ARI
Apollo Commercial Real Estate Finance, Inc.
$10.94
Real Estate Investment Trust
85%
P/FFO × Default REIT Multiple
Strong
·
Conviction
Undervalued
Trading 44.5% below fair value
You pay
$10.94
Bear
$16.38
Fair
$19.72
Bull
$23.06
Bear
$16.38
+49.7%
$1.04 FFO × 18x
Fair
$19.72
+80.3%
$1.04 FFO × 22x
Bull
$23.06
+110.8%
$1.04 FFO × 26x
Key Value Driver
FFO/share ($1.04) × default P/FFO multiple
Implied Market Multiple
10.5x
Summary
Our base-case estimate uses P/FFO × Default REIT Multiple. We then blend that result with the average analyst price target of $12.00 from 12 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $19.72 per share.
Warnings
Standard profit figures are misleading for real estate companies — large non-cash accounting charges make profits look artificially low. Dividend yield and funds from operations are better measures.
Dividend yield of 9.1% is unusually high — make sure the company generates enough cash to keep paying it.
Wall Street's average price target is $12.00 (from 12 analysts). Our estimate is 80% above the consensus -- consider that gap carefully.
Key Risks
- P/E and EV/EBITDA are structurally wrong for REITs — use P/FFO and NAV
- Interest rate sensitivity: REIT multiples compress when rates rise
- FFO approximation (NI + D&A) may include gains on property sales — verify