A
rbor Realty Trust made significant progress on its delinquent loan book in the third quarter, wiping out nearly $300 million of the $1 billion in delinquencies it started with. However, this progress was largely offset by new late payments, which added $225 million to the total. CEO Ivan Kaufman acknowledged that the company had expected a tough quarter and anticipates additional delinquencies.
Arbor's strategy for managing its delinquent loans has been to modify them through maturity date extensions and temporary rate relief. In the third quarter, it modified 24 loans totaling $1.2 billion, with borrowers contributing $43 million in fresh equity. The company expects to modify another 10% of its $1 billion in delinquencies by year-end.
The lender also reported one pay-down of an $8 million loan and projects paying off another $300 million or more over the next few quarters. In addition, Arbor seized $77 million in assets through foreclosures in the third quarter and expects to grab another $250 million in the fourth. The company has found new operators for some of the properties it has taken back, recording a sale and a new loan on its balance sheet.
Despite the increase in real estate-owned (REO) assets, Arbor's Chief Financial Officer Paul Elenio stated that the firm hasn't had any realized losses this year apart from one small loan. The company has set aside loss reserves for REOs taken back at fair value, and it doesn't have to mark them to market until they are disposed of.
Arbor's earnings call was also marked by questions about a probe into its books by federal prosecutors and the FBI in New York. CEO Kaufman declined to comment on the investigation, instead focusing on the company's performance compared to rivals. Arbor reported a 28% increase in book value per share and a 54% growth in dividend since 2019, outpacing its competitors.
KBW analyst Jade Rahmani asked about Arbor's cash flow, noting that operating cash flow had slipped to $68 million from $94 million quarter-over-quarter. Kaufman assured investors that the company has adequate cash flow to cover its dividend.
