Arbor Realty Trust, Inc. ( ABR)

Q3 2011 Earnings Conference Call

November 4, 2011 10:00 ET

Executives

Paul Elenio – Chief Financial Officer

Ivan Kaufman – President and Chief Executive Officer

Analysts

Lee Cooperman – Omega Advisors

David Chiaverini – BMO Capital Markets

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2011 Arbor Realty Trust Incorporated Earnings Conference Call. My name is (Shinel), and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Paul Elenio – Chief Financial Officer

Okay, thank you (Shinel). 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, 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.

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

Ivan Kaufman – President and Chief Executive Officer

Thank you, Paul, and thanks everyone for joining us on today’s call. In a moment, 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 and outlooks for the remainder of 2011 and 2012.

As we stated on our last few earnings calls, we have heavily focused on our core lending business with the goal of increasing the quality of platform our net interest spreads and core earnings overtime.

In the third quarter, we originated six loans totaling $29.7 million with a weighted average yield of approximately 7.5% and we have now originated 16 loans totaling a $103 million for the nine months ended September 30th with a weighted average on leverage yield of approximately 7% and a weight average leverage yield of 16%. We’ve also expanded our investment opportunities are becoming active in a residential lending arena, which is an area we have significant amount of experience in.

We believe these investments will diversity our platform and generate outsize returns and a such in the third quarter, we purchased two residential mortgage securities totaling $4.6 million with an average yield of approximately 6% and 11 returns of around 30%, and estimated average life of six to nine months. And in October, we purchased two additional residential securities totaling $25 million with $20 million of leverage that will also generate leverage returns expected to be approximately 30% and average return of life of 12 to 18 months in addition to generating $15 million of loans and investments with a weighted average yield of approximately 18% with a target leverage return to exceed 15%.

Additionally, our pipeline remained strong and will continue to put our capital into new investment opportunities with a targeted return of 15% on non-leverage or leverage basis. We will look to achieve these targeted returns by continuing for leverage certain of these investments with a low cost CDO debt when appropriate as well as with additional financing facilities when available including the new $50 million bridge loan financing facility we obtained in July.

This facility provides leverage of up to 75% depending on the assets finance and as of today, we have utilized approximately $25 million of the capacity. We remained disciplined in selective and a pleased with the opportunities we are seeing in this recovering market to buildup our portfolio with high quality assets and increased our core earnings overtime.

We also continued to be successful in recycling our capital through run off and monetization of our non-performing and unencumbered assets, which is increased our available of liquidity to deploy into new investment opportunities. Our cash position as of today is approximately $55 million not including approximately $23 million of cash posted against our swaps and approximately $35 million of cash available for reinvestment in our CDOs.

We also have around $125 million of net unencumbered assets, many of which are either CDO eligible or able to be financed through other facilities which could produce additional liquidity. In fact in October, we entered into an agreement to sell one of these unlevered assets for approximately $28 million, which is closed prior to year end.

These assets combined with cash on hand and cash posted against our swaps gives us approximately $205 million of value. This is in addition to approximately $245 million of value between the equity in our CDO vehicles and real-estate on assets for total value of approximately $450 million. Effective management of our CDO vehicles remains the top priority, we will continue to receive all of the cash distributions from these vehicles to-date.

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