ABR - Earnings call transcript Q2 2019 | Arbor Realty Trust, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Paul Elenio, Chief Financial Officer. sir. begin, Please

Paul Elenio

June Norma. and the you, This morning, and Ivan quarter everyone, we'll the me Okay, today Executive call earnings And Officer. call to is ended the for quarterly the our Trust. XXXX. for welcome With discuss on President thank Kaufman, results good XX, Chief Arbor morning, Realty

information of statements Before about and objectives. call our may earnings made to of in we begin, this future risks assumed I available or account to need business, assumptions on plans financial into condition, deemed liquidity, currently possible to expectations results These that forward-looking our results us. of operations, inform uncertainties our and subject based taking information including you and future performance, that statements statements are are the beliefs, be

of could cause our detailed are Arbor's undertakes the occurrences to to place on to forward-looking events. as differ undue circumstances are not or reflect results in today these in only statements speak actual cautioned after materially reliance expectations today. events forward-looking forward-looking Factors from statements to SEC which no publicly of Listeners or these reports. Arbor that statements, these or revise update obligation unanticipated

President the and turn to Ivan call now over Kaufman. I'll CEO, Arbor's

Ivan Kaufman

thanks joining call. Thank to everyone you, us Paul, and for on today's

press can operating platform our of we you of which this had franchise. demonstrate morning's see diversity the continues release, and As from another to outstanding quarter our value

year annual our a in pleased our per represents from of to our increase of consistently share, growth once rate share. which second which us $X.XX per increase reflects with and share, dividend our very allowing run predictable the to quarterly We $X.XX $X.XX earnings are baseline business, and up increased stable this has again

closing maintain experienced of earnings comfortably we growth increase of our current nearly based price, run as at on of grow and quarter us which our the dividend rate not our value. to ability dividend we well true yield making very core X.X% the new to yesterday's approximately reflective in trading a our dividend our as in is significant second future. confident continues the it And in are believe we Additionally,

diversity and of our than why highlight us at should yield along peers, our consistently differentiates To earnings our from we consistency with our or is clearly lower a which believe quality group. The streams and our of year, we income success trade peer like portfolio our our further, talk In grew million. about experienced and growth both we in agency I to the another now we servicing in our at is last business XX% business, over second quarter $XX.X X% would the dividend platforms.

a duration in portfolio life has XX servicing This over which remaining of and average years, basis two reflects generates nine the an points XX% last of fee years. increase

income growing. our a earnings. result, growth our million and of [ph] of annually majority of run predictable we prepayment income growth servicing a of have continues annuity core balances The growing also significant As our AFCO of increase And from the which this in to annual annuity portfolio is further very contributing rate created $XX protected.

us $X.X strong of balance for and closing loans. year. in quarter originations remains billion And the strong very a had our volumes the with to also ability pipeline providing origination significant We agency produce our confidence

continue also landscape. competitive to margins loan in extremely We ability very our are our sales the to pleased despite generate on strong

originations portfolio XXXX year this loan our XX% billion. of record certainty to these in we significant for have income first book. in XX% and create sheet grew the level already And and our our balance on another our this quarter six months sources. With streams from continues experienced in respect We growth of diversity of income high business, second tremendous $X to agency platform

our asset increase in best classes. of the in assets now portfolio sheet income note Our going significant continue and our is XX% second a of is growth experienced billion to to of safest also we net is almost multifamily forward. It rate and is significant portfolio run which quarter interest X.X the one balance will clearly

have pipeline of continue also allow a which will for the loan our book year. to us this very We robust balance grow

as book this is fund strong very confident our income and be we immediately income will core component million capital And growth. And of stock from elected our our our to XXX for used the of the to in stream. earnings the ability to continue earnings to raise a fresh capital issuance result of our we this a will grow generated which remain again significant in common loan quarter to as second be pipeline, our accretive

