Good morning, ladies and gentlemen, and welcome to the Third Quarter 2023 Arbor Realty Trust's Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.

Okay. Thank you, Mike, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended September 30, 2023. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you statements made in this earnings call may be deemed forward-looking statements and 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.

Thank you, Paul, and thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had another outstanding quarter as our diverse business model continues to generate earnings that are well in excess of our dividend. This has allowed us to maintain one of the lowest dividend payout ratios in the industry, which was 78% in the third quarter. Additionally and very significantly despite being in a very challenging environment over the last several quarters, we've managed to maintain our book value while reporting reserves with potential future losses, which clearly differentiates us from every one of our peers. In fact, we are one of the only companies in our space who have experienced significant book value appreciation over the last 3 years with roughly 40% growth from around $9 a share to nearly $13 a share. As we discussed on our last call, we feel we are right in the thick of this dislocation. Operating our business with the expectation that the next 2 or 3 quarters will be the most challenging part of this cycle. We have been laser focused over the last 2 years preparing for this environment. One of our primary focuses has been and continues to be preserving and building up a strong liquidity position. We're very pleased to report that we currently have approximately $1 billion in cash what gives us tremendous amount of flexibility to manage through this downturn and provides us with the unique ability to take advantage of the opportunities that will exist to generate superior returns on our capital. Clearly, given the current interest rate environment, we expect to experience additional stress. We need a tremendous amount of discipline and expertise to successfully navigate this market. And we're very pleased to have…

Thank you, Ivan. As Ivan mentioned, we had another very strong quarter, producing distributable earnings of $112 million or $0.55 per share. These results translated into industry high ROEs again, of approximately 18% for the third quarter, resulting in a dividend to earnings payout ratio of around 78%. Our quarterly results were slightly higher than our internal projections largely due to increased earnings on our cash and escrow balances from higher interest rates, combined with stronger gain on sale income from slightly higher agency sold loan volumes than we anticipated. As Ivan mentioned, we do expect to continue to experience some level of stress as we manage through this very challenging environment. As a result, we recorded an additional $15 million in CECL reserves in our balance sheet loan book during the quarter. Additionally, we did see a slight net increase in delinquencies in the third quarter of approximately $28 million. We experienced $98 million of new delinquent loans and resolved a $70 million delinquent loan from last quarter through a successful restructuring. As Ivan said earlier, we are in the most challenging part of the cycle and new issues arise each day. We are very pleased with the level of success we've had to date and believe we are well positioned to manage through this downturn given our multifamily focused, strong liquidity position and our best-in-class dedicated asset management team with extensive experience in loan workouts and debt restructurings. It's very important to reiterate that despite booking approximately $70 million in CECL reserves across our platform over the last 9 months, we still grew our book value per share almost 2%, to $12.73 a share at 9/30 from $12.53 a share at 12/31/2022. And we are one of the only companies in our space that have seen significant book…

[Operator Instructions]. And we will take our first question from Steve Delaney with JMP Securities.

Congrats on another solid quarter, guys. The number that jumped out in the report to me was the $500 million of cash sitting in the CLOs. My thought there is -- and you did put $240 million to work in new structured loans I noted in the third quarter. So I guess the question is, first, the $240 million, were they done within the CLOs or outside of the CLOs? And what are your thoughts about how can you reduce or do you plan to reduce that $500 million meaningfully over the next couple of quarters?

We've done a really good job in managing our cash balances in our CLOs and keeping them well. What we're seeing is a lot of payoffs coming at the end of the month. So when they come at the end of the month, it takes time to redeploy that money. It used to come more evenly over a period of time. So that's kind of what we're seeing. So there's probably a large number of payoffs. We are constantly looking at our inventory and moving stuff out of our bank lines into it and keeping that cash balance as low as possible, but it's a process, it's not always perfect.

