sale of any or
all of the Purchased Assets. Each Seller acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to the Buyer than
if such sale were a public sale and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially reasonable
manner.
m. Nothing contained in the Agreement shall obligate Buyer to segregate any
Purchased Assets delivered to Buyer by Sellers. Notwithstanding anything to the
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contrary set forth in the Agreement, in no event shall Purchased Assets remain in
the custody of Sellers or any Affiliate of any Seller.
17. Reports
a. Notices. Any Seller, any Guarantor or Mezzanine Loan Subsidiary shall
furnish to Buyer (x) promptly, copies of any material and adverse notices
(including, without limitation, notices of defaults, breaches, potential defaults or
potential breaches) and any material financial information that is not otherwise
required to be provided by Sellers hereunder which is given to Sellers lenders, (y)
immediately, notice of the occurrence of any Event of Default hereunder or default
or breach by any Seller, Servicer, any Guarantor or Mezzanine Loan Subsidiary of any
obligation under any Program Agreement or any material contract or agreement of any
Seller, Servicer, any Guarantor or Mezzanine Loan Subsidiary or the occurrence of
any event or circumstance that such party reasonably expects has resulted in, or
will, with the passage of time, result in, a Material Adverse Effect or an Event of
Default or such a default or breach by such party and (z) the following:
(1) as soon as available and in any event within forty-five (45) calendar days
after the end of each calendar quarter, the unaudited consolidated balance sheets of
ART and its consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of cash flows
for ART and its consolidated Subsidiaries for such period and the portion of the
fiscal year through the end of such period, accompanied by a certificate of a
Responsible Officer of ART, which certificate shall state that said consolidated
financial statements fairly present in all material respects the consolidated
financial condition and results of operations of ART and its consolidated
Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and
for, such period (subject to normal year-end adjustments);
(2) as soon as available and in any event within ninety (90) days after the end
of each fiscal year of ART, the consolidated balance sheets of ART and its
consolidated Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for the
ART and its consolidated Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous year, accompanied by an opinion
thereon of independent certified public accountants of recognized national standing,
which opinion and the scope of audit shall be acceptable to Buyer in its sole
discretion, shall have no going concern qualification and shall state that said
consolidated financial statements fairly present the consolidated financial
condition and results of operations of ART and its consolidated Subsidiaries as at
the end of, and for, such fiscal year in accordance with GAAP;
(3) such other prepared statements that Buyer may reasonably request;
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(4) if applicable, copies of any 10 Ks, 10 Qs, registration statements and
other corporate finance SEC filings (other than 8 Ks) by Sellers and
Guarantors, within 5 Business Days of their filing with the SEC; provided,
that, Sellers, Guarantors or any Affiliate will provide Buyer and Credit Suisse
First Boston Corporation with a copy of the annual 10 K filed with the SEC by
Sellers, Guarantors or their Affiliates, no later than 90 days after the end of the
year;
(5) as soon as available, and in any event within thirty (30) days of receipt,
copies of relevant portions of all final written Governmental Authority and investor
audits, examinations, evaluations, monitoring reviews and reports of its operations
(including those prepared on a contract basis) which provide for or relate to (i)
material corrective action required, (ii) material sanctions proposed, imposed or
required, including without limitation notices of defaults, notices of termination
of approved status, notices of imposition of supervisory agreements or interim
servicing agreements, and notices of probation, suspension, or non-renewal, or (iii)
report cards, grades or other classifications of the quality of Sellers
operations;
(6) as soon as available, but in any event once per calendar quarter, financial
statements with respect to the underlying property related to the Purchased Assets
(to the extent received by Sellers or Servicer from the related borrower);
(7) from time to time such other information regarding the financial condition,
operations, or business of the Guarantors, Mezzanine Loan Subsidiary or Sellers as
Buyer may reasonably request;
