Arbor Realty Trust Reports Third Quarter 2006 Results
Highlights:
- Diluted earnings per share of $0.63
- Net income increased 28% to $10.9 million from 3Q05
- Loan and investment portfolio increased 8% from 2Q06
- Declared quarterly dividend of $0.58 per share
UNIONDALE, N.Y., Nov. 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 September 30, 2006. Arbor reported net income for the quarter of $10.9 million, or $0.63 per diluted common share, compared to net income for the quarter ended September 30, 2005 of $8.5 million, or $0.50 per diluted common share.
Net income for the nine months ended September 30, 2006 was $36.0 million, or $2.09 per diluted common share, compared to net income for the nine months ended September 30, 2005 of $41.0 million, or $2.44 per diluted share. Excluding $5.6 million and $15.5 million of income from the Prime transaction for the quarter ended March 31, 2006 and June 30, 2005, respectively, net income for the nine months ended September 30, 2006 was $30.4 million, or $1.76 per diluted common share, compared to net income for the nine months ended September 30, 2005 of $25.6 million, or $1.52 per diluted share.(1)
"Our strong third quarter results continue to demonstrate the solid execution of our business plan and our consistent commitment to enhance the long-term value of our franchise," said Ivan Kaufman, Chairman and Chief Executive Officer. "Our ability to solidify and continually improve our financing sources has enabled us to maximize the return on our investments and fund the growth of our portfolio. In addition, the growth in our portfolio and the quality and diversification of our investments, continue to demonstrate the depth and versatility of our origination platform."
Mr. Kaufman continued, "We remain focused on increasing the stability and credit quality of our portfolio by increasing the fixed-rate portion of our portfolio. During the quarter, we originated $37 million of longer-term, fixed-rate product, which represented 12% of our quarterly volume. Fixed-rate loans represent 25% of our portfolio as of September 30, 2006."
Total revenues for the quarter ended September 30, 2006 were $41.6 million, an increase of 54% from the same quarter of 2005. Included in revenue for the quarter ended September 30, 2006 is a gain of approximately $700,000 related to an interest rate swap on one of Arbor's junior subordinated notes and reflects the cumulative fair value of the swap at September 30, 2006. From inception, the Company had designated the derivative as an effective cash flow hedge under SFAS 133 (the "short-cut" method) that assumed 100% effectiveness of the hedging relationship. However, in light of recent informal technical interpretations from the SEC with respect to applying the shortcut method of hedge accounting, the Company concluded that the swap transaction did not qualify for the short-cut method and therefore any fluctuations in the market value of the interest rate swaps should have been recorded through the income statement. The cumulative effect of this adjustment on the Company's financial performance over this period and prior periods is not significant. The hedge has been and will continue to be a highly effective economic hedge. The Company has re-designated the interest rate swap as an effective cash flow hedge and the future changes in market value of the effective portion of the hedge will be recorded in other comprehensive income.
At September 30, 2006, the net balance in the loan and investment portfolio was $1.6 billion, an increase of 8% from June 30, 2006. The average balance of the loan and investment portfolio during the third quarter was $1.5 billion and the average yield on these assets for the quarter was 10.63% compared to an average yield of 10.60% for the second quarter of 2006.
Interest expense for the third quarter 2006 was $23.4 million, an increase of 88% from the third quarter of 2005. This increase reflects higher average borrowings, as well as the rise in interest rates. The average balance of debt financing on the loan and investment portfolio during the quarter was $1.3 billion and the average cost of these borrowings was 7.24%.
For the third quarter 2006, Arbor's manager, Arbor Commercial Mortgage, LLC, earned $1.7 million of incentive compensation, representing 25% of the amount by which earnings for the four most recent quarters exceeded a 9.5% return on equity, as described in the management agreement. Arbor Commercial Mortgage intends to exercise its option to receive all of its incentive compensation in shares of Arbor Realty Trust's common stock.
Financing Activity
As of September 30, 2006, Arbor's financing facilities for its loan and investment portfolio totaled approximately $1.7 billion and borrowings outstanding under such facilities were $1.4 billion.
Portfolio Activity
During the quarter, Arbor originated 19 new loans and investments totaling $300 million. Of the new loans and investments, 10 were bridge loans totaling $222 million, three were mezzanine loans totaling $20 million, three were junior participating interests totaling $56 million, and three were preferred equity investments totaling $2 million.
During the quarter, 11 loans paid off with an outstanding balance of approximately $212 million. Of this amount, $186 million were loans on properties that were either sold or refinanced outside of Arbor and $26 million was concurrent with an Arbor refinance.
