Apollo Commercial Real Estate Finance, Inc. Reports Third Quarter 2015 Financial Results

-- 20.4% Increase in Operating Earnings Per Share of Common Stock --

-- Record Quarter for Growth in Operating Earnings --

NEW YORK--(BUSINESS WIRE)--Oct. 29, 2015-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter ended September 30, 2015.

Third Quarter 2015 Highlights

• Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.53 for the quarter ended September 30, 2015, an increase of 20.4% as compared to Operating Earnings per diluted share of common stock of $0.44 for the quarter ended September 30, 2014; Reported Operating Earnings per diluted share of common stock of $1.42 for the nine months ended September 30, 2015, an increase of 14.5% as compared to Operating Earnings per diluted share of common stock of $1.24 for the nine months ended September 30, 2014;
• Generated $38.7 million of net interest income during the quarter from the Company’s $2.3 billion commercial real estate debt portfolio, which had a levered weighted average underwritten internal rate of return (“IRR”)⁽²⁾ of approximately 13.9% at September 30, 2015;
• Committed $331.5 million to commercial real estate debt investments during the quarter, $269.4 million of which were funded at closing and 100% of which were floating rate; Committed over $1.0 billion to commercial real estate debt investments year to date, $781.5 million of which were funded at closing;
• Funded $155.5 million for commercial real estate debt investments during the quarter that were previously closed in 2014, bringing year to date fundings of previously closed investments to $199.0 million; and
• Completed a private placement of common and preferred stock to a wholly owned subsidiary of the Qatar Investment Authority, generating $348 million of gross proceeds for the Company:
  • Sold 8,823,529 shares of common stock at a purchase price of $17.00 per share, for gross proceeds of approximately $150 million; and
  • Sold 8,000,000 shares of 8.00% Fixed-to-Floating Series B Cumulative Redeemable Perpetual Preferred Stock (the “Series B Preferred Stock”) with a liquidation preference of $25.00 per share at a purchase price of $24.71 per share, resulting in gross proceeds of approximately $198 million.

“ARI had the Company’s strongest quarter to date with respect to growth in operating earnings and capital formation,” said Stuart Rothstein, Chief Executive Officer and President of the Company. “Year to date, ARI has committed to over $1.0 billion of commercial real estate debt investments and the Company has a very robust origination pipeline. Importantly, the credit quality of ARI’s loan portfolio remains stable and we continue to identify investments that we believe offer the Company attractive, risk adjusted returns. Given the strength of the pipeline, we were extremely pleased with the completion of ARI’s $348 million private placement of preferred and common stock, which provides the Company with dry powder to capitalize on new investment opportunities.”

Third Quarter 2015 Operating Results

The Company reported Operating Earnings of $31.7 million, or $0.53 per diluted share of common stock, for the three months ended September 30, 2015, representing a per share increase of 20.4% as compared to Operating Earnings of $20.8 million, or $0.44 per diluted share of common stock, for the three months ended September 30, 2014. Net income available to common stockholders for the three months ended September 30, 2015 was $23.5 million, or $0.39 per diluted share of common stock, as compared to net income available to common stockholders of $17.3 million, or $0.37 per diluted share of common stock, for the three months ended September 30, 2014.

For the nine months ended September 30, 2015, the Company reported Operating Earnings of $80.3 million, or $1.42 per diluted share of common stock, representing a per share increase of 14.5% as compared to Operating Earnings of $52.8 million, or $1.24 per diluted share of common stock, for the nine months ended September 30, 2014. Net income available to common stockholders for the nine months ended September 30, 2015 was $70.0 million, or $1.24 per diluted share of common stock, as compared to net income available to common stockholders of $55.1 million, or $1.30 per diluted share of common stock, for the nine months ended September 30, 2014.

Third Quarter 2015 Investment Activity

New Investments – During the third quarter, ARI committed to the following commercial real estate debt investments:

• $149.1 million of first mortgage loans ($99.5 million of which were funded during the quarter), which were underwritten to generate a levered weighted average IRR⁽²⁾ of approximately 14%; and
• $182.4 million of subordinate loans ($169.9 million of which were funded during the quarter), which were underwritten to generate a weighted average IRR⁽²⁾ of approximately 14%.

Funding of Previously Closed Loans – During the third quarter, ARI completed $155.5 million of fundings for previously closed loans.

Loan Repayments – During the third quarter, ARI received approximately $187.3 million from loan repayments and sales, including the repayment of $107.3 million of loans secured by New York City residential properties.

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 September 30, 2015 ($ amounts in thousands):

Loan-to-Value

At September 30, 2015, the Company’s commercial real estate loan portfolio, which includes CMBS, held-to-maturity, had a weighted average loan-to-value (“LTV”) of 61%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 60% and the subordinate loans (including CMBS, held-to-maturity) had a weighted average LTV of 63%.

Book Value

The Company’s book value per share of common stock at September 30, 2015 was $16.35. 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 September 30, 2015 was approximately $16.2 million greater than the carrying value as of the same date.

Capital Raise

In September 2015, the Company completed a private placement of 8,823,529 shares of common stock to QH RE Asset Company LLC, a wholly owned subsidiary of the Qatar Investment Authority (the “Investor”), at a purchase price of $17.00 per share, for gross proceeds of approximately $150 million. In addition, the Company completed a private placement of 8,000,000 shares of Series B Preferred Stock to the Investor at a purchase price of $24.71 per share, resulting in gross proceeds of approximately $198 million. Combined, the two offerings resulted in approximately $348 million of total gross proceeds to the Company.

Subsequent Events

New Investments – Subsequent to quarter end, ARI closed a $55 million mezzanine loan for the acquisition of an existing residential property on the Upper West Side of New York City. The mezzanine loan is part of a $93.8 million financing, comprised of a $38.8 million first mortgage loan, and ARI’s mezzanine loan. The floating rate loan has a three-year initial term with one six-month extension option and an appraised LTV of 81%. The loan has been underwritten to generate an IRR⁽²⁾ of approximately 13%.

Funding of Previously Closed Loans – Subsequent to quarter end, ARI completed $46.5 million of fundings from previously closed loans.

Loan Repayments – Subsequent to quarter end, ARI received approximately $129.8 million from loan repayments.

Dividend – The Board of Directors will meet in December to determine the dividend per share of common stock for the quarter ended December 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 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 nine month periods ended September 30, 2015 and September 30, 2014 ($ amounts in thousands, except share and per share data):