Arbor Realty Trust (ABR) Q3 2026 Earnings Call Transcript

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DATE

Friday, Oct. 30, 2026

CALL PARTICIPANTS

• Chief Financial Officer - Paul Elenio
• President and Chief Executive Officer - Ivan Kaufman

TAKEAWAYS

• GAAP Net Loss -- $85.4 million, representing a loss of $0.51 per diluted share compared to net income of $38.5 million in the prior-year quarter.
• Distributable Earnings -- $14.8 million or $0.08 per share, excluding $21.7 million in realized losses from the resolution of certain nonperforming assets.
• Common Dividend Suspension -- Effective immediately, management suspended the quarterly common dividend to preserve approximately $31 million in quarterly cash flow and $125 million annually.
• Cash and Liquidity -- $439.7 million in cash and cash equivalents at Sept. 30, 2026, with plans to recover $35 million in equity from a single asset sale expected in November or December.
• Total Nonperforming Assets -- $1.25 billion, comprising approximately $750 million in delinquencies and $500 million in real estate owned (REO) assets, up $200 million from the previous quarter.
• Legacy Portfolio Reduction -- $4.5 billion at Sept. 30, 2026, reflecting the resolution of $1.1 billion in loans over the last three quarters.
• Structured Business CECL Provision -- $53 million net provision for credit losses for the quarter, driven by declining real estate valuations in the structured business segment.
• REO Impairments -- $34.1 million across six properties, reflecting updated market values following recent treasury rate increases.
• Agency Loan Originations -- $907 million for the quarter, with management establishing a full-year volume target of $3.5 billion to $4 billion.
• Gain on Sale Margin -- 1.12% in the agency business, a decrease from 1.33% in the previous quarter due to a higher concentration of larger transactions for top-tier sponsors.
• Single-Family Rental (SFR) Originations -- $250 million in new deals for the quarter, bringing year-to-date volume to approximately $700 million with a full-year target of $1 billion.
• Structured Loan Portfolio -- $12 billion in unpaid principal balance (UPB) at quarter end, with a weighted average interest rate of 6.97% including fees.
• Fee-Based Servicing Portfolio -- $36.8 billion at Sept. 30, 2026, which generates approximately $128 million in gross annual servicing income.
• Mortgage Servicing Rights (MSR) Income -- $11.1 million for the quarter, representing a rate of 1.35% as a percentage of loan commitments.
• Collateralized Securitization (CLO) Issuance -- $825 million vehicle closed in the third quarter with pricing at 170 basis points over SOFR and 88% leverage.
• Book Value per Share -- $10.92 at Sept. 30, 2026, impacted by the increased reserves and impairments recorded during the third quarter.
• Unsecured Debt Maturity -- $275 million maturing in March 2027, which management targets for repayment using organic liquidity and dividend savings.
• Loan Modifications -- Six loans totaling $192.1 million UPB were modified during the quarter, mostly involving additional capital investments from borrowers.
• Nonaccrual Loans -- $95.9 million across two loans that were less than 60 days past due as of the end of the third quarter.
• Average Cost of Funds -- 6.66% for the third quarter, an increase from 6.56% in the second quarter driven by a new convertible note offering and rising SOFR.
• Capital Markets Activity -- $12 billion in total transactions completed over the last 36 months, including more than $3 billion in new CLO issuances.
• Operating Expenses -- $177.8 million in total other expenses, including $42.5 million in employee compensation and $55.5 million in total credit loss provisions.
• Fannie Mae Loss-Sharing Obligations -- $36.9 million fair value of guarantee obligations at quarter end, with a total CECL allowance of $87.3 million.
• Interest Income Impact -- $10 million reduction to interest income this quarter caused by $450 million in new delinquencies and the reversal of back accrued interest.
• October Asset Activity -- Foreclosed on one $70 million loan in October and anticipates approximately $225 million in total new REO additions by year-end.

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RISKS

• Kaufman stated, "This will result in a temporary increase in our delinquencies and a slightly longer time frame to resolving certain legacy assets as well as an increase in our loan loss reserves due to a change in values," in reference to the material impact of rising interest rates.
• Kaufman warned that "ICE rates in certain areas of the country, including Jacksonville, Orlando, San Antonio, Houston, and Atlanta" have significantly reduced occupancy on some assets and contributed to increased delinquencies.

