ARBOR REALTY TRUST INC.
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 |
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For the quarterly period ended June 30, 2005 |
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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 |
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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
incorporation) |
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(I.R.S. Employer
Identification No.) |
|
333 Earle Ovington Boulevard, Suite 900
Uniondale, NY
(Address of principal executive offices) |
|
11553
(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 an accelerated
filer (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:
17,041,823 outstanding as of August 8, 2005.
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, 2004. 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, 2004.
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
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Item 1. |
Financial Statements |
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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June 30, | |
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December 31, | |
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2005 | |
|
2004 | |
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| |
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| |
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(Unaudited) | |
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ASSETS: |
Cash
|
|
$ |
103,107,951 |
|
|
$ |
6,401,701 |
|
Restricted cash
|
|
|
73,836,140 |
|
|
|
|
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Loans and investments, net
|
|
|
939,126,806 |
|
|
|
831,783,364 |
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Related party loans, net
|
|
|
7,749,538 |
|
|
|
7,749,538 |
|
Available-for-sale securities, at fair value
|
|
|
37,983,075 |
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|
|
46,582,592 |
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Investment in equity affiliates
|
|
|
17,908,670 |
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|
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5,254,733 |
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Other assets
|
|
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26,160,427 |
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|
|
14,523,249 |
|
|
|
|
|
|
|
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Total Assets
|
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$ |
1,205,872,607 |
|
|
$ |
912,295,177 |
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LIABILITIES AND STOCKHOLDERS EQUITY: |
Repurchase agreements
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|
$ |
300,770,741 |
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$ |
409,109,372 |
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Collateralized debt obligations
|
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303,319,000 |
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Notes payable
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194,911,045 |
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165,771,447 |
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Notes payable related party
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30,000,000 |
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Due to related party
|
|
|
6,954,152 |
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|
|
1,484,485 |
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Due to borrowers
|
|
|
2,578,819 |
|
|
|
8,587,070 |
|
Other liabilities
|
|
|
20,162,326 |
|
|
|
4,339,899 |
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|
|
|
|
|
|
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Total liabilities
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858,696,083 |
|
|
|
589,292,273 |
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|
|
|
|
|
|
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Minority interest
|
|
|
63,467,340 |
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|
|
60,249,731 |
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Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: 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; 16,879,241 and 16,467,218 shares issued and
outstanding at June 30, 2005 and December 31, 2004,
respectively
|
|
|
168,792 |
|
|
|
164,672 |
|
Additional paid-in capital
|
|
|
262,272,544 |
|
|
|
254,427,982 |
|
Retained earnings
|
|
|
24,418,388 |
|
|
|
8,813,138 |
|
Deferred compensation
|
|
|
(883,265 |
) |
|
|
(160,780 |
) |
Accumulated other comprehensive loss
|
|
|
(2,305,036 |
) |
|
|
(529,600 |
) |
|
|
|
|
|
|
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Total stockholders equity
|
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|
283,709,184 |
|
|
|
262,753,173 |
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Total liabilities and stockholders equity
|
|
$ |
1,205,872,607 |
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|
$ |
912,295,177 |
|
|
|
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See notes to consolidated financial statements.
2
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended June 30, 2005 and
2004
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|
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Three Months Ended June 30, | |
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Six Months Ended June 30, | |
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| |
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2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
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| |
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| |
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| |
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| |
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(Unaudited) | |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest income
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$ |
39,295,309 |
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$ |
11,939,350 |
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|
$ |
62,416,467 |
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$ |
20,102,741 |
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Other income
|
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|
46 |
|
|
|
5,427 |
|
|
|
387,844 |
|
|
|
26,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
39,295,355 |
|
|
|
11,944,777 |
|
|
|
62,804,311 |
|
|
|
20,129,272 |
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|
|
|
|
|
|
|
|
|
|
|
|
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Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense
|
|
|
9,690,559 |
|
|
|
3,310,544 |
|
|
|
18,016,712 |
|
|
|
5,934,437 |
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|
Employee compensation and benefits
|
|
|
956,687 |
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|
|
617,137 |
|
|
|
2,110,896 |
|
|
|
1,230,443 |
|
|
Stock based compensation
|
|
|
372,828 |
|
|
|
92,806 |
|
|
|
464,855 |
|
|
|
207,007 |
|
|
Selling and administrative
|
|
|
927,895 |
|
|
|
366,843 |
|
|
|
1,773,774 |
|
|
|
611,154 |
|
|
Management fee related party
|
|
|
7,360,947 |
|
|
|
540,939 |
|
|
|
8,991,265 |
|
|
|
834,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
19,308,916 |
|
|
|
4,928,269 |
|
|
|
31,357,502 |
|
|
|
8,817,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and income from equity affiliates
|
|
|
19,986,439 |
|
|
|
7,016,508 |
|
|
|
31,446,809 |
|
|
|
11,312,174 |
|
|
Income from equity affiliates
|
|
|
8,006,443 |
|
|
|
|
|
|
|
8,453,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
27,992,882 |
|
|
|
7,016,508 |
|
|
|
39,900,249 |
|
|
|
11,312,174 |
|
|
Income allocated to minority interest
|
|
|
5,126,510 |
|
|
|
1,236,560 |
|
|
|
7,328,236 |
|
|
|
2,427,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
22,866,372 |
|
|
$ |
5,779,948 |
|
|
$ |
32,572,013 |
|
|
$ |
8,884,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$ |
1.36 |
|
|
$ |
0.39 |
|
|
$ |
1.95 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$ |
1.36 |
|
|
$ |
0.38 |
|
|
$ |
1.94 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$ |
0.55 |
|
|
$ |
0.35 |
|
|
$ |
1.02 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,794,922 |
|
|
|
14,764,377 |
|
|
|
16,715,639 |
|
|
|
11,497,612 |
|
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|
|
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|
|
|
|
|
|
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|
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Diluted
|
|
|
20,587,501 |
|
|
|
18,432,278 |
|
|
|
20,528,073 |
|
|
|
14,904,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
3
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Six Months Ended June 30, 2005
(Unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Preferred | |
|
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|
Common | |
|
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|
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Accumulated | |
|
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|
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|
Preferred | |
|
Stock | |
|
Common | |
|
Stock | |
|
Additional | |
|
|
|
|
|
Other | |
|
|
|
|
Comprehensive | |
|
Stock | |
|
Par | |
|
Stock | |
|
Par | |
|
Paid-In | |
|
Retained | |
|
Deferred | |
|
Comprehensive | |
|
|
|
|
Income | |
|
Shares | |
|
Value | |
|
Shares | |
|
Value | |
|
Capital | |
|
Earnings | |
|
Compensation | |
|
Loss | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance-January 1, 2005
|
|
|
|
|
|
|
3,776,069 |
|
|
$ |
37,761 |
|
|
|
16,467,218 |
|
|
$ |
164,672 |
|
|
$ |
254,427,982 |
|
|
$ |
8,813,138 |
|
|
$ |
(160,780 |
) |
|
$ |
(529,600 |
) |
|
$ |
262,753,173 |
|
Issuance of common stock, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,340 |
|
|
|
843 |
|
|
|
2,209,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,210,449 |
|
Issuance of common stock from warrant exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,683 |
|
|
|
2,827 |
|
|
|
4,189,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,191,855 |
|
Deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
450 |
|
|
|
1,186,890 |
|
|
|
|
|
|
|
(1,187,340 |
) |
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464,855 |
|
|
|
|
|
|
|
464,855 |
|
Distributionscommon stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,966,763 |
) |
|
|
|
|
|
|
|
|
|
|
(16,966,763 |
) |
Adjustment to minority interest from increased ownership in ARLP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,038 |
|
Net income
|
|
$ |
32,572,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,572,013 |
|
|
|
|
|
|
|
|
|
|
|
32,572,013 |
|
Net unrealized loss on securities available for sale
|
|
|
(326,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(326,884 |
) |
|
|
(326,884 |
) |
Unrealized loss on derivative financial instruments
|
|
|
(1,448,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,448,552 |
) |
|
|
(1,448,552 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-June 30, 2005
|
|
$ |
30,796,577 |
|
|
|
3,776,069 |
|
|
$ |
37,761 |
|
|
|
16,879,241 |
|
|
$ |
168,792 |
|
|
$ |
262,272,544 |
|
|
$ |
24,418,388 |
|
|
$ |
(883,265 |
) |
|
$ |
(2,305,036 |
) |
|
$ |
283,709,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
32,572,013 |
|
|
$ |
8,884,275 |
|
Adjustments to reconcile net income to cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
464,855 |
|
|
|
207,007 |
|
|
Minority interest
|
|
|
7,328,236 |
|
|
|
2,427,899 |
|
|
Amortization and accretion of interest
|
|
|
612,962 |
|
|
|
(453,172 |
) |
|
Non-cash incentive compensation to manager
|
|
|
7,756,721 |