Yes. Steve, it's Paul. Ivan is 100% correct. We did have some late runoff in the third quarter. To answer the rest of your questions of the $240 million we funded during the quarter, $140 million, as we said in our commentary, we're funding of prior commitments on our SFR business. So that all gets funded through our warehouse lines. And that business has been tremendously accretive for us. We're generating almost a 17% levered return on that business for the quarter. Of the other $100 million that was funded, $92 million were bridge loans and $8 million were mezz and PE behind our agency business. So the mezz and PE is obviously not financed and it's 13% yield on your money. And the other $92 million, I think $62 million of it went into one of our CLOs and the other ones on a bank line. So that's kind of the breakout of how we financed our business. But as Ivan said, we've got $6.2 billion of replenishable CLOs at 170 over. We've got a nice amount of cash in those vehicles to reinvest. And as loans run off, it's a process of moving around and being efficient. But we've got a lot of dry powder to be able to execute very well going forward.

Got it. That leads into my follow-up. Ivan, -- which -- in terms of the new loan demand on the structured side, are you seeing long-term Arbor borrowers, people that you guys have had relationships for 10, 20 years, stepping up and looking to take on new projects, new multifamily projects in this environment? Or is it everything you're looking at really just refi-ying existing projects?

We've done some purchase activity, especially on the agency side. And I think that you still don't have the price discovery in the market and the buyers and sellers meeting of the eyes to have active transactions. So I don't think it's a very active part of the market. You are seeing some refis in the market, and you're seeing the existing bridge loss from time to time, get refi, perhaps some cash or restructure deals. But we're - we've been real cautious. We've been spending more of our time on the build to rent, where we feel the opportunities are a little greater. And now as I mentioned, we just launched a construction lending business, which we think is great, all the banks are kind of out of the market. While there's concern about new deliveries, we think our timing is outstanding because the lending we're going to be doing now deliveries are going to be in about 36 to 48 months from now, where we think the absorption here and the lack of opportunities will create a good opportunity and our yields would be outsized, and that's kind of where we're putting the use of our capital.

And we have our next question from Stephen Laws with Raymond James.

Congrats on the solid quarter in a very difficult environment. Ivan, I wanted to start, can we talk about -- you mentioned the next 2 to 3 quarters being most challenging. I know you said something similar to last quarter. When you look at the fourth quarter '21 origination volume, you had a pretty big quarter. Two year loans would be hitting original maturity dates next quarter. So can you talk about how many of those have caps that might expire given this outlook increased since the last quarter, how does that impact your expected stress you think you may see in the next couple of months given where rates are? And maybe at a more detailed level, how many of those borrowers do you think are on track with their business plan? How many need more time versus how many have a real cap rate issue around the rate move?

Yes. Most of our loans are 3-year loans with extensions, it's not 2-year loans. Just a correction on that comment. It's an ongoing process. We don't wait until the expiration of a rate cap or we don't wait for loans. People have come to us, we're very proactive. I think the biggest risks other than the rate cap which is a true risk, and that's just an economic issue because, of course, the new rate cap as a state dollar amount. For us, the real concern is performance and making sure that the assets are being managed. A lot of the bridge assets required execution to get to their business plan. There was a lot of upside in the rents and unit turns and getting them to market. And I think, if anything, is what we see in the industry is the lack of execution, which creates an economic risk for the borrowers and not getting to their numbers. So we're putting a lot of time and attention to managing these assets, staying on top of the bars, working with them to change management companies and recapitalize their deals well ahead of time. So it's an ongoing process. It's not get to the cliff and deal with it then.

Makes sense. I appreciate the correction on the original maturity term. Paul, as a follow-up on the financing side. Couple of lines. I think in the Q, you mentioned that they're currently being discussed for extensions. I mean can you talk about how those conversations from all of counterparties, you expect those lines to be extended with no change in terms? As you think about CLO buyouts, did you buy any loans out? And if so, kind of what is the typical liquidity need to move out of -- loan out of a CLO onto a bank line?

