Arbor Realty Trust

Your meeting is about to begin. Good morning, ladies and gentlemen. Welcome to the third quarter 2026 Arbor Realty Trust earnings conference call. At this time, all participants are in a listen-only mode. After the sneakers 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 would like to remove yourself from the queue, you can press star 2. Please be advised that today's conference is being recorded, and if you should need operator assistance today, please press star zero. I would now like to turn the call over to your speaker today, Mr. Paul Elenio, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone, and welcome to the quarterly earnings call for Auto Realty Trust. This morning, we'll discuss the results for the quarter ended September 30th, 2026. 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. Backers that could cause actual results to differ materially from Auburn'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. Auburn 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 Auburn's President and CEO, Ivan Kaufman. Thank you, Paul, and thanks to everyone for joining on today's call. On our last earnest call, we discussed at length the effect of the increase in interest rates it's having on the timing and resolution of our non-performing and self-performing loan book. Since that time, we've seen a tremendous increase in interest rates with the 5 and 10-year Treasury indexes up another 75 to 85 basis points and 140 to 160 basis points in the last nine months. This is a very material development which has resulted in further reductions in values across the multi-family sector of between 5% to 15% and has significantly curtailed transaction volumes from the increased cost. This will result in a temporary increase in our delinquencies and a slightly longer timeframe to resolve certain legacy assets as well as an increase in our loan loss reserves due to a change in values. There's also seen a significant negative impact on some of our legacy assets from ICE raids in certain areas of the country, including Jacksonville, Orlando, San Antonio. These things have significantly reduced occupancy on some of our assets in these areas, which has contributed to an increase in our delinquencies. This was completely out of our control and not something we could have anticipated. who will continue to evaluate the long-term impact that this may have on our legacy assets and adjust our strategy and reserves accordingly. As a result, one of our main objectives is to preserve capital at the appropriate level of liquidity to pay off our upcoming debt maturities and operate our platform to resolve our legacy issues and preserve our book value. We are currently sitting on approximately $400 million of cash and believe we can organically create another $300 million of liquidity over the next four to five months through loan payoffs, loan sales, REO dispositions, increased efficiencies in our financing facilities and securitization vehicles, and by reducing our dividend. With that in mind, our board has decided to suspend the quarterly common dividend effective immediately, which will preserve $31 million a quarter or $125 million in annual cash flow. We anticipate that this will put our cash position at around $700 million by the end of the first quarter, which will allow us to repay the $275 million of unsecured debt that is maturing in March and still maintain $425 million of liquidity to work through this cycle and resolve our legacy loan book. We will also continue to look to other areas to bolster our liquidity position further. As the largest shareholder with the highest inside ownership of any REIT, we are completely aligned with our shareholders and believe this strategy to be the most appropriate at this point in the cycle. Despite this extremely challenging environment, we continue to make progress in resolving our loan book and are working very aggressively to liquidate this collateral as quickly as possible. As a result of the material change in interest rates, delinquencies have increased and the REO dispositions have slowed, which is pushing out the timing on resolutions another quarter or two. We are still dealing with the same universe of legacy loans that we have ring-fenced and remain confident in our ability to continue to make progress and reduce this exposure significantly over the next four to six quarters. We ended the third quarter with approximately $750 million of delinquencies and around $500 million of REO assets. The total non-performing assets are roughly $1.25 billion, which is up around $200 million from last quarter's numbers as a result of the significant increase in rates, which again has accelerated delinquencies and delayed the timing of the resolution of certain assets. As we have discussed in detail on our last few calls, we continue to focus heavily on our legacy portfolio, which is down to $4.5 billion at September 30th from successfully resolving $1.1 billion of these loans in the last three quarters. $1.2 billion of this book continues to perform in accordance with their original terms and $1.3 billion that we expect to be able to resolve over the next several quarters. We have a $2 billion of this book we've been progressively working through with the goal of restructuring and resolving approximately $400 to $500 million of loans a quarter. This will reduce our legacy book, including our delinquent scenario assets, down to around $2.7 billion by year-end and around $1 billion by the end of 2027. As these legacy assets work through the system, we expect our total delinquencies to stay relatively flat until the remaining legacy book is reduced further, and then we should see a meaningful move down in total delinquencies as we continue on our pace of resolving approximately $400 to $500 billion