ARBOR REALTY TRUST INC 10-K Analysis & Summary – 2/21/2025

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Arbor Realty Trust

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Arbor Realty Trust’s 2024 10-K filing reveals a decrease in net interest income and structured loan portfolio, alongside an increase in the agency servicing portfolio. The company faces challenges from the high-interest rate environment and related party transactions.

ELI5:

Arbor Realty Trust, a company that invests in real estate loans, had a mixed year. They made less money from interest and their loan portfolio decreased, but their agency servicing business grew. They’re facing challenges because of high interest rates and some questionable dealings.

Accession #:

0001628280-25-007183

Published on

March 16, 2025

Analyst Summary

Net Interest Income decreased by 15% from 2023 to 2024.
Structured loan portfolio decreased by 10% year-over-year.
Agency Servicing Portfolio increased by 8% year-over-year.
Cost of Funds increased from 7.15% in 2023 to 7.44% in 2024.
Overall Yield on Loan and Investment Portfolio decreased from 9.18% in 2023 to 9.01% in 2024.
35% of the structured loan portfolio has been modified, indicating potential borrower distress.
Increase in non-performing loans, signaling potential credit quality issues.
Net income attributable to common stockholders decreased by 32% from 2023 to 2024.
Gross Profit Margin increased from 75.14% in 2023 to 76.37% in 2024.
Operating Profit Margin decreased from 24.88% in 2023 to 20.02% in 2024.
Net Profit Margin decreased from 24.55% in 2023 to 19.66% in 2024.
Return on Assets (ROA) for 2024 is 1.95%.
Return on Equity (ROE) for 2024 is 7.27%.
Basic EPS decreased by 34.08% and Diluted EPS decreased by 32.57% from 2023 to 2024.
Current Ratio for 2024 is 0.30, suggesting potential liquidity challenges.
Quick Ratio for 2024 is 0.30, indicating potential short-term liquidity issues.
Cash Ratio for 2024 is 0.18, suggesting the company has limited cash to cover its immediate liabilities.
Debt-to-Equity Ratio for 2024 is 3.42, indicating significant leverage.
Debt-to-Assets Ratio for 2024 is 0.77, indicating that 77% of the company’s assets are financed by debt.
Interest Coverage Ratio decreased from 1.47 in 2023 to 1.37 in 2024.
Asset Turnover for 2024 is 0.097, indicating the company is not generating much revenue per dollar of assets.
P/E Ratio for 2024 is 10.17, suggesting the company may be undervalued.
P/B Ratio for 2024 is 751.01, suggesting the company’s stock price is significantly overvalued relative to its book value.
P/S Ratio for 2024 is 1591.89, suggesting the company’s stock price is significantly overvalued relative to its sales.
EV/EBITDA Ratio for 2024 is 2052.91, suggesting the company is significantly overvalued.
Revenue decreased by 12.16% from 2023 to 2024.
Net income decreased by 29.12% from 2023 to 2024.
EPS decreased by 32.57% from 2023 to 2024.
Distributable Earnings (DE) for 2024 is $358,020.
Diluted Distributable Earnings per Share for 2024 is $1.74.

Opportunities and Risks

Agency Business Growth: Continued growth in the agency servicing portfolio provides a stable income stream.
Refinancing Opportunities: Strategy to refinance multifamily bridge loans into agency loans could generate additional fee income.
Proactive Risk Management: Active management of the loan portfolio and close collaboration with borrowers could mitigate potential losses.
Interest Rate Risk: Fluctuations in interest rates could negatively impact net interest income and loan performance.
Credit Risk: Deterioration in economic conditions could lead to increased loan defaults and credit losses.
Regulatory Risk: Changes in GSE and HUD regulations could affect the Agency Business.
Related Party Transactions: Potential conflicts of interest arising from related party transactions.
Liquidity Risk: Inability to access financing sources on favorable terms could limit growth and profitability.

