Arbor Realty Trust Reports Record Second Quarter 2007 Results
- Net income increased 223% to $31.7 million from 2Q06
- Diluted earnings per share of $1.75, the highest quarterly earnings in Arbor's history
- Record originations of nearly $1 billion
- Loan and investment portfolio increased 13% from 1Q07
- Received $101 million in cash distributions and recorded $24 million of income, before minority interest, from three equity participation interests marking a positive impact from equity kickers in 10 of the 13 quarters since transitioning to a public company
- Declared quarterly dividend of $0.62 per share
- Hired a Senior Vice President of Loan Acquisitions to facilitate the acquisition of loans and debt instruments from financial institutions
- Raised $52 million of trust preferred securities and added a $60 million working capital line
- Raised $74 million of capital in a public offering issuing 2.7 million common shares
UNIONDALE, N.Y., Aug. 3 /PRNewswire-FirstCall/ -- Arbor Realty Trust, Inc. (NYSE: ABR), a real estate investment trust focused on the business of investing in real estate related bridge and mezzanine loans, preferred and direct equity investments, mortgage-related securities and other real estate related assets, today announced financial results for the quarter ended June 30, 2007. Arbor reported net income for the quarter of $31.7 million, or $1.75 per diluted common share, compared to net income for the quarter ended June 30, 2006 of $9.8 million, or $0.57 per diluted common share. Excluding $19.7 million of net income from the 450 West 33rd Street, Toy building, and Prime transactions, net income for the quarter ended June 30, 2007 was $12.0 million, or $0.67 per diluted common share.(1)
Net income for the six months ended June 30, 2007 was $48.4 million, or $2.74 per diluted common share, compared to net income for the six months ended June 30, 2006 of $25.2 million, or $1.46 per diluted share. Excluding $25.8 million of net income from the 450 West 33rd Street, Toy building, Prime and On the Avenue transactions for the six months ended June 30, 2007 and $5.6 million of net income from the Prime transaction for the six months ended June 30, 2006, net income for the six months ended June 30, 2007 was $22.7 million, or $1.29 per diluted common share, compared to net income for the six months ended June 30, 2006 of $19.5 million, or $1.14 per diluted share.(1)
"We had a record quarter both in terms of earnings and originations," said Ivan Kaufman, Chairman and Chief Executive Officer. "Earnings per share of $1.75 was the highest in our history and we reached a new milestone with unprecedented originations of nearly $1.0 billion demonstrating our strong origination network. The second quarter also included the monetization of several of our equity kickers, increasing our economic book value by $4 per share, and significantly increasing our earnings and capital base.(1) We also added two new equity kickers to our portfolio which continues to demonstrate our unique ability to participate in the upside of real estate transactions."
The results for the second quarter included $101.0 million in cash distributions, excluding repayment of debt and return of capital, and $23.7 million in income before minority interest from equity kickers, each of which is described in detail below:
(1) See attached supplemental schedule of non-GAAP financial measures on pages 9 & 10.
450 West 33rd Street
In the second quarter, the Company, as part of an investor group for the 450 West 33rd Street partnership, transferred control of the underlying property to Broadway Partners for a value of approximately $664 million. The investor group, on a pro-rata basis, retained an approximate 2% ownership interest in the property and 50% of the property's air rights.
The Company had $45 million of mezzanine debt on the property and a profits interest in the underlying partnership of approximately 29%. In addition, the Company had a preferred equity investment of approximately $2.7 million with a 12.5% return. The Company received approximately $134 million in proceeds upon completion of this transaction. $76 million related to the 29% equity and profits interest, $10 million related to yield maintenance cost on the prepayment of the mezzanine debt and the return on the preferred equity investment, and $48 million for the repayment in full of the mezzanine debt and preferred equity investment. The Company's manager earned an incentive management fee of approximately $22 million on this transaction.
The Company recorded deferred revenue of approximately $77.1 million, deferred expenses related to the incentive management fee of approximately $19.0 million, an investment in equity affiliates of approximately $1.1 million related to its 29% interest in the 2% retained ownership, interest income of approximately $10.4 million and an incentive management fee expense of approximately $2.6 million for the quarter ended June 30, 2007.
The transaction was structured to provide a tax deferral for an estimated period of seven years.
