Press Release
February 13, 2019

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

Apollo Commercial Real Estate Finance, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

NEW YORK, Feb. 13, 2019 (GLOBE NEWSWIRE) -- 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, 2018.

Fourth Quarter 2018 Highlights

  • Reported net income available to common stockholders of $46.2 million, or $0.34 per diluted share of common stock, for the three months ended December 31, 2018;
  • Reported Operating Earnings (a non-GAAP financial measure defined below) of $61.9 million, or $0.46 per diluted share of common stock, for the three months ended December 31, 2018;
  • Generated $77.8 million of net interest income during the quarter from the Company’s $4.9 billion commercial real estate loan portfolio;
  • Committed $796.8 million to new commercial real estate loans ($452.0 million of which was funded at closing) and funded an additional $133.7 million for loans closed prior to the quarter;
  • Completed an underwritten public offering of $230.0 million of the Company's 5.375% Convertible Senior Notes due 2023 (the "5.375% 2023 Notes"); and
  • Declared a $0.46 dividend per share of common stock for the three months ended December 31, 2018.

2018 Highlights

  • Reported net income available to common stockholders of $192.6 million, or $1.48 per diluted share of common stock, for the year ended December 31, 2018;
  • Reported Operating Earnings of $223.4 million, or $1.78 per diluted share of common stock, for the year ended December 31, 2018; excluding the realized loss on early extinguishment of debt (described below), Operating Earnings were $226.0 million, or $1.80 per diluted share of common stock, for the year ended December 31, 2018;
  • Committed $3.0 billion to new commercial real estate loans ($2.1 billion of which was funded during the year ended December 31, 2018) and funded an additional $281.0 million for loans closed prior to 2018; and
  • Declared dividends per share of common stock totaling $1.84 during the year ended December 31, 2018.

“ARI had another solid year of operations and financial results in 2018, demonstrating the breadth of Apollo’s commercial real estate debt platform,” said Stuart Rothstein, Chief Executive Officer and President of the Company.  “ARI committed to $3 billion of transactions in 2018 and grew the Company’s investment portfolio to over $4.9 billion at year end.  As we enter 2019, ARI already is off to a strong start, having committed to over $430 million of new transactions year-to-date and we continue to build a pipeline of investments with attractive, risk adjusted returns.”

Fourth Quarter 2018 Investment Activity
New Investments - During the fourth quarter of 2018, ARI committed capital to the following commercial real estate loans:

  • $744.0 million of first mortgage loans ($440.3 million of which were funded during the quarter); and
  • $52.8 million subordinate loan ($11.7 million of which was funded during the quarter).

Funding of Previously Closed Loans - During the fourth quarter of 2018, ARI funded $133.7 million for loans closed prior to the quarter.

Loan Repayments - During the fourth quarter of 2018, ARI received $465.8 million from loan repayments, comprised of $319.3 million from first mortgage loans and $146.5 million from subordinate loans.

Fourth Quarter 2018 Capital Markets Activity
Convertible Notes -  ARI issued $230.0 million aggregate principal amount of the 5.375% 2023 Notes, which includes $30.0 million aggregate principal amount of the 5.375% 2023 Notes issued pursuant to the underwriters’ exercise of their option to purchase additional 5.375% 2023 Notes. The public offering generated net proceeds of approximately $223.7 million, after deducting the underwriting discount and estimated offering expenses. The conversion rate for the 5.375% 2023 Notes was initially equal to 48.7187 shares of common stock per $1,000 principal amount of notes or $20.53 per share of common stock. The 5.375% 2023 Notes will mature on October 15, 2023.

