Apollo Commercial Real Estate Finance, Inc. (ARI): what the price requires
At today's price, Apollo Commercial Real Estate Finance, Inc. (ARI) is priced for 8.9% return on equity. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-19 · Source: https://boothcheck.com/report/ARI
Headline
| Field | Value |
|---|---|
| Ticker | ARI |
| Company | Apollo Commercial Real Estate Finance, Inc. |
| Current price | $10.33/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | financials |
| Return on equity needed | 8.9% |
| Return on equity now | 6.2% |
| ROE gap | +2.7pp |
| Price-to-book | 0.76x |
Solve inputs: computed at a 10.8% cost of equity with 3% terminal growth over a 5-year stage, on common book equity (FY2026); each 1pp of cost of equity moves the implied ROE ~0.8pp.
Reconcile: at the x-ray's 9.3% required return this reads ~7.7%; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | +1.05σ |
| cohort percentile (of 10 peers) | 30 |
| sustained it ~10 years at this level | 79% |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.14x | 4 | expensive |
| Earnings | 0.79x | 2 | justifies |
| Relative | 0.58x | 4 | justifies |
| Growth | 1.03x | 4 | expensive |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.9%); the inversion above states its own rate.
Per-Model Detail (n=14)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $0.00 | — | no | FCF base $0.1B, growth -8% (input: historical growth), terminal g 0.5%, WACC 5.9%, 5yr projection |
| DCF Exit Multiple | Growth | $5.82 | 1.77x | yes | Exit EV/EBITDA: 492.7x / 494.7x / 496.7x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $20.70 | 0.50x | yes | P/E 25.55x (blended: static sector reference 35x + trailing (TTM) 11x), scenarios: 21.7x / 25.6x / 29.4x (bear / base = reference held flat / bull), EV/EBITDA 44x |
| Simple DDM | Growth | $48.64 | 0.21x | yes | DPS $1.02, g=7.0% (sustainable: ROE (TTM) × retention; not the terminal-growth assumption), ke=9.3% |
| Two-Stage DDM | Growth | $35.26 | 0.29x | yes | Stage 1: 19% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $9.82 | 1.05x | yes | BV/sh $12.97, ROE (TTM) 7.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $8.48 | 1.22x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $5.48 | 1.89x | yes | Rev $0.3B, growth -8% (input: historical growth; tapered), Terminal P/S: 4.6x / 5.5x / 6.3x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $15.68 | 0.66x | yes | EPS $0.81, growth 19% (input: historical EPS growth), PEG=0.59 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $8.29 | 1.25x | yes | BV $12.97 + 5yr PV of (ROE (TTM) 7.0% − Kₑ 9.3%) × BV; BV grows 4.6%/yr |
| Graham Number | Asset | $15.37 | 0.67x | yes | √(22.5 × EPS $0.81 × BVPS $12.97) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $0.01 | 1033.00x | yes | EBITDA $0.01B × sector EV/EBITDA 20.0x (excluded from median) |
| FCF Yield | Earnings | $0.01 | 1033.00x | yes | FCF $115.8M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | $0.01 | 1033.00x | yes | SBC-adj FCF $0.10B (FCF $0.12B − SBC $0.01B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | $26.14 | 0.40x | yes | EPS $0.81 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $11.36 | 0.91x | yes | Revenue $0.26B × sector P/S 6.0x |
| PEG Fair Value | Relative | $23.53 | 0.44x | yes | EPS $0.81 × (PEG 1.5 × growth 19.4% (input: historical EPS growth)) → PE 29.0x |
| Earnings Yield | Earnings | $8.76 | 1.18x | yes | EPS $0.81 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Share count CAGR (buyback) | -0.1% |
Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).
Bullet Takeaways
- Apollo Commercial Real Estate Finance is a commercial mortgage lender that originates floating-rate first mortgages on commercial property, run by an arm of Apollo, and at $10.83 it trades below its own net worth of about $12.01 a share.