Toy Building
In the second quarter, the Company, as part of an investor group, sold one of the buildings that comprise the "Toy Center," 200 Fifth Avenue, with the partnership receiving net proceeds of approximately $450 million and retaining an adjacent building located at 1107 Broadway.
The Company had $137 million of outstanding mezzanine debt and a 20% equity interest in the underlying partnership with approximately $18 million of invested capital. The partnership used the $450 million of net proceeds from the sale to repay the total $402 million of outstanding debt on both the 200 Fifth Avenue and 1107 Broadway properties, and the remaining $48 million of proceeds was returned to the partners. As a result, the Company received approximately $10 million in proceeds for its invested capital and was repaid in full on its $137 million of outstanding debt to the partnership, including all applicable interest.
The Company owned its 20% equity interest through a taxable REIT subsidiary, and therefore, the gain on this transaction is subject to corporate income tax. The Company recorded income before minority interest of approximately $11.4 million in the second quarter related to its 20% equity interest, $24.2 million was recorded as income from equity affiliates and expenses consisted of a $9.0 million provision for income taxes and a $3.8 million incentive management fee to be paid to the Company's manager.
Prime
The second quarter also included a $6.0 million distribution from Prime Outlets Acquisition Company LLC ("Prime"), an entity in which Arbor owns an equity and profits interest of approximately 24%. Prime refinanced the debt on a portion of the assets in its portfolio, receiving proceeds in excess of the amount of the previously existing debt. Of the distribution received by Arbor, $4.1 million was recorded as interest income, representing the portion of the distribution received from the profits interest, and $1.9 million of the distribution was recorded as income from equity affiliates. The Company recorded an incentive management fee expense of approximately $1.5 million for the quarter ended June 30, 2007 related to this transaction.
During the quarter, Arbor originated $230 million of longer-term, fixed- rate product, which represented 23% of its quarterly volume. Fixed-rate loans represented 31% of Arbor's portfolio at June 30, 2007.
At June 30, 2007, the net balance in the loan and investment portfolio was $2.6 billion, an increase of 13% from March 31, 2007. The average balance of the loan and investment portfolio during the second quarter was $2.4 billion and the average yield on these assets for the quarter was 9.55%, compared to $2.0 billion and 9.68% for the first quarter of 2007.
The average balance of debt financing on the loan and investment portfolio during the quarter was $2.3 billion and the average cost of these borrowings was 6.82% compared to $1.9 billion and 6.89% for the first quarter of 2007.
For the second quarter 2007, Arbor's manager, Arbor Commercial Mortgage, LLC, earned $28.9 million of incentive compensation, of which $9.9 million was recorded as management fee expense and $19.0 million was recorded as deferred management fee related to the 450 West 33rd Street transaction. Arbor Commercial Mortgage intends to exercise its option to receive $6.9 million of its $28.9 million of incentive compensation in shares of Arbor Realty Trust's common stock.
Financing Activity
During the quarter, the Company issued approximately $51.5 million of long-term junior subordinated notes through two private placements of trust preferred securities. These securities have an approximate 30 year-term ending April 30, 2037 and bear interest at a floating rate of three-month LIBOR plus 2.43%. The securities are redeemable, in whole or in part, anytime without penalty after five years.
In addition, the Company closed a $60.0 million working capital line with a financial institution with a term of one year and pricing of 2.10% over LIBOR.
As of June 30, 2007, Arbor's financing facilities for its loan and investment portfolio totaled approximately $2.7 billion and borrowings outstanding under such facilities were $2.3 billion.
Equity Offering
In June 2007, Arbor issued 2.7 million shares of common stock in a public offering receiving net proceeds of approximately $73.6 million. These proceeds were used to pay down debt and fund new loans and investments.
Portfolio Activity
During the quarter, Arbor originated 32 new loans and investments totaling $995 million, the highest quarterly loan volume in Arbor's history. Of the new loans and investments, 12 were bridge loans totaling $551 million, four were junior participating interests totaling $73 million, 14 were mezzanine loans totaling $186 million, and two were preferred equity investments totaling $185 million.
During the quarter, 19 loans paid off with an outstanding balance of approximately $618 million. Of this amount, $449 million were loans on properties that were either sold or refinanced outside of Arbor and $169 million was concurrent with an Arbor refinance.
