UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-32136
Arbor Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
|
20-0057959 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation) |
|
Identification No.) |
333 Earle Ovington Boulevard, Suite 900 |
|
|
Uniondale, NY |
|
11553 |
(Address of principal executive offices) |
|
(Zip Code) |
(516) 506-4200
(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 x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
|
|
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. Common stock, $0.01 par value per share: 51,381,405 outstanding as of August 4, 2016.
ARBOR REALTY TRUST, INC.
FORM 10-Q
Forward Looking 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. We use words such as anticipates, expects, believes, intends, should, will, may and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. 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. 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; legislative/regulatory changes; the availability and cost of capital for future investments; competition; and other risks detailed from time to time in our reports filed with the Securities and Exchange Commission (SEC). Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect 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 ended December 31, 2015 (the 2015 Annual Report).
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.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
|
|
June 30, |
|
December 31, |
| ||
|
|
2016 |
|
2015 |
| ||
|
|
(Unaudited) |
|
|
| ||
Assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
160,177,704 |
|
$ |
188,708,687 |
|
Restricted cash |
|
158,667,541 |
|
48,301,244 |
| ||
Loans and investments, net |
|
1,511,596,691 |
|
1,450,334,341 |
| ||
Available-for-sale securities, at fair value |
|
440,920 |
|
2,022,030 |
| ||
Investments in equity affiliates |
|
38,649,254 |
|
30,870,235 |
| ||
Real estate owned, net |
|
20,012,783 |
|
60,845,509 |
| ||
Real estate held-for-sale, net |
|
|
|
8,669,203 |
| ||
Due from related party |
|
781,782 |
|
8,082,265 |
| ||
Other assets |
|
26,419,806 |
|
29,558,430 |
| ||
Total assets |
|
$ |
1,916,746,481 |
|
$ |
1,827,391,944 |
|
|
|
|
|
|
| ||
Liabilities and Equity: |
|
|
|
|
| ||
Credit facilities and repurchase agreements |
|
$ |
259,171,941 |
|
$ |
136,252,135 |
|
Collateralized loan obligations |
|
760,632,528 |
|
758,899,661 |
| ||
Senior unsecured notes |
|
94,140,028 |
|
93,764,994 |
| ||
Junior subordinated notes to subsidiary trust issuing preferred securities |
|
157,468,377 |
|
157,117,130 |
| ||
Mortgage note payable - real estate owned |
|
|
|
27,155,000 |
| ||
Due to related party |
|
2,166,790 |
|
3,428,333 |
| ||
Due to borrowers |
|
32,561,558 |
|
34,629,595 |
| ||
Other liabilities |
|
44,932,044 |
|
51,054,321 |
| ||
Total liabilities |
|
1,351,073,266 |
|
1,262,301,169 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Note 11) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
Arbor Realty Trust, Inc. stockholders equity: |
|
|
|
|
| ||
Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000 shares authorized; 8.25% |
|
89,295,905 |
|
89,295,905 |
| ||
Common stock, $0.01 par value: 500,000,000 shares authorized; 51,381,405 and 50,962,516 shares issued and outstanding, respectively |
|
513,814 |
|
509,625 |
| ||
Additional paid-in capital |
|
618,403,101 |
|
616,244,196 |
| ||
Accumulated deficit |
|
(140,103,326 |
) |
(136,118,001 |
) | ||
Accumulated other comprehensive loss |
|
(2,436,279 |
) |
(4,840,950 |
) | ||
Total equity |
|
565,673,215 |
|
565,090,775 |
| ||
Total liabilities and equity |
|
$ |
1,916,746,481 |
|
$ |
1,827,391,944 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
$ |
27,969,498 |
|
$ |
26,340,585 |
|
$ |
53,787,963 |
|
$ |
53,549,980 |
|
Other interest income, net |
|
2,539,274 |
|
7,884,344 |
|
2,539,274 |
|
7,884,344 |
| ||||
Interest expense |
|
13,243,488 |
|
11,592,762 |
|
25,992,101 |
|
25,520,129 |
| ||||
Net interest income |
|
17,265,284 |
|
22,632,167 |
|
30,335,136 |
|
35,914,195 |
| ||||
Other revenue: |
|
|
|
|
|
|
|
|
| ||||
Property operating income |
|
4,426,555 |
|
7,201,834 |
|
9,758,087 |
|
15,652,177 |
| ||||
Other income, net |
|
214,668 |
|
76,816 |
|
304,431 |
|
112,816 |
| ||||
Total other revenue |
|
4,641,223 |
|
7,278,650 |
|
10,062,518 |
|
15,764,993 |
| ||||
Other expenses: |
|
|
|
|
|
|
|
|
| ||||
Employee compensation and benefits |
|
4,311,412 |
|
4,966,138 |
|
8,639,754 |
|
9,256,344 |
| ||||
Selling and administrative |
|
1,719,337 |
|
2,623,750 |
|
4,374,813 |
|
5,521,560 |
| ||||
Acquisition costs |
|
745,734 |
|
284,054 |
|
3,855,644 |
|
284,054 |
| ||||
Property operating expenses |
|
3,856,264 |
|
5,967,644 |
|
8,172,819 |
|
12,352,732 |
| ||||
Depreciation and amortization |
|
443,112 |
|
1,447,642 |
|
1,320,645 |
|
2,886,319 |
| ||||
Impairment loss on real estate owned |
|
11,200,000 |
|
|
|
11,200,000 |
|
|
| ||||
Provision for loan losses (net of recoveries) |
|
44,005 |
|
1,093,544 |
|
29,005 |
|
2,076,224 |
| ||||
Management fee - related party |
|
2,850,000 |
|
2,675,000 |
|
5,550,000 |
|
5,350,000 |
| ||||
Total other expenses |
|
25,169,864 |
|
19,057,772 |
|
43,142,680 |
|
37,727,233 |
| ||||
(Loss) income before gain on acceleration of deferred income, loss on termination of swaps, gain on sale of real estate and income from equity affiliates |
|
(3,263,357 |
) |
10,853,045 |
|
(2,745,026 |
) |
13,951,955 |
| ||||
Gain on acceleration of deferred income |
|
|
|
|
|
|
|
11,009,162 |
| ||||
Loss on termination of swaps |
|
|
|
|
|
|
|
(4,289,450 |
) | ||||
Gain on sale of real estate |
|
11,023,134 |
|
|
|
11,630,687 |
|
3,984,364 |
| ||||
Income from equity affiliates |
|
4,367,101 |
|
1,534,025 |
|
6,264,543 |
|
4,629,938 |
| ||||
Net income |
|
12,126,878 |
|
12,387,070 |
|
15,150,204 |
|
29,285,969 |
| ||||
Preferred stock dividends |
|
1,888,430 |
|
1,888,430 |
|
3,776,860 |
|
3,776,860 |
| ||||
Net income attributable to common stockholders |
|
$ |
10,238,448 |
|
$ |
10,498,640 |
|
$ |
11,373,344 |
|
$ |
25,509,109 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per common share |
|
$ |
0.20 |
|
$ |
0.21 |
|
$ |
0.22 |
|
$ |
0.50 |
|
Diluted earnings per common share |
|
$ |
0.20 |
|
$ |
0.21 |
|
$ |
0.22 |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares of common stock outstanding |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
51,381,405 |
|
50,955,648 |
|
51,213,312 |
|
50,751,247 |
| ||||
Diluted |
|
51,741,951 |
|
50,955,648 |
|
51,418,539 |
|
50,894,531 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dividends declared per common share |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.30 |
|
$ |
0.28 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
12,126,878 |
|
$ |
12,387,070 |
|
$ |
15,150,204 |
|
$ |
29,285,969 |
|
Unrealized gain (loss) on securities available-for-sale, at fair value |
|
29,395 |
|
364,552 |
|
(29,395 |
) |
423,341 |
| ||||
Unrealized loss on derivative financial instruments, net |
|
(52,445 |
) |
(165,156 |
) |
(262,234 |
) |
(906,727 |
) | ||||
Reclassification of net realized loss on derivatives designated as cash flow hedges into loss on termination of swaps |
|
|
|
|
|
|
|
4,285,995 |
| ||||