(8) as soon as reasonably possible, and in any event within thirty (30) days
after a Responsible Officer of the Guarantors, Mezzanine Loan Subsidiary or any
Seller has knowledge of the occurrence of any Event of Termination, stating the
particulars of such Event of Termination in reasonable detail;
(9) as soon as reasonably possible, notice of any of the following events:
(a) change in the insurance coverage required of any Seller, any Guarantor,
Mezzanine Loan Subsidiary, Servicer or any other Person pursuant to any Program
Agreement, with a copy of evidence of same attached;
(b) any material dispute, litigation, investigation, proceeding or suspension
between any Seller, any Guarantor, Mezzanine Loan Subsidiary or Servicer, on the one
hand, and any Governmental Authority or any Person;
(c) any material change in accounting policies or financial reporting practices
of any Seller, any Guarantor, Mezzanine Loan Subsidiary or Servicer;
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(d) with respect to any Purchased Asset, immediately upon receipt of notice or
knowledge thereof, that the underlying Mortgaged Property has been damaged by waste,
fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or
otherwise damaged so as to affect adversely the value of such Purchased Asset;
(e) any material issues raised upon examination of any Seller or any Sellers
facilities by any Governmental Authority;
(f) promptly upon receipt of notice or knowledge of (i) any default related to
any Repurchase Asset, (ii) any lien or security interest (other than security
interests created hereby or by the other Program Agreements) on, or claim asserted
against, any of the Purchased Assets; and
(g) any other event, circumstance or condition that has resulted, or has a
possibility of resulting, in a Material Adverse Effect with respect to any Seller or
Servicer.
(10) as soon as available, but in any event once per calendar quarter, any
material change in the Indebtedness of any Seller, including, without limitation,
any default, renewal, non-renewal, termination, increase in available amount or
decrease in available amount related thereto.
b. Officers Certificates. Sellers will furnish to Buyer, at the time the
Sellers furnishes each set of financial statements pursuant to Section 17(a)(1) or
(2) above, a certificate of a Responsible Officer of each Seller in the form of
Exhibit D hereto.
c. Servicing Reports. Sellers will furnish to Buyer and Backup Servicer a
Servicing Report by no later than the Reporting Date.
d. Distribution Worksheet. Sellers shall provide to Buyer, electronically,
in a format mutually acceptable to Buyer and Sellers, a Distribution Worksheet by no
later than the Reporting Date.
e. Other. Sellers shall deliver to Buyer any other reports or information
reasonably requested by Buyer or as otherwise required pursuant to this Agreement.
18. Repurchase Transactions
Buyer may, in its sole election, engage in repurchase transactions with the Purchased Assets
or otherwise pledge, hypothecate, assign, transfer or otherwise convey the Purchased Assets with a
counterparty of Buyers choice. Unless an Event of Default shall have occurred, no such
transaction shall relieve Buyer of its obligations to transfer Purchased Assets to Sellers pursuant
to Section 4 hereof, or of Buyers obligation to credit or pay Income to, or apply Income to the
obligations of, Sellers pursuant to Section 7 hereof. In the event Buyer engages in a repurchase
transaction with any of the Purchased Assets or otherwise pledges or
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hypothecates any of the Purchased Assets, Buyer shall have the right to assign to Buyers
counterparty any of the applicable representations or warranties herein and the remedies for breach
thereof, as they relate to the Purchased Assets that are subject to such repurchase transaction.
19. Single Agreement
Buyer and Sellers acknowledge that, and have entered hereunto, and will enter into each
Transaction hereunder, in consideration of and in reliance upon the fact that, all Transactions
hereunder constitute a single business and contractual relationship and have been made in
consideration of each other. Accordingly, each of Buyer and Sellers agrees (i) to perform all of
its obligations in respect of each Transaction hereunder, and that a default in the performance of
any such obligations shall constitute a default by it in respect of all Transactions hereunder,
(ii) that each of them shall be entitled to set-off claims and apply property held by them in
respect of any Transaction against obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers made by either of them in respect
of any Transaction shall be deemed to have been made in consideration of payments, deliveries and
other transfers in respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries and other transfers may be applied against each other and netted.
