Arbor Realty Trust : Q2 2020 August Investor Presentation 3.8 MB

ARBOR REALTY TRUST

INVESTOR PRESENTATION

Second Quarter Ended June 30, 2020

CONFIDENTIAL

August 2020

Forward-Looking Statements

Certain items in this presentation may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including information about possible, anticipated or assumed future results of our business, our financial condition, liquidity, results of operations, plans and objectives. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Arbor can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Arbor's expectations include, but are not limited to, changes in economic conditions generally, and the real estate markets specifically, in particular, due to the uncertainties created by the COVID-19 pandemic, continued ability to source new investments, changes in interest rates and/or credit spreads, and other risks detailed in Arbor's Annual Report on Form 10-K for the year ended December 31, 2019 and its other reports filed with the SEC. Such forward-looking statements speak only as of the date of this presentation. Arbor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Arbor's expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based.

This presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not as a substitute for, or superior, to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalent. For example, other companies may calculate such non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of these non-GAAP financial measures as tools for comparison. Additionally, as required by Regulation G, a reconciliation of core earnings (introduced in Q1 2020), to net income, the most directly comparable GAAP measure, is available in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. Prior period core earnings amounts included on page 11 have been conformed to reflect this change.

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Arbor Realty Trust - Valued Franchise

• Arbor Realty Trust is an internally managed REIT with a versatile multifamily-centric operating platform and a unique business model, consisting of three primary business platforms:

• Balance sheet loan origination
• GSE/Agency loan origination
• Servicing

• Complementary operating platforms with diversified and recurring income streams with a proven track record for growth:
  n Capital light GSE/Agency business generating significant earnings and cash flows
  n Primary focus on small balance loans in the highly attractive and stable multifamily sector
  n Industry leading ROE's and annualized shareholder returns

• 9 consecutive years of consistent dividend growth
• Strong liquidity position of ~$450M at July 31, 2020
• Prudent leverage and balance sheet strategy with stable liability

structures that are long dated, non-recourse and non-mark-to-market

• Led by a cycle tested senior management team with 30+ years of industry experience and ~20% ownership

~$21.6B

Servicing

Portfolio1

527

Employees1

~$5.0B

Investment Portfolio1

~54%

Annual Stockholder

Return in 2019

			3
1. As of June 30, 2020.

Arbor's Unique Business Model Provides Substantial Competitive Advantages

Drives GSE/Agency Business

On-Balance-	Agency
Origination /
Sheet Lender	Servicing
	Platforms
	Structured Loan Opportunities

ü Strong risk-adjusted returns	ü
ü Drives GSE/Agency pipeline once loans are eligible	ü
ü Match-funded with CLOs that are long dated, non-	ü
recourse and non-mark-to-market

High ROE/capital-light

Long-dated servicing fees

High barriers to entry

Combined Benefits

þ

þ

One stop shop for multifamily borrowers offering flexible lending solutions with enhanced certainty and speed of execution

Safety and growth of dividend combining benefits from both mortgage REIT and GSE/Agency platform

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Leading Nationwide Origination and Servicing Platform

• $40B of GSE/Agency originations since inception in 1995 n Highly scalable and difficult to replicate platform
  n Focus on small balance loans ($1M-$8M) with average size of ~$6M
  n Industry leading performance with nominal delinquencies and forbearances to date

• $21.6B servicing portfolio, 100% focused on multifamily n Generates significant prepayment protection income
  stream with a 9.1 year weighted average remaining life n $1B fee-earning escrow balances
  n ~$345M estimated fair market value of MSR1

Total Agency Originations ($ in B)

Fannie Mae Freddie Mac FHA Conduit Private Label

Agency Servicing Portfolio ($ in B)

Fannie Mae Freddie Mac FHA Private Label	$21.6

		CAGR:	12%
		$5.1	$5.02
		$4.5	$0.2	$4.8
			$0.4
		$0.2
	$3.8	$1.6	$0.2
	$1.3		$0.7
$3.1	$1.0
$0.3

16% CAGR:

$16.2 $0.5

$13.6 $3.2

$0.4

$0.7

$20.1 $0.6

$18.6	$0.7
$0.6	$4.6
	$4.5
$4.4

$0.9				$2.5
			$0.3
$2.7	$2.9	$3.3	$3.3	$0.3
$1.9				$1.7

$11.0	$2.0
				$15.7
$0.5				$14.9
$0.9			$13.6
	$12.5
	$11.2
$9.6

2015

2016

2017

2018

2019

1H20

2015

2016

2017

2018

2019

1H20

1. Mortgage servicing rights valued as of 6/30/20.

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2. Annualized based on actual originations of $2.5B for the first half of 2020.

