Press Release
February 27, 2013

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results and Declares a $0.40 per Common Share Quarterly Dividend

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results and Declares a $0.40 per Common Share Quarterly Dividend

NEW YORK, NY -- (MARKETWIRE) -- 02/27/13 -- Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported financial results for the quarter and full year ended December 31, 2012.

Fourth Quarter 2012 Highlights

  • Generated $12.3 million of net interest income from the Company's $669 million investment portfolio, which had a current weighted average underwritten internal rate of return ("IRR") of approximately 12.7% and a levered weighted average underwritten IRR of approximately 14.1% at December 31, 2012;
  • Closed two loan transactions totaling $130.0 million of committed capital; and
  • Completed an underwritten public offering of 7,404,640 shares of common stock at a price of $16.81 per share, raising net proceeds of $124.1 million.

Full Year 2012 Highlights

  • Completed eight new commercial real estate debt transactions totaling $214.8 million of committed equity representing $264.3 million of investments with a weighted average underwritten IRR of approximately 13%;
  • Raised $207.3 million of net proceeds through preferred and common stock offerings; and
  • Lowered the cost of the Company's financing facilities through:
    • Refinancing of the TALF debt, which produced $14.1 million of additional investable capital, lowered the weighted average cost of funds by approximately 70 basis points and extended the term of the debt through August 2013; and
    • Amending the Company's repurchase facility with JPMorgan Chase Bank, N.A (the "JPMorgan Facility") to reduce the interest rate by 50 basis points to LIBOR + 2.50%.

"2012 was a year of significant capital formation and portfolio growth for ARI, set against a backdrop of improving fundamentals in the commercial real estate markets," said Stuart Rothstein, Chief Executive Officer of the Company. "The Company's investment activity was robust, as we completed over $264 million of new transactions with a weighted average underwritten IRR of approximately 13%. ARI also was able to expand the Company's capital base through both a preferred stock offering and a common stock offering, as well as lower its cost of capital through refinancing and amending its financing facilities. Importantly, the credit quality of our investments remained stable. As we look ahead to 2013, the Company has gotten off to a strong start, having closed three new transactions totaling $103 million of committed equity."

Fourth Quarter and Full Year 2012 Operating Results
The Company reported Operating Earnings of $7.4 million, or $0.27 per share, for the three months ended December 31, 2012, as compared to Operating Earnings of $8.3 million, or $0.39 per share, for the three months ended December 31, 2011. The decrease in Operating Earnings per share primarily was due to the timing of the deployment of the capital raised from both the Company's preferred stock offering and common stock offering. Net income available to common stockholders for the three months ended December 31, 2012 was $7.1 million, or $0.26 per share, as compared to net income available to common stockholders of $8.7 million, or $0.41 per share, for the three months ended December 31, 2011.

Commenting on fourth quarter financial performance, Mr. Rothstein stated: "The Company's Operating Earnings per share in the fourth quarter of 2012 reflected the differential in timing between ARI's capital raising and capital deployment activities. As we stated on our third quarter earnings call, we believe ARI's Operating Earnings in the fourth quarter of 2012 would not be indicative of the future earnings capability of our investment portfolio. Subsequent to quarter end, the Company has significantly deployed the capital raised in 2012 and we believe we have a healthy pipeline for future investments."

For the full year ended December 31, 2012, the Company reported Operating Earnings of $33.9 million, or $1.50 per share, representing a per share increase of 2% as compared to Operating Earnings of $28.1 million, or $1.47 per share for the full year ended December 31, 2011. Net income available to common stockholders for the full year ended December 31, 2012 was $37.1 million, or $1.64 per share, as compared to net income available to common stockholders of $25.9 million, or $1.35 per share, for the full year ended December 31, 2011.

