Press Release
May 01, 2013

Apollo Commercial Real Estate Finance, Inc. Reports First Quarter 2013 Financial Results and Declares a $0.40 per Common Share Quarterly Dividend

Apollo Commercial Real Estate Finance, Inc. Reports First Quarter 2013 Financial Results and Declares a $0.40 per Common Share Quarterly Dividend

NEW YORK, NY -- (Marketwired) -- 05/01/13 -- Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported financial results for the quarter ended March 31, 2013.

First Quarter 2013 Highlights

  • Generated $17.1 million of net interest income from the Company's $688 million investment portfolio, which had a current weighted average underwritten internal rate of return ("IRR") of approximately 12.9% and a levered weighted average underwritten IRR of approximately 14.2% at March 31, 2013;
  • Closed three loan transactions totaling $103 million;
  • Received a $2.5 million yield maintenance payment in connection with the repayment of two mezzanine loans totaling $50 million;
  • Amended the Company's repurchase facility with JPMorgan Chase Bank, N.A. (the "JPMorgan Facility") to extend the term for two years;
  • Amended the Company's master repurchase agreement with Wells Fargo Bank, N.A. (the "Wells Facility") to reduce the interest rate on commercial mortgage backed securities ("CMBS") borrowings; and
  • Completed an underwritten public offering of 8,805,000 shares of common stock at a price of $16.90 per share, raising net proceeds of $148.4 million.

"ARI experienced a strong start in 2013 from both a capital deployment and a capital formation perspective," said Stuart Rothstein, Chief Executive Officer of the Company. "The Company continues to identify compelling, value-added investment opportunities with attractive risk-adjusted returns and our investment pipeline is robust. Importantly, the credit quality of ARI's existing portfolio remains stable. We are actively engaged in deploying the equity from the first quarter capital raise into new commercial real estate debt investments that will expand and diversify ARI's portfolio."

First Quarter 2013 Operating Results
The Company reported Operating Earnings (a non-GAAP financial measure as defined below) of $12.0 million, or $0.39 per share, for the three months ended March 31, 2013, as compared to Operating Earnings of $8.8 million, or $0.42 per share, for the three months ended March 31, 2012. Net income available to common stockholders for the three months ended March 31, 2013 was $10.1 million, or $0.33 per share, as compared to net income available to common stockholders of $9.1 million, or $0.43 per share, for the three months ended March 31, 2012.

First Quarter Investment and Portfolio Activity
New Investments - During the first quarter of 2013, ARI closed three transactions totaling $103 million. The transactions include the following:

  • $60 million mezzanine loan commitment ($49 million of which has been funded) 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 and based upon the current rate and pricing of presales of units, the Company's loan basis is expected to represent an underwritten loan-to-net sellout of approximately 48%. 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 loan to value ("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 this 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 this 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, at ARI's 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 if the Company elects to exercise the extension option. 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 assumed these titles from Mr. Rothstein, who held 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.

Quarter End Portfolio Summary
The following table sets forth certain information regarding the Company's investments at March 31, 2013 ($ 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 $142,833 10.6% $3 2.7% $142,830 10.9% 15.7%
Subordinate loans 286,569 12.9 - - 286,569 13.6 13.6
CMBS - AAA 188,824 4.6 164,204 1.4 24,620 16.2 16.2
CMBS - Hilton 69,912 5.5 47,737 2.0 22,175 12.5 12.5
Total $688,138 9.4% $211,944 1.5% $476,194 12.9% 14.2%

(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 do assume that extension options are exercised and that the cost of borrowings and derivative instruments under 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. With respect to the mezzanine loan for the New York City multifamily condominium conversion that closed in December 2012 and the mezzanine loan for the New York City condominium construction that closed in January 2013, the IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, as well as assuming no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. 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 March 31, 2013 was $16.41 as compared to $16.43 at December 31, 2012. 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 March 31, 2013 was approximately $11.1 million greater than the carrying value of the Company's investment portfolio as of the same date. This represents a premium of $0.30 per share over the Company's GAAP book value as of March 31, 2013, and results in an estimated market value per share of approximately $16.71.

Subsequent Events
Dividend - The Board of Directors declared a dividend of $0.40 per share of common stock, which is payable on July 12, 2013 to common stockholders of record on June 28, 2013. This is the twelfth consecutive quarter the Company has paid a $0.40 per common share dividend.

Definition of Operating Earnings
Operating Earnings is a non-GAAP financial measure that is used 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 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) and (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders. The table provided below reconciles Operating Earnings to net income available to common stockholders.

Reconciliation of Operating Earnings to Net Income Available to Common Stockholders
The tables below reconcile Operating Earnings and Operating Earnings per share with net income available to common stockholders and net income available to common stockholders per share for the three months ended March 31, 2013 ($ amounts in thousands):

Three Months Ended
March 31, 2013
Earnings Per Share (Diluted) Three Months Ended
March 31, 2012
Earnings Per Share (Diluted)
Operating Earnings: