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In response to the decline of Apollo Commercial Real Estate Finance (NYSE:ARI) shares, well below net asset value of $16.66, the company last week made the necessary move implementing a share repurchase program of up to $35,0000,000. The program is designed to provide the company with the ability to buy back its shares, in the open market, over a period of one year.

This is a positive development for existing shareholders who have seen shares consistently trade below current NAV of $16.66. With a share buyback in place, market volatility and dislocations can now work to the shareholder's advantage as the repurchase of company shares at significant discounts to NAV would immediately boost shareholder value by increasing the NAV and dividend without the credit risk inherent in expanding the commercial real estate loan portfolio. This option gives the company a significant tool in protecting and increasing shareholder value. The single caveat here is that while buying back shares at a significant discount to NAV helps existing shareholders due to the anti-dilutive nature of the transaction, it actually reduces the management fee earned by Apollo's affiliate manager by reducing the level of assets under management. One can only hope (and expect) that the interests of shareholders take priority over the interests of the manager.

At the current market price of around $15.25 per share, the $35,000,000 buy back provides the ability to repurchase up to 2,295,000 shares, or all the trading volume for about 25 days, based upon the 90 day average volume of 93,000 shares. This is a very big bazooka that should prevent the shares from trading at a much larger discount then the current 8.50%.

With a dividend yield of over 10% for a secured loan portfolio and a relatively short duration (according to its pages 38 & 39 of ARI's 12/31/10 10-K has a portfolio with a weighted average maturity of only 2.5 years), ARI is a compelling investment for yield deprived investors as the share buyback program reduces the downside risk.
These are the personal views of Wall Street Titan and all investors should always do their own due diligence.
Source: Apollo's Share Buyback Should Put a Floor on Share Price