Press Release
July 31, 2013

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

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

NEW YORK, NY -- (Marketwired) -- 07/31/13 -- Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported financial results for the quarter ended June 30, 2013.

Second Quarter 2013 Highlights

  • Generated $17.2 million of net interest income from the Company's $733 million investment portfolio, which had a current weighted average underwritten internal rate of return ("IRR") of approximately 13.1% and a levered weighted average underwritten IRR of approximately 14.2% at June 30, 2013;
  • Closed two loan transactions totaling $76 million;
  • Received a $1.2 million yield maintenance payment in connection with the repayment of a mezzanine loan. Including the yield maintenance payment, the Company realized a 19% IRR on its investment; and
  • Subsequent to quarter end, closed a $14 million mezzanine loan, bringing year-to-date investment activity to $226 million.

"ARI continues to make progress investing our available capital," said Stuart Rothstein, Chief Executive Officer and President of the Company. "The Company closed two loans during the second quarter and an additional loan subsequent to quarter end, bringing ARI's total investment activity to $226 million year-to-date. Our pipeline of potential transactions remains strong and we continue to see ample investment opportunities across the commercial real estate debt spectrum. Importantly, as our portfolio expands, the credit quality of our investments remains stable."

Second Quarter 2013 Operating Results
The Company reported Operating Earnings (a non-GAAP financial measure as defined below) of $11.7 million, or $0.31 per share, for the three months ended June 30, 2013, as compared to Operating Earnings of $8.5 million, or $0.41 per share, for the three months ended June 30, 2012. Net income available to common stockholders for the three months ended June 30, 2013 was $9.9 million, or $0.27 per share, as compared to net income available to common stockholders of $9.9 million, or $0.47 per share, for the three months ended June 30, 2012.

For the six months ended June 30, 2013, the Company reported Operating Earnings of $23.7 million, or $0.70 per share, as compared to Operating Earnings of $17.3 million, or $0.83 per share, for the six months ended June 30, 2012. Net income available to common stockholders for the six months ended June 30, 2013 was $20.0 million, or $0.59 per share, as compared to net income available to common stockholders of $19.0 million, or $0.91 per share, for the six months ended June 30, 2012.

Second Quarter Investment and Portfolio Activity
New Investments - During the second quarter of 2013, ARI closed two transactions totaling $76 million. The transactions include the following:

  • $32 million, 10-year, fixed rate mezzanine loan secured by a pledge of the equity interests in a borrower that owns a portfolio of 15 warehouse facilities, totaling 2.8 million square feet, spanning nine states. ARI's loan basis represents an underwritten loan-to-value ("LTV") of 75%. The mezzanine loan has been underwritten to generate an IRR of approximately 12%; and

  • $44 million, fifteen-month (one-year initial term with one three-month extension option), floating rate mezzanine loan secured by the pledge of the equity interests in a borrower that acquired five adjacent commercial buildings totaling approximately 411,000 gross square feet that are expected to be converted into multifamily rental apartments in the Gramercy Park neighborhood of New York City. ARI's loan basis represents an underwritten LTV of 78%. The mezzanine loan has been underwritten to generate an IRR of approximately 14%.

Repayment of Investment - During the second quarter, ARI received principal repayment from a $15 million mezzanine loan secured by a hotel in New York City. In connection with the repayment, the Company received a yield maintenance payment totaling $1.2 million. Including the yield maintenance payment, the Company realized a 19% IRR on this mezzanine loan.

Quarter End Portfolio Summary
The following table sets forth certain information regarding the Company's investments at June 30, 2013 ($ amounts in thousands):

DescriptionAmortized Cost Weighted Average YieldDebtCost of FundsEquity at CostCurrent Weighted Average IRR(1) Levered Weighted Average IRR(2)
First mortgage loans$143,492 10.7%$32.7%$143,48911.0% 15.8%
Subordinate loans354,865 12.9--354,86513.8 13.8
CMBS - AAA165,553 4.6144,2001.421,35315.8 15.8
CMBS - Hilton69,521 5.647,1092.022,41212.6 12.6
Total$733,431 9.9%$191,3121.5%$542,11913.1% 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 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. 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 Company's master repurchase agreement with JPMorgan Chase Bank, N.A. ("JPMorgan") (the "JPMorgan Facility") were repaid. 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 June 30, 2013 was $16.26 as compared to $16.41 at March 31, 2013. For purposes of GAAP accounting, the Company carries loans at amortized cost and its commercial mortgage-backed securities ("CMBS") securities are marked to market. Management has estimated that the fair value of the Company's financial assets at June 30, 2013 was approximately $10.6 million greater than the carrying value of the Company's investment portfolio as of the same date. This represents a premium of $0.29 per share over the Company's GAAP book value as of June 30, 2013, and results in an estimated market value per share of approximately $16.55.

Subsequent Events
New Investments - Subsequent to the end of the second quarter of 2013, ARI closed a $14.0 million 10-year, fixed rate mezzanine loan (purchased for $13.6 million or approximately 97% of face value) secured by a pledge of the equity interest in a borrower that owns the office component of a 432,717 square foot building located in downtown New York City. ARI's loan basis represents an underwritten LTV of 70%. The mezzanine loan has been underwritten to generate an IRR of approximately 13%.

Dividend - The Board of Directors declared a dividend of $0.40 per share of common stock, which is payable on October 11, 2013 to common stockholders of record on September 30, 2013.

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) 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 and six months ended June 30, 2013 and the three and six months ended June 30, 2012 ($ amounts in thousands):

Three Months
Ended
June 30, 2013
Earnings Per
Share (Diluted)
Three Months
Ended
June 30, 2012
Earnings Per
Share (Diluted)
Operating Earnings:
Net income available to common stockholders $9,929 $0.27 $9,910 $0.47
Adjustments:
Unrealized (gain)/loss on securities 1,421 0.03 (2,078) (0.09)
Unrealized gain on derivative instruments (57) - (192) (0.01)
Equity-based compensation expense 428 0.01 886 0.04
Total adjustments: 1,792 0.04 (1,384)