Arbor Realty Trust, Inc. ( ABR)

Q2 2011 Earnings Call

August 5, 2011, 10:00 am ET


Paul Elenio - CFO

Ivan Kaufman - President & CEO


David Chiaverini - BMO Capital Markets

Bruce Harting - Barclays Capital



Good day, ladies and gentlemen and welcome to the second quarter 2011 Arbor Realty Trust earnings conference call. My name is Kisha, and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct the question-and-answer session towards the end of this conference. (Operator Instructions)

I’d now like to hand the conference over to Mr. Paul Elenio Chief Financial Officer. Please proceed.

Paul Elenio

Thank you, Kisha. Good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning we’ll discuss the results for the quarter ended June 30, 2011. 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.

And with the Safe Harbor behind us, I’d like to turn the call over to Arbor’s President and CEO, Ivan Kaufman.

Ivan Kaufman

Thank you, Paul, and thanks everyone for joining us on today’s call. Before Paul will take you through the financial results for the quarter, but first I would like to spend some time talking about some of our accomplishments, operating philosophy and outlook for the remainder of 2011.

As we stated on our last few earnings calls, we’re extremely pleased to have repositioned our balance sheet, eliminating all of our short-term recourse legacy debt and we focused on our core lending business with the goal of increasing our platform and our core earnings overtime.

In the second quarter, we remained active originating five loans totaling $43.6 million with a weighted average yield of approximately 7%. As previously disclosed we originated five loans in the first quarter totaling $30 million and a weighted average yield of approximately 6.5% as well as two loans in the fourth quarter for $15.7 million at a yield for around 6.5%.

Additionally, our pipeline remained strong and will continue to put our capital into new investments with targeted return of 15% on non-leverage basis or leverage basis. We will look for leverage in certain of these investments by financing them with a low cost CDO debt when appropriate as well as with additional financing facilities when available in order to achieve these targeted returns.

In fact, we are pleased to announce that we have recently closed on a new two-year $50 million bridge loan financing facility in July with leverage of about 75% depending on the assets being financed. This new facility will provide us with additional buying power and increase returns on our investments. We will remain disciplined and selective and we are pleased with the opportunities we are seeing in the recovering market to build up our portfolio with high quality assets and increase our core earnings overtime.

Additionally, we have had great success in monetizing our non-performing and unencumbered assets contributing greatly to our liquidity which we are actively deploying in new investment opportunities. Our cash position as of today is approximately $40 million, not including approximately $20 million of cash collateral posted against our swaps and approximately $28 million of cash available for reinvestment of CDOs.

We also have around a $160 million of net unencumbered assets, many of which are either CDO eligible or able to be financed through other facilities which would produce additional liquidity. These assets combined with cash on hand and cash proceed against our swaps gives us approximately $220 million of value. This is in addition to approximately $220 million of value between the equity in our CDO vehicles and our real-estate owned assets for a total value of approximately $440 million.

We’ve also continued to effectively manage our CDO vehicles receiving all of the cash distributions to date. We have three vehicles in place with the ability to invest in new assets to January 2012. One of our CDOs which I mentioned earlier count as $28 million of investable cash for redeployment.

While there can be no assurances that our CDO vehicles will continue to cash flow in the future, we will remain focused on optimizing and utilizing these facilities when possible. We will also continue to mine the value of our legacy assets, selectively lend and invest in the appropriate opportunities and utilize our CDOs and additional financing sources to enhance our returns and increase our clients over time.

And as we've discussed in the past, we've been very successful in repurchasing our debt at deep discounts recording significant gains and retaining substantial amount of our equity value. In the second quarter, we repurchased $3.5 million of our CDO debt for $1.6 million recording a gain of approximately $1.9 million which combined with the gains in the first quarter totals $2.8 million of gains from the debt repurchases for the first six months.

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