Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") ARI today reported financial results for the quarter ended March 31, 2018.
First Quarter 2018 Highlights
- Reported net income available to common stockholders of $42.6 million, or $0.38 per diluted share of common stock, for the three months ended March 31, 2018, as compared to $37.8 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017;
- Reported Operating Earnings (a non-GAAP financial measure defined below) of $47.8 million, or $0.43 per diluted share of common stock, for the three months ended March 31, 2018, as compared to $38.6 million, or $0.41 per diluted share of common stock, for the three months ended March 31, 2017;
- Generated $63.2 million of net interest income during the quarter from the Company's $4.1 billion commercial real estate loan portfolio;
- Committed $921.9 million to new commercial real estate loans ($488.7 million of which was funded at closing) and funded an additional $18.4 million for loans closed prior to the quarter;
- Subsequent to quarter end, committed $238.8 million to new commercial real estate loans ($236.3 million of which was funded at closing), bringing year-to-date loan commitments to $1.2 billion;
- Completed an underwritten public offering of 15.5 million shares of common stock, including the full exercise of the underwriters' option to purchase additional shares, raising net proceeds of approximately $275.9 million; and
- Declared a $0.46 dividend per share of common stock for the three months ended March 31, 2017.
"ARI's solid performance during the first quarter of 2018 underscores the strength of the Company's commercial real estate debt platform," said Stuart Rothstein, Chief Executive Officer and President of the Company. "ARI committed to $922 million of new loans during the quarter and we continue to build a healthy pipeline for the Company."
First Quarter 2018 Investment Activity
New Investments – During the first quarter of 2018, ARI committed capital to the following commercial real estate debt investments:
- $863.9 million of first mortgage loans ($477.0 million of which were funded during the quarter); and
- $58.0 million of subordinate loans ($11.7 million of which were funded during the quarter).
Funding of Previously Closed Loans – During the first quarter of 2018, ARI funded $18.4 million for loans closed prior to the quarter.
Loan Repayments – During the first quarter of 2018, ARI received $137.9 million from loan repayments, including $120.4 million from first mortgage loans and $17.5 million from subordinate loans.
Quarter End Commercial Real Estate Loan Portfolio Summary
The following table sets forth certain information regarding the Company's commercial real estate loan portfolio at March 31, 2018 ($ amounts in thousands):
|
Description |
Amortized Cost |
Weighted |
Weighted |
Secured Debt(3) |
Cost of |
Equity at |
||||||||||||
| Commercial mortgage loans, net | $ | 3,029,240 | 7.2 | % | 7.7 | % | $ | 1,212,749 | 4.1 | % | $ | 1,846,772 | ||||||
| Subordinate loans, net | 1,038,254 | 12.6 | % | 13.7 | % | - | - | 1,038,254 | ||||||||||
| Total/Weighted Average | $ | 4,067,494 | 8.6 | % | 9.2 | % | $ | 1,209,686 | 4.1 | % | $ | 2,885,026 | ||||||
| (1) | Weighted-Average Coupon and Weighted Average All-in-Yield are based upon the applicable benchmark rates as of March 31, 2018 on the floating rate loans. | |
| (2) | Weighted-Average All-in-Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. | |
| (3) | Net of deferred financing of $14,037. | |
| (4) | Represents loan portfolio at amortized cost plus loan proceeds held by servicer less secured debt outstanding. | |
Book Value
The Company's book value per share of common stock was $16.31 at March 31, 2018, as compared to book value per share of common stock of $16.30 at December 31, 2017.
Subsequent Events
The following events occurred subsequent to quarter end:
New Investments – Subsequent to quarter end, ARI committed capital to the following commercial real estate loans:
- $238.8 million of first mortgage loans ($236.3 million of which were funded during the quarter); and
Funding of Previously Closed Loans – Subsequent to quarter end, ARI funded $20.4 million for previously closed loans.
Loan Repayments – Subsequent to quarter end, ARI received $71.9 million from loan repayments, including $1.0 million from first mortgage loans and $70.1 million from subordinate loans.
DB Repurchase Facility – Subsequent to quarter end, ARI amended and restated the Company's master repurchase agreement with Deutsche Bank AG, which ARI uses to finance first mortgage loans. The amendment increased the borrowing capacity from $450.0 million to $800.0 million and enables ARI to elect to receive advances in either U.S. dollars, British pounds or Euros.
Operating Earnings
Operating Earnings is a non-GAAP financial measure that is defined by the Company as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding), (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses) other than realized gains/(losses) related to interest income, (v) the non-cash amortization expense related to the reclassification of a portion of the convertible senior notes to stockholders' equity in accordance with GAAP, and (vi) provision for loan losses and impairments. Beginning with the quarter ended September 30, 2016, the Company slightly modified its definition of Operating Earnings to include realized gains (losses) on currency swaps related to interest income on investments denominated in a currency other than U.S. dollars. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by ACREFI Management, LLC, the Company's external manager (the "Manager") and approved by a majority of the Company's independent directors.
