Q1 2025 Arbor Realty Trust Inc Earnings Call
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Unknown Executive: Please stand by, your program is about to begin.
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Unknown Executive: Good morning, ladies and gentlemen, and welcome to the first quarter. 25, Arbor Realty Trust.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the first quarter 2025 Arbor Realty Trust earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Unknown Executive: At this time, all participants are in a listen-only mode.
Unknown Executive: ask a question during the I will now like to turn the call over to you.
Ask a question during that period, you will need to press star and one on your telephone.
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Speaker Change: Please be advised that today's conference is being recorded and if you should need operator assistance. Please press star zero.
Speaker Change: I would now like to turn the call over to your Speaker Today Paulo linear Chief Financial Officer. Please go ahead.
Paul Elenio: Today, Paul Elenio, Chief Financial Officer. Please go ahead.
Speaker Change: Yeah. Thank you David and good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we will discuss the results for the quarter ended March 31, 2025 with me on the call today is Ivan Kaufman, our President and Chief Executive Officer.
Ivan Kaufman: And good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended March 31st, 2025.
Ivan Kaufman: With me on the call today is Ivan Kaufman, our President and Chief Executive Officer.
Unknown Executive: Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risk and uncertainties, including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans, and objectives. These statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today.
Speaker Change: Before we begin I need to inform you that statements made in this earnings call maybe deemed forward looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business financial condition liquidity results of operations plans and objectives. These statements are based on our beliefs assumptions and expectations of our future.
Speaker Change: Performance taking into account the information currently available to us factors that could cause actual results to differ materially from arbor's expectations. In these forward looking statements are detailed in our SEC reports listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of today.
Unknown Executive: Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events.
Speaker Change: It takes no obligation to publicly update or revise these forward looking statements to reflect events or circumstances. After today or the occurrences of unanticipated events I'll now turn the call over August President and CEO Ivan Kaufman.
Ivan Kaufman: I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.
Ivan Kaufman: Thank you, Paul, and thanks to everyone for joining us on today's call.
Speaker Change: You, Paul and thanks to everyone for joining us on today's call as you can see from this morning's press release, we had an active and productive quarter with many notable accomplishments, including substantial improvements to the right side of our balance sheet and.
Ivan Kaufman: As you can see from this morning's press release, we had an active and productive quarter with many notable accomplishments, including substantial improvements to the right side of our balance sheet and significant progress in working through our delinquencies and REO assets despite the challenging environment. We've been heavily focused on creating efficiencies in our financing facilities to continue to drive higher returns on our capital.
Speaker Change: And significant progress in working through our delinquencies and Oreo assets, despite the challenging environment.
Speaker Change: We've been heavily focused on creating efficiencies in our financing facilities to continue to drive higher returns on our capital.
Ivan Kaufman: In fact, in March, we announced a transformational deal in which we entered into a $1.1 billion repurchase facility to finance assets and two of our existing CLO vehicles with JP Morgan. This allowed us to redeem it par and full, all invested capital in these vehicles, while creating tremendous efficiencies through significantly reduced pricing, enhanced leverage, and guaranteed, and generated approximately $80 million of additional liquidity.
Speaker Change: In March we announced the transformational deal and which we entered into a $1 1 billion repurchase facility to finance assets in two of our existing CLO vehicles with J P. Morgan.
Speaker Change: This allowed us to redeem at par in full all invested capital in these vehicles, while creating tremendous efficiencies to significantly reduce pricing enhanced leverage guaranteed and generated approximately $80 million of additional liquidity.
Ivan Kaufman: Additionally, and very significantly, the facility is 88% non-recourse and provides us with a two-year replenishment period to substitute collateral when loans run off. This is essentially like issuing a new CLO with significantly improved terms, and since every loan financed in this facility has been recently appraised, this transaction also very importantly reinforces the quality of our loan book. We're extremely pleased with this innovative transaction. and we believe demonstrates the quality of our brand and the depth of our banking relationships and again will drive higher earnings in the future.
Speaker Change: Additionally, and very significantly the facilities, 88% nonrecourse and provides us with a two year replenishment period to substitute collateral when loans run. All this is essentially like issue a new CLO with significantly improved terms.
Speaker Change: And since every loan financing. This facility has been recently appraised. This transaction also very importantly, reinforces the quality of our loan book.
Speaker Change: Extremely pleased with this innovative transaction.
Speaker Change: And we believe demonstrates the quality of our brand and the depth of our banking relationships and again will drive higher earnings in the future.
Ivan Kaufman: We also saw very strong demand in our first quarter in the CLO securitization market.
Speaker Change: We also saw very strong demand in our first quarter in the CLO securitization market. We've been the leader in this space for over 20 years and I've been extremely active in accessing this market.
Ivan Kaufman: We've been a leader in this space for over 20 years, and I've been extremely active in accessing this market. These vehicles are very attractive to us as they allow us to fund our loans with non-recourse, non-mark-to-market debt, with replenishment rights, and generate outsized returns on our capital. While this market has cooled off a little in the last few weeks, there is a significant amount of liquidity in this space that we expect will drive a very robust CLO market going forward.
Speaker Change: These vehicles are very attractive to us as they allow us to fund our loans with nonrecourse non mark to market debt with replenishment rights and generates outsized returns on our capital.
Speaker Change: And while this market has cooled off a little in the last few weeks there was significant amount of liquidity in this space that we expect will drive a very robust CLO market going forward.
Ivan Kaufman: We will continue to be an active player in this space, which, again, is a big part of our strategy and will help drive increased future earnings through these low-cost, long-dated funding sources.
Speaker Change: We will continue to be an active player in this space, which again is a big part of our strategy and will help drive increased future earnings through this low cost long dated funding sources.
Ivan Kaufman: On our last call, we discussed how the significant backup and long-term rates was creating substantial will create a substantial headwinds for everybody in this space. We talked about how this environment was creating a very challenging origination climate as it relates to our agency business. and how it was also going to result in a curtailed ability for borrowers to transition to fixed rate loans and recap their deals.
Speaker Change: On our last call, we discussed have a significant backup and long term rates was creating substantial well, creating substantial headwinds for everybody. In this space. We've talked about how this environment was creating a very challenging origination climate as it relates to our agency business.
Speaker Change: And Howard It was also going to result in a curtailed ability for borrowers to transition to fixed rate loans and recap their deals.
Ivan Kaufman: Since the announcement of the Trump tariffs and the trade wars that have ensued, we've seen a tremendous amount of uncertainty and rate volatility that has resulted in large swings in the five and ten year indexes. And what feels like a field of times is a constantly changing economic forecast. It will be very hard to predict where all is settled out for the balance of the year and where interest rates will go as a result. We expect, at least in the short term, for there to be a tremendous amount of volatility and uncertainty.
Speaker Change: Since the announcement of the Trump tariffs trade wars that have been sued we've seen a tremendous amount of uncertainty in rate volatility that has resulted a large swings in the five and 10 year indexes and what feels like a time.
Speaker Change: Sales at times is a constantly changing economic forecast.
Speaker Change: It will be very hard to predict where all this settles out for the balance of the year and where interest rates will go as a result, we expect at least in the short term because it would be a tremendous amount of volatility and uncertainty.
Ivan Kaufman: We will continue to monitor the market environment and determine the effect it will have on our business for the balance of 2025. We were very prudent with the guidance we gave on last quarter's call for 2025, which is based on similar market conditions to what we are experiencing.
Speaker Change: We will continue to monitor the market environment and determined the effect it will have on our business for the balance of 2025.
Speaker Change: We were very prudent with the guidance. We gave on last quarter's call for 2025, which is based on a similar market conditions to what we are experiencing.
Ivan Kaufman: Very recently, we have seen a reduction in the five and 10-year interest rates, which, if this trend continues, will be a positive catalyst for our business by driving increased agency volumes and allowing us to move more loans off of a balance sheet, which will increase our run rate and position us well for 2026. We continue to do a very effective job despite the elevated rates of working through our loan portfolio by getting borrowers to recap their deals and purchase interest rate caps, as well as bringing new sponsors to take over assets, either consensually or through foreclosure.
Speaker Change: Recently, we have seen a reduction in the five and 10 year interest rates, which if this trend continues will be a positive catalyst for our business by driving increased agency volumes and allow us.
Speaker Change: To move more loans off our balance sheet, which will which will increase our earnings run rate and position us well for 2026.
Speaker Change: We continued to do a very effective job. Despite the elevated rates of working through our loan portfolio by getting bars to recap that deals and purchase interest rate caps as well as bring in new sponsors to take over assets either consensually what through foreclosure.
