Arbor Realty Trust (ABR) Q1 2025 Earnings Call May 02, 2025 10:00 AM ET Company Participants Paul Elenio - EVP & CFOIvan Kaufman - Founder, Chairman & CEOJade Rahmani - Managing DirectorLeon Cooperman - Chairman and CEO Conference Call Participants Steven Delaney - AnalystRick Shane - Analyst Operator Good morning, ladies and gentlemen, and welcome to the First Quarter twenty twenty five Arbor Realty Trust Earnings Conference Call. Please be advised that today's conference is being recorded. I would now lik ...

Financial Data and Key Metrics Changes - The company reported distributable earnings of $57.3 million or $0.28 per share, and $0.31 per share excluding one-time realized losses from the sale of two REO assets [19][12] - The return on equity (ROE) for the first quarter was approximately 10% [19] - The company anticipates distributable earnings guidance of $0.30 to $0.35 per quarter for 2025 [19][12] Business Line Data and Key Metrics Changes - The balance sheet lending platform originated $370 million in new bridge loans during the first quarter, with a target of $1.5 billion to $2 billion for 2025 [13][14] - The agency business had a slow first quarter, producing $6 million in originations and $731 million in loan sales, maintaining strong margins of 1.75% [25] - The investment portfolio grew to $11.5 billion at March 31, with an all-in yield of 7.85% [26] Market Data and Key Metrics Changes - The company experienced a significant backup in long-term rates, creating headwinds for originations [7][8] - The delinquency rate decreased by 20% to $654 million as of March 31, compared to $819 million at December 31 [22] - The average cost of debt decreased to approximately 6.82% at March 31 from 6.88% at December 31 [28] Company Strategy and Development Direction - The company is focused on resolving REO assets and delinquencies, viewing 2025 as a transitional year [18][12] - The strategy includes leveraging efficiencies in the securitization market and maintaining strong banking relationships to drive future earnings [5][7] - The company aims to reposition underperforming assets to increase occupancy and net operating income (NOI) over the next 12 to 24 months [11][12] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic environment is characterized by volatility and uncertainty, particularly regarding interest rates [8][9] - There is optimism about potential rate reductions, which could positively impact agency volumes and earnings [9][12] - The management believes that the company is well-positioned to grow earnings and dividends again in 2026 if current challenges are addressed [12][18] Other Important Information - The company has successfully modified $38 million of loans and brought $39 million of loans back to performing status [10] - The company expects REO assets to increase to between $400 million and $500 million, with plans to aggressively manage and reposition these assets [52][54] - The book value at the end of the quarter was reported at $11.98 [77] Q&A Session Summary Question: What is the outlook for the Bridge portfolio growth in 2025? - Management expects net growth in the Bridge portfolio, targeting $1.5 billion to $2 billion in new business, with runoff projected between $1.5 billion to $3 billion depending on interest rates [32][33] Question: What were the primary weaknesses in the 2022 and 2023 vintages? - Management indicated that the multifamily sector experienced a long period of growth without corrections, leading to poor performance due to rising rates, economic vacancy issues, and increased competition from inexperienced entrants [39][41] Question: What is the current liquidity situation and expectations for NPLs and REO? - The company has $325 million in cash and liquidity, with expectations for REO to rise to between $400 million and $500 million, while NPLs are projected to decrease as assets are repositioned [48][54] Question: How much of the reported income was non-cash? - The company reported $15.3 million of PIK (payment-in-kind) interest during the quarter, which is a moving number based on loan modifications and performance [66] Question: What is the company's stance on stock buybacks? - Management emphasized the importance of liquidity and will evaluate stock buybacks based on market conditions and opportunities for capital growth [78]

