Short seller Ningi Research says Arbor Realty’s stock could fall 52%-67% thanks to its exposure to toxic off-balance sheet assets and potential margin calls.
In a Tuesday short report, the anonymous short seller said mortgage real estate investment trust Arbor had hidden a portfolio of mobile homes with liabilities of $582 million in shell companies that would have rendered it insolvent until 2017.
Ningi also said the REIT “does not disclose coherent information about its repurchase and credit facilities” and was at risk of a collapse akin to that of Archegos Capital Management, a family office that blew up in 2021.
Just as Archegos’ counterparties did not realize what trades the fund was executing with other banks, Ningi said the true extent of its debts was not known but key indicators suggested it was rising fast and would have an impact on its appeal to investors if it became known.
“A single margin call will lead to an immediate dividend cut, and deleveraging Arbor’s balance sheet will corroborate a suspension of dividends for a longer time,” Ningi said.
“The report lacks merit and contains numerous inaccuracies, misstatements, and otherwise misleading allegations,” said Arbor in a statement in which it also defended the accuracy of its books and records.
The short seller also took aim at auditor EY and the chair of the board’s audit committee, saying that a lack of disclosure and past lawsuits raised concerns about the company’s finances.
Arbor units fell 6.7 Tuesday after the short report came out and were down another 7.5% in midday trading Wednesday in New York.