Arbor Realty Trust’s third quarter results were met with a significant negative market reaction, as the company missed Wall Street’s revenue expectations by a wide margin. Management attributed the underperformance primarily to ongoing efforts in resolving legacy, nonperforming assets, which led to increased delinquencies and a temporary reduction in net interest income. CEO Ivan Kaufman described the period as a “bottom of the cycle,” noting that aggressive action to resolve troubled loans, including moving assets to real estate owned (REO) status and pursuing modifications, created short-term earnings volatility. The quarter’s performance also reflected gains from select asset sales but was weighed down by elevated defaults and restructuring costs.

Is now the time to buy ABR? Find out in our full research report (it’s free for active Edge members).

While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Arbor Realty Trust’s Q3 Earnings Call

• Steven Delaney (Citizens Capital Markets) asked about the stability of the performing loan portfolio and the likelihood of further modifications. CEO Ivan Kaufman explained that while most modifications now involve new capital from borrowers, additional adjustments may occur if assets do not stabilize, especially in harder-hit markets like Houston and San Antonio.

• Jade Rahmani (KBW) questioned the run rate for interest income after a major accrued interest reversal. CFO Paul Elenio clarified that the majority of the adjustment was one-time, estimating a $13 million recurring reduction, but expected improvements as more troubled loans are resolved.

• Richard Shane (JPMorgan) inquired about the Homewood asset sale and whether realized losses would impact distributable income. Elenio detailed that most reserves had already been absorbed in prior periods, and the transaction would result in a minor $1 million realized loss but add a performing loan at a 10% rate.

• Crispin Love (Piper Sandler) sought confirmation that third quarter net interest income represented a trough, given one-time adjustments. Elenio concurred, saying further delinquencies may occur but resolutions should outweigh new defaults, improving the run rate in coming quarters.

• Leon Cooperman (Omega Family Office) asked if Arbor would use capital for share buybacks given the stock’s discount to book value. Elenio responded that insiders continue to buy shares personally and that the company would consider buybacks as capital allows.

Catalysts in Upcoming Quarters

Looking forward, our analysts will be monitoring (1) the pace and effectiveness of legacy asset resolutions and REO sales, (2) the trajectory of origination volumes as the interest rate environment stabilizes and capital markets activity improves, and (3) trends in credit quality, particularly in markets facing greater stress. The ability to maintain or grow the dividend as earnings normalize will also be a key milestone.

Arbor Realty Trust currently trades at $9.48, down from $11.57 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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