Potential Implications

Stock Price

The company’s reliance on external financing and the complex web of related party transactions warrant careful monitoring, which could negatively impact investor confidence.
Potential for decreased origination volumes and increased delinquencies in the GSE/Agency business is a concern, potentially leading to a stock price decrease.

SEC Filing Report: Arbor Realty Trust Inc. (2024 10-K)

Executive Summary

This report analyzes Arbor Realty Trust Inc.’s 2024 10-K filing. Key findings include a decrease in the structured loan portfolio, an increase in the agency servicing portfolio, and a complex web of related party transactions. The company faces challenges related to the current high-interest rate environment and its impact on loan performance. While the company maintains compliance with REIT requirements, the reliance on external financing and the potential for increased credit losses warrant careful monitoring. Overall, a HOLD recommendation is appropriate, pending further observation of the company’s ability to navigate the current economic climate and manage its risk exposure.

Company Overview

Arbor Realty Trust Inc. is a real estate investment trust (REIT) operating in two segments: Structured Loan Origination and Investment Business (Structured Business) and Agency Loan Origination and Servicing Business (Agency Business). The Structured Business focuses on bridge loans, mezzanine financing, and preferred equity investments. The Agency Business originates, sells, and services multifamily finance products through government-sponsored enterprises (GSEs) and the U.S. Department of Housing and Urban Development (HUD).

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends:

Net Interest Income: Decreased by 15% from 2023 to 2024, primarily due to a decline in the average balance of core interest-earning assets and a decrease in the average yield on core interest-earning assets.
Loan Portfolio: Structured loan portfolio decreased by 10% year-over-year.
Agency Servicing Portfolio: Increased by 8% year-over-year.
Cost of Funds: Increased from 7.15% in 2023 to 7.44% in 2024.
Overall Yield on Loan and Investment Portfolio: Decreased from 9.18% in 2023 to 9.01% in 2024.

Visual Aids:

(Note: Due to the limitations of text-based output, actual charts and tables cannot be rendered here. However, the following descriptions indicate the types of visualizations that would be included in a full report.)

Chart: Trend of Net Interest Income over the past 3 years, highlighting the recent decline.
Table: Comparison of key financial ratios (e.g., debt-to-equity, interest coverage) against industry peers.

Management’s Discussion and Analysis (MD&A) Insights

Management acknowledges the challenges posed by the current high-interest rate environment and its impact on loan performance.
Emphasis on proactive risk management and close collaboration with borrowers to mitigate potential losses.
Strategy to generate additional agency lending opportunities by refinancing multifamily bridge loan portfolio.

Red Flags and Uncommon Metrics

Loan Modifications: A significant portion of the structured loan portfolio (35%) has been modified, indicating potential borrower distress.
Non-Performing Loans: Increase in non-performing loans, signaling potential credit quality issues.
Related Party Transactions: A complex web of related party transactions, including loans to entities with ties to management, raises concerns about potential conflicts of interest.
Temporary Rate Relief: Temporary rate relief provided to borrowers through a pay and accrual feature.

Comparative and Trend Analysis

Historical Comparison: Net income attributable to common stockholders decreased by 32% from 2023 to 2024.
Peer Comparison: (Requires additional data not provided in the filing) Benchmarking against other mortgage REITs would provide valuable insights into relative performance.

Risk and Opportunity Assessment

Risks:

Interest Rate Risk: Fluctuations in interest rates could negatively impact net interest income and loan performance.
Credit Risk: Deterioration in economic conditions could lead to increased loan defaults and credit losses.
Regulatory Risk: Changes in GSE and HUD regulations could affect the Agency Business.
Related Party Transactions: Potential conflicts of interest arising from related party transactions.
Liquidity Risk: Inability to access financing sources on favorable terms could limit growth and profitability.

