Press Release
February 25, 2015

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2014 Financial Results and Increases Quarterly Dividend Per Share of Common Stock by 10%

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2014 Financial Results and Increases Quarterly Dividend Per Share of Common Stock by 10%

-- 17.4% Annual Increase in Operating Earnings Per Share of Common Stock --

-- Declares $0.44 Dividend Per Share of Common Stock --

NEW YORK--(BUSINESS WIRE)--Feb. 25, 2015-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter and twelve month period ended December 31, 2014.

Fourth Quarter 2014 Highlights

  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.45 for the quarter ended December 31, 2014, an increase of 15.4% as compared to Operating Earnings per diluted share of common stock of $0.39 for the quarter ended December 31, 2013;
  • Generated $27.0 million of net interest income from the Company’s $1.6 billion commercial real estate debt portfolio, which had a weighted average underwritten internal rate of return (“IRR”) of approximately 13.3% at December 31, 2014; and
  • Completed $446.1 million of commercial real estate debt investments.

2014 Highlights

  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $1.69 for the twelve months ended December 31, 2014, an increase of 17.4% as compared to Operating Earnings per diluted share of common stock of $1.44 for the twelve months ended December 31, 2013;
  • Committed to invest $1.1 billion of equity into $1.5 billion of commercial real estate debt investments;
  • Raised $158.4 million of capital through a common stock offering; and
  • Completed two offerings of the Company’s 5.50% Convertible Senior Notes due 2019 for total aggregate principal amount of $254.8 million.

“2014 was a tremendously successful year for ARI, as the Company originated over $1.5 billion of new investments, expanded the capital base, diversified the investment portfolio and meaningfully grew operating earnings,” said Stuart Rothstein, Chief Executive Officer of the Company. “Given ARI’s strong start to 2015, we believe the Company’s robust pipeline and the significant amount of embedded future fundings will continue to drive ARI’s earnings growth. As a result, ARI’s Board of Directors voted to increase the quarterly dividend per share of common stock by 10% to $0.44.”

Fourth Quarter and Full Year 2014 Operating Results

The Company reported Operating Earnings of $21.2 million, or $0.45 per diluted share of common stock, for the three months ended December 31, 2014, representing a per share increase of 15.4% as compared to Operating Earnings of $14.5 million, or $0.39 per diluted share of common stock, for the three months ended December 31, 2013. Net income available to common stockholders for the three months ended December 31, 2014 was $20.2 million, or $0.43 per share of common stock, as compared to net income available to common stockholders of $14.0 million, or $0.37 per share of common stock, for the three months ended December 31, 2013.

For the twelve months ended December 31, 2014, the Company reported Operating Earnings of $74.0 million, or $1.69 per diluted share of common stock, representing a 17.4% per share increase as compared to Operating Earnings of $51.4 million, or $1.44 per diluted share of common stock, for the twelve months ended December 31, 2013. Net income available to common stockholders for the twelve months ended December 31, 2014 was $75.3 million, or $1.72 per share of common stock, as compared to net income available to common stockholders of $45.0 million, or $1.26 per share of common stock, for the twelve months ended December 31, 2013.

Fourth Quarter 2014 Investment and Portfolio Activity

New Investments – During the fourth quarter, ARI closed $446.1 million of commercial real estate debt investments, including the following transactions:

  • $340.3 million of first mortgage loans ($195.3 million of which were funded at closing) with a weighted average levered IRR of approximately 13%;
  • $82.5 million of subordinate loans ($54.2 million of which were funded during the quarter) with a weighted average IRR of approximately 13%; and
  • $4.7 million of equity for the acquisition of CMBS with an aggregate purchase price of $23.3 million. The CMBS have a weighted average life of 3.0 years and have been underwritten to generate an IRR of approximately 15%.

Loan Repayments – During the fourth quarter, ARI received four loan repayments totaling $167 million including a $27 million principal repayment from a first mortgage loan secured by an office condominium in New York City, $59 million principal repayments from two loans for New York City hotels and an $81 million principal repayment from a whole loan secured by a condominium conversion project in New York City.