SUMMARY

Arbor Realty Trust, Inc. (NYSE:ABR) reported a GAAP net loss for the third quarter and announced the immediate suspension of its common stock dividend to prioritize capital preservation. Management stated that the strategy aims to build approximately $300 million in additional organic liquidity over the next four to five months to address upcoming debt maturities and resolve legacy assets. The company reported that elevated interest rates have slowed the resolution of nonperforming loans and increased delinquencies across specific geographic markets. Management indicated a focus on liquidating collateral and reducing the legacy loan book over the next four to six quarters to improve future earnings capacity.

• CEO Kaufman stated, "We anticipate that this will put our cash position at around $700 million by the end of the first quarter, which will allow us to repay the $275 million of unsecured debt that is maturing in March."
• CFO Elenio noted, "We anticipate our earnings to likely bottom out over the next 2 quarters and then start to build back up each quarter on a consistent basis as we continue to make more progress in resolving our delinquencies."
• Management reported that 5-year and 10-year treasury indexes rose 75 basis points to 85 basis points and 140 basis points to 160 basis points, respectively, over the last nine months.
• The company expects to resolve approximately $400 million to $500 million of legacy loans per quarter, targeting a reduction of the book to approximately $1 billion by the end of 2027.
• CEO Kaufman stated, "Any originations that we do, do will be to service the replenishment in our CLOs," noting the strategy will focus on maintaining those vehicles at maximum levels.

INDUSTRY GLOSSARY

• Agency Business: A segment that originates, sells, and services multifamily loans through programs such as Fannie Mae and Freddie Mac.
• CECL: Current Expected Credit Losses, an accounting standard for estimating allowances for credit losses.
• CLO: Collateralized Loan Obligation, a type of securitized debt vehicle backed by a pool of loans.
• GSE: Government-Sponsored Enterprise, such as Fannie Mae or Freddie Mac.
• ICE Rates: A factor cited by management as impacting tenant occupancy and delinquency levels in specific regional multifamily markets.
• MSR: Mortgage Servicing Rights, the right to service a loan in exchange for a fee.
• REO: Real Estate Owned, property acquired by a lender through foreclosure or deed in lieu of foreclosure.
• SOFR: Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.
• Structured Business: A segment that invests in structured finance assets including bridge, mezzanine, and preferred equity loans.
• UPB: Unpaid Principal Balance, the remaining principal amount due on a loan.

Full Conference Call Transcript

Operator: Good morning, ladies and gentlemen. Welcome to the Third Quarter 2026 Arbor Realty Trust Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to your speaker today, Mr. Paul Elenio, Chief Financial Officer. Please go ahead, sir.

Paul Elenio: 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 September 30, 2026. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. 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 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 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. 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. 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 on today's call. On our last earnings call, we discussed at length the effect of the increase in interest rates is having on the timing and resolution of our nonperforming and self-performing loan book. Since that time, we've seen a tremendous increase in interest rates with the 5- and 10-year treasury indexes up another 75 to 85 basis points and 140 to 160 basis points in the last 9 months. This is a very material development, which has resulted in further reductions in values across the multifamily sector of between 5% to 15% and has significantly curtailed transaction volumes from the increased cost of debt and equity.

This will result in a temporary increase in our delinquencies and a slightly longer time frame to resolving certain legacy assets as well as an increase in our loan loss reserves due to a change in values. We have also seen a significant negative impact on some of our legacy assets from ICE rates in certain areas of the country, including Jacksonville, Orlando, San Antonio, Houston and Atlanta. These rates have significantly reduced occupancy on some of our assets in these areas, which has contributed to an increase in our delinquencies. This was completely out of our control and not something we could have anticipated.

We will continue to evaluate the long-term impact that this may have on our legacy assets and adjust our strategy and reserves accordingly. As a result, one of our main objectives is to preserve capital, have the appropriate level of liquidity to pay off our upcoming debt maturities and operate our platform to resolve our legacy issues and preserve our book value. We are currently sitting on approximately $400 million of cash and believe we can organically create another $300 million of liquidity over the next 4 to 5 months through loan payoffs, loan sales, REO dispositions, increased efficiencies in our financing facilities and securitization vehicles and by reducing our dividend.

