(Bloomberg) — Arbor Realty Trust Inc. cautioned shareholders to expect lower earnings and a smaller dividend as the apartment complex lender grapples with delinquencies and higher interest rates.
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The mortgage real estate investment trust’s shares plunged as much as 13.87% to the lowest since February 2024 after the comments on an earnings call.
Arbor makes loans to owners of apartment buildings and packages many of them into commercial real estate collateralized loan obligations, a type of securitization that slices up cash flows into bonds of varying risk and size. After issuing the CLOs, Arbor continues to manage the transactions, which can include modifying loans or buying them out.
Many of Arbor’s loans are floating-rate and thus subject to fluctuations in the cost of borrowing. When rates rose in 2023, many of Arbor’s borrowers were left with heftier interest expense, and some were unable to service the debt.
The firm is taking back properties and is expecting to have $400 million to $500 million of assets classified as real estate-owned, or REO, on its balance sheet over the next several quarters, Chief Executive Officer Ivan Kaufman said on the Friday call. Those assets will take one to two years to “reposition,” he said, adding the performance of these complexes has been “greatly affected by poor management and from being undercapitalized.”
The shares were trading at $12.00 at 4:13 p.m. New York time on Friday.
Arbor reported net income for the year of $223.3 million for 2024, a roughly 33% drop compared to 2023, it said. Arbor also said it had $503.8 million in cash and cash equivalents as of Dec. 31, from about $929 million the year prior.
The overall delinquency rate for the CRE CLO market recently hit a near-record level, according to a note published Feb. 21 by strategists at JPMorgan Chase & Co. The serious delinquency rate for Arbor-issued CLOs jumped from 3.8% in December to 7.8% in January, mostly attributed to Arbor’s two largest CLOs, each of which experienced month-on-month jumps in serious delinquency rates of at least 700 basis points, according to the note.
However, Chief Financial Officer Paul Elenio disputed those figures in a comment to Bloomberg News, saying the delinquency rate across its CLOs was 3.82% in December, 5.57% in January and 4.05% in February, measuring loans that have been delinquent for 60 days or more. Delinquency rates can differ depending on the methodology used.
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