Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the second quarter 2021 Arbor Realty Trust Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this period, you will need to press star 1 on your telephone. If you want to remove yourself from the queue, please press the pound key. Please be advised that today's conference is being recorded. If you need operator assistance, please press star zero. I would now like to turn the call over to your speaker today, Paul Elano, Chief Financial Officer. Please begin, sir.

Okay, thank you, Brittany, 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 June 30th, 2021. 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, of course, are 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 with many significant accomplishments, including exceptional operating results, which continues to demonstrate our unique ability to consistently generate high quarterly earnings and deliver outsized returns in every market cycle. I can't stress enough the importance of having multiple products with diverse income streams, which allows us to consistently grow our earnings and dividends. while others in our space have experienced little or no growth at all. We have a much higher quality of earnings with consistent dividend growth and a very low dividend payout ratio, which is why we strongly believe we should consistently trade at a substantial premium and much lower dividend yield than our peer group. We also remain extremely well positioned for continued success, giving us great confidence that we will produce outstanding results for the balance of 2021. Our tremendous operating results combined with our strong outlook has allowed us to once again increase our dividend to $0.35 per share. This is our fifth consecutive quarterly dividend increase and our ninth increase in the last 12 quarters, all while continuing to maintain the lowest dividend payout ratio in the industry. We built a premium operating platform focusing on the right asset classes with very stable liability structures, an active balance sheet, GSE agency business, private label program, and single family rental platform, producing a long track record of exceptional performance with consistent earnings and dividend growth. As a result, we have been the top performing REIT in our space for each and every one of the last five years. Before we dive into the details of our quarterly results and the significant growth we continue to experience in all areas of our business, I want to highlight some of our more notable second quarter accomplishments. We had a very active and successful quarter in many areas of our business. We produced tremendous transaction volumes originating in excess of $3 billion in new loans and investments this quarter, including over $1.8 billion in balance sheet loan originations, which is a new record. And just as importantly, our pipeline is currently at all-time highs. As a result, we were very active in the capital market, successfully raising approximately $400 million of accretive capital in the second quarter to fund this growth. We issued $140 million of common equity, $175 million of 5-year 5% unsecured debt, and $230 million of new 6-3-8 perpetual preferred equity, which will allow us to fund our growing pipeline of loans and investments and be extremely accretive of future earnings and dividends. In fact, this capital is 8 to 10 cents accretive in our annual earnings run rate, allowing us to increase our dividend again this quarter. Every time we raise capital, it's to fund our growing balance sheet loan business, which is not only high accretive to our current earnings and dividends, but also allows us to build a pipeline for two to three years of new GFC agency loans, showing the long-term growth of our platform and creating higher quality earnings and dividends in the future. We were also very successful in continuing to access the CLO securitization market in the second quarter, closing our 15th and largest CLO to date, totaling $815 million with very favorable terms and pricing. We have consistently been a leader in the CLO securitization market as financing our high-quality balance sheet portfolio with the appropriate liability structures continues to be one of our key business strategies. The utilization of these vehicles has contributed greatly to our success by allowing us to appropriately match fund our assets with non-recourse, non-market-to-market long-term debt and generate very attractive levered returns on our capital and provide us with a rock-solid balance sheet. And in the second quarter, we're very pleased to have closed our second private label securitization totaling $450 million with very effective execution which contributed greatly to our second quarter earnings and continues to demonstrate the strength and diversity of our versatile lending platform. Turning now to our second quarter performance, as Paul will discuss in more detail, our quarterly financial results were once again truly remarkable. We produced distributable earnings of 45 cents per share, which is an incredible accomplishment and well in excess of our current dividend, representing a payout ratio of around 78%. Our ability to consistently generate exceptional results and increase our dividends is a true testament to the value of our franchise and the many diverse income streams we have created. We continue to realize significant benefits from many areas of our diverse operating platform. Continued growth in our GFC agency platform, which produces strong margins and increased