At June 30, 2007, the loan and investment portfolio unpaid principal balance was $2.6 billion with a weighted average current interest pay rate of 8.46%. At the same date, advances on financing facilities pertaining to the loan and investment portfolio totaled $2.3 billion, with a weighted average interest rate of 6.74% excluding financing and interest rate swap costs.
As previously disclosed, Arbor had an $8.5 million loan in its portfolio that was non-performing and income recognition had been suspended. During the first quarter, the Company purchased the remaining portion of the non- performing first mortgage debt of approximately $36 million, including accrued interest. In the second quarter, Arbor foreclosed on the asset and arranged for a group of new investors to purchase the property. As part of the purchase, the new investors committed approximately $2 million of capital and Arbor provided $45 million of financing and retained a 50% profits interest in the property. The principal amount of Arbor's loan is not deemed to be impaired and no loan loss reserve has been recorded to date.
Dividend
As previously announced, the Board of Directors declared a dividend of $0.62 per share for the quarter ended June 30, 2007, to be paid on August 27, 2007 to shareholders of record on August 15, 2007.
Equity Participation Interests
Attached as an exhibit to this press release is a schedule of certain data pertaining to the Company's investments with equity participation interests. As previously disclosed, the Company recorded $23.7 million of income before minority interest from its equity and profits interest in the 450 West 33rd Street, Toy building and Prime transactions during the quarter. In addition, the Company originated two new investments with equity participation interests during the quarter. The Company recorded income during the quarter on an IRR lookback, 135 Greenwich Street, totaling approximately $0.9 million.
Earnings Conference Call
Management will host a conference call today at 10:00 a.m. EDT. A live webcast of the conference call will be available online at www.arborrealtytrust.com. Web participants are encouraged to go to Arbor's Web site at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. Listening to the webcast requires speakers and RealPlayer(TM) software, downloadable without charge at www.real.com. Those without Web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (866) 770-7129 for domestic callers and (617) 213-8067 for international callers. The participant passcode for both is 19390684.
After the live webcast, the call will remain available on Arbor's Web site, www.arborrealtytrust.com through August 17, 2007. In addition, a telephonic replay of the call will be available until August 10, 2007. The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801- 6888. Please use passcode: 56312101.
About Arbor Realty Trust, Inc.
Arbor Realty Trust, Inc. is a real estate investment trust which invests in a diversified portfolio of multi-family and commercial real estate related bridge and mezzanine loans, preferred equity investments, mortgage related securities and other real estate related assets. Arbor commenced operations in July 2003 and conducts substantially all of its operations through its operating partnership, Arbor Realty Limited Partnership and its subsidiaries. Arbor is externally managed and advised by Arbor Commercial Mortgage, LLC, a national commercial real estate finance company operating through 11 offices in the US that specializes in debt and equity financing for multi-family and commercial real estate.
Safe Harbor Statement
Certain items in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Arbor can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Arbor's expectations include, but are not limited to, continued ability to source new investments, changes in interest rates and/or credit spreads, changes in the real estate markets, and other risks detailed in Arbor's Annual Report on Form 10-K for the year ended December 31, 2006 and its other reports filed with the SEC. Such forward- looking statements speak only as of the date of this press release. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.
Contact:
Arbor Realty Trust, Inc.
