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our Structured Loan Origination and Investment Business, or “Structured Business,” and our Agency Loan Origination and Servicing Business, or “Agency Business.”
−Removed: Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, single-family rental (“SFR”) and commercial real estate markets, primarily consisting of bridge and mezzanine loans, including junior participating interests in first mortgages and preferred and direct equity.
+Added: Through our Structured Business, we invest in a diversified portfolio of structured finance assets in the multifamily, single-family rental (“SFR”) and commercial real estate markets, primarily consisting of bridge loans, in addition to mezzanine loans, junior participating interests in first mortgages and preferred and direct equity.
We also invest in real estate-related joint ventures and may directly acquire real property and invest in real estate-related notes and certain mortgage-related securities.
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We pool and securitize the Private Label loans and sell certificates in the securitizations to third-party investors, while retaining the servicing rights and the highest risk bottom tranche certificate of the securitization (“APL certificates”).
−Removed: Substantially all our operations are conducted through our operating partnership, Arbor Realty Limited Partnership (“ARLP”), for which we serve as the indirect general partner, and ARLP’s subsidiaries.
+Added: Substantially all of our operations are conducted through our operating partnership, Arbor Realty Limited Partnership (“ARLP”), for which we serve as the indirect general partner, and ARLP’s subsidiaries.
We are organized to qualify as a real estate investment trust (“REIT”) for U.S.
federal income tax purposes.
−Removed: A REIT is generally not subject to federal income tax on that portion of its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of taxable income is distributed and provided that certain other requirements are met.
+Added: A REIT is generally not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of its REIT-taxable income is distributed and provided that certain other requirements are met.
Certain of our assets that produce non-qualifying REIT income, primarily within the Agency Business, are operated through taxable REIT subsidiaries (“TRS”), which are part of our TRS consolidated group (the “TRS Consolidated Group”) and are subject to U.S.
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Business Objectives and Strategy
−Removed: Our principal business objectives are to maximize the difference between the yield on our investments and the cost of financing these investments, to grow the stable earnings associated with the servicing portfolio of our agency platform, to generate cash available for distribution and facilitate capital appreciation.
−Removed: We believe we can achieve these objectives and maximize the total return to our stockholders through the following investment strategies.
+Added: We have an annuity-based business model that drives our diversified income streams to produce consistent earnings growth and to maximize the total return to our stockholders.
+Added: In our Structured Business, our primary focus is on maximizing the interest margin on our loans (yield on investments less cost to finance investments) and growing our loan portfolio which also provides a pipeline to growth in our Agency/GSE servicing portfolio.
+Added: In our Agency Business, our primary focus is growing the fees generated from our origination platform and the stable earnings associated with our servicing portfolio.
+Added: Our primary objectives are to generate cash available for distribution and facilitate capital appreciation, which we believe can be achieved through the following investment strategies.
Investment Strategy
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We act quickly and decisively on proposals, provide commitments and close transactions within a few weeks and sometimes days, if required.
−Removed: We believe that our rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available.
−Removed: We believe our ability to structure flexible terms and close loans quickly gives us a competitive advantage.
+Added: We believe that our rapid execution attracts opportunities from both borrowers and other lenders that would not otherwise be available and that our ability to structure flexible terms and close loans quickly gives us a competitive advantage.
Manage Credit Quality.
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Borrowers typically use the proceeds of a conventional mortgage, such as our GSE/agency loans, to repay a bridge loan.
−Removed: Preferred Equity Investments.
−Removed: We provide financing by making preferred equity investments in entities that directly or indirectly own real property.
−Removed: In cases where the terms of a first mortgage prohibit additional liens on the ownership entity, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes.
−Removed: With preferred equity
−Removed: investments, we typically become a member in the ownership entity.
−Removed: Similar to our bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests.
+Added: SFR Portfolio Financing.
+Added: We offer various financing products to borrowers who are looking to acquire conventional, workforce and affordable single-family rental housing.
+Added: These borrowers are usually looking to purchase properties to hold for the long-term with permanent financing or acquire investments to develop with bridge, build-to-rent or line of credit financing options.
Mezzanine Financing.
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We hold a majority of our mezzanine loans through subsidiaries of our operating partnership that are pass-through entities for tax purposes.
