Arbor Realty Trust Surpasses Earnings Expectations Despite Troubled Loans, Probe
CEO Ivan Kaufman said short sellers with “baseless claims” preceded the Department of Justice’s probe into the REIT’s lending practices.
By Andrew Coen August 2, 2024 12:34 pm
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Arbor Realty Trust (ABR)’s earnings took a second-quarter negative hit with persistent nonperforming loans, but the real estate investment trust still beat market expectations in the company’s first quarterly results since reports surfaced of a federal investigation into its lending practices.
The REIT reported net income for the quarter ended June 30 of $47.4 million, or 45 cents per diluted common share, compared to $76.2 million, or 41 cents per diluted common share in the year-ago period. The numbers beat analysts’ estimates of 44 cents per share.
Arbor also announced Friday that it had 24 nonperforming loans with an unpaid principal balance of $676.2 million, an increase compared with 21 nonperforming loans with a $468.8 million unpaid principal balance in the first quarter.
Earnings were announced three weeks after a Bloomberg story reported that FBI agents and U.S. District Court officials with the Southern District of New York were investigating the firm over lending practices and disclosures about loan performance.
“We stand by our financials and our disclosures and we have always conducted our business operations and practices in the best interests of our shareholders,” Ivan Kaufman, CEO of Arbor, said on a second-quarter earnings call Friday morning.
Kaufman said the Department of Justice investigation was preceded by repeated “attacks” by short-seller reports with many “baseless” claims. Arbor is currently the most shorted commercial real estate stock as of Friday, according to MarketWatch.
Kaufman said he could not comment specifically on the federal probe, but stressed that the company is well positioned to withstand market challenges with roughly $700 million of liquidity.
“Having this level of liquidity is crucial in this environment as it provides us the flexibility needed to manage through the rest of the downturn and to take advantage of opportunities that will exist in this market to generate superior returns on our capital,” Kaufman said. “We also continue to do an excellent job in deleveraging our balance sheet and reducing our exposure to short-term bank debt.”
Arbor’s 16 nonperforming loans — with a carrying value of $262.7 million — in 2023’s fourth quarter were largely attributed to floating-rate debt on multifamily assets in the Southern U.S. originated prior to the Federal Reserve hiking interest rates in 2022.
Kaufman said Arbor successfully modified $730 million of loans during the second quarter with $23 million of fresh capital injected into the deals from borrowers, which includes cash to purchase new interest rate caps, expand fund reserves and pay down debt. He added that the REIT is also making progress on approximately $1 billion of past-due loans through modifications, foreclosures or bringing in new sponsorship.
Arbor also generated $630 million of loan payoffs during the quarter with $490 million of this debt refinanced into fixed-rate agency deals, according to Kaufrman.
“We feel we have done an excellent job working through our loan book and getting borrowers to recap their deals with fresh equity as well as bringing in quality sponsors to manage underperforming assets and working through our nonperforming loans,” Kaufman said.
On the revenue side, Kaufman said Arbor has made progress with its newly added construction lending business that he expects to initially generate 10 to 12 percent unleveraged returns. He said there are now around $250 million of loans under application for construction loans with an additional $850 million of deals it is screening.
Andrew Coen can be reached at acoen@commercialobserver.com
