Press Release
July 28, 2015

Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2015 Financial Results and Declares a Common Stock Quarterly Dividend of $0.44 Per Share

Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2015 Financial Results and Declares a Common Stock Quarterly Dividend of $0.44 Per Share

-- 7.1% Increase in Operating Earnings Per Share of Common Stock –

NEW YORK--(BUSINESS WIRE)--Jul. 28, 2015-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter ended June 30, 2015.

Second Quarter 2015 Highlights

  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.45 for the quarter ended June 30, 2015, an increase of 7.1% as compared to Operating Earnings per diluted share of common stock of $0.42 for the quarter ended June 30, 2014; Reported Operating Earnings per diluted share of common stock of $0.89 for the six months ended June 30, 2015, an increase of 11.3% as compared to Operating Earnings per diluted share of common stock of $0.80 for the six months ended June 30, 2014.
  • Generated $32.8 million of net interest income during the quarter from the Company’s $2.1 billion commercial real estate debt portfolio, which had a levered weighted average underwritten internal rate of return (“IRR”) of approximately 14.6% at June 30, 2015;
  • Completed $446 million of commercial real estate first mortgage and mezzanine loan transactions during the quarter, $196 million of which were funded at closing and 94% of which were floating rate;
  • Funded $51 million for commercial real estate first mortgage and mezzanine loans during the quarter that were previously closed in 2014, bringing year-to-date fundings of previously closed loans to $91 million;
  • Entered into an amendment to the Company’s master repurchase agreement with JPMorgan Chase Bank, N.A. (the “JPMorgan Facility”) to increase the borrowing capacity to $400 million; and
  • Became a member, through a wholly owned subsidiary, of the Federal Home Loan Bank of Indianapolis.

“The first half of 2015 has been very successful for ARI, as the Company has grown and diversified its investment portfolio, expanded its capital base and increased both Operating Earnings and dividends per share of common stock,” said Stuart Rothstein, Chief Executive Officer and President of the Company. “ARI has committed to over $550 million of transactions year-to-date. We believe the Company has efficiently managed capital raising with capital deployment activities, resulting in the growth to ARI’s Operating Earnings and dividend per share of common stock. Importantly, the credit quality of ARI’s portfolio remains stable and we believe the Company continues to be well positioned for a rate increase, given that 69% of the loans in ARI’s portfolio have floating interest rates.”

Second Quarter 2015 Operating Results

The Company reported Operating Earnings of $26.4 million, or $0.45 per diluted share of common stock, for the three months ended June 30, 2015, representing a per share increase of 7.1% as compared to Operating Earnings of $18.0 million, or $0.42 per diluted share of common stock, for the three months ended June 30, 2014. Net income available to common stockholders for the three months ended June 30, 2015 was $22.8 million, or $0.39 per diluted share of common stock, as compared to net income available to common stockholders of $22.1 million, or $0.51 per diluted share of common stock, for the three months ended June 30, 2014.

For the six months ended June 30, 2015, the Company reported Operating Earnings of $48.6 million, or $0.89 per diluted share of common stock, representing an 11.3% per share increase as compared to Operating Earnings of $32.0 million, or $0.80 per diluted share of common stock, for the six months ended June 30, 2014. Net income available to common stockholders for the six months ended June 30, 2015 was $46.5 million, or $0.85 per diluted share of common stock, as compared to net income available to common stockholders of $37.8 million, or $0.94 per diluted share of common stock, for the six months ended June 30, 2014.

Second Quarter 2015 Investment Activity

New Investments – During the second quarter, ARI completed the following commercial real estate first mortgage and mezzanine loan transactions:

  • $47.3 million of first mortgage loans ($31.3 million of which were funded during the quarter), which were underwritten to generate a levered weighted average IRR of approximately 17%;
  • $398.8 million of subordinate loans ($165.0 million of which were funded during the quarter), which were underwritten to generate a weighted average IRR of approximately 15%; and
  • $51.5 million of fundings from previously closed loans.

Loan Repayments – During the second quarter, ARI received full principal repayment from a first mortgage loan secured by a hotel in Silver Springs, Maryland totaling $24.5 million and full principal repayment from a mezzanine loan secured by a mixed use property located in Pittsburgh, Pennsylvania totaling $22.5 million.

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 June 30, 2015 ($ amounts in thousands):

 

Description

     

Amortized
Cost

 

Weighted
Average
Yield

  Debt  

Cost
of
Funds

 

Equity at
Cost(1)

 

Current
Weighted
Average
Underwritten IRR (2)

 

Fully-
Levered
Weighted
Average
Underwritten
IRR(2)

First mortgage loans       $ 704,040   8.4 %   $ 428,835   2.6 %   $ 275,205   18.0 %   18.0 %
Subordinate loans(3)(4) 894,926 12.0 15,613 3.7 847,968 13.4 13.4
CMBS   511,412   6.6       433,904   3.4       107,635   16.2     16.2  
Total/Weighted Average $ 2,110,378   9.5 %   $ 878,352   3.0 %   $ 1,230,808   14.6 %   14.6 %
 

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

Loan-to-Value

At June 30, 2015, 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 61% and the subordinate loans (including CMBS, held-to-maturity) had a weighted average LTV of 64%.

Book Value

The Company’s book value per share of common stock at June 30, 2015 was $16.41. 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 June 30, 2015 was approximately $11.6 million greater than the carrying value as of the same date.

Financing Activities

During the second quarter of 2015, ARI, through wholly owned subsidiaries, entered into an amendment to the JPMorgan Facility to increase the borrowing capacity to $400 million from $300 million. In addition, the Company, through a wholly owned subsidiary, became a member of the Federal Home Loan Bank of Indianapolis.

Subsequent Events

Funding of Previously Closed Loans – Subsequent to quarter end, ARI completed $21.7 million of fundings from previously closed loans.

Dividend – ARI’s Board of Directors declared a dividend of $0.44 per share of common stock, which is payable on October 15, 2015 to common stockholders of record on September 30, 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 unconsolidated joint ventures; (iv) foreign currency gains/(losses) and (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.

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 six month periods ended June 30, 2015 and June 30, 2014 ($ amounts in thousands, except share and per share data):

           

Three Months
Ended
June 30, 2015

 

Earnings
Per Share
(Diluted)

 

Three Months
Ended
June 30, 2014

 

Earnings
Per Share
(Diluted)

Operating Earnings:
Net income available to common stockholders $ 22,798 $ 0.39 $ 22,098 $ 0.51
Adjustments:
Equity-based compensation expense 821 0.01 362 0.01
Unrealized (gain)/loss on securities 2,273 0.04 (4,749 ) (0.11 )
Unrealized loss on derivative instruments 3,197 0.06 1,093 0.03
Foreign currency gain (2,867 ) (0.05 ) (959 ) (0.02 )
Amortization of convertible senior notes related to equity reclassification 547 0.01 200 -
Income from unconsolidated joint venture   (384 )     (0.01 )     -       -  
Total adjustments:   3,587       0.06       (4,053 )     (0.09 )
Operating Earnings
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