Nov. 6, 2009 (PR Newswire) -- UNIONDALE, N.Y., Nov. 6 /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 third quarter ended September 30, 2009. Arbor reported a net loss attributable to Arbor Realty Trust, Inc. for the quarter of $44.1 million, or $1.74 per diluted common share, compared to net income attributable to Arbor Realty Trust, Inc. for the quarter ended September 30, 2008 of $2.6 million, or $0.10 per diluted common share. Funds from operations ("FFO") for the quarter was a loss of $44.0 million, or $1.73 per diluted common share, compared to FFO income for the quarter ended September 30, 2008 of $3.1 million, or $0.12 per diluted common share.(1)

Net loss attributable to Arbor Realty Trust, Inc. for the nine months ended September 30, 2009 was $96.9 million, or $3.83 per diluted common share, compared to net income attributable to Arbor Realty Trust, Inc. for the nine months ended September 30, 2008 of $27.0 million, or $1.27 per diluted common share. FFO for the nine months ended September 30, 2009 was a loss of $95.8 million, or $3.79 per diluted common share, compared to FFO income for the nine months ended September 30, 2008 of $32.9 million, or $1.33 per diluted common share.(1)

As previously disclosed, in August 2009, the Company transferred its remaining 7.5% interest in Prime Outlets, at a value of $8.5 million, in exchange for preferred and common operating partnership units of Lightstone Value Plus REIT L.P. The Company owned its 7.5% interest through a 50% non-controlling interest in an unconsolidated joint venture, which had a 15% interest in Prime Outlets. In connection with this transaction, through the unconsolidated joint venture, Arbor borrowed $7.7 million from Lightstone Value Plus Real Estate Investment Trust, Inc, which is secured by the preferred and common operating partnership units and has an eight year term. After five years, the preferred units may be redeemed by Lightstone Value Plus REIT L.P. for cash and the loan would become due upon such redemption. The preferred operating partnership units yield 4.63% and the loan bears interest at a rate of 4%. The Company also received a broker fee of $2.2 million related to this transaction. The Company received $9.9 million in cash and recorded, in its third quarter 2009 financial statements, a net investment of $0.9 million in this unconsolidated joint venture and income from equity affiliates of $10.7 million related to this transaction.

During the third quarter of 2009, the Company purchased, at a discount, approximately $7.9 million of investment grade rated bonds originally issued by two of the Company's three CDO issuing entities. The Company recorded a net gain on early extinguishment of debt of $6.3 million related to these transactions. The purchases were reflected on the Company's balance sheet as a reduction of the corresponding outstanding debt totaling $7.9 million.

The net balance in the loan and investment portfolio, excluding loan loss reserves, was $2.2 billion at September 30, 2009, compared to $2.2 billion at June 30, 2009. The average balance of the loan and investment portfolio, excluding loan loss reserves, during the third quarter of 2009 was $2.2 billion and the average yield on these assets for the quarter was 5.36%, compared to $2.3 billion and 5.41% for the second quarter of 2009.

At September 30, 2009 and June 30, 2009, the balance of debt financing on the loan and investment portfolio was $1.8 billion. The average balance of debt financing on the loan and investment portfolio during the third quarter of 2009 was $1.8 billion and the average cost of these borrowings was 4.49%, compared to $1.9 billion and 4.45% for the second quarter of 2009. In addition, the third quarter of 2009 included $1.7 million of interest expense for a change in the market value of certain interest rate swaps in accordance with GAAP, as compared to $2.6 million of interest expense in the second quarter of 2009. Excluding the effect of these swaps, the average cost of borrowings for the third quarter of 2009 was 4.12%, as compared to 3.90% for the second quarter of 2009.

As previously disclosed, on August 6, 2009, the Company amended its management agreement with Arbor Commercial Mortgage, LLC, the Company's external manager. The amendment was negotiated by a special committee of the Company's Board of Directors, consisting solely of independent directors, and was approved by all of the independent directors. JMP Securities LLC served as financial advisor to the special committee and Skadden, Arps, Slate, Meagher & Flom LLP served as its special counsel. The significant amendments were as follows:

