Apollo Commercial Real Estate Finance (ARI) is a company that assists in originating, investing, managing, and acquiring CRE loans.
Apollo is a well managed financing company that has focused primarily on the CMBS market, but provides mezz financing as well. The company currently has a yield of 9.3%, which might scare investors into thinking there is significant risk here. However, this is simply not the case.
In 2012, Apollo completed $264 million in new transactions. The new transactions had a weighted average IRR of 13%. The total portfolio stood around $669 million with an averaged weighted IRR of 14%. So its pretty clear that the company is generating a more than sufficient enough return to pay the current dividend, while retaining additional capital on the balance sheet.
Investors may be concerned over the capital raises the company has done, but should understand that it's a REIT. REIT's typically raise capital through share issuances. This is nothing new. The company netted $124 million in October and a $148 million this March. The combined $272 million has already been allocated to projects. The capital raises have barely affected book value. This shows that management is focused on making sure that the capital raises remain accretive to shareholders.
ARI's portfolio is fairly stable and is in strong markets. For example, the company closed two Manhattan multifamily properties for a $140 million in financing. The loan for the condominium conversion yields 11%, while the condominium development is at 16%. Leverage has been modest as well. The company is typically doing an LTV of 60%-65%, which is pretty safe.
Book value for the company is $16.84. The stock is trading at a 2% premium to book. I consider this a reasonable buy. A 2% premium is actually considered cheap considering. Resource Capital (RSO), which is a similar company trades at a 21% premium to book. While the dividend is higher, investors are paying more for Resource. So ARI is a good buy given its minimal premium to book value and stable portfolio.