July 25, 2018
Apollo Commercial Real Estate Finance, Inc. Reports Second Quarter 2018 Financial Results
NEW YORK--(BUSINESS WIRE)-- Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported financial results for the quarter ended June 30, 2018.
Second Quarter 2018 Highlights
- Reported net income available to common stockholders of $48.5 million, or $0.39 per diluted share of common stock, for the three months ended June 30, 2018, as compared to $26.9 million, or $0.28 per diluted share of common stock, for the three months ended June 30, 2017;
- Reported Operating Earnings (a non-GAAP financial measure defined below) of $54.9 million, or $0.44 per diluted share of common stock, for the three months ended June 30, 2018, as compared to $44.6 million, or $0.46 per diluted share of common stock, for the three months ended June 30, 2017;
- Generated $70.8 million of net interest income during the quarter from the Company’s $4.9 billion commercial real estate loan portfolio;
- Committed $968.0 million to new commercial real estate loans ($961.7 million of which was funded at closing) and funded an additional $112.5 million for loans closed prior to the quarter;
- Subsequent to quarter end, committed $87.0 million to new commercial real estate loans (all of which was funded at closing), bringing year-to-date loan commitments to $2.0 billion;
- Amended the Company’s master repurchase agreement with JPMorgan Chase Bank to extend the term through June 2021;
- Amended and restated the Company’s master repurchase agreement with Deutsche Bank to increase the borrowing capacity to $855 million and extend the term through March 2021;
- Entered into a master repurchase agreement with Credit Suisse to finance a first mortgage; and
- Declared a $0.46 dividend per share of common stock for the three months ended June 30, 2018.
“ARI has committed to over $1.9 billion of commercial real estate loans in the first six months of 2018, our strongest period of originations to-date and just $100 million shy of our total 2017 originations,” said Stuart Rothstein, Chief Executive Officer and President of the Company. “ARI’s loan portfolio totaled $4.9 billion of amortized cost at quarter end, an increase of approximately 36% as compared to the end of the second quarter of 2017. We believe ARI’s performance demonstrates the benefits of the Company’s nine-year track record as a reliable, creative capital solutions provider to the commercial real estate industry.”
Second Quarter 2018 Investment Activity
New Investments – During the second quarter of 2018, ARI committed capital to the following commercial real estate debt investments:
- $783.9 million of first mortgage loans ($777.6 million of which were funded during the quarter); and
- $184.1 million of subordinate loans ($184.1 million of which were funded during the quarter).
Funding of Previously Closed Loans – During the second quarter of 2018, ARI funded $112.5 million for loans closed prior to the quarter.
Loan Repayments – During the second quarter of 2018, ARI received $237.8 million from loan repayments, comprised of $107.5 million from first mortgage loans and $130.3 million from subordinate loans.
Quarter End Commercial Real Estate Loan Portfolio Summary
The following table sets forth certain information regarding the Company’s commercial real estate loan portfolio at June 30, 2018 ($ amounts in thousands):
Weighted | ||||||||||||
Weighted | Average | |||||||||||
Average | All-in | Cost of | Equity at | |||||||||
Description | Amortized Cost | Coupon(1) | Yield(1)(2) | Secured Debt(3) | Funds | Cost(4) | ||||||
| Commercial mortgage loans, net | 3,724,221 | 6.9% | 7.8% | 1,981,181 | 4.1% | 1,743,040 | ||||||
| Subordinate loans, net | 1,142,514 | 12.1% | 13.4% | - | - | 1,142,514 | ||||||
| Total/Weighted Average | 4,866,735 | 8.1% | 9.1% | 1,981,181 | 4.1% | 2,885,554 |
| (1) | Weighted-Average Coupon and Weighted Average All-in-Yield are based upon the applicable benchmark rates as of June 30, 2018 on the floating rate loans. | |
| (2) | Weighted-Average All-in-Yield includes the amortization of deferred origination fees, loan origination costs and accrual of both extension and exit fees. | |
| (3) | Gross of deferred financing of $20,307. | |
| (4) | Represents loan portfolio at amortized cost less secured debt outstanding. | |
Book Value
The Company’s book value per share of common stock was $16.26 at June 30, 2018 as compared to book value per share of common stock of $16.31 at March 31, 2018.