Fourth Quarter Investment and Portfolio Activity
Mezzanine Loan - In November 2012, ARI closed a $50 million mezzanine loan secured by equity interests in a borrower that owns a portfolio of three full-service conference hotels located in Dallas, TX, Denver, CO and St. Louis, MO, totaling 3,981 keys. The mezzanine loan is part of a $410 million four-year (three-year initial term with one one-year extension option), floating rate loan refinancing comprised of a $295 million first mortgage and a $115 million mezzanine loan, which was subsequently bifurcated into a $65 million senior mezzanine loan and ARI's $50 million junior mezzanine loan. ARI's mezzanine loan has an interest rate of one-month LIBOR + 10.9%, 30-year amortization and an appraised loan-to-value ("LTV") of approximately 61% or approximately $103,000 per key. ARI received a 0.5% origination fee when the loan closed. The mezzanine loan has been underwritten to generate an IRR of approximately 13%.

Whole Loan - In December, 2012, ARI provided an $80 million whole loan commitment for a condominium conversion located in the TriBeCa neighborhood of New York City. At closing, ARI funded a $45 million first mortgage loan and $0.4 million of a $35 million mezzanine loan, the balance of which ARI expects to be funded throughout the conversion process. The property will have 66 units with approximately 96,000 net salable square feet and approximately 3,000 square feet of ground floor retail space. The loans have an initial term of two years with two 12-month extension options, subject to the achievement of additional project completion hurdles. The interest rate on the whole loan is LIBOR+8.5% with a LIBOR floor of 0.5%. ARI received a 1.0% origination fee and expects to receive a 1.0% exit fee on the fully funded balance of the loan. When fully funded, ARI's loan basis will represent an underwritten loan-to-net sellout of approximately 55%. The loans have been underwritten to generate an unlevered IRR of approximately 11%.

Quarter End Portfolio Summary
The following table sets forth certain information regarding the Company's investments at December 31, 2012 ($ amounts in thousands):




Description
Amortized Cost Weighted Average Yield Debt Cost of Funds Equity at cost Current Weighted Average IRR (1) Levered Weighted Average IRR (2)
First mortgage loans $142,921 10.1% $3 2.7% $142,918 10.8%15.6%
Subordinate loans 246,246 12.7 - - 246,246 13.6 13.6
Repurchase agreements 6,598 13.0 - - 6,598 13.7 13.7
CMBS - AAA 203,463 4.1 176,827 1.7 26,636 15.3 15.3
CMBS - Hilton 70,250 5.6 48,328 2.6 21,922 11.6 11.6
Total $669,478 8.8% $225,158 1.9% $444,320 12.7%14.1%

(1) The IRRs for the investments shown in the above table and elsewhere in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company's external manager. They are calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but does assume that extension options are exercised and that the cost of borrowings and derivative instruments under the Company's master repurchase agreement with Wells Fargo Bank, N.A. (the "Wells Facility") remain constant over the remaining terms and extension terms under the facility. The calculation also assumes extension options on the Wells Facility with respect to the Hilton CMBS are exercised. The IRRs for the New York City condominium conversion investment listed above and the New York City condominium development investment listed below are calculated using the Company's external manager's underwritten assumptions regarding the estimates of the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, as well as assuming no defaults. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table and elsewhere in this press release. See "Risk Factors" in the reports filed by the Company with the Securities and Exchange Commission for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the table over time.

(2) Substantially all of the Company's borrowings under the JPMorgan Facility were repaid upon the closing of the Company's Series A Preferred Stock offering in August 2012. The Company's ability to achieve its underwritten levered weighted average IRR with regard to its portfolio of first mortgage loans is additionally dependent upon the Company re-borrowing approximately $53,000 under the JPMorgan Facility or any replacement facility. Without such re-borrowing, the levered weighted average IRRs will be as indicated in the current weighted average IRR column above.

Book Value
The Company's GAAP book value per share at December 31, 2012 was $16.43. For purposes of GAAP accounting, the Company carries loans at amortized cost and its CMBS securities are marked to market. Management has estimated that the fair value of the Company's financial assets at December 31, 2012 was approximately $11.5 million greater than the carrying value of the Company's investment portfolio as of the same date. This represents a premium of $0.41 per share over the Company's GAAP book value as of December 31, 2012, and results in an estimated market value per share of approximately $16.84.

