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Arbor Realty Trust Reports Fourth Quarter and Full Year 2019 Results and Declares Common Stock Dividend

/EIN News/ -- Fourth Quarter Highlights:

  • GAAP net income of $0.34 per diluted common share
  • AFFO per diluted common share of $0.34, excluding a one-time loss from the early repayment of debt and gains from derivative instruments1
  • Raised $250.7 million of accretive growth capital through the issuance of common stock and senior unsecured notes
  • Issued $264.0 million of 4.75% convertible senior notes due 2022 to exchange our 5.25% convertible senior notes
  • Declares a cash dividend on common stock of $0.30 per share, 11% higher than a year ago

Agency Business

  • Segment income of $33.2 million
  • Loan originations of $1.26 billion
  • Servicing portfolio of $20.06 billion representing 8% growth for 2019

Structured Business

  • Segment income of $9.5 million
  • Portfolio growth of 8% on $831.4 million of loan originations
  • Closed a $635.0 million collateralized securitization vehicle with improved terms

Full Year Highlights:

  • GAAP net income of $1.27 and AFFO of $1.36 per diluted common share1
  • Record loan originations of $7.61 billion, a 12% increase over 2018
  • Structured portfolio growth of 30% from record loan originations of $2.80 billion
  • Significant return to shareholders of 54% for 2019
  • Raised common dividend three times in 2019 to a forward annual rate of $1.20 per share, up from $1.08 per share a year ago
  • Continued focus on improving our funding sources by increasing warehouse capacity by $1.00 billion, adding two collateralized securitization vehicles totaling $1.29 billion and issuing $264.0 million of convertible senior notes, replacing higher cost debt
  • Raised $456.9 million of accretive growth capital through the issuance of common stock and senior unsecured notes at attractive terms
  • Launched the single-family rental portfolio and private label programs, further diversifying our lending platform

UNIONDALE, N.Y., Feb. 14, 2020 (GLOBE NEWSWIRE) -- Arbor Realty Trust, Inc. (NYSE:ABR), today announced financial results for the fourth quarter and year ended December 31, 2019.  Arbor reported net income for the quarter of $35.5 million, or $0.34 per diluted common share, compared to $37.2 million, or $0.47 per diluted common share for the quarter ended December 31, 2018.  Net income for the year was $121.1 million, or $1.27 per diluted common share, compared to $108.3 million, or $1.50 per diluted common share for the year ended December 31, 2018. Adjusted funds from operations (“AFFO”) for the quarter was $42.1 million, or $0.34 per diluted common share, compared to $29.0 million, or $0.29 per diluted common share for the quarter ended December 31, 2018.  AFFO for the year was $158.0 million, or $1.36 per diluted common share, compared to $118.1 million, or $1.26 per diluted common share for the year ended December 31, 2018.1

Agency Business

Loan Origination Platform

Agency Loan Volume  (in thousands)
    Quarter Ended   Year Ended
    December 31, 2019   September 30, 2019   December 31, 2019   December 31, 2018
Fannie Mae   $   764,314   $   1,097,095   $   3,346,272   $   3,332,100
Freddie Mac     96,993     203,981     728,317     1,587,958
FHA     78,428     -      123,095     153,523
CMBS/Conduit     -      34,000     211,325     50,908
Private Label     320,476     80,740     401,216     - 
Total Originations   $   1,260,211   $   1,415,816   $   4,810,225   $   5,124,489
                 
Total Loan Sales   $   887,868   $   1,488,430   $   4,401,112   $   4,924,144
                 
Total Loan Commitments   $   1,203,194   $   1,477,436   $   4,829,721   $   5,104,072
                 

For the quarter ended December 31, 2019, the Agency Business generated revenues of $68.5 million, compared to $67.0 million for the third quarter of 2019. Gain on sales, including fee-based services, net was $13.8 million for the quarter, reflecting a margin of 1.55% on loan sales, compared to $21.3 million and 1.43% for the third quarter of 2019. Income from mortgage servicing rights was $27.9 million for the quarter, reflecting a rate of 2.32% as a percentage of loan commitments, compared to $29.9 million and 2.02% for the third quarter of 2019. 

