Archive photo: Antony-22, CC BY-SA 4.0. Illustrative; not an Arbor asset. Cropped.
Arbor Realty Trust is stopping its quarterly common-stock dividend immediately after reporting an $85.4 million third-quarter loss, a sharp reversal from a year-earlier profit as troubled loans and property write-downs weighed on the commercial real-estate lender.
The company makes and services loans for apartment buildings, single-family rental portfolios and other commercial properties. It earns interest and fees from financing real estate, rather than relying only on rent from buildings it owns. Friday’s results show pressure on that lending business: more loans stopped performing, the return on its loan portfolio fell and its borrowing costs increased.
In its October 30 earnings release, Arbor said its board suspended the dividend to preserve capital and maintain flexibility for upcoming debt maturities and the resolution of legacy assets. The release did not set a date for resuming payments.
What drove the loss
Arbor recorded a $53.0 million net provision for loan losses and a separate $12.4 million provision for loss-sharing obligations associated with loans sold through the Fannie Mae program. It also recorded $34.1 million of impairments on six properties it owned after taking over real estate.
The loan-loss provisions reflect estimated credit losses, not a statement that every dollar has already been lost in cash. The property impairments reduce the carrying value of those assets. Both are distinct from the company’s $21.7 million of net realized losses from resolving certain legacy assets, which it separately identified in its discussion of distributable earnings.
At the end of September, Arbor had 32 non-performing loans with $647.6 million of unpaid principal before related reserves. That was up from 19 loans with $428.8 million at the end of June. Those are quarter-end snapshots, not a count of every loan that became delinquent during the quarter.
The average yield on its loan and investment portfolio fell to 6.84% in the third quarter from 7.21% in the second quarter. Arbor attributed that decline primarily to additional delinquencies and rate modifications. Its average borrowing cost rose to 6.66% from 6.56%, partly because of a convertible-note offering and a higher average SOFR benchmark rate.
Why the earnings measures differ
The $85.4 million net loss, or 51 cents per diluted common share, compares with net income of $38.5 million, or 20 cents a share, a year earlier.
Arbor also reported a distributable loss of $6.9 million, or 4 cents per diluted common share. Excluding the $21.7 million of net realized legacy-asset losses, it reported distributable earnings of 8 cents a share. Distributable earnings is the company’s supplemental, non-GAAP measure. It is not the same as net income or a promise that cash will be distributed to shareholders.
The dividend decision makes that distinction concrete: a positive adjusted figure excluding selected losses did not lead the board to keep the common-stock payout in place.
A servicing business alongside stressed loans
Arbor’s fee-based servicing portfolio totaled $36.80 billion at September 30. Its agency business originated $907.0 million of loans during the quarter, down from about $1.08 billion in the second quarter, and generated $57.5 million of revenue, compared with $64.5 million.
The separate structured loan and investment portfolio stood at about $12.00 billion. Multifamily bridge loans accounted for 64% of that portfolio and single-family rental bridge loans for 29%. Those figures describe Arbor’s mix of lending exposures; they are not a national measure of property-market distress.
The company also closed an $825.0 million securitization that it said generated about $50 million of additional liquidity. Financing can add flexibility, but it does not erase the credit losses or restore a suspended dividend.
Arbor said it will keep evaluating its dividend policy against market conditions, performance, capital needs and REIT distribution requirements. For shareholders, the immediate change is straightforward: the common-stock quarterly payment has stopped while the company works through troubled assets and financing demands.
JBizNews Desk | REAL ESTATE
© JBizNews.com. All rights reserved. Unauthorized reproduction or redistribution is strictly prohibited.
