Arbor Realty Trust, Inc. (ABR) Q1 2012 Earnings Report, Transcript and Summary

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.

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.

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…

Thank you, Ivan. As noted in the press release, we had net income for the first quarter of $4.2 million, or $0.17 per share, and FFO of $1.9 million, or $0.08 per share. As Ivan mentioned, we did have a $3.5 million recovery of a previously recorded loan loss reserve in the form of a gain on the sale of one of our real estate-owned assets during the quarter. This gain is not included in FFO under its current definition, so adding this gain back, adjusted FFO was $5.4 million, or $0.22 per share, for the first quarter. We recorded $7.8 million in loan loss reserves in two assets in our portfolio in the first quarter, and after these reserves and charge-offs of previously recorded reserves, we now have approximately $190 million of loan loss reserves on 23 loans with a UPB of around $282 million as of March 31, 2012. We also continued to repurchase our debt at deep discounts, recording a $5.3 million gain from the repurchase of some of our CDO debt in the first quarter, and gains of approximately $21 million from CDO debt buybacks in April. At March 31st, our book value per share stands at $7.40 and our adjusted book value per share is $11.55, getting back deferred gains and temporary losses on our swaps. Additionally, as Ivan mentioned, we currently have approximately $35 million in cash on hand and $21 million of cash posted against our swaps, and between this cash, our REO assets, unencumbered assets, CDO bonds, and equity value in our CDOs, net of reserves as of March 31st, we currently have approximately $500 million of value. Looking at the rest of the results for the quarter, the average balance in our core investments was relatively flat at around $1.6 billion…

Thank you. (Operator instructions) Your first question comes from the line of Lee Cooperman. Please proceed. Lee Cooperman – Omega Advisors: Thank you. Let me first congratulate you guys. You’re on the way back. It’s very nice to see. I know you worked very hard to accomplish this.

Thank you.

Thanks, Lee. Lee Cooperman – Omega Advisors: I assume, Ivan, from what you said, the number you referred to in book value was $11.55, so my favorite question is $7.40 GAAP, $11.55 adjusted. Which number you guys believe in, I guess, to the extent that you mentioned the $11.55 as the number that you kind of look at as being more relevant. I guess the question -- I was just on a call this morning with another financial service company and they talked about, quote, unquote, “their aspirational ROE,” for their business, and so they gave a number for 2015. What kind of returns do you think that is realistic? If $11.55 adjusted book is the realistic number, as we’re running the business, is this a business that could return 10%, 12% on equity over a few years or is that too much?

That’s clearly something that we feel is realistic. As you know, we’re turning over the legacy assets, improving the yields on those legacy assets, deploying our new capital at very effective rates, and we’ve also done a very good job in keeping our franchise intact, which has an expense to it. And as we turn over the assets and redeploy our capital, all yields are very incremental to us, so we think as we turn through that, if it’ll take us quarter to quarter, we’ll increase each quarter and get to those levels. Lee Cooperman – Omega Advisors: Good, and the second question, I assume because of the REIT ownership rules, that we pretty much exhausted our buyback ability at this point?

We have two issues on the REIT rules. Number one, we have a restriction on how much I can buy. I’m at pretty much my maximum, and there are a lot of issues. I believe in our proxy -- did we -- is that out yet or not?

It is out.

It is out. I think in our proxy, we’ve actually looked to adjust the maximum ownership rules so I can buy more and some of the insiders can buy more, so it’ll give us some more flexibility for us to increase insider ownership. Lee Cooperman – Omega Advisors: Good, thank you. Again, congratulations on the performance.

Thank you, Lee.

Thanks, Lee.

(Operator instructions) At this time, there are no further audio questions. I would now like to turn the call back over to management for closing remarks.

Okay, well, we thank everybody for their participation, and we’re very excited about our performance and our ability to reinstate our dividend, and we look forward to future calls. Thank you.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.