At December 31, 2019, loans held-for-sale was $861.4 million which was primarily comprised of unpaid principal balances totaling $847.1 million, with financing associated with these loans totaling $743.6 million.

Fee-Based Servicing Portfolio

Our fee-based servicing portfolio totaled $20.06 billion at December 31, 2019, an increase of 0.4% from September 30, 2019, primarily a result of $939.7 million of new loan originations (excluding $320.5 million of private label loans that are yet to be sold), net of $846.5 million in portfolio runoff during the quarter. Servicing revenue, net was $14.6 million for the quarter and consisted of servicing revenue of $26.5 million, net of amortization of mortgage servicing rights totaling $12.0 million.

    Fee-Based Servicing Portfolio ($ in thousands)
    As of December 31, 2019   As of September 30, 2019
    UPB Wtd. Avg. Fee Wtd. Avg. Life
(in years)
  UPB Wtd. Avg. Fee Wtd. Avg. Life
(in years)
Fannie Mae   $   14,832,844 0.493% 7.8   $   14,616,816 0.492% 8.1
Freddie Mac     4,534,714 0.300% 10.6     4,664,750 0.300% 11.0
FHA     691,519 0.154% 18.7     684,316 0.154% 19.2
Total   $   20,059,077 0.438% 8.8   $   19,965,882 0.435% 9.2
                 

Loans sold under the Fannie Mae program contain an obligation to partially guarantee the performance of the loan (“loss-sharing obligations”). At December 31, 2019, the Company’s allowance for loss-sharing obligations was $34.6 million, representing 0.23% of the Fannie Mae servicing portfolio.

Structured Business

Portfolio and Investment Activity

Quarter ended December 31, 2019:

  • Originated 66 loans totaling $831.4 million, of which $799.2 million was funded at December 31, 2019, and consisted primarily of 51 bridge loans totaling $765.0 million
  • Payoffs and pay downs on 25 loans totaling $508.9 million
  • Portfolio growth of $317.9 million, or 8%

Year ended December 31, 2019:

  • Record origination volume of $2.80 billion, a 69% increase from 2018, and consists of 173 new loan originations, of which 140 were bridge loans for $2.60 billion
  • Payoffs and pay downs on 137 loans totaling $1.75 billion
  • Portfolio growth of $1.00 billion, or 30%

At December 31, 2019, the loan and investment portfolio’s unpaid principal balance, excluding loan loss reserves, was $4.29 billion, with a weighted average current interest pay rate of 5.98%, compared to $3.97 billion and 6.33% at September 30, 2019.  Including certain fees earned and costs associated with the loan and investment portfolio, the weighted average current interest pay rate was 6.68% at December 31, 2019, compared to 7.04% at September 30, 2019.

The average balance of the Company’s loan and investment portfolio during the fourth quarter of 2019, excluding loan loss reserves, was $4.02 billion with a weighted average yield of 7.18%, compared to $3.94 billion and 7.31% for the third quarter of 2019. The decrease in average yield was primarily due to a decrease in LIBOR in the fourth quarter, partially offset by higher fees on loan payoffs in the fourth quarter as compared to the third quarter.

At December 31, 2019, the Company’s total loan loss reserves were $71.1 million on five loans with an aggregate carrying value before loan loss reserves of $130.7 million. The Company also had three non-performing loans with a carrying value of $3.5 million, net of related loan loss reserves of $1.7 million.

Financing Activity

The Company completed its twelfth collateralized securitization vehicle (“CLO XII”) totaling $635.0 million of real estate related assets and cash. Investment grade-rated notes totaling $534.2 million were issued, and the Company retained subordinate interests in the issuing vehicle of $100.8 million. The facility has a three-year asset replenishment period and an initial weighted average interest rate of 1.50% over LIBOR, excluding fees and transaction costs.

The Company completed the unwind of CLO VII, redeeming $279.0 million of outstanding notes repaid with proceeds received from the refinancing of CLO VII’s outstanding assets primarily within CLO XII, which has an interest rate 49 basis points lower than CLO VII.