servicing fees, significant contributions from our private label program, record growth and significant benefits from the size and scale of our balance sheet business, as well as superior execution on our liability structures, strong performance of our multifamily-focused portfolio with very few delinquencies, and substantial income from our residential businesses. And these reoccurring benefits, combined with our versatile originations platform, strong pipeline, and credit quality of our portfolio puts us in a unique position to be able to continue to produce significant distributable earnings, going forward as we are extremely well positioned for future growth and success. In our balance sheet business, we're seeing tremendous growth as deal flows continue to really exceed our expectations. We grew our balance sheet loan book another 18% in the second quarter on record quarterly volume of $1.8 billion and have grown at 35% already this year to $7.4 billion as of June 30th. Our pipeline is also at an all-time high, which will allow us to meaningfully grow our loan book for the balance of the year. This unprecedented growth has significantly increased our run rate of net interest income going forward. And again, very importantly, these balance sheet loans also create substantial pipeline of future GSE agency loan origination volumes and long-dated servicing revenues, further increasing our future earnings and dividends. It is also very important to stress that over 90% of our book are senior bridge loans, and more importantly, 87% of our portfolio is in multifamily assets, which has been the most resilient asset class in all cycles and continues to significantly outperform all other asset classes in this cycle as well. Additionally, as we have mentioned in the past, We have very little exposure to the asset classes that have been affected the most by the recession, such as retail and hospitality. We also have adequate reserves against our positions. During the height of the pandemic, we recorded a $7.5 million specific reserve on one of our hotel assets and subsequently used our own capital to purchase the remaining note as a discount. We worked very hard on the transaction and are extremely pleased to report the successful sale of our position in the second quarter allowing us to reverse the full $7.5 million reserve, collect approximately $3.5 million of unpaid interest, and free up approximately $60 million of our invested capital that we'll redeploy into our balance sheet lending business and generate strong leverage returns on this capital. We have always prided ourselves on investing heavily in our asset management function. This incredibly successful workout further demonstrates the value of our unique franchise. We continue to experience growth in our GSC agency platform, and we are seeing significant increased momentum in our private label program as well. We originated approximately $925 million in agency loans in the second quarter, and $1.3 billion including our private label business. We're also off to a very good start in the third quarter, and we are expecting to close approximately $300 million of agency loans and $400 million of private label business in July. Equally as important, we have a robust pipeline giving us confidence in our ability to produce significant agency and private label volumes for this balance of the year. Our GSC agency platform continues to offer premium value as it requires limited capital, generates significant long-dated predictable income streams, and produces significant annual cash flow. Additionally, our $26 billion GSC agency servicing portfolio, which has grown 20% in the last year, is mostly prepayment protected and generates approximately $120 million a year and growing reoccurring cash flow, which is up 25% from $95 million annually last year. This is in addition to the strong gain on sale margins we continue to generate from our origination platform, which combined with new and increased servicing revenues will continue to contribute greatly to our earnings and dividends. We're also very pleased with the significant growth we are seeing in our single-family rental platform. Second quarter, we closed another $110 million of single-family rental product. We currently have well over $1 billion of additional deals in our pipeline, making us very optimistic about the growth in this segment of our business. We also believe we are the leader in the single-family built-to-rent space, which provides us with the opportunity to originate construction, bridge, and permanent loans on the same transaction. Again, we are very excited about the growth in this platform. confident this business will be a significant driver of yet another source of income, further diversifying our lending platform. In summary, we had an exceptional quarter, are well-positioned to have another outstanding second quarter, second half of the year. We have a very versatile operating platform that is multifamily-centric with a strong pipeline, significant servicing income, sizable balance sheet portfolio, single-family rental platform, residential mortgage business, providing us many diverse and growing business lines that position us exceptionally well for continued future success. We are confident that our superior multi-tiered operating platform will allow us to continue to generate high-quality earnings and dividends and preserve our long-term standing as a best-performing company in our space. I will now turn the call over to Paul to take you through our financial results.