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Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2018 Financial Results

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Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI")
(NYSE:ARI) today reported financial results for the quarter ended June
30, 2018.

Second Quarter 2018 Highlights

  • Reported net income available to common stockholders of $48.5 million,
    or $0.39 per diluted share of common stock, for the three months ended
    June 30, 2018, as compared to $26.9 million, or $0.28 per diluted
    share of common stock, for the three months ended June 30, 2017;
  • Reported Operating Earnings (a non-GAAP financial measure defined
    below) of $54.9 million, or $0.44 per diluted share of common stock,
    for the three months ended June 30, 2018, as compared to $44.6
    million, or $0.46 per diluted share of common stock, for the three
    months ended June 30, 2017;
  • Generated $70.8 million of net interest income during the quarter from
    the Company's $4.9 billion commercial real estate loan portfolio;
  • Committed $968.0 million to new commercial real estate loans ($961.7
    million of which was funded at closing) and funded an additional
    $112.5 million for loans closed prior to the quarter;
  • Subsequent to quarter end, committed $87.0 million to new commercial
    real estate loans (all of which was funded at closing), bringing
    year-to-date loan commitments to $2.0 billion;
  • Amended the Company's master repurchase agreement with JPMorgan Chase
    Bank to extend the term through June 2021;
  • Amended and restated the Company's master repurchase agreement with
    Deutsche Bank to increase the borrowing capacity to $855 million and
    extend the term through March 2021;
  • Entered into a master repurchase agreement with Credit Suisse to
    finance a first mortgage; and
  • Declared a $0.46 dividend per share of common stock for the three
    months ended June 30, 2018.

"ARI has committed to over $1.9 billion of commercial real estate loans
in the first six months of 2018, our strongest period of originations
to-date and just $100 million shy of our total 2017 originations," said
Stuart Rothstein, Chief Executive Officer and President of the Company.
"ARI's loan portfolio totaled $4.9 billion of amortized cost at quarter
end, an increase of approximately 36% as compared to the end of the
second quarter of 2017. We believe ARI's performance demonstrates the
benefits of the Company's nine-year track record as a reliable, creative
capital solutions provider to the commercial real estate industry."

Second Quarter 2018 Investment Activity

New Investments – During the second
quarter of 2018, ARI committed capital to the following commercial real
estate debt investments:

  • $783.9 million of first mortgage loans ($777.6 million of which were
    funded during the quarter); and
  • $184.1 million of subordinate loans ($184.1 million of which were
    funded during the quarter).

Funding of Previously Closed Loans
During the second quarter of 2018, ARI funded $112.5 million for loans
closed prior to the quarter.

Loan Repayments – During the second
quarter of 2018, ARI received $237.8 million from loan repayments,
comprised of $107.5 million from first mortgage loans and $130.3 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 June 30, 2018 ($
amounts in thousands):

     

Weighted

     

Weighted

Average

Average

All-in

Cost of

Equity at

Description

  Amortized Cost  

Coupon(1)

 

Yield(1)(2)

  Secured Debt(3)  

Funds

 

Cost(4)

Commercial mortgage loans, net 3,724,221 6.9% 7.8% 1,981,181 4.1% 1,743,040
Subordinate loans, net 1,142,514   12.1%   13.4%   -   -   1,142,514
Total/Weighted Average 4,866,735   8.1%   9.1%   1,981,181   4.1%   2,885,554
(1)   Weighted-Average Coupon and Weighted Average All-in-Yield are based
upon the applicable benchmark rates as of June 30, 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) Gross of deferred financing of $20,307.
(4) Represents loan portfolio at amortized cost less secured debt
outstanding.
 

Book Value

The Company's book value per share of common stock was $16.26 at June
30, 2018 as compared to book value per share of common stock of $16.31
at March 31, 2018.

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:

  • $87.0 million of first mortgage loans (all of which was funded during
    the quarter); and

Funding of Previously Closed Loans
Subsequent to quarter end, ARI funded $18.9 million for previously
closed loans.

Loan Repayments – Subsequent to
quarter end, ARI received $52.3 million from loan repayments, including
$52.0 million from first mortgage loans and $0.3 million from
subordinate loans.

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 and six months ended June 30, 2018 and June 30, 2017
($ amounts in thousands, except per share data):

 

Three Months

   

Three Months

 

Ended

Earnings

Ended

Earnings

 

June 30, 2018

 

Per Share

 

June 30, 2017

 

Per Share

Operating Earnings:
Net income available to common stockholders $ 48,512 $ 0.39 $ 26,925 $ 0.28
Adjustments:
Equity-based compensation expense 4,014 0.03 3,461 0.04
Unrealized loss on securities - - 4,510 0.05
(Gain) loss on derivative instruments (33,538 ) (0.27 ) 7,389 0.08
Foreign currency (gain) loss, net 29,797 0.24 (6,958 ) (0.08 )
Amortization of the convertible senior notes related to equity
reclassification
1,156 0.01 618 0.01
Loss from unconsolidated joint venture - - 3,305 0.03
Provision for loan losses and impairments 5,000 0.04 5,000 0.05
Realized gain from unconsolidated joint venture   -       -       346       -  
Total adjustments:   6,429       0.05       17,671       0.18  
Operating Earnings   54,941       0.44       44,596       0.46  
Realized loss and costs from sale of CMBS   -       -       -       -  
Operating Earnings excluding realized loss and costs from sale of
CMBS
$ 54,941     $ 0.44     $ 44,596     $ 0.46  
 

Basic weighted average shares of common stock outstanding:

123,019,993

 

95,428,134

Diluted weighted average shares of common stock outstanding:

124,629,317

96,796,289
 

Six Months

Six Months

Ended

Earnings

Ended

Earnings

 