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings |
|
1,331,637 |
|
1,510,573 |
|
2,696,300 |
|
3,241,500 |
| ||||
Comprehensive income |
|
13,435,465 |
|
14,097,039 |
|
17,554,875 |
|
36,330,078 |
| ||||
Less: |
|
|
|
|
|
|
|
|
| ||||
Preferred stock dividends |
|
1,888,430 |
|
1,888,430 |
|
3,776,860 |
|
3,776,860 |
| ||||
Comprehensive income attributable to common stockholders |
|
$ |
11,547,035 |
|
$ |
12,208,609 |
|
$ |
13,778,015 |
|
$ |
32,553,218 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
Six Months Ended June 30, 2016
|
|
Preferred |
|
Preferred |
|
Common |
|
Common |
|
Additional Paid- |
|
Accumulated |
|
Accumulated |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - January 1, 2016 |
|
3,711,500 |
|
$ |
89,295,905 |
|
50,962,516 |
|
$ |
509,625 |
|
$ |
616,244,196 |
|
$ |
(136,118,001 |
) |
$ |
(4,840,950 |
) |
$ |
565,090,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation |
|
|
|
|
|
419,890 |
|
4,199 |
|
2,158,895 |
|
|
|
|
|
2,163,094 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Forfeiture of unvested restricted stock |
|
|
|
|
|
(1,001 |
) |
(10 |
) |
10 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Distributions - common stock |
|
|
|
|
|
|
|
|
|
|
|
(15,351,438 |
) |
|
|
(15,351,438 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Distributions - preferred stock |
|
|
|
|
|
|
|
|
|
|
|
(3,776,860 |
) |
|
|
(3,776,860 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Distributions - preferred stock of private REIT |
|
|
|
|
|
|
|
|
|
|
|
(7,231 |
) |
|
|
(7,231 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
15,150,204 |
|
|
|
15,150,204 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized loss on securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,395 |
) |
(29,395 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrealized loss on derivative financial instruments, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,234 |
) |
(262,234 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reclassification of net realized loss on derivatives designated as cash flow hedges into earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,696,300 |
|
2,696,300 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance - June 30, 2016 |
|
3,711,500 |
|
$ |
89,295,905 |
|
51,381,405 |
|
$ |
513,814 |
|
$ |
618,403,101 |
|
$ |
(140,103,326 |
) |
$ |
(2,436,279 |
) |
$ |
565,673,215 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Six Months Ended June 30, |
| ||||
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
Operating activities: |
|
|
|
|
| ||
Net income |
|
$ |
15,150,204 |
|
$ |
29,285,969 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
1,320,645 |
|
2,886,319 |
| ||
Stock-based compensation |
|
2,163,094 |
|
2,427,268 |
| ||
Gain on acceleration of deferred income |
|
|
|
(11,009,162 |
) | ||
Loss on termination of swaps |
|
|
|
4,289,450 |
| ||
Gain on sale of real estate |
|
(11,630,687 |
) |
(3,984,364 |
) | ||
Impairment loss on real estate owned |
|
11,200,000 |
|
|
| ||
Gain on sale of securities |
|
(15,491 |
) |
|
| ||
Provision for loan losses (net of recoveries) |
|
29,005 |
|
2,076,224 |
| ||
Amortization and accretion of interest, fees and intangible assets, net |
|
1,652,392 |
|
1,684,017 |
| ||
Income from equity affiliates |
|
(6,264,543 |
) |
(4,629,938 |
) | ||
Changes in operating assets and liabilities |
|
4,082,516 |
|
(3,505,259 |
) | ||
Net cash provided by operating activities |
|
17,687,135 |
|
19,520,524 |
| ||
|
|
|
|
|
| ||
Investing Activities: |
|
|
|
|
| ||
Loans and investments funded, originated and purchased, net |
|
(475,924,501 |
) |
(557,256,118 |
) | ||
Payoffs and paydowns of loans and investments |
|
410,975,653 |
|
551,201,085 |
| ||
Deferred fees |
|
4,568,476 |
|
2,482,316 |
| ||
Principle collection on securities, net |
|
|
|
2,100,000 |
| ||
Investments in real estate, net |
|
(417,809 |
) |
(1,393,615 |
) | ||
Contributions to equity affiliates |
|
(4,187,582 |
) |
(14,949,918 |
) | ||
Distributions from equity affiliates |
|
1,013,080 |
|
|
| ||
Proceeds from sale of real estate |
|
49,029,780 |
|
18,482,352 |
| ||
Proceeds from sale of available-for-sale securities |
|
1,567,207 |
|
|
| ||
Net cash (used in) provided by investing activities |
|
(13,375,696 |
) |
666,102 |
| ||
|
|
|
|
|
| ||
Financing activities: |
|
|
|
|
| ||
Proceeds from repurchase agreements, credit facilities and notes payable |
|
204,046,488 |
|
479,205,709 |
| ||
Paydowns and payoffs of repurchase agreements, loan participations and credit facilities |
|
(81,620,294 |
) |
(335,854,714 |
) | ||
Proceeds from mortgage note payable - real estate owned |
|
|
|
27,155,000 |
| ||
Paydowns and payoffs of mortgage note payable - real estate owned |
|
(27,155,000 |
) |
(30,984,357 |
) | ||
Proceeds from collateralized loan obligations |
|
|
|
219,000,000 |
| ||
Payoffs and paydowns of collateralized debt obligations |
|
|
|
(240,971,174 |
) | ||
Payoffs and paydowns of collateralized loan obligations |
|
|
|
(177,000,000 |
) | ||
Change in restricted cash |
|
(111,072,901 |
) |
141,293,748 |
| ||
Payments on swaps and margin calls to counterparties |
|
|
|
(290,000 |
) | ||
Receipts on swaps and returns of margin calls from counterparties |
|
2,250,049 |
|
2,200,000 |
| ||
Distributions paid on common stock |
|
(15,351,438 |
) |
(14,206,565 |
) | ||
Distributions paid on preferred stock |
|
(3,776,860 |
) |
(3,776,860 |
) | ||
Distributions paid on preferred stock of private REIT |
|
(7,231 |
) |
(6,952 |
) | ||
Payment of deferred financing costs |
|
(155,235 |
) |
(6,304,548 |
) | ||
Net cash (used in) provided by financing activities |
|
(32,842,422 |
) |
59,459,287 |
| ||
|
|
|
|
|
| ||
Net (decrease) increase in cash and cash equivalents |
|
(28,530,983 |
) |
79,645,913 |
| ||
Cash and cash equivalents at beginning of period |
|
188,708,687 |
|
50,417,745 |
| ||
Cash and cash equivalents at end of period |
|
$ |
160,177,704 |
|
$ |
130,063,658 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
|
|
Six Months Ended June 30, |
| ||||
|
|
2016 |
|
2015 |
| ||
|
|
|
|
|
| ||
Supplemental cash flow information: |
|
|
|
|
| ||
Cash used to pay interest |
|
$ |
22,983,701 |
|
$ |
22,715,060 |
|
Cash used for taxes |
|
$ |
112,799 |
|
$ |
345,259 |
|
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
| ||
Distributions accrued on 8.25% Series A preferred stock |
|
$ |
266,664 |
|
$ |
266,664 |
|
Distributions accrued on 7.75% Series B preferred stock |
|
$ |
203,438 |
|
$ |
203,438 |
|
Distributions accrued on 8.50% Series C preferred stock |
|
$ |
159,375 |
|
$ |
159,375 |
|
See Notes to Consolidated Financial Statements.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
Note 1 Description of Business
Arbor Realty Trust, Inc. is a Maryland corporation that was formed in 2003 to invest in a diversified portfolio of structured finance assets in the multifamily and commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages, preferred and direct equity. We may also directly acquire real property and invest in real estate-related notes and certain mortgage-related securities. We conduct substantially all of our operations through our operating partnership, Arbor Realty Limited Partnership (ARLP), and ARLPs subsidiaries. We are externally managed and advised by Arbor Commercial Mortgage, LLC (ACM or our Manager). We organize and conduct our operations to qualify as a real estate investment trust (REIT) for federal income tax purposes.