Balance Sheet Loan Portfolio Composition

Portfolio Overview

Total Portfolio	$5.0B
As of:	6/30/2020
† Average Loan Size	$16.9M
† W/A Loan-to-Value	78%

† Allowance for Credit Losses (CECL)	~3%
† W/A Months to Maturity1	20.2

Geographical Location

	GA	FL	IL 6%
TX	9%	6%
12%			PA 5%
NY			AL 5%
16%

NC 5%

Other2CA 5% 26%

CT 5%

Other 2%

Pref Eq 4%

Mezz 3%

Loan Type

Asset Class

Multifamily

80%

Bridge

91%

Student Housing 3%

Land 5%

Healthcare 4%

Office 3%

Hotel 2%

Retail 1%

Other 2%

1. Maturity without extension options.

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2. Other includes 11% and 10% for the South and Midwest regions, respectively. No other individual state represented 4% or more of the total.

Significant Growth in our Diversified, Long-Dated Income Streams 1

Significant Growth in our Diversified, Long-

Considerable growth in our annualized run rate income streams providing a very strong baseline of

predictableDatedand stableIncomecore earningsStreams 1

Net Interest Income

$161M 2

+48%

$109M

Servicing Revenue

+12%	$95M

$85

Escrow Revenue

$18M

$6M

Residential JV Income

$24M

+581%

$3M

7/1/2019

7/1/2020

7/1/2019

7/1/2020

7/1/2019

7/1/2020

1H19 1H20

Based on:

7/1/19

7/1/20

Based on: 7/1/19

7/1/20

Based on: 7/1/19

7/1/20

Based on:

7/1/19

7/1/20

Escrow

Asset Bal.

$3.9B

$5.0B

Servicing

$19.5B

$21.6B

$884M

$1.02B

Ownership %

16.3%

16.3%

Asset Rate

3

7.34%

6.10%

Portfolio

Balance

Servicing

Escrow

0.436%

0.441%

2.07%

0.60%

Profits Interest

19.0%

15.0%

Debt Bal.

$3.6B

$4.5B

Rate

Rate

Debt Rate

4.96%

3.14%

1. Based on June 30, 2019 and 2020 portfolio, debt and escrow balances, which may not be indicative of actual results.

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1. Structured only; does not include interest income from Agency loans held for sale.
2. Asset and debt rates reflect "all in" amounts, which include certain fees and costs.

Significant Growth Opportunities

GSE/Agency

Business

Structured

Loan

Business

Corporate

Growth

Initiatives

• We believe that the GSE/Agency-backed loans segment will continue to be a significant and core portion of the overall mortgage loans market and we expect to have a strong second half of 2020 based on our robust pipeline
  n Majority of ABR's GSE/Agency volume is in small balance, affordable housing multifamily loans
• Strong footprint and demonstrated ability to grow market share in stable GSE/Agency segment
• We expect strong performance in our loan business driven by our proprietary relationships and our expertise in structured loans

• We experienced 16% growth in our loan book in the first half of 2020, 30% growth in 2019, and 24% growth in 2018

• Arbor Private Label loan program further diversifies our lending platforms, allowing us to capitalize on inefficiencies in the GSE market and serving as a mitigant against any future GSE changes

• Arbor Private Label is another complimentary loan product to our existing line of agency loan products which provides our clients with added flexibility and additional options

• Proprietary single-familyresidential portfolio platform, providing additional bridge and permanent lending products, further diversifying our income streams and lending platforms

• This platform provides for significant opportunity in one of the fastest-growing asset classes in a market that is as big as multifamily

• Investment in residential banking joint venture provides additional income diversity which acts as a natural hedge against declining interest rates, specifically earnings on our escrow balances

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Substantial Value Play

Significant Growth in our Diversified, Long-
Significant shareholder value opportunity
Dated Income Streams	Dividend Payout Ratio
Dividend Yield1	1

+31%

8.0%

86.3%

10.5%

-8%

79.2%

PRE-COVID

CURRENT

2019

1H20

• Stock price of $15.50 based on pre-COVID dividend yield
  n We believe we should be trading above this value based on our resiliency and strong performance n Our 17% ROE is unmatched in our industry
  n We've had 9 consecutive years of dividend growth
  n Our dividend payout ratio remains an industry low even with our consistent dividend increases

