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What's in the Offing for Arbor Realty (ABR) in Q1 Earnings?

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Arbor Realty Trust (ABR - Free Report) is scheduled to report first-quarter 2019 results on May 10, before the market opens. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO).

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, seniors housing, healthcare, and other commercial real estate assets, posted AFFO of 29 cents, surpassing the Zacks Consensus Estimate of 27 cents. The figure also came in higher than the prior-year quarter’s reported tally of 25 cents.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on all occasions, the average beat being 10.7%. The graph below depicts this surprise history:

Arbor Realty Trust Price and EPS Surprise

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

The overall lending environment and liquidity for small balance properties will likely be healthy in first-quarter 2019. Additonally, commoditization of small multi-family and favorable demographic trends are anticipated to support lending volumes of new multi-family loans.

Amid these, we predict the company’s Agency business to have closed significant loan originations that will help enjoy strong margins. Further, the company will likely benefit from its market-leader position in the small balance lending arena.

Additionally, the company raised fresh capital during the quarter by closing a private placement of 5.75% senior unsecured notes. The notes with aggregate principal amount of $90 million are due in April 2024. This transaction generated additional capital and the company intends to use the proceeds in business-related investments.

Arbor Realty’s revenue stream is well diversified, providing a stable and recurring core earnings. This enbales the company to pay high divdends and and indicates its ability to increase dividend in the future. We believe this stability will drive the the company’s earnings significantly. 

In March, the yield curve inverted, with the 10-year treasury rates declining and three-month rates flaring up. This might impact loan originations for small multi-family properties that are also sensitive to cyclical uncertainty.

Moreover, stiff competition in the lending market will likely result in aggressive pricing, thereby, affecting Arbor Realty’s margins and bottom-line growth.

Hence, there is lack of any solid catalyst prior to the first-quarter earnings release. As such, the Zacks Consensus Estimate of AFFO for the to-be-reported quarter remained unchanged at 27 cents, over the past month. Nonetheless, AFFO is projected to be up 8% year over year.

Earnings Whispers

Our proven model does not conclusively show that Arbor Realty is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Arbor Realty’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other REITs

Cousins Properties Incorporated (CUZ - Free Report) reported FFO per share of 20 cents during the January-March quarter, in line with the Zacks Consensus Estimate. The figure came in higher than the prior-year quarter’s reported tally of 15 cents. 

Duke Realty Corporation’s (DRE - Free Report) first-quarter 2019 core FFO per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the figure came in higher than the year-ago quarter’s reported tally of 30 cents.

Ventas, Inc. (VTR - Free Report) delivered first-quarter normalized FFO of 99 cents, beating the Zacks Consensus Estimate of 96 cents. The reported figure, however, came in lower than the prior year’s $1.05.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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