20. Notices and Other Communications
Any and all notices (with the exception of Transaction Requests or Purchase Confirmations,
which shall be delivered via facsimile only), statements, demands or other communications hereunder
may be given by a party to the other by mail, facsimile, messenger or otherwise to the address
specified below, or so sent to such party at any other place specified in a notice of change of
address hereafter received by the other. All notices, demands and requests hereunder may be made
orally, to be confirmed promptly in writing, or by other communication as specified in the
preceding sentence.
If to Sellers:
Arbor Realty SR, Inc.
Arbor TRS Holding Company Inc.s
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, NY 11553
Attention: Guy Milone, Esq.
Phone Number: (516) 832-7431
Fax Number: (516) 832-6431
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with a copy to:
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Thomas D. OConnor, Esq.
Phone Number: (212) 479-6265
Fax Number: (212) 479-6265
If to Mezzanine Loan Subsidiary:
Arbor Realty Mezzanine LLC
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, NY 11553
Attention: Guy Milone, Esq.
Phone Number: (516) 832-7431
Fax Number: (516) 832-6431
If to Arbor Realty Trust Inc.:
Arbor Realty Trust Inc.
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, NY 11553
Attention: Guy Milone, Esq.
Phone Number: (516) 832-7431
Fax Number: (516) 832-6431
If to Arbor Realty Limited Partnership:
Arbor Realty Limited Partnership
c/o Arbor Commercial Mortgage LLC
333 Earle Ovington Boulevard
Uniondale, NY 11553
Attention: Guy Milone, Esq.
Phone Number: (516) 832-7431
Fax Number: (516) 832-6431
If to Buyer:
Column Financial, Inc.
11 Madison Avenue
New York, New York 10010
Attention: Mason Sleeper and Lawrence Goland
Fax Number: (212) 325-8064
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with a copy to:
Column Financial, Inc.
1 Madison Avenue
New York, New York 10010
Attention: Tessa Peters, Esq.
Fax Number: (917) 326-7980
21. Entire Agreement; Severability
This Agreement shall supersede any existing agreements between the parties containing general
terms and conditions for repurchase transactions. Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such other provision or agreement.
22. Non assignability
The Program Agreements are not assignable by any Seller, any Guarantor or Mezzanine Loan
Subsidiary. Buyer may from time to time assign all or a portion of its rights and obligations
under this Agreement and the Program Agreements; provided, however that Buyer shall
maintain as agent of Sellers, for review by Sellers upon written request, a register of assignees
and a copy of an executed assignment and acceptance by Buyer and assignee (Assignment and
Acceptance), specifying the percentage or portion of such rights and obligations assigned.
Upon such assignment, (a) such assignee shall be a party hereto and to each Program Agreement to
the extent of the percentage or portion set forth in the Assignment and Acceptance, and shall
succeed to the applicable rights and obligations of Buyer hereunder, and (b) Buyer shall, to the
extent that such rights and obligations have been so assigned by it to either (i) an Affiliate of
Buyer which assumes the obligations of Buyer or (ii) to another Person approved by Sellers (such
approval not to be unreasonably withheld) which assumes the obligations of Buyer, be released from
its obligations hereunder and under the Program Agreements. Unless otherwise stated in the
Assignment and Acceptance, Sellers shall continue to take directions solely from Buyer unless
otherwise notified by Buyer in writing; provided however that Buyer shall not
require Sellers to take directions from more than one (1) Person, whether as agent for multiple
parties or as principal. Buyer may distribute to any prospective assignee any document or other
information delivered to Buyer by Sellers.