1. Pre-COVID ratio based on 2/10/20 closing price of $15.00. Current ratio based on 8/12/20 closing price of $11.83.	9

Highly Diversified Capital Structure 1

Capital Structure ($ in M)

	CLO IX
	CLO X
$2.5B	CLO XI
CLOs
	CLO XII
	CLO XIII

Warehouse & repo

Senior unsecured notes

Convertible senior notes

Trust preferred (TruPS) Perpetual preferred equity

Common equity

$5,798

356

441

533

534

668

906

671

278

154

89

1,168

n Extensive experience with CRE CLOs n Match-funded with locked-in spreads

n Nonrecourse, 74% to 84% advance rates with long replenishment features n Target range of 60% to 70% of total financing (excluding TruPS)

n 3- to 4-year replacement periods

n 11 separate warehouse and repo facilities ($2.3B committed)

n $275M, 4.50% rate, no significant covenants, matures March 2027 n $110M, 4.75% rate, no significant covenants, matures October 2024 n $125M, 5.625% rate, no significant covenants, matures May 2023 n $90M, 5.75% rate, no significant covenants, matures April 2024

n $71M, 8.00% rate, no significant covenants, matures April 2023

n$264M, 4.75% coupon and $17.80 convert price, matures November 2022 n$14M, 5.25% coupon and $12.41 convert price, matures July 2021

n ~30 year unsecured with no significant covenants - equity-liken ~8.4% rate; is callable

n Book value per common share of $8.81 and adjusted book value of $9.411

1. Based on common equity of $1.17 billion and 132.6M shares outstanding, as of June 30, 2020, consisting of 112.2M common shares and 20.4M operating partnership units;	10
adjusted book value adds back the non-cash general CECL reserves on a tax-effected basis ($80M).

Financial Performance
(Amounts in 000's, except per share amounts)	Year Ended December 31,		Quarter Ended	YTD
	2017	2018	2019	Mar-2020	Jun-2020	Jun-2020
Net interest income	67,189	103,171	132,063	38,544	41,778	80,322
Servicing revenue	92,244	119,214	125,647	31,044	29,048	60,092
Gain on sale, incl. fee based services, net	72,799	70,001	65,652	14,305	26,365	40,670
Structured transactions & equity kickers	4,353	500	3,505	1,120	(494)	626
Residential mortgage banking JV income	(1,804)	696	7,130	2,872	20,903	23,775
Other income	(625)	1,153	356	1,052	706	1,758

Total net revenues		234,156			294,735			334,353					88,937				118,306				207,243
Total operating expenses	142,795														56,062			102,373
			159,323			165,066			46,311
Preferred stock dividends	7,554	7,554	7,554		1,888			1,888			3,776
Core earnings*		$83,807		$127,858		$161,733				$40,738				$60,356				$101,094
Core earnings ROE on common equity			11.6%			14.3%			14.9%				13.6%			20.9%			17.2%
Core earnings per common share	$1.04	$1.37	$1.39		$0.31			$0.46			$0.77
Dividend per common share1		$0.76		$1.04		$1.20			$0.30				$0.31				$0.61
Core EPS in excess of dividends
$0.28	$0.33	$0.19		$0.01			$0.15			$0.16
Stockholders annual return	25%				30%				54%
Stockholders three-year return									33%

1. Does not include a $0.15 special dividend in 2018

Strong core earnings outlook driven by capital light GSE/Agency business, high quality multifamily focused balance sheet portfolio

and investment in residential business, which provides significant core earnings well above our dividend run rate

*Core Earnings is a non-GAAP measure that excludes certain one-time items, as well as certain non-cash items. These adjustments are reflected on the appropriate line items above.	11

APPENDIX

Best-in-Class, Highly Aligned Management Team

✓

Internalized, highly aligned management team with significant ownership

✓

Industry-leading expertise with deep-rooted relationships across

✓

Deep bench of talented employees

✓

Best-in-class underwriting and origination capabilities

commercial real estate space

	n President and Chairman of Arbor Realty Trust	n EVP, Structured Securitization
	n Over 35 years of executive leadership experience in the
	n Significant experience in structured finance and
	commercial real estate sector
	real estate industries
	n Founded Arbor in 1983 and has been CEO and President
	n Joined Arbor in 2004
	of Arbor Commercial Mortgage LLC since 1993
Ivan Kaufman	Gene Kilgore
	n Chief Financial Officer	n EVP, Managing Director of Structured Finance
	and Principal Transactions
	n 30 years of experience in commercial real estate in
	n 30 years of experience in commercial real
	operational and financial capacity
	estate
	n Joined Arbor in 1991 and has been CFO since 2005
	n Joined Arbor in 1999
Paul Elenio
	Fred Weber
	n Chief Operating Officer, Agency Lending	n EVP, Chief Investment Officer, Residential Financing
	n More than 20 years of experience in mortgage
	n Significant experience in the mortgage financing industry
	trading, securitization, banking and servicing
	n More than 30 years tenure with Arbor
	n More than seven years tenure with Arbor