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Others assets
|
|
|
(829,644 |
) |
|
|
(2,051,784 |
) |
|
Other liabilities
|
|
|
6,617,152 |
|
|
|
(630,634 |
) |
|
Deferred origination fees
|
|
|
873,068 |
|
|
|
759,773 |
|
|
Due to related party
|
|
|
5,469,667 |
|
|
|
95,018 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
60,865,030 |
|
|
|
9,238,382 |
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Loans and investments originated and purchased, net
|
|
|
(401,556,063 |
) |
|
|
(407,344,058 |
) |
|
Payoffs and paydowns of loans and investments
|
|
|
293,582,529 |
|
|
|
63,935,648 |
|
|
Due to borrowers
|
|
|
(6,008,251 |
) |
|
|
10,854,331 |
|
|
Securities available for sale
|
|
|
|
|
|
|
(57,228,552 |
) |
|
Prepayments on securities available for sale
|
|
|
7,963,187 |
|
|
|
1,658,303 |
|
|
Change in restricted cash
|
|
|
(73,836,140 |
) |
|
|
|
|
|
Contributions to equity affiliates
|
|
|
(16,253,938 |
) |
|
|
(7,521,875 |
) |
|
Distributions from equity affiliates
|
|
|
3,600,000 |
|
|
|
3,000,000 |
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(192,508,676 |
) |
|
|
(392,646,203 |
) |
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable and repurchase agreements
|
|
|
454,100,931 |
|
|
|
345,270,649 |
|
|
Payoffs and paydowns of notes payable and repurchase agreements
|
|
|
(503,299,964 |
) |
|
|
(92,085,427 |
) |
|
Proceeds from issuance of collateralized debt obligation
|
|
|
305,319,000 |
|
|
|
|
|
|
Payoffs and paydowns of collateralized debt obligation
|
|
|
(2,000,000 |
) |
|
|
|
|
|
Issuance of common stock
|
|
|
6,402,304 |
|
|
|
145,484,000 |
|
|
Distributions paid to minority interest
|
|
|
(3,851,590 |
) |
|
|
(1,195,756 |
) |
|
Offering expenses paid
|
|
|
|
|
|
|
(9,722,076 |
) |
|
Distributions paid on common stock
|
|
|
(16,966,763 |
) |
|
|
(3,115,836 |
) |
|
Payment of deferred financing costs
|
|
|
(11,354,022 |
) |
|
|
(1,176,613 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
228,349,896 |
|
|
|
383,458,941 |
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
96,706,250 |
|
|
|
51,120 |
|
|
Cash at beginning of period
|
|
|
6,401,701 |
|
|
|
6,115,525 |
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$ |
103,107,951 |
|
|
$ |
6,166,645 |
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash used to pay interest
|
|
$ |
16,308,956 |
|
|
$ |
5,679,753 |
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing and investing
activities:
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared but not paid
|
|
$ |
|
|
|
$ |
5,415,002 |
|
|
|
|
|
|
|
|
|
Distribution declared on operating partnership units
|
|
$ |
|
|
|
$ |
1,101,353 |
|
|
|
|
|
|
|
|
|
Accrued offering expenses
|
|
$ |
|
|
|
$ |
1,573,783 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(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 period 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 6,750,000 shares of its common stock in an
initial public offering on April 13, 2004 for net proceeds
of approximately $125.4 million. The Company 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. In October
2004, ARLP received proceeds of approximately $9.4 million
from the exercise of warrants for a total of 629,345 operating
partnership units. In the first six months of 2005,
0.3 million common stock warrants were exercised, which
resulted in proceeds of $4.2 million. As of June 30,
2005 the Company had 16,879,241 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 may be 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. As the taxable
REIT subsidiaries of the Company have had minimal activity since
their inception, the Company has determined that no provision
for income taxes is necessary at this time.
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, 2004. 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 six months
ended June 30, 2005 are not necessarily indicative of
results that may be expected for the entire year ending
December 31, 2005.
6
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2 |
Summary of Significant Accounting Policies |
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 consolidated interim financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from
those estimates.
Certain prior year amounts have been reclassified to conform to
current period presentation.
Restricted cash of $73.8 million is on deposit with the
trustee for the Collateralized Debt Obligation (CDO)
see Note 6, primarily representing the proceeds of loan
repayments which will be used to purchase replacement loans as
collateral for the CDO and interest payments received from loans
in the CDO which are remitted to the Company quarterly in the
month following the quarter.
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 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 March 31, 2005 and
June 30, 2005, the Company recorded $1.2 million and
$17.2 million, respectively, of interest on such loans and
investments. These amounts represent interest collected in
accordance with the contractual agreement with the borrower.
|
|
|
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 (SFAS 133), as amended
by Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities (SFAS 138).
SFAS 133, as amended by SFAS 138 requires an entity to
recognize all derivatives as either assets or liabilities in the
consolidated
7
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
balance sheets and to measure those instruments at fair value.
Additionally, the fair value adjustments will affect either
shareholders equity in other comprehensive income 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 its 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.
In connection with the CDO described in Note 6
Notes Payable and Repurchase Agreements, the
Company entered into two interest rate swap agreements to hedge
its 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 CDO are yielding interest based on a
one-month LIBOR index. These swaps were executed on
December 21, 2004 with a notional amount of
$469 million and expire in January 2012. The market value
of these interest rate swaps is dependent upon existing market
interest rates and swap spreads, which change over time. These
swaps do not qualify as a hedge for accounting purposes in
accordance with SFAS 133, as amended by SFAS 138, and
therefore changes in fair value are reflected in net income. At
June 30, 2005 the estimated negative value of these swaps
was approximately $73,000 and was recorded as interest expense
and other liabilities.
The Company issued variable rate junior subordinate notes as
described in Note 6 Notes Payable and Repurchase
Agreements and has entered into two interest rate swap
agreements to hedge its exposure to the risk of increases in the
three-month LIBOR interest rate. These swaps were executed on
June 16, 2005 and June 22, 2005 each with notional
amounts of $25 million, expiring in April 2010 and March
2010, respectively. The market value of these interest rate
swaps is dependent upon existing market interest rates and swap
spreads, which change over time. These swaps are cash flow
hedges that qualify for the shortcut method in determining 100%
efficiency in accordance with SFAS 133, as amended by
SFAS 138, and as such are marked to market through other
comprehensive income. At June 30, 2005 the estimated
negative value of these swaps, included in other comprehensive
income and other liabilities on the balance sheet, was
approximately $0.2 million and represents the amount that
would be paid if the agreements were terminated, based on
current market rates on that date. The Company expects to
reclassify this entire amount to earnings over the next twelve
months assuming interest rates at June 30, 2005 are held
constant.
The Company has entered into three interest rate swap agreements
to hedge its exposure on forecasted outstanding LIBOR based
debt. The swaps were executed on May 2, 2005, May 27,
2005 and June 24, 2005 with notional amounts of
$9.9 million, $37.6 million and $23.5 million,
respectively, and expire in April 2015, March 2015, and August
2010, respectively. The market value of these interest rate
swaps is dependent upon existing market interest rates and swap
spreads, which change over time. These swaps are highly
effective and qualify as cash flow hedges for accounting
purposes in accordance with SFAS 133, as amended by
SFAS 138, and marked to market through other comprehensive
income. Unrealized net gains or losses relating to hedge
infectiveness was immaterial to the results of operation for the
three and six month periods ending June 30, 2005. At
June 30, 2005 the estimated negative value of these swaps,
included in other comprehensive income and other liabilities on
the balance sheet, was
8
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximately $1.3 million and represents the amount that
would be paid if the agreements were terminated, based on
current market rates on that date. The Company expects to
reclassify approximately $0.7 million of this amount to
earnings over the next twelve months assuming interest rates at
June 30, 2005 are held constant.
|
|
|
Variable Interest Entities |
Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46-R, 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
VIEs. This evaluation resulted in the Company determining
that its 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 (4) 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 June 30, 2005, the Company has identified
eight loans and investments which were made to entities
determined to be VIEs. The following is a summary of the
identified VIEs as of June 30, 2005.
|
|
|
|
|
|
|
|
|
|
|
Type |
|
Carrying Amount | |
|
Property |
|
Location | |
|
|
| |
|
|
|
| |
Loan and investment
|
|
$ |
47,710,938 |
|
|
Office |
|
|
New York |
|
Loan
|
|
|
41,033,333 |
|
|
Retail |
|
|
Various |
|
Loan
|
|
|
24,432,650 |
|
|
Condo |
|
|
New York |
|
Loan
|
|
|
7,749,538 |
|
|
Multifamily |
|
|
Indiana |
|
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 |
|
|
|
(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. |
For the eight 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. No other investments were
made to VIEs. As such, the Company has continued to
account for these loans and investments as a loan or joint
venture, as appropriate.
9
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3 |
Loans and Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
|
|
|
|
|
| |
|
|
June 30, | |
|
December 31, | |
|
Loan | |
|
Wtd. Avg. | |
|
|
2005 | |
|
2004 | |
|
Count | |
|
Pay Rate | |
|
|
| |
|
| |
|
| |
|
| |
Bridge loans
|
|
$ |
311,436,311 |
|
|
$ |
274,307,422 |
|
|
|
19 |
|
|
|
7.18 |
% |
Mezzanine loans
|
|
|
608,699,694 |
|
|
|
523,672,333 |
|
|
|
34 |
|
|
|
9.66 |
% |
Preferred equity investments
|
|
|
7,692,334 |
|
|
|
34,791,297 |
|
|
|
3 |
|
|
|
8.54 |
% |
Other
|
|
|
14,912,148 |
|
|
|
1,932,899 |
|
|
|
4 |
|
|
|
6.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
942,677,487 |
|
|
|
834,703,951 |
|
|
|
60 |
|
|
|
8.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
|
(3,550,681 |
) |
|
|
(2,920,587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and investments, net
|
|
$ |
939,126,806 |
|
|
$ |
831,783,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration of Borrower Risk |
The Company is subject to concentration risk in that, as of
June 30, 2005, the unpaid principal balance related to 15
loans with five unrelated borrowers represented approximately
22.9% of total assets. The Company had 61 loans and investments,
including one related party loan, as of June 30, 2005. As
of June 30, 2005, 56%, 11%, 8% and 4% of the outstanding
balance of the Companys loans and investments portfolio
had underlying properties in New York, Florida, California and
New Jersey, respectively.