With that in mind, our Board has decided to suspend the quarterly common dividend effective immediately, which will preserve $31 million a quarter or $125 million in annual cash flow. We anticipate that this will put our cash position at around $700 million by the end of the first quarter, which will allow us to repay the $275 million of unsecured debt that is maturing in March and still maintain $425 million of liquidity to work through this cycle and resolve our legacy loan book. We will also continue to look for other areas to bolster our liquidity position further.

As the largest shareholder with the highest inside ownership of any REIT, we are completely aligned with our shareholders and believe this strategy to be the most appropriate at this point in the cycle. Despite this extremely challenging environment, we continue to make progress in resolving our loan book and are working very aggressively to liquidate this collateral as quickly as possible. As a result of the material change in interest rates, delinquencies have increased and the REO dispositions have slowed, which is pushing out the timing on resolutions another quarter or 2.

We are still dealing with the same universe of legacy loans that we have ring-fenced and remain confident in our ability to continue to make progress and reduce this exposure significantly over the next 4 to 6 quarters. We ended the third quarter with approximately $750 million of delinquencies and around $500 million of REO assets for total nonperforming assets of roughly $1.25 billion, which is up around $200 million from last quarter's numbers as a result of the significant increase in rates, which again has accelerated delinquencies and delayed the timing of the resolution of certain assets.

As we have discussed in detail on our last few calls, we continue to focus heavily on our legacy portfolio, which is down to $4.5 billion at September 30 from successfully resolving $1.1 billion of these loans in the last 3 quarters. $1.2 billion of this book continues to perform in accordance with the original terms and $1.3 billion is either delinquent or in REO that we expect to be able to resolve over the next several quarters. We have a $2 billion of this book we have been aggressively working through with the goal of restructuring and resolving approximately $400 million to $500 million of loans a quarter.

This will reduce our legacy book, including our delinquent and REO assets down to around $2.7 billion by year-end at around $1 billion by the end of 2027. As these legacy assets work through the system, we expect our total delinquencies to stay relatively flat until the remaining legacy book is reduced further, and then we should see a meaningful move down in total delinquencies as we continue on our pace of resolving approximately $400 million to $500 million a quarter. This will go a long way towards significantly reducing the drag on earnings and increasing our run rate of income in the future.

We also continue to have a tremendous success in capital markets issuing another CLO in the third quarter with exceptional terms. The new CLO was an $825 million vehicle with pricing of 170 over an 88% leverage with a 2.5-year replenishment period. This has allowed us to continue to drive higher returns on our capital and generate an additional $50 million of liquidity to enhance leverage. We have now issued over $3 billion in new CLOs, which has reduced the position of our recourse debt outstanding and is driving higher returns on our capital.

This success, combined with the unwind of approximately $8 billion of legacy CLOs and $1.3 billion of new unsecured debt issuance means we have successfully completed in excess of $12 billion of capital markets transactions over the last 36 months. As Paul will discuss in more detail, we have produced distributable earnings of $0.08 a share in the third quarter. Clearly, our earnings are being greatly affected by the significant recent rise in rates, which has increased our delinquencies, extended out the timing of resolving our noninterest-earning assets and temporarily affected our agency volumes. We expect this trend to likely continue for a little longer, which could continue to affect our core earnings in the short term.

Our goals are always longer term in nature with our sights set on capital preservation and working through our legacy book as quickly as possible, which will reduce the earnings drag and allow us to start to build back up our run rate of interest income and drive higher earnings in the future. This, again, we estimate will take us 4 to 6 quarters from now to accomplish, and we are taking a very methodical approach to resolving these loans each quarter and bringing down the remaining legacy book to a more normalized level relative to our total loan book. Turning now to our production numbers for the third quarter.

In our agency business, we originated $900 million in volume, in addition to $75 million in CMBS brokerage transactions for a total third quarter volume of $975 million. This brings our year-to-date volume to around $2.8 billion. Clearly, the elevated rate environment is greatly affecting our origination executions. We originated $450 million in August and had good momentum with a large pipeline until a significant rate spike, which curtailed originations and pushed out our pipeline. We originated less than $200 million in September and around $300 million in October.

