Barclays' Views Recent Apollo Commercial REIT Deal Favorably, Increases Earnings Estimates

Barclays views the Apollo Commercial Real Est. Finance Inc ARI's purchase of Apollo Residential Mortgage as positive and retained its Equal Weight rating on shares.

The consideration included $217 million of stock (using ARI's August 31 closing price), $219 million cash and the assumption of preferred stock with a liquidation value of $172.5 million. The fair value of the acquired assets is roughly $655 million and ARI estimates $15 million of additional transaction costs.

The brokerage said the deal provides ARI with "(i) common stock priced above book value/current price without issuance fees and (ii) preferred stock at a lower borrowing rate than its in-place preferred stock."

Barclays, which has a price target of $17 on the stock, raised its 2016 adjusted EPS estimate (ex. merger transaction costs) to $2.06 (+8.1 percent year-over-year) from $2.00.

The brokerage also increased its 2017 adjusted EPS view to $2.21 from $1.95 as the new capital will allow ARI to continue actively originating new mortgages.

At time of writing, shares of ARI rose 1.19 percent to $16.96.