Subsequent Events
The following events occurred subsequent to quarter end:
New Investments – Subsequent to quarter end, ARI committed capital to the following commercial real estate loans:
- $87.0 million of first mortgage loans (all of which was funded during the quarter); and
Funding of Previously Closed Loans – Subsequent to quarter end, ARI funded $18.9 million for previously closed loans.
Loan Repayments – Subsequent to quarter end, ARI received $52.3 million from loan repayments, including $52.0 million from first mortgage loans and $0.3 million from subordinate loans.
Operating Earnings
Operating Earnings is a non-GAAP financial measure that 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) other than realized gains/(losses) related to interest income, (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 and impairments. Beginning with the quarter ended September 30, 2016, the Company slightly modified its definition of Operating Earnings to include realized gains (losses) on currency swaps related to interest income on investments denominated in a currency other than U.S. dollars. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by ACREFI Management, LLC, the Company’s external manager (the “Manager”) and approved by a majority of the Company's independent directors.
In order to evaluate the effective yield of the portfolio, the Company uses Operating Earnings to reflect the net investment income of the Company’s portfolio as adjusted to include the net interest expense related to the Company’s derivative instruments. Operating Earnings allows the Company to isolate the net interest expense associated with the Company’s swaps in order to monitor and project the Company’s full cost of borrowings. The Company also believes that its investors use Operating Earnings, or a comparable supplemental performance measure, to evaluate and compare the performance of the Company and its peers and, as such, the Company believes that the disclosure of Operating Earnings is useful to its investors. In addition, the Company has previously disclosed that it has disposed of all of its CMBS as of December 31, 2017. Accordingly, the Company has disclosed Operating Earnings excluding realized loss and costs from sale of CMBS because the Company believes it is useful to investors to present the results of the Company's ongoing operations while excluding the effects associated with the disposal of its CMBS.
A significant limitation associated with Operating Earnings as a measure of the Company's financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, the Company’s presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, who may use different calculations. As a result, Operating Earnings should not be considered as a substitute for the Company’s GAAP net income as a measure of its financial performance or any measure of its liquidity under GAAP.
Reconciliation of Operating Earnings to Net Income Available to Common Stockholders
The table below reconciles 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, 2018 and June 30, 2017 ($ amounts in thousands, except per share data):
Three Months | Three Months | |||||||||||||||
Ended | Earnings | Ended | Earnings | |||||||||||||
| June 30, 2018 | Per Share | June 30, 2017 | Per Share | ||||||||||||
| Operating Earnings: | ||||||||||||||||
| Net income available to common stockholders | $ | 48,512 | $ | 0.39 | $ | 26,925 | $ | 0.28 | ||||||||
| Adjustments: | ||||||||||||||||
| Equity-based compensation expense | 4,014 | 0.03 | 3,461 | 0.04 | ||||||||||||
| Unrealized loss on securities | - | - | 4,510 | 0.05 | ||||||||||||
| (Gain) loss on derivative instruments | (33,538 | ) | (0.27 | ) | 7,389 | 0.08 | ||||||||||
| Foreign currency (gain) loss, net | 29,797 | 0.24 | (6,958 | ) | (0.08 | ) | ||||||||||
| Amortization of the convertible senior notes related to equity reclassification | 1,156 | 0.01 | 618 | 0.01 | ||||||||||||
| Loss from unconsolidated joint venture | - | - | 3,305 | 0.03 | ||||||||||||
| Provision for loan losses and impairments | 5,000 | 0.04 | 5,000 | 0.05 | ||||||||||||
| Realized gain from unconsolidated joint venture | - | - | 346 | - | ||||||||||||
| Total adjustments: | 6,429 | 0.05 | 17,671 | 0.18 | ||||||||||||
| Operating Earnings | 54,941 | 0.44 | 44,596 | 0.46 | ||||||||||||
| Realized loss and costs from sale of CMBS | - | - | - | - | ||||||||||||
| Operating Earnings excluding realized loss and costs from sale of CMBS | $ | 54,941 | $ | 0.44 | $ | 44,596 | $ | 0.46 | ||||||||
Basic weighted average shares of common stock outstanding: | 123,019,993 |
| 95,428,134 | |||||||||||||
Diluted weighted average shares of common stock outstanding: | 124,629,317 | 96,796,289 | ||||||||||||||
Six Months | Six Months | |||||||||||||||
Ended | Earnings | Ended | Earnings | |||||||||||||
| June 30, 2018 | Per Share | June 30, 2017 | |||||||||||||