As a result, we are targeting between $3.5 billion and $4 billion of total volume this year, which could obviously move up or down depending on rates and timing of closings, which is hard to predict in this environment. In our balance sheet lending business, we originated $600 million of volume through the first 9 months of this year. We have been relatively inactive in screening new business given the current landscape, except for very selectively originating deals that fit into our current securitization vehicles to replenish runoff and reduce any inefficiencies.

We expect this to be our ongoing strategy over the next few quarters as again, we focus our attention on continuing to bolster our liquidity position to work through this cycle. The one area we have remained active is in our single-family rental business. We believe this is a great business that offers us returns on our capital through construction, bridge and permanent lending opportunities and generate strong levered returns on our capital through very efficient financing vehicles. We had a solid third quarter, originating $250 million of new deals for total volume year-to-date of approximately $700 million.

We continue to have an active pipeline and believe we will close out the year with approximately $1 billion of volume, which is a strong year, especially considering the current interest rate environment and the fact that we had a very light first quarter from all the noise surrounding the housing bill that was resolved in the second quarter. In summary, we continue to make significant progress in the capital markets and working through our legacy book despite the extremely challenging environment. We are optimistic that we can continue to reduce this book significantly over the next 4 to 6 quarters and then start to build back our earnings rate as we resolve our delinquency scenario assets.

And again, our primary focus is to preserve and create the appropriate level of liquidity to repay our short-term debt maturities and execute our business plan. This will afford us the necessary time needed to work through the teeth of this downturn and realize the true value of our franchise for our shareholders. I will now turn the call over to Paul to take you through the financial results.

Paul Elenio: Okay. Thank you, Ivan. In the third quarter, we produced distributable earnings of $14.8 million or $0.08 a share, excluding realized losses of $21.7 million from the resolution of certain delinquent and REO assets that we had previously reserved for. These realized losses were in the range that we guided for last quarter of $20 million to $30 million and is something we expect to continue for the next 4 to 6 quarters as we work through resolving our nonperforming loan book. As Ivan touched on earlier, our third quarter numbers were significantly impacted by the rise in interest rates.

This rate move was a very material change, which accelerated delinquencies and slowed down the pace of resolutions during the quarter. We also experienced a decline in our agency business origination volumes as a result of the drastic rate move, which affected our gain on sale numbers as well this quarter. We had approximately $450 million of new delinquencies, which resulted in around a $4 million of back accrued interest being reversed and a reduction of around $6 million in interest income for a $10 million impact to interest income this quarter from these assets.

This was slightly offset by around a $2 million increase in interest income from the resolution of roughly $250 million of prior delinquencies during the quarter. We also incurred approximately $7 million of additional interest expense from issuing our convertible debt offering and leveraging up our balance sheet to create the appropriate level of liquidity to operate through this current environment. And given the drastic recent change in the interest rate environment, we anticipate our earnings to likely bottom out over the next 2 quarters and then start to build back up each quarter on a consistent basis as we continue to make more progress in resolving our delinquencies and working through our legacy book.

In the third quarter, we recorded an additional $34 million of impairment on our REO book to properly mark these assets to where we think we can effectuate a sale in the current environment, which has clearly been affected by the recent rate hike. We also booked another $27 million of specific reserves on our balance sheet loan book for total REO impairment and specific reserves of $61 million in the third quarter, which is up approximately $25 million from the second quarter.

General CECL was also elevated this quarter from a change in the outlook for real estate values, resulting in an additional $27 million in reserves on our balance sheet loan book, which is an increase of $11 million from the second quarter. And given the current environment, we expect that we could experience similar levels of reserves and impairments over the next few quarters, which is up from our last quarter's guidance due to the significant change in interest rates that have occurred.

As Ivan mentioned, as we work through our remaining legacy book, we expect that we will funnel through our delinquencies and REO assets, which will likely keep our total noninterest-earning assets at a similar level until we reduce the remaining legacy book down to a relatively small number. Once this occurs, we will start to see our total delinquencies decline, which will greatly reduce the drag these assets are having on our core earnings. Our book value per share came in at $10.92 at September 30 as a result of the increased reserves and impairments we booked in the third quarter due to the change in values we are seeing from a rise in rates.