|
|
Note 4 |
Available-For-Sale Securities |
The following is a summary of the Companys
available-for-sale securities at June 30, 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 $360,020)
|
|
$ |
19,354,077 |
|
|
$ |
19,714,098 |
|
|
$ |
(396,308 |
) |
|
$ |
19,317,790 |
|
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 $143,460)
|
|
|
6,657,486 |
|
|
|
6,800,945 |
|
|
|
(164,264 |
) |
|
|
6,636,681 |
|
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 $280,857)
|
|
|
12,043,659 |
|
|
|
12,324,516 |
|
|
|
(295,912 |
) |
|
|
12,028,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,055,222 |
|
|
$ |
38,839,559 |
|
|
$ |
(856,484 |
) |
|
$ |
37,983,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the Companys
available-for-sale securities at December 31, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $481,073)
|
|
$ |
21,340,233 |
|
|
$ |
21,821,306 |
|
|
$ |
(214,320 |
) |
|
$ |
21,606,986 |
|
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 $208,212)
|
|
|
8,837,206 |
|
|
|
9,045,418 |
|
|
|
(108,793 |
) |
|
|
8,936,625 |
|
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 $404,499)
|
|
|
15,840,969 |
|
|
|
16,245,468 |
|
|
|
(206,487 |
) |
|
|
16,038,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
46,018,408 |
|
|
$ |
47,112,192 |
|
|
$ |
(529,600 |
) |
|
$ |
46,582,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2005, 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. 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.
During the three and six months ended June 30, 2005, the
Company received prepayments of $4.7 million and
$8.0 million on these securities and amortized $162,000 and
$309,000, respectively, 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).
|
|
Note 5 |
Investment in Equity Affiliates |
As of December 31, 2004, the Company had two mezzanine
loans outstanding, totaling $45 million, to 450 Partners
Mezz III LLC, a wholly-owned subsidiary of
450 Westside Partners, LLC and the owner of 100% of the
outstanding membership interests in 450 Partners Mezz II
LLC, who used the proceeds to acquire and renovate an office
building. In addition, as of December 31, 2004, the Company
had a $1.5 million equity interest in an affiliate of the
borrower. The Company also has participating profits interests
in several affiliates of the borrower aggregating approximately
29%. During the quarter ended March 31, 2005, the property
was refinanced with new debt and the Companys loans
totaling $45 million were repaid in full. In accordance
with the refinancing, the Company was repaid its
$1.5 million investment, including approximately $432,000
of a preferred return which was recorded in income from equity
affiliates. In addition, the Company received a structuring fee
of $0.4 million for arranging the financing which was
recorded in other income. The Company participated in
$45 million of new debt in the form of a mezzanine loan
that matures in March 2015 with a fixed rate of 8.17%. In
addition, the Company invested $2.7 million in an affiliate
of the borrower which entitles the Company to a preferred return
of 12.5% in this Limited Liability Corporation.
11
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the first quarter, the Company invested $6.1 million
in a joint venture, which as part of an investor group, used
these proceeds to make a deposit on the potential purchase of a
property in New York City. In April 2005, this joint venture
closed on the purchase of the property and the Company invested
additional capital that, combined with its deposit, represented
a $10 million equity investment, in exchange for a 20%
ownership interest in a Limited Liability Corporation of this
joint venture. It is intended that the Property, with over one
million square feet, 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. The loans are secured by their ownership
interest in the joint venture and mature in April 2008. In July
2005, the Company purchased two mezzanine loans totaling
$77 million from the primary lender. These loans are
secured by the property and mature in April 2008.
In March 2005, the Company invested $820,000 for 100% of the
common shares of Arbor Capital Trust I, an entity formed to
facilitate the issuance of $27.1 million of junior
subordinate notes. Arbor Capital Trust I pays dividends on
both the common shares and preferred securities on a quarterly
basis at a variable rate based on LIBOR.
During the second quarter 2005, the Company invested
$2.3 million for 100% of the common shares of three
affiliate entities of the Company which were formed to
facilitate the issuance of 77.3 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 the junior subordinate notes discussed
above are presented in the notes payable table of Note 6.
The impact of these entities in accordance with FIN46-R
Consolidation of Variable Interest Entities is
discussed in Note 2.
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 centers. The Company accounts for this investment
under the equity method. As of June 30, 2005 and
December 31, 2004, the Company had a mezzanine loan
outstanding to an affiliate entity of the joint venture for
$31.0 million and $32.4 million, respectively. In
addition, the Company had a $10.0 million junior loan
participation interest outstanding to an affiliate entity of the
joint venture as of June 30,2005 and December 31,
2004. The loans require monthly interest payments based on one
month LIBOR and mature 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 of which the Company received
$36.5 million. In accordance with this transaction, the
joint venture members of POM agreed to guarantee
$38 million of the new debt. The guarantee expires at the
earlier of maturity or prepayment of the debt, and would require
performance by the members if not repaid in full. This guarantee
is allocated to the members in accordance with their ownership
percentages. Of the distribution received by the Company,
$17.2 million was recorded as interest income, representing
the portion attributable to the 16.7% carried profits interest,
$2.1 million was recorded as a return of the Companys
equity investment, $8.0 million was recorded as income from
equity affiliates, representing the portion attributable to the
7.5% equity interest, and $9.2 million was recorded as
deferred revenue, representing the Companys portion of the
$38 million guarantee.
|
|
Note 6 |
Notes Payable and Repurchase Agreements |
The Company utilizes repurchase agreements to finance certain of
its loans and investments. Borrowings underlying these
arrangements are secured by certain of the Companys loans
and investments.
12
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table outlines borrowings under the Companys
repurchase agreements as of June 30, 2005 and
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Debt | |
|
Collateral | |
|
Debt | |
|
Collateral | |
|
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Repurchase agreement, Wachovia Bank National Association,
$425 million committed line, expiration December 2006,
interest is variable based on one-month LIBOR; the weighted
average note rate was 5.26% and 4.63%, respectively
|
|
$ |
264,999,088 |
|
|
$ |
401,987,993 |
|
|
$ |
324,388,739 |
|
|
$ |
493,071,885 |
|
Repurchase agreement, financial institution, $100 million
committed line, expiration July 2005, interest is variable based
on one-month LIBOR; the weighted average note rate was 3.46% and
2.36%, respectively
|
|
|
35,771,653 |
|
|
|
37,983,073 |
|
|
|
44,189,436 |
|
|
|
46,582,592 |
|
Repurchase agreement, financial institution, $21 million
committed line, expiration April 2005, interest is variable
based on one-month LIBOR; the weighted average note rate was
3.79% as of December 31, 2004. This facility was terminated
in January 2005
|
|
|
|
|
|
|
|
|
|
|
21,000,000 |
|
|
|
30,000,000 |
|
Repurchase agreement, financial institution, $100 million
committed line, expiration June 2005, interest is variable based
on one-month LIBOR; the weighted average note rate was 5.43% as
of December 31, 2004. This facility was terminated in June
2005
|
|
|
|
|
|
|
|
|
|
|
19,531,197 |
|
|
|
28,430,000 |
|
Repurchase agreement, financial institution, $50 million
committed line, expiration July 2006, interest rate variable
based on one-month LIBOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total repurchase agreements
|
|
$ |
300,770,741 |
|
|
$ |
439,971,066 |
|
|
$ |
409,109,372 |
|
|
$ |
598,084,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2005, the $425 million repurchase agreement was
amended to temporarily increase the committed amount of this
facility from $350 million to $425 million until
November 2005, at which time it will decrease to
$350 million. In addition, the $100 million repurchase
agreement with the same financial institution that the Company
entered into for the purpose of financing securities available
for sale was amended in February 2005, and has an interest rate
of one-month LIBOR plus 0.20%. In July 2005, this facility was
extended for one year. 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.
13
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table outlines borrowings under the Companys
notes payable as of June 30, 2005 and December 31,
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Debt | |
|
Collateral | |
|
Debt | |
|
Collateral | |
|
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Structured transaction facility, financial institution,
$250 million committed line, expiration June 2006, interest
rate variable based on one-month LIBOR; the weighted average
note rate was 4.87% on December 31, 2004. This facility was
terminated in March 2005
|
|
$ |
|
|
|
$ |
|
|
|
$ |
137,199,447 |
|
|
$ |
185,254,895 |
|
Unsecured credit facility, financial institution,
$50 million committed line, expiration December 2005,
interest is variable based on one-month LIBOR; the weighted
average note rate was 10.14% and 9.37%, respectively
|
|
|
50,000,000 |
|
|
|
n/a |
|
|
|
15,000,000 |
|
|
|
n/a |
|
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 9.11% as of June 30, 2005
|
|
|
30,000,000 |
|
|
|
45,079,779 |
|
|
|
|
|
|
|
|
|
Junior loan participation, maturity March 2006, secured by
Companys interest in a second mortgage loan with a
principal balance of $25 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
|
|
|
|
|
|
|
|
|
|
|
4,419,500 |
|
|
|
4,419,500 |
|
Junior loan participation, maturity September 2006, 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
|
|
|
6,452,500 |
|
|
|
6,452,500 |
|
|
|
6,152,500 |
|
|
|
6,152,500 |
|
Junior subordinated notes, maturity 2034, unsecured, face amount
of $104.4 million, interest rate variable based on
three-month LIBOR, the weighted average note rate was 6.74% as
of June 30, 2005
|
|
|
104,398,000 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
14
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
Debt | |
|
Collateral | |
|
Debt | |
|
Collateral | |
|
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
Carrying | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
Senior loan participation, maturity August 2005, secured by
Companys interest in a first mortgage loan with a
principal balance of $25 million, participation interest is
based on 50% of the net spread of the loan, the loan is variable
based on one-month LIBOR. This facility was terminated in
January, 2005
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
Bridge loan warehouse, financial institution, $50 million
committed line, expiration May 2006, interest rate variable
based on Prime or LIBOR, the weighted average note rate was
5.26% as of June 30, 2005
|
|
|
34,060,545 |
|
|
|
40,781,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$ |
224,911,045 |
|
|
$ |
92,313,970 |
|
|
$ |
165,771,447 |
|
|
$ |
198,826,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 31, 2005 the Company entered into a
$50 million secured term credit facility with a shareholder
who beneficially owned approximately 7.1% of the Companys
outstanding common stock as of June 30, 2005. At
June 30, 2005, the outstanding balance under this facility
was $30 million and is reflected in Notes
payable related party on the accompanying balance
sheet.
