Arbor Realty Trust Reports First Quarter 2010 Results

UNIONDALE, N.Y., May 7 /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 first quarter ended March 31, 2010. Arbor reported net income attributable to Arbor Realty Trust, Inc. for the quarter of $26.4 million, or $1.04 per diluted common share, compared to net loss attributable to Arbor Realty Trust, Inc. for the quarter ended March 31, 2009 of $4.3 million, or $0.17 per diluted common share.

The net balance of the Company's loan and investment portfolio, excluding loan loss reserves, was $2.0 billion at March 31, 2010, compared to $2.1 billion at December 31, 2009. The average balance of the Company's loan and investment portfolio during the first quarter of 2010, excluding loan loss reserves, was $2.1 billion and the average yield on these assets for the quarter was 4.67%, compared to $2.2 billion and 4.42% for the fourth quarter of 2009, respectively. Excluding the effect of reductions in interest income related to the uncollectibility of interest on impaired, non-performing and restructured loans totaling $1.2 million and $4.8 million during the quarters ended March 31, 2010 and December 31, 2009, respectively, the average yield was 4.90% for the first quarter of 2010, compared to 5.29% for the fourth quarter of 2009.

At March 31, 2010, the balance of debt that finances the Company's loan and investment portfolio was approximately $1.6 billion, as compared to approximately $1.7 billion at December 31, 2009. The average balance of debt that finances the Company's loan and investment portfolio during the first quarter of 2010 was $1.7 billion and the average cost of these borrowings was 4.28%, compared to $1.8 billion and 4.21% for the fourth quarter of 2009.

Debt Retirement

In 2009, as previously disclosed, the Company restructured all of the Company's $374 million of debt with Wachovia Bank, National Association ("Wachovia"). In addition, subsequent to this restructuring, the Company paid down approximately $38 million of this debt, reducing the outstanding balance to approximately $336 million. In the first quarter of 2010, the Company entered into an agreement with Wachovia whereby the Company can retire all of the $335.6 million of outstanding debt for $176.2 million, representing 52.5% of the face amount of the debt.

The $335.6 million of indebtedness was comprised of $286.1 million of term debt and a $49.5 million working capital facility.  These were the outstanding balances in each facility at the time the parties began negotiations.  The Company can pay off the discounted outstanding amount at any time on or before May 31, 2010 and the agreement also contains two consecutive 45 day extension options, which would extend the payoff date to August 27, 2010. The agreement provides the Company the ability to apply paydowns of the Wachovia facilities against the discounted payoff amount during the term of the agreement. The Company has made payments of $62.5 million towards the initial discounted payoff amount of $176.2 million, leaving $113.7 million payable to Wachovia under this agreement as of March 31, 2010.  The closing of this agreement is subject to certain closing conditions and the Company's ability to obtain the necessary capital. The Company can make no assurances that it will be able to access sufficient capital on terms and conditions acceptable to the Company.

In the first quarter of 2010, the Company retired $114.1 million of junior subordinated notes in exchange for collateralized debt obligation bonds ("CDO bonds") and $10.5 million in cash.  The CDO bonds were comprised of securities issued by the Company's three CDO facilities as well as securities of other issuers designated as available-for-sale with an aggregate face value of $67.3 million that the Company previously acquired for an aggregate purchase price of $22.2 million. After the completion of this transaction, the Company's junior subordinated notes had an outstanding face value of approximately $175.9 million as of March 31, 2010.  As previously disclosed, the Company pays a fixed rate of 0.50% on its junior subordinated notes through the first quarter of 2012, at which time the pay rate will return to a weighted average rate of approximately 2.77% over LIBOR.

In the first quarter of 2010, this transaction resulted in the Company recording approximately $65.2 million of additional CDO debt, of which approximately $42.3 million represented the portion of the Company's CDO bonds that were exchanged and approximately $22.9 million represented the estimated interest due on the bonds through their maturity, a reduction to securities available-for-sale of approximately $0.4 million representing the fair value of CDO bonds of other issuers, and a gain on extinguishment of debt of approximately $26.3 million.

In addition, during the first quarter of 2010, the Company purchased, at a discount, approximately $27.6 million of investment grade rated bonds originally issued by the Company's three CDO issuing entities. The Company recorded a net gain on early extinguishment of debt of $20.2 million related to these transactions. The purchases were reflected on the Company's balance sheet as a reduction of the corresponding outstanding debt totaling $27.6 million.

Other Financing Activity

As of March 31, 2010, Arbor's financing facilities for its loan and investment portfolio totaled approximately $1.7 billion and borrowings outstanding under such facilities were $1.6 billion.

During the first quarter of 2010, the Company reduced its outstanding warehouse and term debt balances by approximately $46.2 million through a combination of loan payoffs and assets being moved into the Company's CDO vehicles.

The Company is subject to various financial covenants and restrictions by the Company's CDO vehicles and credit facilities. The Company believes that it was in compliance with all credit facility financial covenants and restrictions as of March 31, 2010 with the exception of a net worth covenant and a ratio of liabilities to net worth covenant, both under the Wachovia facility. As previously disclosed, the Company obtained waivers of these covenants until the effective date of the debt retirement agreement with Wachovia described above.