Ivan Kaufman: These are very important strategies that have resulted, you know.
Speaker Change: These are very important strategies that have resulted.
Speaker Change: Got it.
Ivan Kaufman: Yes, I'm sorry, that resulted in the ability to reposition as a performance of these assets is greatly affected by poor management and from being undercapitalized, which resulted in very low occupancy.
Speaker Change: Yes, I'm, sorry, CAD resulted in our ability to reposition as a performance as Guy says is greatly affected by poor poor management.
Speaker Change: From being under capitalized, which resulted a very low occupancy oops, sorry, excuse me one second.
Ivan Kaufman: Oops, I'm sorry, excuse me one second. These are very important strategies that resulted in a large portion of our loan book being successfully repositioned as performing assets with enhanced collateral values and experienced sponsors, and have created a more predictable future income stream. We also continue to make progress on the $819 million of loans that will pass due as of December 31st in accordance with our previous guidance. In the first quarter, we successfully modified 38 million of these loans at 39 million of loans become fully performing again and took back approximately 197 million of REO assets.
Speaker Change: He is a very important strategies have resulted in a large portion of our loan book <unk> successfully repositioned to performing assets, we've been enhanced collateral values and experienced sponsors and have created a more predictable future income stream.
Speaker Change: We also continued to make progress in on the $819 billion of loans that were past due.
Speaker Change: As of December 31 in accordance with our previous guidance.
Speaker Change: In the first quarter, we successfully modified $38 million of these loans at $39 million of loans.
Speaker Change: Fully performing again and took back approximately $197 million of Oreo assets.
Ivan Kaufman: 31 million of which we are in the process of bringing in new sponsors to operate and assume our debt. As expected, we did experience additional delinquency during the quarter of approximately $109 million, bringing our total delinquencies out of March 31st to approximately $654 million. And our plans for resolving our remaining delinquencies are to take back, as REO included, bringing new sponsorship of approximately 30% of this pool, with the other roughly 65% either paying off or being modified in the future. This would put our REO assets on our balance sheet in a range of $400 to $500 million with another roughly $200 million that we will have brought in new sponsorship to operate.
Speaker Change: $31 million of which we are in the process of bringing in responses to operate and assume our debt as expected. We did experience additional delinquencies during the quarter of approximately $109 million, bringing our total delinquencies at March 31 to approximately 654 million.
Speaker Change: And our plans for resolving our remaining delinquencies are the payback is oreo, including bringing new sponsorship approximately 30% of this pool with the other roughly 65% either paying off or being modified in the future.
Speaker Change: This would put our Oreo assets.
Speaker Change: On our balance sheet, and a range of $400 million to $500 million.
Speaker Change: With enough novel, roughly $200 million that we will have brought in new sponsorship to operate.
Ivan Kaufman: As we discussed on last quarter's call, these REO assets will be heavy lifting position of our loan book and we estimate will take approximately 12 to 24 months to reposition as a performance of these assets have been greatly affected by poor management and from being undercapitalized, which has resulted in very low occupancies and NOIs. As a result, these REO assets will temporarily create the greatest drag on our earnings, which is a significant component of our revised guidance for 2025. We do believe there is a great economic opportunity for us to step in and reposition these assets and significantly grow the occupancy and NOIs over the next 12 to 24 months, which will increase our future earnings substantially.
Speaker Change: As we discussed on last quarter's call. These oreo assets will be heavy lifting position of our loan book and we estimate will take approximately 12 to 24 months to reposition as the performance of these assets have been greatly affected by poor management and from being under capitalized which has resulted in very low Aki.
Speaker Change: You can see that NOI.
Speaker Change: As a result, these oreo assets will temporarily create.
Speaker Change: The greatest drag on our earnings which is significant component of our revised guidance for 2025.
Speaker Change: We do believe there is a great economic opportunity for us to step in and reposition these assets and significantly grow the occupancy and NOI over the next 12 to 24 months, which will increase our future earnings substantially.
Ivan Kaufman: We're working exceptionally hard at resolving our delinquencies, which have been significantly affected by the higher interest rate environment, and again, was factored into our 2024 guidance. As I have said before, if rates come down sooner than we expect, we will have a positive impact on our ability to convert non-interest earning assets into income-producing investments, which will be accretive to our future earnings. Turning now to our first quarter performance, as Paul will discuss in more detail, our quarter results were in line with our previous guidance, with us producing distributable earnings of 31 cents per share in the first quarter.
Speaker Change: We are working exceptionally hard in resolving our delinquencies, which have been significantly affected by the higher interest rate environment, and again was factored into our 'twenty 'twenty four guidance.
Speaker Change: As I have said before if rates come down sooner than we expect we will have a positive impact on our ability to convert noninterest, earning assets into income producing investments, which will be accretive cop future earnings.
Speaker Change: Turning now to our first quarter performance as Paul will discuss in more detail. Our quarterly results were in line with our previous guidance with us producing distributable earnings of 31 per share in the first quarter based on these results and the environment. We are currently operating.
Ivan Kaufman: Based on these results and the environment we are currently operating in, Our board has decided to reset the quarterly dividend to $0.30 a share, which again is in line with our guidance. We anticipate that the next nine months will continue to be very challenging due to the significant drag on earnings from our REO assets and delinquencies, and from the effect the higher interest rate environment is having on our originations business, all of which will make 2025 a transitional year, which is reflected in our revised dividends.
Speaker Change: Our board has decided to reset the quarterly dividend to <unk> 30, a share which again is in line with our guidance.
Speaker Change: We anticipate that the next nine months, we will continue to be very challenging due to the significant drag on earnings from our Oreo assets and delinquencies.
Speaker Change: The effect of higher interest rate environment is having on our originations business all of which will make 2025, a transitional year, which is reflected in our revised dividend.
Ivan Kaufman: As we successfully resolve these assets, and if we continue to see rate relief, we believe we will be well positioned to grow our earnings and dividends again in 2026.
Speaker Change: As we successfully resolve these assets and if we continue to see rate relief. We believe we will be well positioned to grow our earnings and dividends again in 2026.
Ivan Kaufman: In our balance sheet lending platform, we had an active first quarter originating $370 million of new bridge loans. Last quarter, we got it to approximately $1.5 to $2 billion in bridge loan production for 2025, which we feel we are very on pace to accomplish.
Speaker Change: And our balance sheet lending platform, we had an active first quarter originating $370 million of new bridge loans.
Speaker Change: Last quarter, we guided to approximately one and a half to $2 billion of bridge loan production for 2025.
Speaker Change: We feel we are very on pace to accomplish.
Ivan Kaufman: What we come in at the low end or the high end of the range is highly dependent upon market conditions and the interest rate environment, which again, has been extremely volatile and unpredictable lately. This is a very attractive business as it generates a strong leverage returns on our capital in the short term while continuing to build up significant pipeline of future agency deals, which is a critical part of our strategy. As we continue to take advantage of efficiencies in the securitization market with our commercial banks, we can drive higher leverage returns and increase returns on our capital substantially.
Speaker Change: What we come in at the low end or the high end of the range is highly dependent upon market conditions and metrics and the interest rate environment, which again has been extremely volatile and unpredictable lately.
This is a very attractive business as it generates a strong levered returns on that capital.
Speaker Change: In the short term, while continuing to build up significant pipeline of future agency deals, which is a critical part of our strategy.
Speaker Change: As we continue to take advantage of efficiencies in the securitization market with our commercial banks, we can drive higher leveraged returns and increased returns on our capital substantially.
Ivan Kaufman: As we talked about on our last call, we got it to three and a half to four billion of agency volume in 2025, which is a much slower start with a much slower start in Q1, given the backup of rates that occurred last quarter. The first quarter did come in around what we expected, or approximately $600 million of origination volume from the significant increase in the tenure, which has created a very challenging origination plan. Again, there has been a very significant amount of volatility in the rate environment lately. with some dips in the five and 10-year rates that we were able to capitalize on growing our forward pipeline.
As we've talked about on our last call, we guided to three $5 billion to $4 billion of agency volume in 2025, which is a much slower start with a much slower start in Q1, given the backup of rates that occurred last quarter.
Speaker Change: The first quarter. It did comment around what we expected of approximately $600 million of origination volume from the significant increase in the tenure, which has created a very challenging origination.
Speaker Change: Again, there has been a very significant amount of volatility in the rate environment lately.
