Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the first quarter 2023 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 Eleno, Chief Financial Officer. Please go ahead.

Okay, thank you, Brittany. 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 March 31st, 2023. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you 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 all those 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. After coming off our best year as a public company in 2022, We've had a tremendous start to 2023 with another exemplary quarter. 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 counter-cyclical income streams, allowing us to consistently produce earnings that are well in excess of our dividends. This has allowed us to increase our dividend another 5% or 2 cents a share to 42 cents, reflecting our 11th increase in the last 13 quarters or 40% growth over that time period, all while maintaining the lowest payout ratio in the industry, which was 68% for the first quarter. Our performance continues to be head and shoulders above everyone else in our peer group, none of which have been able to increase their dividend at all in the last few years. In fact, several of our peers continue to cut their dividend in this market, while others are paying dividends of over 100% of their earnings. Additionally, and very significantly, we've grown our book value per share by 45% over the last three years. from just under $9 a share to almost $13 a share, even with 11 dividend increases during that period, while many of our peer groups have not grown their book value at all, despite cutting their dividends, or at best, only keeping their dividends flat. Yet, we still trade at similar dividend yields and price-to-book values as the rest of the space, despite our unquestionable outperformance. which is why we strongly believe we're completely undervalued and there has never been a better time to make a significant investment in our company. As we discussed on our last earnings call, we have been laser-focused over the last 18 months in preparing for what we felt would be a very challenging recessionary environment. Currently, we have all seeing the negative press around the financial markets, banking industry, and real estate sector, which has created additional uncertainty and volatility in the market. We are operating our business with the expectation that this environment will persist for some time, and as a result, we are very pleased on how well positioned we are as a firm to take advantage of what we believe will be accretive opportunities to go on a premium yield on our capital. We have taken a patient and selective approach to new investments and have been heavily focused on preserving and building up a strong liquidity position. This has allowed us to accumulate approximately $900 million of cash and liquidity on hand, which again provides us with the unique ability to remain offensive. I have always said there are tremendous opportunities in down markets to make a significant return on your capital if properly positioned. One of the best opportunities we've seen in recent months is the ability to repurchase our stock at significant discounts to book value and generate high double-digit returns on our capital. We repurchased approximately $37 million of stock at an average price of $10.53, which is a 17% discount to our book value and generates a current dividend yield of 16% and a yield of approximately 20% on our distributable earnings. This is a tremendous return on our capital. And again, it's something we're able to take advantage of because how well positioned our firm is to be opportunistic in a volatile environment. We have also a best-in-class dedicated asset management team with tremendous expertise in loan works out and debt restructuring, which is something that's a key part of our business model, extremely valuable and unique through our platform. A lot of misinformation has been published lately about a group of loans totaling $2 totaling $229 million that we had in Houston, Texas. In order to exercise our remedies, we proceeded to foreclose on these assets and had one of the existing investors, who was deeply committed to the project, recapitalize and restructure the debt with the appropriate guarantees, putting our loans in a much more favorably protected position. We recorded no loss on the original debt, and recovered all the outstanding interest owed to us as part of the restructuring. This was an extraordinarily successful debt restructuring, which clearly demonstrates the incredible depth and experience of our asset management team. Unlike others in this space, we've been conducting ourselves as though we've been in recession for the last four quarters. And although we believe the bottom is near, we are well aware of the challenges that lie ahead. We feel we are doing an outstanding job in managing through this dislocation between our multifamily-centric portfolio, the quality and structure of our loans, our asset management skillset and tenured senior management team, and a track record of managing through multiple cycles and the strength of our balance sheet and the versatility of our franchise. Before I talk about the first quarter results and highlights, I want to take a few minutes to address a significant amount of false and misleading information that has been recently published about our company through a short seller report. The report is replete with factual misstatements of a patently false information and innuendos that is cloaked in the form of opinion and a transparent attempt to mislead the investing public. It is clear to us and should be clear, equally clear to everyone who has been diligent in following the progress of our company for more than a decade that the report was written by somebody who apparently neither understands our business nor has a sense of appropriate accounting treatment for certain