Acquisition of our Managers Agency Platform
On July 14, 2016, we completed the previously announced acquisition of the agency platform (the ACM Agency Business) of our Manager (the ACM Acquisition) pursuant to an asset purchase agreement (Purchase Agreement) dated February 25, 2016. The aggregate purchase price was $276.0 million, which was paid with $138.0 million in stock, $88.0 million in cash and with the issuance of a $50.0 million seller financing instrument. The equity component of the purchase price was paid with 21.23 million of operating partnership units (OP Units), which was based on a stock price of $6.50 per share. The closing price of our common stock on the day of the ACM Acquisition was $7.29 per share; therefore, the estimated fair value of the total consideration given to our Manager approximates $293.0 million. Each of the OP Units are paired with a share of our newly-designated special voting preferred stock, which provides ACM to one vote per share on any matter submitted to a vote of our stockholders. The OP Units are entitled to receive distributions if and when our Board of Directors authorizes and declares future common stock distributions. The OP Units are also redeemable for cash, or at our option, for shares of our common stock on a one-for-one basis.
The ACM Agency Business is comprised of its (i) underwriting, originating, selling and servicing multifamily mortgages under the Federal National Mortgage Association (Fannie Mae) delegated underwriting and servicing (DUS), U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA), Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (Freddie Mac) and conduit/commercial mortgage-backed securities (CMBS) programs, and (ii) certain assets and liabilities primarily consisting of the mortgage servicing rights related to the agency servicing portfolio, agency loans held for sale, warehouse financing of agency loans held for sale and other assets and liabilities directly related to the ACM Agency Business.
All ACM employees directly related to the ACM Agency Business (approximately 235 employees) have become our employees as of the acquisition completion date. In addition, pursuant to the Purchase Agreement, we have a two year option to purchase the existing management agreement and fully internalize our management structure for $25.0 million (increasing to $27.0 million in the second year). The exercise of this option is at the discretion of the special committee of our Board of Directors, which has no obligation to exercise its option.
In connection with the ACM Acquisition, we incurred advisory fees totaling $0.7 million and $3.9 million during the three and six months ended June 30, 2016, respectively, and fees totaling $8.3 million to date. We expect to recognize additional fees in the third quarter of 2016 as a result of completing the ACM Acquisition in July 2016.
Except where specifically indicated, the information contained in this report does not include information pertaining to the ACM Agency Business.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP), for interim financial statements and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
included in the consolidated financial statements prepared under GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our 2015 Annual Report, which was filed with the SEC.
The accompanying unaudited consolidated financial statements include our financial statements, our wholly owned subsidiaries, and partnerships or other joint ventures in which we own a voting interest of greater than 50 percent, and variable interest entities (VIEs) of which we are the primary beneficiary. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIEs economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Current accounting guidance requires us to present a) assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE, and b) liabilities of a consolidated VIE for which creditors (or beneficial interest holders) do not have recourse to the general credit of the primary beneficiary. Entities in which we have significant influence are accounted for primarily under the equity method.
As a REIT, we are generally not subject to federal income tax on our REITtaxable income that we distribute to our stockholders, provided that we distribute at least 90% of our REITtaxable income and meet certain other requirements. As of June 30, 2016 and 2015, we were in compliance with all REIT requirements and, therefore, have not provided for income tax expense for the six months ended June 30, 2016 and 2015. Certain of our assets that produce non-qualifying income are owned by our taxable REIT subsidiaries, the income of which is subject to federal and state income taxes. During the six months ended June 30, 2016 and 2015, we did not record any provision for income taxes for these taxable REIT subsidiaries as we expect any income to be offset by available federal and state net operating loss carryforwards.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that could materially affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Significant Accounting Policies
As of June 30, 2016, our significant accounting policies, which are detailed in our 2015 Annual Report, have not changed materially.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued updated guidance which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Companies will be required to use forward-looking information to better form their credit loss estimates. This updated guidance also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses. The guidance is effective for us beginning in the first quarter of 2020, and early adoption is permitted beginning in the first quarter of 2019. We are currently evaluating the impact this guidance may have on our consolidated financial statements.
In March 2016, the FASB amended its guidance on stock compensation, which is intended to simplify several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
is effective for the first quarter of 2017 and we are currently evaluating the impact it may have on our consolidated financial statements.
In March 2016, the FASB amended its guidance on accounting for equity method investments. Among other things, the amended guidance eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The guidance is effective for the first quarter of 2017 and we are currently evaluating the impact it may have on our consolidated financial statements.
In February 2016, the FASB amended its guidance on accounting for leases that requires an entity to recognize balance sheet assets and liabilities for leases with terms of more than 12 months and also requires disclosure of key information about an entitys leasing arrangements. The guidance is effective for the first quarter of 2019 with early adoption permitted. A modified retrospective approach is required. We are currently evaluating the impact this guidance may have on our consolidated financial statements.