Speaker Change: With some dips in the five and 10 year rates that we were able to capitalize on growing our forward pipeline. In fact, our pipeline is approximately $2 billion today, which is up significantly from approximately $1 2 billion in late February where we started out last call and this robust pipeline gives us confidence in our ability to deliver the range of guidance we.
Ivan Kaufman: In fact, our pipeline is approximately $2 billion today, which is up significantly from approximately $1.2 billion in late February, where we started our last call.
Ivan Kaufman: And this robust pipeline gives us confidence in our ability to deliver the range of guidance we gave in 2025, despite the slower first quarter.
Speaker Change: Gain in 2025, despite the slower first quarter.
Ivan Kaufman: We continue to do an excellent job growing our single-family rental business. We had a solid first quarter with approximately $200 million in new business, and our pipeline remains strong.
Speaker Change: We continue to do an excellent job growing our single family rental business, we had a solid first quarter with approximately $200 million in new business and our pipeline remains strong.
Ivan Kaufman: This is a great business that offers us returns on our capital through construction, bridge and permanent lending opportunities and generates strong leverage returns in the short term while providing significant long-term benefits by further diversifying our income streams. In fact, the business plan is working well as we are starting to see more of our construction loans transition to new bridge loans as well as being able to capture new bridge loan business off of lender's SFR books because of how vertically integrated we are. In the first quarter, we closed $131 million of new bridge loans on top of the $270 million that we closed in 2024.
Speaker Change: This is a great business is or offers us returns on our capital construction bridge and permanent lending opportunities and generate strong levered returns in the short term, while providing significant long term benefits by further diversifying our income streams.
Speaker Change: In fact, the business plan is working well as we are starting to see more of our construction loans transitioned to new bridge loans as well as being able to sort of cap cap to capture new bridge loan business off of other lenders as a bar books because of how vertically integrated we are in.
Speaker Change: In the first quarter, we closed $131 million of new bridge loans on top of the $270 million that we closed in 2024.
Ivan Kaufman: And with the enhanced efficiencies we're seeing in the financing side of the business, we are generating mid to high returns on our capital, which will contribute to increased future earnings, especially as we continue to scale up this business.
Speaker Change: And with the enhanced efficiencies, we're seeing in the financing side of the business, we in generating mid to high returns on our capital.
Speaker Change: This will contribute to increase future earnings, especially as we continue to scale up this business.
Ivan Kaufman: We also continue to make steady progress in our construction lending business. We believe this product is very appropriate for our platform as it also offers us returns on our capital through construction, bridge, and permanent agency lending opportunities and generates mid- to high-teens returns on our capital.
Speaker Change: We also continue to make steady progress in our construction lending business.
We believe this product is very appropriate for our platform as it also offers US returns on our capital who construction bridge and Permian agency lending opportunities and generate mid to high teens returns on that capital.
Ivan Kaufman: We closed $92 million of deals in the first quarter and another $58 million in April. We also have a growing pipeline with roughly $300 million under application and another $500 million of additional deals we are currently screening, which gives us confidence that we will easily make and likely beat the guidance we gave of $250 million to $500 million of production in 2025.
Speaker Change: Close to $92 million of deals in the first quarter and another $58 million in April. We also have a growing pipeline with roughly $300 million under application and another $500 million of additional deals. We are currently screening, which gives us confidence that we will easily make and likely beat the guidance. We gave up 250 to 500 million.
Speaker Change: Production in 2025.
Ivan Kaufman: In summary, we have an active and productive first quarter with many notable accomplishments. We continue to execute our business plan very effectively and in line with our objectives and guidance. Clearly, there's been a tremendous amount of volatility in this space, especially as it relates to the outlook of short-term and long-term, right? If the rate environment improves, it will have a positive impact on our business and our outlook going forward. Additionally, we continue to see efficiencies in the securitization market and our bank mindset, we will continue to be a positive catalyst.
Speaker Change: In summary, we had an active and productive first quarter with many notable accomplishments we continue to execute our business plan very effectively and in line with our objectives and guidance.
Speaker Change: Clearly that's been a tremendous amount of volatility in this space, especially as it relates to the outlook with short term and long term rates.
Speaker Change: If the rate environment improves that will have a positive impact on our business and our outlook going forward. Additionally, we continue to see efficiencies in the securitization market and our bank lines that we will continue to be a positive catalyst.
Ivan Kaufman: As mentioned earlier, we view 2025 as a transitional year in which we will work extremely hard to successfully resolve our REO assets and delinquencies, providing a strong earnings foundations, which we can build upon in 2026.
Speaker Change: As mentioned earlier, we view 2025 is a transitional year in which we will work extremely hard to successfully resolve our oreo assets and delinquencies, providing a strong earnings foundations, which we can build upon in 2026.
Paul Elenio: I will now turn the call over to Paul to take you through our financial results.
Speaker Change: I will now turn the call over to Paul to take you through our financial results Paul.
Paul Elenio: Thank you, Ivan. In the first quarter, we produced distributable earnings of $57.3 million, or $0.28 per share, and $0.31 a share, excluding $7 million of one-time realized losses from the sale of two REO assets that we previously reserved for, $6 million of which we guided to on last quarter's call. These results translated into ROEs of approximately 10% for the first quarter. As Ivan mentioned, we reflected the current environment in our 2025 distributable earnings guidance of $0.30 to $0.35 per quarter. Additionally, as I mentioned on last quarter's call, we were expecting at least the first two quarters of this year to come in at the low end of that guidance due to the challenging climate we're experiencing from elevated rates.
Paul: Thank you Ivan and the first quarter, we produced distributable earnings of $57 3 million or 28 cents per share and 31 cents a share excluding $7 million of onetime realized losses from the sale of two Oreo assets that we previously reserved for 6 million of which we guided to on last quarter's call. These results trans.
Speaker Change: Slated into Roe's of approximately 10% for the first quarter.
Speaker Change: I haven't mentioned, we reflected the current environment and our 2025 distributable earnings guidance of 30 to 35 cents per quarter. Additionally, as I mentioned on last quarter's call. We were expecting at least the first two quarters of this year to come in at the low end of that guidance due to the challenging climate, we are experiencing from elevated rates clearly right.
Paul Elenio: Clearly, rates are playing a big factor in our earnings outlook, and future changes in the interest rate environment will most certainly dictate whether we stay at the low end of the range for the balance of the year or are able to grow our earnings quicker. In the first quarter, we modified another 21 loans totaling $950 million. On approximately $850 million of these loans, we required borrowers to invest additional capital to recap their deals with us providing some temporary rate relief through a Pay and Equal feature. The pay rates were modified on average to approximately 5.18%, with 2.56% of the residual interest due being deferred until maturity.
Speaker Change: So playing a big factor in our earnings outlook and future changes in the interest rate environment will most certainly dictate whether we stay at the low end of the range for the balance of the year, we're able to grow our earnings quicker.
Speaker Change: In the first quarter, we modified another 21 loans totaling $950 million on approximately $850 million of these loans, we required borrowers to invest additional capital to recap their deals with us providing some temporary rate relief to a paying a cool feature.
Speaker Change: Rates were modified on average to approximately $5, one 8% with 256% of the residual interest due being deferred until maturity.
Paul Elenio: $55 million of these loans were delinquent last quarter and are now current in accordance with their modified terms. In the first quarter, we accrued $15.3 million of interest related to all modifications with Pay and Equal features, $2.3 million of which is on MES and PE loans behind agency loans that have a Pay and Equal feature as part of their normal structure. This leaves $13 million worth of accrued interest in the first quarter related to the modifications of bridge loans, $3.8 million of which is related to our first quarter modifications. Our total delinquencies are down 20% to $654 million at March 31st compared to $819 million at December 31st.
Speaker Change: <unk> 5 million of these loans were delinquent last quarter and are now current in accordance with their modified terms and the <unk>.
Speaker Change: First quarter, we accrued $15 3 million of interest related to all modifications were paying a cool features $2 3 million of which is on Mezz and PE loans behind agency loans that are paying a cool feature as part of their normal structure. This leaves 13 million worth of accrued interest in the first quarter related to the modification of bridge loans.
Speaker Change: $3 8 million of which is related to our first quarter modifications.
Speaker Change: Total delinquencies are down 20% to 654 million at March 31, compared to $819 million at December 31. These delinquencies are made up of two buckets loans that are greater than 60 days past due and loans that are less than 60 days past due that we're not recording interest income on unless we believe the cash will be received.