John Caulfield	Steve Katz

Arbor Asset Management

Dedicated asset management platform with strong credit history and extensive experience in mitigating risk and modifying and working out assets through all cycles

• Proactively oversee loans requiring a heightened level of surveillance and attention
• Continual dialogue with investors and borrowers regarding loan level issues, plans for resolution and exit strategies

• Develop and review action plans to address	Loan
Surveillance
watchlist items, highlight drivers of loan rating
migration and corrective action steps

Risk

Management

• Aggressive approach to mitigating risk for loans in monetary default or that require increased attention and focus
• Promptly determine cause of delinquency and whether a workout is feasible
• Continuously service these loans to mitigate risk exposure and realize maximum recoveries

•	Actively manage and maintain the credit	Agency
	quality of the performing loan portfolio	Portfolio
•	Routine contact with borrower, including	Management
	review of financials and property inspections

• Monitor for potential refinancing opportunities
• Perform periodic risk ratings to identify the need for heightened surveillance

Structured	•	Proactive, hands-on approach to the daily
Asset		oversight of all structured loans from
Management		origination to payoff
	• Detailed monitoring of properties to
		ensure compliance with borrower's loan
	•	terms, business plan and stabilization
	Hands-on customer service throughout
		the life loan cycle and through permanent
		financing

Arbor's Background and History

		Arbor National Mortgage (a residential
	1983	mortgage company) is founded by
	Ivan Kaufman. The company
		ultimately grows to greater than 1,200
		employees in eight states
	1992	Arbor National Mortgage goes public
	under the name Arbor National
		Holdings (IPO at $9.00 per share)
	1993	Arbor Commercial Mortgage (ACM) is
	established as the commercial real
	estate finance subsidiary of Arbor
		National Holdings
		Arbor National Holdings is sold to
		Bank of America for $17.50 per share;
	2002-	Ivan Kaufman retains ACM
	ACM obtains Fannie Mae DUS ®
	1995	Seller/Servicer license, one of 25
	granted in the country; becomes FHA
		MAP lender and Ginnie Mae issuer
		Successfully operates a structured
		finance platform as a private company
	2003	ACM's structured business spins off
	into Arbor Realty Trust (ART) through a
		$120M 144A offering
	2004	Arbor Realty Trust (NYSE: ABR) goes
	public completing a $135M IPO

	ACM is rated as an Above Average
-2008	commercial primary and special
servicer by Standard & Poor's and Fitch
ACM becomes a Top Ten Fannie Mae
2005	DUS ® Multifamily Lender
ART successfully accesses the
	nonrecourse securitization market to
	finance its structured finance assets
2011-	ART is the only commercial mortgage
REIT to successfully manage its
2009	securitization vehicles during the
recession without any defaults or losses
	to its investors
	ART is first commercial REIT to access
2012	securitization market post-2008
recession through collateralized loan
	obligations (CLOs) with investment
	replenishment rights
	ACM receives Freddie Mac
	Seller/Servicer designation and
2016	becomes one of three nationwide
lenders to offer the Freddie Mac Small
Balance Loan (SBL) product
-	ACM receives Fannie Mae and Freddie
2013
Mac Seniors Housing licenses

Arbor becomes a Top Fannie Mae Small Loans Lender and the Top Freddie Mac SBL Lender

2016 - 2017

2017 - 2018

2019

2020

Arbor named a Top Fannie Mae DUS® Lender for 11 years in a row, one of only two lenders to achieve this tenure

ART completes the acquisition of ACM's agency lending platform, integrating both the structured and agency business into one public entity and internalizes its management team

Arbor is first Freddie Mac SBL Lender to cross $2B threshold

Arbor is the Top Freddie Mac SBL Lender (2016) and the Top Fannie Mae Small Loans Lender (2017)

Market cap reaches $1.9B

Annual dividend increased to $1.20 Servicing portfolio reaches $20.1B

Launches Arbor Private Label and Single- Family Rental (SFR) loan programs

Top Fannie Mae Small Loans Lender

Annual dividend increased to $1.24 Servicing portfolio reaches $21.6B

Closed first Private Label multifamily mortgage loan securitization totaling $727 million