Sure. So we have some data for you, Steve. Thanks for the question. During the quarter, we have about $6.5 billion of committed warehouse lines, about 15 different relationships and $4 billion of that was extended during the quarter. If you go look at our Q, we had some maturities come due. We were very successful in extending pretty much all of them. I think there's one line left that we expect to have done by the end of the month. So no issues there. But the conversations have been pretty similar across the board. We've not seen much of a move, if any, on existing product that's being financed in the vehicle. So we've been able to hold the line and keep that pricing pretty consistent. What we're seeing is more of a conversation about new product and what the pricing would look like on new product. But for the most part, we've done a great job of having very deep relationships with our banks, very long-standing relationships and getting those lines to roll with no significant material changes to the terms that we have outstanding. So that's been really, really helpful. The second part of your question was around -- remind me again, it was...

CLO buy outs and liquidity...

Sure. So as you know, from time to time when loans have issues, we do exercise our right to buy loans out of the vehicles, restructure and we then put them back into another vehicle put them into our warehouse lines. And that's a fluid process that happens each quarter. This quarter, I think we ended up buying $140 million of loans out of our vehicles. But one of those was a loan that I mentioned in my commentary that we restructured a $70 million defaulted loan late last quarter. That was restructured. So that was pulled out, restructured and then financed on one of our warehouse lines. So net, we probably had about, call it, $80 million of buyouts during the quarter. And it changes every quarter. It depends on performance. Last quarter, we had $50 million. So it's just a fluid process from how loans perform and how you operate your vehicles.

And our next question comes from Jay McCanless with Wedbush.

The first question I had, if rates stay at these levels or even higher into '24 and '25, could you talk about what you think could potentially happen with the loan book?

Yes. I mean rates are clearly at a very elevated level, and it's put a lot of stress on people being able to exit into the fixed rate market when rates were in the 3s. It was already stressful and borrowers, and we were encouraging borrowers to convert. The short-term rates have gone up a little bit, but they're maintaining it at these levels. Clearly, it's an elevated stress level. We're thinking we're going to stay at these levels for the next three quarters and are planning accordingly. But make no mistake about it. That's distress in the system. People, when they have their business plan, they exit to a fixed rate, and it was anticipated in their minds the tenure would be around 3, . Now it's getting close to 5 sort of opportunity to exit is much more difficult. So they've got to bring more capital to the table or bring more capital to able to carry their assets. That's as simple as it is, and that's just stressing the .

Are rate caps even available in this market? And if so, what type of cost are people having to incur to extend or create a new rate cap?

Rate caps are always available, at least they have been, they continue to be and costs vary. I think people have to bring roughly 3 points to the table to buy a rate cap in order to bring net debt service down to a level that this would make it a breakeven. So they have to make capital call to figure out ways to bring that capital to the table. So that's the cost to balance their loans. It's roughly 3 points.

Okay. And then if I may, one more. With the new construction lending opportunity you're discussing, are these loans going to be on actual new construction? Or is this -- are you going to be looking at maybe some transitional assets to bring on where banks are walking away from deals? So maybe just kind of what type of product are you envisioning for this new construction lending vehicle?

It's pure ground-up multifamily, primary markets, primary sponsors, where we have the opportunity of construction lending trying to build bridge loan and get the end loan. That's what it is, the banks are out of that market. There are some local and regional banks. The advance rates, which used to be in the 75%, 80% range are in the 50% to 65% range, and the guarantees on the deals are very good. So we think it's a great opportunity, a great market, a great way to play our capital and where the short-term rates are or unlevered returns are very, very good, and our levered returns are outstanding.

Okay. Any just sense around what type of nominal rate for some of these projects right now?

I mean our borrowing rates will be between, I would say, average between 450 and 600 over. That's kind of where the [indiscernible]. So your unlevered returns are 11 -- my estimation 11.5% unlevered without fees and without the benefit of adding multiple products to what we're doing.

