Arbor Realty Trust

Good morning, ladies and gentlemen, and welcome to the second 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 this period, you will need to press star 1 on your telephone. If you want to remove yourself from queue, please press star 2. Please be advised that today's conference is being recorded. If you should need any operator assistance, please press star 0. I would like to now turn the conference over to your speaker today, Paul Eliano, Chief Financial Officer. Please go ahead.

Thank you, Stephanie, 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 30, 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.

Ivan Kaufman Thank you, Paul, and thanks to everyone for joining on today's call. As you can see from this morning's press release, we have another active and productive quarter as we continue to make substantial improvements on the right side of our balance sheet and significant progress in working through our delinquencies and REO assets despite the challenging environment. We had a very active first half of the year with many significant accomplishments. We recently completed our first high-yield unsecured debt offering, raising $500 million of capital that we used to pay off all of our convertible debt and added $200 million of additional liquidity to fund the growth in our platform. This is a tremendous accomplishment, especially in this environment, and we're very pleased to report that as part of this offering, we received a BB rating, on our corporate credit from both moody's and fitch reinforcing the quality of our platform and the value of our diversified business model clearly having access to this highly liquid market will allow us to further diversify our funding sources and push out and stagger our long-term debt maturities and continue to grow our platform and drive strong returns on our capital This was a transformational deal for the franchise, capping off a string of significant capital market transactions totaling $2.5 billion that we successfully completed over the first half of this year. One of these significant transactions occurred earlier in the second quarter when we issued the first bill to rent securitization in the industry, totaling $800 million with pricing that was well inside our warehousing lines and contained enhanced leverage and a two-year replenishment period, which allows us to substitute collateral when loans pay off. As I mentioned many times, we love the single-family rental business, and it provides us free turns on our capital, through construction, bridge, and permanent agency execution. And this landmark transaction has now paved the way to building a security platform for this business, which will not only increase our leverage significantly, but will also drive substantial efficiencies with our bank lines now that there is a takeout to a CLO market. And building this type of securitization platform will allow us to scale up this business and gain market share as these efficiencies will further increase our competitive advantage in the space. These transformational deals, these two, combined with a $1.1 billion repurchase facility, which we closed in the first quarter with J.P. Morgan to redeem two of our CLOs, are tremendous examples of our ability to continue to make substantial improvements to the right side of our balance sheet and drive higher returns on our capital. And given the strong securitization market and a highly constructive and liquid environment we are currently seeing with our commercial banks, we are confident we will continue to make meaningful progress in this area and create additional efficiencies that will help mitigate the drag from some of our non-interest earning assets. As we've discussed in our last few calls, the prolonged elevated rate environment is has created a very challenging climate that is affecting the agency originations business and the ability for borrowers to transition to fixed-rate loans and recap their deals. We continue to see a tremendous amount of volatility and uncertainty in the market that has resulted in large swings in the 5-year and 10-year indexes at times, which we believe could continue in the short term, making it very difficult to predict where rates will go for the balance of the year. We will continue to monitor the market environment and the effect it will have on our business for the balance of 2025. And again, as we've discussed in the past, if we see a meaningful sustained reduction in the 5- and 10-year interest rates, it will be a positive catalyst for our business by driving increased origination volumes and allow us to move more loans off our balance sheet, which will increase our earnings run rate and position us well for 2026. We continue to do an effective job of managing through our loan book, despite the fact that we've been dealing with elevated rate environment over three years now. To date, we've had great success in 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. In the second quarter, we took back approximately 188 million of REO assets, 115 million of which we were able to flip to new sponsors and assume our debt. This brings our REO book to approximately $300 million as of June 30th. We do expect to take back additional assets in the future, which net of dispositions we estimate will result in owning and operating approximately $400 to $600 million in REO assets, which is slightly above our previous guidance of $400 to $500 million. This is reflective of some of the recent trends we have seen this quarter. Turning now to our