The balance of debt that finances the Company’s loan and investment portfolio at December 31, 2019 was $3.93 billion with a weighted average interest rate including fees of 4.35% as compared to $3.52 billion and a rate of 4.65% at September 30, 2019. The average balance of debt that finances the Company’s loan and investment portfolio for the fourth quarter of 2019 was $3.76 billion, as compared to $3.52 billion for the third quarter of 2019. The average cost of borrowings for the fourth quarter was 4.60%, compared to 4.87% for the third quarter of 2019. The decrease in average costs was primarily due to a decrease in LIBOR in the fourth quarter, partially offset by the acceleration of fees related to the early repayment of debt in the fourth quarter.

The Company is subject to various financial covenants and restrictions under the terms of its collateralized securitization vehicles, financing facilities and unsecured debt. The Company believes it was in compliance with all financial covenants and restrictions as of December 31, 2019 and as of the most recent collateralized securitization vehicle determination dates in January 2020.

Capital Markets

The Company issued 7.5 million shares of common stock in a public offering receiving net proceeds of $104.0 million. The proceeds are primarily to be used to make investments and for general corporate purposes.

The Company issued $264.0 million in aggregate principal amount of 4.75% convertible senior notes due 2022 in a private placement, including the exercised initial purchaser’s over-allotment option of $34.0 million. The Company received proceeds totaling $256.5 million, net of the underwriter’s discount and fees from this offering. The Company used the net proceeds to exchange $103.5 million of its 5.25% convertible senior notes due 2021 that were issued on July 3, 2018 and $125.2 million of 5.25% convertible senior notes due 2021 that were issued on July 20, 2018 for a combination of $233.1 million in cash and 4.5 million shares of the Company’s common stock to settle such exchanges. The remaining net proceeds are to be used for general corporate purposes.

The Company issued $110.0 million in aggregate principal amount of 4.75% senior unsecured notes due 2024 in a private placement, generating net proceeds of $108.2 million after deducting offering expenses. This offering reflects a 100 basis point reduction in rate as compared to our previous senior unsecured notes offering in March 2019. The proceeds were used to make investments and for general corporate purposes.

Dividends

The Company announced today that its Board of Directors has declared a quarterly cash dividend of $0.30 per share of common stock for the quarter ended December 31, 2019. The dividend is payable on March 17, 2020 to common stockholders of record on February 28, 2020. The ex-dividend date is February 27, 2020.

As previously announced, the Board of Directors has declared cash dividends on the Company's Series A, Series B and Series C cumulative redeemable preferred stock reflecting accrued dividends from December 1, 2019 through February 29, 2020. The dividends are payable on March 2, 2020 to preferred stockholders of record on February 15, 2020. The Company will pay total dividends of $0.515625, $0.484375 and $0.53125 per share on the Series A, Series B and Series C preferred stock, respectively.

Earnings Conference Call

The Company will host a conference call today at 10:00 a.m. Eastern Time.  A live webcast and replay of the conference call will be available at http://www.arbor.com in the investor relations section of the Company’s website. Those without web access should access the call telephonically at least ten minutes prior to the conference call. The dial-in numbers are (866) 516-5034 for domestic callers and (678) 509-7613 for international callers. Please use participant passcode 4199042.

A telephonic replay of the call will be available until February 21, 2020. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use passcode 4199042.

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, and other risks detailed in Arbor’s Annual Report on Form 10-K for the year ended December 31, 2018 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.

1. 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 non-GAAP financial measures and the comparable GAAP financial measure can be found on page 12 of this release.

   
Contacts:
Arbor Realty Trust, Inc.
Paul Elenio, Chief Financial Officer
516-506-4422  
pelenio@arbor.com
 
Investors:
The Ruth Group
Alexander Lobo
646-536-7037
alobo@theruthgroup.com
Media:
Bonnie Habyan, Chief Marketing Officer
516-506-4615
bhabyan@arbor.com
 


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
                     
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands—except share and per share data)
                     
      Quarter Ended      Year Ended
      December 31,     December 31,
        2019       2018         2019       2018    
      (Unaudited)   (Unaudited)          
Interest income   $ 81,983     $ 73,360       $ 315,940     $ 251,768    
Interest expense     48,186       42,999         186,399       153,818    
  Net interest income     33,797       30,361         129,541       97,950    
                     
