Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the third 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 0. I would now like to turn the call over to your speaker today, Paul Alenio, Chief Financial Officer. Please go ahead.

Okay, thank you, Mike. And good morning, everyone, and welcome to the quarterly earnings call for all the realty trusts. This morning we'll discuss the results for the quarter ended September 30th, 2023. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before I 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 Arbor's expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these follow-looking statements, which speak only as of today. Arbor undertakes no obligation to publicly update or revise these follow-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 as our diverse business model continues to generate earnings that are well in excess of our dividend. This has allowed us to maintain one of the lowest dividend payout ratios in the industry, which was 78 percent in the third quarter. Additionally, and very significantly, despite Being in a very challenging environment over the last several quarters, we've managed to maintain our book value while recording reserves for potential future losses, which clearly differentiates us from every one of our peers. In fact, we're one of the only companies in our space to have experienced significant book value appreciation over the last three years, with roughly 40% growth from around $9 a share to nearly $13 a share. As we discussed on our last call, we feel we're right in the thick of this dislocation and operating our business with the expectation that the next two or three quarters will be the most challenging part of this cycle. We've been laser-focused over the last two years preparing for this environment. One of our primary focuses has been and continues to be preserving and building up a strong liquidity position. We're very pleased to report that we currently have approximately $1 billion in cash It gives us a tremendous amount of flexibility to manage through this downturn and provides us with the unique ability to take advantage of the opportunities that will exist to generate superior returns on our capital. Clearly, given the current interest rate environment, we expect to experience additional stress. We need a tremendous amount of discipline and expertise to successfully navigate this market, and we're very pleased to have a tenured senior management team with a track record of managing through multiple cycles as well as what I consider to be the best asset management team in the industry. This is an extremely challenging environment, and I'm very pleased with the level of success we've had to date in managing through this downturn, which is a real testament to the quality of our franchise and the extraordinary efforts being put forth by our entire organization. As we have said before, We feel we are very well positioned compared to our peers, given our strong liquidity position, multifamily-centric portfolio, the depth and skill of our management team, and the strength of our balance sheet and the versatility of our franchise. We also believe we are uniquely positioned to step back into the lending market and garner some very accretive opportunities to continue to grow our platform. While others in this space will be dealing with significant internal issues, we feel we are well positioned which allows us to reenter the lending market at a time when there is a great opportunity to put some of the high-quality loans with attractive returns while the competition is less active. In addition, we recently launched our first construction lending business, which is something we are very excited about, and we believe we can generate 10% to 12% unlevered returns on our capital and eventually leverage this business and produce mid-to-high-change returns. We also believe this product is very appropriate for our platform as it offers us returns on our capital through construction, bridge, and permanent agency lending opportunities. We are very committed to this business, and as a result, we went out and hired some of the best and top people in the construction lending field. We are extremely pleased with how quickly we're able to roll out this product and get ahead of the market and build an incredibly talented team to execute this strategy. Turning now to our third quarter performance, as Paul will discuss in more detail, our quarterly financial results were once again remarkable. We've produced distributable earnings of $0.55 per share, which is well in excess of our current dividend, representing a payout ratio of around 78%. The dividend policy that we have implemented with our board of keeping such a wide disparity between our earnings and dividend has provided us with a large cushion It was very strategic going full well that we were entering into a market dislocation. And we certainly could have raised our dividend again this quarter based on a substantial cushion and continued short earnings. The board decided to keep it flat since we believe we are not getting credit for raising it in this environment and would be more prudent to preserve a large cushion as we head into the most challenging part of the cycle. We're also the only company in the space that has been able to consistently grow our dividend with approximately 40% growth over the last three years, all while maintaining the lowest dividend payout ratio in the industry. Just as importantly, in a time of tremendous stress, we've managed to maintain a book value of our recording reserves for future losses, which clearly differentiates us from our peers. And we believe that Our diverse business model uniquely positions us as one of the only companies in this space with the ability to preserve our book value and continue to provide a very stable, protected dividend, even in this extremely challenging environment. In our balance sheet lending business, we remain focused on converting our multifamily bridge loans into agency product, allowing us to recapture a substantial amount of our invested capital and produce significant long-dated income streams. In the third quarter, we continue to have success in this area with another $665 million of balance sheet runoff, $350 million, or 53%, which was captured into new agency loan originations. As a result, we're able to recoup approximately $100 million of capital and continue to build up our cash position, which, again, currently sits at around $1 billion. And again, we're excited about the opportunities. We think we'll be able to available to us over the next three to six months to reenter the market, draw a balance sheet, loan book, and generate very attractive returns on our capital while we continue to build up our pipeline for future agency business. In our GFC agency business, we had another solid quarter originating at $1.1 billion of loans in the third quarter, and our pipeline remained strong. Despite the significant recent rise in the tenure, we are poised to complete the year roughly in line with our 2022 originations numbers, which is a tremendous accomplishment in light of the fact that the agencies are down 20% to 25% production year over year. We've done a great job in continuing to gain market share and in converting our balance sheet loans into agency product, which has always been one of our key strategies and a significant differentiator from our peers. This agency business offers a premium value as it requires limited capital and generates significant, long-dated, predictable income streams and produces significant annual cash flow. To this point, our $30 billion fee-based servicing portfolio, which grew another 2% in the third quarter and 11% year over year, generates approximately $119 million a year in reoccurring cash flow. We also generate significant earnings on our escrow and cash balances, which acts as a natural hedge against interest rates. In fact, we are now earning almost 5% and around $2.9 billion of balances of roughly $140 million annually, which combined with our service and income annuity totaled approximately $260 million of annual gross cash earnings, or $1.25 a share. This is in addition to the strong gain-on-sale margins we generate for our origination platform, and again, it's something that is a completely unique platform, providing a significant strategic advantage over our peers. We remain very committed to our single-family rental business as we are one of the only remaining lenders in the space, allowing us to aggressively grow the platform. We have a strong third quarter with approximately $140 million of funding and about $430 million of new commitments signed up, and we also have a very large pipeline. We love this business as it offers us three turns on our capital through construction, bridge, and permanent lending opportunities. and generate strong levered returns in the short term while providing significant long-term benefits by further diversifying our income streams and allowing us to conveniently build up our franchise. In summary, we have another great quarter and we believe our unique business model clearly demonstrates our ability to generate strong earnings and dividends in all cycles. We understand very well the challenges that lie ahead and we are very well positioned to manage through this cycle. Our earnings significantly exceed our dividend run 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 are well capitalized with significant liquidity, which has put us in a unique position to be able to manage through the downturn and take advantage of accretive opportunities that will exist in this environment. And again, with our best-in-class asset management capabilities and seasoned executive team, we are confident that we'll continue to be one of the top performing companies in our space. I will now turn the call over to Paul to take you through the financial results.