The Buyer may sell participations to one or more Persons in or to all or a portion of its
rights and obligations under this Agreement; provided, however, that (i) the
Buyers obligations under this Agreement shall remain unchanged, (ii) the Buyer shall remain solely
responsible to the other parties hereto for the performance of such obligations; and (iii) the
Sellers shall continue to deal solely and directly with the Buyer in connection with the Buyers
rights and obligations under this Agreement and the other Program Agreements.
The Buyer may, in connection with any assignment or participation or proposed assignment or
participation pursuant to this Section 22, disclose to the assignee or participant or proposed
assignee or participant, as the case may be, any information relating to the Sellers,
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Mezzanine Loan Subsidiary or any of their respective Subsidiaries or to any aspect of the
Transactions that has been furnished to the Buyer by or on behalf of the Sellers, Mezzanine Loan
Subsidiary or any of their respective Subsidiaries; provided that such assignee or
participant agrees to hold such information subject to the confidentiality provisions of this
Agreement.
23. Set-off
In addition to any rights and remedies of Buyer provided by law, Buyer shall have the right,
without prior notice to any Seller, any Guarantor or Mezzanine Loan Subsidiary, any such notice
being expressly waived by Sellers, Guarantors and Mezzanine Loan Subsidiary to the extent permitted
by applicable law, upon any amount becoming due and payable by Sellers, any Guarantor or Mezzanine
Loan Subsidiary hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off
and appropriate and apply against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in
any currency, in each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by Buyer or any branch or agency thereof to or for the credit
or the account of any Seller, any Guarantor or Mezzanine Loan Subsidiary. Buyer agrees promptly to
notify Sellers, Guarantors and Mezzanine Loan Subsidiary after any such set-off and application
made by Buyer; provided, that the failure to give such notice shall not affect the validity
of such set-off and application.
24. Binding Effect; Governing Law; Jurisdiction
a. This Agreement shall be binding and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. Each Seller acknowledges
that the obligations of Buyer hereunder or otherwise are not the subject of any
guaranty by, or recourse to, any direct or indirect parent or other Affiliate of
Buyer. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.
b. EACH OF EACH SELLER, EACH GUARANTOR AND MEZZANINE LOAN SUBSIDIARY HEREBY WAIVES
TRIAL BY JURY. EACH OF EACH SELLER, EACH GUARANTOR AND MEZZANINE LOAN SUBSIDIARY
HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY COURT OF THE STATE
OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS IN ANY ACTION OR
PROCEEDING. EACH OF EACH SELLER, EACH GUARANTOR AND MEZZANINE LOAN SUBSIDIARY
HEREBY SUBMITS TO, AND WAIVES ANY OBJECTION THEY MAY HAVE TO, EXCLUSIVE PERSONAL
JURISDICTION AND VENUE IN THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY DISPUTES
ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS.
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25. No Waivers, Etc.
No express or implied waiver of any Event of Default by either party shall constitute a waiver
of any other Event of Default and no exercise of any remedy hereunder by any party shall constitute
a waiver of its right to exercise any other remedy hereunder. No modification or waiver of any
provision of this Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the parties hereto. Without
limitation on any of the foregoing, the failure to give a notice pursuant to Section 6(a), 16(a) or
otherwise, will not constitute a waiver of any right to do so at a later date.
26. Intent.
a. The parties recognize that each Transaction is a repurchase agreement
as that term is defined in Section 101 of Title 11 of the United States Code, as
amended (except insofar as the type of Purchased Assets subject to such Transaction
or the term of such Transaction would render such definition inapplicable), and a
securities contract as that term is defined in Section 741 of Title 11 of
the United States Code, as amended (except insofar as the type of assets subject to
such Transaction would render such definition inapplicable).
b. It is understood that either partys right to liquidate Purchased Assets
delivered to it in connection with Transactions hereunder or to exercise any other
remedies pursuant to Section 16 hereof is a contractual right to liquidate such
Transaction as described in Sections 555 and 559 of Title 11 of the United States
Code, as amended.