Paul Elenio: These delinquencies are made up of two buckets, loans that are greater than 60 days past due and loans that are less than 60 days past due that we're not recording interest income on unless we believe the cash will be received. The 60-plus day delinquent loans, or NPLs, were approximately $511 million this quarter compared to $652 million last quarter due to approximately $197 million of loans that we took back as REO and $38 million of modifications during the quarter, which was partially offset by $82 million of loans progressing from less than 60 days delinquent to greater than 60 days past due and $13 million of additional defaults during the quarter.
Speaker Change: The 60, plus day delinquent loans or Npls were approximately $511 million this quarter compared to $652 million last quarter due to approximately $197 million of loans that we took back as Oreo and $38 million of modifications during the quarter, which was partially offset by $82 million of loans progressing from less than 60.
Speaker Change: Days delinquent to greater than 60 days past due and $13 million of additional defaults during the quarter. The second bucket consisting of loans that are less than 60 days past due came down to $143 million this quarter from $167 million last quarter due to 38 million of modifications and $82 million of loans progressing to gray.
Paul Elenio: The second bucket, consisting of loans that are less than 60 days past due, came down to $143 million this quarter from $167 million last quarter due to $38 million of modifications and $82 million of loans progressing to greater than 60 days past due, which was partially offset by approximately $96 million of new delinquencies during the quarter. And while we were making very good progress in resolving these delinquencies, at the same time, we do anticipate that we will continue to experience some new delinquencies, especially if this current rate environment persists. In accordance with our plan of resolving certain delinquent loans, we have continued to take back assets as REO, and we expect to take back more over the next few quarters, as Ivan mentioned earlier.
Speaker Change: Other than 60 days past, due which was partially offset by approximately $96 million of new delinquencies during the quarter and while we were making very good progress in resolving these delinquencies at the same time, we do anticipate that we will continue to experience some new delinquencies, especially if this current rate environment persist in accordance with our plan of ours.
Speaker Change: <unk> certain delinquent loans, we have continued to take back assets as Oreo and we expect to take back more over the next few quarters as Ivan mentioned earlier the process of foreclosing on and working to improve these assets and create more of a current income stream takes time, which again will temporarily impact our earnings.
Paul Elenio: The process of foreclosing on and working to improve these assets and create more of a current income stream takes time, which again will temporarily impact our earnings. In the first quarter, we took back $197 million of REO assets. We've been highly successful at bringing in new sponsors on certain assets to take over the real estate and assume our debt. This strategy is a very effective tool at turning dead capital and a non-performing loan into an interest-earning asset, which will increase our future earnings.
Speaker Change: In the first quarter, we took back a $197 million of Oreo assets, we've been highly successful at bringing in new sponsors on certain assets to take over the real estate and assume that the strategy is a very effective tool at turning dead capital on a nonperforming loan into an interest, earning asset which will increase our future earnings as Ivan mentioned, we are in the process of <unk>.
Paul Elenio: As Ivan mentioned, we're in the process of bringing in new sponsors on two of the REO assets we took back in the first quarter, which we hope to close by the end of the third quarter. We have no loan loss reserves against these assets as we expect to sell these assets at or above our current debt level.
Speaker Change: Bringing in new sponsors on two of the Oreo assets, we took back in the first quarter, which we hope to close by the end of the third quarter. We have no loan loss reserves against these assets as we expect to sell these assets at or above our current debt levels.
Paul Elenio: As a result of this environment, we record an additional $16 million in specific reserves in our balance sheet loan book in the first quarter. And again, we believe we've done a good job of putting the appropriate level of reserves on our assets, which is evident by the transactions we've been able to effectuate to date at or around our carrying values net of reserves.
Speaker Change: As a result of this environment, we record an additional $16 million of specific reserves on our balance sheet loan book in the first quarter and again, we believe we've done a good job of putting the appropriate level of reserves on our assets, which is evident by the transactions, we've been able to effectuate the date at or around our carrying values net of reserves.
Paul Elenio: In our agency business, we had a slow first quarter, as expected, due to the significant headwinds from higher rates. We produced $606 million in originations and $731 million in loan sales, with very strong margins of 1.75% for the first quarter, which was equal to our margins from last quarter. We also recorded $8.1 million of mortgage servicing rights income, related to $645 million of committed loans in the first quarter, representing an average MSR rate of around 1.26%, which is up from 1% last quarter due to a higher mix of Fannie Mae loans in the first quarter, which contain higher servicing fees.
Speaker Change: In our agency business, we had a slow first quarter as expected due to the significant headwinds from higher rates, we produced 606 million originations and $731 million in loan sales with very strong margins of 175% for the first quarter, which was equal to our margins from last quarter. We also recorded $8 1 million.
Speaker Change: Mortgage servicing rights income related to $645 million of committed loans in the first quarter, representing an average MSR rate of around $1, two 6%, which is up from 1% last quarter due to a higher mix of Fannie Mae loans in the first quarter, which contain higher servicing fees.
Paul Elenio: Our fee-based servicing portfolio is at approximately $33.5 billion at March 31st, with a weighted average servicing fee of 37.5 basis points and an estimated remaining life of around seven years. This portfolio will continue to generate a predictable annuity of income going forward of around $126 million gross annually. In our balance sheet lending operation, our investment portfolio grew to $11.5 billion at March 31st from Origination's outpacing runoff in the first quarter. Our all-in yield on this portfolio was 7.85% at March 31st, compared to 7.80% at December 31st, mainly due to taking back non-performing assets as REO, which are separately stated on our balance sheet, partially offset by some new delinquencies in the first quarter.
Speaker Change: Our fee based servicing portfolios at approximately $33 5 billion at March 31, with a weighted average servicing fee of 37 five basis points and an estimated remaining life of around seven years. This portfolio will continue to generate a predictable annuity of income going forward around $126 million gross annually.
Speaker Change: Our balance sheet lending operation our investment portfolio grew to $11 5 billion at March 31 from originations outpacing runoff in the first quarter. Our all in yield on this portfolio was seven 5% at March 31.
Speaker Change: <unk> to seven <unk> at December 31, mainly due to taking back nonperforming assets as Oreo, which has separate separately stated on our balance sheet, partially offset by some new delinquencies in the first quarter.
Paul Elenio: The average balance in our core investments was $11.4 billion this quarter, compared to $11.5 billion last quarter. The average yield in these assets decreased to 8.15% from 8.52% last quarter, mainly due to a reduction in the average SOFR rate and less back interest collected this quarter on loan modifications and delinquencies versus last quarter. Total debt on our core assets was approximately $9.5 billion at March 31st and December 31st. The all-in cost of debt was down to approximately 6.82% at 3-31 versus 6.88% at 12-31, mainly due to a 40 basis point reduction in rate on the new J.P.
Speaker Change: The average balance in our core investments was $11 $4 billion this quarter compared to $11 5 billion last quarter. The average yield on these assets decreased to 815% from 852% last quarter, mainly due to a reduction in the average sofa rate and less back interest collected this quarter on loan modifications and delinquencies.
Speaker Change: Versus last quarter.
Speaker Change: Total debt on our core assets was approximately $9 5 billion at March 31, and.
Speaker Change: At December 31, the all in cost of debt was down to approximately $6 eight 2% at $3 31 versus $6 eight 8% at 12 31, mainly due to a 40 basis point reduction in rate on the new J P. Morgan facility as compared to the rates we were paying on the CLO at the time they were redeemed.
Paul Elenio: Morgan facility as compared to the rates we were paying on the CLOs at the time they were redeemed. The average balance in our debt facilities was down to approximately $9.4 billion for the first quarter, compared to $9.7 billion in the fourth quarter, mainly due to paydowns in our CLO vehicles from runoff in the fourth and first quarters. The average cost of funds in our debt facilities was 6.89% in the first quarter, compared to 7.08% for the fourth quarter, excluding interest expense from levering our REO assets, the debt balance of which is separately stated on our balance sheet, and therefore not included in our total debt on core assets.
Speaker Change: The average balance in our debt facilities was down to approximately $9 4 billion for the first quarter compared to $9 7 billion in the fourth quarter, mainly due to pay downs in our CLO vehicles from run off in the fourth and first quarters. The average cost of funds in our debt facilities was $6 eight 9% in the first quarter compared to 7.08% for the fourth quarter.
Speaker Change: Excluding excluding interest expense from levering, our Oreo assets the debt balance of which is separately stated on our balance sheet and therefore not included in our total debt on core assets. This reduction in the average cost of funds was from a decline in sulfur, which was partially offset by the lower rate tranche lowered debt tranches being <unk>.