And even if we continue to book similar levels of reserves over the next 4 to 6 quarters, we still have substantial embedded equity value above where the stock is trading in addition to the significant value of our origination platforms and our franchise. In our GSE agency business, we originated $900 million of volume and had $1 billion in loan sales in the third quarter. The margins on these loans came in at 1.12% this quarter compared to 1.33% last quarter, mainly due to our continued commitment to originate larger transactions on higher-quality assets to top-tier sponsors, which contain lower margins.

We also recorded $11 million of mortgage servicing rights income related to $800 million of committed loans in the third quarter, representing an average MSR rate of around 1.35% compared to 1.1% last quarter due to a shift in product mix. Our fee-based servicing portfolio was $36.8 billion at September 30, with a weighted average servicing fee of 34.7 basis points and an estimated remaining life of 5.6 years and will continue to generate a predictable annuity of income going forward of around $128 million gross annually. In our balance sheet lending operation, our investment portfolio was $12 billion at September 30, with an all-in yield in this portfolio of 6.97% compared to 6.95% at June 30.

This was mainly due to an increase in SOFR for the quarter, which was offset by the effect of increased delinquencies in the third quarter. The average balance in our core investments was $12.1 billion for both the second and third quarters. The average yield on these assets decreased to 6.84% from 7.21% last quarter, mainly due to the impact from our third quarter defaults, which was slightly offset by a nominal increase in SOFR on our performing loan book. Total debt on our core assets was approximately $10.8 billion at September 30 compared to $10.5 billion at June 30.

This increase was mainly due to the issuance of our convertible debt offering in July as well as from additional leverage on existing collateral and from our new CLO execution. The all-in cost of debt was approximately 6.69% at 9/30 versus 6.38% at 6/30, mainly due to an increase in SOFR. The average balance on our debt facilities was approximately $10.7 billion for the third quarter compared to $10.5 billion in the second quarter, again, mainly due to the convertible debt issuance and enhanced leverage on our loan book.

The average cost of funds in our debt facilities was 6.49% in the third quarter compared to 6.40% for the second quarter, excluding interest expense from leveraging 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. This increase is mostly due to an increase in SOFR and additional leverage on certain assets during the quarter. 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. Operator?

Operator: [Operator Instructions] We'll go first this morning to Chris Muller with Citizens Capital Markets.

Christopher Muller: I guess looking at Slide 13 in the deck on the liquidity bridge to repaying the March maturity, the $35 million of REO disposition stands out a little bit given $500 million or so of REO. So I guess the question is, is that $35 million on that slide just kind of a plug for the remaining shortfall there? And is there additional REO that you guys could sell if you guys needed the capital?

Paul Elenio: Sure, Chris, it's Paul. Thanks for the question. So it's related to one specific asset. There will be other REO dispositions during the fourth quarter, but this one is in our sights and likely to be disposed of. We have a contract signed, hard money up. They were waiting for approval from the city on a permit. They've gotten that approval. So it should close, we hope, in November or December. And where our leverage point is on our asset with our bank lines, we'd be picking up $35 million of recovered equity that we have tied up into that asset. So that's specifically related to one asset.

To the bigger question you asked, I think the way you look at the math is we're sitting with around $500 million of REOs on our books as of 9/30. We are expecting to take some more back, obviously, as our delinquencies work through the system. I think actually, in October, we took a loan back already it was $70 million. I think I'm targeting to take back about [Indiscernible] $225 million of new REOs that are in our delinquencies today and probably dispose of, including that asset, another $225 million. So I think where we're at and maybe we can do better than this.

We think our REOs will probably remain flat by year-end in total, new REOs coming in, older ones being disposed of. And yes, we'll pick up some equity on the other ones we'll dispose of. We'll lose a little equity on the new ones that are coming on. But that $35 million is specifically related to one asset that we have in our sights to close over the next 30 days.

Christopher Muller: Got it. That makes a lot of sense. And that's a good dovetail into my follow-up here. I guess just given the focus on liquidity, should we expect foreclosure activity to slow? And it sounds like based on what you just said, maybe not a ton. Maybe we'll see kind of turnaround on the other side of flipping the REO accelerate. Just curious how that all plays into the liquidity focus here.

