Arbor Realty Trust, Inc. ( ABR)

Q3 2010 Earnings Call Transcript

November 5, 2010 10:00 am ET


Paul Elenio - CFO

Ivan Kaufman - President and CEO

Gene Kilgore – EVP, Structured Securitization


Steve DeLaney - JMP Securities

David Chiaverini – BMO Capital

Eric Berkley - Barclays Capital



Good day ladies and gentlemen, and welcome to the third quarter 2010 Arbor Realty Trust earnings conference call. My name is Chanole and I will be your operator for today. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session.

(Operator instructions) I would now like to turn the conference over to Mr. Paul Elenio, Chief Financial Officer. Please proceed.

Paul Elenio

Okay. Thank you, Chanole, and 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 September 30, 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 as of today, or the occurrences of unanticipated events.

I will 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 third quarter results, I would like to reflect on how we have successfully repositioned the company and what our operating philosophy and outlook would be for the balance of 2010 and through 2011. Over the past three years, and over the last several quarters in particular, we have focused our strategy on strengthening the right side of our balance sheet, managing our portfolio, maximizing liquidity, repurchasing our debt at deep discounts and preserving our equity of value, with the ultimate goal in mind of returning to our core lending business.

Last quarter, we reported what we considered to be a transformational improvement to the right side of our balance sheet by completing the debt retirement with Wachovia, which combined with the payoff of our $26 million term debt facility last week, eliminated all of our short-term recourse debt. We were able to accomplice this goal without raising additional equity and diluting our shareholders. As a result of eliminating all of our short term recourse debt, there will be a substantial improvement in our core earnings, liquidity and operating flexibility enabling us to return to our core business activities.

Our strategy going forward is combined value from our legacy assets, enhance the yield in our portfolio and begin the process of selectively lending and investing in the appropriate opportunities. One of the advantages we have is the ability to utilize our low course, non- recourse CDO vehicles to enhance our return significantly and increased our core earnings over time. We will also continue to focus our attention on effectively managing our portfolio as well as our liquidity and take advantage of opportunities to repurchase our debt at favorable pricing when available.

Additionally, we will remain extremely focused on selectively monetizing our non-performing and unencumbered assets which will continue to increase our cash position given us the resources as I mentioned earlier to selectively invest in new opportunities going forward. In fact our success in monetizing our non-performing and unencumbered assets during the third quarter and especially in October contributed greatly to a significant increase to our cash position which as of today is approximately $70 million not including approximately $27 million of cash collateral posted against our swaps, and approximately $13 million of investable in our CDO vehicles.

These cash numbers have already been reduced by $26 million that were used to pay off our term debt facility in October. This facility had a maturity date of December 31, 2010 and its early payoff will save us some interest expense and fees for the balance of the year. Additionally, the assets securing the facility are now part of our unencumbered assets and we expect to refinance these assets over the next several months, recovering the capital used to pay off this facility. So currently we have around $175 million of net unencumbered assets and between cash on hand, cash posted against our swaps and our unencumbered assets, we have around $270 million of value. In addition, through approximately $250 million off equity value in our CDO vehicles.

We are also pleased with our ability to manage our CDO vehicles efficiently receiving all of the cash distributions from these vehicles in 2009 and the first three quarters of 2010. And while there can be no assurances that our CDO vehicles will continue cash flow in the future, we will remain focused on optimizing and utilizing these facilities by transferring assets and originating new loans when available and appropriate. During the third quarter, we also continued to selectively repurchase our CDO debt by purchasing $21 million of bonds for a price of around $9 million resulting in a net gain of approximately $12 million.

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