Apollo Commercial Real Estate Finance (ARI) & Ares Commercial Real Estate (ACRE) Critical Survey

Apollo Commercial Real Estate Finance (NYSE: ARI) and Ares Commercial Real Estate (NYSE:ACRE) are both small-cap finance companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, dividends, earnings, risk, analyst recommendations, valuation and profitability.

Risk & Volatility

Apollo Commercial Real Estate Finance has a beta of 0.63, suggesting that its stock price is 37% less volatile than the S&P 500. Comparatively, Ares Commercial Real Estate has a beta of 0.69, suggesting that its stock price is 31% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Apollo Commercial Real Estate Finance and Ares Commercial Real Estate, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Apollo Commercial Real Estate Finance 0 3 1 0 2.25
Ares Commercial Real Estate 1 2 2 0 2.20

Apollo Commercial Real Estate Finance currently has a consensus target price of $18.50, suggesting a potential downside of 0.32%. Ares Commercial Real Estate has a consensus target price of $14.25, suggesting a potential upside of 6.66%. Given Ares Commercial Real Estate’s higher probable upside, analysts clearly believe Ares Commercial Real Estate is more favorable than Apollo Commercial Real Estate Finance.

Dividends

Apollo Commercial Real Estate Finance pays an annual dividend of $1.84 per share and has a dividend yield of 9.9%. Ares Commercial Real Estate pays an annual dividend of $1.08 per share and has a dividend yield of 8.1%. Apollo Commercial Real Estate Finance pays out 100.5% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Commercial Real Estate pays out 94.7% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Ares Commercial Real Estate has increased its dividend for 2 consecutive years.

Profitability

This table compares Apollo Commercial Real Estate Finance and Ares Commercial Real Estate’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Apollo Commercial Real Estate Finance 86.07% 10.32% 5.57%
Ares Commercial Real Estate 33.69% 7.76% 2.16%

Institutional and Insider Ownership

67.8% of Apollo Commercial Real Estate Finance shares are held by institutional investors. Comparatively, 63.2% of Ares Commercial Real Estate shares are held by institutional investors. 0.6% of Apollo Commercial Real Estate Finance shares are held by insiders. Comparatively, 1.8% of Ares Commercial Real Estate shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Apollo Commercial Real Estate Finance and Ares Commercial Real Estate’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Apollo Commercial Real Estate Finance $200.62 million 9.91 $157.87 million $1.83 10.14
Ares Commercial Real Estate $81.96 million 4.66 $40.33 million $1.14 11.72

Apollo Commercial Real Estate Finance has higher revenue and earnings than Ares Commercial Real Estate. Apollo Commercial Real Estate Finance is trading at a lower price-to-earnings ratio than Ares Commercial Real Estate, indicating that it is currently the more affordable of the two stocks.

Summary

Apollo Commercial Real Estate Finance beats Ares Commercial Real Estate on 10 of the 17 factors compared between the two stocks.

Apollo Commercial Real Estate Finance Company Profile

Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust. The Company primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings, commercial mortgage-backed securities (CMBS) and other commercial real estate-related debt investments. The Company targets investments that are secured by institutional quality real estate. The Company’s principal business objective is to make investments in its target assets in order to provide attractive risk adjusted returns to its stockholders over the long term, primarily through dividends and secondarily through capital appreciation. The Company is externally managed and advised by ACREFI Management, LLC.

Ares Commercial Real Estate Company Profile

Ares Commercial Real Estate Corporation is a specialty finance company. The Company is primarily engaged in originating and investing in commercial real estate (CRE) loans and related investments. The Company operates through principal lending segment. Its target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investment opportunities, including commercial mortgage-backed securities. These investments are generally held for investment and are secured, directly or indirectly, by office, multifamily, retail, industrial, lodging, senior-living, self-storage and other commercial real estate properties, or by ownership interests therein. Through the Company’s manager, Ares Commercial Real Estate Management LLC, it has investment professionals located across the United States and Europe who directly source loan opportunities for the Company with owners, operators and sponsors of CRE properties.

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