Arbor Realty Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Arbor Realty Trust, Inc. (ABR)

Q2 2012 Earnings Call

August 3, 2012 10:00 am ET


Paul Elenio – Chief Financial Officer

Ivan Kaufman – Chief Executive Officer


Steve DeLaney – JMP Securities



Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Arbor Realty Trust Earnings Conference Call. My name is Shanell and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Paul Elenio

Okay, thank you, Shanell, 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 June 30, 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 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’d like to reflect on some of our recent accomplishments and talk about our business strategy and outlook for the remainder of 2012. We very pleased with this quarter’s progress and certainly our ability to access to capital markets in June for the first time in five years and it’s at the forefront of our recent accomplishments.

As we have mentioned on our last several earnings calls, we have been very active in our core lending business as well as in diversifying our portfolio and revenue sources by investing in residential securities. This has resulted in increased core earnings and the reinstatement of our dividend last quarter and we’re very pleased with the opportunities we are seeing in this market to invest our capital and continue to grow our core earnings base.

Our pipeline is strong and continues to grow through our deep originations network both in the REIT and through our external manager. We’re accessing approximately $18 million of fresh capital was a very important component in order for us to continue to grow our platform and is a crucial step in positioning us favorably going forward.

We’re very confident in our investment strategies and are quite pleased with our ability to deploy this capital quickly through our core lending originations business, residential securities investments, investing in our legacy assets, and through the repurchase of our CDO debt at significant discounts when available. This success has increased our core earnings, and as a result, we’re very pleased to announce today a 33% increase in our dividend to $0.10 per common share for the second quarter, up from $0.0725 for the first quarter.

In a moment, Paul will elaborate further on how this growth has translated into an increase in our projected core earnings run rate. Once again, we’re extremely pleased with the investment opportunities we’re seeing to grow our platform, diversify our revenue sources and produce significant core earnings and dividend growth going forward.

Additionally, our infrastructure is well positioned to manage this expected growth without significantly increasing our core structure, resulting in direct bottom line profitability. In the second quarter, we originated five loans totaling approximately $58 million with a weighted average unlevered yield of approximately 8% and a weighted average leverage yield of approximately 15%.

We also continue to grow our core residential investment platform purchasing 11 residential mortgage securities in the second quarter totaling $41 million with a weighted average yield of approximately 5% and expected levered returns in excess of 20%. At June 30, 2012, we had $88 million of residential securities outstanding with corresponding leverage of $75 million. These securities generally have an average expected life of 24 to 36 months and are expected to generate levered returns in excess of 20%.

In addition, in July, we originated three loans totaling $32 million with a weighted average yield of approximately 7% and an expected levered return of around 15% and purchased one residential security for $11 million with a weighted average yield of 5% and an expected levered return in excess of 20%.

As I mentioned earlier, 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 a levered basis. The continued growth and diversification in our investments has increased our core earnings run rate, and we believe we will be able to continue to increase our core earnings in the future.

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