+Added: Preferred Equity Investments.
+Added: We provide financing by making preferred equity investments in entities that directly or indirectly own real property.
+Added: In cases where the terms of a first mortgage prohibit additional liens on the ownership entity, such as in mezzanine financing, investments structured as preferred equity in the entity owning the property serve as viable financing substitutes.
+Added: With preferred equity investments, we typically become a member in the ownership entity.
+Added: Similar to our bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests.
Junior Participation Financing.
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Similar to our bridge loans, the yield on these investments may be enhanced by prepaid and deferred interest payments, yield look-backs and participating interests.
−Removed: SFR Portfolio Financing.
−Removed: We offer various financing products to borrowers who are looking to acquire conventional, workforce and affordable single-family housing.
−Removed: These borrowers are usually looking to purchase properties to hold for the long-term with permanent financing or acquire investments to develop with bridge, build-to-rent or line of credit financing options.
Structured Transactions.
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We are one of 25 approved lenders that participate in Fannie Mae’s DUS program and one of 22 lenders approved as a Freddie Mac Multifamily Conventional Loan lender for multifamily, manufactured, student, affordable and certain seniors housing properties, one of 12 participants in the Freddie Mac SBL program and an approved HUD MAP and LEAN lender providing construction permanent loans to developers and owners of multifamily housing, affordable housing, seniors housing and healthcare facilities.
−Removed: Our Agency Business underwrites, originates, sells and services multifamily mortgage loans across the U.S.
−Removed: through these programs and also originates and sells loans through the conduit markets.
+Added: We underwrite, originate, sell and service multifamily mortgage loans across the U.S.
+Added: through the GSE and HUD programs and also originate and sell loans through the conduit markets.
Our focus is primarily on small balance loans.
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Structured Business Portfolio Overview
−Removed: Product type and asset class information about our loan and investment portfolio as of December 31, 2021 is as follows ($ in thousands):
+Added: Loan and investment portfolio product type and asset class information at December 31, 2022 is as follows ($ in thousands):
Remaining Months
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Single‑Family Rental
−Removed: (1) “Weighted Average Pay Rate” is a weighted average, based on each loan’s unpaid principal balances (“UPB”), of our interest rate required to be paid monthly as stated in the individual loan agreements.
+Added: (1) “Weighted Average Pay Rate” is a weighted average, based on each loan’s unpaid principal balance (“UPB”), of our interest rate 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 maturity are not included in the weighted average pay rate as shown in the table.
Including certain fees earned and costs associated with the structured portfolio, the weighted average current interest rate was 8.42%.
−Removed: Asset class and geographic concentration information for our loan and investment portfolio as of December 31, 2021, is as follows ($ in thousands):
+Added: Loan and investment portfolio asset class and geographic concentration information at December 31, 2022 is as follows ($ in thousands):
Concentrations
Single-Family Rental
−Removed: Student Housing
North Carolina
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Our cost of funds in 2022 was 4.07% on average borrowings of $13.24 billion, which was computed by dividing the interest expense incurred during 2022 by the average borrowings during 2022.
−Removed: As of December 31, 2021, our loan and investment portfolio were comprised of 96% floating rate loans and 4% fixed rate loans.
+Added: At December 31, 2022, our loan and investment portfolio were comprised of 97% floating rate loans and 3% fixed rate loans.
We also own unconsolidated investments in equity affiliates totaling $79.1 million, which consists primarily of a joint venture formed to invest in a residential mortgage banking business and an investment in a multifamily-focused commercial real estate investment fund.
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Our gains and fees as a percentage of our loan sales volume (“sales margin”) was 134 basis points for 2022.
−Removed: We also retain the mortgage servicing rights (“MSRs”) on substantially all the loans we originate, and record as revenue the fair value of the expected net future cash flows associated with the servicing of these loans.
+Added: We also retain the mortgage servicing rights (“MSRs”) on substantially all loans we originate, and record as revenue the fair value of the expected net future cash flows associated with the servicing of these loans.
Servicing revenue is generated from the fees we receive for servicing the loans and on escrow deposits held on behalf of borrowers, net of amortization on the MSR assets.