In allowed combined our million of our we XXX in three-year in securitization securitization pricing costs terms borrowing CLO improved experience maintain quarter, has arena with feature. closed our ability to in increase and and we very us market. with scale XXth of assets The non-recourse significant achieve leverage our vehicle in to our a the success economies facilities reduced the substantially second competitive continue significantly all of replenishment including tremendous to and margins a reduce largest debt

becoming with this the significant believe is enormous single-family to space. appropriate seen off stream very by make business yet growth originations be diversify our in developing another pleased leader Updating out tremendous with we've in been and and confident phenomenal We lending platform. building business, platform the this our are with you of our in both to of products, talent a in we further will and and as attract we've income now lending this committed to remain progress our opportunities we continued leveraging pipeline the driver and we permit continue infrastructure existing able opportunities on a a of capabilities. and We're to bridge the rental a capacity build out that

returns few Over XX%. approximately we shareholder past have annual delivering peers our consistent the years, outperformed of

our rental income portfolio, balances, complete are business single-family included streams diversified income balance We platform escrow long from with serving operating are which investments. sheet of dated significant a most and

and given and in leaders arena sheet. and balance under the we stability significant securitization also continue side from streams that income our believe additional are shareholders. trading for price. opportunity be efficiencies And to our than substantially higher appreciation significant price current are market generate our in CLO there diversity to value our should our the is right feel the of we of stock significantly we We We

turn now Paul will to the over results. you financial to the I call through take

Paul Elenio

Okay, thank you, Ivan.

$XX we return share. As very this an $X.XX our generating on indicated second equity strong per a press morning of These or AFFO results adjusted annualized release reflect common quarter average million had cost significant to our of continue continues power we're the of capital-light as growth agency as we scale efficiency sheet experiencing business. earnings and XX% our business balance to which well demonstrate as

quarterly the to Ivan with ability very reflecting dividend increase in And we I in our again our mentioned, earnings from increase rate to grow. year ago of a pleased once $X.XX our to a dividend ability to and share run confident a annual as future XX% increase are remain our continues as our core

quarter margin an sales miscellaneous result business, income the million fees The second XXX approximately up X.XX% X.X our of of all-in sales. second and was in XX agency at quarter generated in pretax we first million X.XX% sales. loan our Looking from including approximately on quarter on our billion margin from and originations

income million the rate to around MSR representing X.XX% we recorded first second quarter billion lower of rate to fee. quarter which servicing an X.XX% also for X.X to have of rights loans quarter large generally closed deals the mortgage servicing compared of XX mostly that average some in We the related during committed a due second

basis to nine the portfolio XX.X during servicing remaining million quarter million annually, grew from is average on and annuity income weighted the points with a of billion of another an annual approximately time year. This portfolio XX.X $X of X% up fee will forward years. Our estimated June continue predictable XX, around a life to $XX an same at servicing last which generate gross going basis

continued our prepayment The produce million streams. which This and early from to fees continue in million second loans that to contribute the income in fees in down to associated prepayment the earnings Additionally, related our escrow runoff certain maintenance meaningfully our provisions. $X have also to quarter. was first to $X.X book with and your quarter, grow balances recurring accounted servicing

approximately And continue lending year. another remain we And up operation, XX% last balances are the the And to run approximately pipeline, balances, on our these associated in sheet $X portfolio an have ability this in million escrow future. balance sheet currently grow current billion. We with of $X.X up balance to our portfolio, grew annual in our approximately second time based earnings million to to X%. our earning extremely which are rate confident compared quarter the investment we $XXX on as

And collected interest second March acceleration well at on to investments runoff as to for first second from average on XX. last second $X.X investments the as quarter, of growth. all-in first yield X.XX% our default billion $X.X quarter for compared had A in from an fees to this average compared to billion a was the loan the our to at X.XX% of yield second mainly quarter June up significant quarter, was X.XX% XX, investment due quarter, payoff, in quarter X.XX% quarter. balance billion due core approximately these $X.X up early the to more and portfolio The