Ivan Kaufman: It's Ivan speaking. So there's no question about the fact that with that jump in interest rates over the last 60 days, a lot of the REOs that we were in contract under terms or not to come under terms went on pause. The market got adjusted and it slowed the process in my estimation between 30 and 90 days, which is causing us to reevaluate what we're doing. But we're seeing it start to reach another level and get back on track. So you'll see levels come in a little bit lower.

As I indicated in my comments, you'll see a 10% to 20% drop in potential valuation because that's where the market dropped with the rise in interest rates. But I think people are now settling in to where we are. So we think we'll get back on track. We think values will be affected a little bit, but we're still very ambitious to stick to that plan of resolving these over those -- over the next 4 to 6 quarters.

Christopher Muller: Got it. And if I could just squeeze one last quick one in. 10-year is down back below 5% now. I'm looking at 4.93% on my screen right now. I guess kind of what level on the 10-year do you guys think would kind of unlock activity and accelerate things versus slowing things down when we were at 5.4 type percent rates?

Paul Elenio: So let me do it in reverse. When we spoke a few quarters ago, the 10-year was around 4% and the 5 years around 3.50%. Those are very, very attractive levels. And that's where we geared up plan to. When the 10-year jumped to 4.50% very quickly, it definitely had an impact, slowed things down. Going from 4.5% to 5. 30% was draconian dramatic, I call material adverse change. Clearly going from 5. 30% now below 5%, you'll start to see momentum come back. And as momentum comes back and people feel we're not at risk, I think you'll see a lot of people step back and be a little bit more aggressive.

So I think it happens in increments, and I think it also happens whether people feel that things are going to pop back up or not. So it has to do with investor sentiment and whether they feel this is the appropriate rate range that we're going to be in. But if there's concerns that rates are going to jump up a little bit, I think you'll see a little bit of a slowdown.

Operator: We'll go next now to Rick Shane with JPMorgan.

Richard Shane: One of your relative peer companies reported earlier this week, and they talked about pricing in multifamily down 5% to 10% based on elevated cap rates, but they also indicated that, that was sort of Class A and their perception was that Class B, C was down more sharply. I am curious what your thoughts on that are as we think about resolutions of the portfolio as well.

Ivan Kaufman: First, I'll say I disagree with their -- I don't know, I didn't hear the call, but Class A may be down 5% to 10% in good markets. But in weaker markets, I think it's down substantially more. And that's something that we have been very concerned about in terms of our originations of Class A. Class A, you're seeing in markets like Phoenix or markets like Dallas and Austin, Charlotte and other markets, you're looking at 3- to 4-month concessions. And I would say values are down more than 5% on Class A, I would say, could be 15% to 25%. What happen [Indiscernible] with that proposition. With respect to Class B and C, we're seeing certain markets firm.

But the big issues, as I said on my comments, we were dealing with the impact of the ICE rates and a change in occupancy overnight and also a change with the population that's going out versus going in. So I can't answer that yet in some of those markets where ICE continues to be a very negative factor in those markets. But I will tell you that there are certain markets that we're starting to see firm up. And in my comments, I said 5% to 15% in range in terms of how we think it's affected our portfolio.

Some are a little deeper and some are a little bit less, but that's definitely been the change that we've seen with the recent change in rates.

Richard Shane: Got it. Okay. And then look, you guys cite about $400 million in available liquidity post sort of net of the maturity in March. I believe you have another $250 million in maturities in the second half of the year. And I realize that some of the sources of liquidity that are available to you before March in terms of repayments will be there. The benefit of the impact, I should say, of cutting the dividend as well. But I am curious, as you look forward, what is the sort of working cash that you need? And then what is the ability to continue to move forward to that second half maturity as well?

Paul Elenio: Sure. So Rick, it's Paul. Let me answer a little bit of this and Ivan will chime in. I think a couple of things you mentioned are exactly right. Suspending the dividend not only picks up $62 million, $31 million a quarter until the March distribute the March payoff. But when you go to October, we pick up another $60 million there. So that's $62 million right there that we're picking up between March and October to address what you're talking about prior to the $250 million of maturity. In addition, we have on the docket certain loans that we think we will repay and certain loans we think we'll sell.