[Operator Instructions]. And our next question comes from with Jade Rahmani with KBW.

I was definitely impressed by the very moderate increase in, I would say, the category of substandard and doubtful accounts, a very slight uptick. But overall, I wanted to ask, do you have a sense for what percentage of the balance sheet loans have been modified in recent quarters, problems dealt with? And what percentage in your view is remaining to go through some kind of modification?

I don't have those numbers. I don't have those numbers ahead of me, but I will tell you this has been a process that began 2 years ago. We got out ahead of it. We started managing loans that we thought would be requiring adjustments and changes. It's an ongoing process. We resolved a few. We modified a few. We got a few new ones to come in. I see this trend continuing over the next 3 to 4 quarters in this elevated interest rate environment. So whether it ticks up a little bit, it should tick up a little bit, but it's been pretty consistent.

Yes Jade, it's Paul. I mean, it's been fairly nominal. We've been pleasantly surprised the last few quarters, as Ivan said, we're expecting continued stress. And we think over the next 2 quarters, we'll continue to have those conversations with borrowers, but during the quarter, we only had one material modification, which we disclosed, which was that $70 million loan I mentioned in my commentary. That was a defaulted loan last quarter that we were able to restructure and get to a performing loan. That was the only material modification we had in the quarter. So as a percentage, that's a pretty low percentage. And we've been fairly fortunate that those numbers have been quite low over the last few quarters. Nothing comes to mind that with a significant modification other than that item over the last few quarters, but that obviously could change in the next few quarters.

And cumulatively reviewing CLO surveillance performance, it does seem that the percentage would be in the 15% to 20% range over not just the last 2 quarters, but maybe, say, 18 months. Does that number strike you as too high or reasonable?

I think that number is high. I have to look back. I mean, we did, as I said...

I think what you're referring to is loans that may be more credit risk under the terms of the business of it not loans that are being modified two different categories in two different times.

Yes, there's a difference.

Okay. Turning to cash flow performance. I understand that when we look at the cash flow statement, there's timing of loan originations for Fannie and Freddie and then the loan sales, which take place 30 to 60 days after that. So adjusting for that, were there any items that drove negative working capital? There is a category called other assets and liabilities, that working capital account. I think in the quarter was negative $200 million, which doesn't usually occur. I wanted to see if you could provide any color on that.

Yes. I have to look at what items you're talking about, a lot of things get netted into the cash flow. I'll take a look at the details, Jade, and I can call you after because there's a lot of things netted in there. But the cash flows were, I think, pretty stable compared to last quarter, but I'll get back to you on that item.

Okay. But just overall, your feeling about cash flow performance is that it remains strong and steady. Is that how you would characterize it?

Yes. That's how we look at it. I mean distributable earnings were $0.55. I mean that's the best representation of cash flow, right? It's the item, the metric we use to cover our dividend, right? So we look at it with a tremendous coverage ratio 55% versus 43%, but we've not seen a significant decline in cash flow. Obviously, we have a few more nonperforming loans. So that puts your cash flow a little bit. But again, we're ramping up our SFR business, we're putting out some Mezz and PE. We've not seen a significant decline in that cash flow number yet.

And we have our next question from Rick Shane with JPMorgan.

First, can we talk a little bit about the $70 million restructuring? What is the advance rate that you received on the facilities that you pledged it to? And was any of the mezz that was funded during the quarter associated with that restructuring?

Paul, before you answer that question, I want to give a little perspective on that Paul, because it kind of touches upon some of the questions that were asked, and I think it's a good case study. That was a very, very good asset and a very good market that required a certain execution of business plan. The borrower 100% failed on his execution. 100%. Couldn't execute. Whether it was distracted by other issues. We have no idea. We were able to bring in another operator and within this short period of time, he's already transitioned this asset because he knows the market, knows the asset quality and has done a remarkable job. So that's kind of the overview of that transaction. Great asset, great opportunity, bad management, bad execution, replaced with a good operator and a recapitalization. Paul, you can go now give the specifics.

