Arbor Realty Trust ABR is slated to report third-quarter 2024 results on Oct. 25. The company is likely to have registered year-over-year declines in interest income and earnings.

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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, single-family and other commercial real estate assets, posted distributable earnings of 45 cents, beating the Zacks Consensus Estimate by 2.3%. Net servicing revenues were $297.2 million in the quarter, which missed the Zacks Consensus Estimate by 1.17%. 

Over the trailing four quarters, Arbor Realty Trust surpassed the Zacks Consensus Estimate in each of the four quarters, the average surprise being 7.48%.

Arbor Realty Trust Price and EPS Surprise

Arbor Realty Trust price-eps-surprise | Arbor Realty Trust Quote

Key Factors to Influence ABR in Q3

The mREIT sector witnessed higher volatility in the fixed-income markets, which is likely to have increased asset impairment risks and hedging mismatches for ABR in the quarter under review.

Nonetheless, a positively sloped yield curve is anticipated to have supported mortgage REITs’ valuations. With a steeper yield curve, mortgage REITs are likely to have witnessed a tangible book value increase as spreads on benchmark indices tightened during the quarter. This is likely to have increased ABR’s book value per share in the quarter to be reported. 

Modest new Agency loan originations in the quarter under review are expected to have positively impacted the company’s fee-based servicing portfolio. 

The consensus mark for ABR's net servicing revenues is pegged at $31.5 million, indicating a 11.2% year over year decline.
 
Arbor Realty’s loan portfolio has significant exposure to multi-family assets. The volatility in the multifamily asset market because of the challenging rate environment for the most of the third quarter of 2024 is expected to have hindered the company’s performance in the to-be-reported quarter.

The 30-year fixed mortgage rates decreased to 6.2% at the end of the third quarter from 6.86% in second-quarter 2024 and from the high of 7.31% in third-quarter 2023. This is likely to have resulted in a rise in mortgage demand. Supported by the lower mortgage rates, refinancing activities witnessed a significant surge. Amid this, a significant portion of ABR’s mortgage-backed securities (MBS) holdings are anticipated to have witnessed elevated levels of constant prepayment rate. This is likely to have resulted in a modest uptick in mortgage servicing rights amortization in the quarter under review. 

The consensus estimate for ABR’s revenues from mortgage servicing rights is pinned at $16.17 million, which increased 14.6% the prior-year quarter’s figure.

Primary-secondary spreads, which represent the difference between borrower mortgage rates and the yield on newly issued agency MBS were higher in the third quarter of 2024 compared with the second quarter. However, due to increased volatility in the market, the primary-secondary spread may be slightly slanted.  Thus, the gain-on-sale margins are expected to remain stable to slightly down. The Zacks Consensus Estimate for the gain on sales revenues is pegged at $18.6 million, down marginally from the prior-year quarter’s reported figure.

On Sept. 18, the Federal Reserve cut interest rates by 50 basis points to 4.75-5% for the first time since March 2020. However, the Fed kept the interest rates at a 23-year high of 5.25-5.5% during a major part of the quarter. Given this, the company is expected to have seen increased funding costs. This is likely to have affected net interest income growth in the to-be-reported quarter. The Zacks Consensus Estimate for interest income is $227.3 million, suggesting a 17.6% year-over-year decline.

Lastly, there was a lack of any solid catalyst that could instill optimism before the third-quarter earnings release. The Zacks Consensus Estimate for ABR's quarterly earnings has remained unchanged at 42 cents over the past 60 days, suggesting a year-over-year decline of 23.64%.