Earnings Call Transcript
Arbor Realty Trust Inc (ABR)
Earnings Call Transcript - ABR Q1 2023
Operator, Operator
Good morning, ladies and gentlemen, and welcome to the First Quarter 2023 Arbor Realty Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.
Paul Elenio, CFO
Okay. Thank you, Britney. 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 31, 2023. 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, CEO
Thank you, Paul, and thanks to everyone for joining us on today's call. After coming off our best year as a public company in 2022, we've had a tremendous start to 2023 with another exemplary quarter as our diverse business model continues to offer many significant advantages over everyone else in our peer group, with a premium operating platform with multiple products that generate many countercyclical income streams, allowing us to consistently produce earnings that are well in excess of our dividend. This has allowed us to increase our dividend another 5% or $0.02 a share to $0.43, reflecting our 11th increase in the last 13 quarters or 40% growth over that time period, all while maintaining the lowest payout ratio in the industry, which was 68% for the first quarter. Our performance continues to be head and shoulders above everyone in our peer group, none of which have been able to increase their dividend at all in the last few years. In fact, several of our peers continue to cut their dividend in this market, while others are paying dividends of over 100% of their earnings. Additionally, and very significantly, we've grown our book value per share by 45% over the last three years from just under $9 a share to almost $13 a share, even with 11 dividend increases during that period. While many of our peer groups have not grown their book value at all, despite cutting their dividends or best only keeping their dividends flat. Yet we still trade at similar dividend yields and price to book values as the rest of the space despite our unquestionable outperformance, which is why we strongly believe we are completely undervalued and there has never been a better time to make a significant investment in our company. As we discussed on our last earnings call, we have been laser-focused over the last 18 months in preparing for what we felt would be a very challenging recessionary environment. Currently, we have all seen the negative press around the financial markets, banking industry, and real estate sector, which has created additional uncertainty and volatility in the market. We are operating our business with the expectation that this environment will persist for some time, and as a result, we are very pleased with how well-positioned we are as a firm to take advantage of what we believe will be accretive opportunities to go on a premed on our capital. We have taken a patient and selective approach to new investments and have been heavily focused on preserving and building up this strong liquidity position. This has allowed us to accumulate approximately $900 million of cash and liquidity on hand, which again provides us with a unique ability to remain offensive. I always said there are tremendous opportunities in down markets to make a significant return on your capital properly positioned. One of the best opportunities we've seen in recent months is the ability to repurchase our stock at significant discounts to book value and generate high double-digit returns on our capital. We repurchased approximately $37 million of stock at an average price of $10.53, which is a 17% discount to our book value and generates a current dividend yield of 16% and a yield of approximately 20% on our distributable earnings. This is a tremendous return on our capital, and again, is something we are able to take advantage of with how well positioned our firm is to be opportunistic in a volatile environment. We have also a best-in-class dedicated asset management team with tremendous expertise and long history in debt restructuring, which is something that's a key part of our business model, extremely valuable and unique through our platform. A lot of misinformation has been published lately by a group of loans totaling $229 million that we had in Houston, Texas. In order to exercise our remedies, we proceeded to foreclose on these assets and had one of the existing investors who was deeply committed to the project recapitalize and restructure the debt with the appropriate guarantees, putting our loans in a much more favorably protected position. We recorded no loss on the original debt and recovered all the outstanding interest in order to assist part of the restructuring. This was an extraordinarily successful debt restructuring, which clearly demonstrates the incredible depth and experience of our asset management team. Unlike others in this space, we've been conducting ourselves as though we've been in recession for the last four quarters. And although we believe the bottom is near, we are well aware of the challenges that lie ahead. We feel we are doing an outstanding job managing through this dislocation between our multi-family centric portfolio, the quality and structure of our loans, our asset management skill set and tenured senior management team, and a track record of managing through multiple cycles and the strength of our balance sheet and the versatility of our franchise. Before I talk about the first quarter results and the highlights, I want to take a few minutes to address a significant amount of false and misleading information that has been recently published about our company through a short seller report. The report is replete with factual misstatements of patently false information and innuendo that is cloaked in the form of opinion and a transparent attempt to mislead the investing public. It is clear to us and should be clear, equally clear to everyone who has been diligent in following the progress of our company for more than a decade, that the report was written by somebody