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Arbor Realty Trust, Inc. (ABR) Q4 2022 Earnings Call Transcript

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Arbor Realty Trust, Inc. (NYSE:ABR) Q4 2022 Earnings Conference Call February 17, 2023 10:00 AM ET

Company Participants

Paul Elenio - Chief Financial Officer

Ivan Kaufman - President and Chief Executive Officer

Conference Call Participants

Steve Delaney - JMP Securities

Stephen Laws - Raymond James

Rick Shane - JPMorgan

Jason Sabshon - KBW

Crispin Love - Piper Sandler

Lee Cooperman - Omega Family Office

Operator

Good morning, ladies and gentlemen, and invited to nan Fourth Quarter and Full Year 2022 Arbor Realty Trust Earnings Conference Call. At this time, each participants are successful a listen-only mode. After nan speakers' presentation, location will beryllium a question-and-answer session. [Operator Instructions] Please beryllium advised that today's convention is being recorded. [Operator Instructions]

I would now for illustration to move nan telephone complete to your speaker today, Paul Elenio, Chief Financial Officer. Please spell ahead.

Paul Elenio

Thank you, Todd, and bully morning, everyone, and invited to nan quarterly net telephone for Arbor Realty Trust. This morning, we'll talk nan results for nan 4th and twelvemonth ended December 31, 2022. With maine connected nan telephone coming is Ivan Kaufman, our President and Chief Executive Officer.

Before we begin, I request to pass you that statements made successful this net telephone whitethorn beryllium deemed forward-looking statements that are taxable to risks and uncertainties, including accusation astir imaginable aliases assumed early results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based connected our beliefs, assumptions and expectations of our early performance, taking into relationship nan accusation presently disposable to us. Factors that could origin existent results to disagree materially from Arbor's expectations successful these forward-looking statements are elaborate successful our SEC reports. Listeners are cautioned not to spot undue reliance connected these forward-looking statements, which speak only arsenic of today. Arbor undertakes nary responsibility to publically update aliases revise these forward-looking statements to bespeak events aliases circumstances aft coming aliases nan occurrences of unanticipated events.

I'll now move nan telephone complete to Arbor's President and CEO, Ivan Kaufman.

Ivan Kaufman

Thank you, Paul, and acknowledgment to everyone for joining america connected today's call. As you tin spot from this morning's property release, we had different tremendous 4th and exceptional 2022 arsenic our divers business exemplary continues to connection galore important advantages complete everyone other successful our adjacent group. In fact, our 2022 results bespeak 1 of our champion years arsenic a nationalist institution and we judge we are well-positioned for continued success. We person a premium operating level pinch aggregate products that make galore divers income streams, allowing america to consistently nutrient net astatine a well-in-excess of our dividend. This has allowed america to summation our dividends 3 times successful 2022, an intent of our past 11 quarters, each while maintaining nan lowest dividend payout ratio successful nan industry, which was 70% for 2022. And our capacity is caput and shoulders supra everyone other successful our adjacent group, almost each of which person been incapable to summation their dividend astatine each successful nan past fewer years and immoderate are moreover paying dividends of complete 100% of their earnings.

We person strategically built our level to win successful each cycles and a consequence we judge we are highly well-positioned to proceed to outperform successful this economical downturn. We person been very cognizant complete nan past 18 months, preparing for what we judge would beryllium a very challenging recessionary environment. As a result, we person taken a diligent and selective attack to caller investments and person been heavy focused connected preserving and building up a beardown liquidity position. This has allowed america to accumulate complete $800 cardinal of rate and liquidity connected hand, providing america pinch unsocial expertise to stay violative and return advantage of nan galore opportunities that will beryllium successful this recession to spell connected a premium output connected our capital.

We are besides invested successful nan correct plus people that strategically position ourselves pinch due liability structures, highlighted by a important magnitude of non-recourse, non-mark-to-market CLO indebtedness pinch pricing that is good beneath nan existent market, allowing america to spell connected a premium output connected our assets. As we cannot stress capable particularly successful nan existent situation nan value of having a best-in-class dedicated plus guidance usability and an knowledgeable and tenured executive guidance squad that person a proven way grounds of successfully operating done aggregate cycles, which is why we judge we are successful a people by ourselves and person been nan champion performing REIT successful our abstraction for respective years successful a row.

Turning now to our 4th fourth performance. As Paul will talk successful much detail, our quarterly financial results were erstwhile again remarkable. We produced distributable net of $0.60 per share, which is good successful excess of our existent dividend, representing a payout ratio of astir 67%. Our financial results besides person continued to use greatly from rising liking rates, which has importantly accrued successful nett liking income and connected floating complaint indebtedness book, arsenic good arsenic net connected our escrow balances. And clearly, pinch our highly debased payout ratio and aggregate predictable, reoccurring income streams, we are uniquely positioned arsenic 1 of nan only companies successful our abstraction pinch a very sustainable, protected dividend moreover successful a challenging environment.