a quarter. This will go a long way toward significantly reducing the drag on earnings and increasing our run rate of income in the future. We also continue to have a tremendous success in capital markets, issuing another CLO in our third quarter with exceptional terms. The new CLO was an $825 million vehicle with pricing of $170 over and 88% leverage with a two and a half year replenishment period. This has allowed us to continue to drive high returns on our capital and generate an additional $50 million of liquidity to enhance leverage. We have now issued over $3 billion in new CLOs, which has reduced the position of our recourse debt outstanding and is driving higher returns on our capital. This success, combined with the unwind of approximately $8 billion of legacy CLOs and $1.3 billion of new unsecured debt issuance, means we have successfully completed in excess of $12 billion of capital markets transactions over the last 36 months. As Paul will discuss in more detail, we have produced distributable earnings of $0.08 a share in the third quarter. Clearly, our earnings are being greatly affected by the significant recent rise in rates, which has increased our delinquencies, extended our retirement of resolving our non-interest earning assets, and temporarily affected our agency volumes. We expect this trend to likely continue for a little longer, which could continue to affect our earnings in the short term. Our goals are always long-term in nature, but our sights set on capital preservation and working through our legacy book as quickly as possible, which will reduce the earnings break and allow us to start to build back up our run rate of interest income and drive higher earnings in the future. This, again, we estimate will take us four to six quarters from now to accomplish, and we have taken a very methodical approach for resolving these loans each quarter and bringing down the remaining legacy book to a more normalized level relative to our total loan book. Turning now to our production numbers for the third quarter, in our agency business, we originated 900 million in volume. in addition to $75 million in CMBS brokerage transactions for a total third quarter volume of $975 million. This brings our year-to-date volume to around $3.8 billion. Clearly, the elevated rate environment is greatly affecting our origination executions. We originated $450 million in August and had good momentum with a large pipeline until a significant rate spike which curtailed originations and pushed out our pipeline. We originated less than $200 million in September and around $300 million in October. As a result, we are targeting between $3.5 and $4 billion of total volume this year, which could obviously move up or down depending on rates and timing of closings, which is hard to predict in this environment. In our balance sheet lending business, we originated $600 million of volume through the first nine months of this year. We've been relatively inactive in screening new business given the current landscape, except for very selectively originating deals that fit into our current securitization vehicles for a plentiful runoff and reducing inefficiencies. We expect this to be our ongoing strategy over the next few quarters, as again we focus our attention on continuing to bolster our liquidity position to work through this cycle. The one area we've remained active is in our single-family rental business. We believe this is a great business that offers us returns on our capital through construction, bridge, and permanent lending opportunities and generates strong levy returns on our capital through very efficient financing vehicles. We had a solid third quarter, originating $250 million of new deals for total volume year-to-date of approximately $700 million. We continue to have an active pipeline and believe we will close out the year with approximately $1 billion of volume, which is a strong year, especially considering the current interest rate environment and the fact that we had a very light first quarter from all the noise surrounding the housing bill that we resolved in the second quarter. In summary, we continue to make significant progress in the capital markets and working through our legacy book despite the extremely challenging environment. We are optimistic that we can continue to reduce this book significantly over the next four to six quarters and then start to build back our earnings rate as we resolve our delinquency scenario assets. And again, our primary focus is to preserve and create the appropriate level of liquidity to repay our short-term debt maturities and execute our business plan. This will afford us the necessary time needed to work through the teeth of this downturn and realize the true value of our franchise for our shareholders. I will now turn the call over to Paul to take you through the financial results. Okay, thank you, Ivan. In the third quarter, we've reduced distributable earnings of $14.8 million for $0.08 a share, excluding realized losses of $21.7 million in the resolution of certain delinquent and REO assets that we had previously reserved for. These realized losses were in the range that we died at the last quarter of $20 to $30 million and something we expect to continue for the next four to six quarters as we work through resolving our non-performing loan book. As Ivan touched on earlier, our third quarter numbers were significantly impacted by the rise in interest rates. This rate move was a very material change, which accelerated delinquencies and slowed down the pace of resolutions during the quarter. We also experienced a decline in our agency business origination volumes as a result of the drastic rate move, which affected our gain on sale numbers as well this quarter. We had approximately $450 million of new