Investor Relations
516-506-4200
InvestorRelations@arbor.com
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Revenue:
Interest income $74,800,274 $38,848,431 $141,260,927 $79,537,102
Other income 17,186 49,050 23,356 120,397
Total revenue 74,817,460 38,897,481 141,284,283 79,657,499
Expenses:
Interest expense 38,527,983 21,576,662 70,640,502 39,926,974
Employee compensation
and benefits 1,879,311 1,154,477 3,320,459 2,309,408
Stock based
compensation 1,222,376 943,038 1,673,936 1,365,453
Selling and
administrative 1,245,469 1,130,955 2,304,488 1,918,777
Management fee -
related party 10,645,065 2,050,927 15,518,747 6,203,700
Total expenses 53,520,204 26,856,059 93,458,132 51,724,312
Income before income
from equity affiliates,
minority interest and
provision for
income taxes 21,297,256 12,041,422 47,826,151 27,933,187
Income from equity
affiliates 26,025,788 - 26,025,788 2,909,292
Income before
minority interest
and provision
for income taxes 47,323,044 12,041,422 73,851,939 30,842,479
Income allocated to
minority interest 6,638,020 2,145,270 10,318,334 5,542,080
Income before
provision for
income taxes 40,685,024 9,896,152 63,533,605 25,300,399
Provision for income
taxes 9,000,000 100,000 15,085,000 150,000
Net income $31,685,024 $9,796,152 $48,448,605 $25,150,399
Basic earnings per
common share $1.76 $0.57 $2.75 $1.47
Diluted earnings per
common share $1.75 $0.57 $2.74 $1.46
Dividends declared
per common share $0.62 $0.72 $1.22 $1.42
Weighted average
number of shares
of common stock
outstanding:
Basic 17,993,924 17,242,332 17,590,860 17,165,020
Diluted 21,873,322 21,073,987 21,453,969 20,997,517
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Total revenue, GAAP
basis $74,817,460 $38,897,481 $141,284,283 $79,657,499
Subtract: Prime
transaction 4,166,666 - 4,166,666 6,274,041
On the Avenue
transaction - - 15,997,843 -
450 West 33rd
Street
transaction 10,425,579 - 10,425,579 -
Total revenue, as
adjusted $60,225,215 $38,897,481 $110,694,195 $73,383,458
Net income, GAAP
basis $31,685,024 $9,796,152 $48,448,605 $25,150,399
Subtract: Prime
transaction 3,783,988 - 3,783,988 5,638,218
On the Avenue
transaction - - 6,099,372 -
Toy transaction 9,342,631 - 9,342,631 -
450 West 33rd
Street
transaction 6,529,699 - 6,529,699 -
Net income, as
adjusted $12,028,706 $9,796,152 $22,692,915 $19,512,181
Diluted earnings per
common share, GAAP
basis $1.75 $0.57 $2.74 $1.46
Diluted earnings per
common share, as
adjusted $0.67 $0.57 $1.29 $1.14
Diluted weighted
average shares
outstanding 21,873,322 21,073,987 21,453,969 20,997,517
a.) Given the magnitude of the Prime, On the Avenue, Toy and 450 West 33rd
Street transactions, Arbor has elected to report adjusted revenues, net
income and earnings per share for the affected periods to help ensure the
comparability of the reporting periods. Management considers these non-
GAAP financial measures to be effective indicators, for both management
and investors, of Arbor's financial performance. Arbor's management does
not advocate that investors consider such non-GAAP financial measures in
isolation from, or as a substitute for, financial information prepared in
accordance with GAAP.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES - Continued
(Unaudited)
Quarter Ended
June 30, 2007
GAAP Stockholders' Equity $414,231,249
Add: 450 West 33rd Street
transaction - deferred revenue 77,123,133
Subtract: 450 West 33rd Street transaction -
deferred management fee 19,047,949
Economic Stockholders' Equity $472,306,433
Economic book value per share $23.40
GAAP book value per share $20.52
Common shares outstanding 20,187,349
b.) Given the magnitude and the deferral structure of the 450 West 33rd
Street transaction, Arbor has elected to report economic book value per
share for the affected period to currently reflect the future impact of
this transaction on the company's financial condition. Management
considers this non-GAAP financial measure to be an effective indicator,
for both management and investors, of Arbor's financial performance.