In our equilibrium expanse lending business, we proceed to stay selective looking to switch our runoff pinch higher value loans pinch superior spreads. In nan 4th quarter, we strategically reduced our equilibrium expanse indebtedness book by $600 cardinal connected astir $500 cardinal of caller originations offset by $1.1 cardinal of runoff. This allowed america to recapture $150 cardinal of our invested superior and proceed to build up our rate position to return advantage of nan galore opportunities we judge will beryllium successful this downturn to make outsized returns connected our capital.

Our level of returns connected our 4th fourth originations came successful astatine complete 16%, arsenic we person important magnitude of replenishment superior successful our debased costs CLO structures that has meaningfully accrued returns connected capital. Additionally, we participated successful our first Freddie Q Series securitization successful nan 4th quarter, which demonstrates our beardown societal committedness to providing liquidity to nan preservation of nan affordable multifamily lodging market. This transaction besides provides america pinch different debased costs financing option, allowing america to trim our warehousing indebtedness by much than 350 cardinal of loans into a nonrecourse non-mark-to-market securitization vehicle. And we now person astir 8 cardinal successful securitized indebtedness outstanding, representing astir 70% of unsecured indebtedness astatine pricing that is good beneath nan existent market.

We proceed to spot a dense attraction connected converting our multifamily span loans into Agency loans, which is simply a captious portion of our business strategy and our Agency business is capitalized and produces important long-dated income streams. We had tremendous occurrence successful nan 4th fourth recapturing complete 500 cardinal astir half of our equilibrium expanse runoff into caller Agency originations. A cardinal constituent to our occurrence successful this area is simply a unsocial opportunity that exists successful today's marketplace fixed nan inverted output curve to turn connected a premium yields connected our superior by refinancing definite of our equilibrium expanse loans and to Agency merchandise and supply mezzanine financing. This has allowed america to person immoderate of our equilibrium expanse indebtedness book into Agency business pinch long-dated servicing income and repatriate a information of our superior into mezzanine positions down Agency loans astatine little LTVs.

In fact, successful nan 4th quarter, we successfully refinanced astir 200 cardinal of equilibrium expanse runoff into caller Agency loans and funded 20 cardinal of mezzanine loans connected these transactions, which are generating 13% unlevered connected our capital. This is simply a strategy we judge successful and again that’s somewhat that is unsocial successful our business, and we are some a apical equilibrium expanse lender and run a very ample Agency platform.

In our GSE/Agency business, we had a very beardown 4th fourth originating 1.5 cardinal of caller loans. These numbers see a fewer ample deals successful December that were accelerated successful bid to adjacent by twelvemonth extremity resulting successful a ray commencement to 2023 pinch astir 150 cardinal of originations successful January. However, our pipeline remains strong, giving america assurance successful our expertise to nutrient akin volumes successful 2023. Additionally, we person a strategical advantage successful that we attraction connected nan workforce lodging portion of nan marketplace and person a ample multifamily equilibrium expanse logbook that nicely feeds our Agency business. In fact, we are 1 of nan starring agency lenders successful nan accomplishment of affordable lodging goals. And arsenic a result, we will proceed to beryllium viewed very favorably by nan agencies.

And again, this Agency business offers a premium value, and it requires constricted superior and make important long-dated predictable income streams and produces important yearly rate flow. To this point, our 28 cardinal fee-based servicing portfolio, which is mostly prepayment protected, generates astir $115 cardinal a twelvemonth successful reoccurring rate flow. We person besides seen a important summation successful net connected our escrow equilibrium arsenic rates proceed to rise, which acts arsenic a earthy hedge against liking rates. In fact, we are now earning successful excess of 4% connected astir $2 cardinal of balances aliases astir $80 cardinal annually. And mixed pinch our servicing annuity, we are generating $195 cardinal of yearly rate net aliases astir $1 a stock earlier we moreover move nan lights connected each day. This is successful summation to nan beardown gain-on-sale margins we make from our originations level and again thing that is wholly unsocial successful our platform, providing a important strategical advantage complete our peers.

In our single-family rental business, we had an outstanding year, arsenic we proceed to turn retired that level and spell connected to summation marketplace share. In nan 4th quarter, we funded [$160 million] of anterior commitments and committed different $350 cardinal of caller transactions, putting our full woody travel astatine $1.2 cardinal successful 2022. We person besides a very ample pipeline of deals we are presently processing. And again, we emotion this business arsenic it generates beardown levered returns and that offers america to returns connected our superior done construction, span and imperishable financing opportunities.

In reflecting connected 2022, we had different exceptional twelvemonth and erstwhile again intelligibly outperformed our adjacent group. We are well-positioned pinch net and importantly transcend our dividend tally rate, are invested successful nan correct plus people and person very unchangeable liability structures. We are besides focused heavy connected building up a beardown liquidity position, which has put america successful a unsocial position to return advantage of nan galore accretive opportunities that will beryllium successful nan market, giving america awesome assurance successful our expertise to proceed to importantly outperform our peers.

I will now move nan telephone complete to Paul to return you done nan financial results.

Paul Elenio

Okay. Thanks, Ivan. As Ivan mentioned, we had different exceptional quarter, producing distributable net of $114 cardinal aliases $0.60 per share. We besides had a grounds twelvemonth pinch distributable net of $2.23 per stock successful 2022, an 11% summation wide 2021 results. These results translated into manufacture precocious ROEs of astir 18% successful 2022, allowing america to summation our dividend 3 times to an yearly tally complaint of $1.60 a share, reflecting a dividend to net ratio of astir 67% for nan 4th fourth and 70% for nan afloat twelvemonth 2022.

Our 4th fourth results hit our 3rd 4th numbers and our soul projections, mostly owed to substantially much nett liking income connected our floating complaint indebtedness book and higher net connected our escrow balances, owed to nan summation successful liking rates. We besides knowledgeable importantly much gain-on-sale income from stronger 4th fourth Agency volumes and nan early colony of a fewer ample Agency loans to thief meet Agency affordable lending caps. Additionally, we benefited from nary existent taxation proviso this 4th successful our TRS chiefly owed to year-end timing differences and adjustments that resulted successful a little 2022 afloat twelvemonth existent taxation disbursal that was trued up to nan 4th fourth provision.

Our 4th fourth results besides contained a fewer ample items that are worthy noting. We reported $7.4 cardinal successful a one-time disbursal related colony of a litigation we had outstanding for respective years. This was nan only worldly litigation we were progressive successful and we are pleased to person resolved this point arsenic we were spending respective 100 1000 dollars a period successful ineligible fees connected this case, which will now trim our operating disbursal tally complaint by $2.5 cardinal to $3.5 cardinal a twelvemonth going guardant aliases $0.01 a share. We were besides very pleased to person resolved our only important non-performing indebtedness successful nan 4th fourth pinch a afloat payoff of a $20 cardinal indebtedness connected a student lodging asset. As portion of nan payoff, we received $8 cardinal successful backmost liking and fees that we did not person accrued, resulting successful a important summation to our nett liking income for nan quarter.

In our GSE/Agency business, we had a very beardown 4th fourth pinch $1.5 cardinal successful originations and $1.7 cardinal successful indebtedness sales. The indebtedness income numbers were importantly supra our 3rd 4th income of $1 cardinal chiefly owed to a ample portfolio woody that closed successful December, but besides settled successful nan aforesaid period successful bid to thief nan agencies meet their affordable lending caps. The separator connected our 4th fourth income were up 1.33% compared to 1.30% successful nan 3rd quarter. We besides recorded $17 cardinal of owe servicing authorities income related to 1.5 cardinal of committed loans successful nan 4th quarter, representing an mean MSR complaint of astir 1.12% compared to 1.51% past quarter, chiefly owed to reduced servicing interest and a ample portfolio woody we closed successful December.

Our fee-based servicing portfolio grew 4% successful 2022, to astir $28 billion, pinch a weighted mean servicing interest of 41.1 ground points, and an estimated remaining life of 9 years. This portfolio will proceed to make a predictable annuity of income going guardant of astir $115 cardinal gross annually, which is comparatively unchanged from past quarter, contempt very beardown volumes and little early runoff successful nan 4th quarter. This again was owed to nan closing of a ample portfolio woody successful nan 4th fourth pinch a 12 ground points servicing fee.

We did spot substantially little accelerated runoff successful our Agency indebtedness book successful nan 4th fourth owed to marketplace conditions, which has resulted successful prepayment fees leveling disconnected arsenic well. In nan 4th fourth we received $5.6 cardinal successful prepayment fees arsenic compared to $11.2 cardinal successful nan 3rd quarter. In January prepayment fees were astir $1 million. And fixed nan existent complaint situation we're estimating nan prepayment fees will tally betwixt $2 cardinal and $4 cardinal a 4th going forward.

In our equilibrium expanse lending cognition our $14.5 cardinal finance portfolio had an all-in output of 8.42% astatine December 31st compared to 7.15% astatine September 30th, chiefly owed to nan important summation successful LIBOR and SOFR rates and from higher yields connected caller originations arsenic compared to runoffs during nan 4th quarter. The mean equilibrium successful our halfway investments was $14.8 cardinal this quarter, arsenic compared to $15 cardinal past 4th owed to runoff exceeding originations successful nan 4th quarter.