|
|
|
Collateralized Debt Obligation |
On January 19, 2005, the Company issued to third party
investors four tranches of investment grade collateralized debt
obligations (CDOs) through a newly-formed
wholly-owned subsidiary, Arbor Realty Mortgage Securities
Series 2004-1, Ltd. (the Issuer). The issuer holds
assets, consisting primarily of bridge loans, mezzanine loans
and cash totaling approximately $469 million, which serve
as collateral for the CDOs. The Issuer issued investment
grade rated CDOs 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 was 3.92% at
June 30, 2005. The CDO may be replenished with substitute
collateral for loans that are repaid during the first four years
of the CDO. Thereafter, the outstanding debt balance will be
reduced as loans are repaid. The Company incurred approximately
$7.0 million of issuance costs which will be amortized on a
level yield basis over the average life of the CDO. For
accounting purposes, the Issuer is consolidated in the
Companys financial statements. The four investment grade
tranches are treated as a secured financing, and are
non-recourse to the Company. Proceeds from the CDO are
distributed quarterly with approximately $2.0 million being
paid to investors as a reduction of their capital invested. This
amount is recorded as a reduction of CDO liability. As of
June 30, 2003, the balance in the CDO payable was
approximately $303 million.
Proceeds from the sale of the four investment grade tranches
issued 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.
Each of the credit facilities contain various financial
covenants and restrictions, including minimum net worth and
debt-to-equity ratios. The Company is in compliance with all
financial covenants and restrictions for the periods presented.
15
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
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. On
April 13, 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. On May 6,
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 on May 11, 2004. In
addition, in 2004, the Company issued 1.0 million shares of
common stock and 0.6 million operating partnership units
from the exercise of warrants under the Warrant Agreement. These
transactions resulted in ACMs interest in ARLP being
reduced to 19%.
For the six months ended June 30, 2005, the Company issued
0.4 million shares of common stock, of which
0.3 million shares were issued upon the exercise of
0.3 million warrants. As a result, minority interest was
reduced by $0.3 million to properly reflect ACMs 18%
limited partnership interest in ARLP at June 30, 2005.
|
|
Note 8 |
Commitments and Contingencies |
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 |
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
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.
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. On
May 6, 2004, the underwriters exercised a portion of their
over-allotment option, which resulted in the issuance of 524,200
additional shares on May 11, 2004. The Company received net
proceeds of approximately $9.8 million after deducting the
underwriting discount. On November 2, 2004, ACM elected to
be paid its third quarter incentive management fee in shares of
common stock totaling 22,498. In 2004, the Company issued
973,354 shares of common stock from the exercise of
warrants under the Warrant Agreement and received net proceeds
of $12.9 million. In addition, 2,401 shares of
unvested restricted common stock were forfeited in 2004. After
giving effect to these transactions, the Company had
16,467,218 shares of common stock issued and outstanding.
16
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2005, the Company issued 4,000 shares of
restricted common stock under the stock incentive plan to its
independent directors. One third of the restricted stock granted
to each of these directors were vested as of the date of grant
another one third will vest in January 2006 and the remaining
third will vest in January 2007. Additionally, ACM elected to be
paid its fourth quarter 2004 incentive management fee in shares
of common stock totaling 43,643. In May 2005, ACM elected to be
paid its first quarter 2005 incentive management fee in
40,697 shares of common stock. In addition, the Company
issued 41,000 shares of restricted common stock under the
stock incentive plan to certain employees of the Company and of
ACM, the manager of the Company. One fifth of the restricted
stock granted to each of these employees were vested as of the
date of grant and recognized currently in earnings, the second
one-fifth will vest in May 2006, the third one-fifth will vest
in May 2007, the fourth one-fifth will vest in May 2008, and the
remaining one-fifth will vest in May 2009. During the six months
ended June 30, 2005, the Company issued 282,683 shares
of common stock from the exercise of warrants under the
July 1, 2003 warrant agreement and received net proceeds of
$4.2 million. After giving effect to these transactions,
the Company had 16,879,241 shares issued and outstanding.
In July 2005, the Company issued 77,500 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 May
2006, the third one-fifth will vest in May 2007, the fourth
one-fifth will vest in May 2008, and the remaining one-fifth
will vest in May 2009.
In connection with the private placement of units by the Company
on July 1, 2003, the Company issued warrants to acquire
1,610,000 shares of common stock, as adjusted for dilution,
at $15.00 per share. Concurrently, ACM was issued warrants
to purchase 629,345 operating partnership units. In July
2004, these warrants became eligible for exercise through a cash
payment or by surrendering additional warrants or shares of
common stock in a cashless transaction. For the six
months ended June 30, 2005, 286,944 common stock
warrants were exercised for a total amount of $4.2 million
and 282,683 common shares were issued. As of June 30, 2005,
there were 1,081 common stock warrants outstanding, which
effective July 1, 2005, expired under the Companys
July 1, 2003 warrant agreement.
|
|
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 and warrants to purchase additional
operating partnership units. The dilutive effect of the warrants
is calculated using the treasury stock method.
Additionally, ACM earned an incentive management fee for the
quarter ended March 31, 2005 and June 30, 2005
totaling $1.0 million and $6.7 million, respectively.
Based on the terms of the management agreement, ACM elected to
be paid its incentive management fee for the quarter ended
March 31, 2005 in common shares totaling 40,697. For the
quarter ended June 30, 2005, ACM intends to elect to be
paid its incentive management fee partially in 83,082 of common
shares and partially in cash totaling $4.4 million, payable
in August 2005. These shares are anti-dilutive and have been
excluded from the calculation of diluted EPS.
17
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of the numerator and
denominator of the basic and diluted earnings per share
computations for the three months ended June 30, 2005 and
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
For the Three Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
Basic | |
|
Diluted | |
|
Basic | |
|
Diluted | |
|
|
| |
|
| |
|
| |
|
| |
Net income
|
|
$ |
22,866,372 |
|
|
$ |
22,866,372 |
|
|
$ |
5,779,948 |
|
|
$ |
5,779,948 |
|
Add: Income allocated to minority interest
|
|
|
|
|
|
|
5,126,510 |
|
|
|
|
|
|
|
1,236,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per EPS calculation
|
|
$ |
22,866,372 |
|
|
$ |
27,992,882 |
|
|
$ |
5,779,948 |
|
|
$ |
7,016,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
16,794,922 |
|
|
|
16,794,922 |
|
|
|
14,764,377 |
|
|
|
14,764,377 |
|
Weighted average number of operating partnership units
|
|
|
|
|
|
|
3,776,069 |
|
|
|
|
|
|
|
3,146,724 |
|
Dilutive effect of warrants
|
|
|
|
|
|
|
16,510 |
|
|
|
|
|
|
|
521,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding
|
|
|
16,794,922 |
|
|
|
20,587,501 |
|
|
|
14,764,377 |
|
|
|
18,432,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$ |
1.36 |
|
|
$ |
1.36 |
|
|
$ |
0.39 |
|
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the numerator and
denominator of the basic and diluted earnings per share
computations for the six months ended June 30, 2005 and
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended | |
|
For the Six Months Ended | |
|
|
June 30, 2005 | |
|
June 30, 2004 | |
|
|
| |
|
| |
|
|
Basic | |
|
Diluted | |
|
Basic | |
|
Diluted | |
|
|
| |
|
| |
|
| |
|
| |
Net income
|
|
$ |
32,572,013 |
|
|
$ |
32,572,013 |
|
|
$ |
8,884,275 |
|
|
$ |
8,884,275 |
|
Add: Income allocated to minority interest
|
|
|
|
|
|
|
7,328,236 |
|
|
|
|
|
|
|
2,427,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per EPS calculation
|
|
$ |
32,572,013 |
|
|
$ |
39,900,249 |
|
|
$ |
8,884,275 |
|
|
$ |
11,312,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
16,715,639 |
|
|
|
16,715,639 |
|
|
|
11,497,612 |
|
|
|
11,497,612 |
|
Weighted average number of operating partnership units
|
|
|
|
|
|
|
3,776,069 |
|
|
|
|
|
|
|
3,146,724 |
|
Dilutive effect of warrants
|
|
|
|
|
|
|
36,365 |
|
|
|
|
|
|
|
260,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average common shares outstanding
|
|
|
16,715,639 |
|
|
|
20,528,073 |
|
|
|
11,497,612 |
|
|
|
14,904,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
$ |
1.95 |
|
|
$ |
1.94 |
|
|
$ |
0.77 |
|
|
$ |
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 |
Related Party Transactions |
As of June 30, 2005, 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 2005. In
March 2005, 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.
18
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest income recorded from this loan for the three months
ended June 30, 2005 and 2004, was approximately
$0.1 million and $0.2 million, respectively, and
$0.3 million and $0.4 million for the six months ended
June 30, 2005 and 2004, respectively.
