NEW YORK, NY -- (Marketwired) -- 07/29/14 -- Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported financial results for the quarter and six month period ended June 30, 2014.
Second Quarter 2014 and Recent Highlights
- Reported Operating Earnings (a non-GAAP financial measure defined below) per share of common stock of $0.42 for the quarter ended June 30, 2014, an increase of 35.5% as compared to Operating Earnings per share of common stock of $0.31 for the quarter ended June 30, 2013;
- Generated $23.8 million of net interest income from the Company's $1.3 billion investment portfolio, which had a weighted average underwritten internal rate of return ("IRR") of approximately 13.6% and a levered weighted average underwritten IRR of approximately 13.9% at June 30, 2014;
- Closed $402.3 million of commercial real estate loans and invested $34.7 million of equity into commercial mortgage-backed securities ("CMBS") with an aggregate purchase price of $173.6 million;
- Amended the Company's master repurchase agreement with JPMorgan Chase Bank, N.A. ("JPM Facility") to increase the total borrowing capacity to $175 million from $100 million and amended the Company's master repurchase agreement with Deutsche Bank AG (the "Deutsche Bank Facility") to increase the total borrowing capacity to $200 million from $100 million;
- Completed an underwritten public offering of 9,706,000 shares of common stock at a price of $16.35 per share, raising net proceeds of $158.4 million; and
- Subsequent to quarter end, closed two additional commercial real estate loans totaling $54.5 million and invested $6.4 million of equity into CMBS with an aggregate purchase price of $31.8 million, bringing year to date investments to $733 million.
"ARI has had a great start to 2014, with over $733 million of commercial real estate debt investments closed year-to-date," said Stuart Rothstein, Chief Executive Officer of the Company. "Our Manager continues to invest in building out ARI's investment platform and we believe ARI has developed a reputation as a reliable, creative capital provider. The depth of ARI's platform was evidenced during the quarter, as the Company provided full financing solutions to commercial real estate developers and owners. We continue to see ample investment opportunities for the Company, both within the United States and internationally, and importantly, we believe the credit quality of the Company's investment portfolio remains stable."
Second Quarter 2014 Operating Results
The Company reported Operating Earnings of $18.0 million, or $0.42 per share, for the three months ended June 30, 2014, representing a per share increase of 35.5% as compared to Operating Earnings of $11.7 million, or $0.31 per share, for the three months ended June 30, 2013. Net income available to common stockholders for the three months ended June 30, 2014 was $22.1 million, or $0.51 per share, as compared to net income available to common stockholders of $9.9 million, or $0.27 per share, for the three months ended June 30, 2013.
For the six months ended June 30, 2014, the Company reported Operating Earnings of $32.0 million, or $0.80 per share, representing a 14.3% per share increase as compared to Operating Earnings of $23.7 million, or $0.70 per share, for the six months ended June 30, 2013. Net income available to common stockholders for the six months ended June 30, 2014 was $37.8 million, or $0.94 per share, as compared to net income available to common stockholders of $20.0 million, or $0.59 per share, for the six months ended June 30, 2013.
Second Quarter 2014 Investment and Portfolio Activity
New Investments - During the second quarter, ARI committed to invest $576.0 million.
Commenting on the investment activity, Scott Weiner, the Manager's Chief Investment Officer, said: "The second quarter of 2014 was ARI's most active in the Company's five-year history and our investments were diversified across our target asset classes, as well as across property types and geographies. In addition, as the Company expanded its capital base, during the quarter ARI was able to principal two larger loans and then syndicate portions of these loans to third parties."
