Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the third 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 star 2. 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 Elenio, Chief Financial Officer. Please go ahead.

Okay, thank you, Shelby, and good morning, everyone, and welcome to the quarterly earnings call for Auburn Realty Trust. This morning we'll discuss the results for the quarter-ended September 30, 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 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're in another tremendous quarter as our diverse business model continues to offer many significant advantages over everyone else in our peer group. We have a premium operating platform with multiple products that generate many diverse income streams, allowing us to consistently produce earnings that are well in excess of our dividend. This has allowed us to once again increase our dividend to $0.40 a share, representing our 10th consecutive quarterly dividend increase with 33% growth over that time period, all while maintaining the lowest payout ratio in the industry. We've also strategically built our platform to succeed in all cycles, and as a result, we believe we are extremely well positioned to thrive in this economic downturn. We invested in the right asset class with the right liability structures, highlighted by over $8 billion in non-recourse, non-mark-to-market CLO debt, representing nearly 70% of our secured indebtedness, with pricing that is well below the current market. We also have no significant short-term debt maturities and are well capitalized with currently around $600 million in cash and liquidity, providing us with the unique ability to remain offensive, and take advantage of the many opportunities that will exist to generate superior returns with our market capital. Additionally, our dividend is well protected with currently the lowest dividend payout ratio in the industry, and we cannot emphasize enough the depth and experience of our executive management team, including our best-in-class dedicated asset management function, that allowed us to successfully operate our business through multiple cycles, which is why we believe we are in a class by ourselves and have been the best performing REIT in our space for several years now. Our view of the current environment is that we are in a recession with runaway inflation, and we expect the market to continue to be volatile and dislocated for the foreseeable future. With this location comes great opportunity for us to gain market share in our core business platforms and generate superior risk-adjusted returns on our capital. As a result, we are excited about how we strategically position the firm to take advantage of what we believe will be extraordinary opportunities in this downturn. Turning now to our third quarter performance, as Paul will discuss in more detail, our quarterly financial results were once again remarkable. We produce distributable earnings of $0.56 per share, which is well in excess of our current dividend, representing a payout ratio of around 71%. Our financial results all continue to benefit greatly from rising interest rates, which has significantly increased our net interest income and our floating rate loan book, as well as earnings on our escrow balances. And clearly, with our extremely low payout ratio, As for an earnings outlook, we are uniquely positioned as one of the only companies in our space with a very sustainable protected dividend, even in a recessionary environment. As regarded on our last call, in this market we are being very selective with our balance sheet lending, looking to replace our runoff with higher quality loans with superior spreads. In fact, in the third quarter, we originated $600 million of new multifamily bridge loans with an average loan to cost of around 72% and into spreads of $1,450 over the index, while a $600 million runoff we experienced during the quarter had an average loan to cost of around 79% with average spreads of around $390 over the index. As a result, we were able to widen our spreads on average by around 25 basis points, while substantially increasing the loan quality with a 7% reduction in loan-to-value. Additionally, we have a significant amount of replenishable capital in our low-cost CLO structures that have resulted in a meaningful increase in the levered returns on these loans. In fact, our third quarter originations averaged over a 14% levered return, and the loans we financed through our CLOs came to over 18%. We have also placed a heavy focus on converting our multifamily bridge loan runoff into agency loans, which is a critical part of our business strategy as our agency business is capital light and produces significant additional long-dated income streams. In the third quarter, we successfully refinanced around 25% of our balance sheet runoff into new agency loans that produce strong gain on sale margins and long-dated servicing income. And again, Our strategy is to preserve and build on our strong liquidity position to allow us to remain offensive and go on a premium yield on our capital. In our GSC agency business, we originated another $1.1 billion of loans in the third quarter. October's originations came in at $250 million, and we have seen some leveling off in the pipeline given the rise in the 10-year period. Despite the current rate environment, we believe we can close out the fourth quarter with a similar volume as the third quarter, as, again, we have a strategic advantage in that we focus on the workforce housing part of the market and have a large multifamily balance sheet loan book that naturally feeds our agency business. And, again, this agency business offers a premium value that requires limited capital and generates significant long-dated predictable income streams and produces significant annual cash flows. To this point, our $27 billion fee-based servicing portfolio, which is mostly prepayment-protected, generated approximately $115 million a year in reoccurring cash flow. This is in addition to the strong gain-on-sale margins we generate from our originations platform and a significant increase in earnings in our escrow balances that we are experiencing as rates continue to rise, which acts as a natural hedge and is unique in our business. In our single-family rental business, we are gaining significant traction with a steady increase in deal flow. In the third quarter, we funded $150 million of prior commitments and committed to another $450 million of new transactions. As we now source close to $1 billion in deals in 2022 to date, we have a very large pipeline of deals we are currently processing. And again, we love this business as it generates strong-level returns and offers us three turns on our capital through construction, bridge, and permanent lending opportunities. In summary, we had another tremendous quarter, and we're extremely well positioned to succeed in this environment. Our dividend is well protected with earnings that significantly exceed our dividend run rate. We invested in the right asset class and have very stable liability structures. We are well capitalized. and have no significant short-term debt maturities, putting us in a unique position to take advantage of the many accretive opportunities that will exist in this market, giving us great confidence in our ability to continue to significantly outperform our peers. I will now turn the call over to Paul to take you through the financial results.