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What's in the Cards for Arbor Realty's (ABR) Q2 Earnings?

Zacks Equity Research

Arbor Realty Trust ABR is scheduled to report second-quarter 2019 results on Aug 2, before the market opens. The company’s results will likely reflect year-over-year growth in its interest income, while funds from operations (FFO) might witness a decline.

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 of 33 cents, surpassing the Zacks Consensus Estimate of 27 cents. The figure also came in higher than the prior-year quarter’s reported tally of 25 cents.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average beat being 12.9%. 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-eps-surprise | Arbor Realty Trust Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

The 30-year mortgage rates declined from 4.08% at the beginning of the second quarter to 3.73% at the end of the quarter, according to figures released by Freddie Mac. This marked the lowest level of the 30-year rate since late 2016. Following suit, the 15-year fixed rates and 5-year fixed rate declined to 3.16% and 3.39%, respectively.

Lower rates boosted issuance and originations during the quarter with issuance of agency mortgage-backed securities (MBSs), surging 43% sequentially. Also, non-agency MBS, backed by seasoned collateral, accounted for 54.3% of new issuance during the June-end quarter. This buoyed aggregate issuance by Fan-nie Mae, Freddie Mac and Ginnie Mae that hit $330.65 billion.

Amid these favorable industry fundamentals, the company is expected to have witnessed impressive levels of origination volume in the quarter under review.

In May, the company closed a secondary public offering of 8,000,000 shares of common stock, raising gross proceeds of approximately $102.2 million. This fresh capital is expected to have been deployed into new investments during the quarter.

Further, in June, the company closed a $650-million commercial real estate mortgage securitization. Specifcially, the company retained subordinate interests in the issuing vehicle worth $117 million and issued an aggregate of $533 million of investment grade-rated notes.

Moreover, the collateral carries an additional capacity of nearly $130 million to acquire additional loans for a period of up to 120 days from the closing date of the securitization.

Additonally, the Zacks Consensus Estimate for the company’s second-quarter interest income is pegged at $73.1 million, indicating around 23.3% year-on-year growth.

Although significant decline in interest rates buoyed originations, it resulted in yield-curve steepening and higher interest-rate volatility. Further, prepayment activity shot up due to lower interest rates. This is likely to have negatively impacted the company’s servicing portfolio.

Hence, there is lack of any solid catalyst prior to the second-quarter earnings release. As such, the Zacks Consensus Estimate of FFO for the to-be-reported quarter remained unchanged at 28 cents, over the past month. Further, this indicates a 9.7% year-over-year decline.

Earnings Whispers

Our proven model does not conclusively show that Arbor Realty is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Arbor Realty’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 2, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

Stocks That Warrant a Look

CyrusOne Inc. CONE, scheduled to release earnings on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Mack-Cali Realty Corporation CLI, slated to report quarterly figures on Aug 7, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Realty Trust Incorporated HR, set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds 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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Arbor Realty Trust (ABR) : Free Stock Analysis Report
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