Other revenue:                  
Gain on sales, including fee-based services, net     13,755       18,735         65,652       70,002    
Mortgage servicing rights     27,909       36,052         90,761       98,839    
Servicing revenue, net     14,587       11,372         54,542       46,034    
Property operating income     1,487       1,569         9,674       10,095    
Other income, net     4,627       9,736         (784 )     8,161    
  Total other revenue     62,365       77,464         219,845       233,131    
                     
Other expenses:                  
Employee compensation and benefits     28,456       26,386         122,102       110,470    
Selling and administrative     9,205       9,291         40,329       37,074    
Property operating expenses     2,571       2,342         10,220       10,431    
Depreciation and amortization     1,847       1,914         7,510       7,453    
Impairment loss on real estate owned     -       -         1,000       2,000    
Provision for loss sharing (net of recoveries)     (409 )     1,003         1,147       3,843    
Provision for loan losses (net of recoveries)     -       9,319         -       8,353    
Litigation settlement gain     -       -         -       (10,170 )  
  Total other expenses     41,670       50,255         182,308       169,454    
                     
Income before extinguishment of debt, income from                  
  equity affiliates and income taxes     54,492       57,570         167,078       161,627    
Loss on extinguishment of debt     (7,311 )     (82 )       (7,439 )     (5,041 )  
Income from equity affiliates     1,502       91         10,635       1,196    
Provision for income taxes     (4,072 )     (8,635 )       (15,036 )     (9,731 )  
                     
Net income     44,611       48,944         155,238       148,051    
                     
Preferred stock dividends     1,888       1,888         7,554       7,554    
Net income attributable to noncontrolling interest     7,181       9,838         26,610       32,185    
Net income attributable to common stockholders   $ 35,542     $ 37,218       $ 121,074     $ 108,312    
                     
Basic earnings per common share   $ 0.35     $ 0.48       $ 1.30     $ 1.54    
Diluted earnings per common share   $ 0.34     $ 0.47       $ 1.27     $ 1.50    
                     
Weighted average shares outstanding:                  
  Basic     101,611,818       78,273,633         92,851,327       70,208,165    
  Diluted     125,498,359       101,148,081         116,192,951       93,642,168    
                     
Dividends declared per common share   $ 0.30     $ 0.42   (1)   $ 1.14     $ 1.13   (1)
                     
(1) Includes a special dividend of $0.15 per share of common stock declared in December 2018.    
                     


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
               
CONSOLIDATED BALANCE SHEETS
($ in thousands—except share and per share data)
               
               
          December 31,   December 31,
            2019       2018  
               
Assets:        
Cash and cash equivalents   $ 299,687     $ 160,063  
Restricted cash     210,875       180,606  
Loans and investments, net     4,189,960       3,200,145  
Loans held-for-sale, net     861,360       481,664  
Capitalized mortgage servicing rights, net     286,420       273,770  
Securities held to maturity, net     88,699       76,363  
Investments in equity affiliates     41,800       21,580  
Real estate owned, net     13,220       14,446  
Due from related party     10,651       1,287  
Goodwill and other intangible assets     110,700       116,165  
Other assets     125,788       86,086  
  Total assets   $ 6,239,160     $ 4,612,175  
               
Liabilities and Equity:        
Credit facilities and repurchase agreements   $ 1,678,288     $ 1,135,627  
Collateralized loan obligations     2,130,121       1,593,548  
Debt fund     68,629       68,183  
Senior unsecured notes     319,799       122,484  
Convertible senior unsecured notes, net     284,152       254,768  
Junior subordinated notes to subsidiary trust issuing preferred securities     140,949       140,259  
Due to related party     13,100       -  
Due to borrowers     79,148       78,662  
Allowance for loss-sharing obligations     34,648       34,298  
Other liabilities     134,299       118,780  
  Total liabilities     4,883,133       3,546,609  
               