The mean output connected these assets accrued to 8.12% from 6.57% past quarter, mostly owed to nan 8 cardinal successful backmost liking reflected connected nan repayment of a nonperforming indebtedness and increases successful nan SOFR and LIBOR rates partially offset by little acceleration of fees successful nan 4th quarter. Total indebtedness connected our halfway assets was astir $13.3 cardinal astatine December 31st, pinch all-in indebtedness costs of astir 6.5%, which was up from a indebtedness costs of astir 5.33% connected September 30th owed to nan increases successful nan benchmark scale rates. The mean equilibrium successful our indebtedness accommodation was astir $13.7 cardinal for nan 4th quarter, compared to $13.9 cardinal past quarter. The mean costs of costs successful our indebtedness accommodation was 5.80% for nan 4th fourth compared to 4.49% for nan 3rd quarter, chiefly owed to increases successful nan benchmark scale rates and from nan convertible and unsecured indebtedness issuances we did successful nan 3rd and 4th quarters.

Our wide nett liking spreads connected our halfway assets excluding nan $8 cardinal of default liking we collected successful nan 4th fourth accrued to 2.11% this quarter, compared to 2.08% past quarter, and wide spot nett liking spreads were up to 1.92% astatine December 31st from 1.82% astatine September 30th, again, mostly owed to nan affirmative effect of rising rates connected our floating complaint indebtedness book and highest spreads connected our caller originations.

Lastly, we judge it's important to stress immoderate of nan important advantages of our business model, which gives america comfortableness successful our expertise to proceed to make precocious value long-dated recurring net successful nan future. One of these features is nan continued maturation we'll spot successful our nett liking income spreads arsenic rates emergence connected our free floating complaint indebtedness book. In fact, each things remaining equal, a 50 ground constituent summation successful rates, 20 ground points of which has already occurred since year-end, will nutrient astir $0.05 a stock annually successful further earnings. Additionally, we person astir $7.6 cardinal of CLO indebtedness outstanding pinch mean pricing of 1.67% complete which is good beneath nan existent market, and has allowed america to meaningfully summation nan levered returns connected our equilibrium expanse indebtedness originations. And very significantly, our important escrow balances will proceed to nutrient tremendous earnings, arsenic rates are predicted to proceed to rise. These net person grown substantially arsenic we person astir $2 cardinal of balances that are now earning astir 4% aliases $80 cardinal annually effective February 1st, which is up importantly from a tally complaint of astir $7 cardinal annually astatine this aforesaid clip past year. And arsenic Ivan mentioned earlier, these features are unsocial to our business model, giving america assurance successful nan value and sustainability of our net and dividends.

That completes our prepared remarks for this morning. And I'll now move it backmost to nan usability to return immoderate questions you whitethorn person astatine this time. Todd?

Question-And-Answer Session

Operator

Thank you sir. [Operator Instructions]. Our first mobility from Steve Delaney pinch JMP Securities.

Steve Delaney

Thanks. Good morning, Ivan and Paul. Obviously, congratulations connected awesome results and what was a overmuch much challenging situation past year. So, bully job. Looking guardant -- which we person to do, past year, contempt nan Fed taking rates up 400 ground points, you were capable to turn nan Structured portfolio by 19% connected $6 cardinal of originations. As you mentioned, Ivan, nan world has changed for judge and you are being much selective, I deliberation that was your word. How should we consciousness astir nan outlook for nan Structured business successful 2023? And is location imaginable for further maturation aliases should we deliberation much conscionable level statement there? Thank you.

Ivan Kaufman

So we person a assortment of different business lines we are focusing on. And I would opportunity that, arsenic mentioned successful my comments, we are really successful emotion pinch single-family build-to-rent business. And we are expecting to really predominate that business. Many of our competitors person fallen away. And because of nan quality of having 3 turns connected our capital, and nan maturation successful that space, we are putting a batch of our effort into increasing that portion of our business and being very successful astatine it.

With respect to span loans and Structured loans, pinch an inverted output curve, it's very difficult to span loans, erstwhile you are borrowing astatine 9% and you are buying assets astatine 5.5 caps. So we don't spot that arsenic a increasing area. However, pinch that said, nan inverted output curve gives america a batch of different opportunities if group want to get connected a 5 aliases 10 twelvemonth basis, little levered deals and trim immoderate of our equilibrium expanse providing mezzanine/pref which we person been actively doing. So expect our mezzanine/pref to beryllium much active, expect nan Agency book to beryllium utilized much efficaciously connected those type of transactions and besides expect america to beryllium moving connected different solutions to supply for transitional loans, 5 twelvemonth merchandise pinch a bully usage of mezzanine/pref. I deliberation that's a saccharine spot correct now, but we are not overly concerned.

One of nan comments, successful Paul's commentary is, for us, we person these debased liability costs. So it has to really beryllium effective successful putting our superior retired into opportunities. This will leverage returns connected our superior fixed our existing liability costs to beryllium very, very favorable. So accumulating rate and being for deficiency of amended opportunities is thing that we're uniquely positioned to fixed nan truth that we person 8 cardinal of beneath marketplace liability structures successful place.

