Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Paul Elenio - SVP, Finance and Chief Financial Officer

Ivan Kaufman - Chairman, President and CEO

Analysts

David Boardman - Wachovia Securities

David Fick - Stifel Nicolaus

Don Fandetti - Citigroup

Arbor Realty Trust Inc. (ABR) Q3 2007 Earnings Call November 9, 2007 10:00 AM ET

Operator

Good day ladies and gentlemen. And welcome to the Third Quarter 2007 Arbor Realty Trust Earnings Conference Call. My name is [Shikwana], and I will be coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards end of this conference. (Operator Instructions)

As a reminder, this conference is being recorded for reply purposes. I would now like to turn the call over to your host Mr. Paul Elenio, Chief Financial Officer of Arbor Realty Trust. Please proceed, sir.

Paul Elenio

Thank you, Shikwana. 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 nine months ended September 30, 2007. 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 on this earnings call maybe deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business, financial conditions, 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.

With that behind us, I’ll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

Ivan Kaufman

Good morning, everybody and thank you for joining us on today's call. Before I talk about the quarterly results and our accomplishments. I want to take a moment to discuss the market. Clearly the environment has changed over the last few months as we experienced a significant crisis and dislocation in our financial markets.

These are difficult times I’ve been in the industry for more than 25 years and have great deal of experiencing these environments as I have lived through two cycles like this before.

However, this kind of market change is not a surprise to us and should not be one for any of you who are participating in our calls over the last two years.

We have been anticipating and preparing for changing environment during that period positions our portfolio to more secure, low risk loans at time scarifies a yield for credit. In any market no one can ever anticipate when the change will occur and in our market it was ever matter of -- if a change would occur but rather when it would happen.

So what has been so difficult about the change in the market in this severity and suddenness of the impact and even though we are prepare for this environment we are not immune to its effects.

Therefore, I would like to spend some time talking about how the market has changed and what we've been doing to solidify our position to operate effectively over long-term.

Overall, the main areas I will focus on today are liquidity, the credit quality of our portfolio and new origination of fraternities. During my discussion of these areas I will highlights some of our notable achievements with the goal of giving you a true perspective of our position, our take on the market and how we are adopting to positions ourselves accordingly.

With respect to liquidity, I think an appropriate statement is that in a down market, you never have as much liquidity as you would like. And with that sentiment since the middle of the summer, we've been totally focused on ways to preserve, secure and maximize liquidity of the firm.

We've made significant progress in this area and are very satisfied with where our balance sheet currently stands but we still have a lot of work in hand. We continue to improve our financing facilities. Our main focus on the critical objective of strengthening the right side of our balance sheet and capital structure.

Over the last six months, we've made significant strive in this area. We added $52 million of trust preferred securities and now have a total of $275 million outstanding. We raised $75 million of capital in an overnight deal.

We added $60 million working capital line amended certain facilities and added two new facilities locking in a substantial amount of our debt for the long term.

And once again, we've monetized several of our equity kickers, which are generated around $170 million of cash contributing greatly our liquidity and capital base.

In addition, we have around $150 million REIT cash on hand and cash available on our CDOs. So between our cash, the capacity in financing facilities, proceeds from our normal run-off and a capital generated from our equity kickers, we feel we are in good position and adequate capital continue to operate our business effectively.

In an environment we access the liquidity has become far more difficult, the monetization of our equity kickers has significantly improved our liquidity position and we believe this additional capital source should be highlighted.

In the third quarter we monetized one of our equity kickers and created two new ones. We received the $10 million distribution from investment in the Prime portfolio, this is a sixth distribution we have received from our Prime totaling around $60 million and we believe this investment has additional value.

Further more this distribution with tax deferred creating additional liquidity to fund investments. In mid-October we announced and we received around $39 million from the recapitalization of the 1107 Broadway Property.

We sell 50% of the economic interest and recapitalized the property with about $340 million of new non-recourse set all this portion the retained interest is 10% for about a $6 million of invested capital.