XX, debt new billion in was approximately With on June from the to around The billion costs CLO LIBOR. debt debt was average assets the quarter, $X at that to balance compared lower billion March was for our approximately as of debt first reduction up at from debt mainly in due $X.X cost closed quarter well quarter. costs from our to for a in XX. X.XX% the as second $X.X all-in facilities Total second core an X.XX% approximately our

in X.XX% of average CLO due fees the the the which increased our from was with of Again compared to second $X.X the early facility replaced unwind and quarter, lower non-cash borrowing X.XX% that growth, for were for financing our IV, million quarter due with costs. portfolio during much CLO of accelerated cost to funds the debt to first new approximately to quarter,

to overall down mainly due last X.XX% And interest assets due to at of core second interest in XX, more on compared during XX to to at to office run significantly the and were spot was acceleration to up XXX quarter. interest Overall our quarter. again, March spreads in interest compared to mainly June spread from our net rates originations the higher compared early fees and quarter this runoff XXX quarter, X.XX%

average due ratio to quarter, preferred, slightly lending quarter, The we stock equity our the mainly spot preferred XX% X.XXX was first in and including also was X.X perpetual including CLO the XX, compared equity second to leverage the of on preferred as of due poor debt-to-equity to vehicle. X basis, overall at as March increase to on the trust CLO XX, XX% our new the from for and obtained up the stock June in latest ratio to a and our preferred up leverage assets trust at timing closing as the to

from mainly also due the had continue this of the venture. our generated income of we residential and $X.X building a this the to interest we in operating very last And quarter strong XXX,XXX compared retail quarter, out our quarter demonstrate success our This income to branch continues streams banking investment environment. Lastly, and to from of network diversity the in rate value us to million to success franchise. have current joint the

I it Norma? may the take this any That for to you operator will prepared have remarks questions morning. back our now this at turn to time. completes

Operator

Instructions]. [Operator you, Thank

from comes Steve Securities. question first Delaney with JMP Our

open. now is line Your

Steve Delaney

you. XXX Thank million move of to last portfolio in X looks morning, record -- strong that guys, that's I billion, start 'XX. on record from mean, like was quarter. and the which a Good with up the XXX bridge like it congratulations the quite XQ, I'd

bit, big skip some didn't there large So is What much to lumpy anything that is size you by like higher average a loan get volume previously? be $XX we about really loans, an to had it. I'd been in just there million, it little know so nailed the cause anything than

Ivan Kaufman

thanks for coming. So, hey, Steve,

Steve Delaney

Yes.

Ivan Kaufman

in loan It's We large there. had one Ivan.

I what was think million? about -- Paul, it it, XXX was

Paul Elenio

million. XXX

Ivan Kaufman

but also a and was in that lot if and book little income of has nice [indiscernible] costs, LIBOR we'd properties, we which were up maintain little we bit to as last with would be XXX our a of floors, forward. And a have pick in felt real borrowing happened LIBOR the of lot more in our the competitive be a number little an really multiple quarter. a And opportunity move, enhance margins, execution future, lowering bit a our drop, would because how we going million, and really what and aggressive a made margins we able overall our aggressive the loan of was market.

little good in the stimulated the able bit strategic have a very CLO So by of to that fact market. decision are a we it's execution

Steve Delaney

has is the bridge made? it? Got ever that And that Arbor largest loan

Ivan Kaufman

largest I think… properties, made, the consists multiple think I but it's we've bridge loan it that of

Steve Delaney

of portfolio financing, A yes.

Ivan Kaufman

-- was be will attractive, it loan and Freddie market for what's was period? executing that us, and portfolio not CMBS what what over is Fannie bridge portfolio, into either the that the XX-month just or a attractive and

Steve Delaney

Interesting.

Ivan Kaufman

only the the have we to this opportunity will servicing have income, and but future. not be on sale will able potential have spread gain to So in we

on our part. So it was strategic another move

Paul Elenio

-- I've Steve,

Steve Delaney

And we Yes, noticed. Paul.