Opportunities:

Agency Business Growth: Continued growth in the agency servicing portfolio provides a stable income stream.
Refinancing Opportunities: Strategy to refinance multifamily bridge loans into agency loans could generate additional fee income.
Proactive Risk Management: Active management of the loan portfolio and close collaboration with borrowers could mitigate potential losses.

Conclusion and Actionable Insights

Arbor Realty Trust faces challenges related to the current economic environment, including high interest rates and potential credit quality issues. The company’s reliance on external financing and the complex web of related party transactions warrant careful monitoring. While the Agency Business provides a stable income stream, the potential for decreased origination volumes and increased delinquencies in the GSE/Agency business is a concern. A HOLD recommendation is appropriate, pending further observation of the company’s ability to navigate the current economic climate and manage its risk exposure.

Financial Ratio and Metric Analysis

Note: All calculations are based on the provided data. Industry comparisons are based on my general knowledge as a financial analyst and data that is publicly available. A specific source will be listed if used.

Profitability

Gross Profit Margin:
- Ratio/Metric: Since the income statement does not explicitly provide “Cost of Revenue,” we will calculate the Gross Profit Margin using (Total Revenue – Total Other Expenses) / Total Revenue. Total Revenue is the sum of Interest Income and Total Other Revenue.
  - 2024: ($1,167,872 + $258,866 – $333,899) / ($1,167,872 + $258,866) = 76.37%
  - 2023: ($1,331,219 + $293,021 – $315,829) / ($1,331,219 + $293,021) = 75.14%
- Trend: The gross profit margin increased from 75.14% in 2023 to 76.37% in 2024, representing a 1.64% increase.
- Industry: As a specialty finance REIT, a gross profit margin of 76.37% is relatively high. Mortgage REITs typically have lower gross profit margins due to the nature of their interest income and expense models. A comparable sector might be diversified financial services, where gross profit margins can vary widely but often fall in the 40-80% range.
Operating Profit Margin:
- Ratio/Metric: Operating Profit / Total Revenue = Income before extinguishment of debt, gain on real estate, income from equity affiliates and income taxes / (Interest income + Total other revenue)
  - 2024: $288,224 / ($1,167,872 + $258,866) = 20.02%
  - 2023: $405,183 / ($1,331,219 + $293,021) = 24.88%
- Trend: The operating profit margin decreased from 24.88% in 2023 to 20.02% in 2024, representing a -19.53% change.
- Industry: An operating profit margin of 20.02% is moderate. For REITs, this ratio can vary significantly based on their specific investment strategies and operating efficiency.
Net Profit Margin:
- Ratio/Metric: Net Income / Total Revenue
  - 2024: $283,919 / ($1,167,872 + $258,866) = 19.66%
  - 2023: $400,556 / ($1,331,219 + $293,021) = 24.55%
- Trend: The net profit margin decreased from 24.55% in 2023 to 19.66% in 2024, representing a -19.92% change.
- Industry: A net profit margin of 19.66% is relatively strong.
Return on Assets (ROA):
- Ratio/Metric: Net Income / Average Total Assets
  - 2024: $283,919 / (($13,490,981 + $15,738,636) / 2) = 1.95%
- Industry: An ROA of 1.95% is moderate.
Return on Equity (ROE):
- Ratio/Metric: Net Income Attributable to Common Stockholders / Average Stockholders’ Equity
  - 2024: $223,272 / (($3,024,085 + $3,117,973) / 2) = 7.27%
- Industry: An ROE of 7.27% is moderate.
Earnings Per Share (EPS) – Basic and Diluted:
- Ratio/Metric:
  - Basic EPS 2024: $1.18
  - Diluted EPS 2024: $1.18
  - Basic EPS 2023: $1.79
  - Diluted EPS 2023: $1.75
- Trend: Basic EPS decreased by 34.08% and Diluted EPS decreased by 32.57% from 2023 to 2024.
- Industry: EPS varies widely across the REIT sector.

