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Apollo Commercial Real Estate Finance, Inc. Reports First Quarter 2016 Financial Results

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NEW YORK--(BUSINESS WIRE)--

Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported financial results for the quarter ended March 31, 2016.

First Quarter 2016 Highlights

  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.44 for the quarter ended March 31, 2016. Excluding $5.1 million of expenses associated with the proposed acquisition of Apollo Residential Mortgage, Inc. (NYSE: AMTG) ("AMTG"), ARI reported Operating Earnings per diluted share of common stock of $0.51, an increase of 16% as compared to Operating Earnings per diluted share of common stock of $0.44 for the quarter ended March 31, 2015;
  • Generated $46.8 million of net interest income during the quarter from the Company's $2.6 billion commercial real estate debt portfolio, which had a fully levered weighted average underwritten internal rate of return ("IRR")(2) of approximately 14.5% at March 31, 2016;
  • Completed $328 million of commercial real estate debt investments and funded an additional $17.4 million for previously closed loans;
  • Declared a $0.46 dividend per share of common stock for the quarter ended March 31, 2016; and
  • Announced a definitive agreement to acquire AMTG in a cash and stock transaction.

"ARI had a strong start to 2016, with over $328 million of new transactions closed and the announcement of our acquisition of AMTG," said Stuart Rothstein, Chief Executive Officer and President of ARI. "Despite the volatility in the broader capital markets, ARI's commercial real estate debt portfolio continues to perform well and we continue to identify compelling new investments. We believe ARI remains well positioned to take advantage of opportunities created by the market volatility and the Company's investment pipeline continues to build."

First Quarter 2016 Operating Results

The Company reported Operating Earnings of $29.8 million, or $0.44 per diluted share of common stock, for the three months ended March 31, 2016. Excluding expenses associated with the proposed acquisition of AMTG which totaled approximately $5.1 million during the quarter, ARI reported Operating Earnings of $34.9 million, or $0.51 per diluted share of common stock, representing a per share increase of 16% as compared to Operating Earnings of $22.2 million, or $0.44 per diluted share of common stock, for the three months ended March 31, 2015. Net income available to common stockholders for the three months ended March 31, 2016 was $12.8 million, or $0.18 per diluted share of common stock, as compared to net income available to common stockholders of $23.7 million, or $0.47 per diluted share of common stock, for the three months ended March 31, 2015.

First Quarter 2016 Investment Activity

New Investments – During the first quarter, ARI committed to the following commercial real estate debt investments:

  • $251 million of first mortgage loans, which were underwritten to generate a levered weighted average IRR(2) of approximately 15%; and
  • $77 million of subordinate loans, which were underwritten to generate a weighted average IRR(2) of approximately 14%.

Funding of Previously Closed Loans – During the first quarter, ARI funded $17.4 million for previously closed loans.

Loan Repayments – During the first quarter, ARI received approximately $34.7 million from loan repayments.

Quarter End Commercial Real Estate Debt Portfolio Summary

The following table sets forth certain information regarding the Company's commercial real estate debt portfolio at March 31, 2016 ($ amounts in thousands):

             

 

Description

 

Amortized
Cost

 

Weighted
Average
Yield

 

Debt

 

Cost
of
Funds

 

Equity at
Cost(1)

 

Current
Weighted
Average
Underwritten
IRR (2)

 

Fully-
Levered
Weighted
Average
Underwritten
IRR(2)(3)

First mortgage loans $ 1,173,185 8.0 % $ 680,549 2.7 % $ 492,636 17.4 % 18.2 %
Subordinate loans(4)(5) 965,900 11.6 - - 965,900 13.0 13.2
CMBS   498,630   6.6       410,767   3.4       143,644   12.0     12.0  
Total/Weighted Average $ 2,637,715   9.1 %   $ 1,091,316   2.9 %   $ 1,602,180   14.2 %   14.5 %
 

Please see chart footnotes at the end of the press release.

Loan-to-Value

At March 31, 2016, the Company's commercial real estate loan portfolio, which includes CMBS, held-to-maturity, had a weighted average loan-to-value ("LTV") of 62%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 67% and the subordinate loans (including CMBS, held-to-maturity) had a weighted average LTV of 64%.

Book Value

The Company's book value per share of common stock at March 31, 2016 was $15.89. The decline in book value was due primarily to unrealized marked to market losses on the Company's CMBS portfolio. For purposes of GAAP accounting, the Company carries loans at amortized cost and its CMBS are marked to market.

Subsequent Events

The following event occurred subsequent to quarter end:

Funding of Previously Closed Loans –ARI funded $7.4 million for previously closed loans.

Definition of Operating Earnings

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and 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); and (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.

Reconciliation of Operating Earnings to Net Income Available to Common Stockholders

The tables below reconcile 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 month periods ended March 31, 2016 and March 31, 2015 ($ amounts in thousands, except per share data):

       

Three Months
Ended
March 31, 2016

 

Earnings Per
Share
(Diluted)

 

Three Months
Ended
March 31, 2015

 

Earnings
Per Share
(Diluted)

Operating Earnings:
Net income available to common stockholders $ 12,801 $ 0.18 $ 23,653 $ 0.47
Adjustments:
Equity-based compensation expense 1,668 0.03 1,117 0.02
Unrealized (gain)/loss on securities 15,074 0.22 (3,409 ) (0.07 )
(Gain) on derivative instruments (4,703 ) (0.07 ) (3,622 ) (0.07 )
Foreign currency loss 4,474 0.07 3,944 0.08

Amortization of convertible senior notes
  related to equity reclassification

573 0.01 539 0.01
Income from unconsolidated joint venture   (68 )     -       -       -  
Total adjustments:   17,018       0.26       (1,431 )     (0.03 )
Operating Earnings $ 29,819     $ 0.44     $ 22,222     $ 0.44  
 

Basic weighted average shares of
common stock outstanding:

67,385,191

49,563,822

Diluted weighted average shares of

common stock outstanding:

68,327,718

50,171,687

 

Teleconference Details:

The Company will host a conference call to discuss its financial results

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