Arbor Realty Trust

Good morning ladies and gentlemen and welcome to the second quarter 2022 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 should need operator assistance, please press star zero. I would now like to turn the call over to your speaker today, Paul Alenio, Chief Financial Officer. Please go ahead.

Okay. Thank you, Chelsea. 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, 2022. 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. As you can see from this morning's press release, we had another tremendous quarter, including produce and earnings that were once again well in excess of our dividend. As a result, we're able to increase our dividend to 39 cents a share, and this is our ninth consecutive quarterly dividend increase, representing 30 percent growth over that time period all weight while maintaining the lowest dividend payout ratio in the industry. As we have mentioned many times, our diverse business model offers several strategic advantages, which is something that needs to be emphasized, especially given the recessionary environment. We have built a premium operating platform that is focused on the right asset classes with very stable liability structures including over $8 billion in non-recourse, non-mark-to-market CLO debt, which requires approximately 70 percent of our outstanding secured indebtedness with pricing that is well below the current market. We also have a thriving balance sheet GSA agency and single-family rental business that produces many diverse income streams, which has allowed us to consistently grow our earnings and dividends in all cycles. We remain keenly focused on maintaining a strong liquidity position with currently around $500 million in cash and liquidity on hand, in addition to roughly $450 million of deployable cash in our CLO vehicles. This liquidity will provide us with the unique ability to remain offensive and take advantage of the many opportunities that will exist during this economic downturn to generate superior returns on our capital. Additionally, we have successfully operated our business through multiple cycles and have a very seasoned and experienced asset management team that positions us exceptionally well to succeed in this cycle as well. These are significant differentiating factors from the rest of our peer group, most of which have monoline businesses that struggle to maintain their dividend and lack the experience and expertise to manage through this downturn. And this is why we believe we're superiorly positioned, are in a class by ourselves, and should trade a substantial premium at a much lower dividend yield than anyone in our peer group. Turning now to our second quarter, as Paul will discuss in more detail, our quarterly financial results were once again remarkable. We produced distributable earnings of 52 cents per share, which is well in excess of our current dividend, representing a payout ratio of around 75%. Our financial results will also benefit greatly from rising interest rates, which will significantly increase the net interest income on our floating rate loan book, as well as earnings on our escrow balances. Clearly, with this extremely low payout ratio and our strong earnings outlook, we are uniquely positioned as one of the only companies in our space that can potentially continue to raise our dividend. In our balance sheet lending business, we had another strong quarter. As one of the top multi-family lenders in the industry, we were able to grow our balance sheet loan book another 6% in the second quarter to $15 billion on $2 billion of new originations. We also continue to maintain a strong pipeline and will be very selective with our originations for the second half of the year, given the anticipated market slowdown. This will result in us producing more normalized volumes for the balance of the year with superior credit quality and higher spreads. In fact, as I mentioned earlier, we are heavily focused on maintaining a strong liquidity position to be able to take advantage of the many accretive opportunities we think will exist to go on a premium yield on our capital. As a result, We recently decided to sell 300 million of multifamily bridge loans, which generated 90 million of fresh capital. We also retained a portion of the upfront origination fees and all of the potential exit fees, as well as a 12 and a half basis point servicing fee and control over the takeout of each loan, which is vital to our business strategy as these balance sheet loans provide us with a pipeline two to three years of new GSC agency loans and produce additional long-dated income streams. We've consistently been a leader in the CLO securitization market. The utilization of these vehicles has contributed greatly to our success by allowing us to appropriately match fund our assets with non-recourse, non-mark-to-market, long-term debt, and generate attractive levered returns on our capital. In the second quarter, we closed another $1 billion CLO with superior execution in a very challenging market, which clearly demonstrates our strong track record, brand recognition, portfolio quality, and securitization expertise. And with approximately 70% of our total debt outstanding in CLOs, we're extremely well-positioned and have no need to further access the CLO market in this dislocated environment. We also have replenishment features and pricing that are well below the current market in these vehicles that will allow us to recycle capital from our runoff into higher yielding assets in today's environment and meaningfully increase our levered returns. In our GFC agency and private labor programs, we originated $1.2 billion of loans in the second quarter. We also have a robust pipeline that will give us confidence in our ability to produce consistent volumes for the rest of the year. Our GFC agency platform continues to offer premium value as it requires limited capital and generates significant, long-dated, predictable income streams. and produces significant annual cash flow. Additionally, our $27 billion GSE agency service and portfolio is mostly prepayment protected and generates approximately $117 million a year in reoccurring cash flow. This is in addition to the strong gain on sale margins we generate from our origination platform and a significant increase in earnings on our escrow balances that we're experiencing. as interest rates continue to rise, which is unique to our platform and will continue to greatly enhance our earnings and dividends. In summary, we had another tremendous quarter allowing us to once again increase our dividend. We strategically built our platform to operate successfully in all cycles with multiple products that produce many diverse income streams, providing us with a future annuity of high quality, long dated, reoccurring earnings. We are also the premier multifamily originator in this space and are invested in the right asset classes with very stable liability structures and are well capitalized, which positions us extremely well to succeed in this environment and continue to significantly outperform our peers. I will now turn the call over to Paul to take you through our financial results.