Arbor Realty Trust Inc (NYSE:ABR) is structured as a real estate investment trust (REIT), and this is a great market to be a REIT in.
Generally speaking, REITs own properties, whether commercial, retail, storage, medical, etc. They do well when the economy is doing well since it means businesses are growing and consumers are spending.
The Federal Reserve just raised rates this week and said it’s expecting to raise them again two more times this year. That would suggest the Fed is bullish on the U.S. economy moving forward.
Another characteristic of REITs is, they are structured in such a way that shareholders are considered direct owners of the company. And they have to share 90% of their income with the owners (aka, shareholders), which is distributed in the form of a dividend.
In most cases, REIT investors are usually more income-oriented than growth oriented because of this structure.
However, when the economy is expanding and REITs have been sleepy, this can be a great time to take advantage of both their growth and income. As we’ve seen since the financial crisis overtook the economy, there have been several shifts that have changed the sector.
Shifts in the Real Estate Sector
First, the rise of ecommerce has done some significant damage to REITs that focus on retail spaces like shopping malls and strip malls.
On the other hand, those that have been focused on space for cloud computing and server farms have been going gangbusters, as have medical buildings for biotech and healthcare operations.
And now, commercial properties as well as multifamily housing are coming back online.
The latter is where ABR stock fits in, but Arbor is a unique kind of REIT because it doesn’t own and manage properties. It works as niche lender for commercial and multifamily housing projects (including assisted living facilities, senior living facilities, etc).
ABR currently has a $16 billion loan portfolio, and business is heating up. You see, its primary concern isn’t filling buildings with tenants and keeping up with square footage lease rates.
It makes money the old-fashioned way. ABR borrows money at a low rate and charges its customers a higher rate to borrow it. As rates rise, ABR can grow its margins since it’s a big enough borrower that its rates are rising as fast as the market rates are for its customers.
This is why the ABR stock is up 17% year to date and it’s still delivering a 9.9% dividend yield. In the past 12 months, the stock is up 21% and the yield over the period was higher than it is now. That means investors saw at least a 30% return from this REIT in the past year.
The thing is, this sector is just starting to grow. As the economy expands, so will ABR’s fortunes.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