Some of those loans have forward funding commitments associated with them, and we think we could pick up some capital there by not having to continue to fund forward commitments on those loans. And then lastly, as Ivan said, we continue to look to other sources to pick up liquidity, obviously, continuing to look at what assets we can dispose of, what assets we can push for a payoff and look at our leverage and see where our capital is tied up in those loans, which could accelerate.

I think we see a path that if it's early, but we see a path that after the March payoff, that we could generate $150 million to $200 million of additional capital before October. And to your last point is what is the optimum cash level we'd like to operate. I think Ivan we would probably say it's between $350 million and $450 million we'd like to have, right, to be able to operate through this environment absent those debt maturities.

Ivan Kaufman: That's correct. I think that we have also determined that any originations that we do, do will be to service the replenishment in our CLOs. And I think you'll see the non-CLO side of our book come down and maintain the CLO side of the book at a very maximum level, and that should also generate a considerable amount of cash equity as well.

Operator: We'll go next now to Jade Rahmani with KBW.

Jade Rahmani: I wanted to ask about the single-family rental strategy. That business did show a notable increase in special mention loans. What drove that? And what do you expect to happen to those loans?

Ivan Kaufman: I think we saw a little bit of a jump as maybe you put out in your morning note today, Jade, in substandard and doubtful, and that was obviously driven by the elevated delinquencies we had this quarter. Special mention is a bucket that we look at, like we've always said, when we originate loans from the get-go, they can be passed, past watch or special mention just because of the nature of the transitional nature of those loans. I'd have to dig in and see, but special mention is probably up a little bit because of the values are down. We're looking at where these loans are maturing.

But we don't look at special mention as a category that is overly concerning. We look at obviously substandard and doubtful as the category that is a prelude to delinquencies, foreclosure and potential deterioration.

Jade Rahmani: Okay. Yes, because it did increase quite a bit and that caught my attention, although I realize special mention is less worrisome than substandard and doubtful. During the financial crisis, companies like Arbor and other commercial mortgage REITs issued warrants in connection with standstill agreements with repo lenders to buy themselves flexibility to work through issues. And even in recent periods, others have issued raised capital from private credit as well to optimize asset workouts, deals confidently with upcoming maturities, and also have more capital available to repurchase some of their own debt securities and even stock. So what are your thoughts around that if the company would look to do such actions?

Paul Elenio: Listen, we'll evaluate all options and alternatives. It's certainly everything you mentioned and it is something that we're consistently discussing. I think there are a lot of arbitrage opportunities in the market, and we have taken advantage of them in the past. I did it in the GFC, and we did it very well. So we have a lot of tools that we can utilize and a lot has to do with which direction rates go in and whether the market to recover or the market is under distress. But we are constantly evaluating that internally and with our bankers.

Jade Rahmani: Okay. And on a related note, the interest in the GSE agency business, you noted the strong cash flows it was generating as well as the very high MSR gain in the quarter, 135 basis points. So that business generates resilient cash flows and has about a 5-, 6-year remaining duration. Would you consider selling an interest in that business to free up capital?

Ivan Kaufman: We haven't considered selling an interest, but we definitely have a very, very valuable franchise, which produces a lot of cash flow. It's really been a cornerstone of our business. And we're very pleased with it. Is that part of a potential capital solution one day down the road if things get worse? There's always options when you have good assets.

Jade Rahmani: Great. And then lastly, on the REO balance. So just round numbers, close to $500 million. How much CapEx do you expect to spend on those assets in order to get them positioned to be able to monetize?

Ivan Kaufman: It's different for each asset. Obviously, we have a group of assets that we're pretty far along with agreements to be signed and moving off our balance sheet. We have others that are in the pre-marketing stage of marketing those assets for sale. And then we have others that we're looking to hold a little bit longer until we can season them more. I think during the quarter, we maybe put $8 million, $9 million of CapEx in some of those assets. I think that number probably comes down on the older assets as we move them off, maybe some newer assets come on.

It's a hard thing to answer, but it will just be based on where we think the exit value is, whether it's long term or short term. And I don't think it's a big number over a yearly basis, but we just have to see how quickly we can dispose of some and then which ones we want to hold on to for values outside of where this distressed market is.

Operator: We'll go next now to Gabe Poggi with Raymond James.