During the quarter ended March 31, 2005, ACM received a
brokerage fee for services rendered in arranging a loan facility
for a borrower. A portion of the loan facility was provided by
us. We were credited $0.4 million of this brokerage fee,
which is included in other income for the quarter ended
March 31, 2005.
On August 3, 2005, the Company declared distributions of
$0.57 per share of common stock, payable with respect to
the three months ended June 30, 2005, to stockholders of
record at the close of business on August 15, 2005. The
Company intends to pay these distributions on August 31,
2005. In addition, for the three months ended June 30,
2005, the Company declared and paid distributions of
$0.55 per share of common stock with respect to the three
months ended March 31, 2005 to stockholders of record at
the close of business on April 30, 2005.
|
|
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 quarter ended June 30, 2005, ACM earned an
incentive compensation installment totaling $6.7 million,
which was included in due to related party. The incentive
compensation fee is calculated as 25% of the amount by which
ARLPs funds from operations exceeds 9.5% return on
invested funds, as described in the management agreement. For
the quarter ended June 30, 2005, ACM intends to elect to be
paid its incentive management fee partially in 83,082 of common
shares with the remainder to be paid in cash totaling
$4.4 million, payable in August 2005. This fee is subject
to recalculation and reconciliation at fiscal year end in
accordance with the management agreement. For the three months
ended June 30, 2005, the Company recorded $0.6 million
of base management fees due to ACM that were included in due to
related parties and paid in August 2005.
|
|
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.
19
|
|
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 herin.
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
which 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 may be 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. Our taxable REIT subsidiaries have had minimal activity
since their inception and we have determined that no provision
for income taxes is necessary at this time.
Changes in Financial Condition
During the quarter ended June 30, 2005, we originated
twelve loans and investments totaling $171.5 million, of
which $151.6 million was funded as of June 30, 2005.
Of the new loans and investments, four were mezzanine loans
totaling $78.6 million, three were bridge loans totaling
$69.3 million, one was a junior participating interests
totaling $8.6 million, one was a preferred equity
investment of $2.0 million, and three were other loans
totaling $13.0 million. We have received repayment in full
of ten loans totaling $86.0 million, partial repayment on
two loans totaling $0.7 million and a return of a
$2.1 million capital balance on one of our equity
investments.
Our loan portfolio balance at June 30, 2005 was
$950.4 million, with a weighted average current interest
pay rate of 8.77% as compared to $842.5 million, with a
weighted average current interest pay rate of 8.87% at
December 31, 2004. At June 30, 2005, advances on financing
facilities totaled $743 million, with a weighted average
funding cost of 5.24% as compared to $530.7 million, with a
weighted average
20
funding cost of 5.05% at December 31, 2004. Additionally,
our investment in equity affiliates portfolio at June 30,
2005 was $17.9 million as compared to $5.3 million at
December 31, 2004.
On May 25, 2005, we issued 41,000 shares of restricted
common stock under the stock incentive plan to certain employees
of the Company and of ACM. In May 2005, ACM elected to be paid
its first quarter 2005 incentive management fee in shares of
common stock totaling 40,679. During the quarter ended
June 30, 2005, we issued 56,422 shares of common stock
from the exercise of warrants and received net proceeds of
$0.8 million.
After giving effect to these transactions, we had
16,879,241 shares issued and outstanding.
In the second quarter, the Company, through newly formed and
wholly-owned subsidiaries of its operating partnership, issued
$77.3 million of junior subordinated notes in three
separate private placements. These securities 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 June 30, 2005,
the outstanding balance of these notes was $77.3 million
with a current note rate of 6.59%.
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 six
months ended June 30, 2005, interest income earned on these
loans and investments represented approximately 56% and 72% of
our total revenues, respectively.
Interest income may also be derived from profits of equity
participation interests. For the three and six months ended
June 30, 2005, interest on these investments represented
approximately than 44% and 27% of our total revenues,
respectively.
We also derive interest income from our investments in mortgage
related securities. For the three and six months ended
June 30, 2005, interest on these investments represented
less than 1% of our total revenues.
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 six months ended June 30,
2005, revenue from other income represented less than 1% of our
total revenues.
Gain on Sale of Loans and Real Estate and Income from Equity
Affiliates
We 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.
We also derive income from equity affiliates relating to joint
ventures that were formed with equity partners to acquire,
develop and/or sell real estate assets. Such investments are
recorded under the equity method. We record our share of net
income from the underlying properties in which we invest through
these joint ventures. For the three and six months ended
June 30, 2005, income from equity affiliates totaled
approximately $8.0 million and $8.5 million,
respectively.
Critical Accounting Policies
Please refer to the section of our Annual Report on
Form 10-K for the year ended December 31, 2004
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 six
months ended June 30, 2005, there were no material changes
to these policies, except for the updates described below.
21
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 March 31, 2005 and
June 30, 2005, the Company recorded $1.2 million and
$17.2 million, respectively, of interest on such loans and
investments. These amounts represent interest collected in
accordance with the contractual agreement with the borrower.
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, 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.
In connection with the CDO, we entered into two interest rate
swap agreements to hedge our exposure to the risk of changes in
the difference between three-month LIBOR and one-month LIBOR
interest rates. These swaps do not qualify as a hedge for
accounting purposes in accordance with SFAS No. 133
and therefore changes in fair value are reflected in net income.
The Company issued junior subordinate notes and has entered into
two interest rate swap agreements to hedge its exposure to the
risk of increases in the three-month LIBOR interest rate. These
swaps qualify as cash flow hedges for accounting purposes in
accordance with SFAS 133, as amended by SFAS 138, and
are marked to market through other comprehensive income.
The Company has entered into three interest rate swap agreements
to hedge its exposure on forecasted outstanding LIBOR based
debt. These swaps qualify as cash flow hedges for accounting
purposes in accordance with SFAS 133, as amended by
SFAS 138, and marked to market through other comprehensive
income.
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.
22
Results of Operations
The following table sets forth our results of operations for the
three months ended June 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, | |
|
Increase/(Decrease) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
39,295,309 |
|
|
$ |
11,939,350 |
|
|
$ |
27,355,959 |
|
|
|
229 |
% |
|
Other income
|
|
|
46 |
|
|
|
5,427 |
|
|
|
(5,381 |
) |
|
|
(99 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
39,295,355 |
|
|
|
11,944,777 |
|
|
|
27,350,578 |
|
|
|
229 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
9,690,559 |
|
|
|
3,310,544 |
|
|
|
6,380,015 |
|
|
|
193 |
% |
|
Employee compensation and benefits
|
|
|
956,687 |
|
|
|
617,137 |
|
|
|
339,550 |
|
|
|
55 |
% |
|
Stock based compensation
|
|
|
372,828 |
|
|
|
92,806 |
|
|
|
280,022 |
|
|
|
302 |
% |
|
Selling and administrative
|
|
|
927,895 |
|
|
|
366,843 |
|
|
|
561,052 |
|
|
|
153 |
% |
|
Management fee related party
|
|
|
7,360,947 |
|
|
|
540,939 |
|
|
|
6,820,008 |
|
|
|
1,261 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
19,308,916 |
|
|
|
4,928,269 |
|
|
|
14,380,647 |
|
|
|
292 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and income from equity affiliates
|
|
|
19,986,439 |
|
|
|
7,016,508 |
|
|
|
12,969,931 |
|
|
|
185 |
% |
Income from equity affiliates
|
|
|
8,006,443 |
|
|
|
|
|
|
|
8,006,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
27,992,882 |
|
|
|
7,016,508 |
|
|
|
20,976,374 |
|
|
|
299 |
% |
Income allocated to minority interest
|
|
|
5,126,510 |
|
|
|
1,236,560 |
|
|
|
3,889,950 |
|
|
|
315 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
22,866,372 |
|
|
$ |
5,779,948 |
|
|
$ |
17,086,424 |
|
|
|
296 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following discussion compares our results of operations for
the three months ended June 30, 2005 to the comparable
period in 2004:
Interest income increased $27.4 million, or 229%, to
$39.3 million for the three months ended June 30, 2005
from $11.9 million for the three months ended June 30,
2004. This increase was largely due to a distribution of
$17.2 million representing a 16.7% carried profits interest
in a $31.0 million mezzanine loan that we have outstanding.
This distribution was a result of excess proceeds from the
refinance of a portfolio of properties securing the loan.
Excluding this transaction, interest income increased
$10.2 million, or 85% over the same periods. This increase
was primarily due to a 47% increase in the average balance of
loans and investments from $585 million to
$861 million due to increased loans and investments
originations, as well as a 29% increase in the average yield on
the assets from 7.8% to 10.0% as a result of increased market
interest rates. Interest income from available for sale
securities decreased $0.2 million, or 48%, to
$0.2 million for the three months ended June 30, 2005
from $0.4 million for the three months ended June 30,
2004. This decrease is due to a decline in the average balances
and yield earned on the investment.
Interest expense increased $6.4 million, or 193%, to
$9.7 million for the three months ended June 30, 2005
from $3.3 million for the three months ended June 30,
2004. This increase was primarily due to a 115% increase in the
average debt financing on our loans and investment portfolio
from $301 million to $646 million due to increased
loan originations and increased financing facilities, as well as
a 38% increase in the average cost of these borrowings from
4.14% to 5.74% as a result of increased market interest rates.
In addition, interest expense on debt financing of our available
for sale securities portfolio increased
23
$0.2 million or 99% to $0.3 million for the three
months ended June 30, 2005, from the corresponding period
in 2004. This increase is due to a 175% increase in the average
cost of debt financing partially offset by a 28% decrease in the
average borrowings.