Yes, sure. So exactly what Ivan said, right? Great asset, just sponsor was not getting this asset to plan like we thought he would, was behind on his payment last quarter had gone delinquent 2 months, and then we have the 3 months this quarter, which is 5 months. We restructured the deal and that we were able to get a payment of 3 months in back interest, so we did get recovery this quarter in interest. We structured a deal in which the property was sold to a third-party borrower, a third party, a new borrower assumed our debt and as part of the assumption of our debt, we modified our loan to a 3-year loan. The first 18 months, the interest rate is 6% fixed, and then after that 18 months, it reverts back to its original plus 340. And as Ivan mentioned, a quality sponsor that has committed $10.5 million to the project, $2.5 million was funded day one as an interest reserve. And the other $8 million is capital improvements that are going to be made into the asset over the next 15 months. And if those are not made or if they've come up short, the borrower needs to post a rental reserve of the lesser $2.5 million and the difference between the $8 million capital improvements in what he spent. And it's also important to note that he's guaranteed those $8 million of capital improvement. So that's a perfect example of what we're capable of. We took a borrower, who wasn't executing as planned. We brought in a new borrower who's committed significant capital to the asset. It's going to improve the asset, get it to stabilize value quicker. Took a slight reduction in interest rates for 18 months, but then it goes back to its original rate, and that's kind of the whole structure.

Got it. And that is Paul now carried apart, did you provide any mezz associated with that?

We did not provide mezz on that loan, and we did not have a reserve on that loan because the loan -- and we like the asset a lot, and we think we're money good. We did end up restructuring that loan, putting into one of our facilities and getting a pretty standard advance rate. But we did not provide mezz against that loan.

That's helpful. Second question, there were $347 million of extensions in the quarter. Just curious if you can just sort of give us -- and I realize it's going to be idiosyncratic over a wide array of loans. But if you can give us some perspective on what extensions look like? What you are able to get in terms of pay downs and what you're requiring in terms of rate caps? And finally, what you're doing with coupons on those?

Sure. So I can give a little color. Ivan, will probably be able to give the rest in the market, but most of all those extensions were as a bright extensions, which is what borrowers have if they're making their payments and they're doing the things they should be doing. They have an as a right extension. So there's not really much we do differently with they're entitled to that extension. They've executed their plan and that extension is part of their terms. I think there was one loan in which the extension was granted and as a concession to grant extension, we ended up having a pay down of the loan of $2 million and increasing the actual interest rate for like a 3- or 6-month extension. But almost all of the extensions we did during the quarter were as of right extensions. Ivan, I don't know if you want to give a little color on that?

Yes. Listen, if it does it right, there's not much to talk about. But if it's not as of right, we usually seek a level of consideration to warrant that extension to put the asset and our loan in a better position. So each one is individually analyzed to see how we can improve our position on a particular asset.

Does as of right require getting a rate cap extension as well?

It depends. If it is -- if that's part of it, then it was right, if it's not, then it's not.

Got it. Okay. And then not to answer Jade's question, but I think it ties into something that we didn't fully understand in terms of the cash flows. There was commentary in the 10-Q related to a $211 million -- $211.7 million related party transaction on servicing, is that...

Yes, I just looked it up and I was going to respond to Jade. So this is timing, and this is what we talked about early in the commentary, Steve Delaney asked the question. We had very, very late run off in the quarter, which sometimes happens, doesn't always happen. When that run-off occurs, it runs off in our servicing shop, which is off balance sheet. And so we have to create a due from related party because that money is moved a day later. So if loans are paying off at the end of the month on 9/30, the money is sitting in our off-balance sheet servicer. But it's removed out of our portfolio, and it's a receivable that comes in the next day. So that cash flow change that you see of $200 million is all to do with the change in the related party line -- to do from related party line, which is totally timing and all that money came in on October 1.