Arbor's management does not advocate that investors consider this non-GAAP
financial measure in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2007 2006
(Unaudited) (Audited)
Assets:
Cash and cash equivalents $9,946,584 $7,756,857
Restricted cash 198,550,129 84,772,062
Loans and investments, net 2,570,292,095 1,993,525,064
Related party loans, net - 7,752,038
Available-for-sale securities, at
fair value - 22,100,176
Investment in equity affiliates 44,245,624 25,376,949
Deferred management fee 19,047,949 -
Other assets 79,225,939 63,062,065
Total assets $2,921,308,320 $2,204,345,211
Liabilities and Stockholders' Equity:
Repurchase agreements $693,219,964 $395,847,359
Collateralized debt obligations 1,140,869,000 1,091,529,000
Junior subordinated notes to subsidiary
trust issuing preferred securities 276,055,000 222,962,000
Notes payable 140,421,300 94,574,240
Due to related party 29,651,045 3,983,647
Due to borrowers 23,764,458 16,067,295
Deferred revenue 77,123,133 -
Other liabilities 48,374,692 17,802,341
Total liabilities 2,429,478,592 1,842,765,882
Minority interest 77,598,479 65,468,252
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;
20,466,749 shares issued, 20,187,349
shares outstanding at June 30, 2007
and 17,388,770 shares issued,
17,109,370 shares outstanding at
December 31, 2006 204,667 173,888
Additional paid-in capital 349,726,186 273,037,744
Treasury stock, at cost - 279,400 shares (7,023,361) (7,023,361)
Retained earnings 54,997,135 27,732,489
Accumulated other comprehensive income 16,288,861 2,152,556
Total stockholders' equity 414,231,249 296,111,077
Total liabilities and stockholders'
equity $2,921,308,320 $2,204,345,211
Arbor Realty Trust, Inc.
Summary of Equity and Profit Interests
(all dollar amounts in thousands)
Unaudited
Initial ART Current
Investment Investment Cash Equity
Name Amount Date Investment Profit %
80 Evergreen $384 3Q03 $201 12.50%
930 Flushing 1,126 3Q03 375 12.50%
Prime Portfolio 2,100 4Q03 - 7.50%
Prime Portfolio - 16.67%
450 W. 33rd St 1,500 4Q03 1,137 0.58% (1)
823 Park Avenue - 3Q04 - 20.00%
York Avenue 540 3Q04 - 8.70%
Toy Building 10,000 2Q05 8,398 20.00%
Homewood Mtn Resort - 2Q06 - 25.60%
Richland Terrace
Apartments - 3Q06 - 25.00%
Ashley Court Apartments - 3Q06 - 25.00%
Nottingham Village - 1Q07 - 25.00%
Extended Stay Hotel
Portfolio - 2Q07 115,000 16.17%
Lake in the Woods - 2Q07 1,500 50.00%
Approximate
Square Property
Name Footage Type Location
80 Evergreen 77,680 Warehouse Brooklyn, NY
930 Flushing 304,080 Warehouse Brooklyn, NY
Prime Portfolio 6,700,000 Retail Outlets Multi-state
Prime Portfolio 6,700,000 Retail Outlets Multi-state
450 W. 33rd St 1,746,734 Office New York City
823 Park Avenue 52,374 Conversion New York City
York Avenue 45,200 Conversion New York City
Toy Building 320,000 Office New York City
Homewood Mtn Resort 1,224 (3) Land Homewood, CA
Richland Terrace
Apartments 342,152 Multi Family Columbia, SC
Ashley Court Apartments 177,892 Multi Family Fort Wayne, IN
Nottingham Village 285,900 Multi Family Indianapolis, IN
Extended Stay Hotel
Portfolio 684 (4) Hotel Multistate
Lake in the Woods 967,648 Multi Family Ypsilanti, MI
Current
Debt Balance
Name on Property Comments
80 Evergreen $4,800
930 Flushing 25,000 Property refinanced
July 2005
Prime Portfolio 1,275,678 Properties refinanced
Prime Portfolio - All equity returned
to investors
450 W. 33rd St 517,000
823 Park Avenue 120,500 (2) Condo conversion -
investment held in
Taxable REIT
Subsidiary ("TRS")
York Avenue 32,000 Property refinanced
Dec 2005
Toy Building - TRS Asset
Homewood Mtn Resort 78,253 Profits interest
held in TRS
Richland Terrace Apartments 7,460
Ashley Court Apartments 5,452
Nottingham Village 6,626
Extended Stay Hotel
Portfolio 7,400,000 Preferred return
of 12%
Lake in the Woods 43,500
(1) Represents approximately 29% of the 2% retained interest in the
property. In addition, Arbor has approximately 29% of a 50% interest in
the property's air rights.
(2) Debt balance represents anticipated debt financing required to
complete condominium conversion project.
(3) Amount represents approximate acreage of property.
(4) Amount represents approximately 684 properties in 44 states and
Canada with approximately 76,000 rooms
SOURCE Arbor Realty Trust, Inc.
Contact:
Arbor Realty Trust, Inc.
Investor Relations
516-506-4200
InvestorRelations@arbor.com