In January 2016, the FASB amended its guidance on the recognition and measurement of financial assets and liabilities. The amended guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This update also, among other things, eliminates the requirement for an entity to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The guidance is effective for the first quarter of 2018 and we are currently evaluating the impact it may have on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In September 2015, the FASB amended its guidance on measurement-period adjustments arising from business combinations. The guidance was effective for the first quarter of 2016 and it did not have an impact on our consolidated financial statements.
In February 2015, the FASB amended its guidance on the consolidation analysis of VIEs. The guidance was effective for the first quarter of 2016 and it did not have a material impact on our consolidated financial statements. See Note 9 Variable Interest Entities for further details.
Note 3 Loans and Investments
The following table sets forth the composition of our loan and investment portfolio:
|
|
June 30, 2016 |
|
Percent of |
|
Loan |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Bridge loans |
|
$ |
1,422,007,444 |
|
89 |
% |
111 |
|
5.26 |
% |
18.6 |
|
0 |
% |
76 |
% |
Mezzanine loans |
|
54,115,825 |
|
3 |
% |
12 |
|
8.99 |
% |
21.3 |
|
37 |
% |
79 |
% | |
Junior participation loans |
|
62,256,582 |
|
4 |
% |
2 |
|
4.50 |
% |
5.2 |
|
83 |
% |
84 |
% | |
Preferred equity investments |
|
66,668,000 |
|
4 |
% |
9 |
|
6.37 |
% |
27.7 |
|
47 |
% |
92 |
% | |
|
|
1,605,047,851 |
|
100 |
% |
134 |
|
5.40 |
% |
18.6 |
|
6 |
% |
77 |
% | |
Unearned revenue |
|
(9,619,585 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for loan losses |
|
(83,831,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and investments, net |
|
$ |
1,511,596,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
|
|
December 31, 2015 |
|
Percent of |
|
Loan |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Bridge loans |
|
$ |
1,353,132,435 |
|
88 |
% |
105 |
|
5.48 |
% |
16.7 |
|
0 |
% |
75 |
% |
Mezzanine loans |
|
40,390,905 |
|
3 |
% |
11 |
|
8.19 |
% |
32.9 |
|
35 |
% |
83 |
% | |
Junior participation loans |
|
62,256,582 |
|
4 |
% |
2 |
|
4.50 |
% |
11.2 |
|
85 |
% |
87 |
% | |
Preferred equity investments |
|
89,346,123 |
|
5 |
% |
10 |
|
7.52 |
% |
30.5 |
|
43 |
% |
80 |
% | |
|
|
1,545,126,045 |
|
100 |
% |
128 |
|
5.63 |
% |
17.7 |
|
7 |
% |
76 |
% | |
Unearned revenue |
|
(8,030,129 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for loan losses |
|
(86,761,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |
Loans and investments, net |
|
$ |
1,450,334,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Weighted Average Pay Rate is a weighted average, based on the unpaid principal balances of each loan in our portfolio, of the interest rate that is required to be paid monthly as stated in the individual loan agreements. Certain loans and investments that require an additional rate of interest Accrual Rate to be paid at the maturity are not included in the weighted average pay rate as shown in the table.
(2) The First Dollar LTV Ratio is calculated by comparing the total of our senior most dollar and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will absorb a total loss of our position.
(3) The Last Dollar LTV Ratio is calculated by comparing the total of the carrying value of our loan and all senior lien positions within the capital stack to the fair value of the underlying collateral to determine the point at which we will initially absorb a loss.
During the first quarter of 2015, we acquired a $116.0 million defaulted first mortgage, at par, that paid off in the subsequent quarter resulting in the recognition of income totaling $6.7 million, net of fees and expenses. The $6.7 million of income consisted of other interest income totaling $7.9 million, partially offset by $1.2 million of expenses related to this transaction that were recorded in employee compensation and benefits. In April 2016, additional funds held in escrow from the note payoff were released following an arbitration proceeding and we recognized income totaling $1.9 million, net of fees and expenses. The $1.9 million of income consisted of other interest income totaling $2.5 million, partially offset by $0.6 million of expenses related to the transaction that were recorded in employee compensation and benefits.
Concentration of Credit Risk
We operate in one portfolio segment, commercial mortgage loans and investments. Commercial mortgage loans and investments can potentially subject us to concentrations of credit risk. We are subject to concentration risk in that, at June 30, 2016, the unpaid principal balance (UPB) related to 31 loans with five different borrowers represented 21% of total assets. At December 31, 2015, the UPB related to 22 loans with five different borrowers represented 22% of total assets. We measure our relative loss position for our mezzanine loans, junior participation loans, and preferred equity investments by determining the point where we will be exposed to losses based on our position in the capital stack as compared to the fair value of the underlying collateral. We determine our loss position on both a first dollar loan-to-value (LTV) and a last dollar LTV basis.
We assign a credit risk rating to each loan and investment. Individual ratings range from one to five, with one being the lowest risk and five being the highest. Each credit risk rating has benchmark guidelines that pertain to debt-service coverage ratios, LTV ratios, borrower strength, asset quality, and funded cash reserves. Other factors such as guarantees, market strength, remaining loan term, and borrower equity are also reviewed and factored into determining the credit risk rating assigned to each loan. This metric provides a helpful snapshot of portfolio quality and credit risk. Given our asset management approach, however, the risk rating process does not result in differing levels of diligence contingent upon credit rating. That is because all portfolio assets are subject to the level of scrutiny and ongoing analysis consistent with that of a high-risk loan. Assets are subject to, at minimum, a thorough quarterly financial evaluation in which historical operating performance and forward-looking projections are reviewed. Generally speaking, given our typical loan and investment profile, a risk rating of three suggests that we expect the loan to make both principal and interest payments according to the contractual terms of the loan agreement, and is not considered impaired. A risk rating of four indicates we anticipate that the loan will require a modification of some kind. A risk rating of five indicates we expect the loan to underperform over its term, and there could be loss of interest and/or principal. Ratings of 3.5 and 4.5 generally indicate loans that have characteristics of both the immediately higher and lower classifications. Further, while the above are the primary
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
guidelines used in determining a certain risk rating, subjective items such as borrower strength, condition of the market of the underlying collateral, additional collateral or other credit enhancements, or loan terms, may result in a rating that is higher or lower than might be indicated by any risk rating matrix.
As a result of the loan review process at June 30, 2016 and December 31, 2015, we identified loans and investments that we consider higher-risk loans that had a carrying value, before loan loss reserves, of $152.2 million and $154.7 million, respectively, and a weighted average last dollar LTV ratio of 99% for each period.