Core Viewpoint - Arbor Realty Trust (ABR) reported quarterly earnings of $0.28 per share, missing the Zacks Consensus Estimate of $0.35 per share, and down from $0.47 per share a year ago, indicating a -20% earnings surprise [1] Financial Performance - The company posted revenues of $240.69 million for the quarter ended March 2025, missing the Zacks Consensus Estimate by 1.45%, and down from $321.29 million year-over-year [2] - Over the last four quarters, Arbor Realty Trust has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Stock Performance - Arbor Realty Trust shares have lost about 20% since the beginning of the year, compared to the S&P 500's decline of -4.7% [3] - The current consensus EPS estimate for the coming quarter is $0.34 on revenues of $241.45 million, and for the current fiscal year, it is $1.35 on revenues of $950.63 million [7] Industry Outlook - The REIT and Equity Trust industry is currently in the top 37% of over 250 Zacks industries, indicating that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Financial Data and Key Metrics Changes - The company reported distributable earnings of $57.3 million or $0.28 per share, and $0.31 per share excluding one-time realized losses from the sale of two REO assets [19] - The return on equity (ROE) for the first quarter was approximately 10% [19] - The company anticipates a quarterly distributable earnings guidance of $0.30 to $0.35 for 2025 [19] Business Line Data and Key Metrics Changes - The balance sheet lending platform originated $370 million in new bridge loans during the first quarter, with a full-year guidance of $1.5 billion to $2 billion [12][13] - The agency business had a slow first quarter, producing $6 million in originations and $731 million in loan sales, maintaining strong margins of 1.75% [25] - The investment portfolio grew to $11.5 billion at March 31, with an all-in yield of 7.85% [26] Market Data and Key Metrics Changes - The company experienced a reduction in delinquencies, down 20% to $654 million at March 31 compared to $819 million at December 31 [22] - The average yield on core investments decreased to 8.15% from 8.52% due to a reduction in the average SOFR rate [26] - The overall net interest spread in core assets decreased to 1.26% from 1.44% [28] Company Strategy and Development Direction - The company is focused on resolving REO assets and delinquencies, viewing 2025 as a transitional year to set up for growth in 2026 [18] - The company plans to leverage efficiencies in the securitization market to drive higher returns on capital [6][18] - The strategy includes repositioning underperforming assets to improve occupancy and net operating income (NOI) [11] Management's Comments on Operating Environment and Future Outlook - Management noted significant uncertainty and volatility in the interest rate environment, impacting the ability to predict future performance [8] - The company expects continued challenges in the short term due to the drag on earnings from REO assets and delinquencies [12] - If interest rates decrease, it could positively impact the company's ability to convert non-interest earning assets into income-producing investments [11] Other Important Information - The company has successfully modified $38 million of loans and brought $39 million of loans back to full performance [10] - The company took back $197 million of REO assets in the first quarter, with expectations to increase REO assets to between $400 million and $500 million [52] - The company has managed to deleverage its business by 30%, reducing the leverage ratio to 2.8:1 [29] Q&A Session Summary Question: Outlook for the Bridge Loan Portfolio - Management expects net growth in the bridge loan portfolio in 2025, targeting $1.5 billion to $2 billion in new business [32][34] Question: Reasons for Poor Performance in Previous Vintages - Management attributed poor performance to a combination of market corrections, economic factors, and inexperienced management in the multifamily sector [40][42] Question: Liquidity and NPLs Expectations - The company currently has $325 million in cash and liquidity, with expectations for NPLs to decrease as they work through the REO assets [48][54] Question: Non-Cash Income and Interest - The company reported $15.3 million of non-cash interest during the quarter, which is a moving number based on loan modifications [65][66] Question: Interest Rate Environment - Management discussed the impact of interest rates on business performance, noting that lower rates could enhance earnings potential [72][74]