who apparently neither understands our business nor has a sense of appropriate accounting treatment for certain transactions and who is motivated solely to profit on their short position through the dissemination of false and misleading information. While I will not go through a back and forth on every false and misleading allegation by the so-called research company, it should be obvious to everyone at this point that the report is an attempt to capitalize on fear instead of rational thought. What is so ironic is that they took one of the most successfully restructured transactions in our history that was highly lucrative for our shareholders and tried to turn it into a negative. Most importantly, we have reaffirmed with our auditors that all our accounting for the periods in question is correct, as evidenced by the filing of this morning of our first quarter 10-Q with no material changes. I urge our shareholders and the investment public to pay no attention to this noise that is clearly coming from a biased source lacking in credibility, and instead to focus on the fundamentals of our business, our tremendous operating results and the fact we are a leader in our space and continue to outperform our peers. Turning now to our first quarter performance, because Paul will discuss in more detail, our quarterly financial results were once again remarkable. We produced distributable earnings of $0.62 per share, which is well in excess of our current dividend, representing a payout ratio of around 68%. And clearly with our extremely low payout ratio and multiple predictable recurring income streams, we are uniquely positioned as one of the only companies in our space with a very sustainable protected dividend even in this challenging environment. In our balance sheet lending business, we continue to remain very selective, focusing mainly on converting our bridge loans into Agency product, allowing us to recapture a substantial amount of our invested capital and produce significant long-dated income streams. In the first quarter, we had tremendous success in this area with another $1 billion of balance sheet runoff, over $400 million of which was recaptured to new Agency loan originations. As a result, we were able to recoup $200 million of our invested capital and continue to build up our cash position to take advantage of the many opportunities we believe will exist in this downturn to generate outsized returns on our capital. This strategy is a critical part of our business model and is unique to our platform and we are both a top balance sheet lender and operate a very large Agency business. In our GSE/Agency business, we had a strong first quarter originating $1.1 billion of loans capped off by a very strong March with over $530 million in originations. And with the current yield curve and very little activity in the market for balance sheet lending, we are seeing a significant increase in our Agency pipeline, giving us confidence in our ability to continue to produce very strong Agency volumes going forward. Additionally, we have a strategic advantage in that we focus on workforce housing as part of the market and have a large multi-family balance sheet loan book that naturally feeds our Agency business. In fact, we are one of the leading agency lenders in the achievement of affordable housing goals, and as a result, we continue to be viewed very favorably by the agencies. And again, this Agency business offers a premium value as it requires limited capital, generates significant long-dated predictable income streams and produces significant annual cash flow. To this point, our $29 billion fee-based servicing portfolio, which grew 3% in the first quarter, generates approximately $117 million a year in recurring cash flow. We also see a significant increase in earnings on our escrows and cash balances at rates that have risen considerably, which in fact serves as a natural hedge against interest rates. In fact, we are now earning approximately 4% on around $2.8 billion of balances, or roughly $100 million annually, which combined with our servicing income annuity totals over $217 million of annual cash flow or over $1 a share. This is in addition to the strong gain on sale margins we generate from our originations platform. And again, it's something that is completely unique to our platform, providing a significant strategic advantage over our peers. We continue to grow our single-family rental business as we are one of the only remaining lenders in the space, allowing us to produce as much business as we want. We remain committed to the business that offers three turns on our capital through construction, bridge, and permanent lending opportunities, and generate strong levered returns in the short term while producing significant long-term benefits by further diversifying our income streams and allowing us to continue to build our franchise. In summary, we are off to a fantastic start in 2023 with an exceptional first quarter that once again demonstrates our ability to generate strong earnings and dividends in all cycles. We understand very well the challenges that lie ahead in this volatile market and feel that we're very well-positioned and the best positioned company in our space to succeed in this cycle. Our earnings significantly exceed our dividend rate. We invested in the right asset class with very stable liability structures, highlighted by a significant amount of non-recourse, non-mark-to-market CLO debt with pricing that is well below the current market. We're also well capitalized with significant liquidity, which has put us in a unique position to take advantage of the many accretive opportunities that will exist in this environment. And again, with our best-in-class asset managing capabilities and a seasoned executive team, we are very confident that when the smoke clears, we will continue to be the top performing company in our space, significantly outperforming our peers.