The partnership intense to develop this property into a mixed use of residential and retail. We are very pleased with the execution of this transaction and received almost $50 million in cash proceeds in 2007 from our total investment in the Toy project.

We have clearly earned a significant return on our investment in this project excluding a phenomenal yield on a debt we had outstanding while retaining an upside in the property going forward.

Additionally, we attend to retain a substantial amount of the proceeds after taxes and management fees. Significantly increasing our liquidity position without diluting shareholders.

Overall our equity kickers have generated around $200 million in cash proceeds and I have added almost $7 per share for economic book value, which currently is around $23 a share.

These equity kickers are internal component of our business and have now generated a positive wind-pack from these kickers and 11 of the 14 quarters since transitioning to a public company.

These kickers have also generated significant tax deferred cash proceeds, which have substantially increased our liquidity and capital base. As we touched on earlier we have been very active in improving the right side of our balance sheet and our capital structure.

Yesterday, we announced that Arbor entered into two new financing agreements with one of our lead banks. These new agreements will play short-term facilitates we had with the same financial institutions.

The press release laid out some more details but in summary we effectively replace the significant amount of our short-term debt with longer-term financing and eliminated mark to market risk as it related interest rates spreads on these assets.

In addition, we also added a new $200 million revolver to this term facility, specifically to fund new loans and investments. All in all our cost line went up around 50 basis points from these facilities, like a (inaudible) we feel confident but this normal increase in pricing will be more than observed by the increase yields on our assets and we're able to originate products with widest spreads in this market. As well as, having uncertainty at term and not being subject to mark-to-market.

These new facilities effectively lock up around $600 million of committed financing for three years. This also means that between our CDOs, trust preferred securities and these facilities a majority of our committed debt is a non mart-to-market and secured for the long term.

In addition, we amended a warehousing agreement increasing the committed amount of this facility from $75 million to $90 million and extend the majority to October 2008. In the third quarter we also amended another financing facility increasing a capacity by $50 million and reducing the borrowing costs in our facility by, 50 to 75 basis points and extending that majority to September 2008.

As I mentioned before another one of our ongoing critical objectives has been transition of our portfolio a higher credit quality by originating loans more in the middle of the capitals structure and we have been very successful in achieving this goal.

This quarter we added $265 million of new loans and investment with $253 million which funded, renewal for the third quarter it come in at $132 million resulting a net growth in our portfolio of around 32% for the nine months ended September 30.

One of the keys to the firm is our asset management team. Our experience and ability to not only originate and structure asset but to manage our way through assets with difficulties in difficult time.

Again, we are not immune to what is happening in the marketplace. And as financial institution have liquidity issues, those issues will triple down our bar liquidity, as well as, to the finance options in the market in general.

Realizing this the firm has established the protocol to be proactive and stay ahead of the curve. Therefore, we have established the delicate the community, which I participate on, that meet minimal or once a week to review the loan portfolio and deal with current problems, as well as, anticipate any potential issues.

We've taken aggressive stand to work with and educate our borrowers in the current environment and help them successfully navigate to their options, well ahead of majorities and all potential performance liquidity issues.

Our objective is to minimize any potential exposure that may occur in our portfolio that would be proactive with our borrowers by using a hand on approach. I want to be careful here because in this environment we are really not although we interested in short-term options for our borrowers but that is not accretive to the firms long-term.

And with that, let me transition to what the opportunities are on the origination side. Clearly there will significant origination opportunities of widest spread at lower risk profiles and well-structured loans and the ability to go on our additional equity kickers as well.

There is still a gap between what borrowers think the market is and where the market actually is, there are few remaining pockets of capital out there for people to access but those are drying up.

So what you will see is the market reaching at different level on spread and loan dollars and we are beginning to see that happen already. With that mind it is not our objective to build a short-term balance sheet.