Subsequent Events
New Investments - During the first quarter of 2013, ARI closed three transactions totaling $103 million of committed equity. The transactions include the following:

  • $60 million mezzanine loan commitment secured by a pledge of preferred equity interests in the owner of a to-be-developed 352,624 net saleable square foot, 57-story, 146-unit condominium tower located in the TriBeCa neighborhood of New York City. When fully funded, the Company's loan basis is expected to represent an underwritten loan-to-net sellout of approximately 54%. The mezzanine loan has been underwritten to generate an IRR of approximately 16%;

  • $18 million mezzanine loan secured by a pledge of the equity interests in the owner of two buildings in midtown Manhattan. The buildings contain a total of 181,637 rentable square feet that is being converted into 215 multifamily rental units. The mezzanine loan has an appraised LTV of approximately 60% and has been underwritten to generate an IRR of approximately 13%; and

  • $25 million mezzanine loan secured by a pledge of the equity interests in the owner of a portfolio of four hotels totaling 1,231 keys located in Rochester, Minnesota. The mezzanine loan has an appraised LTV of approximately 69% and has been underwritten to generate an IRR of approximately 12%.

Repayment of Investments - During the first quarter, ARI received principal repayment from the following investments:

  • The repurchase agreement secured by CDO bonds was repaid in full. Upon the repayment, the Company realized a 17% IRR on its investment; and

  • Two mezzanine loans totaling $50 million secured by a portfolio of retail shopping centers located throughout the United States were fully repaid. In connection with the repayment, the Company received a yield maintenance payment totaling $2.5 million. Including the yield maintenance payment, the Company realized a 15% IRR on its mezzanine loan investment.

Amendment to JP Morgan Facility - In February 2013, the Company amended its JPMorgan Facility to extend the term for two years (one year initial term with a 364 day extension option). Pricing on the JPMorgan Facility will remain at LIBOR+2.5% and ARI paid a 0.5% extension fee for the first year and will pay a 0.25% extension fee for the second year. The Company primarily uses the JPMorgan Facility to finance ARI's first mortgage loan investments.

Amendment to Wells Facility - In February 2013, the Company amended its Wells Facility to reduce the interest rate as follows: (i.) with respect to the outstanding borrowings used to provide financing for the AAA CMBS, the interest rate was reduced to LIBOR+1.05% from LIBOR+1.25% - 1.50% (depending on the collateral pledged); and (ii.) with respect to the outstanding borrowings used to provide financing for the Hilton CMBS, the interest rate was reduced to LIBOR+1.75% from LIBOR+2.35%. In addition, the maturity date of the Wells Facility with respect to the outstanding borrowings used to provide financing for the AAA CMBS was extended to March 2014.

Corporate Governance - In February 2013, the Board of Directors appointed Megan Gaul as Chief Financial Officer, Secretary and Treasurer of the Company, effective April 1, 2013. Ms. Gaul will assume these titles from Mr. Rothstein, who holds these titles in addition to his existing titles of Chief Executive Officer and President. Ms. Gaul previously served as the Controller of the Manager, a position she has held since she joined Apollo Global Management, the indirect owner of the Manager, in 2009.

Dividend - The Board of Directors declared a dividend of $0.40 per share of common stock, which is payable on April 12, 2013 to common stockholders of record on March 29, 2013. This is the eleventh consecutive quarter the Company has paid a $0.40 per common share dividend.

Annual Meeting - The Board of Directors also set March 6, 2013 as the record date for its 2013 Annual Meeting of Stockholders. The 2013 Annual Meeting of Stockholders will be held on May 2, 2013 at the offices of Clifford Chance US LLP at 31 West 52nd Street, New York, New York.

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