Press Release
July 26, 2016

Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2016 Financial Results

Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2016 Financial Results

NEW YORK--(BUSINESS WIRE)--Jul. 26, 2016-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the three and six month periods ended June 30, 2016.

Second Quarter 2016 Highlights

  • Reported net income available to common stockholders for the three months ended June 30, 2016 of $4.5 million, or $0.06 per diluted share of common stock, as compared to net income available to common stockholders of $22.8 million, or $0.39 per diluted share of common stock, for the three months ended June 30, 2015;
  • Reported Operating Earnings (a non-GAAP financial measure defined below) per diluted share of common stock of $0.49 for the three months ended June 30, 2016. Excluding $1.3 million of expenses associated with the proposed acquisition of Apollo Residential Mortgage, Inc. (NYSE:AMTG) (“AMTG”), ARI reported Operating Earnings per diluted share of common stock of $0.51, an increase of 13% as compared to Operating Earnings per diluted share of common stock of $0.45 for the three months ended June 30, 2015;
  • Generated $46.9 million of net interest income during the quarter from the Company’s $2.7 billion commercial real estate debt portfolio, which had a fully levered weighted average underwritten internal rate of return (“IRR”)(2) of approximately 13.2% at June 30, 2016;
  • Closed $95.5 million of commercial real estate debt investments and funded an additional $63.7 million for previously closed loans for the three months ended June 30, 2016; For the six months ended June 30, 2016, ARI closed $423.5 million of commercial real estate debt investments and funded a total of $81.2 million for previously closed loans, for total capital commitment and deployment of approximately $504.7 million;
  • Declared a $0.46 dividend per share of common stock for the three months ended June 30, 2016; and
  • Amended the Company’s master repurchase agreement with JPMorgan Chase Bank, N.A. (“JPMorgan Facility”), increasing the borrowing capacity to $800 million from $600 million.

“ARI had solid financial results during the second quarter of 2016, reporting Operating Earnings per share of common stock of $0.51, which excludes expenses associated with our pending acquisition of AMTG and is a 13% increase over the second quarter of 2015,” said Stuart Rothstein, Chief Executive Officer and President of ARI. “The Company closed two first mortgage loans totaling $95.5 million and funded an additional $63.7 million for previously closed transactions during the quarter, bringing capital commitment and deployment to $505 million for the first six months of the year. In addition, the proxy statement/prospectus was filed with the Securities and Exchange Commission and we anticipate it will be mailed to AMTG stockholders this week, for a special meeting of AMTG stockholders to be held on August 24, 2016. Given our positive outlook with respect to the opportunity set for ARI, we are excited about the approximately $400 million of capital ARI will have to deploy into commercial real estate debt investments following the completion of the AMTG transaction.”

Second Quarter 2016 Operating Results

The Company reported net income available to common stockholders for the three months ended June 30, 2016 of $4.5 million, or $0.06 per diluted share of common stock, as compared to net income available to common stockholders of $22.8 million, or $0.39 per diluted share of common stock, for the three months ended June 30, 2015. Operating Earnings for the three months ended June 30, 2016 were $33.4 million, or $0.49 per diluted share of common stock. Excluding expenses associated with the proposed acquisition of AMTG which totaled approximately $1.3 million during the quarter, ARI reported Operating Earnings of $34.7 million, or $0.51 per diluted share of common stock, representing a per share increase of 13% as compared to Operating Earnings of $26.4 million, or $0.45 per diluted share of common stock, for the three months ended June 30, 2015.

For the six months ended June 30, 2016, the Company reported net income available to common stockholders of $17.3 million, or $0.24 per diluted share of common stock, as compared to net income available to common stockholders of $46.4 million, or $0.85 per diluted share of common stock, for the six months ended June 30, 2015.

Operating Earnings for the six months ended June 30, 2016 were $63.3 million, or $0.93 per diluted share of common stock. Excluding expenses associated with the proposed acquisition of AMTG which totaled approximately $6.4 million for the six months ended June 30, 2016, ARI reported Operating Earnings of $69.7 million, or $1.02 per diluted share of common stock, representing a per share increase of 15% as compared to Operating Earnings of $48.6 million, or $0.89 per diluted share of common stock, for the six months ended June 30, 2015.

Second Quarter 2016 Investment Activity

New Investments – During the second quarter, ARI closed the following commercial real estate debt investments:

  • $95.5 million of floating-rate first mortgage loans ($85.4 million of which were funded at closing), which were underwritten to generate a levered weighted average IRR(2) of approximately 16%.

Funding of Previously Closed Loans – During the second quarter, ARI funded $63.7 million for previously closed loans.

Loan Repayments – During the second quarter, ARI received approximately $27.2 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 June 30, 2016 ($ 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         $1,278,034       7.8 %       $ 779,005       2.8 %       $ 499,029       15.4 %       15.4 %
Subordinate loans(4)(5) 960,498 11.5 38,850 4.5 921,648 12.9 12.9
CMBS 490,601       5.9         408,240       3.4         149,799       8.7         8.7  
Total/Weighted Average $2,729,133       8.8 %       $1,226,095       3.1 %       $1,570,476       13.2 %       13.2 %
 

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

Loan-to-Value

At June 30, 2016, the Company’s commercial real estate loan portfolio, which includes CMBS, held-to-maturity, had a weighted average loan-to-value (“LTV”) of 64%. 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 67%.

Book Value

The Company’s book value per share of common stock at June 30, 2016 was $15.51 as compared to $15.89 at March 31, 2016. The decline in book value was due primarily to unrealized marked to market losses on the Company’s CMBS portfolio which totaled $0.17 per share of common stock. In addition, the Company recorded a provision for loan loss totaling $15.0 million, or $0.22 per share of common stock in connection with a $55 million first mortgage and mezzanine loan secured by a multifamily property in Williston, North Dakota. For purposes of GAAP accounting, the Company carries loans at amortized cost and its CMBS are marked to market.

Subsequent Events

The following event occurred subsequent to quarter end:

Upsize of Existing Loan – ARI completed a $9.5 million increase to a $50.0 million first mortgage loan originated in November 2014 secured by a portfolio of condominium units located in New York City and Maui, Hawaii. In connection with the upsizing, the collateral for the loan was increased to include five currently unencumbered condominium units located in Kapalua, Maui. The additional collateral will be cross-collateralized and cross-defaulted with the original portfolio. The first mortgage loan has an appraised LTV of 69% and has been underwritten to generate a levered IRR(2) of approximately 13%.

Funding of Previously Closed Loans –ARI funded $3.6 million for previously closed loans.

Loan Repayments – ARI received approximately $15.3 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); (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; and (vi) provision for loan losses.

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 months ended June 30, 2016 and June 30, 2015 ($ amounts in thousands, except per share data):

     

Three Months
Ended
June 30, 2016

       

Earnings Per
Share
(Diluted)

     

Three Months
Ended
June 30, 2015

     

   Earnings   
   Per Share   
   (Diluted)   

 
Operating Earnings:                  
Net income available to common stockholders $ 4,478 $   0.06 $ 22,798 $   0.39
Adjustments:
Equity-based compensation expense 1,938 0.03 821 0.01
Unrealized (gain)/loss on securities 11,728 0.17