Critical Comparison: Apollo Commercial Real Estate Finance (NYSE:ARI) vs. City Office REIT (NYSE:CIO)

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

Insider & Institutional Ownership

54.4% of Apollo Commercial Real Estate Finance shares are owned by institutional investors. Comparatively, 67.5% of City Office REIT shares are owned by institutional investors. 0.7% of Apollo Commercial Real Estate Finance shares are owned by company insiders. Comparatively, 3.9% of City Office REIT shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Volatility and Risk

Apollo Commercial Real Estate Finance has a beta of 1.75, suggesting that its stock price is 75% more volatile than the S&P 500. Comparatively, City Office REIT has a beta of 1.93, suggesting that its stock price is 93% more volatile than the S&P 500.

Dividends

Apollo Commercial Real Estate Finance pays an annual dividend of $1.40 per share and has a dividend yield of 13.5%. City Office REIT pays an annual dividend of $0.40 per share and has a dividend yield of 6.7%. Apollo Commercial Real Estate Finance pays out -179.5% of its earnings in the form of a dividend. City Office REIT pays out -142.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Apollo Commercial Real Estate Finance is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Apollo Commercial Real Estate Finance and City Office REIT, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Apollo Commercial Real Estate Finance	1	4	0	0	1.80
City Office REIT	0	1	0	0	2.00

Apollo Commercial Real Estate Finance currently has a consensus target price of $10.25, suggesting a potential downside of 0.87%. Given Apollo Commercial Real Estate Finance’s higher possible upside, analysts clearly believe Apollo Commercial Real Estate Finance is more favorable than City Office REIT.

Valuation & Earnings

This table compares Apollo Commercial Real Estate Finance and City Office REIT’s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Apollo Commercial Real Estate Finance	$332.85 million	4.42	$58.13 million	($0.78)	-13.26
City Office REIT	$175.37 million	1.36	-$2.68 million	($0.28)	-21.25

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Apollo Commercial Real Estate Finance	-28.20%	5.88%	1.38%
City Office REIT	-4.02%	-1.06%	-0.46%

Summary

Apollo Commercial Real Estate Finance beats City Office REIT on 9 of the 15 factors compared between the two stocks.

About Apollo Commercial Real Estate Finance

Apollo Commercial Real Estate Finance, Inc. operates as a real estate investment trust (REIT) that originates, acquires, invests in, and manages commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments in the United States, the United Kingdom, and Europe. It is qualified as a REIT under the Internal Revenue Code. As a REIT, it would not be subject to federal income taxes, if the company distributes at least 90% of its REIT taxable income to its stockholders. Apollo Commercial Real Estate Finance, Inc. was incorporated in 2009 and is based in New York, New York.

About City Office REIT

City Office REIT is an internally-managed real estate company focused on acquiring, owning and operating high-quality office properties located predominantly in Sun Belt markets. City Office currently owns or has a controlling interest in 5.7 million square feet of office properties. The Company has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes.