Arbor Realty Trust

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter Arbor Realty Trust Earnings Conference call. At this time, all participant lines are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0. I would now like to turn the call over to your speaker today, Paul Aranio. Please begin, sir.

Okay, thank you, Norma. And good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended September 30th, 2019. 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 expectation 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. As you can see from this morning's press release, we had another outstanding quarter, which continues to demonstrate the diversity of our operating platform and the value of our franchise. We're very pleased with the continued growth in our business, which has consistently increased our baseline of predictable and stable earnings, allowing us to once again increase our quarterly dividend to $0.30 a share, which represents our third increase this year and reflects an annual run rate of $1.20 per share, up from $1.08 per share. Additionally, the significant growth we experienced this year continues to increase our run rate of core earnings, making us very confident in our ability to comfortably maintain our current dividend as well as grow it in the future. Over the last few years, we have clearly outperformed our peers, delivering consistent annual shareholder returns of approximately 30%. And this performance, combined with the quality and diversity of our income streams, along with the consistency of our earnings and our low dividend payout ratio, clearly differentiates us, which is why we believe we should consistently trade at a lower dividend yield and a substantial premium to our peer group. To highlight our success further, I would like to talk about the growth we experience in both of our business platforms. In our agency business, we grew our servicing portfolio another 3% in the second quarter and 12% over last year and is now at $20 billion. This portfolio generates a servicing fee of 44 basis points and has an average remaining life of over nine years, which reflects an 11% increase in duration over the last two years. And as a result, we have created a very significant, predictable annuity of income of $87 million gross annually and growing, the majority of which is prepayment protected. As this growth in our servicing portfolio also continues to increase, the annuity of income from our escrow balances, which are currently earning $19 million annually, for a combined annual run rate of servicing income and ESCO earnings of $106 million. We also had a very strong originations quarter, closing $1.4 billion in agency loans, and our pipeline remains strong, providing us with confidence in our ability to produce consistent origination volumes for the balance of the year. We are also very pleased in our ability to continue to generate strong margins on our loan sales despite the extremely competitive landscape. These income streams from our agency platform continue to create significant diversity and a high level of certainty in our income streams. There's been a lot of talk lately about the potential for the GSE reform and the effect that it has and the new cap could have on GSE lenders in the future. The new cap for 2020 has been increased and represents approximately 40% of the projected 2020 multifamily markets. The new cap also eliminates any exceptions and mandates that 37.5% be directed towards mission-driven business or affordable housing. Our GSE production historically has been mostly in the affordable housing market, and therefore we believe that the increase to the cap, combined with a large portion being dedicated to the affordable housing component, puts us in a favorable position to be able to continue to grow our agency production going forward. In anticipation of a potential reduction in the agency footprint, which did not occur, we launched our Arbor private labor program. In the beginning of the third quarter, the industry experienced a slight disruption as the agency caps were being navigated. In that short period of time, we had a competitive advantage in the market and were able to build a pipeline of $600 to $700 million of this product, which we expect to close and securitize in the first quarter of 2020. And we believe the development of this product line will further diversify our lending platform and act as a mitigant against any further changes to the agencies. With respect to our balance sheet business, we experienced tremendous growth in our loan book. We grew this portfolio 24% in 2018 and another 21% already for the first nine months of this year on nearly $2 billion of originations. Our balance sheet portfolio is now at $4 billion and the significant growth we experienced will continue to increase our run rate of net interest income going forward. It is also significant to note that almost 80% of our portfolio is in multifamily assets, which is clearly the safest asset class. We also have a very robust pipeline, which will allow us to continue to grow our loan book for the balance of the year. And as a result of this strong pipeline, we elected to raise $120 million of fresh capital in October through a four and three quarter unsecured debt issuance that was 100 basis points tighter than than our last debt issuance in March. This was very attractive capital as it will be used to fund our pipeline of new investments and be immediately accretive to our core earnings. We continue to have tremendous success through our securitization expertise and our strong banking relationships in substantially reducing our debt costs, which has allowed us to achieve significant economies of scale and maintain our margins in a very competitive market. And again, the income generated from our balance sheet loan book is a significant component of our earnings, and we remain very confident in our ability to continue to grow this income stream. Updating you now on our single-family rental business, we continue to make considerable progress in developing our platform, and we are committed to becoming a leader in this space. We are very pleased with the continued growth we are seeing in our pipeline of opportunities by leveraging off our existing Originations capacity and capabilities. We have closed approximately $100 million of single-family rental product to date, and we believe this is a phenomenal business with enormous opportunity in both the bridge and permanent lending products, and we are confident that we will build this out to be a significant driver of yet another source of income stream and further diversify our lending platform. Overall, we are extremely pleased with our progress and the tremendous success we continue to have in growing our operating platform. The quality and diversity of our income streams makes us very comfortable with the stability of our dividend and confident based on our strong baseline revenues that the current status of our pipeline will be able to consistently grow our dividend in the future and continue to generate outsized returns to our shareholders. I will now turn the call over to Paul to take you through the financial results.