- The price pays roughly 0.8 times book and assumes the firm earns a return on equity near 9% against the roughly 6% to 7% it has earned recently, so the bet is on the lending engine closing that gap rather than on growth.
- The live risk is credit, concentrated in office and other troubled property: book value slipped to $12.01 from $12.14 in the quarter, the firm carries a general credit-loss allowance of about $0.30 a share, and a large loan-portfolio sale is reshaping the balance sheet.
Bull Case
The moat here is not a brand or a network; it is the parent. ARI is the commercial-real-estate lending vehicle of Apollo, and that affiliation gives it deal flow, underwriting infrastructure, and access to financing that a standalone lender of its size could not assemble. The portfolio is built around floating-rate first mortgages, the senior, secured position in a property's capital stack, which is the safest layer to lend against because it gets paid first if anything goes wrong. The firm rates every loan quarterly on a five-point scale against "type, geographic and local market dynamics, physical condition, cash flow volatility, leasing and tenant profile, loan structure and exit plan, and project sponsorship," which is the disciplined, loan-by-loan credit work that separates a careful lender from a yield-chaser.
The floating-rate structure is the second pillar. Because the loans reset with benchmark rates, the income the portfolio throws off rises and falls with short rates rather than being locked in at the rate that prevailed when the loan was made. In a higher-for-longer rate environment, that is an income tailwind: the firm earns more on its assets as rates stay elevated, while a fixed-rate lender would be stuck with yesterday's coupons. Distributable earnings, the cash measure the dividend is paid from, were $30.7 million or $0.22 a share in Q1 2026.
The valuation itself is the bull's strongest card. At $10.83 the stock trades at roughly 0.8 times a book value of about $12.01, which means a buyer is paying less than the accounting net worth of the loan book. The asset-based methods that anchor on book value and current profitability bracket the current price rather than sit far above it, and the price embeds a required return on equity of about 9.3% against the roughly 6% to 7% the firm has recently earned. That gap is the whole bull thesis: if the lending engine simply earns back toward its own normal return as credit stabilizes and the reshaped portfolio redeploys, a below-book stock paying a high single-digit yield on book re-rates without needing any heroics.
Bear Case
A mortgage REIT is only as sound as its balance sheet, and this one is funded the way all of them are: it borrows short against secured credit lines to hold longer-dated property loans, so a small move in the value of the loan book is amplified at the equity line. That is the structural fragility. The firm's secured debt arrangements carry a cost of funds tied to "weighted-average spread and applicable benchmark rates" that move with the market, which means the same higher rates that lift the asset yield also lift the cost of the leverage underneath it. The spread between the two is the business, and it is thin enough that a credit problem can erase it.
The credit problem is not hypothetical. Book value per share declined to $12.01 from $12.14 in a single quarter, and the firm carries a general credit-loss allowance of about $0.30 a share, the cushion it has set aside against loans it expects may not pay in full. A large loan-portfolio sale is reshaping the firm, the kind of action a lender takes to clean up troubled exposure rather than to grow. Commercial real estate, and office in particular, has been the epicenter of post-pandemic stress, and a first-mortgage lender is senior but not immune: when a property's value falls below the loan balance, the senior position still takes a loss. The firm's own loan-rating framework exists precisely because some loans migrate down that five-point scale.
The valuation also says less than it first appears. The price embeds a return on equity near 9.3% while the firm has recently earned closer to 6.2%. If that gap closes the wrong way, if credit deteriorates and the return on equity stays depressed or the dividend has to be cut to match distributable earnings, then the discount to book is not cheapness but the market's honest estimate of further book erosion. A below-book financial is cheap only if the book is real.