transactions and who is motivated solely to profit on their short position through the dissemination of false and misleading information. While we will not go through a back and forth on every false and misleading allegation by the so-called research company. It should be obvious to everyone at this point that the report is an attempt to capitalize on fear instead of rational thought. And what is so ironic is that they took one of the most successfully restructured transactions in our history that was highly lucrative to our shareholders and to try to turn it into a negative transaction. Most importantly, we have reaffirmed with our auditors that all our accounting for the periods in question is correct, as evidenced by the filing of this morning of our first quarter 10Q with no material changes. I urge our shareholders and the investment public to pay no attention to this noise, and it's clearly coming from a biased source lacking in credibility, and instead of focusing on fundamentals of our business, our tremendous operating results and the fact that we are a leader in our space and continue to masterfully outperform our peers. Turning now to our first quarter performance, as Paul will discuss in more detail, our quarterly financial results were once again remarkable. We produced distributable earnings of $0.62 per share, which is well in excess of our current dividend, representing a payout ratio of around 68%. And clearly, with our extremely low payout ratio and multiple predictable reoccurring income streams, we are uniquely positioned as one of the only companies in our space with a very sustainable protected dividend, even in this challenging environment. In our balance sheet lending business, we continue to be very selective, focusing mainly on converting our bridge loans into agency products, allowing us to recapture a substantial amount of our invested capital and produce significant long-dated income streams. In the first quarter, we had a tremendous success in this area with another $1 billion of balance sheet runoff, over $400 million of which was recaptured into new agency loan originations. As a result, we were able to recoup $200 million of our invested capital and continue to build up our cash position to take advantage of the many opportunities we believe will exist in this downturn to generate outsized returns on our capital. And this strategy is a critical part of our business model and is unique to our platform. And we are both a top balance sheet lender and operate a very large agency business. In our GFC agency business, we had a strong first quarter originating $1.1 billion of loans capped off by a very strong March with over $530 million in originations. And with the current yield curve, and a very little activity in the market for balance sheet lending, we're seeing a significant increase in our agency pipeline, giving us confidence in our ability to continue to produce very strong agency volumes going forward. Additionally, we have a strategic advantage in that we focus on workforce housing, part of the market, and have a large multifamily balance sheet loan book that naturally feeds our agency business. In fact, we are one of the leading agency lenders in the achievement of affordable housing goals, and as a result, we continue to be viewed very favorable by the agencies. And again, this agency business offers a premium value as it requires limited capital, generates significant long-dated predictable income streams, and produces significant annual cash flow. To this point, our $29 billion fee-based servicing portfolio, which grew 3% in the first quarter, generates approximately $117 million a year in reoccurring cash flow. We also see a significant increase in earnings on our escrows and cash balances at rates of risen considerably, which, in fact, is a natural hedge against interest rates. In fact, we are now earning approximately 4%. on around $2.8 billion of balances, or roughly $100 million annually, which combined with our servicing income annuity totals over $217 million of annual cash flow or over a dollar a share. This is in addition to the strong gain on sale margins we generate from our originations platform, and again, it's something that is completely unique to our platform, providing a significant strategic advantage over our peers. We continue to grow our single-family rental business as we are one of the only remaining lenders in the space, allowing us to produce as much business as we want. We remain committed to the business that offers three turns on our capital through construction, bridge, and permanent lending opportunities and generate strong levered returns in the short term while producing significant long-term benefits by further diversifying our income streams and allowing us to continue to build our franchise. In summary, we are off to a fantastic start in 2023 with an exceptional first quarter that once again demonstrates our ability to generate strong earnings and dividends in all cycles. We understand very well the challenges that lie ahead in this volatile market and feel that we are very well positioned and the best positioned company in our space to succeed in this cycle. Our earnings significantly exceed our dividend rate, We invested in the right asset class with very stable liability structures, highlighted by a significant amount of non-recourse, non-mark-to-market CLO debt with pricing that is well below the current market. We're also well capitalized with significant liquidity, which has put us in a unique position to take advantage of the many accretive opportunities that will exist in this environment. And again, with our best-in-class asset managing capabilities and a seasoned executive team, We are very confident that when the smoke clears, we will continue to be the top performing company in our space, significantly outperforming our peers. I will now turn the call to Paul to take you through the financial results.