c. The parties agree and acknowledge that if a party hereto is an insured
depository institution, as such term is defined in the Federal Deposit
Insurance Act, as amended (FDIA), then each Transaction hereunder is a
qualified financial contract, as that term is defined in FDIA and any
rules, orders or policy statements thereunder (except insofar as the type of assets
subject to such Transaction would render such definition inapplicable).
d. It is understood that this Agreement constitutes a netting contract as
defined in and subject to Title IV of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) and each payment entitlement and payment
obligation under any Transaction hereunder shall constitute a covered
contractual payment entitlement or covered contractual payment
obligation, respectively, as defined in and subject to FDICIA (except insofar
as one or both of the parties is not a financial institution as that term
is defined in FDICIA).
e. This Agreement is intended to be a repurchase agreement and a securities
contract, within the meaning of Section 555 and Section 559 under the Bankruptcy
Code.
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27. Disclosure Relating to Certain Federal Protections
The parties acknowledge that they have been advised that:
a. in the case of Transactions in which one of the parties is a broker or dealer
registered with the SEC under Section 15 of the 1934 Act, the Securities Investor
Protection Corporation has taken the position that the provisions of the SIPA do not
protect the other party with respect to any Transaction hereunder;
b. in the case of Transactions in which one of the parties is a government
securities broker or a government securities dealer registered with the SEC under
Section 15C of the 1934 Act, SIPA will not provide protection to the other party
with respect to any Transaction hereunder; and
c. in the case of Transactions in which one of the parties is a financial
institution, funds held by the financial institution pursuant to a Transaction
hereunder are not a deposit and therefore are not insured by the FDIC or the
National Credit Union Share Insurance Fund, as applicable.
28. Power of Attorney
Each Seller hereby authorizes Buyer to file such financing statement or statements relating to
the Repurchase Assets without Sellers signature thereon as Buyer, at its option, may deem
appropriate. Each Seller hereby appoints Buyer as Sellers agent and attorney in fact to execute
any such financing statement or statements in Sellers name and to perform all other acts which
Buyer deems appropriate to perfect and continue its ownership interest in and/or the security
interest granted hereby, if applicable, and to protect, preserve and realize upon the Repurchase
Assets, including, but not limited to, the right to endorse notes, complete blanks in documents,
transfer servicing, and sign assignments on behalf of Seller as its agent and attorney in fact.
This agency and power of attorney is coupled with an interest and is irrevocable without Buyers
consent. Notwithstanding the foregoing, the power of attorney hereby granted may be exercised only
during the occurrence and continuance of any Event of Default hereunder. Sellers shall pay the
filing costs for any financing statement or statements prepared pursuant to this Section 28.
29. Buyer May Act Through Affiliates
Buyer may, from time to time, designate one or more affiliates for the purpose of performing
any action hereunder.
30. Indemnification; Obligations; Recourse
a. Each of each Seller, each Guarantor and Mezzanine Loan Subsidiary agrees to hold
Buyer and each of its respective Affiliates and their officers, directors,
employees, agents and advisors (each, an Indemnified Party) harmless from
and indemnify each Indemnified Party (and will reimburse each Indemnified Party as
the same is incurred) against all liabilities, losses, damages, judgments, costs and
expenses (including, without limitation, reasonable fees and expenses of counsel)
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of any kind which may be imposed on, incurred by, or asserted against any
Indemnified Party relating to or arising out of this Agreement, any Transaction
Request, Purchase Confirmation, any Program Agreement or any transaction
contemplated hereby or thereby resulting from anything other than the Indemnified
Partys gross negligence or willful misconduct. Each Seller, each Guarantor and
Mezzanine Loan Subsidiary also agree to reimburse each Indemnified Party for all
reasonable expenses in connection with the enforcement of this Agreement and the
exercise of any right or remedy provided for herein, any Transaction Request,
Purchase Confirmation and any Program Agreement, including, without limitation, the
reasonable fees and disbursements of counsel. Sellers, Guarantors and Mezzanine
Loan Subsidiarys agreements in this Section 30 shall survive the payment in full of
the Repurchase Price and the expiration or termination of this Agreement. Each of
each Seller, each Guarantor and Mezzanine Loan Subsidiary hereby acknowledges that
its obligations hereunder are recourse obligations of Seller, Guarantors and
Mezzanine Loan Subsidiary and are not limited to recoveries each Indemnified Party
may have with respect to the Purchased Assets. Each Seller, each Guarantor and
Mezzanine Loan Subsidiary also agrees not to assert any claim against Buyer or any
of its Affiliates, or any of their respective officers, directors, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to the
facility established hereunder, the actual or proposed use of the proceeds of the
Transactions, this Agreement or any of the transactions contemplated thereby. THE
FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS EXPRESSLY APPLIES, WITHOUT
LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF
THE INDEMNIFIED PARTIES.