Liquidity

Current Ratio:
- Ratio/Metric: Current Assets / Current Liabilities. To calculate this, we need to estimate current assets and current liabilities.
  - Current Assets = Cash and cash equivalents + Restricted cash + Loans held-for-sale, net = $503,803 + $156,376 + $435,759 = $1,095,938
  - Current Liabilities = Credit and repurchase facilities + Due to borrowers = $3,559,490 + $47,627 = $3,607,117
  - 2024: $1,095,938 / $3,607,117 = 0.30
- Trend: To determine the trend, we would need the Current Ratio from the previous comparable period, which is not provided in the filing.
- Industry: A current ratio of 0.30 is low, suggesting potential liquidity challenges.
Quick Ratio (Acid-Test Ratio):
- Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not applicable, we use (Cash and cash equivalents + Restricted cash + Loans held-for-sale, net) / (Credit and repurchase facilities + Due to borrowers)
  - 2024: ($503,803 + $156,376 + $435,759) / ($3,559,490 + $47,627) = 0.30
- Trend: To determine the trend, we would need the Quick Ratio from the previous comparable period, which is not provided in the filing.
- Industry: A quick ratio of 0.30 is low, indicating potential short-term liquidity issues.
Cash Ratio:
- Ratio/Metric: (Cash and Cash Equivalents + Restricted Cash) / Current Liabilities
  - 2024: ($503,803 + $156,376) / ($3,559,490 + $47,627) = 0.18
- Trend: To determine the trend, we would need the Cash Ratio from the previous comparable period, which is not provided in the filing.
- Industry: A cash ratio of 0.18 is very low, suggesting the company has limited cash to cover its immediate liabilities.

Solvency/Leverage

Debt-to-Equity Ratio:
- Ratio/Metric: Total Liabilities / Total Stockholders’ Equity
  - 2024: $10,339,011 / $3,024,085 = 3.42
- Trend: To determine the trend, we would need the Debt-to-Equity Ratio from the previous comparable period, which is not provided in the filing.
- Industry: A debt-to-equity ratio of 3.42 is relatively high, indicating significant leverage.
Debt-to-Assets Ratio:
- Ratio/Metric: Total Liabilities / Total Assets
  - 2024: $10,339,011 / $13,490,981 = 0.77
- Trend: To determine the trend, we would need the Debt-to-Assets Ratio from the previous comparable period, which is not provided in the filing.
- Industry: A debt-to-assets ratio of 0.77 indicates that 77% of the company’s assets are financed by debt, which is high.
Interest Coverage Ratio (Times Interest Earned):
- Ratio/Metric: EBIT / Interest Expense = (Net Income + Interest Expense + Income Tax Expense) / Interest Expense
  - 2024: ($283,919 + $804,615 + $13,478) / $804,615 = 1.37
  - 2023: ($400,556 + $903,228 + $27,347) / $903,228 = 1.47
- Trend: The interest coverage ratio decreased from 1.47 in 2023 to 1.37 in 2024, representing a -6.80% change.
- Industry: An interest coverage ratio of 1.37 is low, suggesting the company’s ability to cover its interest expenses is tight.

Activity/Efficiency

Asset Turnover:
- Ratio/Metric: Total Revenue / Average Total Assets
  - 2024: ($1,167,872 + $258,866) / (($13,490,981 + $15,738,636) / 2) = 0.097
- Trend: To determine the trend, we would need the Asset Turnover from the previous comparable period, which is not provided in the filing.
- Industry: An asset turnover of 0.097 is low, indicating the company is not generating much revenue per dollar of assets.