Valuation
A financial is worth the return it earns on its capital, so the right lens for ARI is price-to-book, not an operating multiple. At $10.83 against a book value of about $12.01 a share, the stock trades near 0.8 times book. Inverted, that price assumes the firm sustains a return on equity of roughly 9.3%, while it has recently been earning closer to 6.2%. Keep those figures approximate; they are one solve under fixed assumptions. The message is plain: the price is not demanding heroic growth, it is asking whether the lending engine earns back toward a normal return on its capital.
The methods cluster, which is itself informative. Unlike a richly priced growth name where only the forward-growth family reaches the price, here the asset-based, earnings-power, and relative-multiple approaches all land in the same neighborhood as the price rather than far above it. The excess-return methods, which start from book value and add the present value of returns above the cost of equity, land near $8 to $10. The price is supported by asset value rather than floating free of it. This is a value or recovery read, not an optionality bet. The cash-flow and EV-to-EBITDA style methods produce nonsense numbers for a balance-sheet lender of this kind and should be ignored; they are built for operating companies, not for a book of loans.
The solvency frame for a financial is not net debt and interest coverage, because its borrowing is funding rather than corporate leverage; it is the quality of the loan book and the capacity to keep paying the dividend. Distributable earnings of $0.22 a share in Q1 2026 and a general credit-loss allowance of about $0.30 a share are the numbers that matter. The whole valuation reduces to one question the discount to book is already posing: are the marks on the loans honest, and will the reshaped portfolio earn a return that justifies more than 0.8 times the capital behind it.
Catalysts
The first quarter of 2026 was a clean-up-and-reshape quarter. ARI reported net income available to common stockholders of $23 million, or $0.16 per diluted share, and distributable earnings of $30.7 million, or $0.22 per diluted share. Book value per share eased to $12.01 from $12.14 at year-end 2025, with a general credit-loss allowance of about $0.30 a share and an undepreciated book value near $12.29.
The defining event was a large loan-portfolio sale that is reshaping the firm. Management framed a pro forma book value near $12.15 reflecting the reversal of general credit-loss allowances tied to the sale and accretion from share repurchases. Buying back stock below book is accretive to book value per share, and reducing troubled exposure shrinks the credit risk the market has been discounting. The next catalysts are sequential: whether the redeployed capital from the sale earns a competitive return, whether book value stabilizes or keeps eroding, and whether distributable earnings continue to cover the dividend. Each upcoming quarterly print is a direct test of whether the discount to book is a recovery opportunity or a warning.
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- ABR (Arbor Realty Trust, Inc.)
- FY2025 10-K: …companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders, governmental bodies and other entities, some of which may have greater name recognition, financial resources and lower costs of capital available to…
- FY2025 10-K: …Any of these events could increase the volatility of our results of operations and liquidity and could adversely affect our business, financial condition and ability to make distributions to our stockholders. We may not be able to hire and retain qualified loan originators or grow and maintain our relationships with…
- EFC (Ellington Financial Inc.)
- FY2025 10-K: …commodities for their own accounts or for the accounts of others for whom our Manager or any of its affiliates, officers, or employees may be acting. Competition In acquiring our assets, we compete with other mortgage REITs, specialty finance companies, loan originators and servicers, banks, mortgage bankers,…
- FY2025 10-K: …such variable interest entities are included in Investments in unconsolidated entities, at fair value on the Consolidated Balance Sheet. The table below summarizes our interests in commercial mortgage loans by geographic location of the underlying real estate collateral, as a percentage of total outstanding unpaid…
- RITM (Rithm Capital Corp.)
- FY2025 10-K: …business, financial condition and results of operations. See "Risk Factors-Risks Related to the Financial Markets and Our Regulatory Environment-Maintenance of our 1940 Act exclusion imposes limits on our operations." 17 Competition Competition in our businesses is significant, and our results depend in part on our…
- FY2025 10-K: …and professional. The Residential Transitional Lending segment's other segment expenses primarily include expenses related to loan origination, occupancy and information technology. The Asset Management segment's other segment expenses primarily include expenses related to legal and professional, information…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings, May 2026