Arbor Realty Trust, Inc. (NYSE: ABR), issued a letter today to
shareholders to provide a Company update.
Dear Arbor Shareholder,
Given the extraordinary impact of the COVID-19
pandemic on the economy, the financial markets and our daily lives,
I want to provide an update for our shareholders on certain areas
of our business and the steps we are taking to address the crisis.
I assure you, as the Company’s largest shareholder, my primary
objective is to maximize long-term shareholder value.
Liquidity
This unprecedented environment has caused
significant disruption and liquidity constraints in many market
segments, including the financial services, real estate and credit
markets. Many commercial mortgage REITs have suffered from reduced
available liquidity and significant margin calls on assets and
securities that are financed through short-term repurchase
facilities. We have always run our business with a heavy focus on
the right side of our balance sheet, particularly in financing a
large portion of our loans through non-recourse, non-mark-to-market
long-dated CLO vehicles, as well as longer term unsecured debt
facilities. That commitment to maintaining a strong balance sheet
and careful capital management allows me to report that we
currently have approximately $350 million in cash and available
liquidity.
Our balance sheet portfolio is approximately
$4.8 billion as of March 31, 2020 with $3.4 billion of debt
financing those assets. Approximately $2.6 billion, or 76% of that
debt, is in non-recourse CLOs and approximately $800 million is
financed through warehouse and repurchase facilities with eight
different banks that we have long standing relationships with.
Additionally, the majority of the loans being financed in these
bank lines are also rated and CLO eligible.
As of a month ago, we had approximately $350
million of securities financed with approximately $235 million of
debt that were subject to margin calls related to changes in
spreads. To date, we have paid $95 million in margin calls, which
reduced this debt to $140 million. Recently we restructured a
portion of this debt, and we now have $79 million of debt
remaining, with margin call exposure, against $170 million of
securities, reflecting a 46% advance rate. We feel that based
on the reduced position and current marks that this is well within
our ability to manage.
In addition, we have aggregated approximately
$650 million of multifamily loans for securitization that are
financed with approximately $500 million of debt. These loans are
currently being rated by the agencies and with the recent inclusion
of CMBS in TALF, we feel confident that we will be able to
securitize and distribute this position in the market in the next
90 days.
Federal and State Initiatives
We have been patient in our approach to
communication as we were waiting for the dust to settle to properly
evaluate not only the impact that the crisis would have on our
assets, but even more importantly to properly understand the
programs that the federal and state governments implemented and the
effects they could have on our business and our customers.
The federal government, Fannie Mae and Freddie
Mac have made certain forbearance and non-eviction programs
available to borrowers and tenants should they need to counteract
any short-term pressure on their properties from COVID-19 and its
impact on the economy. To be clear, these mandates are not rent
holidays. As to tenants, they merely prohibit eviction proceedings
for a three month period. As to borrowers, in order to qualify for
a forbearance, they need to demonstrate that they have been
adversely affected by the crisis and their ability to make their
loan payments has been similarly impacted. Most importantly, all
loan and rent payments that are suspended remain the obligations of
the borrowers and tenants, respectively, and to date we have
received forbearance requests from approximately 2% of our
borrowers related to April payments that we are currently
evaluating.
Operating Outlook
We have created a fully integrated diversified
operating platform. As a result, we have been very active in
providing liquidity to the multifamily market through our sizable
agency business. We originated $1.1 billion in agency loans in the
first quarter, which is up from $850 million in originations for
the first quarter of 2019, and our agency pipeline is up to $1.6
billion compared to $1.2 billion at the same time last year. In
this unprecedented environment, our agency platform offers a
premium value as it requires limited capital and generates
significant, long-dated, predictable income streams. Just as
importantly, it allows us to retain our staff and generates
significant annual cash flow. Our $20 billion agency servicing
portfolio, which is mostly prepayment protected, generates
approximately $90 million a year in recurring cash flow, in
addition to the strong gain on sale margins we generate from our
deep agency origination platform.