Paul Elenio

This is Paul. So, arsenic Ivan said -- Ivan took you done nan marketplace information and I'll conscionable springiness you a fewer numbers. So I deliberation nan measurement we look astatine it is, arsenic Ivan said, we'll beryllium very selective connected nan equilibrium expanse side, fixed nan inverted output curve. I deliberation we did $175 cardinal of fundings successful January. We did spot a small spot much runoff which we love. We did spot $480 cardinal of runoff. So nan book shrank a small spot again successful nan first quarter. We are evidently very willing and very excited astir nan SFR business, and will proceed to turn that but arsenic you cognize that takes clip to get to your equilibrium expanse because it goes unfunded for a small bit. We're sitting pinch astir $1 cardinal connected our equilibrium sheet. So we did spot a small spot of a diminution successful nan first -- astatine slightest successful January, connected our indebtedness book, but I deliberation we're modeling for illustration you said to location astir flat, because we deliberation nan mezzanine opportunities will beryllium greater, and nan SFR business will proceed to build.

Steve Delaney

And Ivan connected nan mezzanine/pref, I mean do you really spot opportunities to return equity liking successful immoderate of these financings and benignant of beryllium much of a merchant banker than conscionable a banker, conscionable a lender?

Ivan Kaufman

I deliberation it's a operation of everything, depending connected nan leverage. At a debased leverage basis, it’s much of a coupon. At nan higher leverage you go, past you commencement to get a higher yield, which is simply a operation of salary and participation.

Operator

We'll return our adjacent mobility from Stephen Laws pinch Raymond James.

Stephen Laws

Congratulations connected a very coagulated quarter, beautiful beardown numbers crossed nan committee looking versus my estimates. Wanted to follow-up connected nan mez. How large of an opportunity is that? I deliberation you whitethorn person mentioned successful nan prepared remarks immoderate $20 cardinal of investments, immoderate $200 cardinal of Agency volume? Can you talk astir really large of an opportunity that is? Or really overmuch -- really ample will we spot that get connected your equilibrium expanse complete nan coming mates of years?

Ivan Kaufman

I’d opportunity I deliberation it varies. We're looking correct now -- I deliberation we did -- Paul, I deliberation we did successful nan 4th fourth astir $20 cardinal arsenic well, right? In December.

Paul Elenio

We did. We did $20 cardinal of mez, Ivan, down Agency merchandise that we brought complete from our equilibrium sheet.

Ivan Kaufman

Yes. And we're looking astatine depending connected really overmuch we want to juice it up betwixt $15 cardinal and $14 cardinal a month, that would beryllium nan level. And past it really depends connected nan market, nan output curve wherever nan purchases commencement to prime up. So those are nan factors. But I would forecast conservatively $20 cardinal per month.

Stephen Laws

Paul arsenic you deliberation astir margins, I cognize nan operation impacted nan MSR separator a small spot successful Q4. But erstwhile you deliberation astir those margins looking retired this year, is location a scope you spot those playing retired betwixt complete nan adjacent fewer quarters?

Paul Elenio

Yes, I deliberation that's a bully question, Steve. Certainly nan larger transactions, arsenic I mentioned successful my commentary that we did nan portfolio deals really weighed down nan MSR because you're getting a little servicing fee, but a bigger transaction done. I would opportunity that, we've been moving anyplace from 1.30% to 1.35% connected nan summation connected waste margin. I still deliberation that holds. I deliberation we've done a bully occupation there, moreover fixed wherever liking rates person gone. And I would opportunity connected nan MSR side, it was group surely little this 4th than it usually would beryllium without large portfolio deals for illustration that. I'd say, we are moving astir apt anyplace from 1.25% to 1.45% is what I deliberation I'm estimating going forward, depending connected woody size and connected nan tiers of credit. We person seen a small spot of a backing disconnected connected nan servicing interest successful Fannie Mae, a small spot little than wherever it's been, but it's still really strong. We're still seeing servicing fees connected caller Fannie loans anyplace from a debased of mid-30s to a precocious of mid-40s. So I still deliberation we will get immoderate bully servicing strips and put connected immoderate and bully MSRs, but I deliberation 1.25% to 1.45% is astir apt an due range, absent immoderate ample deals.

Stephen Laws

Appreciate nan colour connected that Paul. Thanks very overmuch for your clip this morning.

Operator

Thank you. We'll return our adjacent mobility from Rick Shane pinch JPMorgan.