Loan Originations and Portfolio Performance - Loan originations totaled $605.9 million, while the fee-based servicing portfolio increased slightly to $33.48 billion[290]. - The structured loan and investment portfolio balance increased to $11.49 billion from $11.30 billion, driven by loan originations exceeding loan runoff by $325.2 million[301]. - The company originated loans totaling $747.1 million in Q1 2025, with a weighted average interest rate of 8.64%[303]. - The company experienced a decrease in loan originations and an increase in loan delinquencies due to the prolonged high interest rate environment[296]. - Delinquent loans totaled $582.5 million as of March 31, 2025, compared to $524.5 million at December 31, 2024[309]. Financial Performance - Net income attributable to common stockholders for Q1 2025 was $30.4 million, down $27.4 million (47%) from $57.9 million in Q1 2024[312]. - Interest income for Q1 2025 was $240.7 million, a decrease of $80.6 million (25%) compared to Q1 2024[312]. - Distributable earnings for Q1 2025 were $57.3 million, a decrease of 40.7% from $96.7 million in Q1 2024[359]. - The decrease in gain on sales, including fee-based services, was primarily due to a 33% decrease in loan sales volume, amounting to $354.5 million[318]. - The decrease in income from mortgage servicing rights (MSRs) was primarily due to a 31% decrease in loan commitment volume, totaling $288.8 million[319]. Interest Rates and Economic Conditions - The Federal Reserve lowered the federal funds rate three times in 2024, totaling a reduction of 100 basis points, which may continue to impact net interest income[291]. - The current high interest rate environment may lead to decreased origination volumes and increased delinquencies, potentially affecting future financial performance[350]. - The weighted average current interest pay rate for the portfolio was 6.94%, with a weighted average funding cost of 6.47%[302]. Asset Management and Debt - The company modified 21 loans with a total unpaid principal balance (UPB) of $949.8 million, with 19 borrowers investing additional capital for temporary rate relief[294]. - Credit and repurchase facilities increased by $1.22 billion, primarily due to refinancing loans from the unwind of two CLOs with a new $1.15 billion repurchase facility[304]. - Securitized debt decreased by $1.34 billion, mainly due to the unwind of CLO 14 and CLO 19 totaling $1.08 billion and paydowns on remaining securitizations of $260.1 million[304]. - Total structured debt outstanding was $9.49 billion as of March 31, 2025, with 52% or $4.98 billion not containing mark-to-market provisions[334]. Cash Flow and Liquidity - Cash flows provided by operating activities totaled $150.5 million for the three months ended March 31, 2025, driven by net cash inflows from loan sales[337]. - Cash flows used in investing activities amounted to $314.8 million, primarily due to loan originations of $733.1 million[338]. - Cash flows used in financing activities totaled $146.5 million, including $1.34 billion in payoffs on securitizations[339]. - The company had approximately $315 million in cash and liquidity as of April 29, 2025, alongside a $33.48 billion agency servicing portfolio generating $126 million annually[335]. Regulatory and Market Environment - The FHFA set 2025 Caps for Fannie Mae and Freddie Mac at $73 billion each, totaling $146 billion, an increase from 2024 Caps[300]. - The ongoing adverse economic conditions have created liquidity constraints, impacting the ability to execute investments on attractive terms[330]. - The company is subject to REIT distribution requirements, mandating at least 90% of REIT-taxable income to be distributed annually, impacting its ability to retain earnings[336].

Financial Performance - Arbor Realty Trust reported net income of $30.4 million, or $0.16 per diluted common share, for Q1 2025, down from $57.9 million, or $0.31 per diluted common share in Q1 2024[2]. - Distributable earnings for the quarter were $57.3 million, or $0.28 per diluted common share, compared to $96.7 million, or $0.47 per diluted common share in the same quarter last year[3]. - Net income attributable to common stockholders for Q1 2025 was $30,438,000, a decrease of 47.4% compared to $57,873,000 in Q1 2024[34]. - Distributable earnings for Q1 2025 were $57,327,000, down 40.7% from $96,677,000 in Q1 2024[34]. - Basic earnings per common share for Q1 2025 was $0.16, compared to $0.31 in Q1 2024, reflecting a decline of 48.4%[26]. - Diluted distributable earnings per share for Q1 2025 were $0.28, a decline of 40.4% from $0.47 in Q1 2024[34]. Dividends - The company declared a cash dividend of $0.30 per share for the quarter ended March 31, 2025[3]. - The company declared a dividend of $0.30 per share for Q1 2025, consistent with the previous quarter[31]. - The company considers distributable earnings an important measure for evaluating its ability to provide dividends to stockholders[35]. - The company aims to maintain REIT status by distributing at least 90% of its REIT-taxable income[35]. Loan and Portfolio Information - The servicing portfolio totaled approximately $33.48 billion, with servicing revenue of $25.6 million for the quarter[6]. - Agency loan originations amounted to $605.9 million, a decrease from $1.38 billion in the previous quarter[4]. - The structured loan portfolio was approximately $11.49 billion, with originations of $747.1 million and runoff of $421.9 million[3]. - The total allowance for loan losses was $240.9 million, with a net provision for loan losses of $8.4 million recorded during the quarter[11]. - Provision for credit losses (net of recoveries) was $9.075 million in Q1 2025, significantly lower than $19.118 million in Q1 2024, indicating improved credit quality[26]. - The company reported a provision for credit losses, net of $756,000 in Q1 2025, significantly lower than $14,804,000 in Q1 2024[34]. Financial Position - Total assets decreased to $13.367 billion as of March 31, 2025, from $13.491 billion at the end of 2024, a reduction of 0.9%[28]. - Total liabilities were $10.238 billion as of March 31, 2025, down from $10.339 billion at the end of 2024, a decrease of 1.0%[28]. - Cash and cash equivalents decreased to $308.842 million from $503.803 million at the end of 2024, a decline of 38.6%[28]. Interest and Borrowing - The weighted average interest rate of the loan and investment portfolio was 6.94%, compared to 6.90% at the end of the previous quarter[9]. - The average cost of borrowings for Q1 2025 was 6.96%, down from 7.10% in Q4 2024[15]. - Interest income for Q1 2025 was $240.693 million, a decrease of 25.1% from $321.292 million in Q1 2024[26]. Share Information - The weighted average shares outstanding for diluted shares decreased to 206.862 million in Q1 2025 from 222.926 million in Q1 2024[26]. - The diluted weighted average shares outstanding increased to 206,862,320 in Q1 2025 from 205,511,529 in Q1 2024[34]. Other Financial Metrics - The company closed on a new $1.15 billion repurchase facility, enhancing leverage and generating approximately $80 million of additional liquidity[3][17]. - The company reported a loss on extinguishment of debt of $2.319 million in Q1 2025, with no such loss reported in Q1 2024[26]. - Amortization and write-offs of mortgage servicing rights (MSRs) were $20,864,000 in Q1 2025, compared to $18,418,000 in Q1 2024[34].

