What's in the Offing for Arbor Realty (ABR) in Q3 Earnings?

Arbor Realty Trust ABR is scheduled to report third-quarter 2020 results on Oct 30, before market open. The company’s results will likely reflect a year-over-year decline in interest income and core earnings per share.

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 core earnings per share of 46 cents, surpassing the Zacks Consensus Estimate of 28 cents.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the average beat being around 20%. 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

Factors at Play

The backdrop of commercial real estate (“CRE”) markets improved in the third quarter, supported by an increase in transaction activity and commercial mortgage backed securities (“CMBS”) issuance. Moreover, continued tightening in credit spreads during the September-end quarter is good news for commercial mREITs. In fact, credit spread tightening is expected to have driven portfolio and book value growth for Arbor Realty in the third quarter.

Despite these, CMBS delinquency rates and special servicing volumes remain high since the onset of the pandemic. Such unfavorable credit indicators created a gloomy environment for commercial mREITs for the third quarter.

Amid the gloomy pandemic-led environment, Arbor Realty is expected to have seen limited opportunities to deploy capital and increase the size of its asset portfolio during the quarter. This is likely to have weighed on its net interest income.

Moreover, while lower interest rates are expected to have boosted the company’s origination volume, it is likely to have hindered net interest income growth. In fact, borrowers are expected to have resorted to refinancing, repaying Arbor Realty’s higher-yielding loans that are likely to have been replaced with lower-yielding ones.

Further, a decline in the average LIBOR rates during the third quarter and a dip in average yield on interest-earning assets in the company’s Structured Business segment are estimated to have affected third-quarter interest income.

Amid this, the Zacks Consensus Estimate for the company’s quarterly interest income is pegged at $78.4 million, suggesting a dip of 2.6% on a year-over-year basis.

The company also owns a hotel and an office property. Amid a sharp decline in group and business travel, operation at its hotel is expected to have been disrupted. The company is likely to have recognized an impairment loss to reflect the same. Moreover, Arbor Realty’s office building remained unoccupied as of the second-quarter end. This is likely to have resulted in rent loss.

These are likely to have hindered bottom-line growth. In fact, while the consensus mark for third-quarter earnings moved up marginally to 35 cents over the past month, it suggests a decline of 2.8% year over year.

Here is what our quantitative model predicts:

Arbor Realty does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: The Earnings ESP for Arbor Realty is 0.00%.

Zacks Rank: American Tower currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

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

Lexington Realty Trust LXP, set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3.

National Storage Affiliates Trust NSA, slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +1.94% and a Zacks Rank of 2 (Buy) at present.

Ventas, Inc. VTR, slated to release third-quarter earnings on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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