b. Without limiting the provisions of Section 30(a) hereof, if Sellers fail to pay
when due any costs, expenses or other amounts payable by it under this Agreement,
including, without limitation, fees and expenses of counsel and indemnities, such
amount may be paid on behalf of Sellers by Buyer, in its sole discretion.
c. The obligations of the Sellers from time to time to pay the Repurchase Price, the
Price Differential, and all other amounts due and Obligations owing under this
Repurchase Agreement shall be full recourse obligations of the Sellers.
31. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall be deemed to
be an original, and all such counterparts shall together constitute one and the same instrument.
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32. Confidentiality
This Agreement and its terms, provisions, supplements and amendments, and notices hereunder,
are proprietary to Buyer and Agent and shall be held by Sellers, Guarantors and Mezzanine Loan
Subsidiary in strict confidence and shall not be disclosed to any third party without the written
consent of Buyer except for (i) disclosure to Sellers, Guarantors and Mezzanine Loan Subsidiarys
direct and indirect Affiliates and Subsidiaries, attorneys or accountants, but only to the extent
such disclosure is necessary and such parties agree to hold all information in strict confidence,
or (ii) disclosure required by law, rule, regulation or order of a court or other regulatory body.
Notwithstanding the foregoing or anything to the contrary contained herein or in any other Program
Agreement, the parties hereto may disclose to any and all Persons, without limitation of any kind,
the federal, state and local tax treatment of the Transactions, any fact relevant to understanding
the federal, state and local tax treatment of the Transactions, and all materials of any kind
(including opinions or other tax analyses) relating to such federal, state and local tax treatment
and that may be relevant to understanding such tax treatment; provided that Sellers may not
disclose the name of or identifying information with respect to Buyer or Agent or any pricing terms
(including, without limitation, the Pricing Rate, Exit Fee, Purchase Price Percentage and Purchase
Price) or other nonpublic business or financial information (including any sublimits and financial
covenants) that is unrelated to the federal, state and local tax treatment of the Transactions and
is not relevant to understanding the federal, state and local tax treatment of the Transactions,
without the prior written consent of the Buyer.
33. Recording of Communications
Buyer, Sellers, Guarantors and Mezzanine Loan Subsidiary shall have the right (but not the
obligation) from time to time to make or cause to be made tape recordings of communications between
its employees and those of the other party with respect to Transactions. Buyer, Sellers,
Guarantors and Mezzanine Loan Subsidiary consent to the admissibility of such tape recordings in
any court, arbitration, or other proceedings. The parties agree that a duly authenticated
transcript of such a tape recording shall be deemed to be a writing conclusively evidencing the
parties agreement.
