It’s a horrible environment for mortgage companies. Interest rates are rising fast, mortgage applications and mortgage companies’ stock prices are way down. It’s enough to make you want to throw up if you are a shareholder in a mortgage company.
It brings to mind something famed investor Mark Mobius once shared with us at an investment conference, and we paraphrase because it’s been a while, “The best time to buy is when the very idea makes you want to puke.”
Maybe that’s how Apollo Commercial Real Estate Finance, Inc. (ARI) Chief Executive Officer (CEO) Stuart Rothstein felt as the CEO did something he hasn’t done since March 2015. Rothstein bought 15,000 shares of the Real Estate Investment Trust (REIT) at $11.18 per share for an investment of $167,672. (1)
Since 2019, the CEO has purchased four times, including last week, spending a total of $485,060. Meanwhile, he’s sold 20 times collecting $6.87 million.
Apollo Commercial Real Estate is a REIT that primarily originates and invests in senior mortgages, mezzanine loans and other commercial real estate-related debt investments collateralized by properties throughout the United States and Europe. They offer financing across a broad spectrum of commercial property types and geographies.
ARI is qualified as a REIT under the Internal Revenue Code. As a REIT, it would not be subject to federal income taxes, if the company distributes at least 90% of its REIT taxable income to its stockholders.
The real estate company recently unveiled its third-quarter earnings report card, and the news was a welcome tonic for Wall Street. According to Zacks Investment Research, Apollo’s earnings per share (EPS) of $0.37 were a penny better than expected while sales of $61.87 were a touch less than expected. (2) Shares stormed from $9.53 to $11.25 following the release, close to close on October 24th and 25th respectively.
Rothstein said of the quarter’s results, “In addition to reporting distributable earnings in excess of our common stock dividend, ARI has made significant progress with key asset management initiatives for several of our loans, which enables ARI to reinvest capital that previously was not earning an optimal return.” (3)
Management declared a dividend of $0.35 per share, which works out to $1.40 annually for a dividend yield of 11.47%. Of course, you never know, but the dividend payout looks safe in the immediate future as the coverage ratio is 1.06 times the payout. Book Value per share, perhaps, was the most impressive part of the third quarter result. It jumped from $15.19 in the second quarter to $16.12 per share. (4)
As we type, API trades at $12.21, which is 0.76 times book value and a little less than the typical peer’s price to book ratio of 0.90. During the past half-decade, the REIT was valued at an average of 0.86 times its book value. If Apollo Commercial traded in line with the industry or its five-year average price to book, the stock would price out at $14.51 and $13.86, respectively.
OVERALL: Apollo Commercial Real Estate Finance, Inc. (ARI) could be attractive to income or dividend reinvestment investors seeking well above average yields. However, with a beta of 1.6 (S&P beta is 1), ARI is only appropriate for those with and above average risk tolerance.
1 – https://www.secform4.com/insider-trading/1128865.htm
2 – https://finance.yahoo.com/news/apollo-commerical-finance-ari-surpasses-215509578.html
3 – https://www.apollocref.com/~/media/Files/A/Apollo-Reit/documents/3q2022/press-release-24102022.pdf
4 – https://www.apollocref.com/~/media/Files/A/Apollo-Reit/documents/presentations/q3-2022-earning-supplemental-information.pdf