Our income from MSRs as a percentage of loan commitment volume (“MSR rate”) was 135 basis points for 2022.
−Removed: Product and geographic concentration information about our Agency Business servicing portfolio as of December 31, 2021 is as follows ($ in thousands):
+Added: Agency Business servicing portfolio product and geographic concentration information at December 31, 2022 is as follows ($ in thousands):
Product Concentrations
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The underwriters analyze each loan application in accordance with the guidelines below to determine the loan’s conformity with the guidelines.
−Removed: considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property financial and operating performance.
+Added: Key factors considered in credit decisions include, but are not limited to, debt service coverage, loan to value ratios and property financial and operating performance.
In general, our underwriting guidelines require evaluation of the following:
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● Potential for near-term revenue growth and opportunity for expense reduction and increased operating efficiencies;
−Removed: ● The property’s location, its attributes and competitive position within its market;
+Added: ● Property location, its attributes and competitive position within its market;
● Proposed ownership structure, financial strength and real estate experience of the borrower and property management;
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In addition, we are required to submit a completed loan underwriting package to Freddie Mac and HUD for approval prior to origination.
−Removed: We service all loans and investments through our internal loan servicing department in Depew, New York.
+Added: We service all loans and investments through our internal loan servicing department in Tonawanda, New York.
Our loan servicing operations are designed to provide prompt customer service and accurate and timely information for account follow up, financial reporting and management review.
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Our Structured Business investments are financed primarily by collateralized loan obligations (“CLOs”) and credit and repurchase facilities with institutional lenders.
−Removed: We also finance the business through public and private offerings of our equity and debt, including senior and convertible debt instruments and common stock or preferred stock, when it appears advantageous to do so.
+Added: We also finance the business through public and private offerings of our equity and debt, including common and preferred stock issuances, senior and convertible debt instruments and other loan securitization arrangements, when it appears advantageous to do so.
Our Agency Business finances loan originations with several committed and uncommitted warehouse credit facilities on a short-term basis, as these loans are generally transferred or sold within 60 days from the loan origination date.
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We, including our chief credit officer and our asset management group, review and monitor credit risk and other risks of loss associated with each investment.
−Removed: In addition, within our primary business line of financing multi-family assets, we seek to diversify our portfolio to avoid undue geographic, issuer, industry and certain other types of concentrations.
+Added: In addition, within our primary business line of financing multifamily assets, we seek to diversify our portfolio to avoid undue geographic, issuer, industry and certain other types of concentrations.
Our Board of Directors monitors the overall portfolio risk and reviews levels of provision for loss.
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We minimize our interest rate risk from borrowings by attempting to structure the key terms of our borrowings to generally correspond to the interest rate terms of our assets.
−Removed: We may enter into hedging transactions to protect our investment portfolio from interest rate fluctuations and credit risk exposure.
−Removed: These transactions may include interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments.
+Added: We enter into hedging transactions to protect our investment portfolio from interest rate and credit risk exposures.
+Added: These transactions may include interest rate and credit default swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments.
These instruments may be used to hedge as much of the interest rate risk we determine is in the best interest of our stockholders, given the cost of such hedges and the need to maintain our status as a REIT.
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Subject to applicable law, our Board of Directors has the authority, without further stockholder approval, to issue additional authorized common stock and preferred stock or otherwise raise capital, including through the issuance of senior securities and convertible debt instruments, in any manner and on the terms and for the consideration it deems appropriate, including in exchange for property.
−Removed: We may in the future issue common stock in connection with acquisitions.
−Removed: We also may issue units of partnership interest in our operating partnership in connection with acquisitions.
+Added: We may in the future issue common stock or units of partnership interest in our operating partnership in connection with acquisitions.
We may, under certain circumstances, repurchase our common stock in private transactions with our stockholders, if those purchases are approved by our Board of Directors.
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We, our executive officers, and Arbor Commercial Mortgage, LLC (“ACM”) face conflicts of interests because of our relationships with each other and the way in which our business is structured.
−Removed: ACM has approximately 8% of the voting interest in our stock as of December 31, 2021.
−Removed: Our chairman and chief executive officer is also the chief executive officer of ACM, beneficially owns approximately 35% of the outstanding membership interests of ACM and controls all voting interests in ACM.