Got it. Okay. And then last question. Stock is now trading pretty much at book value. You guys have issued $185 million this year, repurchased 35 million. What are the parameters as we think about this, what is the premium you should be trading at book to approach the ATM? And what is the discount where you would consider repurchasing? And I'm assuming that at really close to par, you're doing neither.

We can't answer that in a vacuum. There's too many factors. It all depends on our liquidity position. The obligation is we have to fund the opportunities that we have in front of us, where the market dislocation is. So each circumstance presents us a different opportunity. Certainly buying back our stock at the right value is a great opportunity for us. If we have liquidity, it's something that would be extraordinarily attractive. We always feel our best investment is within our own sphere on the other -- on one hand. On the other hand, we always want to grow our franchise and our business. And if it'd be really great lending opportunities through our franchise, we keep our eye on that as well. So it's a balancing act based on a variety of factors.

Got it. Now the balance sheet has continued to shrink this year. I think assets are down about 6%. You've issued equity into that. If the balance sheet continues to run off, would you continue to issue equity? Or is this something that will sort of stall until you have objectives of growing the balance sheet again?

Well, let's keep in mind that we booked a lot of SFR business and that SFR business funds over time. So when we're booking business, we have a capital obligation and we try and match our capital obligations and keep our cash very, very constant in this kind of environment. So we're really sensitized to the opportunities on capital needs and keeping our cash balances at a very heightened level during this economic cycle. So that's one of the things we pay a lot of attention to. Clearly, when our book was high, and we're able to raise capital and then increase the amount of lending we did on the SFR side, we thought that was a really good match to generate 16% and 18% returns. And we'll manage that and monitor that accordingly.

Got it. Okay. That's very helpful. And last question, I promise. There is -- and it ties into what you just said. There is a $56.9 million mezz commitment. I am curious what the CECL reserve levels are for unfunded commitments on mezz?

Yes. It's a model that we run. I don't have that at my fingertips, Rick. I mean the models are run, obviously, subordinated paper gets a higher CECL reserve than obviously, first lien senior bridge stuff. We do have roughly right now, we're sitting with about $73 million in general CECL on our balance sheet. I don't have it in front of me. It may actually be disclosed. I'm not sure, but we can get you that on how much is related to mezz and what's related to unfunded commitments. It's just -- it factors into the model. It certainly factors in at a higher loss level because of the subordinate position to it.

And we have our next question from Crispin Love with Piper Sandler.

Just looking at the nonperformers in the quarter, you added 5 loans there, but only $16 million. Just curious a little bit more detail there. Are those smaller loans? Or was that to resolve in that delinquency you mentioned? And just any additional info in detail on the new nonperformers and credit generally would be helpful.

Sure. So we added actually six new nonperforming loans during the quarter for a total of about $98 million in total UPB. So they range anywhere from $10 million to $30 million of the assets, and then we resolved the $70 million asset that I took Rick through on the change in the terms. So the net change was $28 million during the quarter. The assets are not particularly different than the type of assets we've done. They're all multifamily, all bridge, they're throughout the country and the LTVs on these assets range anywhere from high 60s to 90s and then one we have 100, because we took a reserve against it of $1.5 million. But really nothing different than the type of assets we've had in the past.

Okay. Great. That's helpful. And then just if we're in a higher for longer scenario, which you alluded to, I think, Ivan, you said that at rates to be somewhat stable over 3 quarters. How would you expect that to impact the structured loan book in originations? I think as expected, bridge continues to soften a bit, but you have been seeing some nice solid activity in SFR. So curious on your thoughts on forward originations in this great backdrop in both of those areas.

