ABR - Earnings call transcript Q4 2019 | Arbor Realty Trust, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2019 Arbor Realty Trust earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today's conference is being recorded [Operator Instructions].

Now, it's my pleasure to turn the call over, the conference over to your Chief Financial Officer, Paul Elenio. ahead. go Please

Paul Elenio

and Carmen Kaufman, the you This morning and Officer. call the everyone we With XX, Okay. on President me earnings and and call to the quarter for results quarterly discuss is Trust. ended for welcome December will XXXX. Ivan Thank today the good year our Arbor morning, Executive Realty Chief

this Ivan morning. just I is begin, prepared audio we before I want unforeseen will to we travel you that some we him and remarks but issues transit in will clear, back. that His due sounds his extent to to And inform then get pick the up him, lose

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

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

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

Ivan Kaufman

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

our out well to we significant today success for had the as in outlook XXXX closing We and XXXX. are very excited as plans discuss

of an value quarter franchise. demonstrate of our strength outstanding As press operating see tremendous we which results to this morning's with the brand fourth continues and our operating from had release, you could the

a ability in experienced well it very predictable have earnings our provides XXXX confident as in maintain stable in strong comfortably core into we XXXX with heading future. our of and to has grow the very growth significant the as Additionally, dividend baseline us making

Over delivered each year. differentiates of performance, quality our every have And outperforming we returns combined our five the annualized significantly and XX%, in and with approximately income this peers of last diversity streams years, the along peer shareholder at of we yield with we and the pay consistency is earnings consistently dividend us, to premium why clearly ratio, group. low substantial payout can which lower our our the believe dividend a

billion growing accomplishments, earnings share, include for return some in closing the the two more in cumulatively in the billion, $X.X XXXX XXX% annual a last leader and increasing growing capital and annualized to generating to allowing core us years capital our our increase $X.XX record growth allowing to our securitization facilities to market increase a from debt achieving XX%, CLOs balance highlights an growth delivering increase from us earnings terms billion approximately an XX% of increase returns originations to pipeline return of new up $XX and of XX% and dividend total to XX% increasing XX% years, approximately increase competitive portfolio economies last a significant $X.XX scale in raising our growth per with billion, three now XXXX two efficiently market on with $X.X of with totaling borrowing our over to maintain of XXXX XX% portfolio our out times substantially X% cost continuing producing margin flexibility, to of significant servicing a market, and achieving more improved from in rate XXXX capital very increase accretive sheet $XXX our our billion, share three five equity access million reduced of be all substantial a numbers, our core non-recourse in of Focusing allowing XXXX record of a from $X.X last a effectively. on us arena an XX.X%, fund years, our $X and

of To I portfolio incredible we business in billion nine with XX% duration the years. of X% over basis agency This further, remaining and portfolio experienced a XXXX is In having two success in our XX% growth platforms. our in which the the last now servicing increase over fee and talk two to years. would points XX last highlight a servicing $XX life we over servicing this like business, about years, our average grew reflects

annuity As created increase our the income predictable and in portfolio is $XX a rate $XXX of prepayment our of growing, earnings XX% servicing and have from income income combined this represents to we revenues. of annuity run currently annually $XX also gross a escrow escrow of million growth is billion, total significant a majority and balances protected very annual continued earning our which annually of million approximately our servicing for result, annual which which

We we in in a housing volumes loans in our in and market, also billion very And market. strong quarter produced strong $X.X affordable origination will with agency for competitive footprint the confident origination the significant the are origination diverse XXXX. a increase fourth multifamily and with margin volumes, closing in year we $X.X billion platform

$XXX In and we of in months launched Arbor with year. product, securitization agencies new $XXX of few of $XXX addition, around of last million the we last product during label in $XXX we the as which issue and active an million $XXX million disruption in result million quarter million our close our XXXX next a private in second the to about we the third to expect as additional quarter our the first in talked this to year, were closed this call, of

the further will platform a act agencies. date lending against progress further We are pleased as with with and to also our mitigant product believe disruptions and this our and diversifies changes

business, XXXX in billion our our growth XX% in originations. have another we portfolio tremendous experienced sheet book. $X.X With respect balance grew on We loan XXX this in XXXX to in

now balance at assets portfolio interest and will also our the [indiscernible] net continue growth it of multifamily we experienced to significant significant Our growth going increase is is billion income forward. run sheet rate which $X.X And