Paul Elenio, CFO
Okay. Thank you, Ivan. As Ivan mentioned, we had another exceptional quarter producing distributable earnings of $122 million or $0.62 per share. These results translated into industry high ROEs, once again of approximately 20% for the first quarter, allowing us to increase our dividend to an annual run rate of $1.68 a share, reflecting a dividend to earnings payout ratio of around 68% on those first quarter earnings. Our first quarter results significantly beat our internal projections, largely due to approximately $16 million of income received from equity investments in the first quarter, which included a large equity kicker we had related to a loan payoff and a distribution from our Lexford investment. We also experienced higher gain on sale income from increased loan volume, mainly due to stronger origination in the latter half of the quarter than we anticipated, and we continue to see increased earnings on our floating rate loan book and our cash and escrow balances in the first quarter from higher interest rates. We also recorded an additional $20 million CECL reserves on our balance sheet loan book during the quarter as a result of using more conservative assumptions in our model due to a decline in the macroeconomic outlook for commercial real estate. These reserves are general in nature and do not affect distributable earnings as we have not experienced any realized losses this quarter. Our balance sheet loan book continues to perform well in this market, with no increases in defaults or delinquencies in the first quarter. In our GSE/Agency business, we had a strong first quarter with $1.1 billion in originations and $800 million in loan sales. The loan sale numbers were less than our fourth quarter sales as we mentioned last quarter due to a large portfolio deal that closed in December, which also settled in the same month to help the agencies meet their affordable lending caps. The margin on our first quarter sales was up substantially to 1.72% compared to 1.33% in the fourth quarter, again, mainly due to a large deal that closed in December last year with a reduced margin and from a higher percentage of FHA loan sales in the first quarter that contained much higher margins. We also recorded $18.5 million of mortgage servicing rights income related to $1.5 billion of committed loans in the first quarter, representing an average MSR rate of around 1.23% compared to 1.12% last quarter, mainly due to reduced servicing fees on the large portfolio deal we closed in December. Our fee-based servicing portfolio grew another 3% in the first quarter to approximately $29 billion at March 31st with a weighted average servicing fee of 40 basis points and an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $117 million gross annually. We did see substantially less accelerated runoff in our Agency loan book again in the first quarter due to market conditions, which has resulted in reduced prepayment fees. In the first quarter, we received $2 million in prepayment fees as compared to $6 million last quarter. Given the current rate environment, we're estimating that prepayment fees will continue to run around $2 million a quarter going forward. In our balance sheet lending operation, our $13.6 billion investment portfolio had an all-in yield of 8.83% at March 31st, compared to 8.42% at December 31st, mainly due to increases in LIBOR and SOFR rates during the first quarter. The average balances in our core investments were $14.1 billion this quarter, as compared to $14.8 billion last quarter due to runoff exceeding originations in the first quarter. The average yield in these assets increased to 8.94% from 7.91% last quarter, excluding $8 million in back interest collected on the repayment of a non-performing loan in the fourth quarter. Total debt on our core assets was approximately $12.6 billion at March 31st, with an all-in debt cost of approximately 6.97%, which was up from a debt cost of around 6.5% on December 31st, mainly due to increases in the benchmark index rates. The average balance in our debt facilities was approximately $13 billion for the first quarter compared to $13.7 billion last quarter. The average cost of funds in our debt facilities was 6.69% for the first quarter compared to 5.80% for the fourth quarter, again, primarily due to increases in the benchmark index rates. Our overall net interest spreads in our core assets increased to 2.25% this quarter compared to 2.11% last quarter, excluding $8 million of defaulted interest we collected in the fourth quarter. And our overall spot net interest spreads were 1.86% at March 31st and 1.92% at December 31st. Lastly, we believe it's important to emphasize some of the significant advantages of our business model, which gives us comfort in our ability to continue generate high quality long-dated recurring earnings in the future. As Ivan mentioned earlier, we have several diverse and counter-cyclical income streams that allow us to produce strong earnings in all cycles. The most significant of which is the value of our agency platform, which is capital light and generates very high ROEs through strong gain on sale margins, long-dated service and annuity income, and increased escrow balances that are on significantly more income in today's higher interest rate environment. Additionally, we're multi-family centric and have a substantial amount of non-mark-to-market, non-recourse CLO debt outstanding with pricing that is well below the current market. We're also well capitalized with significant liquidity and have a best-in-class management and asset management and senior management team that have tremendous experience and expertise in operating through multiple cycles. And we believe these features are unique to our platform, giving us confidence in our ability to continue to outperform our peers and deliver high quality and sustainable earnings and dividends in the future. 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
Thank you. We'll take our first question from Steve DeLaney with JMP Securities. Your line is now open.
Steven DeLaney, Analyst
Thanks. Well, good morning and congratulations on another strong quarter to start the year. Big news, I've been in the banking world, of course, and I'm curious given Signature's presence in New York, if they were a material competitor to Arbor in any way, and how does the demise of that bank impact your opportunity set in New York going forward? Thank you.