Paul Elenio: This reduction in the average cost of funds was from a decline in SOFR, which was partial offset by the lower debt tranches being paid down from CLO runoff in the first quarter. Our overall net interest spreads in our core assets was down to 1.26% this quarter from 1.44% last quarter, largely due to more back interest being collected last quarter on delinquent loans combined with a decline in SOFR. And our overall spot net interest spread was up to 1.03% at March 31st compared to 0.92% at December 31st from the removal of some loans that went REO and from better pricing on the new JP Morgan line that we closed in March.
Speaker Change: Paid down from CLO runoff in the first quarter.
Speaker Change: Our overall net interest spreads on our core assets was down to $1 two 6% this quarter from 144% last quarter largely due to more back interest being collected last quarter on delinquent loans combined with a decline in so far.
Speaker Change: And our overall spot net interest spread was up to one 3% at March 31, compared to <unk>, 92% at December 31 from the removal of some loans that went Oreo and from better pricing on the new J P. Morgan line that we closed in March.
Paul Elenio: And lastly and very significantly, we've managed to de-lever our business 30% during this very lengthy dislocation to a leverage ratio of 2.8 to 1 from a peak of around 4.0 to 1 over two years ago.
Speaker Change: And lastly, and very significantly we've managed to Delever our business, 30%. During this very lengthy dislocation to a leverage ratio of two eight to one from a peak of around 4.0 to one over two years ago that.
Unknown Executive: That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time.
Speaker Change: That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions. You may have at this time David.
Unknown Executive: David? Thank you.
Unknown Executive: As a reminder, to ask a question, please press the star and one on. To withdraw your question, please press star 1. So others can hear your questions clearly, we do ask that you pick up your hand.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press the star and one on your telephone to withdraw your question. Please press star and two so others can hear your questions. Clearly, we do ask that you pick up your handset for best sound quality.
Speaker Change: We'll take our first question from Steve Delaney with citizens JMP Securities. Please go ahead. Your line is open.
Unknown Executive: Good morning, Ivan and Paul. Um, it sounds like I mean, gosh. We covered a lot there.
Steve DeLaney: Thank you good morning, Ivan and Paul goods beyond with you today.
Speaker Change: It sounds like you are.
Speaker Change: You've covered a lot there.
Unknown Executive: For more information, please visit www.arborrealtytrust.com.
Speaker Change: Three or four different business lines, but the thing that caught my ear. It sounds like the CLO market is very attractive right now in terms of both structure and pricing and a lot of folks have pulled back.
Jade Rahmani: It sounds like the CLO market is very attractive right now in terms of both structure and pricing. And a lot of folks have pulled back from bridge loans because of the credit problems that occurred on the earlier vintages. I'm just wondering, when you look at the bridge portfolio, $11.5 billion.
Speaker Change: From bridge loans because of the credit problems that occurred on that.
Speaker Change: Earlier vintages.
Speaker Change: I'm just wondering when you when you look at the bridge portfolio 11 5 billion.
Ivan Kaufman: Do you expect net growth there in 2025?
Speaker Change: Do you expect net growth there in 2025 do you have a target level or.
Ivan Kaufman: And do you have a target level for where that portfolio might grow by the Let me let me give a little bit of a overview of our business and what our outlook is. And I think it's a combination of three factors. Number one, how much new bridge business we expect, and in my comments, it'll be about one and a half to two billion runoff. I think we did run off of 400 million in the first quarter, 200 million in April, we expect runoff to be anywhere between one and a half to three billion, depending on where interest rates are.
Where that portfolio might grow by the end of this year.
Speaker Change: Sure Let me, let me give a little bit of a overview.
Speaker Change: Business and what our outlook is and I think it's a combination of three factors number one how much new bridge business, we expect and in my comments it will be about one 5 billion.
Speaker Change: Okay, Ron off I think we did run off a $400 million.
Speaker Change: First quarter $200 million in April we expect run off too.
Speaker Change: To be anywhere between one and a half to $3 billion, depending on where interest rates are.
Ivan Kaufman: And then we're going to fund up our construction business, and we're going to fund up our SFR business. So you're going to see, you know, a good net growth number. And then you're going to see the composition of our, of our balance sheet, hopefully by the end of the year, or maybe the first quarter, where the majority of what's on our book will be new production, as opposed to legacy. And that's transformational, when the legacy book gets shrunk to a minority of our book. And that's our goal. That's where we're going.
Speaker Change: And then we're going to fund up our construction business and we're going to fund up our asset far business, So youre going to see.
Speaker Change: A good net growth number and then youre going to see the composition.
Speaker Change: Of our.
Speaker Change: Our balance sheet and hopefully by the end of the year or maybe in the first quarter, where the majority of what's on bulk will be new production as opposed to legacy and that's transformational.
Speaker Change: The legacy book gets shrunk to a minority of our book and that's our goal that's where we're going.
Ivan Kaufman: A lot of this will be fueled by a very robust securitization market. There's been some pullback, as I mentioned in my comments, that, you know, there's with what happened with the tariffs, what was one of the most aggressive securitization markets, it's been pulled back, but pay very close attention. There are a couple of deals in the market now, we think they're going to be extraordinarily well received. The net inflows and outflows on the securitization market is very clear that there's a lot of liquidity, a lot of demand. And we expect as a firm to be able to really benefit off A, the leverage from that business, as well as the cost of funds in that business.
Speaker Change: A lot of this will be fueled by a very robust securitization market.
Speaker Change: Been some pulled back as I mentioned in my comments.
Speaker Change: That.
Speaker Change: Yes.
Speaker Change: With what happened with the tariffs what was one of the most aggressive securitization markets, it's been pulled back.
Speaker Change: A very close attention there are a couple of deals in the market now, we think theyre going to be extraordinarily well received.
Speaker Change: The net inflows and outflows on the securitization market is very clear that there is a lot of liquidity a lot of demand and we expect as a firm to be able to really benefit off a the leverage from that business as well as the cost of funds in that business and we think it'll be a very accretive to earnings and that's why a lot of what.
Ivan Kaufman: And we think it'll be a very creative to earnings.
Ivan Kaufman: And that's why a lot of what we spoke about, was 2025 being a transition year and setting us up very, very strongly for 2026.
Speaker Change: We spoke about was 2025 being a transition year and setting us up very very strongly for 2026.
Jade Rahmani: I mean, just a quick follow up. When you look at the loans that you're making today on side of the business. And clearly, you just said that you expect Growth and you really find that attract.
Speaker Change: And then just a quick follow up when you look at the loans that youre, making today on the bridge line.
Speaker Change: Side of the business and clearly you just said that you expect.
Speaker Change: Some growth in <unk>.
Speaker Change: Find that attractive.
Ivan Kaufman: Why did so many people just in a very simple term, what was on why that 2022-2023 vintages have performed so poorly. and you're going to obviously planning to correct that with your 2025. So I think that's a great question. And I think we all have to understand that on the multifamily side of the business, you had a run from 2010 all the way up till now with very few corrections and every market has a lot of corrections. I think we're going back two or three years from now, two or three years, everybody would say as they do in every up market that things can only get better, right?
Speaker Change: Why did so many people just in a very simple chart what was the number one or number two the primary weaknesses on why that.
Speaker Change: 2006, 2022, 2023 vintages have performed so poorly.
Speaker Change: And you're obviously planning to correct that with your 2025 lines.
Speaker Change: So I think Thats, a great question and I think we all have to understand that.
Speaker Change: On the multifamily side of the business you had a run from 2010, all the way up till now with very few corrections in every market has a lot of corrections.
Speaker Change: We're going back two or three years from now two or three years.
Speaker Change: Everybody would say as they do in every other market.
Speaker Change: Things can only get better right rates will never go up.
Ivan Kaufman: Rates will never go up and rates will only grow and rents will always rise. I think the biggest mistakes were always made at the top of the market. Those are the facts. We see it in every curve and everybody says, hey, if I only knew what I know now, I wouldn't have been where I was. It doesn't always work that way. We as a firm pull back a little quicker than everybody else. Now, the one thing that we've done a great job with is certainly, as you know, the structure of our loans and the recourse on our loans has been very effective in mitigating some of the deterioration and real estate fundamentals.
Speaker Change: And rates will only grow in rents will always rise.
Speaker Change: The biggest mistakes were always made at the top of the market.
Speaker Change: The facts, we see it in every curve and everybody says hey, if I only knew what I know now I wouldn't have been where I was it doesn't always work that way.
