We have added Arbor Realty Trust, Inc. (NYSE:ABR) to the HDS+ wallet on 01/19/21.
Since then, ABR has generated a total return of 29.33%, consisting of $2.13 in distributions and $2.07 in price gains, compared to 4.91% for the S&P 500:
Despite being in the red so far in 2022, ABR has outperformed the mortgage REIT sector in the past month, quarter, year and year to date.
The ABR has also outperformed the S&P by more than 1000 basis points, 10.08%, so far in 2022, in addition to outperforming the S&P by a wide margin over the past month and quarter.
In terms of price, ABR has lagged the S&P over the past year, but when you add its distributions, ABR has a total return of 13.48%, compared to 4.74% for the S&P 500:
This is no coincidence – ABR also outperformed the NAREIT All REIT Index, the NAREIT Mortgage REIT Index and the Russell 2000 in 2017 – 2021:
ABR is a internally managed major US real estate lender, classified as a mortgage REIT. However, it has a versatile and unique business model. It is a multi-family centric operating platform, consisting of 3 main business platforms: on-balance sheet loan issuance; GSE/Agency loan arrangement; and Mortgage Services, MSR.
It has an investment portfolio of $14 billion and a management portfolio of $27 billion, with a weighted average management fee of 46 basis points and an estimated remaining life of around 8, 5 years. The service portfolio has grown 6% over the past year, is mostly protected against prepayments, and generates approximately $120 million per year in recurring cash flow.
Management has also built a growing single-family rental platform, SFR, with a pipeline of over $1 billion.
ABR’s largest regional exposures for MSRs are in Texas and New York at 12% each, followed by North Carolina at 9%, California at 8%, Georgia, Florida and New Jersey at 6%, and other states comprising 41%:
Management increased the company’s balance sheet loan portfolio by 17% in the first quarter of 2022, to $14.2 billion, on $2.8 billion in new issuance. They also closed ABR’s fourth private label securitization, totaling $490 million in Q1 ’22.
GSE/Agency Business generated $761 million in GSE loans and recorded $1.1 billion in GSE loan sales in the first quarter of 2022.
There is a significant increase in ABR’s origination pipeline, due to the market adjusting to changing rates – April’s origination volume was much stronger, closing at $475m of loans.
Total income increased 12% in Q1 22, while net interest income jumped around 72%. Distributable profit increased by 23.65%, with distributable EPS increasing by 5.8%.
As a result, management was able to make another increase in the dividend per share, to $0.37, 12% higher than the Q1 21 dividend of $0.33.
The first quarter of 2022 followed the strong growth pattern of 2021, although at a generally lower pace. Core net income was $79.93 million, down just 1.5% from $81.11 million in Q1 ’21. However, net income available to common shareholders was $64.06 million, or 7.8% versus $69.48 million, due to approximately $7.2 million more in preferred dividends.
ABR issued 7.5 million common shares in a public offering in the first quarter of 2022, including the exercise by the underwriters of their over-allotment option, receiving net proceeds of $123.7 million .
Even with the strong 18% growth in the number of shares in the first quarter of 2022, distributable EPS still increased by 5.77%. Similarly, in 2021, Distributable EPS increased by almost 15%, despite a 16.5% growth in the number of shares:
Management again increased ABR’s quarterly dividend to $0.38, its 8th consecutive increase. At its 5/19/22 price of $16/39, ABR yields 9.27%.
It became ex-dividend on Thursday 05/19/22 – the next ex-dividend date is ~08/12/22, with a payment date ~08/31/22.
ABR’s dividend payout ratio was 67.27%, up 6% from 63.46% in Q1 21, but below its average of 69.61%:
Profitability and leverage
ABR’s ROA and ROE are down a little from the first quarter of 2021, but still above averages for the M-REIT sector. Arbor’s debt leverage has increased, primarily due to funding portfolio growth:
Overall net interest spreads on our core assets decreased to 2.21% this quarter, from 2.38% in the prior quarter, due to yield compression on new originations, relative to run-off, and fact that the cost of debt has increased more than asset returns due to rising interest rates. and the LIBOR floors that are still in effect on certain loans in our portfolio.
However, it is important to note that as the current LIBOR and SOFR curves are expected to continue to rise, any further increases in these rates will result in a net positive increase in our net interest income spreads. All things remaining equal, a 1% increase in rates would generate approximately $0.05 per share annually in additional revenue. ” (call T1 22)
Debt and liquidity
ABR had an all-in cost of debt of approximately 2.81%, up from the cost of debt of approximately 2.61% at December 31, primarily due to higher LIBOR and SOFR rates.
Management entered into a new CLO in Q1 22, for $2 billion.
ABR had a total outstanding amount of $12.86 billion in structured debt as of March 31, 2022. Of this total, $8.85 billion, or 69%, contains no mark-to-market provisions and includes vehicles Non-recourse CLOs, senior unsecured debt and junior securities. subordinated notes, the majority of which have maturity dates in 2023 or later. The remaining debt of $4.01 billion consists of credit and repurchase facilities with several different banks with whom we have longstanding relationships. (Q1 ’22 10Q)
Although its P/E of 7.19X is well below the industry average of 13.52X, ABR outperformed most other average M-REIT valuations except Price/Sales due to of his outperformance.
However, at $16.39, the ABR is around 9% below analysts’ low price target of $18.00 and around 19.7% below the mid-price target of 20. $.40.
We rate ABR over BUY, based on its attractive and well-hedged dividend yield, and its diversified business model, which will benefit from rising interest rates.
If you’re interested in other high-performance vehicles, we’ve got them covered every weekend in our items.
All charts are provided by Hidden Dividend Stocks Plus unless otherwise stated.