Ivan Kaufman, CEO
That's a good question, and I think what people are not focusing on. Many, many of these regional banks were strong competitors of ours, and they really took over a large part of the market. In particular, when rates rose, they were well below the market and their model was an interest rate model. They didn't necessarily have their own originations. They were fed by brokers and they built their portfolios based on being the lowest price. And very often as we're seeing now, not just the lowest price, but having assets that are really non-sellable. So, getting rid of a lot of these regional banks who've lent improperly, by being below the market and who were relying on short-term deposits, is something that we believe is very healthy for companies like ours who maintain a huge amount of discipline. And as we stated on our call, consistently, we have a very matched asset liability structure. Anybody can generate loans, right? And they don't match their assets and liabilities correctly. They indeed underprice their loans. Like us, we have a strong origination capability. We are very disciplined in our operations. Removing these lenders, who don't know how to originate and only acquire loans from brokers at the lowest prices, will improve the market for us. It will be evident. Being an agency lender with the capability to underwrite, sell, and securitize loans with Fannie, Freddie, and FHA is an invaluable resource, particularly in times of illiquidity like today.
Steven DeLaney, Analyst
Ivan, do you think that this goes far beyond Signature and that there are broader mini banks playing that game or playing that card and possibly the FDIC is going to come down on them from a regulatory standpoint? So, beyond just New York, are you expecting to see this broadly across the country with respect to the banks that do the broker fed lending model?
Ivan Kaufman, CEO
Yeah. I mean, it's huge. I mean, this is just the tip of the iceberg, but I believe the FDIC will keep these people afloat. It was amazing with First Republic when you saw that the government gave them $90 billion from their treasury to keep them alive. So, anybody who has fixed-rate loans, who originated fixed-rate loans in the threes, and they're sitting with fixed-rate loans in the threes, they're paying on deposits in the fours, they can't raise equity to sell their assets. There's probably a 30% haircut. I would say that if the Fed is going to have to decide who stays and who doesn't stay, and then there are other institutions that are much healthier because they have more floating-rate loan books that have been able to manage their book, but they're under par with losing deposits, right? They are losing deposits and yet they still have to fund a lot of their assets that they put on their books. And they're being grouped in a little bit unfairly. So, I believe to the extent, like PacWest, who has billions in five-year loans in the threes. Anyone can do the math; a five-year loan on a three is worth a fraction, when rates are five and a half with a liquid piece of collateral poorly underwritten. That wipes out their regulatory capital, and you can't raise capital when you're in that situation. When you're losing deposits, you have a run. So I think the Fed has done a reasonable job in providing lines. I would love to see the disclosed amount of the lines that were provided to all these regionals and all these local banks that would tell you the significance of the run on deposits, and how much your Fed is propping these people up. But when your asset values are so significantly less and you're really insolvent on a mark-to-market basis because you went ahead and you originated fixed-rate loans, which are term liability costs, and you have an inverted yield curve, you're in tough shape. I believe this situation will persist. A lot will hinge on the actions of the Fed and whether interest rates rise in the short term. With deposits remaining so high, this issue isn't going away. Additionally, for those who borrowed from the Fed, it's challenging because their earnings are likely negative due to the costs of funding exceeding the value of their assets. This poses a substantial long-term challenge. It feels unfair that we are facing similar issues so soon after the last financial crisis, with the system seemingly failing to learn from past mistakes. If the Fed had not intervened, the outcome would have been even more severe, potentially leading to the collapse of the banking system. I believe we will navigate this period, resulting in some winners and losers, along with possible mergers. Unfortunately, I think the largest banks will grow even bigger, which will significantly impact the competitive environment. However, for lenders like us, we expect to have increased flexibility since we won’t be at a disadvantage competing against government-supported banks that operate inappropriately. We remain optimistic, which will benefit companies like ours.
Steven DeLaney, Analyst
Thank you very much for that. The response was much more significant than I anticipated. I appreciate it. I will skip my other questions since there are other analysts on the line, but I value the discussion.
Ivan Kaufman, CEO
Well, thank you and thanks for your support, Steve. You've been a great friend to the company.
Paul Elenio, CFO
Thanks Steve.
Operator, Operator
We will take our next question from Stephen Laws with Raymond James.
Stephen Laws, Analyst
Hi. Good morning. Surprising on the dividend increase. And I guess along those lines, I don't know how much credit you're getting for it, probably very little, but can you talk about how you think about allocating capital between buying more stock, or something else in your capital stack or new investments? I know attractive opportunities you talked about. I enjoyed the response to Steve's question a second ago. So, maybe how do you think about the trade-off there with your use of cash?
Ivan Kaufman, CEO
So, first of all, we brought back $37 million out of $50 million. When you go into a blackout period, like we are, it's programmatic. So we sort set different ranges. We don't have the ability to have discretion. I would've loved to have bought back more, but the stock never got into the last range that we wanted in order to buy that back. It's funny because my only regret, and I told Paul, we were so quick to do that and didn't do a hundred million in buybacks instead of only 50. So our intentions would be probably to go back to the board and increase that level. And if the market continues to improperly value us, then we certainly will continue to buy stock at these levels, especially when we're out of the blackout period. We have significantly more capital and plan to increase it once things settle down. We will return to the board to discuss raising the buyback. Buying back shares is an excellent way to achieve a return on investment and enhance our book value, and we are comfortable with this strategy at current valuation levels. Although we were a bit frustrated that we couldn't utilize all of our available capital for buybacks, we recognize the need to balance various aspects of our business. While we would prefer to allocate all our capital for buybacks, we must also focus on running and building our franchise. Our goal is to expand our business during these favorable opportunities and establish long-term relationships and recurring revenue streams. When we can get mid to high teens on our long portfolio in investing in garnering clients and also produce multiple turns on our capital by getting long-dated servicing, that's extraordinarily compelling. So we balance all the different things. In addition, as you know, we really can't access capital. It's really to Paul's testament and the company's testament that we did our debt offering last year, even despite the negative environment. We're one of the only firms who not only access the debt markets, but do it in a very efficient and appropriate way. So we're sitting on a great deal of cash. We're seeing great opportunities. As I mentioned on the call, our single-family business, which we've been talking about for years, is an amazing business. And it's funny, we competed against a lot of regional banks, and the regional banks were crazily priced, but we still garnered a decent amount. So, now we're extraordinarily well-positioned for that business. It's a great business and we are a leader in it. We're using our capital extraordinarily well. We're continuing to build that business. The bridge lending business, we don’t feel is a good time right now because where SOFR is to be lending at 9%, roughly in that situation, it doesn't make a lot of sense when people are buying five and five and a half assets and have capped costs. So we'll look at the yield curve, we'll look at the opportunities, we'll look at where cap rates are and we'll look to see how we can build our franchise long-term. But yes, we would like to go to the board and increase that buyback. We think if the market continues to be irrational. And clearly as we all can see that we're totally improperly valued and that's okay. That's just an opportunity for all of us as long as we're patient.
Stephen Laws, Analyst
I appreciate those comments. I have a quick follow-up. Paul, you mentioned in your prepared remarks that gain on sale margins improved in the latter part of the quarter. Can you discuss whether those improvements are still evident, having been adjusted from earlier this year through the second quarter to date?
Paul Elenio, CFO
I think it's a great question, Steve. Thanks. We did see an increase in our gain on sale margins. Some of that, as mentioned in my prepared remarks, was due to large portfolio deals we completed at the end of the last quarter that had a reduced margin. We had more FHA sales this quarter, which is usually a three to four-point business as you know. However, we are noticing a trend of strong margins on our April product. I think we closed $425 million of agency product in April, so off to a really good second quarter start. As we talked about, our pipeline is building as the agencies are kind of the only game in town right now, with the yield curve where it is and the balance sheet business not really attractive for everyone and a lot of players not in the market today, but we are seeing really solid margins. I always guide to like a 10135 to a 10150-ish range. But I think we'll be in that range, maybe towards the middle to the top of that range, but margins are holding strong.
Operator, Operator
We will take our next question from Crispin Love with Piper Sandler. Your line is now open.
Crispin Love, Analyst
Thanks. Good morning, Ivan and Paul. My first one's on credit. I'm just curious if you could share some of the underlying credit stats for the CLOs' structured loan book and the Fannie loss sharing, just curious how they're faring and your expectations over the year to intermediate term.
Paul Elenio, CFO
Yeah. Ivan, do you want me to take some of that?
Ivan Kaufman, CEO
Yeah. Go ahead.
Paul Elenio, CFO
Sure. As you saw Crispin, we were certainly more conservative this quarter with our CECL reserves. As you know, those CECL reserves don't really translate always into realized losses. So, we've got some specific reserves against some balance sheet assets that we've had for a while, some legacy assets. We've not seen a significant amount of stress; a little bit of stress. We've had a little bit of a migration of some loans from pass watch to special mention. But again, special mention is not a category that means to us that we're going to have a loss or that a default is imminent. It's just changes in where values have gone or interest rates have gone. So, overall, I think the balance sheet book is holding up well in this market. We do expect the market to be challenging over the next few quarters. As Ivan said, we think the bottom's near, but it'll take time to rebound. But it's been performing well. We've put some CECL reserves away, but we're not seeing really a lot of stress on the balance sheet side and on the CLO side as well. On the agency side, we do have, as you know, a loss share component with Fannie Mae. We saw a little bit of a tick-up in delinquencies this quarter, but not significant. And things move in and out all the time. We've put a couple of million more in specific reserves on our books this quarter related to our agency book. But for the most part, things are pretty stable. We haven't seen a tremendous move negatively on the credit of either side of our portfolio, both the balance sheet or the agency.