Paul Elenio

biggest our by collateralized and loan was bridge multiple XX is It states. in it properties

Steve Delaney

XX the that large about June average XX. color. possibly XXX over at And Thank versus points just That's you. to loan, LIBOR, fell about we Wow! good spot of coupon Okay. of because new basis by loans XXX, loans, obviously, the old down because weighted possibly LIBOR noticed

Just and if spreads you're the range your continuing comment, pressure, could achieve of able production? to spreads bridge new you're if see on of general LIBOR the on if that currently what loan trend you sort to and curious over

Ivan Kaufman

XXX in spreads generally range. think Sure, the to are I XXX

Steve Delaney

Okay.

Ivan Kaufman

by from to down XXX. mitigated of that's LIBOR And I as said, reduced lot X having borrowing costs. But higher that's a floor. offset by And that a maybe is

will that the level, think that probably maintain is you spreads dropping. LIBOR make as I know, but

Steve Delaney

Yes.

Ivan Kaufman

about -- down And now. it's our in outlook a quarter is to two

six over to I months. XXX surprised think the to be we to wouldn't drop next XXX

don't that much a I of little points So they XX basis at bit are. that'll where keep best. tightening, maybe spreads see I a think

Steve Delaney

what's substandard. one appeared a the average to looking at table that to from then rating Chris thing pass mentioned just on weighted moved color kind Got was credit final special from were this special on land previous XX-Q. self-storage moved be the it. in of from can just If those buckets. hand, we going And me, the was I mentioned particular watch, loans? risk up rating they in sector noted movements, the in bucket you significant other of down any And And they was curious any on to us give are

Paul Elenio

Hey. think. don't I Yes.

Ivan Kaufman

which On seeing, I be more is comment can to I what on can is is the mean, exited self-storage, permanent you're exited. typical, being that financing anything

the to time. moving be moved So trend movement the you're seeing still stuff the a middle want and best just is is perhaps out, on maturing this probably self-storage the I where, it'll on… in And over stuff down

Steve Delaney

Got see. it. I

Paul Elenio

rating And did I on we and of performing new is first land the well. the the which for brand just and the side, Steve think product all deals it's land deal that's a a in weighted average quarter, land

for So up it bucket. a better that average picked weighted rating to the just

Steve Delaney

it. Got

get I when So and something just sort of I averages the you get stuff moves, large transitioning weighted and get it, it. of

So problems say but were, you credit the have in that some generally speaking, concern new would material quarter there that that identified that you any you about? were

Ivan Kaufman

quite comfortable. are we No,

Paul Elenio

all. at not Yes,

Steve Delaney

your for appreciate comments. both I Thank you it.

Operator

question Thank Rahmani KBW. Jade of you. from And comes our next

Your now line open. is

Ryan Tomasello

see strong you us on year today? actually the GSE. And I've market to for of the given considering been half. for caps? the Hi, GSE caps chance manage your everyone. back just the volumes any, you give for of the the change the overall, your first-half that there's just the the can and agency in year, outlook the think half volumes any strong Jade. is you thoughts was I Have we This recently do pricing either adjusted here hoping on Ryan seen

Ivan Kaufman

at predict I to whatsoever. people, in they volume it'll means I of many beneficial that enhance us, do on my on our be think compete step-by-step and we're is as ways have a so compete. they a widening will as I I is little are And effective rise but so in any continue definitely because slow a they not think also cap cap, cap other to rise it to -- price I'll think prediction margins, is lot be as we the our margins the don't that that in business bit to a they'll they not in all,

Ryan Tomasello

just I environment past environment your to any have credit environment need alluded you've quarters; increasingly pencils? overall on the then, quality? respect underwriting and and fundamental and thoughts frothy continue an in Okay. to And changes the think to your with multifamily on fundamentals, the sharpening I

Ivan Kaufman

are very concern which market, the amount of my luxury most still especially and interest DNC at they still, and are that be the feel a active the type way not even still occupancy we but the strong. tightening the is that vulnerable frothy part what it end tight to very growth in year. a market given are solid, think and I is our continuing. housing on respect rates to continues the rent liquidity We're of little to market, drop thats market house that cap in competition of drop fundamentals workforce of seems in XX and in and I the rates to levels be would the more the maybe cause be And with a with coming