We are guiding the flat portfolio growth but our strategy is to be very selective in deploying our capital and look to take advantage of wider spread in investments replacing our run-off with high yielding, longer-term product, building a portfolio and has reoccurring long-term value with attractive spreads.

So to extent our borrowers have short-term renewals not attractive for us to extend these loans where we could originate loans at our longer-term assets with high yields, this is clearly our objective and where we will be focusing our attention.

I think I have hit all of the items I told prudent to review in a moment I will turn it over to Paul. Who will go over some of the financial results but first let me briefly discussed our dividend and EPS.

As you know, we recently announced quarterly dividend of $0.62 per share of common stock, which is consistent with our previous guidance of maintaining our current dividend and determining we need to make a special dividend by the end of the year.

In addition we produce a $1.2 in EPS for the quarter and $3.73 for the first nine months of this year. We have generated significant earnings for the modernization of several equity kickers this year and we have done an excellent job of creating tax deferrals on a good portion of them.

We are still in the process of calculating our projected taxable income for 2007 to evaluate the needs for the special dividend. Once we complete this analysis, we report any special dividend if necessary before the end of the year with the current dividend yield at around 15% combined with the accretive opportunity available in today's market to go on a premium yield, we will look to retain as much capital as possible to invest in new loans and investments creating increase earnings.

I will now turn the call over to Paul to take you through some of the financial results.

Paul Elenio

Thank you Ivan, and good morning again everybody. As noted in the press releases our earning for the quarter we're $2 for common share on a fully diluted basis. We had a very profitable quarter and are closing in another record year with $3.73 in earnings per share for the first nine months of 2007.

The third quarter numbers were impacted by the $10 million distribution receives from our equity kicker in the Prime transaction. The detail of the accounting related to this transaction were laid out in the release also as previously announced in October, we received $39 million in cash proceeds from the recapitalization of our interest in 1107 Broadway Property.

As we mentioned several time, this investments are key part of our business model and continue to deliver significant earnings in capital for the company. We've now has a positive impact from one or more of our equity kickers and 11 of the 14 quarters since going public. And these equity kickers added over $7 per share since inception to our economic book value, which now stand at around $23.

We have also been very successful in structuring the both of this monetization

of these kickers in a tax efficient manner. This allows us to recycle a substantial amount of capital create significant additional liquidity to invest in new loans and investments with higher yield in this market.

The monetization of our equity kickers continues to demonstrate the significant off-balance sheet value associated with these types of investments, creating long-term shareholder and franchise value.

And now let me take you through the rest of the results for the quarter

First, our average balance and core investments grew about $180 million, which is primarily due to considerable growth we had from the second quarter. As a results our core interest margin increased about $2 million, a 10% increase from last quarter.

The yield for the quarter in these core investments was around 9.27%, compared to 9.55% for the second quarter. Our yield in those core assets was around 9.16% for the third quarter excluding income from the acceleration of fees, as compared to yield of around 8.89% for the prior quarter, excluding similar items.

The acceleration of these fees occurs frequently when loans repay prior to their scheduled maturity and the impact of these items was greater in the second quarter. The increase yield on our core investment was a result of rise in the average LIBOR rate during the third quarter, as well as, the funding of the extended Stay Hotel deal, which took place late in the second quarter.

This was slightly offset by the yield and the loans that paid-off in the third quarter being higher than the yield in the new loans we put on. However, the impact of this yield reduction in the third quarter was not as great as in prior quarters due to the timing of some of our projected loan.

In addition, the weighted average all in yield of our portfolios was 8.81% at September 30, 2007, down from around 8.84% at June 30, 2007. This decrease is primarily due to a 20 basis point reduction LIBOR for the comparable dates.

Partially offset by the portion of the portfolio have been LIBOR for us above the current rate. Since September 30 LIBOR has continued to decline in fact the weighted average all in yield of our portfolio was 8.71% at October 31, 2007.

This combined the projected payoffs will result in a reduction in our fourth quarter yields. We believe some of this reduction will be offset by the yield in our new guidance, as we continue to selectively originate investments with attractive returns.

Additionally, from September 30 to October 31, our weighted average all in yield did not put down yield as much as the reduction in LIBOR due to approximately 31% of our portfolio being fixed rate along around 50% of our variable loan have been LIBOR for us above the October 31 LIBOR rate.

Our average cost to fund this quarter was approximately 6.84%, compared to 6.82% from the prior quarter. Excluding some unusual items our average cost to fund were approximately 6.92% for both quarters. That cost remain flat as a result of the repayment of our participation in the loan that paid off at the end of the second quarter, offset by the arise in average LIBOR for the third quarter.

As I have been touched on, we recently modified some of our financial facility locking in the step for a longer period of time. As a result our cost of funds will increase slightly on this facility, but we believe this will be more than offset by the increase yield we earned on our new loans investments.

Additionally, the decline in LIBOR since September 30, we reduce our borrowing cost on the portion of our liabilities that are flooding. Next, the average balance in our debt facilities increased by around $30 million from last quarter, which mean that the average balance of our core investment increased to $150 million more than increase in our average debt facility.

This was primarily due to cash received from the equity rate and the monetization of our equity kickers towards the end of last quarter, which we use to pay down debt and fund new investments.

The average leverage on our core assets was around 78% for the third quarter, down from around 82% for the second quarter. Including the trust preferred as debt, the average leverage was 88% for the third quarter, compared to 93% for the second quarter.

This decrease in average leverage is the direct results of using the bulk of cash receive from our equity and the monetization of our equity kicker, which took place at the end of the second quarter to repay debt.

Our overall leverage on a spot basis was 2.6 to 1 at September 30 and June 30, 2007. If we include the trust preferred securities debt the overall leverage ration was 4.7 to 1 at September 30 and 4.6 to 1 at June 30.

There were no significant changes in the balance sheet since last quarter, however the restricted cash balance related to our CDOs did go down by about $72 million on a spot basis from June 30 to September 30.

The average balance of restricted cash outstanding for the quarter was relative flat about $189 million on average for the third quarter, compared to around $184 million for the second quarter.

Looking at our portfolio at September 30th, we had about 69% variable rate loans and 31% fixed. The breakout by product type was about 60% reach, 14% junior participation and 26% management preferred equity and our portfolio has an average duration of around 35 months.

In addition, loans to value of our portfolio was around 71%, our weighted average medium dollar outstanding was 49% and our debt service coverage ratio was 123 at September 30th.

The condo concentration in our portfolio was 8% at September of 30 almost falls in New York with over 80% of our average loan balance secured by pre-sold units with significant non-refundable deposits.

Operating expenses were fairly flat as compared to the previous quarter with the exception of the incentive management fee, which was significantly lower than last quarter due to large gains from our equity kickers during the second quarter.

Stock based compensation expense, which is a non-cash expense decreased $0.09 million from the second quarter largely due to stock-rent specific employees in April 2007.

And finally, we include to schedule summarizing our equity participation interest adjacent this quarter, as Ivan stated, we originate two new investments with equity kickers recently, one in the third quarter and one in October. This brings a total number of equity kickers in our portfolio to 15.

As stated in the press release, we received $10 million in cash and recorded approximately $6 million in net income during the quarter from our equity kicker interest in the Prime portfolio.

The significant earnings and liquidity, we have generated from our equity kickers continues to demonstrate our unique ability to consistently generate substantial value from our investments.

With that, I'll turn it back to the operator and we'll be happy to answer any questions you may have at this time.

Question-and-Answer Session

Operator

(Operator Instruction) And your first question comes from the line of David Boardman with Wachovia.

David Boardman - Wachovia Securities

Good morning. And thank you for taking my questions. I was just wondering, if you could comment on the two kickers that were added this quarter. The first one being Alpine Meadows it looks likes it out in Lake Tahoe area where you also have another investment. I was wondering if they are related or if you could just maybe talk a little bit more about that asset?

And then the St. Johns development asset and Jacksonville, Florida I had seen a report regarding that there maybe a credit stress situation, I was just wondering, if you could maybe add a little color there?

Ivan Kaufman

Sure. On the Alpine Meadows it is related to the other investment we had the other side of the mountain. And there was just strategic rule to acquire that piece and then combined it to and that was a purpose of that investment.

So we are very pleased with the ability to participate in that acquisition with the J&A group who was the general partners and responders and will be able to make that happen. With respect to the Jacksonville property, that was opportunity that came out of a loan within our portfolio.

We originated that loan a little over a year ago and the sponsor of that loan ran into some financial difficulties and yes, there is a little exposure to single family development any other personal recourse loan as well in exchange or letting what is personal recourse we took the property back and simultaneously recapitalized it with one of our experienced developer and participated in 50% of the equity on that opportunity.

David Boardman - Wachovia Securities

Taking -- considering where were the residential mortgage market, I was wondering if you could comment on, you know, just the channel the health of demand and your Arbor commercial mortgage?

Ivan Kaufman

On the residential side?

David Boardman - Wachovia Securities

Yes

Ivan Kaufman

We have no exposure on the residential side. We are not participating the residential...

David Boardman - Wachovia Securities

Yes. But I am talking about the External Manager itself.

Ivan Kaufman

The External Manager?

David Boardman - Wachovia Securities

Yes.

Ivan Kaufman

I mean, it's a private company its very healthy in fact we are very strong beneficiary of this market because as they're probably aware where if any may FHA lender and given the lack of liquidity in Wall Street and CMBS on that revenue and aspects to our businesses picked up dramatically and being a if nay may sell services where we enhanced our originations in a tremendous way. So we are very pleased with the help of manager and very comfortable.

David Boardman - Wachovia Securities

You talked about kind of looking for a flat net asset growth. I guess you are offering to over the next four or five quarters. I was wondering if you could highlight kind of what your expecting maturities are in your portfolio and then frame that in terms of the extension risk.

Ivan Kaufman

Sure. I believe just over the next 90 couple of 120 days we are expecting run-off about $400 million somewhere in that neighborhood based on anticipated maturities.

So we would be very happy since we originating opportunities to replenish that replacement and certainly some of those maybe re-origination depending on where the borrowers stand relative to their execution strategy and relative access of a debt but $400 million is pretty good amount of money deploying this environment. And we are really comfortable if we have that run-off that we can replace with superior assets.

David Boardman - Wachovia Securities

In the last quarter, spin was relatively strong in Q2 and not extraordinarily like in Q3 considering where spreads have moved throughout the summer here, do you wish you'd had some of the capital back now?

Ivan Kaufman

Look there is no question of the fact that if it didn’t originate well over the last six months we have that cap so you can deploy that today, 20-20 either side. But running a business and filling your CDOs and your capital needs you nearly have a business to run but clearly, if we had a back, we got to rewrite the book.

We lost the rewrite loans in this environment and of course that environment, that's for sure. But when you have a business to run and you have CDOs and facilities that have requirement in balancing, you have to meet those current needs.

David Boardman - Wachovia Securities

Thank you for taking my questions.

Operator

Your next question comes from the line of David Fick with Stifel Nicolaus. Please proceed.

David Fick - Stifel Nicolaus

Good morning.

Ivan Kaufman

Good morning.

Paul Elenio

Good morning, David.

David Fick - Stifel Nicolaus

Can you give us a bit further review on the repayment profile say for all of '08 as opposed to just the next couple of months?

Ivan Kaufman

It's not something we're looking to guide to, David. We look at the next 90 days to 120 days, looks like about $300 to $400 million a run-off, haven't look really much passed to 120 days because the market is changing. So I think we are going to see probably similar run-off in the second half of '08 as well, but it is something we still need to focus on.

David Fick - Stifel Nicolaus

That net run-off or I mean, you expect you have to re-deploy the capital?

Ivan Kaufman

Yes. Re-deploying the capital won’t be the issue. We are seeing significant opportunities to re-deploy that capital and superior yield. So we are just cautious with re-deploying capital with that run-off and making sure that we preserve our liquidity as in a very capital intelligent manner.

So I would expect that whatever run-off we do experience, it wouldn't be overly difficult to re-deploy that capital at superior risk adjusted returns and to be a very accretive portfolio.

Paul Elenio

Yes. I guess David to test that’s right we have started to predict all the run-off that we are abiding to here is definitely replacing that run-off with growth and just having a flat portfolio growth over the next couple of quarters.

Ivan Kaufman

Yes. As I mentioned and what I was talking about is, all our borrowers with luxury renew their loan from us, right, on a short-term basis. But what we're looking to do is put loans on a long-term basis and a lock goes spread in.

Because this environment would not have last forever, it may last for six months, 12 months, 18 months but my perspective is due to great yield, the loans are very, very well structured and I want to build the portfolio for locking these yields for a significant period of time.

So I am not interested in 30-day or 60-day extension even for extension fees, it is not accretive to the portfolio I want the capital add on a long-term basis.

David Fick - Stifel Nicolaus

Okay. Well that lead to my next question, you are somewhat as I think everyone is they are assuring cap rates at this stage. You are now looking to extend term -- these guys have to be able to repay out your papers are all short at this point on a relative basis, you want to push it out, but you are going to have to be a little flexible with a guy that can’t find that permanent financing alternative.

Ivan Kaufman

Well. There are two things, number one, it is nice to be back in control. You know, we were in a period of time over the last two years, where borrowers were dictating the terms, right.

David Fick - Stifel Nicolaus

Yes.

Ivan Kaufman

So it is nice to be able to be in the drivers seat. If we have all the options for borrowers, we can do two things, we can either dictate getting a significant amount of fees, number one, number two, dictate getting a loan and structured a little bit more secure, number three, dictate that if we are going to do this, this is going to have to be on a longer-term basis, so those option arouse.

Clearly, it will be prudent in the market and we want to make sure the reasonable and we will have to balance all of those interest. So knowing the capital market, knowing what the options are out there, we will use our judgment.

I will tell you that we spend our last three months just trying to educate the borrowers as to where the market is because they still have that same mentality that they had six months ago, that they think that they can demand expansion.

And we are going to be chasing them for the opportunities and we are not going to get extension fees and yields, and that's where lot of our time has been spent. So there's been a significant amount of effort on senior management side to be proactive with our borrowers but I don't know the maturities are coming off, these are the options.

This is what we expect them to do and not wait till two weeks before and say well, we didn’t know about where was that. So a lot of its education, a lot of its understanding the capital market alternatives.

And as I also mentioned in my script, we put together pool of senior management that we regularly -- meets regularly on this and we are really looking to maximize the long-term value of the firm, but also making sure that we do what's best on as well as in the short term throughout our balance.

David Fick - Stifel Nicolaus

We've already got one situation where you took control of the asset. Is -- are you more incline to do that as sort of, a message to the market or strategically on individual assets by asset basis, if you think the value is greater by taking control you are willing to do that and sort of lock in some real estate on your balance sheet?

Ivan Kaufman

Absolutely, we will be very aggressive. I mean most it's a funny mentality out there that we face all the time. Most borrowers think they are going to default or if they are going to threaten at the lenders they can bend the lenders over with all or just the opposite, we threat only one, we'll take over the asset, so it’s quicker through unique position to take control over the asset.

And what we have really worked on and where we've really have a tremendous strategic advantages, I have 10, 12, 14 operators that we do a lot of business with, but we have significant capital, who just can't wait to jump into this type of opportunities.

So even they can take the opportunity themselves or we can step in as well participate and you know, what we'll do in fact, one of our guys came back for an asset, which really is not impeccable when we have a guy who has a liquidity issue.