34. Exit Fee
In the event that a Purchased Asset (a) is repurchased before the Termination Date and is not
directly placed in a CDO Transaction or placed into another investment banking transaction provided
by and acceptable to Buyer or an Affiliate of Buyer or (b) is not repurchased before the
Termination Date, the Sellers shall pay to the Buyer the applicable Exit Fee on such Repurchase
Date to the account set forth in Section 9; provided, that, no such Exit Fee shall be due
(x) with respect to a Purchased Asset which is repurchased before the Termination Date, if such
Purchased Asset is placed in (i) a CDO transaction for which Credit Suisse First Boston or an
Affiliate thereof acts as co-lead manager/underwriter or (ii) a CDO transaction related to Arbor
Realty Mortgage Securities Series 2006-1 or (y) with respect to a Purchased Asset not repurchased
before the Termination Date, if at any time during the Term, any Seller or an Affiliate entered
into a CDO transaction for which Credit Suisse First Boston or an Affiliate thereof acted as
co-lead manager/underwriter.
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35. Administration Fee
The Sellers shall pay the Administration Fee to the Buyer in consideration of its
administration of the facility pursuant to the terms of the Fee Letter.
36. Periodic Due Diligence Review
Each Seller acknowledges that Buyer has the right to perform continuing due diligence reviews
with respect to the Sellers and the Purchased Assets, for purposes of verifying compliance with the
representations, warranties and specifications and updating Market Value determinations, made
hereunder, or otherwise, and each Seller agrees that upon reasonable (but no less than five (5)
Business Days) prior notice unless an Event of Default shall have occurred, in which case no notice
is required, to Sellers, Buyer or its authorized representatives will be permitted during normal
business hours to examine, inspect, and make copies and extracts of, the Asset Files and any and
all documents, records, agreements, instruments or information relating to such Purchased Assets in
the possession or under the control of Sellers, Guarantors, Mezzanine Loan Subsidiary and/or the
Custodian. Sellers also shall make available to Buyer a knowledgeable financial or accounting
officer for the purpose of answering questions respecting the Asset Files and the Purchased Assets.
Without limiting the generality of the foregoing, each Seller acknowledges that Buyer may purchase
Purchased Assets from Sellers based solely upon the information provided by Sellers to Buyer in the
Purchased Asset Schedule and the representations, warranties and covenants contained herein, and
that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence
review on some or all of the Purchased Assets purchased in a Transaction, including, without
limitation, ordering brokers price opinions, new credit reports and new appraisals on the related
Mortgaged Properties and otherwise re-generating the information used to originate such Purchased
Asset. Buyer may underwrite such Purchased Assets itself or engage a mutually agreed upon third
party underwriter to perform such underwriting. Each Seller agrees to cooperate with Buyer and any
third party underwriter in connection with such underwriting, including, but not limited to,
providing Buyer and any third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Purchased Assets in the possession, or
under the control, of Sellers. Each Seller further agrees that Sellers shall pay all out-of-pocket
costs and expenses incurred by Buyer in connection with Buyers activities pursuant to this Section
36 (Due Diligence Costs). In addition to the Due Diligence Costs set forth herein, the
Sellers shall also be responsible for the fees related to the Backup Servicer, as set forth in
Section 1.6 of the Backup Servicing Agreement, which shall not be subject to the Due Diligence Cap.
37. Reserved
38. Authorizations
Any of the persons whose signatures and titles appear on Schedule 2 are authorized, acting
singly, to act for Sellers or Buyer, as the case may be, under this Agreement.
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39. Documents Mutually Drafted
The Sellers, Guarantors, Mezzanine Loan Subsidiary and the Buyer agree that this Agreement
each other Program Agreement prepared in connection with the Transactions set forth herein have
been mutually drafted and negotiated by each party, and consequently such documents shall not be
construed against either party as the drafter thereof.