Rick Shane

Hey, guys. Thanks for taking my question. And I apologize, if this is redundant, for illustration I person been and my peers bouncing astir featuring calls this morning. Just want to talk a small spot astir nan migration betwixt nan Structured business and nan Agency business to nan grade historically you put loans connected equilibrium sheet, worked pinch borrowers to complete nan projects, and past to securitize those aliases sold them to nan agencies. I'm funny if you deliberation successful this environment, location is -- really that compares to different commercialized owe REIT models wherever nan eventual takeout is successful nan backstage word markets arsenic opposed to nan authorities word markets?

Ivan Kaufman

So arsenic you know, our business exemplary connected each [vigilant] we do is for an Agency takeout. That's really we are built, that's really we are structured, that's really nan economics of nan patient really flows and that's nan worth of our franchise. So each and each indebtedness that's successful our portfolio was underwritten accordingly. So successful this benignant of output environment, erstwhile you person an inverted output curve, galore of nan borrowers person nan determination to make. Did they salary higher liking costs erstwhile their caps pain off? Can they rate successful their caps and usage that arsenic equity and recapitalize immoderate of their assets? Go pinch a fixed rate? If you're a floating complaint individual, you are paying anyplace betwixt debased of 8% and precocious of 9.5% and you facet successful nan superior costs of -- aliases headdress costs, you whitethorn person a awesome opportunity to spell into a 10 twelvemonth fixed rate. And we were putting group onto 10 twelvemonth fixed rates successful nan low-5s connected an [IO] ground and nan savings are truthful considerable. And nan stableness is truthful important that group are consenting to travel retired of pouch pinch cash, little their main equilibrium and spell into Agency debt.

And so, successful accordance of those circumstances, we person laid connected immoderate penchant connected mez, which has been very accretive for america arsenic well. So that's our business model. It useful very, very well. Some borrowers for illustration to constitute it out. I deliberation borrowers are much conservative. So it's a full mixture. But dissimilar our competitors, our exemplary is built successful that manner, it's multifamily debt, it's Agency eligible. And that's 1 of nan superior exits each clip we do a loan.

Operator

Our adjacent mobility comes from Jade Rahmani pinch KBW.

Jason Sabshon

Hi, this is really Jason Sabshon connected for Jade. So question, we're starting to spot a fewer cases of what looks for illustration strategical defaults from borrowers successful bid to extract concessions from lenders, since they cognize that lenders don't want a foreclosure connected their hands? For example, Blackstone, this ample multifamily woody successful New York conscionable said typical servicing. And we cognize that Arbor’s borrower relationships are unique, and to beryllium repetition borrowers, but tin you remark connected whether you're seeing this inclination astatine all?

Ivan Kaufman

It's decidedly a inclination successful nan market. And successful a competitory lending environment, galore lenders portion distant definite structures connected their loan. And without those system loan, if nan plus worth is adjacent to nan indebtedness and nan lenders don't want to return backmost those assets, it gives a batch of strategical advantage to nan borrowers, if they attraction -- if they don't attraction astir their profile. For us, we person a agelong history of originating loans, and we person tremendous building connected our loans wrong nan industry.

We're treated a batch otherwise than different people, because we're very prudent erstwhile we made these loans. And nan borrowers request to travel activity pinch america for a assortment of reasons. One of them is simply a building connected loans. The 2nd is nan number of loans we do astatine peculiar borrowers. So it is successful nan plus people itself. So it is very communal successful today's environment, that if nan borrowers don't want to support nan loans, they're going to manus backmost nan keys because they person nary economical incentive. And if you're a Blackstone, it doesn't impact your reputation. In our case, it's conscionable very, very different. We're progressive -- I'm progressive each time pinch our borrowers. And they travel to nan array because they person to travel to nan table. And if they're consenting to beryllium reasonable, we've been capable to activity out, bully solutions. Keep successful mind that we person a heavy and seasoned plus guidance group. And we're good positioned. And if we person to, we will return backmost an asset, we haven't had to do it. But we ever person that accomplishment group and capability. Take backmost that asset, negociate it, capitalize it, and proceed pinch our remedies against those barrowers.

We haven't been successful that position. We've been good positioned. And truthful far, we've done extraordinarily good successful moving pinch our borrower base.

Jason Sabshon

For my 2nd mobility connected nan azygous family rental side, are you guys astatine each concerned astir nan caller uptick successful build-to-rent supply?

Ivan Kaufman

We've ever been concerned successful that market, because there's a very, very large quality successful halfway locations versus distant locations. So a batch of nan proviso will travel successful areas that don't want nan investment. So we're selective pinch nan projects that we're doing. So if you're successful nan correct halfway area, and nan correct schoolhouse districts and nan correct postulation patterns, you are good. But a batch of group are conscionable buying land, building them and having nan cognition of build them and they will come. We person tremendous favoritism successful position of who we are doing business with.

Operator

Thank you. We'll return our adjacent mobility from Crispin Love pinch Piper Sandler. Thanks.

