An Apollo-managed real estate investment trust has agreed to a landmark $9 billion sale of its entire loan portfolio to Athene, the private capital group’s affiliated insurance company. The move comes after the trust's shares consistently traded below their asset value on public markets.
The entity, Apollo Commercial Real Estate Finance (ARI), confirmed the transaction will see its loan book sold at a price near its book value. This represents a significant premium of approximately 20% over recent trading levels, a figure the company says validates the underlying worth of its assets.
Key Takeaways
- Apollo Commercial Real Estate Finance (ARI) is selling its $9 billion loan portfolio to Athene, an insurance company affiliated with Apollo.
- The sale price is near the portfolio's book value, a premium of about 20% compared to ARI's recent stock performance.
- The deal includes non-performing loans tied to high-profile properties, such as a luxury building on Manhattan's 'Billionaires' Row'.
- ARI will retain $466 million in net equity and will spend the rest of the year exploring new business strategies, including potential mergers or dissolution.
A Shift from Public to Private Valuation
The decision to sell follows a prolonged period of underperformance for ARI on the stock market. Over the past four years, the company's shares have traded at an average of just 77% of their book value, indicating a persistent discount applied by public investors.
This gap between public market perception and internal valuation appears to be a key driver for the deal. By selling to a private, institutional buyer like Athene, Apollo is effectively realizing the full value of the assets that public shareholders were hesitant to recognize.
“There seems to be much greater value placed on what we do from an origination perspective in the institutional market than in the public market right now,” said Stuart Rothstein, Chief Executive of ARI.
Inside the $9 Billion Portfolio
The loan book being transferred is diverse, with about half of its value backed by loans in the residential and office sectors. The portfolio is not without its challenges; it includes several non-performing loans that will be part of the transaction.
Notable assets among these are loans secured by a luxury residential building on Manhattan's 57th Street, famously known as Billionaires' Row, and a shopping center located in Ohio. Athene has confirmed its acquisition includes these specific assets, signaling confidence in its ability to manage them.
Familiar Territory for Athene
The acquisition is a calculated move for Athene. The insurer stated that it is already invested in the capital structure of nearly half the loans within the portfolio, giving it what it described as “deep first-hand familiarity with the assets and their credit quality.”
Market Pressures and Strategic Pivots
The deal occurs against a backdrop of a challenging real estate market. Many real estate investment vehicles have faced difficulties since 2022, when central banks began aggressively raising interest rates to combat inflation. This environment has put pressure on property valuations and loan performance.
However, the very assets that have struggled in some respects—asset-backed loans—are now in high demand from large institutional investors and insurers. These groups are seeking stable, yielding assets to back their long-term liabilities, creating a strong private market for portfolios like ARI's.
According to Jade Rahmani, an analyst at KBW who covers the sector, the deal highlights the “strong bid for yielding assets from alternative managers like Apollo, and an improving outlook for commercial real estate credit.”
What's Next for ARI?
Following the sale, ARI will not be completely dissolved. The company plans to retain its net equity interest in the real estate properties it holds, which was valued at $466 million at the end of September.
The remainder of the year will be dedicated to a strategic overhaul. ARI announced it is “evaluating a range of commercial real estate-related strategies designed to reposition” the company. This process will leverage Apollo's extensive investment platform and could involve several outcomes:
- Launching a new business strategy.
- Considering mergers or acquisitions.
- Exploring dissolution if a new path is not identified by the end of the year.
To ensure director oversight, the company has a 25-day period to consider alternative proposals for the portfolio, a standard step in transactions involving related parties.
The Trend of Related-Party Transactions
This transaction between two Apollo-managed entities is part of a broader trend where large private capital groups sell assets to affiliated insurers. Firms like Brookfield have executed similar strategies. Apollo itself has previously highlighted such related-party deals by its rivals. Last year, Athene published a presentation suggesting competitors like KKR and Blackstone had a larger share of such investments. Athene reported its own related-party holdings at 12% of total assets, though the basis for this calculation has been noted as differing from the methods used for its peers.
Athene framed the acquisition as a disciplined move to secure high-quality assets. “This transaction to acquire ARI’s commercial real estate portfolio reflects Athene’s disciplined approach to sourcing high-quality assets with excess spread that align with our long-duration liabilities,” the company stated.