Paul Elenio

we increase also have book a will And loan grow very which [indiscernible] us to robust meaningfully significantly pipeline XXXX our and allow in our

Ivan Kaufman

continue In progress our rental platform. we developing in make family business, single our to

believe both SFR we lending our to We bridge meaningfully we pipeline lending permit product we future are and out the approximately and of the of and build with $XXX and business We to this this to grow have income opportunities closed are this the and continues in pleased driver seeing we to-date million grow are that products another confident further business in yet platform. our provides enormous diversify stream will opportunities significant significantly.

and substantially success has securitization relationships We price capital a the In to CLO XXth terms leverage protection We replenishment the and bonds both expertise assets of our levels $XX cost, in additional new in million scale strong our including and dividend and economies costs, also interest resetting in competitive generating on our business. X.XX% increased which with to with of our improved and continue reduced our closed reducing significant also $XXX debt tremendous X.XX%. our fourth allowed market. the transaction us the non-recourse maintain exchanging through quarter, and banking reduced quarter fourth convertible debt have very benefits including debt fund achieve many higher margins three-year significant pricing, up very of of a conversion feature. and a convertible growth were new This million in our to three-year much fixed issuance our successful of to had our rate with significantly

pleased XXXX results tremendous operating our and to Overall, we and have success we our enhancing platform the continue the are franchise. value with our extremely greatly of with

our they peers. been truly results and Our remarkable have outperformed consistently

balances, is high very predictable in heading have we in increase have we is a and available a our the able hand these in about our liquidity opportunities at We to is grow and with with a dividends to into in we strong And core and decision strategic future. operations. offense we cash diversified will dividend very We consistently position earnings baseline transition lines. very important very been on note approximately business have remain growth even is grow XXXX for million the cash as this continue cash the amount also of put made our cash It have our balance, to ability that it that a $XXX excited to to cycle, confident across earnings which and of also to the future are created point to submission cycle. our different prudent believe, part of

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

Paul Elenio

you Thank Okay. Ivan.

fourth release quarter a As indicated, XXXX. we morning had strong and year full this the press very

the share $X.X and a AFFO As hedges a our securities related was for in our the $X.X fourth per of label result, or to quarter, private $XX.X excluding in one-time business. debt million million exchange gains million on convertible of early unrealized loss $X.XX

the spreading to which is future, gains gains related and are true these excluded of the earnings private our sold or not associated not label the have since AFFO or quarter in these with loans loans transactions. from in AFFO reflect intend the the sold properly hedging to in securitized adjusted process losses these complete. have We the to hedging economics the been yet business yet We loans

approximately and We sheet which scale ROEs as well balance over significant capital last efficiencies demonstrate in XXXX, growth a business of two our cost light earnings the we of our agency continues years also the continue are significant as to experiencing generated XX.X% business. as we power representing to increase the

of are in and earnings our future. our in our as dividend our dividend continue to comfortably maintain we the very with in well excess to it as to grow ability generate mentioned, Ivan ability core current confident current pleased remain As

billion at our quarter from the $XX was income quarter in of sales. all-in Looking margin X.XX% on the in million on sales. We up the pretax from our quarter fourth on $X.X including generated and of loan The agency third margin million approximately fourth $XXX miscellaneous sales X.XX% business. originations results fees,

around a our the recorded rate quarter, of representing million $X.X income for loans during the X.XX% to fourth rate committed servicing to third of of $XX to of production. loan We also mix quarter, compared X.XX% due billion mortgage rights in change quarter average mostly an MSR related the