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 December 31, 2018 ($ amounts in thousands):

Description Amortized
Cost

 Weighted-
Average
Coupon (1)
 Weighted-
Average
All-in Yield (1)(2)
 Secured Debt (3) Cost of Funds Equity at
Cost (4)
Commercial mortgage loans, net $3,878,981  7.1% 7.9% $1,897,077  4.3% $1,981,904 
Subordinate loans, net 1,048,612  13.1% 14.7%     1,048,612 
Total/Weighted-Average $4,927,593  8.4% 9.3% $1,897,077  4.3% $3,030,516 

(1)     Weighted-Average Coupon and Weighted-Average All-in Yield are based on the applicable benchmark rates as of December 31, 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 costs of $17.6 million.
(4)     Represents loan portfolio at amortized cost less secured debt outstanding.

Book Value
The Company’s book value per share of common stock was $16.20 at December 31, 2018 as compared to book value per share of common stock of $16.27 at September 30, 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:

  • $203.8 million of first mortgage loans ($197.0 million of which were funded during the quarter)
  • $228.0 million subordinate loan (all of which were funded during the quarter)

Funding of Previously Closed Loans - Subsequent to quarter end, ARI funded $65.6 million for previously closed loans.

Loan Repayments - Subsequent to quarter end, ARI received $215.5 million from loan repayments, including $106.5 million from first mortgage loans and $109.0 million from subordinate loans.

Operating Earnings
Operating Earnings is a non-GAAP financial measure that the Company defines 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 (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on the Company's foreign currency hedges, (v) the non-cash amortization expense related to the reclassification of a portion of the Company's 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. In addition, beginning with the quarter ended December 31, 2018, the Company further modified its definition of Operating Earnings to include the impact from forward points on its foreign currency hedges, which reflect the interest rate differentials between the applicable base rate for its foreign currency investments and USD LIBOR. These forward contracts effectively convert the rate exposure to USD LIBOR, resulting in additional interest income earned in U.S. dollar terms. These amounts are not included in GAAP net income. In order to conform to the 2018 year end presentation, which incorporates this modification, prior year Operating Earnings results presented below have been modified accordingly. Operating Earnings may also be adjusted to exclude certain other non-cash items, as determined by ACREFI Management, LLC, the Company's external 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 its portfolio as adjusted to include the net interest expense related to its derivative instruments. Operating Earnings allows the Company to isolate the net interest expense associated with its swaps in order to monitor and project its 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 and the Company recorded a loss on early extinguishment of debt associated with exchanges and conversions of the Company's 5.50% Convertible Senior Notes due 2019. Accordingly, the Company has disclosed Operating Earnings excluding realized loss and costs from sale of CMBS and loss on early extinguishment of debt 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 and the loss on early extinguishment of debt, which are non-recurring events and not reflective of its ongoing operations.

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 months and years ended December 31, 2018 and December 31, 2017, respectively ($ amounts in thousands, except per share data): 

 Three months ended Earnings
Per Share(1)
 Three months ended Earnings
Per Share(1)
 December 31, 2018  December 31, 2017 
Operating Earnings:       
Net income available to common stockholders$46,155  $0.34  $34,322  $0.32 
Adjustments:       
Equity-based compensation expense2,184  0.02  3,427  0.03 
Unrealized gain on securities    (25,335) (0.24)
(Gain) loss on derivative instruments(10,261) (0.08) 1,265  0.01 
Foreign currency (gain) loss, net(2)6,761  0.05  (658)  
Realized gains relating to interest and
forward points on foreign currency hedges, net(2)
1,170  0.01  44   
Amortization of the convertible senior notes
related to equity reclassification
934  0.01  1,051  0.01 
Provision for loan losses and impairments15,000  0.11     
Total adjustments:15,788  0.12  (20,206) (0.19)
Operating Earnings$61,943  $0.46  $14,116  $0.13 
        
Realized loss and costs from sale of CMBS(3)    39,522  0.37 
Operating Earnings excluding realized loss and
costs from sale of CMBS and loss on early extinguishment of debt
$61,943  $0.46  $53,638  $0.50 
Basic weighted-average shares of common stock outstanding133,852,915    106,721,887