A summary of the loan portfolios weighted average internal risk ratings and LTV ratios by asset class is as follows:
|
|
June 30, 2016 |
| |||||||||
Asset Class |
|
Unpaid Principal |
|
Percentage |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Multifamily |
|
$ |
1,223,485,513 |
|
76 |
% |
2.9 |
|
1 |
% |
75 |
% |
Office |
|
165,703,185 |
|
10 |
% |
3.3 |
|
36 |
% |
73 |
% | |
Land |
|
141,508,043 |
|
9 |
% |
3.9 |
|
3 |
% |
95 |
% | |
Hotel |
|
55,587,776 |
|
4 |
% |
3.8 |
|
38 |
% |
80 |
% | |
Other |
|
18,763,334 |
|
1 |
% |
3.2 |
|
21 |
% |
69 |
% | |
Total |
|
$ |
1,605,047,851 |
|
100 |
% |
3.0 |
|
6 |
% |
77 |
% |
|
|
December 31, 2015 |
| |||||||||
Asset Class |
|
Unpaid Principal |
|
Percentage |
|
Wtd. Avg. |
|
Wtd. Avg. |
|
Wtd. Avg. |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Multifamily |
|
$ |
1,083,822,788 |
|
70 |
% |
3.0 |
|
2 |
% |
75 |
% |
Office |
|
198,829,086 |
|
13 |
% |
3.0 |
|
27 |
% |
75 |
% | |
Land |
|
164,410,838 |
|
11 |
% |
3.8 |
|
5 |
% |
90 |
% | |
Hotel |
|
66,250,000 |
|
4 |
% |
3.5 |
|
32 |
% |
80 |
% | |
Other |
|
31,813,333 |
|
2 |
% |
3.1 |
|
13 |
% |
67 |
% | |
Total |
|
$ |
1,545,126,045 |
|
100 |
% |
3.1 |
|
7 |
% |
76 |
% |
Geographic Concentration Risk
As of June 30, 2016, 26%, 16%, 14% and 12% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, California, Florida and Texas, respectively. As of December 31, 2015, 34%, 14%, 14% and 12% of the outstanding balance of our loan and investment portfolio had underlying properties in New York, Florida, California and Texas, respectively.
Impaired Loans and Allowance for Loan Losses
We perform an evaluation of the loan portfolio quarterly to assess the performance of our loans and whether a reserve for impairment should be recorded. We consider a loan impaired when, based upon current information and events, it is probable that we will be unable to collect all amounts due for both principal and accrued interest according to the contractual terms of the loan agreement.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
A summary of the changes in the allowance for loan losses is as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Allowance at beginning of period |
|
$ |
86,746,575 |
|
$ |
116,470,000 |
|
$ |
86,761,575 |
|
$ |
115,487,320 |
|
Provision for loan losses |
|
59,005 |
|
1,110,629 |
|
59,005 |
|
2,110,629 |
| ||||
Charge-offs |
|
(2,959,005 |
) |
|
|
(2,959,005 |
) |
|
| ||||
Recoveries of reserves |
|
(15,000 |
) |
(17,085 |
) |
(30,000 |
) |
(34,405 |
) | ||||
Allownace at end of period |
|
$ |
83,831,575 |
|
$ |
117,563,544 |
|
$ |
83,831,575 |
|
$ |
117,563,544 |
|
During the three and six months ended June 30, 2016, we received a $1.8 million discounted payoff on an impaired bridge loan with an aggregate carrying value before reserves of $4.8 million, resulting in the recognition of an additional provision for loan losses of $0.1 million and a charge-off of $3.0 million.
The provision for loan losses recorded in the three and six months ended June 30, 2015 was comprised of one loan and three loans, respectively, with an aggregate carrying value before reserves of $114.8 million and $127.8 million, respectively.
A summary of charge-offs and recoveries by asset class are as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
Charge-offs: |
|
|
|
|
|
|
|
|
| ||||
Multifamily |
|
$ |
2,959,005 |
|
$ |
|
|
$ |
2,959,005 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Recoveries: |
|
|
|
|
|
|
|
|
| ||||
Multifamily |
|
(15,000 |
) |
(17,085 |
) |
(30,000 |
) |
(34,405 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net (Charge-offs) Recoveries |
|
$ |
(2,944,005 |
) |
$ |
17,085 |
|
$ |
(2,929,005 |
) |
$ |
34,405 |
|
|
|
|
|
|
|
|
|
|
| ||||
Ratio of net (charge-offs) recoveries during the period to average loans and investments outstanding during the period |
|
(0.2 |
)% |
0.0 |
% |
(0.2 |
)% |
0.0 |
% |
There were no loans for which the fair value of the collateral securing the loan was less than the carrying value of the loan for which we had not recorded a provision for loan loss as of June 30, 2016 and 2015.
We have six loans with a carrying value totaling $120.4 million at June 30, 2016, which mature in September 2017, that are collateralized by a land development project. The loans do not carry a current pay rate of interest, but five of the loans with a carrying value totaling $111.0 million entitle us to a weighted average accrual rate of interest of 8.15%. We suspended the recording of the accrual rate of interest on these loans, as these loans were impaired and we deemed the collection of this interest to be doubtful. We have recorded cumulative allowances for loan losses of $49.1 million related to these loans as of June 30, 2016. The loans are subject to certain risks associated with a development project including, but not limited to, availability of construction financing, increases in projected construction costs, demand for the developments outputs upon completion of the project, and litigation risk. Additionally, these loans were not classified as non-performing as the borrower is in compliance with all of the terms and conditions of the loans.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
A summary of our impaired loans by asset class is as follows:
|
|
June 30, 2016 |
|
Three Months Ended June 30, 2016 |
|
Six Months Ended June 30, 2016 |
| |||||||||||||||
Asset Class |
|
Unpaid |
|
Carrying |
|
Allowance for |
|
Average |
|
Interest Income |
|
Average |
|
Interest Income |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multifamily |
|
$ |
2,662,115 |
|
$ |
2,570,618 |
|
$ |
2,575,653 |
|
$ |
5,004,615 |
|
$ |
47,669 |
|
$ |
5,012,115 |
|
$ |
111,205 |
|
Office |
|
27,571,582 |
|
22,787,444 |
|
21,972,444 |
|
27,573,832 |
|
23,115 |
|
27,576,082 |
|
46,162 |
| |||||||
Land |
|
130,012,569 |
|
125,168,351 |
|
53,883,478 |
|
129,042,390 |
|
|
|
128,740,618 |
|
|
| |||||||
Hotel |
|
34,750,000 |
|
34,496,568 |
|
3,700,000 |
|
34,750,000 |
|
283,768 |
|
34,750,000 |
|
565,917 |
| |||||||
Commercial |
|
1,700,000 |
|
1,700,000 |
|
1,700,000 |
|
1,700,000 |
|
|
|
1,700,000 |
|
|
| |||||||
Total |
|
$ |
196,696,266 |
|
$ |
186,722,981 |
|
$ |
83,831,575 |
|
$ |
198,070,837 |
|
$ |
354,552 |
|
$ |
197,778,815 |
|
$ |
723,284 |
|
|
|
December 31, 2015 |
|
Three Months Ended June 30, 2015 |
|
Six Months Ended June 30, 2015 |
| |||||||||||||||
Asset Class |
|
Unpaid |
|
Carrying |
|
Allowance for |
|
Average |
|
Interest Income |
|
Average |
|
Interest Income |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Multifamily |
|
$ |
7,362,115 |
|
$ |
7,350,764 |
|
$ |
5,505,653 |
|
$ |
39,214,032 |
|
$ |
73,892 |
|
$ |
39,222,692 |
|
$ |
143,981 |
|
Office |
|
27,580,582 |
|
22,796,444 |
|
21,972,444 |
|
36,086,582 |
|
282,192 |
|
36,086,582 |
|
557,045 |
| |||||||
Land |
|
127,468,667 |
|
122,875,774 |
|
53,883,478 |
|
123,196,757 |
|
|
|
122,933,516 |
|
|
| |||||||
Hotel |
|
34,750,000 |
|
34,486,433 |
|
3,700,000 |
|
34,750,000 |
|
260,898 |
|
34,750,000 |
|
518,028 |
| |||||||
Commercial |
|
1,700,000 |
|
1,700,000 |
|
1,700,000 |
|
|
|
|
|
|
|
|
| |||||||
Total |
|
$ |
198,861,364 |
|
$ |
189,209,415 |
|
$ |
86,761,575 |
|
$ |
233,247,371 |
|
$ |
616,982 |
|
$ |
232,992,790 |
|
$ |
1,219,054 |
|
(1) Represents the UPB of impaired loans less unearned revenue and other holdbacks and adjustments by asset class and was comprised of nine loans at both June 30, 2016 and December 31, 2015.