Company Highlights - Arbor Realty Trust, Inc. reported a net income of $30.4 million, or $0.16 per diluted common share for Q1 2025, a decrease from $57.9 million, or $0.31 per diluted common share in Q1 2024 [2][25] - Distributable earnings for the quarter were $57.3 million, or $0.28 per diluted common share, down from $96.7 million, or $0.47 per diluted common share in the same quarter last year [2][32] Agency Business - Total agency loan originations for Q1 2025 were $605.9 million, significantly lower than $1.38 billion in Q4 2024 [3] - Revenues from the Agency Business were $62.9 million, compared to $78.7 million in Q4 2024 [3] - The gain on sales, including fee-based services, was $12.8 million, with a margin of 1.75%, consistent with the previous quarter [3] Fee-Based Servicing Portfolio - The fee-based servicing portfolio totaled $33.48 billion as of March 31, 2025, with servicing revenue of $25.6 million for the quarter [5][7] - The amortization of mortgage servicing rights was $17.8 million, impacting net servicing revenue [5] Structured Business - The structured loan portfolio had an unpaid principal balance (UPB) of $11.49 billion, with originations of $747.1 million and runoff of $421.9 million for Q1 2025 [9][10] - The average interest rate for the loan and investment portfolio was 6.94%, slightly up from 6.90% at the end of Q4 2024 [10] Financing Activity - The balance of debt financing the loan and investment portfolio was $9.49 billion, with a weighted average interest rate of 6.82% [15] - A new $1.15 billion repurchase facility was closed, enhancing liquidity by approximately $80 million [17] Dividend - The Board of Directors declared a quarterly cash dividend of $0.30 per share for Q1 2025, payable on May 30, 2025 [19]

Company Overview - Arbor Realty Trust, Inc. (NYSE: ABR) is a nationwide real estate investment trust and direct lender, focusing on loan origination and servicing for multifamily, single-family rental portfolios, and other commercial real estate assets [4] - The company manages a multibillion-dollar servicing portfolio and specializes in government-sponsored enterprise products [4] - Arbor is recognized as a leading Fannie Mae DUS® lender, Freddie Mac Optigo® Seller/Servicer, and an approved FHA Multifamily Accelerated Processing (MAP) lender [4] Upcoming Financial Results - Arbor Realty Trust is scheduled to release its first quarter 2025 financial results before the market opens on May 2, 2025 [1] - A conference call to review the results will take place at 10:00 a.m. Eastern Time on the same day [1] Conference Call Details - A live webcast and replay of the conference call will be available on the company's investor relations website [2] - For those without web access, a telephonic option is available, with specific dial-in numbers provided for domestic and international callers [2] - A telephonic replay of the call will be accessible until May 9, 2025, with dedicated numbers for domestic and international callers [3]

Core Viewpoint - Arbor Realty Trust (NYSE: ABR) has undergone multiple rating changes, initially rated as a Buy in fall 2023, downgraded to Hold, and then upgraded back to Buy in September 2023 [1] Group 1 - The analysis of Arbor Realty Trust is based on value investing principles, an owner's mindset, and a long-term investment horizon [1] - The author does not write sell articles, as they are considered short theses, and does not recommend shorting [1] - The author has a background as a former advisory representative at Fidelity and currently conducts independent investing [1]

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