Ivan Kaufman, CEO
Yeah. I would say that's accurate. The one thing that we have seen, which is worth noting because I think it's transitory and work itself out. We're still seeing, in some jurisdictions, people having a tough time evicting their tenants really. You would think with COVID, it's all behind us, it's not. So, you're seeing economic occupancy a lot lower, which is putting a lot of stress on our borrowers, who don’t have the income to support their debt service and they’re coming out of pocket, which they should and they will. That’s causing some of our 30 and 60-day delinquencies on the agency sites to pop up. We think that we're 50%, 60% through this issue and we're in our back end of that as the court systems loosen up. But there are some jurisdictions that are just not moving quickly, and it's not fair to the landlords to allow tenants to stay in their property for years and not pay rent and not be able to evict them. So that has caused a little bit of a tick-up in delinquencies. Our borrowers are holding on; they’re committed to their assets. They’re struggling, but they’re getting there. But I think the worst is over on that. We will turn the corner on those kinds of things, but people don’t really talk about that. But we see it front and center. We see it in certain specific geographic locations, and we see it. If a borrower has five or six or eight or 10 properties across his portfolio, he's dealing with that. That'll work itself out over time because the value is still in the real estate. The operators are good real estate; they've dipped into good deals, and they're looking to solve those problems. They're solvable over time, and we’re working with a lot of these borrowers to get through some of those issues.
Crispin Love, Analyst
Great. I appreciate all the detail there. And then, just looking at the income statement for the quarter, I know you got the income from equity affiliates elevated in the quarter at $14 million. And I think, Paul, I think you alluded to some of this in your prepared remarks, but can you just expand on that a little bit deeper? What were some of the key drivers that drove that increase in the quarter?
Paul Elenio, CFO
Sure. So as Crispin, as I mentioned in my prepared remarks, we had two components that drove that line item to be higher than it has been in the past. One of them was we got a distribution from our Lexford investment, and that happens, we'll get that sometimes quarterly, sometimes biannually. It depends on the performance of that investment. And that's our share of that. And that was about just under $5 million. But the other $11 million was an equity kicker that we had on a preferred equity loan that we had built into the document many, many years ago. I don't know that we have any of those left, but that's a legacy type structure we had when we were doing preferred equity years ago, and we had an equity kicker in there that if certain things happened or transpired and there was a certain amount of proceeds from a sale, we would get a piece of that. To our surprise, the borrower did a great job of selling his asset for a significant dollar amount, significantly more than maybe we had expected. And that equity kicker became viable. And so, we ended up with 22% of the excess proceeds from the sale after certain waterfalls happened in certain debt repayments. So we got paid back our preferred equity, all our interest, and we ended up with an $11 million equity kicker. I can't tell you that we have many or any of those left; they're left over from the days when they were enhancing your yield on a potentially enhancing your IRR on a preferred equity instrument. But that's just an example of the things we've done over the years and the value we create. And that's something that came in real positive in the first quarter.
Ivan Kaufman, CEO
Yeah. Well, Paul, what's worth noting on that is really a form of interest because when we do a preferred equity loan, we take less of a coupon or return and the trade-off for a little bit of a high return down the road. So, what you're seeing with some of these equity ERs, it's really just an accumulation of interest that we've foregone front, which we really believe it would be better down the road. So, while it may be a little bulky, it really is representation of a level of interest that we foregone for that number of years. And we do that from time to time where we believe that the opportunities will be greater on a return basis to take a kicker than current interest. And it's also more conservative. It's almost like a pay accrue. But sometimes we just say, listen, we're just happy we're getting an equity kicker down the road and diversifying our income streams, which is the benefit that we did here. And it does happen from time to time with the firm, and we've always had a history of doing these things.
Crispin Love, Analyst
Thanks, Ivan and Paul. I appreciate you both taking my questions.
Operator, Operator
We will take our next question from Rick Shane with JPMorgan.
Rick Shane, Analyst
Thanks guys for taking my questions. First of all, a topic we've been raising throughout earnings season is related to repurchases. And so, I want to acknowledge the commitment to buying back shares in the context of what's going on in the market. That said, we've had a number of questions, and I think it's a very fair point related to interest rate caps and extensions on loans. If you guys could just walk through a little bit given the impact of higher rates on borrowers, the magnitude or the coverage your borrowers have in terms of interest rate caps, and if you could provide some information in terms of the tenor of those caps versus the tenor of the fully extended structured portfolio.