40. General Interpretive Principles
For purposes of this Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
a. the terms defined in this Agreement have the meanings assigned to them in this
Agreement and include the plural as well as the singular, and the use of any gender
herein shall be deemed to include the other gender;
b. accounting terms not otherwise defined herein have the meanings assigned to them
in accordance with generally accepted accounting principles;
c. references herein to Articles, Sections, Subsections, Paragraphs, and
other subdivisions without reference to a document are to designated Articles,
Sections, Subsections, Paragraphs and other subdivisions of this Agreement;
d. a reference to a Subsection without further reference to a Section is a reference
to such Subsection as contained in the same Section in which the reference appears,
and this rule shall also apply to Paragraphs and other subdivisions;
e. the words herein, hereof, hereunder and other words of similar import refer
to this Agreement as a whole and not to any particular provision;
f. the term include or including shall mean without limitation by reason of
enumeration;
g. all times specified herein or in any other Program Agreement (unless expressly
specified otherwise) are local times in New York, New York unless otherwise stated;
and
h. all references herein or in any Program Agreement to good faith means good
faith as defined in Section 1-201(19) of the UCC as in effect in the State of New
York.
[Signature Page Follows]
- 68 -
IN WITNESS WHEREOF, Sellers, Guarantors, Mezzanine Loan Subsidiary and the Buyer have caused
their names to be signed hereto by their respective officers thereunto duly authorized as of the
date first above written.
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COLUMN FINANCIAL, INC., as Buyer
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By: |
/s/ Lawrence Goland
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Name: |
Lawrence Goland |
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Title: |
Vice President |
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ARBOR REALTY SR, INC., as Seller
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By: |
John Natalone
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Name: |
John Natalone |
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Title: |
SVP, Treasurer |
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ARBOR TRS HOLDING COMPANY INC., as Seller
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By: |
John Natalone
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Name: |
John Natalone |
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Title: |
SVP, Treasurer |
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ARBOR REALTY LIMITED PARTNERSHIP, as Guarantor
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By: |
John Natalone
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Name: |
John Natalone |
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Title: |
SVP, Treasurer |
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ARBOR REALTY TRUST INC., as Guarantor
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By: |
John Natalone
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Name: |
John Natalone |
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Title: |
SVP, Treasurer |
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ARBOR REALTY MEZZANINE LLC, as Mezzanine
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Loan Subsidiary
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By: |
John Natalone
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Name: |
John Natalone |
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Title: |
SVP, Treasurer |
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EX-31.1
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Ivan Kaufman, certify that:
1. |
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I have reviewed this quarterly report on Form 10-Q of Arbor Realty Trust, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a15(f) and 15d15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting.
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Date: November 8, 2006 |
By: |
/s/ Ivan Kaufman
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Name: |
Ivan Kaufman |
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Title: |
Chief Executive Officer |
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47
EX-31.2
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Paul Elenio, certify that:
1. |
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I have reviewed this quarterly report on Form 10-Q of Arbor Realty Trust, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a15(f) and 15d15(f))
for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and
5. |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of registrants board of directors (or persons performing the equivalent
functions): |
a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal control over financial
reporting.
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Date: November 8, 2006 |
By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
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48
EX-32.1
EXHIBIT 32.1
CERTIFICATION OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Arbor Realty Trust, Inc. (the
Company) for the quarterly period ended September 30, 2006 as filed with the Securities and
Exchange Commission on the date hereof (the Report), Ivan Kaufman, as Chief Executive Officer of
the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
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By: |
/s/ Ivan Kaufman
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Name: |
Ivan Kaufman |
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Title: |
Chief Executive Officer |
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Date:
November 8, 2006
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act
of 2002 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
49
EX-32.2
EXHIBIT 32.2
CERTIFICATION OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Arbor Realty Trust, Inc. (the
Company) for the quarterly period ended September 30, 2006 as filed with the Securities and
Exchange Commission on the date hereof (the Report), Paul Elenio, as Chief Financial Officer of
the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
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By: |
/s/ Paul Elenio
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Name: |
Paul Elenio |
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Title: |
Chief Financial Officer |
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Date:
November 8, 2006
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act
of 2002 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
50