Arbor Realty Trust Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve Delaney - Citizens JMP Securities LLC - Analyst : For starters, just really appreciate you guys being upfront with us today about your expectations for the dividend this 2025. It's just I think it's a lot easier for the market to hear that today than in March when you have to declare first quarter. So thank you for that clarity. Ivan, you talked about some resolutions involving outside money. I'm curious this opportunity that starts with distressed bridge loans and eventually it rolls into REO. So I think we're talking about the same investment opportunity. Are you seeing institutional money, big money, fresh money, looking at this space as a unique maybe once in a decade opportunity, is that money coming in? And if it's not coming in, do we need that to get this problem cleaned up in the next one to two years?

Question: Steve Delaney - Citizens JMP Securities LLC - Analyst : So I'm hearing you say the outside money right now as you sit today, you rework the bridge loan and there's new sponsors, there's people willing to step in there. The heavier lift, if you've got an REO, 30% lease needs further renovation whether that's something you feel like your team at Arbor is better equipped to take that property over, manage the property, and then look to sell that property in 12 to 24 months. Am I hearing you clear on that?

Question: Steve Delaney - Citizens JMP Securities LLC - Analyst : Paul, a quick one for you to close out. In December, Fitch upgraded Arbor's primary servicing rating to CPS2+. It looks like a large focus of that was on your agency servicing. But to any extent did that servicing upgrade reflects the work you were doing on the bridge loans in your CLOs?

Question: Stephen Laws - Raymond James - Analyst : I wanted to touch on modifications from last year. I think it was around $4 billion a lot of which was done in early part of the year, maybe when borrowers and everybody had a different interest rate outlook. Can you talk about how you expect those modified loans to perform over '25? Were those modifications how many were somewhat reliant on really from rates over the course of '25? And how do you expect are those modifications typically 12- or 6-month duration extensions? Or how do you think about the modified loans maturing over the course of this year?

Question: Stephen Laws - Raymond James - Analyst : Appreciate the comments there. And Paul, could you touch on the servicing escrow balances again? I think you said $80 million to $85 million, but I want to make sure I understand that the new level we should think about? And kind of what's driving the change in that, what the components are driving that reduction? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 3:00PM, ABR.N - Q4 2024 Arbor Realty Trust Inc Earnings Call

Question: Stephen Laws - Raymond James - Analyst : Yes. I appreciate the comments on that. And one last question. regarding new dividend level being determined, I know the $0.30 to $0.35 guide for quarterly distributable earnings. Are you going to base the dividend on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 3:00PM, ABR.N - Q4 2024 Arbor Realty Trust Inc Earnings Call Or will you look at kind of distributable earnings less PIC income and think about the dividend closer to a cash earnings level? Or how will you and the Board think about determining that new dividend level?

Question: Richard Shane - J.P. Morgan - Analyst : Sort of two lines. First, a little housekeeping. Paul, you mentioned $500 million of nonaccruing loans. Can we go through in the $0.30 to $0.35 guidance? What's the drag from nonaccruals? What's the contribution from PIK. And was the $0.03 to $0.05 that you cited for legal and regulatory quarterly. And can you help us sort of understand the context of that expense?

Question: Richard Shane - J.P. Morgan - Analyst : And how much of the quarterly $0.30 to $0.35 is from PIK?

Question: Richard Shane - J.P. Morgan - Analyst : Okay. Great. And then pivoting that was the sort of the housekeeping stuff. In the quarter, you guys did $35 million almost $36 million of prefs and as $97 million the year. Are those part of -- is that loans on outside investments opportunistically? Or is that related to the structured portfolio where you're providing additional capital to existing borrowers. And I'd love to relate that to some extent to the $130 million of capital contributed on the [AMAS] during the quarter during the year?

Question: Richard Shane - J.P. Morgan - Analyst : I really appreciate the clarification on that. It is helpful. And if I can just pivot to my very last question. So during the year, you guys noted $4.1 billion, you took in $130 million of additional capital associated with that which equates to about 3%. Can you put that 3% additional capital in the context of what you see the decline in property values. How does that sort of match up in terms of how much property is actually down?

Question: Richard Shane - J.P. Morgan - Analyst : So you had borrowers put in 3% in order to modify loans. And I think anecdotally, property values are down substantially more than that. So I'm kind of curious how you think about how much additional capital a borrower needs to put in order to maintain an LTV? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 21, 2025 / 3:00PM, ABR.N - Q4 2024 Arbor Realty Trust Inc Earnings Call

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : Can you discuss the lower cash balance in the structure business? What drove the quarter-on-quarter decline? And also, did you experience any margin cost?

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : And then just the agency business cash balance when you break out the different segments, is that more akin to corporate cash? How fungible is that cash?

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : Lastly, just on the GSE side, have you gotten any put back? I know JLL closed 1 Walk & Dunlop talked about what they've received. It'd be helpful to hear if you've received any loan put back.

Question: Crispin Love - Piper Sandler - Analyst : First, you've had $370 million plus of bridge originations in the fourth quarter, highest level in a long time, in line with your guidance from last quarter. Can you speak to expectations going forward in bridge as rates have backed up in September? And then do you have an outlook for agency originations for the first quarter?

Question: Crispin Love - Piper Sandler - Analyst : Great. I appreciate all the color there. And then just last one for me. Can you provide any update on the DOJ SEC investigation from last year? And you mentioned legal fees related to short seller reports in your prepared remarks. Does that also include legal fees related to the investigations as well?