Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the first quarter 2025 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 that period, you will need to press star and 1 on your telephone. If you'd like to remove yourself from the question queue, please press star and 2. Please be advised that today's conference is being recorded, and if you should need operator assistance, please press star and zero. I will now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.

Hey, thank you, David. 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 March 31st, 2025. 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 an active and productive quarter with many notable accomplishments, including substantial improvements to the right side of our balance sheet and significant progress in working through our delinquencies and REO assets despite the challenging environment. We have been heavily focused on creating efficiencies in our financing facilities to continue to drive higher returns on our capital. In fact, in March, we announced a transformational deal in which we entered into a $1.1 billion repurchase facility to finance assets in two of our existing CLO vehicles with J.P. Morgan. This allowed us to redeem at par and full all investor capital in these vehicles while creating tremendous efficiencies through significantly reduced pricing, enhanced leverage, and guaranteed and generated approximately $80 million of additional liquidity. additionally and very significantly the facility is 88 non-recourse and provides us with a two-year replenishment period to substitute collateral when loans run off this is essentially like issuing a new clo with significantly improved terms and since every loan finance in this facility has been recently appraised this transaction also very importantly reinforces the quality of our loan book we're extremely pleased with this innovative transaction and we believe demonstrates the quality of our brand and the depth of our banking relationships, and again, will drive higher earnings in the future. We also saw very strong demand in our first quarter in the CLO securitization market. We've been a leader in this space for over 20 years, and I've been extremely active in accessing this market. These vehicles are very attractive to us as they allow us to fund our loans with non-recourse, non-market-to-market debt, which replenishes the rights and generates outsized returns on our capital. While this market has cooled off a little in the last few weeks, there is a significant amount of liquidity in the space that we expect will drive a very robust CLO market going forward. We will continue to be an active player in this space, which, again, is a big part of our strategy and will help drive increased future earnings through these low-cost, long-dated funding sources. On our last call, we discussed how the significant backup in long-term rates was creating substantial headwinds for everybody in this space. We talked about how this environment was creating a very challenging originations climate as it relates to our agency business. and how it was also going to result in a curtailability for borrowers to transition to fixed-rate loans and recap their deals. Since the announcement of the Trump tariffs and the trade boards that have ensued, we have seen a tremendous amount of uncertainty in rate volatility that has resulted in large swings in the 5- and 10-year indexes and what feels at times is a constantly changing economic forecast. It will be very hard to predict where all is settled out for the balance of the year and where interest rates will go as a result. We expect, at least in the short term, for there to be a tremendous amount of volatility and uncertainty. We will continue to monitor the market environment and determine the effect it will have on our business for the balance of 2025. We were very prudent with the guidance we gave on last quarter's call for 2025, which is based on a similar market conditions to what we are experiencing. Very recently, we have seen a reduction in the 5- and 10-year interest rates, which, if this trend continues, will be a positive catalyst for our business by driving increased agency volumes and allowing us to move more loans off of a balance sheet, which will increase our earnings run rate and position us well for 2026. We continue to do a very effective job, despite the elevated rates, of working through our long portfolio by getting borrowers to recap their deals and purchase interest rate caps, as well as bringing new sponsors to take over assets, either consensually or through foreclosure. These are very important strategies that have resulted in... Ivan? Yes, I'm sorry. That resulted in our ability to reposition as a performance of these assets is greatly affected by poor management and from being undercapitalized, which resulted in very low occupancy. Oops, I'm sorry. Excuse me one second. These are very important strategies that resulted in a large portion of our loan book being successfully repositioned to performing assets with enhanced collateral values and experienced sponsors and have created a more predictable future income stream. We also continue to make progress on the $819 million of loans that will pass due as of December 31st in accordance with our previous guidance. In the first quarter, we successfully modified 38 million of these loans, had 39 million of loans become fully performing again, and took back approximately 197 million of REO assets, 31 million of which we are in the process of bringing in new sponsors to operate and assume our debt. As expected, we did experience additional delinquencies during the quarter of approximately 109 million, bringing our total delinquencies out of March 31st to approximately 654 million. And our plans for resolving our remaining delinquencies are to take back as REO, including bringing new sponsorship approximately 30% of this pool, with the other roughly 65% either paying off or being modified in the future. This would put our REO assets on our balance sheet in a range of $400 to $500 million, with another roughly $200 million that we will have brought in new sponsorship to operate. As we discussed on last quarter's call, these REO assets will be heavy lifting position of our loan book. And we estimate it will take approximately 12 to 24 months