June 30, 2018

 

Per Share

 

June 30, 2017

 

Per Share

Operating Earnings:
Net income available to common stockholders $ 91,110 $ 0.78

$

64,739 $ 0.68
Adjustments:
Equity-based compensation expense 7,356 0.06 7,252 0.08
Unrealized loss on securities - - 1,658 0.02
(Gain) loss on derivative instruments (22,506 ) (0.19 ) 10,434 0.12
Foreign currency (gain) loss, net 19,435 0.16 (10,284 ) (0.11 )
Amortization of the convertible senior notes related to equity
reclassification
2,296 0.02 1,226 0.01
Loss from unconsolidated joint venture - - 2,847 0.03
Provision for loan losses and impairments 5,000 0.04 5,000 0.05
Realized gain from unconsolidated joint venture   -       -       346       -  
Total adjustments:   11,581       0.09       18,479       0.20  
Operating Earnings   102,691       0.87       83,218       0.88  
Realized loss and costs from sale of CMBS   -       -       1,042       0.01  
Operating Earnings excluding realized loss and costs from sale of
CMBS
$ 102,691     $ 0.87     $ 84,260     $ 0.89  
 

Basic weighted average shares of common stock outstanding:

116,651,305

93,530,831

Diluted weighted average shares of common stock outstanding:

118,281,153

94,907,762
 

Teleconference Details:

The Company will host a conference call to discuss its financial results
on Thursday, July 26, 2018 at 10:00 a.m. Eastern Time. Members of the
public who are interested in participating in the Company's second
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
10:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc.
Teleconference Call (number 1376979). Please note the teleconference
call will be available for replay beginning at 1:00 p.m. on Thursday,
July 26, 2018 and ending at midnight on Thursday, August 2, 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 1376979.

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. (NYSE:ARI) is a real estate
investment trust that primarily originates, acquires, invests in and
manages performing commercial real estate mortgage loans, subordinate
financings 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 $247 billion of assets under management as of
March 31, 2018.

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 Equiniti's 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)

   
 

December 31,

June 30, 2018  

2017

Assets: (Unaudited)
Cash $ 76,384 $ 77,671

Commercial mortgage loans, net (includes $3,115,916 and $2,148,368
pledged as collateral under secured debt arrangements in 2018 and
2017, respectively)

3,724,221 2,653,826
Subordinate loans, net 1,142,514 1,025,932
Loan proceeds held by servicer - 302,756
Other assets 27,584 28,420
Derivative assets, net   10,297       -  
Total Assets $ 4,981,000     $ 4,088,605  
 
Liabilities and Stockholders' Equity
Liabilities:
Secured debt arrangements, net (net of deferred financing costs of
$20,307 and $14,348 in 2018 and 2017, respectively)
$ 1,960,874 $ 1,330,847
Convertible senior notes, net 587,063 584,897
Derivative liabilities, net - 5,644
Accounts payable, accrued expenses and other liabilities 81,397 70,906
Payable to related party   9,013       8,168  
Total Liabilities 2,638,347 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,
123,020,301 and 107,121,235 shares issued and outstanding in 2018
and 2017, respectively
1,230 1,071
Additional paid-in-capital 2,447,973 2,170,078
Accumulated deficit   (106,687 )     (83,143 )
Total Stockholders' Equity   2,342,653       2,088,143  
Total Liabilities and Stockholders' Equity $ 4,981,000     $ 4,088,605  
 

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations (Unaudited)

(in thousands—except share and per share data)

 
 

Three months ended

 

Six months ended

June 30,

June 30,

2018   2017   2018   2017
Net interest income:    
Interest income from commercial mortgage loans $ 65,141 $ 37,089 $ 117,225 $ 71,487
Interest income from subordinate loans 34,075 39,640 67,928 74,030
Interest income from securities - 4,700 - 10,754
Interest expense   (28,437 )     (19,205 )     (51,177 )     (36,235 )
Net interest income 70,779 62,224 134,006 120,036
 
Operating expenses:
General and administrative expenses (includes equity-based
compensation of $4,014 and $7,356 in 2018 and $3,461 and $7,252 in
2017, respectively)
(5,652 ) (5,200 ) (10,650 ) (10,958 )
Management fees to related party   (9,013 )     (7,742 )     (17,105 )     (15,175 )
Total operating expenses (14,665 ) (12,942 ) (27,755 ) (26,133 )
Loss from unconsolidated joint venture - (3,305 ) - (2,847 )
Other income 343 244 546 352
Provision for loan losses and impairments (5,000 ) (5,000 ) (5,000 ) (5,000 )
Realized loss on sale of assets - - - (1,042 )
Unrealized loss on securities - (4,510 ) - (1,658 )
Foreign currency gain (loss) (29,649 ) 6,913 (19,524 ) 10,085
Gain (loss) on derivative instruments (includes unrealized
gains/(losses) of $24,796 and $15,941 in 2018 and $(7,435) and
$(10,324) in 2017, respectively)
  33,538       (7,389 )     22,506       (10,434 )
Net income   55,346       36,235       104,779       83,359  
Preferred dividend   (6,834 )     (9,310 )     (13,669 )     (18,620 )
Net income available to common stockholders $ 48,512     $ 26,925     $ 91,110     $ 64,739  
 
Net income per share of common stock $ 0.39     $ 0.28     $ 0.78     $ 0.68  
 
Basic weighted average shares of common stock outstanding   123,019,993       95,428,134       116,651,305       93,530,831  
Diluted weighted average shares of common stock outstanding   124,629,317       96,796,289       118,281,153       94,907,762  
 
Dividend declared per share of common stock $ 0.46     $ 0.46     $ 0.92     $ 0.92  

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