(2) Represents an average of the beginning and ending UPB of each asset class.
As of June 30, 2016, three fully reserved loans with loan loss reserves totaling $22.9 million were classified as non-performing. As of December 31, 2015, three loans with an aggregate net carrying value of less than $0.1 million, net of related loan loss reserves on the loans of $22.9 million, were classified as non-performing. Income from non-performing loans is generally recognized on a cash basis only to the extent it is received. Full income recognition will resume when the loan becomes contractually current and performance has recommenced.
A summary of our non-performing loans by asset class is as follows:
|
|
June 30, 2016 |
|
December 31, 2015 |
| ||||||||||||||
Asset Class |
|
Carrying |
|
Less Than 90 |
|
Greater Than |
|
Carrying |
|
Less Than 90 |
|
Greater Than |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Multifamily |
|
$ |
770,653 |
|
$ |
|
|
$ |
770,653 |
|
$ |
765,799 |
|
$ |
|
|
$ |
765,799 |
|
Office |
|
20,472,444 |
|
|
|
20,472,444 |
|
20,472,444 |
|
|
|
20,472,444 |
| ||||||
Commercial |
|
1,700,000 |
|
|
|
1,700,000 |
|
1,700,000 |
|
|
|
1,700,000 |
| ||||||
Total |
|
$ |
22,943,097 |
|
$ |
|
|
$ |
22,943,097 |
|
$ |
22,938,243 |
|
$ |
|
|
$ |
22,938,243 |
|
At June 30, 2016, we did not have any loans contractually past due 90 days or more that are still accruing interest.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
A summary of loan modifications, refinancings and/or extensions by asset class that we considered to be troubled debt restructurings were as follows:
|
|
Number |
|
Original |
|
Original |
|
Extended |
|
Extended |
|
Number of Loans |
|
Original |
|
Original |
|
Extended |
|
Extended |
| ||||
Asset Class |
|
Three Months Ended June 30, 2016 |
|
Six Months Ended June 30, 2016 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multifamily |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
1 |
|
$ |
14,646,456 |
|
5.24 |
% |
$ |
14,646,456 |
|
5.24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
Three Months Ended June 30, 2015 |
|
Six Months Ended June 30, 2015 |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Multifamily |
|
4 |
|
$ |
29,416,456 |
|
4.95 |
% |
$ |
29,416,456 |
|
4.95 |
% |
5 |
|
$ |
35,609,122 |
|
5.12 |
% |
$ |
35,609,122 |
|
5.12 |
% |
There were no loans in which we considered the modifications to be troubled debt restructurings that were subsequently considered non-performing as of June 30, 2016 and 2015 and no additional loans were considered to be impaired due to our troubled debt restructuring analysis for the three and six months ended June 30, 2016 and 2015. These loans were modified to increase the total recovery of the combined principal and interest from the loan.
Given the transitional nature of some of our real estate loans, we may require funds to be placed into an interest reserve, based on contractual requirements, to cover debt service costs. As of June 30, 2016, we had total interest reserves of $16.7 million on 65 loans with an aggregate UPB of $807.1 million.
Note 4 Securities
Available-for-sale securities are carried at their estimated fair value with unrealized gains and losses reported in accumulated other comprehensive loss.
The following is a summary of our securities classified as available-for-sale at June 30, 2016:
|
|
Amortized |
|
Cummulative |
|
Carrying Value / |
| |||
|
|
|
|
|
|
|
| |||
2,939,465 common shares of CV Holdings, Inc. |
|
$ |
58,789 |
|
$ |
382,131 |
|
$ |
440,920 |
|
The following is a summary of our securities classified as available-for-sale at December 31, 2015:
|
|
Face Value |
|
Amortized |
|
Cummulative |
|
Carrying Value / |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Federal Home Loan Mortgage Corporation |
|
$ |
1,500,000 |
|
$ |
1,551,716 |
|
$ |
|
|
$ |
1,551,716 |
|
2,939,465 common shares of CV Holdings, Inc. |
|
|
|
58,789 |
|
411,525 |
|
470,314 |
| ||||
Total available-for-sale securities |
|
$ |
1,500,000 |
|
$ |
1,610,505 |
|
$ |
411,525 |
|
$ |
2,022,030 |
|
In the fourth quarter of 2015, we purchased a federal home loan mortgage corporation security at a premium for $1.6 million. This security bore interest at a fixed rate of 3.241% with a scheduled maturity in 2024. We sold this security in January 2016 for $1.6 million and recognized a gain of less than $0.1 million.
Note 5 Investments in Equity Affiliates
We account for all investments in equity affiliates under the equity method.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
The following is a summary of our investments in equity affiliates:
|
|
Investments in Equity Affiliates at |
|
UPB of Loans to |
| |||||
Equity Affiliates |
|
June 30, 2016 |
|
December 31, 2015 |
|
June 30, 2016 |
| |||
|
|
|
|
|
|
|
| |||
Arbor Residential Investor LLC |
|
$ |
33,668,202 |
|
$ |
25,923,679 |
|
$ |
|
|
West Shore Café |
|
1,995,932 |
|
1,955,933 |
|
1,687,500 |
| |||
Lightstone Value Plus REIT L.P. |
|
1,894,727 |
|
1,894,727 |
|
|
| |||
Issuers of Junior Subordinated Notes |
|
578,000 |
|
578,000 |
|
|
| |||
JT Prime |
|
425,000 |
|
425,000 |
|
|
| |||
East River Portfolio |
|
87,293 |
|
92,796 |
|
4,994,166 |
| |||
Lexford Portfolio |
|
100 |
|
100 |
|
|
| |||
Ritz-Carlton Club |
|
|
|
|
|
|
| |||
Total |
|
$ |
38,649,254 |
|
$ |
30,870,235 |
|
$ |
6,681,666 |
|
Arbor Residential Investor LLC (ARI) In the first quarter of 2015, we invested $9.6 million for 50% of our Managers indirect interest in a joint venture with a third party that was formed to invest in a residential mortgage banking business. As a result of this transaction, we had an initial indirect interest of 22.5% in the mortgage banking business, which is subject to dilution upon attaining certain profit hurdles of the business. During the three and six months ended June 30, 2016, we recorded $3.1 million and $4.6 million, respectively, and during the three and six months ended June 30, 2015, we recorded $1.5 million and $4.6 million, respectively, to income from equity affiliates in our consolidated statements of income related to this investment.