Ivan Kaufman, CEO
Sure. First of all, everything's on a case-by-case basis. And what's unique about Arbor relative to called lenders that we compete with consistently is we have a lot of structure on our loans, and it's just not making the real estate loan with no responsibility to the borrower. So, in many cases, there's an obligation by the borrower to buy interest rate caps to fund the interest and do things of that nature. It's been actually a great opportunity for us because six months ago, nine months ago, with the inverted deal curve and the negative carry, we've had a lot of people say, okay, it doesn't make sense to pay 9% or 8% to buy a cap and have negative carry. And they've elected to actually pay down their loans and convert themselves into agency loans, which in today's market, you can borrow between four and three quarters in 5.5%. And that's been very, very effective for us. We do monitor very closely any caps that are expiring, and we work with the borrowers to either put new caps on or to figure out alternatives in order to make sure that they're in a good position. So, there's no one specific answer to that because it's case by case. We manage it very intensively. I actually am very involved in that as well. So we deal with that. Many of our borrowers have multiple loans with us, and it's carefully crafted for each situation. So far, we've been extraordinarily effective month by month, quarter by quarter, in managing all these upcoming issues and getting them repositioned appropriately. So, that's the general answer. It's hard to get specific in our book and we don't disclose all the specifics, but so far, we've done an outstanding job. We're batting a thousand percent even in the most difficult market. But I think my outlook is worth talking about a little bit because so far we've been spot on in terms of where the market is. When we believe we're already halfway through this debacle. We believe it's been already at least nine months to 11 months of real difficult times, rising short-term interest rates, extraordinarily high borrowing costs, which is fueled by an inverted yield curve. When SOFR goes up from 25 basis points to 5.25%, that's extraordinary, right? We believe that the real work here is getting through the next nine months. We've gotten through the first nine months extraordinarily successfully. You have nine more months to go. And it's our thought process that after that period of time, short-term rates will come down. But with this inverted yield curve, every time we see a drop in the tenure, we see a tremendous number of our borrowers say, okay, let's lock in, you know, every time the tenure hits 330, 310, 325, and it drops a little bit. People are just saying, okay, let's convert from a variable rate low with negative carry, and let's put a little bit more equity into a capital call, recapitalize the transaction and convert it to a fixed rate.
Rick Shane, Analyst
Got it. Look, I agree with you. It's hard to look at a building, look at the land, see the lights on, see the people going in and out, and view it as changing in value based on numbers on a spreadsheet.
Ivan Kaufman, CEO
We are in an adjustment period. It's slow. Cap rates have gone up considerably to high threes, low fours, and now you're in four and three quarter to 5.5% range. And that's been a significant movement. And depending on interest rates, trading would dictate whether it is movement. But obviously even at these levels as you've been reading, there are very few sales right now. It's still hard to buy a five cap asset when you got to put on 5.5% financing, right? That's still negative leverage and you can't borrow short-term. So either cap rates are going to continue to move or interest rates are going to change, but clearly there's a little bit of a lock on sales right now. And of course, you have the backdrop. As we all know, the banks have a lot of assets which the FDIC has to spill out and how that's going to affect what's going to be done with the invested capital in the market.
Rick Shane, Analyst
Got it. Thank you very much.
Paul Elenio, CFO
Thanks, Rick.
Operator, Operator
We will take our next question from Jason Sabshon with KBW. Your line is open.
Jason Sabshon, Analyst
Thank you for taking my question. I'm on for Jade. So, given all the recent stress that banks have come on repo and do you expect margin calls in some cases?
Ivan Kaufman, CEO
Listen, there's always an issue and concern regarding margin calls. We manage that very well. We have great counterparties with the big history with them. And knock on wood, so far we've been in really good shape. We have a lot of our assets in CLOs. We constantly have capability in those CLOs, which are non-mark-to-market. So, we have a smaller fraction of our book in those lines. We have diversified lines with good partners. I forgot how many lines we have. We probably have 10 different lines from 10 different institutions. So, it's something we always plan for, something we always keep a level of capital available for. But knock on wood, it's been fairly good and nothing material. We are in communication consistently. So we don't see any major concerns. But there's always something that is part of our liquidity and capital plan to handle those perspective margin calls.
Jason Sabshon, Analyst
One more. So for that vintage of multi-family originations, late 2021, are you guys thinking about potential up from that particular vintage?