At September 30, 2006, the loan and investment portfolio unpaid principal balance was $1.6 billion with a weighted average current interest pay rate of 9.36%. At the same date, advances on financing facilities pertaining to the loan and investment portfolio totaled $1.4 billion, with a weighted average interest rate of 7.08%.
The loan and investment portfolio continues to perform according to terms and there have been no defaults. Arbor continues to seek loans and investments that will generate superior risk-adjusted returns with a long-term objective of capital preservation and earnings stability in varying interest rate and credit cycles.
Dividend
As previously announced, the Board of Directors declared a dividend of $0.58 per share for the quarter ended September 30, 2006, to be paid on November 22, 2006 to shareholders of record on November 8, 2006.
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 and IRR lookbacks. During the quarter, the Company originated two new investments with equity participation interests. There were no new loans made during the quarter with IRR lookbacks.
Stock Repurchase Program
In August 2006, Arbor entered into a stock repurchase plan that enables the Company to buy up to one million shares of its common stock on the open market and pursuant to a Rule 10b5-1 plan. A Rule 10b5-1 plan permits the Company to repurchase shares at times when it might otherwise be prevented from doing so. As of September 30, 2006, Arbor has purchased 250,200 shares of its common stock. There is no guarantee as to the exact number of shares that will be repurchased by Arbor and the program may be terminated at any time.
Earnings Conference Call
Management will host a conference call today at 10:00 a.m. EST. A live webcast of the conference call will be available online at http://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 http://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 (800) 510-9661 for domestic callers and (617) 614-3452 for international callers. The participant passcode for both is 27924805.
After the live webcast, the call will remain available on Arbor's Web site, http://www.arborrealtytrust.com through November 10, 2006. In addition, a telephonic replay of the call will be available until November 10, 2006. The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801-6888. Please use passcode: 21834761.
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 15 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 the Arbor's Annual Report on Form 10-K for the year ended December 31, 2005 and its other reports filed with the SEC. Such forward-looking statements speak only as of the date of this press release. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.
(1) See attached supplemental schedule of non-GAAP financial measures on
page 7.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Revenue:
Interest income $40,897,083 $27,073,076 $120,434,185 $89,489,543
Income from swap
derivative 696,960 - 696,960 -
Other income 41,550 35,730 161,947 423,574
Total revenue 41,635,593 27,108,806 121,293,092 89,913,117
Expenses:
Interest expense 23,405,789 12,462,458 63,332,763 30,479,170
Employee compensation
and benefits 1,120,596 948,312 3,430,004 3,059,208
Stock based
compensation 427,609 808,687 1,793,062 1,273,542
Selling and
administrative 1,118,724 1,213,889 3,187,501 2,987,662
Management fee -
related party 2,327,012 1,322,643 8,530,712 10,313,908
Total expenses 28,399,730 16,755,989 80,274,042 48,113,490
Income before
minority interest
and income from
equity affiliates 13,235,863 10,352,817 41,019,050 41,799,627
Income from equity
affiliates - - 2,909,292 8,453,440
Income before
minority interest 13,235,863 10,352,817 43,928,342 50,253,067
Income allocated to
minority interest 2,379,607 1,881,055 7,921,687 9,209,291
Net income $10,856,256 $8,471,762 $36,006,655 $41,043,776
Basic earnings per
common share $0.63 $0.50 $2.10 $2.44
Diluted earnings per
common share $0.63 $0.50 $2.09 $2.44
Dividends declared
per common share $0.57 $0.57 $1.99 $1.59
Weighted average
number of shares
of common stock
outstanding:
Basic 17,226,496 17,003,174 17,185,737 16,812,537
Diluted 21,067,847 20,803,163 21,021,218 20,636,076
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
SUPPLEMENTAL SCHEDULE OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
Nine Months Ended
September 30,
2006 2005
Total revenue, GAAP basis $121,293,092 $89,913,117
Subtract: Prime transaction 6,274,041 17,239,447
Total revenue, as adjusted $115,019,051 $72,673,670
Net income, GAAP basis $36,006,655 $41,043,776
Subtract: Prime transaction 5,638,218 15,454,536
Net income, as adjusted $30,368,437 $25,589,240
Diluted earnings per common share,
GAAP basis $2.09 $2.44
Diluted earnings per common share,
as adjusted $1.76 $1.52
Diluted weighted average shares
outstanding 21,021,218 20,636,076
a.) Given the magnitude of the Prime transaction, 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
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2006 2005
(Unaudited) (Audited)
Assets:
Cash and cash equivalents $8,508,391 $19,427,309
Restricted cash 98,461,074 35,496,276
Loans and investments, net 1,575,067,216 1,246,825,906
Related party loans, net 36,005,627 7,749,538
Available-for-sale securities, at
fair value 23,997,008 29,615,420
Investment in equity affiliates 23,513,847 18,094,242
Other assets 51,460,675 38,866,666
Total assets $1,817,013,838 $1,396,075,357
Liabilities and Stockholders' Equity:
Repurchase agreements $466,297,860 $413,624,385
Collateralized debt obligations 647,209,000 299,319,000
Junior subordinated notes to
subsidiary trust issuing preferred
securities 222,962,000 155,948,000
Notes payable 89,967,024 115,400,377
Notes payable - related party - 30,000,000
Due to related party 4,977,465 1,777,412
Due to borrowers 15,858,199 10,691,355
Other liabilities 16,068,276 18,014,755
Total liabilities 1,463,339,824 1,044,775,284
Minority interest 64,149,603 63,691,556
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;
17,323,488 shares issued, 17,073,288
shares outstanding at September 30,
2006 and 17,051,391 shares issued
and outstanding at December 31, 2005 173,235 170,514
Additional paid-in capital 271,159,130 264,691,931
Treasury stock, at cost - 250,200
shares (6,276,232) -
Retained earnings 23,262,914 21,452,789
Accumulated other comprehensive
income 1,167,603 1,255,522
Total stockholders' equity 289,524,411 287,608,517
Total liabilities and stockholders'
equity $1,817,013,838 $1,396,075,357
Arbor Realty Trust, Inc.