ARI's second quarter investments included the following transactions:
- $210.0 million fixed-rate, five-year first mortgage loan secured by a portfolio of 229 single-family and condominium homes located across North and Central America, the Caribbean and England. Simultaneously with closing, ARI syndicated $104.0 million of the loan to other funds managed by affiliates of Apollo Global Management, LLC and retained $106.0 million of the first mortgage loan. The first mortgage loan has an appraised loan-to-value ("LTV") of approximately 49% and was underwritten to generate an IRR of approximately 8.2% on an unlevered basis. ARI anticipates financing the investment and on a levered basis, the investment was underwritten to generate an IRR of approximately 15%;
- $54.0 million (£ 32.1 million) fixed rate, nine-month mezzanine loan in connection with the purchase of an existing commercial building that is expected to be re-developed into a 173,000 salable square foot residential condominium in Central London. The mezzanine loan is part of a $126.1 million (£ 75 million) pre-development loan comprised of a $72.1 million (£ 42.9 million) first mortgage and ARI's $54.0 million (£ 32.1 million) mezzanine loan. In order to mitigate foreign currency exchange risk, ARI entered into a forward contract to fix the exchange rate. ARI will have the option, but not the obligation, to participate in the development financing. ARI's loan basis represents a 78% appraised LTV. The mezzanine loan has been underwritten to generate an IRR of approximately 12%;
- $155.0 million floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. The property consists of 442 hotels rooms, 114 timeshare units, two casinos and approximately 131,500 square feet of retail space. In June, ARI syndicated a $90.0 million senior participation in the loan and retained a $65.0 million junior participation in the loan. The whole loan has a three-year term with two one-year extension options and an appraised LTV of 60%. The junior participation was underwritten to generate an IRR of approximately 14%;
- $34.0 million floating-rate first mortgage loan for the acquisition of a newly renovated 301-key hotel located in downtown Philadelphia. The first mortgage has a three-year term with two one-year extension options and an underwritten loan-to-cost of 58%. The first mortgage loan was underwritten to generate an IRR of approximately 13% on a levered basis;
- $65.1 million floating-rate first mortgage loan ($20.0 million of which was funded at closing) for the development of a 40-unit luxury residential condominium in downtown Bethesda, Maryland. ARI's loan has a 30-month term with a six-month extension option. On a fully funded basis, the first mortgage loan has a projected appraised loan-to-net sellout of approximately 67% and has been underwritten to generate an IRR of approximately 14%;
- $28.3 million fixed-rate mezzanine loan secured by the equity interest in a 795-key full-service hotel and 226,000 square foot office and retail condominium in the Times Square neighborhood of New York City. The mezzanine loan has a remaining six month term and an underwritten LTV of 67%. The mezzanine loan was underwritten to generate an IRR of approximately 8%;
- $50.0 million floating-rate mezzanine loan secured by the equity interest in a portfolio of 167 wholly owned skilled nursing facilities located across 19 states. The mezzanine loan was issued in connection with the refinancing of the portfolio and paid off the existing $47.0 million mezzanine loan ARI acquired in 2013. The new mezzanine loan has a two-year initial term with three one-year extension options and an underwritten LTV of 62%. The mezzanine loan was underwritten to generate an IRR of approximately 12%; and
- $34.7 million of equity for the acquisition of CMBS with an aggregate purchase price of $173.6 million. ARI financed the CMBS utilizing $138.9 million of borrowings under the Deutsche Bank Facility. The CMBS have a weighted average life of 2.8 years and have been underwritten to generate an IRR of approximately 17%.
Second Quarter 2014 Capital Markets Activity
Amendment of JP Morgan Facility and Deutsche Bank Facility - ARI amended the Company's JPMorgan Facility to expand the total borrowing capacity to $175 million from $100 million. The facility expires in January 2015. In addition, ARI amended the Company's Deutsche Bank Facility to expand the total borrowing capacity to $200 million from $100 million. The Deutsche Bank Facility expires in April 2018 and is used to finance the acquisition of CMBS. At June 30, 2014, the JPMorgan Facility had an outstanding balance of $146.7 million and the Deutsche Bank Facility had an outstanding balance of $138.9 million.
Common Stock Offering - In May, the Company completed a public offering of 9,706,000 shares of common stock at a price of $16.35 per share, including a portion of the underwriters' option to purchase additional shares, raising net proceeds of $158.4 million.
