Arbor(ABR) - 2025 Q1 - Earnings Call Transcript

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