Arbor Realty: 11% Yield 'Best In Class' mREIT With Upside Potential

Summary

• I initiated a position in Arbor Realty Trust, Inc. for my Seeking Alpha Income Investing Group in our Quality High-yield Income portfolio.
• The mREIT yields about 11%, recently raised the payout 10 quarters in a row, and has the lower payout ratio in the sector.
• Arbor Realty Trust is internally managed, which saves on fees. Further, they have skin in the game.
• Arbor has a well-diversified set of income streams, some of which benefit from increased interest rates.
• The current technical status looks favorable as well.
• We're currently running a sale at my private investing ideas service, The Winter Warrior Investor, where members get access to portfolios, market alerts, real-time chat, and more. Learn More »

Maxxa_Satori

Arbor Realty Trust Inc. Buy Thesis

I initiated a position in Arbor Realty Trust, Inc. (NYSE:ABR) for my Seeking Alpha Income Investing Group's Quality High-yield Income portfolio.

WWI Quality High Yield Income Portfolio

WWI Quality Income Investing Group

The WWI Quality High Yield Income Portfolio looks to provide high yield income, (currently 12.3%), coupled with a focus on capital preservation. The portfolio currently has 2% in capital appreciation.

Arbor Realty Trust fits the bill perfectly. The mortgage real estate investment trust, or mREIT, yields approximately 11% and recently raised the payout 10 quarters in a row. Moreover, the distribution is well-covered and is actually the lowest payout ratio in the sector. Let's begin the review.

ABR Company Overview

Below is an overview of the major attributes of the company.

ABR

ABR Recent Highlights

Below is a slide describing the most recent company financial highlights.

ABR

Recent earnings results

The company beat on the top and bottom lines and raised guidance on 2/17/2023.

Latest Earnings results

Seeking Alpha

President and Chief Executive Officer Ivan Kaufman stated on the latest earnings conference call:

"As you can see from this morning's press release, we had another tremendous quarter and exceptional 2022 as our diverse business model continues to offer many significant advantages over everyone else in our peer group. In fact, our 2022 results reflect one of our best years as a public company and we believe we are well-positioned for continued success. We have a premium operating platform with multiple products that generate many diverse income streams, allowing us to consistently produce earnings at a well-in-excess of our dividend. This has allowed us to increase our dividends 3 times in 2022, an intent of our last 11 quarters, all while maintaining the lowest dividend payout ratio in the industry, which was 70% for 2022. And our performance is head and shoulders above everyone else in our peer group"

I like to see this type of past performance. The highly diversified business models provide both the opportunities for growth coupled with an increased margin of safety. Now, let's take a deeper dive into the strategic advantages.

Strategic Advantages

ABR

ABR has a well-diversified set of income streams, some of which benefit from increased interest rates. The experienced management team has done a bang-up job of navigating multiple cycles and macro environments. The company has a highly diversified originations platform.

Highly Diversified Originations Platform

ABR

The highly diversified originations platform has successfully delivered substantially higher levered returns over the years. The company presently has a solid balance sheet and loan portfolio.

Solid Loan Portfolio balance Sheet

ABR

Multifamily accounts for a majority of the loan portfolio. The use of bridge loans generates strong levered returns. The multifamily units are highly diversified from a geographical perspective. In fact, Arbor has the leading Nationwide Origination and servicing platform.

Leading Origination & Servicing Platform

ABR

The originations platform sports an industry leading performance with few delinquencies and forbearances to date. The Agency servicing portfolio's CAGR is 12%. The bottom line is Arbor Realty Trust, Inc.'s highly diversified set of income streams and platforms provides the opportunity for significant growth through all cycles.

Significant Growth Opportunities

ABR

With four major platforms, Arbor management has created a business that can succeed under various business cycles. Below is a slide detailing the top-notch internal management team.

Top Notch Internal Management

ABR

Arbor Realty Trust, Inc. is internally managed, which saves on fees. Further, they have skin in the game via insider ownership of approximately 12%. If you would like to review the entire slide show, here is the link. Now let's take a look at the technical status.

Arbor Technical Status

The current technical status looks favorable as well.

Finviz

I love the fact ABR stock has pulled back and seems to have found its footing just above the 50-day SMA. The stock is trading 13% below its 52 week high, yet up 6% in the past month.

Golden Cross imminent

What's more, the 50-day is rising and just about to cross over the 200-day SMA. This is called the Golden cross in technical analysis. I have found over the years that this is a strong indication that further upside is in the cards.

Finviz

Now let's review the current dividend details.

Arbor Dividend review

ABR

The stock currently yields 10.67% with a five year growth rate of 15.62%. The ABR just declared a $0.40 dividend payout, in-line with the previous payout. ABR also just extended the Ex-div date to 3/10/2023. Last quarter, the company produced $0.60 in distributable income. One last point I'd like to add is the fact ABR has a fantastic 10-year total return record.

Ten Year Annualized Total Return

averageannualreturn.com

The ten year annualized total return for ABR is 17.20%. That is a solid performance. Now let's wrap this up.

The Wrap-Up

Arbor Realty Trust, Inc. appears to have all its ducks in a row, so to speak. I have a hard time finding a weakness. The company has an exemplary track record for increasing revenues and income. What's more, they are returning those additional profits to shareholders in the form of increased payouts. They have a top notch internal management team with skin in the game. Sometimes, if a REIT is externally managed, management seems more focused on increasing their fees rather than increasing payouts to shareholders. Arbor Realty Trust, Inc. is currently trading for a slight premium to book value, with a price to book value of 1.13. Nonetheless, based on Arbor Realty's impeccable history, it seems justified.

If you are risk-averse, I would layer in to a full Arbor Realty Trust, Inc. position over time to reduce risk. Those are my thoughts on the matter. I look forward to reading yours.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ABR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.