ARI: A Rebuilt Credit Book Trading At A Legacy Discount
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SiliconBytes Insights120 FollowersFollow5ShareSavePlay(16min)Comment(1)SummaryApollo Commercial Real Estate Finance now boasts a senior-heavy, floating-rate loan book with improved underwriting and a 7.7% unlevered yield.ARI’s dividend is well covered by distributable earnings, supported by capital recycling, wider spreads, and a shift to higher-coupon loans post-2022.Legacy distressed assets are being resolved, with clear monetization paths and REO assets now generating cash flow and targeted for sale by 2026.Despite a strengthened credit profile, ARI trades at a 24% discount to book, presenting rerating potential as market perception catches up.This presents a BUY opportunity. Nuthawut Somsuk/iStock via Getty Images Introduction Apollo Commercial Real Estate Finance (ARI) today is vastly different from the self-repair mode of the 2021-24 period. In those years, ARI had many problem loans, and as a result of that, they stayed defensive. Now, post-2022, 54% of their loans originate at higher coupons. TheseThis article was written bySiliconBytes Insights120 FollowersFollowI have a B.Tech degree in Mechanical Engineering from a top school in India. For nearly twenty five years, I have worked in the oil and gas sector, primarily in the Middle East. I work at the intersection of engineering, operations, and project management in an industry that does not forgive mistakes - so I have learned to be efficient, careful, and disciplined. These traits inform my investment strategy. For much of my professional career, I have maintained a serious and sustained interest in the U.S. equity markets, with a particular focus on technology, energy, and healthcare. I started as a growth investor, taking risks as I saw fit; but today, my investment approach blends elements of both value and growth. I seek to understand the underlying economics of a business, evaluate the durability of its competitive advantage (or “moat”), and assess its ability to generate consistent free cash flow over time. I believe, as Munger puts it, in “sitting on your ass” when holding a high-quality business—allowing time and compounding to do the heavy lifting. My orientation is moderately conservative; I look for upside while minimizing downside. Well, who doesn’t, but as I look towards retirement, I have started emphasizing the latter over the former. As a result, in recent years, I’ve gradually rebalanced toward income-generating assets—dividend-paying equities, REITs, and similar vehicles. I view investing not merely as a pursuit of high returns but something that will also generate peace of mind. I joined Seeking Alpha to both contribute to and learn from a community of thoughtful investors—people who, like me, are interested in the intersection of real-world business fundamentals and intelligent investing. PS - The icon I have used represents something fundamentally important to me - that is, to earn money through investing in ecologically sensitive businesses.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.