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 December 31, 2014 ($ amounts in thousands):

 

 

Description

   

Amortized
Cost

   

Weighted
Average
Yield

    Debt    

Cost
of
Funds

   

Equity at
Cost(1)

   

Current
Weighted
Average
Underwritten
IRR (2

   

Levered
Weighted
Average
Underwritten
IRR(2)(3)

First mortgage loans     $ 458,520     8.5 %     $ 168,124     2.7 %     $ 290,396     12.6 %     12.9 %
Subordinate loans(4) 625,881 12.1 - - 625,881 13.1 13.1
CMBS   534,222     6.4         454,070     3.3         110,279     16.2       16.2  
Total/Weighted Average $ 1,618,623     9.2 %     $ 622,194     3.2 %     $ 1,026,556     13.3 %     13.4 %
 

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

Loan-to-Value

At December 31, 2014, the Company’s commercial real estate loan portfolio, which includes CMBS, held-to-maturity, had a weighted average LTV of 62%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 59% and the subordinate loans and CMBS, held-to-maturity, had a weighted average LTV of 63%.

Book Value

The Company’s book value per share at December 31, 2014 was $16.39. For purposes of GAAP accounting, the Company carries loans at amortized cost and its CMBS are marked to market. Management has estimated that the fair value of the Company’s loan portfolio at December 31, 2014 was approximately $12.5 million greater than the carrying value as of the same date.

Subsequent Events

New Investments – Subsequent to quarter end, ARI closed three loans totaling $164.5 million. Details of some of the transactions include the following:

  • $92.5 million ($72.5 million of which was funded at closing) first mortgage loan for the predevelopment of a mixed-use multifamily and retail development aggregating approximately 330,000 square feet in downtown Brooklyn, New York. The two-year, floating-rate first mortgage loan has an appraised LTV of 57% and has been underwritten to generate an IRR of approximately 21% on a levered basis; and
  • £35 million (approximately $52 million) five-year, floating-rate mezzanine loan secured by a portfolio of 44 senior housing facilities located throughout the United Kingdom. The mezzanine loan has an appraised LTV of 70% and was underwritten to generate an IRR of approximately 10%.

Credit Facilities Subsequent to quarter end, ARI amended an existing credit facility and closed an additional credit facility. Details of the facilities include:

  • JP Morgan Facility –ARI amended and restated the JPMorgan Facility to increase the borrowing capacity from $175.0 million to $300.0 million. In addition, the JPMorgan Facility now has a two-year term plus a one-year extension option and the interest rate spread ranges from LIBOR + 2.25% to LIBOR + 4.75% depending on the collateral pledged, which may include mortgage and mezzanine loans secured by properties located in the United States, England or Wales; and
  • Goldman Sachs Loan – ARI entered into a $52.5 million repurchase agreement with Goldman Sachs Bank USA (the “Goldman Sachs Loan”). The Goldman Sachs Loan bears interest at LIBOR + 3.5% and is for the purchase and sale of certain participation interests in a first mortgage loan secured by a portfolio of international destination homes. The maturity date on the Goldman Sachs Loan is the earlier of April 30, 2019 or the repayment or sale of the purchased loan.

Dividend – ARI’s Board of Directors declared a dividend of $0.44 per share of common stock, which is payable on April 15, 2015 to common stockholders of record on March 31, 2015.

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 equity investments; and (iv) the non-cash amortization expense related to the reclassification of a portion of the senior convertible 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 and twelve month periods ended December 31, 2014 and December 31, 2013 ($ amounts in thousands, except share and per share data):

 
     

Three Months
Ended
December 31,
2014

   

Earnings Per
Share
(Diluted)

   

Three Months
Ended
December 31,
2013

   

Earnings
Per Share
(Diluted)

Operating Earnings:            
Net income available to common stockholders $ 20,182 $ 0.43 $ 14,004 $ 0.37
Adjustments:
Income from unconsolidated joint venture 69 - - -
Unrealized (gain)/loss on securities 639 0.01 (908 ) (0.02 )
Unrealized (gain)/loss on derivative instruments (2,137 ) (0.04 ) - -
Equity-based compensation expense 481 0.01 1,392 0.04
Foreign currency loss