2023-04-24 07:59:22 ET
J.P. Morgan analyst Richard Shane downgraded Arbor Realty Trust ( NYSE: ABR ) to Neutral from Overweight on Monday after the recent default on a multi-family development.
"We believe the company may begin to more aggressively build reserves, weighing on book value over the next 12 to 24 months," Shane wrote in a note to clients.
Furthermore, higher cap rates and more expensive take-out rates may slow activity in Arbor's ( ABR ) "make and sell' agency business, which would reduce the advantage of the company's high ROE "capital light" model, he said.
Arbor ( ABR ) stock slipped 0.9% in Monday premarket trading.
Shane, staying cautious on the commercial real estate due to secular risks in the office segment, increases his forecast for net charge-offs and raises reserve rates across his coverage. "We believe the pressures from higher financing costs, slowing rent growth, and difficulty refinancing will manifest in 2023, driving maturity defaults and higher charge-offs which increases the risk of dividend cuts," he said.
The analyst's Neutral rating contrasts with the average SA Author rating and the average Wall Street rating , both at Buy.
SA contributor Brad Thomas takes a close look at Arbor and its dividend.
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Arbor Realty Trust downgraded to Neutral at J.P. Morgan after recent property default