Gabriel Poggi: It's kind of piggybacks on what Jade was just asking. Obviously, the world has changed a whole heck of a lot in the last 60 days and the world could change a whole heck of a lot in either direction in the next 60 or 90 days. But if we stay around this today, kind of benchmark rate environment in and around 5%, high 4s, et cetera, how are you guys thinking about liquidity? Obviously, you put a road map out for March, but beyond March for later liquidity needs and really kind of what is the clearing price for existing REO NPLs today?

If you just have to go put those in the market, take what you can get so that you can maximize liquidity? Any color there would be helpful.

Ivan Kaufman: Well, I think we're just not looking towards March. that's short term in nature, and we believe that we have strategies in place to get to March, and that's kind of what we've guided to. We're really looking for a 12-month execution, which gives us time to do an orderly disposition of our REOs without having to fire sale them and try and get a maximum return. And it also gives us the opportunity if we want to sell some loans and recoup some equity and do it in an orderly basis, we can do that as well. So 12 months is a way to do it in a very orderly way.

If rates come down and you get wind at your back, it gets done a little easier. If rates go up more meaningfully than what we've seen over the last 60 days, then it becomes much tougher. But the guidance we're giving you is what we think we can accomplish orderly between now and March and then between March and our next short-term piece of that. So that's how we're looking at.

Gabriel Poggi: I've got one more quick follow-up. Can you guys provide an average occupancy number for REO, what you're holding in REO and what the occupancy is in those assets?

Ivan Kaufman: We do actually. It's in our filings. I don't have it in front of me...

Gabriel Poggi: I didn't see it yet. I'll check...

Ivan Kaufman: In the Q, we list out the occupancy. Some of those assets may be vacant, right, obviously, taking them offline, but we give you what's vacant, we give you what the occupancy is.

Gabriel Poggi: [Indiscernible]. I'll check there.

Operator: We'll go next now to Crispin Love with Piper Sandler.

Crispin Love: Looking at your origination activity in the structured business in the quarter, you did nearly $370 million in the SFR business. Just given the liquidity constraints today, why does it make sense to do originations at that type of level rather than kind of cutting that down and preserving liquidity further?

Paul Elenio: I think I'll let Ivan answer the question on the business strategy. But I think what I'll point out is of that $360 million, $194 million or almost $200 million was fundings of prior committed loans. So you've originated those loans. There's a construction element to it as you fund up, and that's what those were. The rest were new originations, which was really that $250 million number we gave you. But I think Ivan could do a better job talking about our strategy on that platform.

Ivan Kaufman: Yes. First of all, that's the most attractive part of our business. And we have a CLO that we have in existence, and we sometimes have to anticipate what the payoff is on those loans versus what we originate to fill that CLO. So we always need the pipeline of business that we have to fill that CLO. And those we think are the most high-quality loans. We can also stick some of those loans to our existing CLOs as well. So it's an attractive part of the asset class that we like. The construction gets funded up over time. It turns into a bridge loan, can be put into our CLOs.

And very quickly, we can get those into agency takeout as they stabilize. But we'll be very selective in terms of what we're putting on our balance sheet using our cash versus, as I said earlier in my comments, versus using something that we could just fill any payoffs or anticipated payoffs in our CLO.

Crispin Love: That makes sense. I appreciate the color there. And then I definitely understand the suspension of the common dividend to preserve and build liquidity for the upcoming debt maturities. But do you, the Board have any update or plan for the preferred dividend that could actions be necessary there over time?

Ivan Kaufman: Yes. We evaluate everything relative to liquidity. It's not something we discussed at this Board meeting. But clearly, that's always a tool that's out there that management will have the opportunity to evaluate as we go deeper into the next couple of quarters.

Operator: Ladies and gentlemen, it appears we have no further questions today. Mr. Kaufman, I'd like to turn things back to you, sir, for any closing comments.

Ivan Kaufman: I appreciate everybody's time. I know these are difficult times with a significant material adverse change in the market. The company has adopted its operating policies and the way it's going to do business to adjust to what the current climate is. Thank you for your participation. Have a great day.

Operator: Thank you very much, sir. Again, ladies and gentlemen, this will conclude today's conference call. We'd like to thank you all so much for joining us and wish you all a great day. Goodbye.

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