Speaker Change: We as a firm pulled back a little quicker than everybody else now the one thing that we've done a great job with is certainly as you know the structure on our loans and the recourse on our loans has been very effective in mitigating some of the some of the deterioration in real estate fundamentals and there hasnt been a day.
Ivan Kaufman: And there has been a deterioration fundamentals, but they're starting to strengthen up again. I think after COVID, which nobody could have ever expected, you had a lot of delinquencies, a lot of rent issues, tremendous number of economic vacancy issues due to people not being able to move out, the slow court system. You saw other factors which weren't anticipated, an increase in insurance rates, an increase in tax rates. The insurance was a big factor. What nobody also anticipated was a number of new entrants into the business and the fact that they didn't have a level of experience in management.
Speaker Change: Gearing ratio fundamentals, but theyre starting to strengthen up again.
Speaker Change: I think after Covid, which nobody could have ever expected you had a lot of delinquencies a lot of rent issues tremendous number of economic vacancy issues due to.
Speaker Change: People not being able moved out the slow core system.
Speaker Change: You saw other factors, which more than anticipated an increase in insurance rates and increase in tax rates. The insurance was a big factor.
Speaker Change: What nobody also anticipated was the number of new entrants into the business and the fact that they didnt have a level of experience and management.
Ivan Kaufman: And when the trend's only positive, you kind of lose sight of some of the negative factors. So every cycle you get better.
Speaker Change: And when the trends only positive you kind of lose sight of some of the negative factors. So every cycle you get better we've been through a lot of cycles, but I do want to comment on one thing in our career of this being the fifth cycle. We've been through this is the longest peak to trough most of the time the cycles go for 18 months.
Ivan Kaufman: We've been through a lot of cycles, but I do wanna comment on one thing. In our career, this being the fifth cycle we've been through, this is the longest peak to trough. Most of the time, the cycles go for 18 months, 20 months, 16 months, and you recover. This has been over 36 months and still going. There've been bits of recovery, bits of setback. So this is a lot longer of a cycle than most people are accustomed to. But we're starting to see some elements of recovery. We're starting to see better occupancies and better growth and things of that nature.
Speaker Change: <unk> 16 months and you recover this has been over 36 months and still growing they have benefits of recovery bits of setback. So this is a lot longer of a cycle.
Speaker Change: Then most people are accustomed to but we're starting to see some elements of recovery, we're starting to see better occupancies and better growth.
Speaker Change: And things of that nature.
Ivan Kaufman: But there's a lot to learn from every cycle. Every firm gets better. So that's my commentary on what happened then and hopefully how we're better positioned now.
Speaker Change: There's a lot to learn from every cycle I think firm gets better. So that's my commentary on.
Speaker Change: What happened then and hopefully I'll have a better position now.
Speaker Change: Thank you very much I appreciate it.
Jade Rahmani: I appreciate it. Thanks, Steve.
Steve DeLaney: Thanks, Steve.
Jade Rahmani: We'll take our next question from Jade Rahmani.
Speaker Change: We will take our next question from Jade Rahmani with <unk>. Please go ahead. Your line is open.
Jade Rahmani: Thank you very much.
Speaker Change: Thank you very much.
Jade Rahmani: Wanted to start with a liquidity update. What are you expecting cash and liquidity to do? Just looking ahead at earnings, the reset dividend. Your expectations regarding NPL Denari.
Jade Rahmani: I wanted to start with a liquidity update what are you expecting cash and liquidity to do just looking ahead at earnings the reset dividend youre expectations regarding Npls and Oreo.
Paul Elenio: Hey, Jade, it's Paul. So, you know, we're sitting right now, as you could see, with like $325 million of cash and liquidity. I think one of the things that was in my commentary that's very important to note is that during this lengthy dislocation, we made a strategic decision to delever the business due to the uncertainty, and we delevered that business 30%. In the peak of the market, prior to the dislocation occurring, we were 4.0 to 1 levered and humming along. We're now 2.8 levered, and we've been at that level for a few quarters now. As with Ivan's commentary, what we're seeing in the securitization market, and with the banks being so engaged and so constructive lately, evident by the JP Morgan line we just put in place, which was obviously an extremely good deal for us, we're seeing the opportunity now where leverage, we can enhance our leverage and grow our liquidity.
Paul: Sure Hey, Jade its Paul so.
Paul: We're sitting right now as you can see like $325 million of cash and liquidity I think one of the things that was in my commentary. This is very important to note is that during this lengthy dislocation we made a strategic decision to delever the business due to the uncertainty and we de Levered that business, 30% in the peak of the market price.
Paul: To the dislocation occurring we were four point.
Paul: <unk> Levered and humming along we're now at $2 eight Levered and we've been we've been at that level for a few quarters now.
Paul: With Avon's commentary of what we're seeing in the securitization market and with the banks being so engaged and so constructive lately evidenced by the Jpmorgan line. We just put in place which was obviously extremely good deal for US we're seeing the opportunity now where leverage if we can enhance our leverage and grow our liquid.
Paul Elenio: So we expect to be able to, over the next 6 to 9, 12 months, to totally, fully take advantage of, one, the securitization market, and two, the constructiveness of the banks and the liquidity that's out there in the banking system to increase our leverage and grow our liquidity. Secondly, as Ivan mentioned, a runoff is a big part of where our liquidity will go, and we toggle it based on our origination objectives and what our runoff does. We did have $400 million of runoff in Q1. It was a little light given where interest rates were for the last three or four months.
Speaker Change: So we expect to be able to over the next six to nine to 12 months to totally fully take advantage of one the securitization market and two the constructive ness of the banks and the liquidity that's out there in the banking system to increase our leverage and grow our liquidity secondly, as Ivan mentioned a run.
Paul: <unk> is a big part of where our liquidity will go in it.
Speaker Change: Based on our origination.
Speaker Change: Objectives, and what our run off that we did have $400 million of runoff in Q1. It was a little light given where interest rates were for the last three or four months interest rates have backed off a little bit recently, as we said and we did get about $200 million of run off in April. So it's it could run off could go anywhere from one 5 billion to 3 billion.
Paul Elenio: Interest rates have backed off a little bit recently, as we said, and we did get about $200 million of runoff in April. So it could, runoff could go anywhere from $1.5 billion to $3 billion, depending on where interest rates go, and that's also a source of liquidity. And then the last piece that I wanted to mention is the debt markets are very, very open and active. As you know, we've been a serial issuer of debt through the unsecured debt market, through the preferreds, and all those types of instruments, through the converts. Term loan B, high-yield debt, convert market, it's all pretty open right now.
Speaker Change: Depending on where interest rates go and Thats also a source of liquidity and then the last piece that I wanted to mention is the.
Speaker Change: The debt markets are very very open and active as you know we've been a serial issuer of debt through the through the unsecured debt market through the preferreds and all those types of instruments to the converts.
Speaker Change: <unk> be high yield debt convert market. It's all it's all pretty open right now. So we will continue to do what we do be good stewards of capital and if we see good growth opportunities and we think theres good origination opportunities in the runoff is slowing we will continue to access those markets as well so that's kind of the three that <unk>.
Paul Elenio: So we will continue to do what we do, be good stewards of capital, and if we see good growth opportunities, and we think there's good origination opportunities, and the runoff is slowing, we will continue to access those markets as well.
Paul Elenio: So that's kind of the three pegs of the stool that drive our liquidity and why we feel comfortable we'll have adequate liquidity.
Speaker Change: Three pigs of the stall that that drive our liquidity and why we feel comfortable we will have adequate liquidity.
Paul Elenio: Thanks.
Ivan Kaufman: You didn't mention NPLs and REO. Could you talk about where you expect each to go? And also, proceeds. Do you expect proceeds from either category? Let me comment on the REO. Chris, I commented on my comments. You know, we expect the REO to go up to between four and five hundred million. And we're going to be extraordinarily aggressive where there's bad management and when there's asset deterioration to pursue that REO, reposition them. A lot of them are heavy lift. We started a process and to the extent that we can reposition those assets, they are tying up liquidity and we will look to liquidate them once we get to a certain level and generate liquidity there.
Speaker Change: You didn't mention Npls and Oreo could you talk about where you expect it to go.
Speaker Change: And also proceeds do you expect proceeds from either category.
Speaker Change: Let me comment on the Oreo, Chris might comment that in my comments.
Speaker Change: We expect <unk> to go up to between four and $500 million.
Speaker Change: And we're gonna be extraordinarily aggressive.