Ryan Tomasello

wondering Paul, let to from rent cap space, respect control us be can, seen in if perhaps Arbor longer-term impact New post if might transactions the from maybe York you with what in the direct has you could yet you've values? any you rates there City legislation? that if thoughts there know, give and legislation, us think you any the on on the And And market that and exposure your would

Ivan Kaufman

so going income. side see rate in you're significant in if going be of expansion, not you're dealing to some to regulated able see, well, cap rent the increases Sure, the to you're business,

get around rents, was the That it, opportunity the or and cap. cap way a at stabilized to probably five X X.X to looking buying. improve assets X.X been rates trading So people with to raise for the way more apartments we've and

I rent you'll think more being regulated in that X.X cap. like apartments see a

do diminution just for value math, rent way regulated you you'll So, people you will numbers. a give Paul outlook. on rent, who basis, of if apartments appraised value the the XX%. see loaned That's for to around the an were

to little the exposure a very have very, sector. have you numbers? We some Paul, But you have do little,

Paul Elenio

You Ivan. are right,

map we've our portfolio. We Ryan, done have, this scrubbed

balance a have portfolio. billion $X.X sheet We

active an to little stabilized. we're New York in know, have City, you exposure As very lender rent rent control, we multifamily

our or right exposure now, that $X.X fact, probably million two It's probably In $XXX deals. under on three is billion.

Ryan Tomasello

servicing book? the in anything And

Paul Elenio

On servicing as be it book, would the book, obviously. Fannie we've just looked at that well,

billion, those of Fannie assets So $XXX of in we have a than $XX.X well. less book as million of types

Ryan Tomasello

the balance LTV on And loans? million those sheet do on have the book, you XXX

Paul Elenio

don't I have I'm know, -- if at with I me looking that Actually, currently.

Ivan Kaufman

impairment flow Yes, respect we projected that not cash significant Fannie with to value. that book have on Mae underwritten loans don't current see the any are we a

loans flow cash that It's The we portfolio, the negligible. it's partial and is units, be our bridge amount have units exists has been the we the of it's majority a So, that not very future that impacted. I growth have, really portfolio and not bridge would on buildings. on

Paul Elenio

somewhere in XX%. I'm LTVs seeing And around

Ryan Tomasello

Great, thanks color. for all that

Operator

next Omega of Instructions] Cooperman Advisors. [Operator you. Thank question Lee comes from Our

line Your open. is

Lee Cooperman

you. Thank

done have job the guys enthusiastic a outlook. about it massive very you You capital, intelligently. of seem raising Ivan new employing

You feel but very raise continue your to mispriced we capital. stock is

would in at capital do the your how curious million the you If returns you you buy Can of capital cost question that to do I'm So use? obviously is price stock, just the part last stock somebody as it? sale embedded of currently. put And of wants that prospective versus see. how you you capital look of adequacy capital now right about $XXX at to feel

Ivan Kaufman

other the loan to we economies us the and in our we capital. at been matter our ways complex we able pipeline. business business Raising we've capital we what's a of at look is we and by for needs to the scale grow And way book, look and at the grow look our raise at look various

and it now sure put when So stingy it's we make we Right about capital the do we do we it try to use. accretive. very strategically we and and be very

that continues use. to come depending pay-offs extremely will dictate to good capital be in to we grow We and the pipeline to business it's needs accretive how I our put think our it what on going needs think and are are. and

do consistently to So would in these million if evaluating. that. to you How have it be and $XXX are things evaluate hand our put my that I'd would what to and to our dividend accretive our deploy business, ability we're today,

Lee Cooperman

would you're saying you what accretive raise if it distribution where a at? will is on do you be to looking So capital, basis you the do

Ivan Kaufman

it We only where do we accretive. feel it's

Lee Cooperman

great job. a You've done

a So, you. realignment, thank

Ivan Kaufman

Lee. Thanks

Operator

Shane our Thank question you. JPMorgan. Rick from next And comes of

line is Your open.

