Last month was a brutal one for investors. The S&P 500 tumbled 8.8%, according to data provided by S&P Global Market Intelligence, taking most stocks down with it.
However, not all stocks were in the red last month. Mortgage-focused real estate investment trust (REIT) Arbor Realty Trust (ABR -1.50%) kept its head above water, gaining 0.2% last month.
Here’s what allowed it to deliver stronger relative performance in a challenging month for the broader market.
For the most part, April was a quiet month for Arbor Realty Trust. The only news of note for the mortgage REIT came from an analyst. Piper Sandler‘s Crispin Love initiated coverage on the company, giving it an overweight rating and setting a $20 price target (about 15% above the current price). The analyst pointed to the company’s diversified revenue model, industry headwinds for multifamily bridge lending, and attractive valuation as reasons he thinks shares should trade higher.
Love also noted that the weakness in shares during the prior month due to the market’s volatility and its equity issuance makes it look like a great opportunity for investors to start a position in Arbor or add to an existing one.
While April didn’t have many news-driven catalysts, May has been a busier month for the mortgage REIT. Earlier this month, it reported its first-quarter results, posting $0.55 of distributable earnings per share. That was well ahead of the $0.47 analyst consensus estimate and an improvement from $0.52 per share in the year-ago period.
Arbor Realty Trust grew its portfolio by 17%, driven by strong loan originations of $2.83 billion. The main driver was multifamily bridge loans originated to help fund new developments or property acquisitions. The company also successfully raised capital to finance its continued growth, including selling equity in March and closing other funding vehicles.
Those strong results enabled the mortgage REIT to increase its dividend for the eighth straight quarter. Overall, Arbor has grown its payout by 27% in the last two years. That’s an impressive showing considering that many mortgage REITs struggle to consistently grow their dividends.
Arbor Realty Trust’s focus on multifamily lending is paying dividends for investors. The country’s housing shortage is driving demand for apartments, pushing up occupancy levels and rental rates. That’s leading apartment investors to expand, driving the need for funding from companies like Arbor.
While rising interest rates could cool off investment in the near term, the country’s worsening housing shortage suggests the industry will need to continue developing more multifamily units, which should enable Arbor to continue growing its loan portfolio.