Equity:        
  Arbor Realty Trust, Inc. stockholders' equity:        
    Preferred stock, cumulative, redeemable, $0.01 par value: 100,000,000      
      shares authorized; special voting preferred shares; 20,484,094 and        
      20,653,584 shares issued and outstanding, respectively; 8.25% Series A,    
      $38,787,500 aggregate liquidation preference; 1,551,500 shares issued and    
      outstanding; 7.75% Series B, $31,500,000 aggregate liquidation preference;    
      1,260,000 shares issued and outstanding; 8.50% Series C, $22,500,000    
      aggregate liquidation preference; 900,000 shares issued and outstanding     89,501       89,502  
    Common stock, $0.01 par value: 500,000,000 shares authorized; 109,706,214    
      and 83,987,707 shares issued and outstanding, respectively     1,097       840  
    Additional paid-in capital     1,154,932       879,029  
    Accumulated deficit     (60,920 )     (74,133 )
Total Arbor Realty Trust, Inc. stockholders’ equity     1,184,610       895,238  
               
Noncontrolling interest     171,417       170,328  
Total equity     1,356,027       1,065,566  
               
Total liabilities and equity   $ 6,239,160     $ 4,612,175  
               


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
               
STATEMENT OF INCOME SEGMENT INFORMATION - (Unaudited)
(in thousands)
                   
                   
      Quarter Ended December 31, 2019
                   
      Structured Business   Agency Business   Other / Eliminations (1)   Consolidated
                   
Interest income   $ 74,060     $ 7,923     $ -     $ 81,983  
Interest expense     43,620       4,566       -       48,186  
  Net interest income     30,440       3,357       -       33,797  
                   
Other revenue:                
Gain on sales, including fee-based services, net     -       13,755       -       13,755  
Mortgage servicing rights     -       27,909       -       27,909  
Servicing revenue     -       26,538       -       26,538  
Amortization of MSRs     -       (11,951 )     -       (11,951 )
Property operating income     1,487       -       -       1,487  
Other income, net     256       4,371       -       4,627  
  Total other revenue     1,743       60,622       -       62,365  
                   
Other expenses:                
Employee compensation and benefits     8,217       20,239       -       28,456  
Selling and administrative     2,998       6,207       -       9,205  
Property operating expenses     2,571       -       -       2,571  
Depreciation and amortization     523       1,324       -       1,847  
Provision for loss sharing (net of recoveries)     -       (409 )     -       (409 )
  Total other expenses     14,309       27,361       -       41,670  
                   
Income before extinguishment of debt, income                
   from equity affiliates and income taxes     17,874       36,618       -       54,492  
Loss on extinguishment of debt     (7,311 )     -       -       (7,311 )
Income from equity affiliates     1,502       -       -       1,502  
Provision for income taxes     (667 )     (3,405 )     -       (4,072 )
                   
Net income     11,398       33,213       -       44,611  
                   
Preferred stock dividends     1,888       -       -       1,888  
Net income attributable to noncontrolling interest   -       -       7,181       7,181  
Net income attributable to common stockholders $ 9,510     $ 33,213     $ (7,181 )   $ 35,542  
                   
(1) Includes certain income or expenses not allocated to the two reportable segments. Amount reflects income attributable
  to the noncontrolling interest holders.                
                   


ARBOR REALTY TRUST, INC. AND SUBSIDIARIES  
                 
BALANCE SHEET SEGMENT INFORMATION - (Unaudited)  
(in thousands)  
                     
                     
          December 31, 2019  
          Structured Business   Agency Business   Consolidated  
Assets:                
Cash and cash equivalents   $ 264,468   $ 35,219   $ 299,687  
Restricted cash     208,926     1,949     210,875  
Loans and investments, net     4,189,960     -     4,189,960  
Loans held-for-sale, net     -     861,360     861,360  
Capitalized mortgage servicing rights, net           -     286,420     286,420  
Securities held to maturity, net     20,000     68,699     88,699  
Investments in equity affiliates     41,800     -     41,800  
Goodwill and other intangible assets     12,500     98,200     110,700  
Other assets     118,175     31,484     149,659  
  Total assets   $ 4,855,829   $ 1,383,331   $ 6,239,160  
                     
Liabilities:              
Debt obligations   $ 3,878,343   $ 743,595   $ 4,621,938  
Allowance for loss-sharing obligations   -     34,648     34,648  
Other liabilities     171,004     55,543     226,547  
  Total liabilities   $ 4,049,347   $ 833,786   $ 4,883,133  
                     


               
               