In order to evaluate the effective yield of the portfolio, the Company uses Operating Earnings to reflect the net investment income of the Company's portfolio as adjusted to include the net interest expense related to the Company's derivative instruments. Operating Earnings allows the Company to isolate the net interest expense associated with the Company's swaps in order to monitor and project the Company's full cost of borrowings. The Company also believes that its investors use Operating Earnings, or a comparable supplemental performance measure, to evaluate and compare the performance of the Company and its peers and, as such, the Company believes that the disclosure of Operating Earnings is useful to its investors. In addition, the Company has previously disclosed that it has disposed of all of its CMBS as of December 31, 2017. Accordingly, the Company has disclosed Operating Earnings excluding realized loss and costs from sale of CMBS because the Company believes it is useful to investors to present the results of the Company's ongoing operations while excluding the effects associated with the disposal of its CMBS.
A significant limitation associated with Operating Earnings as a measure of the Company's financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, the Company's presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Operating Earnings should not be considered as a substitute for the Company's GAAP net income as a measure of its financial performance or any measure of its liquidity under GAAP.
Reconciliation of Operating Earnings to Net Income Available to Common Stockholders
The table below reconciles Operating Earnings and Operating Earnings per share of common stock with net income available to common stockholders and net income available to common stockholders per share of common stock for the three months ended March 31, 2018 and March 31, 2017($ amounts in thousands, except per share data):
|
|
Three Months |
Earnings |
Three Months |
Earnings |
|||||||||||||
| Operating Earnings: | |||||||||||||||||
| Net income available to common stockholders | $ | 42,598 | $ | 0.38 | $ | 37,815 | $ | 0.41 | |||||||||
| Adjustments: | |||||||||||||||||
| Equity-based compensation expense | 3,342 | 0.03 | 3,791 | 0.04 | |||||||||||||
| Unrealized gain on securities | - | - | (2,852 | ) | (0.03 | ) | |||||||||||
| Unrealized loss on derivative instruments | 11,032 | 0.10 | 3,045 | 0.03 | |||||||||||||
| Foreign currency gain, net | (10,362 | ) | (0.09 | ) | (3,326 | ) | (0.04 | ) | |||||||||
| Amortization of the convertible senior notes related to equity reclassification | 1,140 | 0.01 | 608 | 0.01 | |||||||||||||
| Income from unconsolidated joint venture | - | - | (458 | ) | (0.01 | ) | |||||||||||
| Total adjustments: | 5,152 | 0.05 | 808 | - | |||||||||||||
| Operating Earnings | $ | 47,750 | $ | 0.43 | $ | 38,623 | $ | 0.41 | |||||||||
| Realized loss and costs on sale of CMBS | - | - | 1,042 | 0.01 | |||||||||||||
| Operating Earnings excluding realized loss and costs from sale of CMBS | $ | 47,750 | $ | 0.43 | $ | 39,665 | $ | 0.42 | |||||||||
|
Basic weighted average shares of common stock outstanding: |
110,211,853 |
91,612,447 | |||||||||||||||
|
Diluted weighted average shares of common stock outstanding: |
111,871,429 |
92,998,250 | |||||||||||||||
Teleconference Details:
The Company will host a conference call to discuss its financial results on Thursday, May 3, 2018 at 9:00 a.m. Eastern Time. Members of the public who are interested in participating in the Company's first quarter 2018 earnings teleconference call should dial from the U.S., (877) 331-6553, or from outside the U.S., (760) 666-3769, shortly before 9:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 7476087). Please note the teleconference call will be available for replay beginning at 1:00 p.m. on Thursday, May 3, 2018 and ending at midnight on Thursday, May 10, 2018. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 7476087.
Webcast:
The conference call will also be available on the Company's website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company's website.
Supplemental Information
The Company provides supplemental financial information to offer more transparency into its results and make its reporting more informative and easier to follow. The supplemental financial information is available in the investor relations section of the Company's website at www.apolloreit.com.
About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. ARI is a real estate investment trust that primarily originates, acquires, invests in and manages performing commercial real estate mortgage loans, subordinate financings, CMBS and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $248.9 billion of assets under management as of December 31, 2017.
Additional information can be found on the Company's website at www.apolloreit.com.
Dividend Reinvestment Plan
The Company adopted a Direct Stock Purchase and Dividend Reinvestment Plan (the "Plan"). The Plan provides new investors and existing holders of the Company's common stock with a convenient and economical method to purchase shares of its common stock. By participating in the Plan, participants may purchase additional shares of the Company's common stock by reinvesting some or all of the cash dividends received on their shares of the Company's common stock. In addition, the Plan permits participants to make optional cash investments of up to $10,000 per month, and, with the Company's prior approval, optional cash investments in excess of $10,000 per month, for the purchase of additional shares of the Company's common stock.
