Press Release
February 09, 2016

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2015 Financial Results

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2015 Financial Results

-- 12.4% Increase in Annual Operating Earnings Per Share of Common Stock --

-- Record Year for Originations and Growth in Dividend per Share of Common Stock --

NEW YORK--(BUSINESS WIRE)--Feb. 9, 2016-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter and full year ended December 31, 2015.

Fourth Quarter 2015 Highlights

  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.48 for the quarter ended December 31, 2015, an increase of 6.7% as compared to Operating Earnings per diluted share of common stock of $0.45 for the quarter ended December 31, 2014;
  • Increased the quarterly dividend per share of common stock 4.5% to $0.46 for the quarter ended December 31, 2015;
  • Generated $43.2 million of net interest income during the quarter from the Company’s $2.5 billion commercial real estate debt portfolio, which had a levered weighted average underwritten internal rate of return (“IRR”)(2) of approximately 13.8% at December 31, 2015;
  • Completed $289.9 million of commercial real estate debt investments and funded an additional $25.7 million for previously closed loans; and
  • Amended the master repurchase agreement with JPMorgan Chase Bank, N.A. (the “JPMorgan Facility”) to increase the maximum capacity to $600 million from $400 million and extend the term to January 29, 2018, plus a one-year extension option.

2015 Highlights

  • Reported Operating Earnings per diluted share of common stock of $1.90 for the twelve months ended December 31, 2015, an increase of 12.4% as compared to Operating Earnings per diluted share of common stock of $1.69 for the twelve months ended December 31, 2014;
  • Increased the quarterly dividend per share of common stock two times during the year for a total increase of 15%;
  • Completed $1.1 billion of commercial real estate debt investments ($1.0 billion of which were funded during 2015);
  • Funded $263.2 million for previously closed loans; and
  • Completed two equity offerings, including a public offering of common stock and a private placement of common and preferred stock to the Qatar Investment Authority, which generated aggregate net proceeds of $540.0 million.

“ARI had an exceptional year in 2015. The Company committed to over $1.1 billion of commercial real estate debt transactions while also strengthening and expanding the balance sheet. As a result, ARI’s investment portfolio generated record Operating Earnings and the Board of Directors increased the dividend per share of common stock twice during the year, for a total per share increase of 15%,” said Stuart Rothstein, Chief Executive Officer and President of the Company. “As we look to 2016, ARI has had a strong start with two closed transactions totaling $297 million, a healthy investment pipeline and $86.1 million of future fundings scheduled for the year. We continue to see compelling investment opportunities and we believe the Company is well positioned to capitalize on additional opportunities created amid the volatility in the global capital markets.”

Fourth Quarter and Full Year 2015 Operating Results

The Company reported Operating Earnings of $32.4 million, or $0.48 per diluted share of common stock, for the three months ended December 31, 2015, representing a per share increase of 6.7% as compared to Operating Earnings of $21.2 million, or $0.45 per diluted share of common stock, for the three months ended December 31, 2014. Net income available to common stockholders for the three months ended December 31, 2015 was $21.4 million, or $0.32 per diluted share of common stock, as compared to net income available to common stockholders of $20.2 million, or $0.43 per diluted share of common stock, for the three months ended December 31, 2014.

For the twelve months ended December 31, 2015, the Company reported Operating Earnings of $112.7 million, or $1.90 per diluted share of common stock, representing a per share increase of 12.4% as compared to Operating Earnings of $74.0 million, or $1.69 per diluted share of common stock, for the twelve months ended December 31, 2014. Net income available to common stockholders for the twelve months ended December 31, 2015 was $91.4 million, or $1.54 per diluted share of common stock, as compared to net income available to common stockholders of $75.3 million, or $1.72 per diluted share of common stock, for the twelve months ended December 31, 2014.

Fourth Quarter 2015 Investment Activity

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

  • $102.9 million of first mortgage loans, which were underwritten to generate a levered weighted average IRR(2) of approximately 15%; and
  • $187.0 million of subordinate loans, which were underwritten to generate a weighted average IRR(2) of approximately 14%.

Funding of Previously Closed Loans – During the fourth quarter, ARI funded $25.7 million for previously closed loans.

Loan Repayments – During the fourth quarter, ARI received approximately $160.3 million from loan repayments.

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, 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)(3)

First mortgage loans $ 994,301 8.1 % $ 491,870 2.7 % $ 502,431 14.9 % 14.9 %
Subordinate loans(4)(5) 966,343 11.9 - - 966,343 13.1 13.1
CMBS   504,253   6.5       433,904   3.4       100,476   16.1     16.1  
Total/Weighted Average $ 2,464,897   9.3 %   $ 925,774   2.9 %   $ 1,569,250   13.8 %   13.8 %
 

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

Loan-to-Value

At December 31, 2015, the Company’s commercial real estate loan portfolio, which includes CMBS, held-to-maturity, had a weighted average loan-to-value (“LTV”) of 65%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 62% and the subordinate loans (including CMBS, held-to-maturity) had a weighted average LTV of 68%.

Book Value

The Company’s book value per share of common stock at December 31, 2015 was $16.21. 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, 2015 was approximately $13.4 million greater than the carrying value as of the same date.

Amendment to JPMorgan Facility

In December, ARI amended the JPMorgan Facility to increase the borrowing capacity to $600 million from $400 million and extended the term to January 29, 2018, plus a one-year extension option.

Subsequent Events

The following events occurred subsequent to year end:

New Investments –ARI closed a $220.0 million first mortgage loan, $177.5 million of which was funded, secured by an assemblage of 16 existing retail and office properties for redevelopment located in the Design District neighborhood of Miami, Florida. A portion of the first funding of the loan was used to refinance a $33.0 million first mortgage loan ARI originated to the borrower in June 2015, and for the acquisition of two additional parcels. The floating-rate loan has a two-year initial term with a one-year extension option followed by a six-month extension option. The first mortgage loan has a loan-to-cost of 65% and has been underwritten to generate a levered IRR(2) of approximately 15%.

ARI closed a $77.0 million mezzanine loan, $21.9 million of which was funded at closing, for the redevelopment and conversion of an existing commercial property into 139 luxury condominiums located in the Tribeca neighborhood of New York City. The floating-rate loan has a 42-month initial term with a one-year extension option followed by a six-month extension option and is part of a $411.0 million financing consisting of a $334.0 million first mortgage loan and ARI’s $77.0 million mezzanine loan. The mezzanine loan has an appraised loan-to-net sellout of 57% and has been underwritten to generate an IRR(2) of approximately 14%.

Funding of Previously Closed Loans –ARI funded $3.5 million for previously closed loans.

Loan Repayments –ARI received approximately $8.6 million from loan repayments.

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 twelve month periods ended December 31, 2015 and December 31, 2014 ($ amounts in thousands, except per share data):

       

Three Months
Ended
December 31,
2015

 

Earnings Per
Share
(Diluted)

 

Three Months
Ended
December 31,
2014

 

Earnings
Per Share
(Diluted)

Operating Earnings:
Net income available to common stockholders $ 21,379 $ 0.32 $ 20,182 $ 0.43
Adjustments:
Equity-based compensation expense 1,693 0.02 481 0.01
Unrealized loss on securities 11,618 0.17 639 0.01
(Gain) on derivative instruments (3,054 ) (0.05 ) (2,137 ) (0.04 )
Foreign currency loss 3,121 0.05 1,413 0.03

Amortization of convertible senior notes
related to equity reclassification

564 0.01 532 0.01
Income from unconsolidated joint venture   (2,969 )     (0.04 )     69       -