ARBOR REALTY TRUST, INC. AND SUBSIDIARIES
               
Supplemental Schedule of Non-GAAP Financial Measures - (Unaudited)
Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO")
($ in thousands—except share and per share data)
 
               
  Quarter Ended   Year Ended
December 31, December 31,
    2019       2018       2019       2018  
Net income attributable to common stockholders $ 35,542     $ 37,218     $ 121,074     $ 108,312  
               
Adjustments:              
  Net income attributable to noncontrolling interest   7,181       9,838       26,610       32,185  
  Impairment loss on real estate owned   -       -       1,000       2,000  
  Depreciation - real estate owned   177       176       701       708  
  Depreciation - investments in equity affiliates   124       125       510       499  
               
Funds from operations (1) $ 43,024     $ 47,357     $ 149,895     $ 143,704  
               
Adjustments:              
  Income from mortgage servicing rights   (27,909 )     (36,052 )     (90,761 )     (98,839 )
  Impairment loss on real estate owned   -       -       (1,000 )     (2,000 )
  Deferred tax provision (benefit)   1,176       2,421       150       (12,033 )
  Amortization and write-offs of MSRs   18,547       20,314       71,105       73,182  
  Depreciation and amortization   2,389       2,582       9,983       9,618  
  Loss on extinguishment of debt   7,311       82       7,439       5,041  
  Net gain on Private Label-related derivatives prior to sale   (6,050 )     -       (6,098 )     -  
  Net loss (gain) on changes in fair value of GSE-related derivatives   1,678       (9,002 )     7,785       (6,672 )
  Stock-based compensation   1,941       1,257       9,515       6,095  
               
Adjusted funds from operations (1) (2) $ 42,107     $ 28,959     $ 158,013     $ 118,096  
               
Diluted FFO per share (1) $ 0.34     $ 0.47     $ 1.29     $ 1.53  
               
Diluted AFFO per share (1) (2) $ 0.34     $ 0.29     $ 1.36     $ 1.26  
               
Diluted weighted average shares outstanding (1)   125,498,359       101,148,081       116,192,951       93,642,168  
               
(1) Amounts are attributable to common stockholders and OP Unit holders. The OP Units are redeemable for cash, or at the Company's option for shares of the Company's common stock on a one-for-one basis.
 
(2) During the fourth quarter of 2019, the Company updated its definition of AFFO to (i) exclude one-time gains or losses on the early extinguishment of debt, (ii) exclude gains and losses on derivative instruments associated with Private Label loans that have not yet been sold and securitized and (iii) include the cumulative gains or losses on derivative instruments associated with Private Label loans that were sold during the periods presented. Prior period amounts presented above have been conformed to reflect this change.
 
The Company is presenting FFO and AFFO because management believes they are important supplemental measures of the Company’s operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss) attributable to common stockholders (computed in accordance with GAAP), excluding gains (losses) from sales of depreciated real properties, plus impairments of depreciated real properties and real estate related depreciation and amortization, and after adjustments for unconsolidated ventures.
 
The Company defines AFFO as funds from operations adjusted for accounting items such as non-cash stock-based compensation expense, income from mortgage servicing rights ("MSRs"), gains or losses on Private Label-related derivative instruments until the loans are sold, changes in fair value of GSE-related derivatives that temporarily flow through earnings, amortization and write-offs of MSRs, deferred tax (benefit) provision and the amortization of the convertible senior notes conversion option. The Company also adds back one-time charges such as acquisition costs, gains and losses on the extinguishment of debt, impairment losses on real estate, and gains (losses) on sales of real estate. The Company is generally not in the business of operating real estate property and has obtained real estate by foreclosure or through partial or full settlement of mortgage debt related to the Company's loans to maximize the value of the collateral and minimize the Company's exposure. Therefore, the Company deems such impairment and gains (losses) on real estate as an extension of the asset management of its loans, thus a recovery of principal or additional loss on the Company's initial investment.
 
FFO and AFFO are not intended to be an indication of the Company's cash flow from operating activities (determined in accordance with GAAP) or a measure of its liquidity, nor is it entirely indicative of funding the Company's cash needs, including its ability to make cash distributions. The Company’s calculation of FFO and AFFO may be different from the calculations used by other companies and, therefore, comparability may be limited.

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