Arbor Realty Trust, Inc. (ABR)

Q1 2010 Earnings Call Transcript

May 7, 2010 10:00 am ET

Executives

Paul Elenio – CFO

Ivan Kaufman – CEO

Analysts

David Chiaverini – BMO Capital Markets

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Q1 2010 Arbor Realty Trust earnings conference call. My name is Katrina and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator instructions)

I would now like to turn the conference over to your host for today, Paul Elenio, Chief Financial Officer. Please proceed.

Paul Elenio

Okay. Thank you, Katrina. Good morning, everyone and welcome to the Quarterly Earnings Call for Arbor Realty Trust. This morning, we will discuss the results for the quarter ended March 31st, 2010. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer.

Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us.

Factors that could cause actual results to differ materially from Arbor’s expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today, or the occurrences of unanticipated events.

I’ll now turn the call over to Arbor’s President and CEO, Ivan Kaufman.

Ivan Kaufman

Thank you, Paul, and thanks to everyone for joining us on today’s call. Before Paul takes you through the first quarter results I’d like to talk about our strategy and accomplishments and how we have successfully positioned the company for the future.

Kicking up where we left off last quarter we continue to execute our strategy of effectively managing our portfolio, increasing our liquidity and repurchasing debt at deep discounts when available.

As mentioned on our last call we’re extremely pleased with the results of these efforts to successfully restructure our entire balance sheet, which has favorably positioned the firm combined value from our legacy assets, produce a more stable core earnings based going forward and take advantage of many investment opportunities that we believe will be available in the future.

The first quarter continued our progress of executing our strategy with the successful completion of the retirement of 114 million of our trust-preferred debt and the repurchase of 28 million of our CDO debt at substantial discounts.

We recorded $47 million in gains from these transactions in the first quarter while using only a nominal amount of operating cash relative to the size of a debt retirements.

Additionally, as we talked about last quarter, we’re very focused on raising the necessary capital to close on the discount of payoff of our financing facilities with Wachovia which we have until the end of August 2010 to complete.

We’re pleased to report that run off and monetization of certain assets we reduced the amount due on the repurchase plan another $46 million in the first quarter, even the balance due of approximately $114 million down from the original $106 million purchase price. The completion of this transaction will be a primary focus of the company over the next few months and will result in a significant gain and increased our book value per share.

Clearly, these substantial debt retirements are major step of positioning us more favorably for the future. It will improve the right side of our balance sheet significantly by reducing the leverage and recourse that substantially leaving us poised to take advantage of the opportunities that will exist in the market.

We continue to focus heavily on increasing and maintaining our liquidity. And as of today, we have approximately $73 million of cash on hand and around 20 million of cash collateral posted against our swaps.

We’re also pleased with our ability to manage our CDO vehicles sufficiently, receiving all of the cash distributions from these vehicles in 2009 and the first two quarters of 2010. And while there can be no assurances that our CDO vehicles will continue to cash flow in the future we will remain focus on optimizing and utilizing these facilities by transferring assets and originating loans where available and appropriate.

The effective management of our CDOs has contributed greatly to a reduction of our warehouse and term debt facilities, which as I have mentioned earlier has reduced the amount due on the discount to pay off with Wachovia.

Although we have recorded significant losses in the 2008 and 2009 we have done an effective job of managing through the downturn by restructuring our balance sheet. This include repurchasing the Wachovia and trust-preferred debt at deep discounts as well as restructuring the substantial amount of our assets creating a higher quality portfolio going forward and execute an effective strategy of mitigating the offsetting losses from these assets to the repurchase of other debt and monetizing our equity investments.

In fact we’ve recorded $54 million in gains from these debt repurchase in 2008 and 2009, 47 million in the first quarter of 2010 and another 13 million already in the second quarter of 2010. As we stated earlier we’re expecting a significant gain from the completion of the retirements of the Wachovia debt.

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