The Company's CDO vehicles contain interest coverage and asset overcollateralization covenants that must be met as of the waterfall distribution dates in order for the Company to receive cash distributions as a preferred holder.  If the Company fails these covenants in any of its CDOs, all cash flows from the applicable CDO would be diverted to repay principal and interest on the outstanding CDO bonds and the Company would not receive any residual payments until that CDO regained compliance with such tests.  As of the most recent distribution dates in April 2010, the CDOs were in compliance with all such covenants.  In the event of a breach of the CDO covenants that could not be cured in the near-term, the Company would be required to fund its non-CDO expenses, including management fees and employee costs, distributions required to maintain REIT status, debt costs, and other expenses with (i) cash on hand, (ii) income from any CDO not in breach of a CDO covenant test, (iii) income from real property and loan assets, (iv) sale of assets, (v) or accessing the equity or debt capital markets, if available. The chart below is a summary of the Company's CDO compliance tests as of the most recent distribution date:

Portfolio Activity

During the first quarter of 2010, Arbor purchased at par, one AAA rated commercial mortgage-backed security with a face amount of $4.5 million.

Also, during the quarter, one loan paid off with an outstanding balance of approximately $49 million and three loans had paydowns totaling approximately $5 million.  In addition, 15 loans were either refinanced or modified with Arbor totaling $140 million, of which five loans totaling approximately $72 million were scheduled to repay during the quarter.

Additionally, six loans totaling approximately $105 million were extended during the quarter, of which two loans totaling approximately $72 million were in accordance with the extension options of their corresponding loan agreements.

In the first quarter of 2010, the Company sold two commercial mortgage-backed securities with a carrying value of approximately $11.1 million, at a premium, for approximately $14.4 million resulting in a gain on sale of $3.3 million. The securities were purchased at a discount in the second quarter of 2009 for approximately $10.7 million. As a result of these sales, the Company reclassified its remaining held-to-maturity securities to available-for-sale and recorded approximately $18.6 million of unrealized losses, representing the difference between the market value of these securities and the Company’s carrying value, in accumulated other comprehensive loss on the Company's balance sheet.

At March 31, 2010, the loan and investment portfolio unpaid principal balance, excluding loan loss reserves, was $2.0 billion, with a weighted average current interest pay rate of 4.59%. At the same date, advances on financing facilities pertaining to the loan and investment portfolio totaled approximately $1.6 billion, with a weighted average interest rate of 3.84% excluding financing costs, interest rate swap costs and changes in the market value of certain interest rate swaps.

As of March 31, 2010, Arbor's loan portfolio consisted of 33% fixed-rate and 67% variable rate loans.

During the first quarter of 2010, the Company recorded $25.0 million in loan loss reserves related to 10 loans with a carrying value of approximately $150.0 million, before loan loss reserves. The loan loss reserves were the result of the Company's regular quarterly risk rating review process, which is based on several factors including current market conditions, real estate values and the operating status of each property. At March 31, 2010, the Company's total loan loss reserves were $351.3 million relating to 33 loans with an aggregate carrying value before loan loss reserves of approximately $710.7 million. The Company generally recognizes income on impaired loans on a cash basis to the extent it is received.

The Company had 10 non-performing loans with a carrying value of approximately $82.3 million, net of related loan loss reserves of $116.4 million as of March 31, 2010, compared to 13 non-performing loans with a carrying value of approximately $110.8 million, net of related loan loss reserves of $115.0 million as of December 31, 2009. Income recognition on non-performing loans has been suspended and will resume when the loans become contractually current and performance has recommenced.

Dividend

Under the terms of the Company's debt agreements, annual dividends are limited to 100% of taxable income to common shareholders and are required to be paid in the form of the Company's stock to the maximum extent permissible (currently 90%), with the balance payable in cash.  The Company will be permitted to pay 100% of taxable income in cash if certain conditions are met. The Board of Directors has elected not to pay a common stock dividend for the quarter ended March 31, 2010.

Earnings Conference Call

Management will host a conference call today at 10:00 a.m. ET.  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™ 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) 271-0675 for domestic callers and (617) 213-8892 for international callers.  The participant passcode for both is 16428280.  

After the live webcast, the call will remain available on Arbor's Web site, www.arborrealtytrust.com through June 7, 2010.  In addition, a telephonic replay of the call will be available until May 14, 2010.  The replay dial-in number is (888) 286-8010 for domestic callers and (617) 801-6888 for international callers. Please use passcode: 30677929.

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 14 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, 2009 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.

Non-GAAP Financial Measures

During the quarterly earnings conference call, the Company may discuss non-GAAP financial measures as defined by SEC Regulation G. In addition, the Company has used non-GAAP financial measures in this press release. A supplemental schedule of each non-GAAP financial measure and the comparable GAAP financial measure can be found on page 10 of this release.

(1) See attached supplemental schedule of non-GAAP financial measures.

SOURCE Arbor Realty Trust, Inc.