--  The previous base management fee structure, which was calculated as a
percentage of the Company's equity, has been replaced with an
arrangement whereby the Company will reimburse the manager for its
actual costs incurred in managing the Company's business based on the
parties' agreement in advance on an annual budget with subsequent
quarterly true-ups to actual costs. This change was adopted
retroactively to January 1, 2009 and the Company estimates the 2009 base
management fee will be approximately $8 million. Concurrent with this
change, all future origination fees on investments will be retained by
the Company as opposed to the manager earning up to the first one
percent of all origination fees in the previous agreement. In addition,
the Company made a $3 million payment to the manager in consideration of
expenses incurred by the manager in 2008 in managing the Company's
business and certain other services.
--  The percentage hurdle for the incentive fee will be applied on a per
share basis to the greater of $10.00 and the average gross proceeds per
share, whereas the previous management agreement provided for such
percentage hurdle to be applied only to the average gross proceeds per
share. In addition, only 60% of any loan loss and other reserve
recoveries will be eligible to be included in the incentive fee
calculation, which will be spread over a three year period, whereas the
previous management agreement did not limit the inclusion of such
recoveries in the incentive fee calculation.
--  The amended management agreement will allow the Company to consider,
from time to time, the payment of additional incentive fees to the
manager for accomplishing certain specified corporate objectives.  In
the third quarter, the Company made a $4.1 million payment to the
manager in consideration of the successful restructuring of
approximately $373.9 million of financing with Wachovia Bank, National
Association ("Wachovia"), along with all of its trust preferred
securities.
--  The amended management agreement modifies and simplifies the provisions
related to the termination of the agreement and any related fees payable
in such instances, including for internalization, with a termination fee
of $10 million, rather than a multiple of base and incentive fees as
previously existed.

--  The amended management agreement will remain in effect until December
31, 2010, and will be renewed automatically for successive one-year
terms thereafter.

As a result, for the third quarter 2009, the Company recorded management fee expense of $6.1 million, as compared to $6.3 million for the second quarter of 2009.

Financing Activity

As previously disclosed, in July 2009, the Company announced the restructuring of its three financing facilities with Wachovia totaling $373.9 million. The amendments included a three year extension, the virtual elimination of all margin call provisions relating to collateral value as long as required term loan reductions are met, significantly reduced covenants, quarter and semi-annual paydown requirements subject to certain conditions and an overall average increase in interest rate spread over LIBOR of approximately 180 basis points. In addition, the Company's CEO and Chairman, Ivan Kaufman, is required to remain an officer or director of the Company for the term of the facilities. 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%) unless the term loan facility balance is reduced to $210 million, the working capital facility is reduced to $30 million and the Company maintains $35 million of minimum liquidity. Lastly, the Company agreed to pay a 1% commitment fee and issue 1.0 million warrants at an average strike price of $4.00 which expire in July 2015. Subsequent to the closing of this restructuring, the Company reduced the balance of these facilities by $38.3 million during the third quarter. At September 30, 2009, these facilities had an outstanding balance of $335.6 million.

As previously disclosed, in July 2009, the Company amended its remaining $18.7 million of trust preferred securities that were not exchanged as part of the May 2009 trust preferred restructuring transaction. The Company amended the $18.7 million of junior subordinated notes to $20.9 million of unsecured junior subordinated notes, representing 112% of the original face amount. The terms of this transaction were similar to the May 2009 exchange.

As of September 30, 2009, Arbor's financing facilities for its loan and investment portfolio totaled approximately $1.8 billion and borrowings outstanding under such facilities were $1.8 billion.

During the quarter, the Company reduced its outstanding warehouse and term debt outstanding balances by approximately $51.2 million through a combination of loan payoffs, assets being moved into the Company's CDO vehicles, and the monetization of certain investments.

The Company is subject to various financial covenants and restrictions by each of the Company's CDO and credit facilities. Based on the unaudited financial statements in this release, the Company believes that it was in compliance with all credit facility financial covenants and restrictions as of September 30, 2009.

Portfolio Activity

During the quarter, Arbor originated one new mezzanine loan totaling $2 million.

During the quarter, three loans paid off with an outstanding balance of approximately $16 million, including a $0.3 million loss on the payoff of one loan and three loans had paydowns and reductions totaling approximately $23 million, of which $15 million were charge-offs against loan loss reserves on the restructuring of two loans. In addition, eight loans were either refinanced or modified with Arbor totaling $215 million, of which two loans totaling approximately $83 million were scheduled to repay during the quarter.

Additionally, 15 loans totaling approximately $369 million were extended during the quarter in accordance with the extension options of the corresponding loan agreements.

At September 30, 2009, the loan and investment portfolio unpaid principal balance, excluding loan loss reserves, was $2.2 billion, with a weighted average current interest pay rate of 5.15%. At the same date, advances on financing facilities pertaining to the loan and investment portfolio totaled approximately $1.8 billion, with a weighted average interest rate of 3.87% excluding financing costs, interest rate swap costs and changes in the market value of certain interest rate swaps.

As of September 30, 2009, Arbor's loan portfolio consisted of 35% fixed-rate and 65% variable rate loans.

In August 2009, the Company foreclosed on a property in which the Company has a $9.9 million bridge loan for which a $4.3 million provision for loan loss was established, of which $1.8 million was recorded in the third quarter of 2009.