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

to related million fees early loans yield fees Additionally, prepayment accounted quarter certain servicing third our to runoff in for book continues This in in $X.X the $X.X provisions. that compared in to prepayment quarter. fourth have produce maintenance million the

balance sheet sheet $X.X on based extremely our investment our significant operation, pipeline to In portfolio confident growth on up XX% to The ability we remain portfolio rate core earnings $X.X we the in grew our origination continue run XXXX. grow lending deep our billion and our to to increase network, current balance future. and originations in continues in billion our

a investment $X.X Our a LIBOR new at rates in all-in mainly partially higher during reduction compared and X.XX% of quarter as in X.XX% XX, had to by LIBOR yield billion XX, which compared offset to portfolio. December an floors on was from due our at runoff the originations portfolio portion to September of

as in was X.XX% rates X.XX% mainly the balance partially reduction which both quarter by interest of quarter. in average for to from yield fourth LIBOR our to early fourth the the quarter flat due quarter quarters quarter timing runoff $X a more in and originations these third compared on runoff fourth despite core investments originations the to fourth the and offset from was compared for investments for acceleration third mainly of tends which approximately higher billion the The to the on fees fourth and was growth, to later runoff be due at our and relatively in average

for quarter, mainly on debt December to XX, $X.X an with XX all-in a at in core Total balance The borrowing approximately for cost debt in due was and billion billion $X.XX CLO reduced approximately X.XX%, to in on fourth debt September third from the debt mostly new our reduction our fourth quarter. to quarter $X.XX of up the a was cost of X.XX% assets our notes that fourth for the unsecured approximately due funds average issued senior LIBOR the compared approximately costs million from to due billion associated the X.XX% at average facilities our decreased offset for quarter. third with borrowing the in fees X.XX% a in CLO and by reduction of from to of partially we to the quarter quarter, accelerated CLO that fourth the cost early debt to which from quarter was in facilities and VII non-cash lower LIBOR were unwind $X.X our new the in costs fourth of compared

in the floors portfolio on rates execution. portion interest last spreads partially to a LIBOR sheet from positive slightly X.XX% CLO interest to XII. from assets in down offset compared higher X.XX% costs at net this mainly borrowing our reduced and cost our compared a spread balance to effect to to net our XX, from portion Overall, balance sheet quarter runoff a to at by recent positive increased X.XX% and due on was borrowing XX, portfolio quarter floors due spot of of mainly of originations, interest December X.XX% our effect CLO September of LIBOR core And reduced our on from as

from debt the in September our equity due XII. CLO lastly, increased and at to fourth lending to XX. in was assets including basis our up stock both quarter the the overall And at XX XX% on our XX% in And preferred spot leverage to new quarter trust third and a debt-to-equity at ratios ratio perpetual as issuance core December leverage unsecured X.X preferreds and was one on flat the

the it this any completes operator will That Carmen? for back I questions. prepared remarks now our take to morning. to turn

Operator

comes with JMP DeLaney from Please question [Operator Steve Securities. our ahead. first And go Instructions].

Steve DeLaney

bad one everyone morning to and probably for take Valentine's all more thing of Happy think Day. a Good about love not to us mortgages. It's day than

us. you XXXX with So us Ivan, Freddie? were what Fannie with you with your good have Can share to and rankings

Paul Elenio

top were lender. I a for year once XX again a XXth Fannie the Mae row think we in

the were our Balance the ranking Small the Small we We program. Freddie I one for Lender balance in for Lender number number came Mac, Fannie think I And think were Freddie at Mae. nine. Balance for small Mac three

Ivan Kaufman

That's correct.

Steve DeLaney

caps, affordable kind in of a do up Okay. you of is that XX.X% everybody size new a if only have that market and on but in and profile of quarter, $XX can the affordable. Thank you. you And focuses billion the then And quarter that comment billion that segment $XX at the versus GSEs the maybe and prospects can other customer that your how might of tailwind the with some base share XXXX? your might and a lenders go the because larger fit might on XX.X%

Paul Elenio

affordable have Well, the goals we one housing in the for do percentages of FHFA. meeting largest the the of

are So their other we lenders scramble viewed And to don't we like when part. do very doing have favorably.

very we hand, the if other viewed they quarter happen being what's not know are don't being are to the their in fourth well. On and going very XX%. But we meeting favorably treated and third

