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Arbor Realty (ABR) to Report Q1 Earnings: What's in Store?

Zacks Equity Research
·5 min read

Arbor Realty Trust ABR is scheduled to report first-quarter 2020 results on May 8, before market open. The company’s results will likely reflect a year-over-year increase in interest income. Adjusted funds from operations (AFFO) per share are expected to have declined.

In the last reported quarter, this New York-headquartered real estate investment trust (REIT), which primarily focuses on originating and servicing loans for multi-family, seniors housing, healthcare and other commercial real estate assets, posted AFFO per share of 34 cents, surpassing the Zacks Consensus Estimate by 9.7%.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average beat being 14.71%. The graph below depicts this surprise history:

Arbor Realty Trust Price and EPS Surprise


Arbor Realty Trust Price and EPS Surprise
Arbor Realty Trust Price and EPS Surprise

Arbor Realty Trust price-eps-surprise | Arbor Realty Trust Quote

Factors at Play

As the economic impacts of the coronavirus pandemic became clear, cash preservations and concerns over the failure of meeting mortgage payments resulted in a risk-off approach by investors, who started indiscriminately shedding risky assets. In light of the events, valuations of mortgage backed securities (MBS) declined significantly. This was followed by dislocations and liquidity crisis in the mortgage and commercial real estate (“CRE”) markets.

Amid this, Arbor Realty has been actively providing liquidity to the multifamily market through its sizable agency lending segment. During the January-March period, the company originated $1.1 billion in agency loans, up from $850 million originated in the prior-year quarter. It also expanded its agency pipeline to $1.6 billion compared with $1.2 billion in the year-ago quarter.

Further, with a decline in LIBOR rates during the first quarter, LIBOR floors on Arbor Realty’s loans are expected to have benefitted the company. Financing costs are expected to have declined more than asset yields, resulting in attractive portfolio returns for the company.

However, lower yields on new investments due to lower LIBOR rates are expected to have been a headwind for its bottom-line performance.

Moreover, as the Fannie Mae servicer, the company has likely faced headwinds on the servicing advances front. Given the mortgage forbearance allowance options in the CARES Act, mortgage servicers are under compulsion to pay advances to cover delinquent mortgage payments for a period of up to four months. Hence, with a $20-billion agency servicing portfolio, Arbor Realty is expected to have faced material servicing advance obligations, with an expected increase in delinquencies.

The consensus mark for first-quarter 2020 income from mortgage servicing rights and net servicing revenues is pinned at $22.80 million and $14.20 million, respectively, and indicates marginal sequential declines.

Additionally, amid travel disruptions and social distancing measures, the hospitality and retail sectors are expected to have been severely impacted. The company has little exposure to the sectors through loans backed by hotel and retail assets. Nonetheless, any loan defaults or non-accruals are expected to have impacted its earnings.

The Zacks Consensus Estimate for the company’s quarterly revenues is pegged at $78.7 million, suggesting an increase of 10.4% on a year-over-year basis. Also, the consensus mark for the first-quarter AFFO moved up marginally to 32 cents per share over the past month. However, the figure suggests a decline of 3% year over year.

Here is what our quantitative model predicts:

Our proven model conclusively predicts a positive surprise in terms of AFFO per share for Arbor Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Arbor Realty currently carries a Zacks Rank #3 and has an Earnings ESP of +1.59%.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these too have the right combination of elements to report a positive surprise this quarter:

Hannon Armstrong Sustainable Infrastructure Capital, Inc. HASI, scheduled to release earnings on May 7, has an Earnings ESP of +5.52% and a Zacks Rank of 3 at present.

VEREIT, Inc. VER, set to report quarterly numbers on May 20, currently has an Earnings ESP of +5.15% and a Zacks Rank of 3.

Americold Realty Trust COLD, expected to release earnings results on May 7, currently has an Earnings ESP of +9.74% and a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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