to reposition, as the performance of these assets have been greatly affected by poor management and from being undercapitalized, which has resulted in very low occupancies and NOIs. As a result, these REO assets will temporarily create the greatest drag on our earnings, which is a significant component of our revised guidance for 2025. is a great economic opportunity for us to step in and reposition these assets and significantly grow the occupancy and NOIs over the next 12 to 24 months, which will increase our future earnings substantially. We are working exceptionally hard at resolving our delinquencies, which have been significantly affected by the higher interest rate environment and, again, was factored into our 2024 guidance. As I have said before, if rates come down sooner than we expect, we will have a positive impact on our ability to convert non-interest earning assets into income-producing investments, which will be accretive to our future earnings. Turning now to our first quarter performance, as Paul will discuss in more detail, our quarter results were in line with our previous guidance, with us producing distributable earnings of $0.31 per share in the first quarter. Based on these results and the environment we are currently operating, our board has decided to reset the quarterly dividend to 30 cents a share, which again is in line with our guidance. we anticipate that the next nine months will continue to be very challenging due to the significant drag on earnings from our reo assets and delinquencies and from the effect the higher interest rate environment is having on our originations business all of which will make 2025 a transitional year which is reflected in our revised dividend as we successfully resolve these assets And if we continue to see rate relief, we believe we will be well-positioned to grow our earnings and dividends again in 2026. In our balance sheet lending platform, we had an active first quarter originating $370 million of new bridge loans. Last quarter, we guided to approximately $1.5 to $2 billion of bridge loan production for 2025, which we feel we are very on pace to accomplish. Whether we come in at the low end or the high end of the range is highly dependent upon market conditions and the interest rate environment, which, again, has been extremely volatile and unpredictable lately. This is a very attractive business as it generates a strong level of returns on our capital in the short term, while continuing to build up significant pipeline of future agency deals, which is a critical part of our strategy. As we continue to take advantage of efficiencies in the securitization market with our commercial banks, we can drive higher leverage terms and increase returns on our capital substantially. As we talked about on our last call, we guided to 3.5 to 4 billion of agency volume in 2025, which is a much slower start, with a much slower start in Q1, given the backup of rates that occurred last quarter. The first quarter did come in around what we expected, or approximately $600 million of origination volume from the significant increase in the tenure, which has created a very challenging origination plan. Again, there has been a very significant amount of volatility in the rate environment lately, with some dips in the 5- and 10-year rates that we were able to capitalize on growing our forward pipeline. In fact, our pipeline is approximately $2 billion today, which is up significantly from approximately $1.2 billion in late February, where we started our last call. And this robust pipeline gives us confidence in our ability to deliver the range of guidance we gave in 2025, despite the slower first quarter. We continue to do an excellent job growing our single-family rental business. We had a solid first quarter with approximately $200 million in new business, and our pipeline remains strong. This is a great business as it offers us returns on our capital through construction, bridge, and permanent lending opportunities, and generates strong leverage returns in the short term while providing significant long-term benefits by further diversifying our income streams. In fact, the business plan is working well as we are starting to see more of our construction loans transition to new bridge loans, as well as being able to capture new bridge loan business off of other lenders' SFR books because of how vertically integrated we are. In the first quarter, we closed $131 million of new bridge loans on top of the $270 million that we closed in 2024. And with the enhanced efficiencies we're seeing in the financing side of the business, we are generating mid to high returns on our capital, which will contribute to increased future earnings, especially as we continue to scale up this business. We also continue to make steady progress in our construction lending business, We believe this product is very appropriate for our platform as it also offers us returns on our capital through construction, bridge, and permanent agency lending opportunities and generates mid- to high-teens returns on our capital. We closed 92 million of deals in the first quarter and another 58 million in April. We also have a growing pipeline with roughly 300 million under application and another 500 million of additional deals we are currently screening, which gives us confidence that we will easily make and likely beat the guidance we gave of 250 to 500 million in production in 2025. In summary, we had an active and productive first quarter with many notable accomplishments. We continue to execute our business plan very effectively and in line with our objectives and guidance. Clearly, there's been a tremendous amount of volatility in this space, especially as it relates to the outlook of short-term and long-term rates. If the rate environment improves, it will have a positive impact on our business and our outlook going forward. Additionally, we continue to see efficiencies in the securitization market and our bank mindset. We will continue to be a positive catalyst. As mentioned earlier, we view 2025 as a transitional year in which we will work extremely hard to successfully resolve our REO assets and delinquencies, providing strong earnings foundations, which we can build upon in 2026. I will now turn the call over to Paul to take you to our financial results. Paul?