Crispin Love

Good morning, everyone. First connected securitization markets. How do you spot securitization markets to beryllium functioning correct now? You've been very progressive location successful your history. But, could we spot immoderate signs of accent successful securitization markets proceed successful caller weeks to commencement 2023? Or are you seeing immoderate improvements?

Ivan Kaufman

They're improving significantly. The CLO marketplace is improving. There is nary product. And nan fearfulness and dislocation, which occurred immediately, is noting to subside. So nan markets improved a batch complete nan past 3 months, and we deliberation it will proceed to amended a small bit. The investors request product. There is nary caller product. So it's a request and proviso imbalance. And nan existing structures person proven from a in installments position to activity good for investors. So we judge nan CLO marketplace is not acold from, wherever we would do an execution. It's close. The rumor pinch nan CLO marketplace successful doing execution is creating caller product. It would beryllium bully for existing inventory and to create possibly immoderate economies successful really we finance our existing product, but creating a caller conveyance for caller merchandise is simply a small spot difficult. So we would look astatine utilizing nan securitization marketplace to amended our backing -- existent funding, which is an upside for us. So that's really we look astatine it, but it has improved and it looks for illustration it's going to proceed to tighten up a bit.

Crispin Love

Thanks, Ivan. That's each adjuvant colour there. And past conscionable 1 past mobility for me. On maintaining nan dividend successful nan quarter, tin you speak to nan cardinal reasons why nan Board conscionable do that aft I judge 10 consecutive increases? Just connected nan aboveground looking astatine your results, which are really beardown pinch GAAP and halfway earnings, sheet covering nan dividend, would person seemed for illustration a dividend summation would make sense, but I'm conscionable funny really nan Board thinks astir that, and does that opportunity thing astir nan cautious outlook?

Ivan Kaufman

Listen, we ever person tremendous discussions of maintaining, raising and really overmuch we person raised. And we person had specified a immense cushion and our capacity has been outstanding. I deliberation nan Board successful discussions and Paul tin remark it connected arsenic good as, we conscionable don't get nan in installments successful nan marketplace and astatine this play of time, location is really nary upside successful nan marketplace to raising nan dividend. Everybody other is lowering their dividend. And nan Board felt nan in installments is really -- everybody's dropping their dividend aliases paying it retired of capital. And intelligibly nan cushion we person and nan thought was location is nary existent use to it.

Paul, you want to springiness a small colour connected it?

Paul Elenio

Yes. I deliberation that's right, Crispin. I deliberation our position is, arsenic you know, we person a batch of cushion and easy could person conscionable done it again. But we look astatine erstwhile you travel into these markets. And we person been -- arsenic Ivan said successful his prepared remarks, we person been strategically looking complete nan past 18 months of what we deliberation would beryllium a challenging recession. We deliberation our assets successful our portfolio are successful awesome shape. We are successful nan correct plus class. We person a batch of structure. We do a batch of deals that repetition borrowers. Having said that, erstwhile you travel into challenging environments, rate and liquidity is crucial. And we've been -- we've done a awesome occupation of accumulating, really stockpiling a warfare thorax of cash. And astatine this point, we conscionable don't spot a batch of worth successful expanding that dividend today, and that whitethorn change. We whitethorn spot wherever our net go, and we'll proceed to measure it pinch nan Board connected a quarterly basis. But again, raising it 3 times this twelvemonth 10 of nan past 11 quarters, and erstwhile I look astatine nan adjacent group is I deliberation only 1 adjacent group that really -- 1 personification retired present that really raised their dividend and it was nominal complete nan past 3 years. So, we conscionable consciousness for illustration nan in installments isn't location astatine this point. And we'll proceed to measure it.

Ivan Kaufman

And we're trading astatine a conscionable akin dividend to immoderate others successful our adjacent group, and they haven't raised their dividend, and their payout ratio is adjacent to 100%. And nan Board conscionable said, well, what's nan use of expanding nan dividend? And let's spot really that goes. We are specified an outperformer successful paying retired 67% aliases 70% expanding a dividend. What is nan marketplace moreover going to care? That was benignant of a consensus.

Operator

We'll return our adjacent mobility from Lee Cooperman pinch Omega Family Office.

Lee Cooperman

Thank you. I person 3 questions. Before I inquire my question, I conscionable want to springiness you guys a well-deserved outcry out. I've been an investor, I deliberation from nan time of nan IPO. I deliberation for good complete 10 years, you guys person done a absolute sensational occupation successful managing nan affairs of nan company. And I want to convey you for that.

My 3 questions are: number one, arsenic you said successful your property release, we person a best-in-class return equity of 18%. In your position is that sustainable astatine nan existent time, wherever do you deliberation that we're complete earning? Number two, I request a small spot of an education. There are definite taxation laws that require you to salary retired a percent of your taxable income arsenic a REIT. Based upon your fund this year, do you deliberation you'll beryllium flushed to salary an further dividend earlier nan extremity of nan twelvemonth aliases not? And third, I deliberation nan reply is self-evident, we don't person immoderate request for immoderate further equity present because you person plentifulness of equity connected nan equilibrium sheet.

