Arbor Realty Trust's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Arbor Realty Trust, Inc. (ABR)

Q1 2012 Earnings Call

May 4, 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 First Quarter 2012 Arbor Realty Trust Earnings Conference Call. My name is Shaquana and I will be your coordinator for today. (Operator instructions)

I would now like to turn the presentation over to your host for today’s call, Mr. Paul Elenio, Chief Financial Officer. Please proceed, sir.

Paul Elenio

Thank you, Shaquana, 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 March 31, 2012. 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 risk 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 some of our recent accomplishments and talk about our operating philosophy and outlook for the remainder of 2012.

First and foremost, as we announced today in our press release, we are extremely pleased to have reinstated our dividend for the first quarter. As we mentioned on our last several calls, one of our primary goals was to return to a dividend-paying stock and continue to grow our core earnings and dividend over time.

The first quarter dividend of $0.075 per common share demonstrates the success we have had in continuing to grow our core lending business and core earnings. In a moment, Paul will elaborate further on how the effectiveness of our franchise has positioned us to increase our projected core earnings run rate.

Clearly, the steps we took over the last several years transformed our entire balance sheet. Ridding ourselves of our short-term recourse legacy debt while retaining a substantial amount of our equity value with liquidity were critical in paving the way for us to once again become an active participant in commercial mortgage lending and increase our core earnings and reinstate our dividend.

We have maintained a very deep and versatile originations platform, both through our manager as well as in the REIT, and we are extremely pleased with the investment opportunities we are seeing to grow our platform, diversify our revenue sources, and produce significant core earnings going forward. Our infrastructure is well-positioned to manage our anticipated growth without significantly increasing our core structure, resulting in direct bottom line profitability.

In the first quarter, we originated seven loans totaling approximately $40 million with a weighted average unleveraged yield of approximately 7.7% and a weighted average leveraged yield of approximately 20%. We also purchased nine residential mortgage securities in the first quarter totaling $46 million with a weighted average yield of approximately 6% and an expected leverage return in excess of 20%.

We continue to diversify our revenue sources by growing our residential investment platform, which we believe will generate outsized returns on our capital. As of March 31, 2012, we had $65 million of residential securities outstanding with corresponding leverage of $55 million. These securities generally have an average expected life of 18 to 24 months and are expected to generate levered returns in excess of 20%.

In addition, in April, we originated three loans totaling $30 million with a weighted average yield of approximately 6% and expected levered returns in excess of 15%, and purchased three residential securities totaling $4 million with a weighted average yield of 6% and expected levered returns in excess of 20%.

Our pipeline remains strong and our goal is to continue to deploy our capital into new investment opportunities with a targeted return of 50% on an unlevered or levered basis. Clearly, this growth and diversification in our production has increased our core earnings run rate and we’re pleased with the opportunities we are seeing in this market to continue to increase and diversify our core earnings in the future.

We’ve also continued our success in recycling our capital through runoff and monetization of our nonperforming and unencumbered assets, which has increased our available liquidity to deploy into new investment opportunities.

In the first quarter, we generated cash runoff of $38 million and $18 million already in the second quarter. Our cash position as of today is approximately $35 million, not including approximately $21 million of cash collateral posted against our swaps.

We also have around $90 million of net unencumbered assets, as well as $145 million of our CDO bonds that we purchased for $64 million, which could produce additional liquidity. These assets, combined with cash on hand and cash posted against our swaps, gives us approximately $220 million of value. This, in addition to approximately $290 million of value between the equity in our CDO vehicles and our real estate-owned assets, for a total value of approximately $500 million.

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