Richard Shane

Thanks the in are and can do in sell with the your is I'm incremental saw though my loan suggests for things, noteworthy guys. loans sales the in sale the that margins is we assuming margin in of the the to exceeding we has this taking sales off. those quarter. your It movement your more commitment that value gain sales any That nice gain quarter. move track. see on lot powder during in of quarter obviously a of question. Hey, sale the pickup continue given the rates we loan other to by that loan one dry third than in strength Two choosing quarter, on some quarter rates? those on a is going the to there Should

Paul Elenio

Paul. it's Rick, hey So

for our balance, one in significantly June which is right tells committed you're so at you for that more and look you at if the -- was measure that a the have look We and did quarter. held that you're So sales aspect a right. best significant the sale loans

$XXX held for million have We sitting in sale.

very, have did a month. we agency June So very strong

that what is. that'll August July sales your will So close whatever plus in dictate volume dictate we and

And lower our grow of how have but Ivan comment a well. our market because as and dropped maintain some As on commission. Those larger some portfolio product we in in margins larger of MSR a second it's you and quarter come at product impressed normally deals deals. margins did considering And the had also with been commentary, a a my we many quarter-over-quarter it things June. will is, had to I competitive the said why they my quarter, we've end little it's unbelievably come rate our saw the size with the with margin lower also that of but ability will done in actually that's

little August show based are go the what of the to in June, thinks that's that So where I'll what margin see what market bit. based come on don't of margins but going I on may let know comment the showing. and is kind and I we July see on will a Ivan he indicator

Ivan Kaufman

and And why manage margins, we about able but as as business fully charged, So a our increases heavily not And we the fight we want seventh, on our a we margins. to Paul staffing. I in shown sensitivity in a mentioned, our which maintain very I but to lasts. volume And fight with when of your and less could manage worry reason of in traffic, prior business calls our why or spoke our we charged, to strategy the loan most and business. affect sixth have do we maintain our fully were Very sizes of that think it the to is be as to have incremental entire you is often And elected agency And lender, firm, last people volume, market are to -- good not fifth to been that similar our It or going in did the on year was about And have your whether showing manage increases as think volumes to charged. we little you volume able margin affects do largest eight, lot decided business. side. a [ph] not to doesn't we integrity is to sloppy. margins, there to maintain that go get staffing, we it. our

As a and more to to you are willing competitive they less. for lot people work bigger loans, go become

So, our in two factors competitive those I to margins a our and together ability environment. put maintain

Richard Shane

Got it. That's helpful.

third you from a sold sale should given I would the month that way June of -- see is strength So -- be the QX? on the -- unfair you compression in saw read loan hearing day volume good volumes, given be loans quarter sizes June, through understanding am strong I to -- the -- increases larger of numbers particularly number probably but bit should this one the in margin the high further in particularly of likely in little am

Ivan Kaufman

first we August we as that's first seva we third off so comment, great strong to but and got month, believe wanted July a And in, got quarter, was it June Yes, start will Rick. right, June we see very the [ph] to and be strong as but your our come to the far was. as in being where with

Richard Shane

Great. Thank you for it. the clarity guys. Appreciate

Ivan Kaufman

right. All

Operator

Thank this Mr. in questions you. no to call the the other to for like time, over am showing At turn closing Ivan I Kaufman back I'd queue. comments.

Ivan Kaufman

strong momentum. summer. I optimistic the of balance of mentioned nice are year. Okay. remarks, about It rest Well, a the thanks of lot everybody And the the very weekend have as in the my is a And pipeline and scripted with for participating today. was care. another quarter. Everybody fantastic we Take

Operator

participation your for you in thank gentlemen, and today's Ladies conference.

now You have disconnect. day. a Everyone wonderful may

Arbor Realty Trust (ABR) 2 Aug 192019 Q2 Earnings call transcript