In our agency business, we have seen positive
trends related to April payments with approximately 2% of our
portfolio requesting forbearance. With respect to our outlook for
May and June payments, we do think there will be some economic
stress, although we also think it will be largely mitigated or
offset by enhanced unemployment insurance and other economic
stimulus programs the government is offering, including the
Paycheck Protection Program, which will assist our borrowers with
their payroll costs. In addition, the average debt service coverage
ratio in our agency portfolio, based mostly on year-end 2019
financial data, is approximately 1.65, which means that borrowers
could withstand, on average, a 20% economic vacancy due to the
effects of the virus, before it impairs their ability to meet their
debt service.
With respect to servicing advances related to
any potential forbearance claims, as a Fannie Mae servicer we are
required to advance principal and interest payments for a period of
up to four months. We are in the process of evaluating potential
servicing advance borrowing facilities with our banks and federal
programs, as well as working as an industry with the agencies on
potential advance reimbursements, and as a result, we believe this
will not be a material issue for us.
With respect to our balance sheet portfolio,
approximately 82% of our portfolio is in multifamily assets with
most of these loans containing interest reserves and/or
replenishment obligations by our borrowers giving us the ability to
effectively manage our portfolio through this
dislocation.
We also have very little exposure to some of the
other asset classes that have been affected by the crisis. We have
only two hotel loans totaling $91 million and one material retail
loan for $33 million that is unlevered, on our balance sheet.
As to our dividend, it is too early to determine
our short and long-term strategy, but I am confident that our Board
of Directors will make dividend decisions in the best long-term
interests of you, our shareholders. Our daily focus will be to
continue to maintain adequate liquidity to successfully navigate
through the current dislocation.
We are also very fortunate to have a tenured,
proven senior management team that has a proven track record of
managing in all cycles, including the 2008 financial crisis. This
team has over 20% inside ownership, which represents the highest
inside ownership of any commercial mortgage REIT.
In summary, we feel we have sufficient liquidity
to navigate through this unprecedented dislocation. We also are
predominately multifamily focused, which has been the most
resilient asset class in all cycles. We have minimized our exposure
to mark-to-mark risk related to our securities and our liability
structures are very stable. We are very fortunate that our
franchise includes an agency business that is extremely valuable as
it is capital light and produces significant recurring earnings and
cash flow.
I hope you and your families maintain good
health during these challenging times and I thank you for your
support. We remain completely focused on preserving long-term value
for our shareholders.
Ivan KaufmanChairman and Chief Executive
Officer
About Arbor Realty Trust, Inc.
Arbor Realty Trust, Inc. (NYSE: ABR) is a
nationwide real estate investment trust and direct lender,
providing loan origination and servicing for multifamily, seniors
housing, healthcare and other diverse commercial real estate
assets. Headquartered in New York, Arbor manages a
multibillion-dollar servicing portfolio, specializing in
government-sponsored enterprise products. Arbor is a Fannie Mae
DUS® lender and Freddie Mac Optigo Seller/Servicer. Arbor’s product
platform also includes CMBS, bridge, mezzanine and preferred equity
lending. Rated by Standard and Poor’s and Fitch Ratings, Arbor is
committed to building on its reputation for service, quality and
customized solutions with an unparalleled dedication to providing
our clients excellence over the entire life of a loan.
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, availability of financing, the continued impact of the
ongoing global COVID-19 pandemic and other risks detailed in
Arbor’s Annual Report on Form 10-K for the year ended December 31,
2019 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.
Contacts:Arbor Realty Trust,
Inc.Paul Elenio, Chief Financial Officer 516-506-4422
pelenio@arbor.com |
Investors:The Ruth GroupAlexander
Lobo646-536-7037alobo@theruthgroup.com |
Media:Bonnie Habyan, Chief
Marketing Officer516-506-4615bhabyan@arbor.com |
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