Quarter End Portfolio Summary
The following table sets forth certain information regarding the Company's investments at June 30, 2014 ($ amounts in thousands):
Current Levered
Weighted Weighted
Average Average
Weighted Cost Equity Under- Under-
Amortized Average of at written written
Description Cost Yield Debt Funds Cost(1) IRR(2) IRR(3)
------------ ---------- --------- -------- ------ -------- -------- --------
First
mortgage
loans $ 343,810 8.4% $146,698 2.7% $197,112 15.0% 16.4%
Subordinate
loans(4) 659,045 11.9 - - 659,045 12.8 12.8
CMBS 339,724 6.3 299,526 3.1 70,325 15.4 15.5
---------- --------- -------- ------ -------- -------- --------
Total/
Weighted
Average $1,342,579 9.6% $446,224 2.9% $926,482 13.6% 13.9%
========== ========= ======== ====== ======== ======== ========
(1) Includes $30,127 of restricted cash related to the Company's repurchase facility with UBS AG (the "UBS Facility").
(2) The underwritten IRR for the investments shown in the above table and elsewhere in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company's external manager (the "Manager"), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and that the cost of borrowings under the Wells Facility remains constant over the remaining term. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in the table. See "Item 1A--Risk Factors--The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the table over time.
(3) The Company's ability to achieve its underwritten levered weighted average IRR with regard to its portfolio of first mortgage loans is additionally dependent upon the Company utilizing the JPMorgan Facility or any replacement facility with similar terms and re-borrowing approximately $28,302 in total. Without such re-borrowing, the levered weighted average underwritten IRRs will be as indicated in the current weighted average underwritten IRR column above.
(4) Subordinate loans are net of a participation sold during June 2014. ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP. At June 30, 2014, ARI had one such participation sold with a carrying amount of $89,182.
Loan-to-Value
At June 30, 2014, the Company's commercial real estate loan portfolio, not including CMBS, had a weighted average LTV of 58%. Within the commercial real estate loan portfolio, the first mortgage loans had a weighted average LTV of 48% and the subordinate loans had a weighted average LTV of 64%.
Book Value
The Company's book value per share at June 30, 2014 was $16.30, as compared to book value per share of $16.21 at March 31, 2014. 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 net assets at June 30, 2014 was approximately $9.8 million greater than the carrying value as of the same date, assuming debt is valued at its par settlement amount. This difference represents a premium of $0.21 per share over the Company's book value as of June 30, 2014, and results in an estimated market value per share of approximately $16.51.
Subsequent Events
New Investments - Subsequent to quarter end, ARI closed two commercial real estate loan transactions totaling approximately $54.5 million and invested $6.4 million of equity into CMBS with an aggregate purchase price of $31.8 million. The loan transactions include the following:
- $20.0 million floating-rate mezzanine loan secured by the equity interest in a 280-key hotel in the NoMad neighborhood of New York City. The mezzanine loan has a two-year initial term and three one-year extension options and an appraised LTV of 61%. The mezzanine loan was underwritten to generate an IRR of approximately 12%; and
- $34.5 million ($30.0 million of which was funded at closing) floating-rate, first mortgage loan secured by a newly constructed, Class-A, 63-unit multifamily property located in Brooklyn, New York, which also includes approximately 7,300 square feet of retail space and 31 parking spaces. The first mortgage loan has a two-year initial term with three one-year extension options and an appraised LTV of 63% based upon the initial funding. The future funding is contingent upon the property achieving certain occupancy and cash flow hurdles. ARI anticipates financing the loan, and on a levered basis, the loan was underwritten to generate an IRR of approximately 12%.
Dividend - ARI's Board of Directors declared a dividend of $0.40 per share of common stock, which is payable on October 15, 2014 to common stockholders of record on September 30, 2014.
Definition of Operating Earnings
Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding), (ii) any unrealized gains or losses or other non-cash items included in net income available to common stockholders and (iii) the non-cash amortization expense related to the reclassification of a portion of the senior convertible notes to stockholders' equity in accordance with GAAP.