Steve DeLaney

hope to And the quarter. you. that you second securitization in the Thank Okay. you commented label do private on a

is size to a of the million sort at end that You year. do securitization? What of $XXX are the target

Paul Elenio

minimum significant us was And costs $XXX million. because getting transaction Well, the be minimum size more above That projected to for to $XXX target transaction so target. over achievement out efficient. costs the get is the spread what is million volume, a we our

Steve DeLaney

how And that cost, kind execution on Great. and you might private on sense business? compare you a that into return your the on the you give that leverage, in of seeing CMBS the question are ties on today that kind that. equity last structured my with us your the returns Can of label it think

Paul Elenio

market. can't front I the Well, run

not are permitted to that. We do

Steve DeLaney

Understood.

Ivan Kaufman

origination are saw who has since spreads understand the significantly tight that process. can we goals But everybody credit

being by the optimistic having to securitization. very the our are viewed in So what structure. very, we capital are with BPs execution and multifamily-only our part very a very retention on qualified efficient we for And favorably risk market in based do are our we own uniquely maintaining

various You our at investors. can look [indiscernible] from

So fingers crossed.

well off really to very We feeling market. set ahead and could other this most optimistic platform platforms of in surge are and the comfortable

Steve DeLaney

duration And cash well. as flows long

you. for Thanks comments. those Paul. thank Thank you So all

Paul Elenio

Thanks Steve.

Operator

next [Operator Rahmani Jade question is with And KBW. Instructions]. our from

Ryan Tomasello

for for the on Thanks is Good questions. taking This Tomasello, morning everyone. Jade. Ryan

Paul Elenio

Ryan. Hi

Ryan Tomasello

everyone. Hi

the ramping considering SFR affordability and of give business, the a on business on that Just about coupled are just in basis? side, tailwind side given was kind the structured you and talking you those component the what for the GSE both Ivan potential maybe XXXX on of sense us the nominal originations rate can of or just targeting growth with in a of

Ivan Kaufman

the agency we our on year originations give maintain future. was last more, we can't year. It on me and overall the so is le of similar give our have So it's that kind credit. outlook last What much pretty you but prior consistent our And an our we to in my flat in originate guidance chosen decided to to with business. not margin comments

our So other was by design. that as we the big business didn't as but agency choice grow some of and lenders did

could So be agency higher maybe year did last we side. than our the guidance on what slightly

respect the about market. With the we are It's excited business, there. opportunities an SFR so enormous to

assembling We And a are we economically are last contribution. and and assembled staff. probably It's it expense. quite didn't taking positive contribute a drained, time while in expecting year have it and the

in space is be build, and are Single-family as feel We which very we we rental we are we about three $XXX to in see divided million. components, it. into the closing active That dominant will that. lender

product the creating space. that are in We

pipeline. huge We have a

between developed expect is to generally flow somewhere And to then which people a to between the we which nice the anywhere are units bridge in $XX who and single-family XX XXX million grow have buying originations. securitization a to of we have middle market, month we

a originations million XXX We are currently month. operating about

where now of team of market loans rental which do out significantly, assembling the biggest to well single-family we XX% we can and are the market. originate is more the part that And one-off as figure we to the are working

business that of have amount we invested So enormous time.

history As have building team, in we a platforms manufacturing capability. management great to

think about tremendous excited of really extremely are in we will where And come a amount additions we net So the future. that's it. growth

Ryan Tomasello

of That's SFR assuming that agency you vary just ramping period that infrastructure? very remind And returns how maybe long the originate sense that business. up buckets helpful product to a the you you typical in And just or And us to traditional might expect following can the different hiring out? just how us laid out guess transitional the building across necessary given color, three How kind on do you those of that's the I today? give am take, Ivan. and structured I compares

Ivan Kaufman

Yes. Jade, to I a that detailed competitive basis, a generally on of enter discussion. value. business, bigger any business entry think it's gain have premature is little the a into margin you But you and as kind franchise a a like

as it. I will in about are the that we go think talk and quarter-to-quarter, in So a we we its as getting more footprint evolving growth business