Speaker Change: With his bed management and windows asset deterioration to pursue that Oreo reposition them a lot of them are heavy lift we started a process and to extent that we can reposition those assets. They are tightening up liquidity and we will look to liquidate them once we get to a certain level and generate liquidity there.
Ivan Kaufman: Paul, you can give a little overview on the MPLs and how that's. Sure, so as we said in the commentary, we're sitting with 511 of NPLs, about $140 million of less than 60 days, and they go through a natural progression, Jade, and as we laid out, as Ivan laid out in his commentary, we think about 35% of that pool, that $654 million will take back as REO. We're sitting with $300 million of REO right now on our balance sheet, but $37 million of that, as we mentioned, is going to get sold in the next couple of quarters.
Speaker Change: Paul you can give a little overview on the mpls and how that's moving along.
Paul: Sure. So as we said in the commentary, we're sitting with 511 of Npls about $140 million of less than 60 days and they go through a natural progression Jade and as we laid out as Ivan laid out in his commentary, we think about 35% of that pull that $654 million will take back as Oreo were sitting.
Paul: With $300 million of Oreo right now on our balance sheet by $37 million of that as we mentioned is going to get sold in the next couple of quarters and then there's some legacy stuff on there thats been on before the crisis. So we're sitting at about call. It 210 $220 million of Oreo after we sell those to.
Paul Elenio: And then there's some legacy stuff on there that's been on before the crisis. So we're sitting at about, you know, call it $210, $220 million of REO after we sell those two from this cycle, and we're expecting to take back about 35% of that $654 million. So that'll grow it to the $400 to $500 million, as Ivan mentioned, and we know that the NOIs and the occupancy are low, and we're going to work through those assets, put a little money into them, rehab them, get them to a level where they're now contributing to our earnings, and then we'll make a decision whether we want to liquidate them or keep owning and operating them, you know, at what level.
Paul: From this cycle and we're expecting to take back about 35% of that $654 million that'll grow it to the $4 million to $500 million as Ivan mentioned, and we know that we know that the NOI and the occupancy are low and we're going to work through those assets put a little money into them rehab them get them to a level.
Paul: They're now contributing to our earnings and then we'll make a decision whether we want to liquidate them or keep owning and operating them at what level, that's kind of way we're looking at it but as we mentioned, it's a big drag on our 2025 earnings and that's why we believe it is a transitional year and Thats why we gave the guidance we gave last quarter.
Paul Elenio: That's the kind of way we're looking at it. But as we mentioned, it's a big drag on our 2025 earnings, and that's why we believe it's a transitional year, and that's why we gave the guidance we gave last quarter.
Paul: Okay.
Jade Rahmani: Thanks.
Ivan Kaufman: If I could ask one more, it's just about the overall Transcripts provided by Transcription Outsourcing, LLC. We're actually seeing the occupancy firm up in a lot of our assets and we're seeing better performance. And I think in many of the markets, we've hit bottom that we're seeing. A lot of it was a product of what was, I would say COVID and post COVID and the difficulty of getting tenants out and that has firmed up. So in many ways, we feel we've really bottomed out in a lot of these markets. With respect to our REOs, which we experienced, it was really poor management.
Speaker Change: Thanks, if I could ask one more just about the overall economic sensitivity of the portfolio you mentioned, the 36 month cycle, but that's really an interest rate cycle, we haven't even gone through an economic cycle in terms of unemployment spiking or a recession. So could you touch on your.
Paul: Use there.
Paul: We're actually seeing the occupancy firm up in a lot of our assets and we're seeing better performance and I think in many markets we've hit bottom that we're seeing.
Paul: A lot of it was a product of.
Paul: What was I would say COVID-19 and post COVID-19 than the.
Paul: The difficulty of getting tenants out and that has firmed up so in many ways. We feel we really bottomed out and a lot of these markets with respect to our oreos, which we experienced it was really.
Paul: Poor management.
Ivan Kaufman: And what we've seen now with bringing in the right management, we've been able to really take on the performing assets and bring them up to market. A lot of what we have is workforce housing and we're seeing good data on that in general. So I think we've seen from an economic side of the coin, the worst side of it and we've been to a very tough side of it.
Paul: What we've seen now with bringing in the right management.
Paul: We've been able to really.
Paul: Take underperforming assets and bring them up to market.
Paul: A lot of what we have is workforce housing.
Paul: And we're seeing good data on that.
Paul: In general So I think we've seen.
Paul: From the economic side of the coin.
Paul: The west side of it and we've been through a very tough side of it.
Jade Rahmani: Thank you very.
Paul: Thank you very much.
Unknown Executive: Thanks, Jay. And as a reminder, if you'd like to ask a question today, please press the star and.
Jade Rahmani: Thanks Jade.
Speaker Change: And as a reminder, if you'd like to ask a question today. Please press the star and one key on your telephone we will take our next question from Rick Shane with J P. Morgan. Please go ahead. Your line is open.
Rick: Hey guys, thanks for taking my questions. Um, look, you know, the Interaction feedback we're getting is a lot of focus on liquidity, dividend sustainability and non-cash income. Cash is down 65% year over year, 38% quarter over quarter and that I'm not including the restricted cash because of the pay down of the CLI. repayments were at their lowest. level back to the pandemic at $421 million, I think. Originations in the quarter were $747 million, so you consumed about $300 million on origination. I'm curious how much of those originations really were on new projects as opposed to reinvesting in existing.
Rick Shane: Hey, guys. Thanks for taking my questions. This morning.
Speaker Change: Look.
Speaker Change: Interaction and feedback we're getting is a lot of focus on liquidity.
Speaker Change: Dividends sustainability and noncash income cash is down 65% year over year, 38% quarter over quarter, and I'm not including the restricted cash because of the pay down of the CLO.
Speaker Change: Repayments were at their lowest level.
Speaker Change: Back to the pandemic.
Speaker Change: At 421 million I think.
Speaker Change: Originations in the quarter were $747 million, you consumed about $300 million on originations.
Speaker Change: I'm curious how much of those originations really were on new <unk>.
Speaker Change: Projects as opposed to.
Speaker Change: Reinvesting in existing.
Paul Elenio: Sure.
Paul Elenio: So I can give you some of those numbers, Rick. So the 747 that we did in Originations, $367 million were brand new bridge loans, not on existing projects, brand new bridge loans in the market we're in today. $131 million were bridge loans that came off our SFR business, with that business working nicely. So construction got to lease up and then those loans turned into to bridge loans. And then in addition to that, we had about $223 million of fundings on our unfunded SFR business. As you know, we have commitments outstanding, and then we fund that business over time.
Speaker Change: Sure. So I can give you some of those numbers right.
Speaker Change: So the 747 that we did in originations $367 million were brand new bridge loans not on existing projects brand New bridge loans in the market we're in today.
$131 million were bridge loans that came off our <unk> business with that business working nicely. So construction got to lease up and then those loans turned into two.
Speaker Change: To bridge loans and then in addition to that we had about $223 million of fundings on our unfunded <unk> business. As you know we have commitments outstanding and then we fund that business over time, and then about $19 million was funding on construction loans and our newly created construction business and $4 5 million was.
Paul Elenio: And then about $19 million was funding on construction loans in our newly created construction business, and $4.5 million was MES. So pretty much all of that product that I've mentioned is new product to us. It's not on existing. Great.
Speaker Change: Mess, so pretty much all of that product that I've mentioned is new product to us it's not unexpected.
Paul Elenio: I really appreciate the clarity there, Paul. Second question is, you guys reported $57 million of distributable earnings. How much of the reported income or interest was non-cash? Yeah, so that's what I put in my commentary. We booked $15.3 million of PICC during the quarter, which is down from last quarter, because we make adjustments as we go. Some loans pay. And on the amount of loans that we've modified that we have put a pay and accrual feature on, we're accruing about 78% of those loans and about 22% we've put on non-accrual. But it was $15.3 million for the quarter.
Speaker Change: I really appreciate the clarity there Paul.
Speaker Change: Second question is you guys reported.
Speaker Change: $57 million of distributable earnings.
Speaker Change: Much of the reported income was our interest with.
Speaker Change: With noncash.
Speaker Change: Yes, so that's what I put in my commentary, we booked $15 3 million of <unk> during the quarter, which was down from last quarter, because we make adjustments as we go some loans pay.
Speaker Change: And on the the amount of loans that we've we've modified that we've put a paint accrual feature on we're accruing about 78% of those loans at about 22% we've put on non accrual, but it was $15 3 million for the quarter and as I put in my commentary a certain amount of that is <unk>, which is part of the normal structure and the rest is.