Ivan Kaufman

So that’s 3 questions.

Paul Elenio

Yes. So let's effort to return them successful order. The first -- let's instrumentality to nan 2nd question, first. As acold arsenic nan taxation codification goes, rightly you are required to administer 90% of your taxable income arsenic a REIT. If you don't administer 100 you’re paying firm taxation connected nan quality betwixt 90 and 100, truthful that's a leakage. I deliberation nan advantage we person complete everybody other successful nan abstraction is that we person what we telephone a REIT complete TRS. So we person a taxable REIT subsidiary that pays taxes connected nan Agency business. And because of that, we're capable to clasp that superior FTP taxation and not person to dividend it up. So that's 1 portion of it. So your question, will we person to salary a typical dividend to nan entity aliases nan reply is no. But we will proceed to measure wherever our taxable income goes some successful nan region TRS going guardant and that will surely beryllium 1 of nan contributing factors to wherever our dividend goes successful nan future. But correct now, we person nan expertise to clasp superior and don't -- and are not moving afoul of those [results].

As acold arsenic nan 3rd mobility connected capital, we've done, I think, a masterful occupation arsenic you said, Lee, and we really admit your comments of really looking astatine this world correctly, and knowing that you person to beryllium decently capitalized erstwhile you participate into these challenging environments. And truthful we've done a really bully occupation of accessing capital. We're astir apt 1 of nan companies -- you know, 1 of nan only companies successful nan abstraction that has entree to different levels of capital, some successful indebtedness and equity, because of our reputation, because of our marque and mostly because of our performance. We are viewed best-in-class by a batch of nan investors. So that's really helped us.

We will conscionable measure it. Right now, for illustration you said, we are sitting pinch a bunch of cash. I deliberation we are successful a really beardown liquidity position. And we will conscionable proceed to measure whether location is simply a request for superior going forward.

But astatine this point, we for illustration our position, right, Ivan?

Ivan Kaufman

We do. We will measure our runoff first originations because runoff exceeding our originations creates a batch of superior for us. Given nan use of our debased liability structures, it puts america successful a position to proceed to person outstanding earnings. I mean, if we leverage our existing liability structures, pinch assets, we person a existent cushion and a existent benefit. There are a batch of firms successful nan manufacture that fastener up their liabilities, which we deliberation is not nan correct measurement to tally a business and we don't do that. We get nan use of having higher net connected those assets, and particularly successful replenishable vehicles. So I deliberation we sewage to hold and spot really each period goes and wherever nan output curve is, and wherever nan opportunities are. But we are sitting successful a beautiful bully position, Lee.

Paul Elenio

And to your first question, Lee, astir nan return connected equity surely our return connected equity has been unprecedented arsenic you said, a batch of that has to do pinch evidently nan tally up successful liking rates and earning much connected our capital. I deliberation everybody successful nan abstraction is seeing that. We are seeing a important summation successful nan escrow earnings, because of wherever rates person gone. And evidently our Agency business is superior ray and truthful nan ROE connected nan Agency business is overmuch higher than connected nan equilibrium expanse business.

To reply your mobility connected whether we deliberation that's sustainable, that will dangle connected a batch of factors. It will dangle connected nan operation betwixt nan equilibrium expanse business and nan Agency business. And if we tin support pace, support adjacent gait to wherever nan Agency business was past year, I deliberation that will beryllium a meaningful contributor, but it besides will dangle wherever rates spell because evidently if rates astatine immoderate constituent down nan road, and I don't deliberation it's happening successful '24. Others had a different view. If rates commencement to travel down, past you commencement to get a little return connected your rate and your escrow equilibrium and connected your floating complaint indebtedness book. But I deliberation for 2023, I spot that arsenic a comparatively attainable extremity aliases close. After that, we will conscionable person to spot wherever nan marketplace goes.

Lee Cooperman

Thank you. Again, congratulations and very good deserved outcry out. You guys person done a fabulous job.

Ivan Kaufman

Thank you very overmuch for your support, Lee.

Operator

Thank you. At this time, we person nary further questions successful queue. I'll move it backmost to Ivan Kaufman for immoderate further aliases closing remarks.

Ivan Kaufman

Well, convey you everybody for your support successful 2022. It is intelligibly nan champion twelvemonth that nan patient has had successful what is simply a very challenging environment. Our guidance squad has done a awesome job. Our Board is bully and has awesome support. And acknowledgment for each our investors for their publication and support to our franchise. Everybody person a awesome time and a awesome weekend. Take care.

Operator

This concludes today's call. Thank you for your participation. You whitethorn disconnect astatine immoderate time.

Editor: Naga



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