+Added: ACM has approximately 7% of the voting interest in our stock at December 31, 2022.
+Added: Our chairman and chief executive officer also serves as the chief executive officer of ACM, beneficially owns approximately 35% of the outstanding membership interests of ACM and controls all voting interests in ACM.
One of our directors is the chief operating officer of Arbor Management, LLC (the managing member of ACM) and a trustee of two trusts that own noncontrolling membership interests in ACM.
−Removed: In addition, our general counsel, chief financial officer and our treasurer also perform similar roles for ACM.
+Added: In addition, our chief financial officer, our treasurer and some of our counsel also perform similar roles for ACM, and another of our executive officers’ acts as the general counsel of ACM.
Our chief executive officer, one of our directors and certain aforementioned executive officers are members of ACM’s executive committee and, excluding our chief executive officer, own minority membership interests in ACM.
We have implemented several policies, through board action and through the terms of our charter and our agreements with ACM, to help address these conflicts of interest, including the following:
−Removed: ● Our charter requires that a majority of our Board of Directors be independent directors and that only our independent directors make any determination on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers;
+Added: ● Our charter requires that a majority of our Board of Directors be independent directors and that only independent directors make any determination on our behalf with respect to the relationships or transactions that present a conflict of interest for our directors or officers;
● Decisions concerning our participation in any transaction with ACM, or its affiliates, including our ability to purchase securities and mortgages or other assets from ACM, or our ability to sell securities and assets to ACM, must be reviewed and approved or ratified by a majority of our independent directors.
Our Board of Directors has approved the operating policies and the strategies set forth above.
−Removed: Our Board of Directors has the power to modify or waive these policies and strategies without the consent of our stockholders to the extent that the Board of Directors
−Removed: determines that such modification or waiver is in the best interest of our stockholders.
+Added: Our Board of Directors has the power to modify or waive these policies and strategies without the consent of our stockholders to the extent that the Board of Directors determines that such modification or waiver is in the best interest of our stockholders.
Among other factors, developments in the market that either affects the policies and strategies mentioned herein, or that change our assessment of the market, may cause our Board of Directors to revise its policies and strategies.
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All employees are eligible for health insurance, including mental health coverage, prescription drug benefits, dental and vision insurance, flexible spending accounts, paid and unpaid leaves, disability/accident coverage and participation in a 401K plan.
−Removed: We have also implemented a flexible telecommuting policy, which allows eligible employees to work remotely for up to two days per week.
−Removed: To assess and improve employee retention and engagement, we conduct periodic employee surveys and take actions to address areas of employee concerns.
+Added: We also have a flexible telecommuting policy, which allows eligible employees to work remotely one day per week.
+Added: To assess and improve employee retention and engagement, we conduct periodic employee surveys and take actions designed to address areas of employee concerns.
We believe the combination of competitive compensation, career growth and development opportunities, including promoting employees from within, have helped manage our employee tenure and voluntary turnover.
Corporate Governance and Internet Address
+Added: Effective February 15, 2023, our Board of Directors approved and adopted the amended and restated bylaws.
+Added: The bylaws include revisions to Article II, Section 1 to clarify that all meetings of stockholders may be held partially or solely by means of remote communication.
+Added: The prior bylaws mandated that all meetings of stockholders be held at a physical location.
+Added: There were also a number of other changes made that were deemed necessary to conform to the Securities and Exchange Commission’s (“SEC”) universal proxy rules.
+Added: The foregoing description of the bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the bylaws, a copy of which is attached hereto as Exhibit 3.9.
Our internet address is www.arbor.com.
−Removed: All our filings with the Securities and Exchange Commission (“SEC”) are made available free of charge through our website, including this report, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, if any, as filed with the SEC as soon as reasonably practicable after such filing.
+Added: All our filings with the SEC are made available free of charge through our website, including this report, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports, if any, as filed with the SEC as soon as reasonably practicable after such filing.
Our website also contains our code of business conduct and ethics, code of ethics for chief executive and senior financial officers, corporate governance guidelines, stockholder communications with the Board of Directors, and the charters of the key committees of our Board of Directors.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.