delinquencies which resulted in around $4 million of back accrued interest being reversed and a reduction of around $6 million in interest income for a $10 million impact to interest income this quarter from these assets. This was slightly offset by around a $2 million increase in interest income from the resolution of roughly $250 million of prior delinquencies during the quarter. We also incurred approximately $7 million of additional interest expense from issuing our convertible debt offering and leveraging our balance sheet to create the appropriate level of liquidity to operate through this current environment. And given the drastic recent change in the interest rate environment, we anticipate our earnings to likely bottom out over the next two quarters and then start to build back up each quarter on a consistent basis as we continue to make more progress in resolving our delinquencies and working through our legacy book. In the third quarter, we recorded an additional $34 million of impairment on our REO book to properly mark these assets to where we think we can effectuate a sale in the current environment, which has clearly been affected by the recent rate hike. We also booked another $27 million of specific reserves in our balance sheet loan book, a total REO impairment and specific reserves of $61 million in the third quarter, which is up approximately $25 million from the second quarter. General Cecil was also elevated this quarter from a change in the outlook for real estate values resulting in an additional 27 million in reserves on our balance sheet loan book which is an increase of 11 million from the second quarter and given the current environment we expect that we could experience similar levels of reserves and impairments over the next few quarters which is up from our last quarter's guidance due to the significant change in interest rates that have occurred As Ivan mentioned, as we work through our remaining legacy book, we expect it will funnel through our delinquencies and REO assets, which will likely keep our total non-interest earning assets at a similar level until we reduce the remaining legacy book down to a relatively small number. Once this occurs, we will start to see our total delinquencies decline, which will greatly reduce the drag these assets are having on our core earnings. Our book value per share came in at $10.92 at September 30th as a result of the increased reserves and impairments we booked in the third quarter due to the change in values we are seeing from a rise in rates. And even if we continue to book similar levels of reserves over the next four to six quarters, we still have substantial embedded equity value above where the stock is trading in addition to the significant value of our origination platforms and our franchise. In our GSE agency business, we originated $900 million of volume and had $1 billion in loan sales in the third quarter. The margins on these loans came in at 1.12% this quarter compared to 1.33% last quarter, mainly due to our continued commitment to originate larger transactions on higher quality assets to top-tier sponsors which contain lower margins. We also recorded $11 million of mortgage servicing rights income related to $800 million of committed loans in the third quarter, representing an average MSR rate of around 1.35% compared to 1.1% last quarter due to a shift in product mix. Our fee-based servicing portfolio was $36.8 billion on September 30th with a weighted average servicing fee of 34.7 basis points and an estimated remaining life of 5.6 years and will continue to generate a predictable annuity of income going forward of around $128 million gross annually. In our balance sheet lending operation, our investment portfolio was $12 billion at September 30th, with an all-in yield of 7%, compared to 6.95% at June 30th. This was mainly due to an increase in silver for the quarter, which was offset by the effect of increased delinquencies in the third quarter. The average balance in our core investments was $12.1 billion for both the second and third quarters. The average yield on these assets decreased to 6.84% from 7.21% last quarter, mainly due to the impact from our third quarter defaults, which was slightly offset by a nominal increase in SOFR on our performing loan book. Total debt on our core assets was approximately $10.8 billion at September 30th compared to $10.5 billion at June 30th. This increase was mainly due to the issuance of our convertible debt offering in July, as well as from additional leverage on existing collateral and from our new CLO execution. The all-in cost of debt was approximately 6.69% at 9.30 versus 6.38% at 6.30, mainly due to an increase in silver. The average balance in our debt facilities was approximately $10.7 billion for the third quarter compared to $10.5 billion in the second quarter, again, mainly due to the convertible debt issuance and enhanced leverage on our loan book. The average cost of funds in our debt facilities was 6.49% in the third quarter compared to 6.40% for the second quarter, excluding interest expense from leveraging our REO assets, the debt balance of which is separately stated on our balance sheet and therefore not included in our total debt on core assets. This increase is mostly due to an increase in SOFR and additional leverage on certain assets during the quarter. That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time. Operator?

Thank you very much, gentlemen. Ladies and gentlemen, at this time, if you would like to ask a question, please press star 1 on your telephone, and again, to withdraw your question, please press star 2 so others can hear your questions clearly. We ask that you please pick up your handset for best sound quality. We'll go first this morning to Chris Muller with Citizens Capital Markets.