So are a getting it but are the think would our relationship we with premature I are developing be margins the little and potentially opportunities. and we pleased we

Ryan Tomasello

one, multifamily any really the seeing market? for you multifamily fundamentals in regarding and the Are across biggest XXXX. the what last do for see What risks of you just you as underwriting? Ivan, overall. signs environment into are one going seeing of terms And credit And deteriorating performance

Ivan Kaufman

we of what rates IO, the modest excess lending use just So and growth, environment. given we think is guidance any, very that's of their very agency compressed and cap very is business, in an there the that if that have aggressive

of loans. many, the taxes we we as in traditionally increased that some We underwriting And to well amortization tend in underwrite many prudence use this are are to side jurisdictions. of as a caution understand seeing assets lot level are expense using while across an

origination So side put management asset appropriate side. affected forward which to measures the the our we protect

[indiscernible]. the We deepened have

environment. potential to in aggressively anticipate will run and to work the assets We we that can changes have grow borrowings the of to any continue to added very economic accordingly environment our changes so ahead curve our well in manage we the front and

Ryan Tomasello

the Thanks questions. for taking

Operator

question you. with comes Coffey our from Henry And next Wedbush. Thank

Henry Coffey

When tighten look not But are have And there, in the give I letting recently Yes. into own with tightening little FHA active could jumped have side. Good become we And do if at a what's the I me you a your given the the data, the insight nice his my started Steve some they sure but are was dialogue thought though. business, hear voice. to look it little questions, in of to here. you crew thoughts you Fannie, mean going experience by into Freddie this When for part and agree wondering them. am this the started about small morning FHA and the I bit? taking on, on that? thank I summer. bit sort residential us as at multifamily was tempered, up I GSEs with you past of

Ivan Kaufman

not They the not. is, moment. continue answer year My standards. standards consistent have Their be their to they have at prior with underwriting

pretty the will we line. along So they They consistent do. what see been and wait have

Henry Coffey

full spectrum, us the is can you risk some looks like like? of rates it Are I a sounds then of a And at which than and the and am for end as sense give the private of single-family business. It what the equally a good lender. intrigued factors? expected market more be terms in looking to is public lower seems you losses of And what you with market, which

Ivan Kaufman

and is Yes. capability to our where of really I Well, think really the permanent individual the the and of key part with market capital, units market XX% borrowers our effectively. market. the the margin to originations The growth are rent a market we That's why securitization that's single-family our come biggest it that individual which private is enter uniquely from. is and will to ability, of is aggregation positioned

effectively the consistent originate volume will able we do we other scale we successful, very on the that significant with have be rental, So to that combine If effectively. really to a on technology single-family can we on basis. side if are the we working product are and to securitization hard access originations market

beginnings. we So the are in

combine we the we unit. capability, borrowers think single-family which rent and on name and the on individual year now build the progress us on is earlier are real the components and to We those rent for customer this significant the build do originations that all significant I our background market, mentioned the the a franchise are But want and individual we a out platforms. the to loyal that love, making and we developing very market. The mid we base tier single-family to aggregation out build the to work have

quite So pleased. we are

As I a contribution mentioned for I this this give earlier, to starting it's a kind but to of early it's make begin year. little to projections, any the firm's earnings even

Henry Coffey

much thank you Listen, for taking very and question. thank my you

Paul Elenio

Henry. Thanks

Operator

not I And any showing final back questions will the Ivan I in call queue. for am to turn further Kaufman the remarks. his

Ivan Kaufman

Okay. a everybody it's you phenomenal XXXX. your participation and Thank been for

we extremely our on are about we XXXX depend a and the change for balance even very cycle cash have sheet and as We optimistic in accumulating. are flow prepared we

a very have position. will offensive We

So day. a again Happy have everybody. thank good and Valentine's Day

Operator

disconnect. conference And you may we now participating you with today's that, ladies for in thank and and gentlemen,

Arbor Realty Trust (ABR) 14 Feb 202019 Q4 Earnings call transcript