In 2015, through ARI, we invested $9.7 million for a 50% non-controlling interest in a joint venture that invests in non-qualified residential mortgages purchased from the mortgage banking businesss origination platform. We also funded $4.2 million of additional mortgage purchases during the six months ended June 30, 2016, for a total investment of $13.9 million as of June 30, 2016. In the second quarter of 2016, we received our first cash distribution of $1.2 million, which was classified as a return of capital. During the three and six months ended June 30, 2016, we recorded income of $0.1 million for both periods and, during the three and six months ended June 30, 2015, we recorded a loss of less than $0.1 million for both periods to income from equity affiliates in our consolidated statements of income related to this investment.
The summarized statements of operations for our individually significant investment in ARI are as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
Statements of Operations: |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenue: |
|
|
|
|
|
|
|
|
| ||||
Total revenues |
|
$ |
58,959,781 |
|
$ |
33,121,196 |
|
$ |
101,889,213 |
|
$ |
70,985,194 |
|
Total expenses |
|
44,856,886 |
|
26,788,417 |
|
80,864,284 |
|
51,942,524 |
| ||||
Net income |
|
$ |
14,102,895 |
|
$ |
6,332,779 |
|
$ |
21,024,929 |
|
$ |
19,042,670 |
|
|
|
|
|
|
|
|
|
|
| ||||
Arbors share of income |
|
$ |
3,148,720 |
|
$ |
1,471,459 |
|
$ |
4,718,296 |
|
$ |
4,507,256 |
|
Lexford Portfolio In the three and six months ended June 30, 2016, we received a distribution from this equity investment and recognized income of $1.2 million and $1.4 million, respectively. See Note 14 Agreements and Transactions with Related Parties for further details.
Note 6 Real Estate Owned and Held-For-Sale
Our real estate assets were comprised of one hotel property and an office building at June 30, 2016 and three multifamily properties, two hotel properties and an office building at December 31, 2015.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
Real Estate Owned
|
|
June 30, 2016 |
|
December 31, 2015 |
| |||||||||||||||||
|
|
Hotel Property |
|
Office |
|
Total |
|
Multifamily |
|
Hotel |
|
Office |
|
Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Land |
|
$ |
3,293,651 |
|
$ |
4,509,000 |
|
$ |
7,802,651 |
|
$ |
5,538,844 |
|
$ |
3,293,651 |
|
$ |
4,509,000 |
|
$ |
13,341,495 |
|
Building and intangible assets |
|
30,475,872 |
|
1,391,000 |
|
31,866,872 |
|
32,643,889 |
|
30,338,882 |
|
1,391,000 |
|
64,373,771 |
| |||||||
Less: Impairment loss |
|
(11,200,000 |
) |
|
|
(11,200,000 |
) |
|
|
|
|
|
|
|
| |||||||
Less: Accumulated depreciation and amortization |
|
(8,146,318 |
) |
(310,422 |
) |
(8,456,740 |
) |
(9,399,041 |
) |
(7,329,615 |
) |
(141,101 |
) |
(16,869,757 |
) | |||||||
Real estate owned, net |
|
$ |
14,423,205 |
|
$ |
5,589,578 |
|
$ |
20,012,783 |
|
$ |
28,783,692 |
|
$ |
26,302,918 |
|
$ |
5,758,899 |
|
$ |
60,845,509 |
|
For the six months ended June 30, 2016 and 2015, our hotel properties had a weighted average occupancy rate of approximately 64% and 55%, respectively, a weighted average daily rate of approximately $99 and $96, respectively, and weighted average revenue per available room of approximately $63 and $53, respectively. The operation of a hotel property is seasonal with the majority of revenues earned in the first two quarters of the calendar year. During the second quarter of 2016, through site visits and discussion with market participants, we determined that the hotel property owned exhibited indicators of impairment and performed an impairment analysis. As a result of this impairment analysis, we recorded an impairment loss of $11.2 million.
At both June 30, 2016 and December 31, 2015, our office building had an occupancy rate of 100%.
Our real estate assets had restricted cash balances totaling $0.9 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively, due to escrow requirements.
As of December 31, 2015, our multifamily properties had a weighted average occupancy rate of approximately 94%.
Real Estate Held-For-Sale
In the second quarter of 2016, we sold the three remaining multifamily properties for $41.0 million and recognized a gain of $11.0 million. A portion of the sales proceeds were used to payoff the outstanding debt on these properties of $27.1 million. See Note 7 Debt Obligations for further details. In the first quarter of 2016, we sold one of our hotel properties for $9.7 million and recognized a gain of $0.6 million.
In the first quarter of 2015, we sold a multifamily property and a hotel property classified as held-for-sale for a total of $18.8 million and recognized a gain of $4.0 million.
The results of operations for properties sold or classified as held-for-sale are summarized as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenue: |
|
|
|
|
|
|
|
|
| ||||
Property operating income |
|
$ |
1,149,883 |
|
$ |
1,367,641 |
|
$ |
2,845,231 |
|
$ |
3,349,979 |
|
Expenses: |
|
|
|
|
|
|
|
|
| ||||
Property operating expenses |
|
932,518 |
|
1,016,112 |
|
1,994,346 |
|
2,323,404 |
| ||||
Depreciation |
|
|
|
212,020 |
|
334,631 |
|
436,326 |
| ||||
Net income |
|
$ |
217,365 |
|
$ |
139,509 |
|
$ |
516,254 |
|
$ |
590,249 |
|
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
Note 7 Debt Obligations
We utilize various forms of short-term and long-term financing agreements to finance certain of our loans and investments. Borrowings underlying these arrangements are primarily secured by a significant amount of our loans and investments.
