Arbor Realty Trust Reports 33% Drop in Earnings, Projects Dividend Cut

Arbor Realty Trust in a fourth-quarter earnings call said it would cut its dividend in 2025 after the distress rattling its borrower base — many of them multifamily syndicators crippled by rising rates — decimated earnings.

The REIT reported diluted earnings of 32 cents per share, a 33 percent drop year over year.

It projected 2025 earnings would not top 35 cents per share, given the distress on its books and legal and consulting expenses “as a result of the short seller reports,” said Chief Financial Office Paul Elenio, noting the firm expects to see more of them.

Viceroy Research has repeatedly accused Arbor of fraudulently obscuring the performance of its loan book. Federal regulators and the Federal Bureau of Investigation in New York launched an investigation into Viceroy’s claims last summer.

Arbor CEO Ivan Kaufman said he would not comment on the investigation.

Arbor’s stock price fell 14.5 percent Friday morning, to $11.93 per share — a 52-week low.

Amid the firm’s fourth quarter performance, CEO Ivan Kaufman opened the call denoting 2024 “another very strong year.”

“Despite an extremely challenging rate environment, we’ve executed our business plan very effectively and in line with expectations,” Kaufman said, noting the firm has consistently outperformed its peers, many of whom had to “cut their dividend substantially.”

Arbor made similar statements through 2024. Now, the REIT is poised to join that cohort. Though, it did not specify where its dividend, 43 cents per share in the fourth quarter, might land in the first.

“None of this has been decided yet with the board,” Elenio said in response to an analyst question. “We need to see where the first quarter comes in.”

Throughout the Sun Belt multifamily boom of 2021 and 2022, Arbor emerged as a prolific lender to value-add buyers, doling out bridge loans at extraordinarily low rates to investors working to fix-up decades-old apartment complexes to flip.

The strategy was a winning one — until rates went through the roof. Higher interest payment ate away at the middling revenues properties under construction and with resultingly low occupancy produced.

First came delinquencies, then maturity defaults as sponsors failed to find the cash to afford pricey new interest rate caps, the costs of which rose as interest rates did.

Soon, that distress started showing on Arbor’s books, and the REIT launched a multi-billion dollar modification strategy to float borrowers on the bet rates would come down.

But as Kaufman acknowledged on the earnings call, “rates have not just remained elevated, but have actually increased significantly with the 10-year rising.”

Meanwhile, delinquencies have spiraled into foreclosures and more deals under Arbor management.

The REIT reported about $1 billion in delinquent loans in the third quarter, a figure it whittled down to $819 million by the end of 2024 through a combination of payoffs, modifications and assets taken back as real estate-owned, Kaufman said.

REO deals are those that don’t sell at foreclosure auction; the uptick signals challenges fetching a high-enough price for struggling assets.

The REOs on Arbor’s balance sheet have mounted and will grow further, the firm said. The uptick will likely burden the lender with carrying costs that will pressure earnings.

The REIT reported $176 million in real-estate owned or REO assets in the fourth quarter – twice what it posted last year.

Now, Arbor’s game plan — alongside loan modifications and pay-offs — is to play landlord to those deals until it can find fresh sponsors to run them.

Kaufman projected the REO line item could hit $400 or $500 million, and that it would take one to two years to get the deals back in good shape.

“The performance of these assets has been greatly affected by poor management and from being undercapitalized,” he said, detailing their average occupancy is a staggering 35 percent.

The CEO projected improved performance “would increase future earnings in significant ways.” Kaufman said that new owners had boosted occupancy rates in the mid-70 percent range “well on their way to 90 [percent.]”

Still, those flips will bring losses in 2025, the firm projected.

“The timing and magnitude of these losses is hard to predict at this point,” Kaufman said.