(By Balaseshan) Deutsche Bank analyst Stephen Laws initiated coverage of Arbor Realty Trust Inc. (NYSE: ABR) with a "Buy" rating and $7.50 price target, expecting valuation to improve as portfolio grows.
Laws believes Arbor Realty is well positioned to benefit from improving market conditions for commercial real estate (CRE) debt investors given a large supply of potential investments and attractive financing options.
As the portfolio grows through new investments and the company continues to manage legacy investments, the analyst expects the discount to economic book value to decline. His price target is based on shares trading at 75% of economic book value. Given his 2013 outlook and the attractive valuation, he rate shares a "Buy".
Laws believes ABR will benefit from an attractive supply of potential new investments, as roughly $1.5 trillion of CRE debt is scheduled to mature over the next five years. He believes the investment pipeline coupled with ABR's ability to access capital markets through CLO transactions positions it to benefit from the improving operating environment.
The analyst expects ABR's portfolio performance to improve in 2013 as the company continues to manage its legacy portfolio. He expects ABR to benefit from its established loan origination platform, new MBS investments, and opportunistic CDO debt repurchases.
Laws believes a lower discount to economic book value is warranted given the improving operating environment for CRE debt investors and ABR's established origination platform, while acknowledging the legacy asset exposure.
ABR is trading up 0.50% at $6.08 on Friday.