second quarter performance, as Paul will discuss in more detail, our quarterly results were in line with our guidance with us producing distributable earnings of $0.30 per share. We anticipate that the balances of this year will continue to be challenging due to the significant drag on earnings from REO assets and delinquencies, and the effect this prolonged higher interest rate environment is having on our originations business, all of which will make 2025 a transitional year, which is reflected in our current dividend. And as we successfully resolve these assets, and if we start to see sustained 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 are seeing an incredibly competitive landscape. There's a tremendous appetite for deals, and there's a significant amount of capital out there chasing transactions. We are seeing shops consistently compromising on credit and structure, which is not something we will sacrifice to win a deal. As a result, we are being highly selective and have closed about $100 million in the second quarter and $215 million in July, putting us around $700 million of volume for the first seven months of the year. The guidance we gave at the beginning of the year of $1.5 to $2 billion of bridge loan production for 2025 was based on the current environment as something we still feel we can accomplish. It is highly competitive out there, and whether we come in on the low end or the high end of the range will be dependent upon the market conditions and the interest rate environment, which, again, has been volatile and unpredictable. And again, the bridge lending businesses are very attractive to us as it generates strong leverage returns on our capital in the short term, while continuing to build up a significant pipeline of future agency deals, which is critical to part of our strategy. And if we can continue to take advantage of the efficiencies in the securitization market with our commercial banks, we can drive higher leverage returns and increase returns on our capital substantially. In the agency business, we originated $850 million of loans in the second quarter and $1.5 billion for the first six months of the year. We have an incredibly strong July, originating an unprecedented $1 billion of agency loans, which includes a large deal that we have been working on for several months. We also have a very large pipeline, and we believe – We could result in originating approximately $2 billion in the third quarter, which would be one of the single largest production quarters in our history. We are very fortunate to have such a resilient originations network with very loyal borrowers, which allows us to capture some large off-market transactions despite an extremely challenging market. And these tremendous results will put us in a position to meet and possibly be our guidance for 2025 of between $3.5 and $4 billion of origination volume. We continue to do an excellent job in growing our single-family rental business. We had a strong second quarter with approximately $230 million in new business, and our pipeline remains strong. This is a great business that offers three turns on our capital through construction, bridge, and permanent lending opportunities and generates strong levy returns in the short term while providing significant long-term benefits by further diversifying our income streams. We continue to have great success in executing our business plan, converting another $200 million of construction loans into new bridge loans this quarter, and $335 million already for the first six months of the year. And again, with the recent CLO we discussed combined with enhanced efficiencies we are seeing in our bank lines, we are generating mid to high returns on our capital, which will contribute to increased future earnings, especially as we continue to scale up the business. We also continue to make great progress in our construction lending business. We believe this product is very important for our platform, and it also offers us returns on our capital to construction, bridge, and permanent agency lending opportunities and generates mid to high returns on our capital. We closed 265 million of deals in the first six months and closed another 144 million in July. We also have a strong pipeline with roughly 100 million under application and 400 million of additional applications outstanding currently screening. And given the strong progress, we feel we will easily beat the guidance we gave of 250 to 500 million of production for 2045, and we are way ahead of schedule for the first seven months of the year. In summary, we had a very active and productive first half of the year with many notable accomplishments. We continue to execute our business plan very effectively and in line with our objectives and guidance. Clearly, there has been a tremendous amount of volatility in this space, especially as it relates to outlook for short-term and long-term rates. If the rate environment improves, it will have a positive effect on our business and outlook moving forward. Additionally, we have made great strides in improving the right side of our balance sheet through the securitization of public debt markets with our banking relationships that will continue to be a positive catalyst. As I mentioned earlier, we view 2025 as a transitional year in which we will work exceedingly hard to successfully resolve our REO assets and delinquencies, providing a strong earnings foundation which we can build upon in 2026. I will now turn the call over to Paul to take you through the financial results.