Arbor Realty Trust CEO Discusses Q4 2010 Results - Earnings Call Transcript

Arbor Realty Trust, Inc. (ABR)

Q4 2010 Earnings Call

March 4, 2011 10:00 AM ET

Executives

Paul Elenio – CFO

Ivan Kaufman – CEO

Analysts

Lee Cooperman – Omega Advisors

Eric Berkley – Barclays Capital

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2010 Arbor Realty Trust Earnings Conference call. My name is Veronica and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of today’s conference. (Operator Instructions) I would now like to turn the conference over to your host for today’s call, Mr. Paul Elenio, Chief Financial Officer. Please proceed.

Paul Elenio

Okay. Thank you, Veronica, 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 and year ended December 31, 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’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 financial results, I would like to reflect on how we closed out the year, touching on some of our more significant accomplishments, and then turn my focus to our operating philosophy and outlook for 2011.

2010 was a tremendous year and that we were able to successfully complete our goal of transforming our entire balance sheet while retaining substantially amount of our equity value that position ourselves to return into our core lending business. We accomplished these goals by retiring all of our short-term recourse debt, refinancing and modifying at a significant amount of our loan portfolio, monetizing some of our non-performing and unencumbered assets, increasing our liquidity substantially and effectively utilizing our low cost non-recourse CDO vehicles, all without raising additional equity and diluting our shareholders.

Clearly, one of the keys to this success was our ability to roll M&A all of our short-term recourse debts which generated significant gains, reduced our interest expense substantially and greatly increased our liquidity and operating flexibility. As we discussed on our last earnings call, we recorded gains of approximately $228 million from the retirement of our debt at deep discount for 2010 and approximately $285 million from gains since the market dislocation occurred. These gains combined with approximately $80 million in gains from our equity, had greatly mitigated the loss we have taken during the significant downturn, preserving a substantial amount of our equity value.

Additionally in 2010, we had great success in monetizing our non-performing and unencumbered assets contributed greatly to the significant increase in our cash position, which as of today is approximately $100 million, not including approximately $20 million of cash collateral posted against our swaps. We also have around $120 million of net unencumbered assets of which approximately $15 million are currently CDO eligible. These assets combined with our cash on hand and cash posted against our swaps gives us approximately $240 million of value in addition to approximately $240 million of net equity value in our CDO vehicles.

We are also extremely pleased with our ability to manage our CDO vehicles effectively. Receiving all of the cash distribution from these vehicles today, and while there could be no assurances that our CDO vehicles will continue to cash flow in the future, we remain focused on optimizing and utilizing these facilities by transferring assets and originating new loans when available and appropriate.

We will continue to look to bind value from legacy assets, enhance the yield in our portfolio and selectively lend and invest in the appropriate opportunities. One of the advantages that we have is the ability to utilize these low cost CDO vehicles to enhance our returns and increase our core earnings overtime on a quarter-by-quarter basis. As I mentioned earlier, the aim of our strategy was to position ourselves to return to our core lending business, which we actively began over the last few quarters. During the fourth quarter we originated two loans, totaling $15.7 million at an average yield of around 7%. And we finished 2010 with total originations of five loans totaling $26 million with an average on leverage yield of approximately 8.5%. All of these loans were financed through our low course CDO vehicles, greatly increasing our returns on these investments and the other loan is now eligible to be put into CDOs as well.

Additionally, as of today we have a healthy growing pipeline that we are now actively engaged and looking to deploy our capital into the appropriate opportunities and the best retro [ph] returns while seeking to maximize these returns through the utilization of our CDO vehicles and other high potential financial sources. We will continue to remain disciplined and selective. And we are very excited about the opportunities we are seeking in this recovering market to increase our current earnings overtime.

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