Valuation

Price-to-Earnings Ratio (P/E):
- Ratio/Metric: Stock Price / EPS
  - EPS 2024: $1.18
  - Stock Price: $12.00
  - P/E Ratio: $12.00 / $1.18 = 10.17
- Industry: A P/E ratio of 10.17 is relatively low, suggesting the company may be undervalued.
Price-to-Book Ratio (P/B):
- Ratio/Metric: Market Cap / Book Value of Equity. Book Value of Equity = Total Stockholders’ Equity
  - Market Cap = Shares Outstanding * Stock Price = 189,259,435 * $12.00 = $2,271,113,220
  - Book Value of Equity = $3,024,085
  - P/B Ratio = $2,271,113,220 / $3,024,085 = 751.01
- Industry: A P/B ratio of 751.01 is extremely high, suggesting the company’s stock price is significantly overvalued relative to its book value.
Price-to-Sales Ratio (P/S):
- Ratio/Metric: Market Cap / Total Revenue
  - Market Cap = $2,271,113,220
  - Total Revenue = $1,167,872 + $258,866 = $1,426,738
  - P/S Ratio = $2,271,113,220 / $1,426,738 = 1591.89
- Industry: A P/S ratio of 1591.89 is extremely high, suggesting the company’s stock price is significantly overvalued relative to its sales.
Enterprise Value to EBITDA (EV/EBITDA):
- Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. EBITDA = Net Income + Interest Expense + Taxes + Depreciation and Amortization
  - Market Cap = $2,271,113,220
  - Total Debt = $10,339,011
  - Cash = $503,803
  - EBITDA = $283,919 + $804,615 + $13,478 + $9,555 = $1,111,567
  - EV = $2,271,113,220 + $10,339,011 – $503,803 = $2,280,948,428
  - EV/EBITDA = $2,280,948,428 / $1,111,567 = 2052.91
- Industry: An EV/EBITDA ratio of 2052.91 is extremely high, suggesting the company is significantly overvalued.

Growth Rates

Revenue Growth:
- Ratio/Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue
  - 2024 Revenue: $1,167,872 + $258,866 = $1,426,738
  - 2023 Revenue: $1,331,219 + $293,021 = $1,624,240
  - Revenue Growth: ($1,426,738 – $1,624,240) / $1,624,240 = -12.16%
- Trend: Revenue decreased by 12.16% from 2023 to 2024.
Net Income Growth:
- Ratio/Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
  - 2024 Net Income: $283,919
  - 2023 Net Income: $400,556
  - Net Income Growth: ($283,919 – $400,556) / $400,556 = -29.12%
- Trend: Net income decreased by 29.12% from 2023 to 2024.
EPS Growth:
- Ratio/Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS
  - 2024 EPS: $1.18
  - 2023 EPS: $1.75
  - EPS Growth: ($1.18 – $1.75) / $1.75 = -32.57%
- Trend: EPS decreased by 32.57% from 2023 to 2024.

Other Relevant Metrics

Distributable Earnings:
- Distributable Earnings (DE) is a non-GAAP metric used by the company. It represents net income attributable to common stockholders, adjusted for certain non-cash items such as net income attributable to noncontrolling interest, income from mortgage servicing rights, deferred tax benefit, amortization and write-offs of MSRs, depreciation and amortization, loss on extinguishment of debt, (Gain) loss on derivative instruments, net, and stock-based compensation.
- The company uses distributable earnings as a supplemental measure of its operating performance. It helps investors assess the company’s ability to generate cash for distributions.
- DE 2024: $358,020
- DE 2023: $452,479
- DE 2022: $405,696
- Diluted Distributable Earnings per Share 2024: $1.74
- Diluted Distributable Earnings per Share 2023: $2.25
- Diluted Distributable Earnings per Share 2022: $2.23

Commentary

Arbor Realty Trust’s financial performance in 2024 shows a mixed picture. While the gross profit margin improved slightly, key profitability metrics like operating profit margin, net profit margin, and EPS experienced significant declines compared to the previous year. The company’s liquidity position appears weak, as indicated by low current, quick, and cash ratios. Valuation ratios such as P/E, P/B and EV/EBITDA are extremely high, suggesting potential overvaluation relative to earnings, book value, and cash flow. Revenue and net income growth rates were negative, indicating a contraction in the company’s financial performance.