The Plan is administered by Equiniti Trust Company ("Equiniti"). Stockholders and other persons may obtain a copy of the Plan prospectus and an enrollment form by contacting Equiniti at (800) 468-9716 or (651) 450-4064, if outside the United States, or visiting Wells' website at www.shareowneronline.com.
This communication does not constitute an offer to sell or the solicitation of an offer to buy securities.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company's ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
| Apollo Commercial Real Estate Finance, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Balance Sheets (in thousands—except share data) | ||||||||
| March 31, 2018 | December 31, 2017 | |||||||
| Assets: | (Unaudited) | |||||||
| Cash | $ | 98,310 | $ | 77,671 | ||||
|
Commercial mortgage loans, net (includes $2,176,126 and $2,148,368 pledged as collateral under secured debt arrangements in 2018 and 2017, respectively) |
3,029,240 | 2,653,826 | ||||||
| Subordinate loans, net | 1,038,254 | 1,025,932 | ||||||
| Loan proceeds held by servicer | 30,281 | 302,756 | ||||||
| Other assets | 46,087 | 28,420 | ||||||
| Total Assets | $ | 4,242,172 | $ | 4,088,605 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Liabilities: | ||||||||
|
Secured debt arrangements, net (net of deferred financing costs of $14,037 and $14,348 in 2018 and 2017, respectively) |
$ | 1,212,749 | $ | 1,330,847 | ||||
| Convertible senior notes, net | 585,972 | 584,897 | ||||||
| Derivative liabilities, net | 14,499 | 5,644 | ||||||
| Accounts payable, accrued expenses and other liabilities | 73,330 | 70,906 | ||||||
| Payable to related party | 8,092 | 8,168 | ||||||
| Total Liabilities | 1,894,642 | 2,000,462 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $0.01 par value, 50,000,000 shares authorized: | ||||||||
|
Series B preferred stock, 6,770,393 shares issued and outstanding ($169,260 aggregate liquidation preference) in 2018 and 2017 |
68 | 68 | ||||||
| Series C preferred stock, 6,900,000 shares issued and outstanding ($172,500 aggregate liquidation preference) in 2018 and 2017 | 69 | 69 | ||||||
| Common stock, $0.01 par value, 450,000,000 shares authorized, 122,992,231 and 107,121,235 shares issued and outstanding in 2018 and 2017, respectively | 1,230 | 1,071 | ||||||
| Additional paid-in-capital | 2,444,036 | 2,170,078 | ||||||
| Accumulated deficit | (97,873 | ) | (83,143 | ) | ||||
| Total Stockholders' Equity | 2,347,530 | 2,088,143 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 4,242,172 | $ | 4,088,605 | ||||
| Apollo Commercial Real Estate Finance, Inc. and Subsidiaries | ||||||||
| Condensed Consolidated Statement of Operations | ||||||||
| (in thousands—except share and per share data) | ||||||||
|
Three months ended |
Three months ended |
|||||||
| Net interest income: | (Unaudited) | |||||||
| Interest income from commercial mortgage loans | $ | 52,114 | $ | 34,398 | ||||
| Interest income from subordinate loans | 33,853 | 34,390 | ||||||
| Interest income from securities | - | 6,054 | ||||||
| Interest expense | (22,740 | ) | (17,030 | ) | ||||
| Net interest income | 63,227 | 57,812 | ||||||
| Operating expenses: | ||||||||
|
General and administrative expenses (includes equity-based compensation of $3,342 and $3,791 in 2018 and 2017, respectively) |
(4,998 | ) | (5,758 | ) | ||||
| Management fees to related party | (8,092 | ) | (7,432 | ) | ||||
| Total operating expenses | (13,090 | ) | (13,190 | ) | ||||
| Income from unconsolidated joint venture | - | 458 | ||||||
| Other income | 203 | 108 | ||||||
| Realized loss on sale of assets | - | (1,042 | ) | |||||
| Unrealized gain on securities | - | 2,852 | ||||||
| Foreign currency gain | 10,125 | 3,172 | ||||||
|
Loss on derivative instruments (includes unrealized losses of $(8,855) and $(2,889) in 2018 and 2017, respectively) |
(11,032 | ) | (3,045 | ) | ||||
| Net income | 49,433 | 47,125 | ||||||
| Preferred dividends | (6,835 | ) | (9,310 | ) | ||||
| Net income available to common stockholders | $ | 42,598 | $ | 37,815 | ||||
| Net income per share of common stock | $ | 0.38 | $ | 0.41 | ||||
| Basic weighted average shares of common stock outstanding | 110,211,853 | 91,612,447 | ||||||
| Diluted weighted average shares of common stock outstanding | 111,871,429 | 92,998,250 | ||||||
| Dividend declared per share of common stock | $ | 0.46 | $ | 0.46 | ||||
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