Employee compensation and benefits expense increased $339,000 or
55% to $957,000 for the three months ended June 30, 2005
from $617,000 for the three months ended June 30, 2004.
This increase was primarily due to the expansion of staffing
needs associated with asset management. These expenses represent
salaries, benefits, and incentive compensation for those
employed by us during the periods.
Stock-based compensation expense increased by $280,000, or 302%,
to $373,000 for the three months ended June 30, 2005 from
$93,000 for the three months ended June 30, 2004. These
expenses represent the cost of restricted stock granted to
certain of our employees, directors and executive officers, and
employees of our manager. The increase was primarily due to the
initial one-fifth vesting of 41,000 shares granted and
recorded as expense for the three months ended June 30,
2005 partially offset by a decrease in the ratable portion of
the unvested restricted stock granted in 2003 for the three
months ended June 30, 2005 as compared to this period in
2004.
Selling and administrative expense increased by $561,000 or
153%, to $928,000 for the three months ended June 30, 2005
from $367,000 for the three months ended June 30, 2004.
This increase is directly attributable to professional fees,
including legal, accounting services, and consulting fees
relating to investor relations and Sarbanes-Oxley compliance,
marketing costs and other costs associated with operating a
public company.
Management fees increased $6.8 million, or 1,261%, to
$7.4 million for the three months ended June 30, 2005
from $541,000 for the three months ended June 30, 2004.
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 $84,000 mainly due to increased
stockholders equity directly attributable to greater
profits and contributed capital over the same period in 2004.
Incentive management fees of $6.7 million were earned by
our manager for the three months ended June 30, 2005. There
was no incentive management fee earned for the three months
ending June 30, 2004.
|
|
|
Income From Equity Affiliates |
Income from equity affiliates was $8.0 million for the
three months ended June 30, 2005. This amount is primarily
due to excess proceeds received from the refinance of a property
of one of our investments in equity affiliates. For the three
months ended June 30, 2004, no income from equity
affiliates was recorded.
|
|
|
Income Allocated to Minority Interest |
Income allocated to minority interest increased by
$3.9 million, or 315%, to $5.1 million for the three
months ended June 30, 2005 from $1.2 million for the
three months ended June 30, 2004. These amounts represent
the portion of our income allocated to our manager. This
increase was primarily due to a 299% increase in income before
minority interest combined with an increase in our
managers weighted average limited partnership interest in
us to 18.3% for the three months ended June 30, 2005 from
17.6% in 2004, which was primarily attributable to our initial
public offering in April 2004.
24
The following table sets forth our results of operations for the
six months ended June 30, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
Increase/(Decrease) | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
Amount | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
62,416,467 |
|
|
$ |
20,102,741 |
|
|
$ |
42,313,726 |
|
|
|
211 |
% |
|
Other income
|
|
|
387,844 |
|
|
|
26,531 |
|
|
|
361,313 |
|
|
|
1,362 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
62,804,311 |
|
|
|
21,129,272 |
|
|
|
42,675,039 |
|
|
|
212 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
18,016,712 |
|
|
|
5,934,437 |
|
|
|
12,082,275 |
|
|
|
204 |
% |
|
Employee compensation and benefits
|
|
|
2,110,896 |
|
|
|
1,230,443 |
|
|
|
880,453 |
|
|
|
72 |
% |
|
Stock based compensation
|
|
|
464,855 |
|
|
|
207,007 |
|
|
|
257,848 |
|
|
|
125 |
% |
|
Selling and administrative
|
|
|
1,773,774 |
|
|
|
611,154 |
|
|
|
1,162,620 |
|
|
|
190 |
% |
|
Management fee related party
|
|
|
8,991,265 |
|
|
|
834,057 |
|
|
|
8,157,208 |
|
|
|
978 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
31,357,502 |
|
|
|
8,817,098 |
|
|
|
22,540,404 |
|
|
|
256 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and income from equity affiliates
|
|
|
31,446,809 |
|
|
|
11,312,174 |
|
|
|
20,134,635 |
|
|
|
178 |
% |
Income from equity affiliates
|
|
|
8,453,440 |
|
|
|
|
|
|
|
8,453,440 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
39,900,249 |
|
|
|
11,312,174 |
|
|
|
28,588,075 |
|
|
|
253 |
% |
Income allocated to minority interest
|
|
|
7,328,236 |
|
|
|
2,427,899 |
|
|
|
4,900,337 |
|
|
|
202 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
32,572,013 |
|
|
$ |
8,884,275 |
|
|
$ |
23,687,738 |
|
|
|
267 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following discussion compares our results of operations for
the six months ended June 30, 2005 to the comparable period
in 2004:
Interest income increased $42.3 million, or 211%, to
$62.4 million for the six months ended June 30, 2005
from $20.1 million for the six months ended June 30,
2004. This increase was due in part to a distribution of
$17.2 million representing a 16.7% carried profits interest
in a $31.0 million mezzanine loan that we have outstanding.
This distribution was a result of excess proceeds from the
refinance of a portfolio of properties securing the loan.
Excluding this transaction, interest income increased
$25.1 million, or 125% over the same periods. This increase
was primarily due to a 70% increase in the average balance of
loans and investments from $496 million to
$843 million due to increased loans and investments
originations, as well as a 34% increase in the average yield on
the assets from 7.9% to 10.5% as a result of increased market
interest rates. Interest income from available for sale
securities increased $0.1 million, or 25%, to
$0.5 million for the six months ended June 30, 2005
from $0.4 million for the six months ended June 30,
2004. This increase is due to an increase in the average
balances, as we purchased our available for sale securities on
March 31, 2004, partially offset by the reduced yield
earned on the investment.
Interest expense increased $12.1 million, or 206%, to
$18 million for the six months ended June 30, 2005
from $5.9 million for the six months ended June 30,
2004. This increase was primarily due to a 123% increase in the
average debt financing on our loans and investment portfolio
from $275.2 million to $613.2 million due to increased
loan originations and increased financing facilities, as well as
a 36% increase in the average cost of these borrowings from
4.15% to 5.64% as a result of increased market interest rates.
In addition, interest expense on debt financing of our available
for sale securities portfolio
25
increased $0.4 million or 274% to $0.6 million for the
six months ended June 30, 2005, from the corresponding
period in 2004. This increase was due to a 153% increase in the
average cost of debt financing combined with a 49% increase in
the average borrowings.
Employee compensation and benefits expense increased $880,000 or
72% to $2.1 million for the six months ended June 30,
2005 from $1.2 million for the six months ended
June 30, 2004. This increase was primarily due to the
expansion of staffing needs associated with asset management due
to an increase in portfolio size. These expenses represent
salaries, benefits, and incentive compensation for those
employed by us during the periods.
Stock-based compensation expense increased by $258,000, or 125%,
to $465,000 for the six months ended June 30, 2005 from
$207,000 for the six months ended June 30, 2004. These
expenses represent the cost of restricted stock granted to
certain of our employees, directors and executive officers, and
employees of our manager. The increase was primarily due to the
initial one-fifth vesting of 41,000 shares granted in May
2005 combined with the initial one-third vesting of
4,000 shares granted in February 2005 recorded as expense
for the six months ended June 30, 2005 partially offset by
a decrease in the ratable portion of the unvested restricted
stock granted in 2003 for the six months ended June 30,
2005 as compared to this period in 2004.
Selling and administrative expense increased by
$1.2 million, or 190%, to $1.8 million for the six
months ended June 30, 2005 from $611,000 for the six months
ended June 30, 2004. This increase is directly attributable
to professional fees, including legal, accounting services, and
consulting fees relating to investor relations and
Sarbanes-Oxley compliance, marketing costs, insurance expense
and directors fees.
Management fees increased $8.2 million, or 978%, to
$9.0 million for the six months ended June 30, 2005
from $0.8 million for the six months ended June 30,
2004. These amounts represent base management fees and incentive
management fees as provided for in the management agreement with
our manager. The base management fees increased by $400,000
primarily due to increased stockholders equity directly
attributable to greater profits and contributed capital as a
result of the timing of our initial public offering in April
2004. Incentive management fees of $7.8 million were earned
by our manager for the six months ended June 30, 2005.
There was no incentive management fee earned for the six months
ending June 30, 2004.
|
|
|
Income From Equity Affiliates |
Income from equity affiliates was $8.5 million for the six
months ended June 30, 2005. This amount is primarily due to
excess proceeds received from the refinance of a property of one
of our investments in equity affiliates. For the six months
ended June 30, 2004, no income from equity affiliates was
recorded.
|
|
|
Income Allocated to Minority Interest |
Income allocated to minority interest increased by
$4.9 million, or 202%, to $7.3 million for the six
months ended June 30, 2005 from $2.4 million for the
six months ended June 30, 2004. These amounts represent the
portion of our income allocated to our manager. This increase
was primarily due to a 253% increase in income before minority
interest, partially offset by a decrease in our managers
weighted average limited partnership interest in us to 18.4% for
the six months ended June 30, 2005 from 21.5% in 2004,
which was primarily attributable to the timing of our initial
public offering in April 2004.
Liquidity and Capital Resources
Liquidity is a measurement of the ability to meet potential cash
requirements, including ongoing commitments to repay borrowings,
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 pursuant to a CDO (described
below) in January 2005, borrowings under credit agreements,
26
issuances of junior subordinated notes, net cash provided by
operating activities, repayments of outstanding loans and
investments, funds from junior and senior 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.
For the three and six months ended June 30, 2005,
0.1 million and 0.3 million of common stock warrants
were exercised, respectively, resulting in proceeds of
$0.8 million and $4.2 million, respectively.
We also maintain liquidity through two master repurchase
agreements, one unsecured revolving credit agreement, one bridge
loan warehousing credit agreement, and one secured term credit
facility with five different financial institutions. In
addition, we have issued one collateralized debt obligation and
four separate junior subordinated notes.
We had a $100.0 million master repurchase agreement with a
financial institution, as amended in December 2004, which
expired in June 2005.
We have a $425.0 million master repurchase agreement with
Wachovia Bank National Association, dated as of
December 23, 2003, as amended, with a term of three years
and bears interest at one-month LIBOR plus pricing of 0.94% to
3.5%, varying on type of asset financed. The agreement was
modified in June 2005 to temporarily increase the committed
amount of this facility from $350.0 million to
$425.0 million until November 2005. At June 30, 2005,
the outstanding balance under this facility was
$265.0 million with a current weighted average note rate of
5.26%. 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 was amended in February 2005, expires in
July 2005 and has an interest rate of one-month LIBOR plus
0.20%. In July 2005, this facility was extended for one year. At
June 30, 2005, the outstanding balance under this facility
was $35.8 million with a current note rate of 3.46%.
We have a $50.0 million master repurchase agreement with a
second financial institution, dated as of July 1, 2003,
which matures in July 2006 and bears interest at one-month LIBOR
plus pricing of 2.00% to 2.75%, varying on type of asset
financed. This facility has not yet been utilized.
We have a $50.0 million unsecured revolving credit
agreement with a third financial institution, dated
December 7, 2004, with a term of one year with two one-year
extension options and an interest rate of one-month LIBOR plus
7.00%. This revolving credit facility is primarily used to
manage the timing difference between when new loans and
investments are closed and when they are financed within one of
the warehouse credit or master repurchase agreements. At
June 30, 2005, the outstanding balance under this facility
was $50.0 million with a current note rate of 10.14%.
We have a $50 million term credit facility, dated
January 31, 2005, with a fourth financial institution, who
beneficially owned approximately 7.1% of our outstanding common
stock as of December 31, 2004. This agreement has a term of
one year with two six-month renewal options and bears interest
at one-month LIBOR plus 6.00%. At June 30, 2005, the
outstanding balance under this facility was $30.0 million
with a current note rate of 9.11%.
In May 2005 we entered into a $50 million bridge loan
warehousing credit agreement with a financial institution to
provide financing for bridge loans. This agreement expires in
May 2006 and bears a variable
27
rate of interest, payable monthly, based on Prime plus 0% or
1,2,3 or 6 month LIBOR plus 1.75%, at the Companys
option. At June 30, 2005, the outstanding balance under
this facility was $34.1 million with a weighted average
current note rate of 5.26%.
We have a non-recourse collateralized debt obligation
(CDO) transaction, which closed on January 19,
2005, whereby $469 million of real estate related and other
assets were contributed to a newly-formed consolidated
subsidiary which issued $305 million of investment
grade-rated floating-rate notes in a private placement. These
notes are unsecured and pay interest quarterly at 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 of the CDO. Thereafter, the
outstanding debt balance will be reduced as loans are repaid.
Proceeds from the CDO were used to repay outstanding debt under
our current facilities totaling $267 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. At June 30, 2005, the outstanding balance under
this facility was $303.3 million with a weighted average
current note rate of 3.92%. Proceeds from the repayment of
assets which serve as collateral for our CDO may be retained in
the CDO 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.
On March 15, 2005, we, through a newly-formed wholly-owned
subsidiary of the operating partnership, issued
$27.1 million of junior subordinated notes in a private
placement. These securities are unsecured, have a maturity of
29 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 June 30, 2005, the outstanding balance under this
facility was $27.1 million with a current note rate of
7.18%.
In April and June 2005, we, through newly-formed wholly-owned
subsidiaries of the operating partnership, issued
$77.3 million of junior subordinated notes in three
separate private placements. These securities are unsecured,
have a weighted average maturity of approximately
29.6 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 June 30, 2005, the outstanding balance under
these facilities was $77.3 million with a weighted average
current note rate of 6.59%.
The unsecured revolving credit agreement, the secured term
credit facility 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
warehouse credit agreement or the master repurchase agreement.
The master repurchase agreements and the secured term credit
facility 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 June 30, 2005, the facilities described above had an
aggregate capacity of $1.1 billion and borrowings were
approximately $0.8 billion.
The unsecured revolving credit agreement, the secured term
credit facility and the master repurchase agreements each
contain various financials covenants and restrictions, including
minimum net worth and debt-to-equity ratios. In addition to the
financial terms and capacities described above, these 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 these credit
facilities, we could be required to repay all or a portion of
our indebtedness before maturity at a time when
28
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 June 30, 2005 we are in compliance
with all covenants and restrictions under these credit
facilities.
In addition, we have one junior loan participation with an
outstanding balance at June 30, 2005 of $6.5 million.
This participation has maturity dates equal to the corresponding
mortgage loan and are secured by the participants interest
in the mortgage loan. Interest expense is based on a portion of
the interest received from the loan. A second junior loan
participation was repaid during the quarter when the
corresponding loan was repaid.
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 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.
Related Party Transactions
As of June 30, 2005, 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 2005. In
March 2005, 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 the loan for the three months ended June 30, 2005 and
2004, was approximately $0.1 million and $0.2 million,
respectively, and $0.3 million and $0.4 million for
the six months ended June 30, 2005 and 2004, respectively.
During the quarter ended March 31, 2005, ACM received a
brokerage fee for services rendered in arranging a loan facility
for a borrower. A portion of the loan facility was provided by
us. We were credited $0.4 million of this brokerage fee
which is included in other income for the quarter ended
March 31, 2005.
29
|
|
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. Most
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. Many
of our loans and borrowings 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 the loans and liabilities as of
June 30, 2005, and assuming the balances of these loans and
liabilities remain unchanged for the subsequent months, a 1%
increase in LIBOR would decrease our annual net income and cash
flows by approximately $0.4 million, and a 1% decrease in
LIBOR would increase our annual net income and cash flows by
approximately $0.9 million because the amount of
liabilities subject to adjustment exceeds the principal amount
of loans that would be subject to an interest rate adjustment
due to both interest rate floors and the fixed nature of certain
loans. As the size of the portfolio increases, a decline in
interest rates may have a negative impact on our net income.
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 repricing of the
debt obligations occurs more quickly than the repricing 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 will result in a
reduction our net interest income and cash flows related to
these securities. Based on the securities and borrowings as of
June 30, 2005, and assuming the balances of these
securities and borrowings remain unchanged for the subsequent
months, a 1%
30
increase in LIBOR would reduce our annual net income and cash
flows by approximately $357,000. A 1% decrease in LIBOR would
increase our annual net income and cash flows by approximately
$357,000.
In connection with the CDO described in Managements
Discussion and Analysis of Financial Condition and Results of
Operations, the Company entered into two interest rate
swap agreements to hedge its 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 CDO are yielding
interest based on a one-month LIBOR index.
These swaps were executed on December 21, 2004 with a
notional amount of $469 million and expire in January 2012.
The market value of these interest rate swaps is dependent upon
existing market interest rates and swap spreads, which change
over time. If there were a 50 basis point decrease in
forward interest rates, the value of these interest rate swaps
would have increased by approximately $22,000 at June 30,
2005. If there were a 50 basis point increase in forward
interest rates, the value of these interest rate swaps would
have decreased by approximately $25,000 at June 30, 2005.
The Company issued variable rate junior subordinate notes during
2005 as described in Note 6 Notes Payable and
Repurchase Agreements, and in conjunction has entered into
two interest rate swap agreements with total notional values of
$50 million. The market value of these interest rate swaps
is dependent upon existing market interest rates and swap
spreads, which change over time. If there were a 50 basis
point decrease in forward interest rates, the value of these
interest rate swaps would have decreased by approximately
$1.1 million at June 30, 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 $1.0 million at June 30, 2005.
The Company has entered into three interest rate swap agreements
to hedge its exposure on forecasted outstanding LIBOR based
debt. The notional value of these swaps are $9.9 million,
$37.6 million and $23.5 million. The market value of
these interest rate swaps is dependent upon existing market
interest rates and swap spreads, which change over time. If
there were a 50 basis point decrease in forward interest
rates, the value of these interest rate swaps would have
decreased by approximately $2.4 million at June 30,
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 $2.3 at June 30, 2005.
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 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
31
expected to decrease; conversely, in a decreasing interest rare
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.
|
|
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.
Internal Controls Over Financial Reporting. 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.
PART II. OTHER INFORMATION
|
|
Item 1. |
LEGAL PROCEEDINGS |
Not applicable.
|
|
Item 2. |
UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
PROCEEDS |
During the period covered by this report, the Company issued a
total of 56,422 shares of its common stock upon the
exercise of 60,531 warrants that were originally issued pursuant
to the terms of the warrant agreement on July 1, 2003.
Pursuant to the warrant agreement, each of the warrants were
exercisable from July 13, 2004 to July 1, 2005 for one
share of common stock at an exercise price of $15 in cash or a
number of shares of common stock or warrants deemed to have a
fair market value equivalent to the cash exercise price. The
Company issued each of the warrants as a component of the
Companys units, each consisting of five shares of common
stock and a warrant, in a private placement of the units on
July 1, 2003.
The issuance and sale of the shares of common stock issued upon
the exercise of these warrants 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 holders of
the warrants had adequate access to information about the
Company through its public filings with the SEC, and an
appropriate legend was placed on the certificates evidencing the
shares of common stock issued to the exercising holders of the
warrants.