Paul Elenio: And as I put in my commentary, a certain amount of that is MES and PE, which is part of the normal structure, and the rest is on our bridge loan. Got it. And as we look through the year and look to your guidance, both in terms of dividend outlook and expectations of an increase in VE in the back half of the year, is that 15 million run rate a good way to Is that a good level of expectation? I think it is. It's a hard question because things change, right? So this quarter, if you look at our 10Q, you'll see we reversed some prior call interest on some loans that we modded that defaulted.
Speaker Change: On our bridge loans.
Speaker Change: Got it.
We look through the year and look to your guidance both in terms of dividend outlook and expectations of an increase in fee in the back half of the year.
Speaker Change: Is that $15 million run rate.
Speaker Change: Good way to.
Speaker Change: Is that a good level of expectations.
Speaker Change: I think it is it's a hard question because things change right. So.
Speaker Change: This quarter, if you look at our 10-Q Youll see we reverse some prior full interest on some loans that we monitored that defaulted.
Paul Elenio: And then we had some new ones. So it's a constantly moving number. And we sit down every quarter and we go through with asset management, and we look through and say, which ones do we think are going to pay? Which ones we think are going to struggle? Once we think a struggle, we're going to be conservative. But I think that's a pretty good run rate right now. We may have some more mods in the second quarter. I'm not sure. And you'll have the first quarter mods full effect. But we'll see runoff. We're working on a couple of big deals now that if they get over the line, given where interest rates are, we could see a chunk of that get paid.
Speaker Change: And then we had some new ones. So it's a constantly moving number and we sit down every quarter and we go through with asset management, and we look through and say, which ones that we think are going to pay which ones. We think has been a struggle. Once we think a struggle we're going to be conservative, but I think thats a pretty good run rate right. Now we may have some more mods in the second quarter on.
Speaker Change: Sure.
Speaker Change: And Youll have the first quarter modest full effect, but we will see run off were working on a couple of big deals now that if they get over the line given where interest rates are we could see a chunk of that get paid so it's all a moving number. So I would just say that 15 is probably a good estimate going forward.
Paul Elenio: So it's all a moving number. So I would just say that 15 is probably a good estimate going forward.
Rick: Thank you and thank you as always for taking my Sure. Thanks.
Speaker Change: Terrific.
Speaker Change: Thank you and thank you as always for taking my questions.
Speaker Change: Sure. Thanks Ross.
Leon Cooperman: Our next question from Lee Cooperman with Omega. So far everything I've heard is in line with what you previously have indicated. Why do you think industry That's the way I look at the macroeconomy. The stock market is right near a high. Speculation in the market is very rare. No indication of interest rates are too high. You know, it's not that I feel whether they go down or up, it's how we think the business will be managed in a different rate environment.
Speaker Change: And we'll take our next question from Lee Cooperman with Omega family Office. Please go ahead. Your line is open.
Lee Cooperman: Thank you.
Lee Cooperman: So for every I've heard is in line with what you previously had.
Lee Cooperman: Okay.
Lee Cooperman: Right.
Lee Cooperman: Had this discussion in the past.
Lee Cooperman: Why do you think.
Lee Cooperman: Interest rates are too high.
Lee Cooperman: Yes.
Lee Cooperman: The macro economy.
Lee Cooperman: Yes.
Lee Cooperman: Stock markets revenue high.
Lee Cooperman: Speculation in the market is very rare.
Lee Cooperman: I see no indication of interest rates are too high.
Lee Cooperman: Switching to go down.
Lee Cooperman: Yeah.
Lee Cooperman: It's not that I feel whether they go down or up it's how we think the business will be managed in a different rate environment I mean, clearly when rates moved up as they did.
Ivan Kaufman: I mean, clearly, when, you know, rates moved up, as they did, you know, three or four months, three months ago on our last quarter, we were very bearish, and we, you know, gave a certain outlook and revised our earnings forecast going forward and our dividend going forward. Rates have improved a little bit and improvement has, you know, a dramatic impact on our business. As I mentioned in my comments, our pipeline grew from 1.2 billion to 2 billion in a very short period of time with that rate down. So, you know, I don't, you know, while I may feel rates may go down, I could just tell you how the different rate environment affects our business.
Lee Cooperman: Three or four months three months ago on our last quarter.
Lee Cooperman: Bearish and we gave the start outlook revised our earnings forecast going forward and that dividend going forward rates have improved a little bit of improvement in rate has a dramatic impact on our business as I mentioned in my comments our pipeline.
Lee Cooperman: Pipeline grew from $1 $2 billion 15 billion.
Lee Cooperman: Very short period of time.
Lee Cooperman: Right down so.
Lee Cooperman: Oh Wow.
Lee Cooperman: While I may feel rates May go down I can just tell you how the different rate environment affects our business.
Ivan Kaufman: And, you know, we're at a point in time with this environment where it is today, you know, we feel good about it. If rates move down even lower, we feel better. If rates move back up, we feel worse. So, rates have moved from, you know, down about 50 basis points. It's had a dramatic impact on us already. If it moves lower, it'll have even a better impact. So, I comment more in terms of how our business will function in a different rate environment. Gotcha.
Lee Cooperman: Right.
Lee Cooperman: We're at a point in time with this rate environment, where it is today, we feel good about it if rates move down even lower we feel better if rates move back up we feel worse so rates have moved from.
Lee Cooperman: Down about 50 basis points, it's had a dramatic impact on us already.
Lee Cooperman: Lower.
Lee Cooperman: Will have even better than impact so I comment more in terms of how our business will function in a different rate environment.
Leon Cooperman: Now, second question for Paul. I got this call very late. I apologize. Because I got another call.
Speaker Change: Got you.
Speaker Change: Question for Paul.
Speaker Change: This call very late I apologize.
Paul Elenio: What was the book value at the end of the quarter? Sure, the book value was $11.98 at the end of the quarter late. Okay, 1198.
Speaker Change: Another call.
Speaker Change: What was the book value at the end of the quarter.
Speaker Change: Sure. The book value was $11 98 at the end of the quarter Lee.
Paul Elenio: In the past, you had an authorization to buy back stock. Is the current environment such that you would rather keep your liquidity and not buy stock back below book value? I think the short question is, yeah, look, Leon, clearly, you know, our liquidity is a very important item to us, we'll manage our liquidity, we'll manage our opportunities. And, you know, we'll keep an eye on everything. If we see the stock go down, and we have an opportunity to gain liquidity in other areas. And it's a good return on investment for how we raise our capital and something we would, we would evaluate.
Speaker Change: Alright, Okay 11 98.
Speaker Change: In the past.
Speaker Change: <unk> buy back stock.
Speaker Change: Current environment, such that you would rather keep your liquidity in.
Speaker Change: Thanks, a little book value.
Speaker Change: I think you should.
Speaker Change: Good question.
Speaker Change: Leon clearly.
Speaker Change: Yeah.
Speaker Change: Our liquidity is a very important item to us, we'll manage our liquidity will matter your opportunities.
Speaker Change: No.
Speaker Change: We'll keep an eye on everything if we see the stock go down and we have an opportunity to gain liquidity than other areas and this is a good return on investment I would raise that capital in something.
Speaker Change: We would evaluate.
Speaker Change: Yes.
Speaker Change: Got you so you would not.
Unknown Executive: Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com & www.sites.google.com Thanks for listening.
Speaker Change: The committee to do buyback, but you basically look at it.
Speaker Change: Yeah.
Speaker Change: So tariffs and the market environment.
Speaker Change: Alright.
Speaker Change: Alright, very good thank you.
Speaker Change: Thanks Luke.
Unknown Executive: There are no further questions on the line at this time.
Speaker Change: And there are no further questions on the line at this time I'll turn the call back to Ivan Kaufman for any closing remarks.
Ivan Kaufman: I'll turn the call back to Ivan.
Ivan Kaufman: Okay, thank you all for your participation today and your support.
Speaker Change: Alright. Thank you all for your participation today.
Speaker Change: And your support.
Ivan Kaufman: Look forward to the next quarterly call.
Speaker Change: Forward to next quarterly call everybody have a great day and a great weekend.
Unknown Executive: Everybody have a great day and a great weekend.
Unknown Executive: This does conclude today's program.
Speaker Change: This does conclude today's program. Thank you for your participation and you may now disconnect.
Unknown Executive: Thank you for your participation and you may now disconnect. © The Ultimate Parody Site!
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