Credit Facilities and Repurchase Agreements
The following table outlines borrowings under our credit facilities and repurchase agreements:
|
|
June 30, 2016 |
|
December 31, 2015 |
| ||||||||||||||||||
|
|
Debt Principal |
|
Debt Carrying |
|
Collateral |
|
Weighted |
|
Debt Principal |
|
Debt Carrying |
|
Collateral |
|
Weighted |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$150 million repurchase facility |
|
$ |
94,265,469 |
|
$ |
93,863,204 |
|
$ |
151,142,522 |
|
2.74 |
% |
$ |
58,270,774 |
|
$ |
57,610,463 |
|
$ |
99,641,504 |
|
2.70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$100 million credit facility |
|
21,837,200 |
|
21,674,670 |
|
31,400,000 |
|
2.65 |
% |
24,582,200 |
|
24,328,863 |
|
38,000,000 |
|
2.62 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$75 million credit facility |
|
66,304,000 |
|
66,304,000 |
|
93,905,000 |
|
2.66 |
% |
13,852,500 |
|
13,766,445 |
|
18,470,000 |
|
2.59 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$75 million credit facility |
|
31,025,000 |
|
31,025,000 |
|
44,500,000 |
|
2.50 |
% |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$50 million credit facility |
|
46,320,000 |
|
46,305,067 |
|
57,900,000 |
|
2.50 |
% |
24,120,000 |
|
24,114,494 |
|
30,200,000 |
|
2.46 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$16.5 million term credit facility |
|
|
|
|
|
|
|
|
|
16,500,000 |
|
16,431,870 |
|
29,750,000 |
|
3.22 |
% | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
259,751,669 |
|
$ |
259,171,941 |
|
$ |
378,847,522 |
|
2.64 |
% |
$ |
137,325,474 |
|
$ |
136,252,135 |
|
$ |
216,061,504 |
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2.69 |
% |
At June 30, 2016 and December 31, 2015, the weighted average interest rate for our credit facilities and repurchase agreements was 2.64% and 2.69%, respectively. Including certain fees and costs, such as structuring, commitment, non-use and warehousing fees, the weighted average interest rate was 2.99% and 3.42% at June 30, 2016 and December 31, 2015, respectively. There were no interest rate swaps on these facilities at June 30, 2016 and December 31, 2015.
We have a $150.0 million repurchase facility with a financial institution initially used to finance the unwind of a significant portion of two collateralized debt obligation (CDO) vehicles in the first quarter of 2015. See Collateralized Debt Obligations below. The facility bears interest at a rate of 212.5 basis points over LIBOR on senior mortgage loans, 350.0 basis points over LIBOR on junior mortgage loans, and matures in January 2017 with a one-year extension option. If the estimated market value of the loans financed in this facility decrease, we may be required to pay down borrowings under this facility. Debt carrying value is net of $0.4 million and $0.7 million of deferred financing fees at June 30, 2016 and December 31, 2015, respectively.
We have a $100.0 million credit facility with a financial institution to finance first mortgage loans on multifamily properties that bears interest at a rate of 215 basis points over LIBOR and matures in May 2017 with a one-year extension option, subject to certain conditions. The facility has a maximum advance rate of 75% and also has a compensating balance requirement of $75.0 million to be maintained by us and our affiliates. Debt carrying value is net of $0.2 million and $0.3 million of deferred financing fees at June 30, 2016 and December 31, 2015, respectively.
We have a $75.0 million credit facility with a financial institution to finance first mortgage loans on multifamily properties that bears interest at a rate of 212.5 basis points over LIBOR, includes a $25.0 million sublimit to finance healthcare related loans and was to mature in June 2016. The facility was temporarily extended to August 2016. The healthcare related loans will have an interest rate ranging from 225 basis points to 250 basis points over LIBOR depending on the type of healthcare facility financed. The facility has a maximum advance rate of 75%. Debt carrying value is net of $0.1 million of deferred financing fees at December 31, 2015.
We have another $75.0 million credit facility with a financial institution to finance first mortgage loans on multifamily and commercial properties that bears interest at a rate of 200 basis points over LIBOR and was to mature in June 2016. The facility was extended to May 2017. The facility has a maximum advance rate of 70% or 75%, depending on the property type.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
We have a $50.0 million credit facility with a financial institution to finance first mortgage loans on multifamily properties. The facility bears interest at a rate of 200 basis points over LIBOR and was to mature in February 2016. In February 2016, we amended the facility, increasing the committed amount by $25.0 million to $50.0 million and extending the maturity to February 2017 with two one-year extension options, subject to certain conditions. Debt carrying value is net of less than $0.1 million of deferred financing fees at both June 30, 2016 and December 31, 2015.
In September 2015, we entered into a $16.5 million term facility with a financial institution to finance a first mortgage loan. The facility bore interest at a rate of 275 basis points over LIBOR, was scheduled to mature in December 2016 and had a compensating balance requirement of $3.0 million to be maintained by us and our affiliates. In the second quarter of 2016, the loan paid off and we repaid this facility in full.
Our credit facilities generally allow for an original warehousing period of up to 24 months from the initial advance on an asset. In addition, our credit facilities and repurchase agreements contain several restrictions including full repayment of an advance if a loan becomes 60 days past due, is in default or is written down by us. Our credit facilities and repurchase agreements also contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. See Debt Covenants below for details.
Collateralized Loan Obligations (CLOs)
In August 2015, we completed a collateralized securitization vehicle (CLO V), issuing to third party investors three tranches of investment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $267.8 million, of which we purchased $12.5 million of Class C notes that we subsequently sold at par for $12.5 million. As of the CLO closing date, the notes were secured by a portfolio of loan obligations with a face value of approximately $302.6 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio. The financing has an approximate three year replacement period that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities also included $47.4 million for the purpose of acquiring additional loan obligations for a period of up to 120 days from the closing date of the CLO. In September 2015, the additional proceeds were fully utilized resulting in the issuer owning loan obligations with a face value of approximately $350.0 million. We retained a residual interest in the portfolio with a notional amount of approximately $82.3 million. The notes have an initial weighted average interest rate of approximately 2.44% plus one-month LIBOR and interest payments on the notes are payable monthly. Including certain fees and costs, the initial weighted average note rate was 3.07%.
In March 2015, we completed the unwinding of CLO II, redeeming $177.0 million of our outstanding notes which were repaid primarily from the refinancing of the remaining assets within our new and existing financing facilities as well as with cash held by the CLO and expensed $1.5 million of deferred fees in the first quarter of 2015 into interest expense on the consolidated statements of income.
In February 2015, we completed a collateralized securitization vehicle (CLO IV), issuing to third party investors three tranches of investment grade CLOs through two newly-formed wholly-owned subsidiaries totaling $219.0 million. At closing, the notes were secured by a portfolio of loan obligations with a face value of $250.0 million, consisting primarily of bridge loans that were contributed from our existing loan portfolio, as well as $50.0 million for the purpose of acquiring additional loan obligations. The financing has an approximate 2.5 year replacement period from closing that allows the principal proceeds and sale proceeds (if any) of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. We retained a residual interest in the portfolio with a notional amount of approximately $81.0 million. The notes had an initial weighted average interest rate of approximately 2.24% plus one-month LIBOR and interest payments on the notes are payable monthly. Including certain fees and costs, the initial weighted average note rate was 2.96%.
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June 30, 2016
The following table outlines borrowings and the corresponding collateral under our CLOs as of June 30, 2016:
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