The Company received a total of $799,410 in proceeds as a result
of the exercise of the 60,531 warrants. These proceeds were used
to repay indebtedness. Of the total number of shares of common
stock issued upon the exercise of such warrants,
53,294 shares were issued in consideration of the payment of
32
the cash exercise price and 3,128 shares were issued in
consideration of the holder of the related warrant surrendering
shares of common stock or additional warrants in lieu of the
cash exercise price.
|
|
Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
|
|
Item 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The annual meeting of stockholders of the Company was held on
May 25, 2005, for the purpose of considering and acting
upon the following:
(1) Election of Directors. Three Class II directors
and Walter K. Horn, a Class III director, were elected and
the votes cast for or against/withheld were as follows:
|
|
|
|
|
|
|
|
|
|
|
Aggregate Votes | |
|
|
| |
Nominees |
|
For | |
|
Withheld | |
|
|
| |
|
| |
Ivan Kaufman
|
|
|
16,615,281 |
|
|
|
595,322 |
|
C. Michael Kojaian
|
|
|
16,734,580 |
|
|
|
476,023 |
|
Melvin Lazar
|
|
|
17,116,951 |
|
|
|
93,652 |
|
Walter K. Horn
|
|
|
16,605,380 |
|
|
|
605,223 |
|
(2) Three matters were approved and the votes cast for or
against and the abstentions were as follows:
(a) Stock Incentive Plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Votes | |
|
|
| |
|
|
For | |
|
Against | |
|
Abstained | |
|
Broker Non-Votes | |
|
|
| |
|
| |
|
| |
|
| |
Approval of Amendment to the Companys 2003 Omnibus Stock
Incentive Plan, as amended and restated
|
|
|
14,096,482 |
|
|
|
491,250 |
|
|
|
12,780 |
|
|
|
3,600 |
|
(b) Ratification of Ernst & Young.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Votes | |
|
|
| |
|
|
For | |
|
Against | |
|
Abstained | |
|
|
| |
|
| |
|
| |
Ratification of Ernst & Young LLP as the Companys
independent auditors for fiscal year 2005
|
|
|
17,117,768 |
|
|
|
28,590 |
|
|
|
4,245 |
|
(c) Approval of an Amendment to the Companys Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Votes | |
|
|
| |
|
|
For | |
|
Against | |
|
Abstained | |
|
Broker Non-Votes | |
|
|
| |
|
| |
|
| |
|
| |
Approval of amendment to the Companys Charter to lower
each of the aggregate stock ownership limit and the common stock
ownership limit from 9.6% to 8.3%
|
|
|
17,103,883 |
|
|
|
91,180 |
|
|
|
15,540 |
|
|
|
0 |
|
The continuing directors of the Company are Jonathan A.
Bernstein, William Helmreich and Joseph Martello.
33
|
|
Item 5. |
OTHER INFORMATION |
Not applicable.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
2 |
.1 |
|
Contribution Agreement, dated July 1, 2003, by and among
Arbor Realty Trust, Inc., Arbor Commercial Mortgage, LLC and
Arbor Realty Limited Partnership* |
|
2 |
.2 |
|
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* |
|
|
2 |
.3 |
|
Indemnity Agreement, dated July 1, 2003 by and among Arbor
Realty Trust, Inc., Arbor Commercial Mortgage, LLC, Ivan Kaufman
and Arbor Realty LimitedPartnership* |
|
|
3 |
.1 |
|
Articles of Incorporation of the Registrant* |
|
|
3 |
.2 |
|
Articles Supplementary of the Registrant* |
|
|
3 |
.3 |
|
Bylaws of the Registrant* |
|
|
4 |
.1 |
|
Form of Certificate for Common Stock* |
|
|
4 |
.2 |
|
Form of Global Units Certificate* |
|
|
4 |
.3 |
|
Form of Warrant Certificate (included as Exhibit A to
Exhibit 4.4)* |
|
|
4 |
.4 |
|
Warrant Agreement, dated July 1, 2003, between Arbor Realty
Trust, Inc. and American Stock Transfer & Trust Company* |
|
|
4 |
.5 |
|
Registration Rights Agreement, dated July 1, 2003, between
Arbor Realty Trust, Inc. and JMP Securities, LLC* |
|
|
10 |
.1 |
|
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. |
|
|
10 |
.2 |
|
Services Agreement, dated July 1, 2003, by and among Arbor
Realty Trust, Inc., Arbor Commercial Mortgage, LLC and Arbor
Realty Limited Partnership* |
|
|
10 |
.3 |
|
Non-Competition Agreement, dated July 1, 2003, by and among
Arbor Realty Trust, Inc., Arbor Realty Limited Partnership and
Ivan Kaufman* |
|
|
10 |
.4 |
|
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. |
|
|
10 |
.5 |
|
Warrant Agreement, dated July 1, 2003, between Arbor Realty
Limited Partnership, Arbor Realty Trust, Inc. and Arbor
Commercial Mortgage Commercial Mortgage, LLC* |
|
|
10 |
.6 |
|
Registration Rights Agreement, dated July 1, 2003, between
Arbor Realty Trust, Inc. and Arbor Commercial Mortgage, LLC* |
|
|
10 |
.7 |
|
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.* |
|
|
10 |
.8 |
|
2003 Omnibus Stock Incentive Plan, (as amended and restated on
July 29, 2004)* |
|
|
10 |
.81 |
|
Amendment No. 1 to the 2003 Omnibus Stock Incentive Plan
(as amended and restated) |
|
|
10 |
.9 |
|
Form of Restricted Stock Agreement* |
|
|
10 |
.10 |
|
Benefits Participation Agreement, dated July 1, 2003,
between Arbor Realty Trust, Inc. and Arbor Management, LLC* |
|
|
10 |
.11 |
|
Form of Indemnification Agreement* |
|
|
10 |
.12 |
|
Structured Facility Warehousing Credit and Security Agreement,
dated July 1, 2003, between Arbor Realty Limited
Partnership and Residential Funding Corporation* |
34
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
10 |
.13 |
|
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.** |
|
|
10 |
.14 |
|
Master Repurchase Agreement, dated as of November 18, 2002,
by and between Nomura Credit and Capital, Inc. and Arbor
Commercial Mortgage, LLC* |
|
|
10 |
.15 |
|
Assignment and Assumption Agreement, dated as of July 1,
2003, by and between Arbor Commercial Mortgage, LLC and Arbor
Realty Limited Partnership* |
|
|
10 |
.16 |
|
Subscription Agreement between Arbor Realty Trust, Inc. and
Kojaian Ventures, L.L.C.* |
|
|
10 |
.17 |
|
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. |
|
|
10 |
.18 |
|
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. |
|
|
10 |
.19 |
|
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. |
|
|
31 |
.1 |
|
Certification of Chief Executive Officer pursuant to Exchange
Act Rule 13a-14 |
|
|
31 |
.2 |
|
Certification of Chief Financial Officer pursuant to Exchange
Act Rule 13a-14 |
|
|
32 |
.1 |
|
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 |
|
32 |
.2 |
|
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 |
|
|
|
|
* |
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. |
|
|
** |
Incorporated by reference to the Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30,
2004. |
|
|
|
|
|
Incorporated by reference to the Registrants Annual Report
of Form 10-K for the year ended December 31, 2004. |
35
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:
|
|
|
ARBOR REALTY TRUST, INC. |
|
(Registrant) |
|
|
|
|
Title: |
Chief Executive Officer |
|
|
|
|
By: |
/s/ FREDERICK C. HERBST |
|
|
|
|
|
Name: Frederick
C. Herbst |
|
|
|
|
Title: |
Chief Financial Officer |
Date: August 9, 2005
36
EX-10.81
Exhibit 10.81
Amendment No. 1 to the
Arbor Realty Trust, Inc. 2003 Omnibus Stock Incentive Plan
(as Amended and Restated on July 29, 2004)
Pursuant to the approval of the Board of Directors of Arbor
Realty Trust, Inc. (the Company) on April 14,
2005, and the vote by the stockholders of the Company on
May 25, 2005, the first sentence of Section 3 of the
Arbor Realty Trust, Inc. 2003 Omnibus Stock Incentive Plan (as
Amended and Restated on July 29, 2004) is hereby amended to
state as follows:
|
|
|
The total number of shares of Common Stock reserved and
available for issuance under the Plan shall be
685,000 shares. |
Dated: May 25, 2005
37
EX-31.1
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Ivan Kaufman, certify that:
1. I have reviewed this quarterly report on Form 10-Q
of Arbor Realty Trust, Inc.;
2. 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;
3. 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;
4. 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)) 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) 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 |
|
|
c) 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. 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. |
|
|
|
|
Title: |
Chief Executive Officer |
Date: August 9, 2005
38
EX-31.2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Frederick C. Herbst, certify that:
1. I have reviewed this quarterly report on Form 10-Q
of Arbor Realty Trust, Inc.;
2. 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;
3. 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;
4. 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)) 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) 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 |
|
|
c) 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. 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. |
|
|
|
|
By: |
/s/ Frederick C. Herbst |
|
|
|
|
|
Name: Frederick
C. Herbst |
|
|
|
|
Title: |
Chief Financial Officer |
Date: August 9, 2005
39
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 March 31, 2005 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. |
|
|
|
|
Title: |
Chief Executive Officer |
Date: August 9, 2005
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.
40
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 March 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Frederick C. Herbst, 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. |
|
|
|
|
By: |
/s/ Frederick C. Herbst |
|
|
|
|
|
Name: Frederick
C. Herbst |
|
|
|
|
Title: |
Chief Financial Officer |
Date: August 9, 2005
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.
41