Arbor Realty Trust's CEO Discusses Q4 2011 Results - Earnings Conference Call

Arbor Realty Trust, Inc. (ABR)

Q4 2011 Earnings Call

March 2, 2012 10:00 am ET

Executives

Paul Elenio – Chief Financial Officer

Ivan Kaufman – President and Chief Executive Officer

Analysts

Lee Cooperman – Omega Advisors

Presentation

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter 2011 Arbor Realty Trust earnings conference call. My name is Jeff and I will be your coordinator for today. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Paul Elenio, Chief Financial Officer. You have the floor, sir.

Paul Elenio

Thank you, Jeff. 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, 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

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 the year, touching on some of the more significant accomplishments, and then turn my focus to our operating philosophy and outlook for 2012.

2011 was a tremendous year in that we were able to successfully complete our goal of returning fully to our core lending business, increasing the quality of our platform, net interest debts, core earnings, which has put us in a position to return to a dividend paying stock. Clearly, the steps we took in 2010 to transform our entire balance sheet, ridding ourselves of our short-term recourse legacy debt while retaining a substantial amount of our equity value and liquidity, were critical in paving the way for us to become an active participant again in commercial mortgage lending in 2011.

We have a very deep and versatile originations platform, both through our manager as well as the REIT, and we are extremely pleased with our ability to quickly ramp up our production once we felt it was the appropriate time to reenter the lending arena.

We also feel that this origination network will allow us to continue to grow our platform and take advantage of the opportunities in the market to diversity our revenue sources and produce significant core earnings going forward. In fact, in the fourth quarter, we originated 14 loans totaling approximately $103 million with a weighted average yield of approximately 7.8% and we finished 2011 with total originations of 30 loans totaling $206 million with a weighted average unleveraged yield of 7% and a weighted average leverage yield of approximately 17%.

As we discussed on our last call, we also diversified our investment platform by becoming active in the residential lending arena, which is an area we have a significant amount of experience in and we believe will generate outsized returns on our capital.

In the fourth quarter we purchased five residential mortgage securities totaling $31 million with an average yield of approximately 6%, and we closed out 2011 purchasing seven securities totaling $36 million. These securities have an expected average life of 18 to 24 months and are expected to generate levered returns in excess of 20%. At December 31, 2011, the balance of these securities was $30 million with a corresponding leverage of $25 million.

We have continued this momentum into the first quarter of 2012 originating seven loans totaling $40 million with a weighted average yield of approximately 7.7% and expected levered returns in excess of 15%, and purchasing four residential securities totaling $20 million with a weighted average yield of 6.2% and expected levered returns in excess of 20%.

Additionally, our pipeline remains strong and we’ll continue to deploy our capital into new investment opportunities with a targeted return of 15% on an unlevered or levered basis. As Paul will discuss in more detail later, this ramp up and diversification of production has increased our core earnings run rate going forward and we are pleased with the opportunities we are seeing in this market to build up our portfolio with high quality assets and continue to increase and diversify our core earnings in the future.

We also were extremely successful in recycling our capital in 2011 through a runoff and the monetization of our non-performing and unencumbered assets, which has increased our available liquidity to deploy into new investment opportunities. In the fourth quarter, we generated cash runoff of $102 million and a total of $216 million for 2011. Our cash position as of today is approximately $65 million, not including approximately $22 million of cash collateral posted against our swaps.

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