Listen, if rates drop, our Agency Business will explode as a lot of our balance sheet is really well positioned to be transferred into fixed -- long-term fixed rate. So that's where the opportunities will come in the growth of the Agency Business. With respect to the floating rate business, when there's price capitulation, people want to buy assets that need improvement or short term in nature. You'll see that business pick up. So a drop in rates will create great opportunities. And we don't expect that to happen until perhaps the third quarter or maybe even the fourth.

Okay. And then I guess just following up on that and looking at the Agency Business, 10-year right now, it's about 480. In order for you to kind of see a meaningful pickup in agency originations. Do you think -- how do you think about that when you're looking at 10-year?

It will pick up at each level, 450, you'll see an increase in a quarter, you'll see a bigger increase or you're seeing increase sub-cord or explode. So as the tenure drops, the agency business will ratchet it up and the deeper it goes, the more exponential it will be.

And we now have our next question from Stephen Laws with Raymond James.

I just wanted to ask a quick follow-up. We touched a lot on Arbor specific stuff. But can you maybe give us your views more macro on the fundamental side of multifamily kind of around new supply in the near term, maybe a lack of supply in the medium term, slowing rent growth for near term related to that? And then on the expense side, anything around property taxes or insurance-related costs given the type of multifamily assets you guys play in and the regions you're in?

Listen, I think new construction, the absorption is slower. We all see that. Rent growth has slowed, expenses are a little higher than everybody thought. In your primary markets, you're looking at a flat rent growth to expense. So that's the way we've looked at it for quite some time now. But the markets with new deliveries, Class A, the absorption of concessions are higher than expected. And it's going to take a little bit to absorb. Given the housing market where it is, people aren't really buying houses. So I think that the demand for rentals continue to be fairly strong.

And we have our next question from Jade Rahmani with KBW.

The stock had been up in response to the results, but is now down 2%. Just a big picture question. What do you think is most misunderstood by the market as it relates to whether it be the book value or the credit risk or the earnings outlook?

Listen, we can't speak to that. All we can speak is that the whole sector is down. We've outperformed the sector and in terms of the company's performance. And it's a hard mentality that is a large concern in the sector. The sector is down. We're just going to continue to perform through our thing to outperform our peers. And I think it's patience, and it's hard for me to speak to the investment mentality. We just run our company of consistent performance. And sometimes you get grouped in and sometimes just -- there were just headwinds, a lot of headwinds in the market.

And on the NPL side, maybe this gets to the point. It's $138 million per day, 1% of loans. What do you think the peak number of that will be?

It's not something we forecast. I will talk to -- Paul, do you have any comment on that?

I don't. I mean, as we've said in our commentary, Jade, is new issues arise every day. We knock them down and when we get new ones. I can't tell you where that number goes. I think we've done a great job of managing it to date and putting our efforts where it needs to be, but it's -- I don't have a crystal ball and what happens to the market and where that number goes, but first 2 quarters have been okay.

And on the cash flow number, the cash flow performance number, you talked in response to Rick's question about the other liabilities and the due from related party line item. So that line resolved October 1, average cash flow was very strong in the fourth. Is that how we look at that?

Yes, that's right. It's just timing. We had a bunch of loans pay off late by the end of the month, 9/30, 9/29. Those loans, the cash is not remitted to us until October 1. It takes a day or 2 to get it out of our service shop once they process it. So yes, so that's why that number is down so much in the cash flow. But again, it's timing. That was it was late.

That would imply about $140 million of cash from operations in the quarter. And the dividend costs, $90 million -- sorry, about $95 million, including the preferred. So cash flow is continuing to be in excess of the dividend.

That's correct.

And we have reached out allotted time for our Q&A session today. I will now turn the call back over to Ivan Kaufman for any closing remarks.

Yes, we're done with our questions. Well, we certainly appreciate everyone's support. We think our results have been outstanding and above our peers, and we continue to grind forward, and we continue to have confidence in our ability to manage through the downturn. Hope everybody has a great weekend.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may now disconnect.