Ivan Kaufman, CEO
Yeah. I think that it's loan specific, case specific, and sponsor specific. There are many situations where on the flip side, people bought assets, and they didn't execute their plan, and they didn’t get the increase in the rents that they wanted to. On the other side, there are many sponsors who executed their plans very well and did an extraordinary job. So, we look at the entire portfolio very, very carefully. And we do have a good size portfolio; we manage it very carefully. And we are front and center. We go quarter to quarter. We have an outlook for everything in the next 12 months, and we're managing extraordinarily well. Certainly, the lowest cap rates were in that vintage. We did back off the market probably six months earlier than everybody else as we felt the market was getting irrational. When the market was really getting irrational, which is where we don't really deviate, is unstructured our loans. People are lending without structure. So if you're just looking at the real estate, where a lot of these institutions have problems, if the real estate has gone down and the borrowers have no level of recourse or responsibility, those are the greatest risks. And that's not something that we really changed our standards on. We're known for having proper structure. We're known for having loans that if the real estate itself has some issues that we're not just dependent on the real estate. So, it puts us in a different set of circumstances than most of our peers.
Operator, Operator
We will take our next question from Lee Cooperman with Omega Family Office. Your line is now open.
Lee Cooperman, Analyst
Yeah. Hi, good morning. First, I'd like to just congratulate you. I've been involved with the company for many, many years and I think you have a well-deserved shout out for how you position the company through this whole period. And I know that a year ago you were very cautious, a little ahead of your time, but you turned out to be a hundred percent right and I congratulate you. I also want to add, I've been doing this for about 60 years and I've never seen a situation where a short report came out where I couldn't find a phone number of the firm, no internet address, and no name of the firm. So this guy is an idiot and the SEC should be looking into him. I don’t know if it's him or her, but it's totally bogus. I think they talked about a large mobile home portfolio of loans that bother them. And if I'm correct, you don't have a dollar loan from mobile homes.
Ivan Kaufman, CEO
So this is bogus and crap like this should not be allowed to take place. I'm glad to see you repurchasing stock, given your track record, you're smarter than me. I'm just curious, what do you think we're worth? I look at our payout ratio. I look at our return on equity and it seems to me that if our stock yielded at 8% or 9%, it would not be unreasonable. That would put it at $20. So buying back stock at these prices seems very reasonable and very intelligent. Do you have a view of value that's motivating your decision to buy back stock? We would buy back significantly more stock, but we need to manage our capital carefully and invest it wisely. As I mentioned, we are likely to approach the board to increase our buyback program. If the market continues to fluctuate as it is now, we will allocate some of our capital for stock buybacks while also focusing on expanding our business. Lee, we've known each other for 30 years, and you were an investor in one of my early public companies back in 1992. You've been a dedicated friend to the company, sharing valuable insights, especially regarding our buyback strategy.
Paul Elenio, CFO
So in terms of valuation, listen, we've grown our book; we continue to grow our book. It's amazing to see our book grow 45% for years. We've increased our dividend now 11 times. It's really 12. We missed last quarter, but I was very conservative, so this was a little bit of a catch-up. Our payout ratio is like 70%, extraordinarily low, so there's room there if we want. But I look at things in the long run, for me, obviously I'm the largest shareholder in the company and these moves don't even phase me. They're just great opportunities to create value. And if you take our dividend rate and you take what we typically trade in terms of a dividend to price, and you apply a conservative number like an eight, we've traded between seven and eight. Just take eight, at a dividend yield that the market usually pays for in a stable market. Take our dividend, you guys can do the math. I mean, Paul, what's the math on that?
Ivan Kaufman, CEO
It's a $21 price. That math. And I think, Ivan, what I would add to that is the piece of this is we have a very large capital light agency business and lots of companies that are not in our space that have those types of businesses trade on a PE, don't trade on a price to book or a dividend yield. We understand we're in the mortgage REIT space and you've got some level that you have to trade with. But clearly, we think that the value of that platform is much, much in excess of just trading on a price to book. But even if you just did a price to book at a seven, at an 8% dividend yield, that puts us direct at $21.
Lee Cooperman, Analyst
Anyway, I give you a well-deserved shoutout and I'm comfortable being in your hands and it looks very undervalued to me. But thank you very much. Appreciate your response on your performance.
Ivan Kaufman, CEO
Thank you, Lee.
Paul Elenio, CFO
Thanks, Lee.
Operator, Operator
We have reached our allotted time for questions. I will now turn the program back over to Ivan for any additional or closing remarks.
Ivan Kaufman, CEO
Okay. Well, thank you everybody for your time. We're very pleased and patient to wait for this call to really address some of the negative sentiment that existed in the market and at dislocation. We hope by the information that was delivered by the call, most importantly, our performance, it gets our shareholders in a comfortable position. Yes, we are sound, we are fundamental. We have great management and a great track record. And I look forward to your continued participation and trust in the company and management. So, everybody have a great day and a great weekend. And thank you once again.
Operator, Operator
This does conclude today's program. Thank you for your participation. You may disconnect at any time.