Internal Rate of Return ("IRR") Lookbacks
(all dollar amounts in thousands)
Unaudited
Loan
Origination Commitment Pay Rate @ IRR
Loan Name Date Amount Index 9/30/06 Rate
135 Greenwich St. 1Q05 11,815 LIBOR + 5.00% 10.33% 12.00% Year 1
LIBOR + 5.00% 13.50% Year 2
LIBOR + 5.00% 15.00% Year 3
Waipouli Beach
Resort 1Q05 14,300 LIBOR + 5.00% 10.33% 12.50%
Total $26,115 10.33% 12.27%
These loans contain a provision whereby upon repayment of the loan, the borrower must make an additional payment in an amount sufficient to give Arbor Realty Trust, Inc. the yield noted in the "IRR Rate" column. Management has not yet determined that these amounts are collectable and, therefore, has not accrued the difference between the current payrate and the IRR rate.
Arbor Realty Trust, Inc.
Summary of Equity Participation Interests
(all dollar amounts in thousands)
Unaudited
Initial ART Current
Investment Investment Investment
Amount Date Amount Profit %
Name
80 Evergreen $384 3Q03 $201 12.50%
930 Flushing 1,126 3Q03 - 12.50%
Prime Portfolio 2,100 4Q03 - 7.50%
Prime Portfolio - 16.67%
450 W. 33rd St 1,500 4Q03 2,711 28.00%
823 Park Avenue - 3Q04 - 20.00%
York Avenue 540 3Q04 - 8.70%
Toy Building 10,000 2Q05 14,322 20.00%
On The Ave 2,000 2Q05 2,000 33.33%
Homewood Mtn Resort - 2Q06 - 25.60%
Richland Terrace
Apartments - 3Q06 - 25.00%
Ashley Court
Apartments - 3Q06 - 25.00%
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 50,000 Conversion New York City
York Avenue 45,200 Conversion New York City
Toy Building 958,000 Conversion New York City
On The Ave 170,000 Hotel New York City
Homewood Mtn Resort ** 1,260 Commercial Homewood, CA
Richland Terrace
Apartments 342,152 Multi Family Columbia, SC
Ashley Court Apartments 177,892 Multi Family Fort Wayne, IN
Current
Debt Balance
Name on Property Comments
80 Evergreen $4,800
930 Flushing 25,000 Property refinanced July 2005
Prime Portfolio 1,180,600 Property refinanced June 2005
Prime Portfolio All equity returned to investors
450 W. 33rd St 350,000 Preferred return of 12.5%
823 Park Avenue 95,411 *Condo conversion - investment
held in Taxable REIT
Subsidiary ("TRS")
York Avenue 32,000 Property refinanced Dec 2005
Toy Building 640,000 *Condo conversion - TRS Asset
On The Ave 66,304 Condo/hotel conversion - TRS
Asset
Homewood Mtn Resort 60,000 Profits interest held in TRS
Richland Terrace
Apartments 7,460
Ashley Court Apartments 5,452
* - debt balance represents anticipated debt financing required to
complete condominium conversion project.
** - amount represents approximate acreage of property.
Contact:
Arbor Realty Trust, Inc.
Investor Relations
516-506-4200
InvestorRelations@arbor.com
SOURCE Arbor Realty Trust, Inc.
Web site: http://www.arborrealtytrust.com /
(ABR)