And his approach was less than hour, you know, make it difficult to -- we were down at the asset with the operator understanding exactly how to step and went to step and went to put the receiver in. And if it comes to that, we won't blink, which usually works into our management is being able to facilitate a smooth result.

And that's really the difference between being proactive hands on and having the ability to manage real estate. And we may see a lot of opportunity in fact, we just didn't extra zone and we are looking forward to those.

David Fick - Stifel Nicolaus

Okay. Back to the special dividend, I know you hasn't any and you work on it, you don't know the answer yet, but we were within 60 days, you have to have some sense, I would expect as to simply go to magnitude beyond what you've said?

Paul Elenio

David, it's Paul. You are right we are within 60 days we should have just spend down over the next couple of weeks. The reason is, it’s not bend down as you saw in the press release on 1107 Broadway Property, we are working through a tax structure right now and we will be coming out with the result to that once we finalize that.

If that is successful could potentially minimize any significant special dividend that we would have to require to distribute at the end of the year, we just don't have that locked down yet and obviously, our goal is to retain the capital if we can and deploy back into this market but in the next couple weeks we should have that’s been down and we able to get that result out to people.

David Fick - Stifel Nicolaus

I think you are smart to hold back on increasing the dividend or being a special you can because obviously you are not getting yield support from your current dividend levels, it does not make any difference.

Ivan Kaufman

I think we agreed.

David Fick - Stifel Nicolaus

Current portfolio, LTV and then I'll get off.

Ivan Kaufman

Okay. Yes. LTV, the portfolio currently is about 71%, $1 million outstanding is 49% and debt coverage is $123.

David Fick - Stifel Nicolaus

Great. Thank you.

Operator

(Operators Instruction) Your next question comes from the line of Don Fandetti with Citigroup. Please proceed.

Don Fandetti - Citigroup

Hi. Ivan quick question. Obviously, you've been involved in the New York market for quite sometime. There is a concern about financial services. Wanted to get your perspective from a commercial real estate standpoint and also can you comment on the outlook for the condo market in New York?

Ivan Kaufman

Sure. First, regarding fortune we have a large part of our portfolio in the New York market and New York has been some sort of normally compared to the rest of United States.

Some say it is the Europe, some say that New York is still the capital of the world financially. But the fact that the matter is that New York is still extremely on solid ground but let me give you my outlook a little bit on what I think.

If you have condo product to sell today, it is selling very, very nicely. Do I think that that market will soften up, I only said it would soften up? We only got to rate our product to 30% discount to market.

So I think that what's happening on Wall Street, you would think that there would be some softness in the market. We haven't seen it yet but I expect that market to soften and all non-Prime products will suffer first the client always retains itself fairly well.

But I think we have 10% to 20% softening on the prices but I guess if you look at the newspaper yesterday and you saw a guy buying $150 million apartment, you'd be a little surprise but that's my outlook, it will soften a little bit.

But as far buyers still keep coming on the residential side, on the office side. It amaze me that the rents that people have achieved over the last 12 months and we've guided our underwriters on luxury buildings to still maintain an underwriting profile depending on location of the $60 to $100 range, which is only historically New Yorkers supported new office market.

The $150, $175, $125 rents that were being achieved are not sustainable at least from our underwriting standards. I did hear for the first time these weeks some members are low softening in the office market in New York City.

I suspect that there will some softening, I knew -- you will see office market rent coming down to be more inline with what historical rents have been with some level of appreciation, but not the levels that we have seen.

Don Fandetti - Citigroup

Okay. Great comment. Thank you.

Operator

I would know like to turn the call back over to Arbor Realty Trust Management for closing remarks.

Ivan Kaufman

Okay. Well, I would just like to thank everybody for participating on the call. These will be very interesting times. And we look forward to your continued participation. Take care.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. And have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Arbor Realty Trust Incorporated Q3 2007 Earnings Call Transcript
This Transcript
All Transcripts