Arbor Realty stock: highly shorted amid delinquency risks

Arbor Realty Trust (NYSE: ABR) stock has gone nowhere in the past five years as it became one of the most shorted Real Estate Investment Trusts (REIT) in the United States. It has retreated by 0.93% in this period and is up by 14% in the past 12 months, underperforming the S&P 500 and Nasdaq 100 indices.

High short-interest

Arbor Realty is a big REIT in the US with a market cap of more than $2.65 billion. It is a major player that provides structured loan originations (SLOs) and Agency Loan Origination and servicing. 

It focuses on the multifamily, single-family rental (SFR) and commercial real estate markets, where it offers bridge and mezzanine loans.

Its concept is relatively simple. If finances these multifamily homes during the renovation period and then refinance them into agency loans. 

Arbor Realty stock price has come under pressure in the past few months as short interest jumped. Data by MarketWatch shows that it has a short interest of 40.39%, making it one of the most shorted companies in the US. It has the highest interest in the REIT industry.

Arbor Realty’s woes accelerated after becoming a target of Viceroy Research, a prominent short-selling shop in the US. The researchers have identified numerous challenges with Arbor, which they note that it “stands out as the worst of the worst.”

They note that the company’s primary business is in the multifamily residential bridge loans, which are going bad at a time when interest rates sit at their highest level in over two decades.

Arbor Realty has rejected these claims and noted that its business was doing well. In the last earnings call, the management noted that 2023 was “one of our best years as a publicly traded company.”

The company said that its distributable earnings in the fourth quarter came in at $104 million. Its agency business had over $1.3 billion in originations.

However, as Viceroy Research has warned, the company is going through substantial delinquency risks. The CEO noted this about its delinquencies:

“We are in a period of peak stress and expect the next two quarters to be challenging, if not more challenging than the fourth quarter. As a result of this environment, we are experiencing elevated delinquencies.”

Therefore, there are concerns about the safety of its dividend. Arbor Realty has one of the highest dividend yield, which stands at over 13%. It has a payout ratio of 97.16%, which is substantial. Still, the company raised its dividend twice in 2023. 

Is Arbor Realty stock a good buy?

ARB chart by TradingView

Arbor Realty stock price has come under pressure in the past few weeks. It has crashed by more than 20% from its highest point in July last year, meaning that it has moved into a bear market.

The stock has remained slightly below the 50-day and 100-day Exponential Moving Averages (EMA). On the positive side, the stock has formed a double-bottom pattern at $11.53. In most cases, this pattern is usually a bullish sign.

The stock has also formed a bearish pennant pattern. Therefore, the outlook for the stock is neutral with a bearish bias. If this happens, the stock could have a bearish breakout, with the next level to watch being at $11.53, its lowest point on February 8th.