Reconciliation of Operating Earnings to Net Income Available to Common Stockholders
The tables below reconcile Operating Earnings and Operating Earnings per share with net income available to common stockholders and net income available to common stockholders per share for the three and six month periods ended June 30, 2014 and June 30, 2013 ($ amounts in thousands, except share and per share data):
Three Three
Months Months
Ended Earnings Ended Earnings
June 30, Per Share June 30, Per Share
2014 (Diluted) 2013 (Diluted)
----------- --------- ----------- ---------
Operating Earnings:
Net income available to
common stockholders $ 22,098 $ 0.51 $ 9,929 $ 0.27
Adjustments:
Unrealized (gain)/loss on
securities (4,749) (0.11) 1,421 0.03
Unrealized (gain)/loss on
derivative instruments 1,093 0.03 (57) -
Foreign currency gain (959) (0.02) - -
Equity-based compensation
expense 362 0.01 428 0.01
Amortization of convertible
notes related to equity
reclassification 200 - - -
----------- --------- ----------- ---------
Total adjustments: (4,053) (0.09) 1,792 0.04
----------- --------- ----------- ---------
Operating Earnings $ 18,045 $ 0.42 $ 11,721 $ 0.31
=========== ========= =========== =========
Basic weighted average shares
ofcommon stock outstanding: 42,888,747 36,880,410
Diluted weighted average
shares ofcommon stock
outstanding: 43,099,354 37,373,885
Six Months Six Months
Ended Earnings Ended Earnings
June 30, Per Share June 30, Per Share
2014 (Diluted) 2013 (Diluted)
----------- --------- ----------- ---------
Operating Earnings:
Net income available to
common stockholders $ 37,819 $ 0.94 $ 20,001 $ 0.59
Adjustments:
Unrealized (gain)/loss on
securities (6,934) (0.17) 2,500 0.07
Unrealized (gain)/loss on
derivative instruments 1,093 0.03 (130) -
Foreign currency gain (959) (0.02) - -
Equity-based compensation
expense 788 0.02 1,311 0.04
Amortization of convertible
notes related to equity
reclassification 229 - - -
----------- --------- ----------- ---------
Total adjustments: (5,783) (0.14) 3,681 0.11
----------- --------- ----------- ---------
Operating Earnings $ 32,036 $ 0.80 $ 23,682 $ 0.70
=========== ========= =========== =========
Basic weighted average shares
ofcommon stock outstanding: 40,021,722 33,511,889
Diluted weighted average
shares ofcommon stock
outstanding: 40,236,109 33,946,329
Teleconference Details:
The Company will host a conference call to discuss its financial results on Wednesday, July 30, 2014 at 10:00 a.m. Eastern Time. Members of the public who are interested in participating in the Company's second quarter 2014 earnings teleconference call should dial from the U.S., (877) 331-6553, or from outside the U.S., (760) 666-3769, shortly before 10:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 69283340). Please note the teleconference call will be available for replay beginning at 1:00 p.m. on Wednesday, July 30, 2014, and ending at midnight on Wednesday, August 6, 2014. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 69283340.
Webcast:
The conference call will also be available on the Company's website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company's website.
Supplemental Information
The Company provides supplemental financial information to offer more transparency into its results and make its reporting more informative and easier to follow. The supplemental financial information is available in the investor relations section of the Company's website at www.apolloreit.com.
About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) is a real estate investment trust that primarily originates, invests in, acquires and manages performing commercial real estate mortgage loans, subordinate financings, CMBS and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $159.3 billion of assets under management at March 31, 2014.
Additional information can be found on the Company's website at www.apolloreit.com.
Dividend Reinvestment Plan
The Company adopted a Direct Stock Purchase and Dividend Reinvestment Plan (the "Plan"). The Plan provides new investors and existing holders of the Company's common stock with a convenient and economical method to purchase shares of its common stock. By participating in the Plan, participants may purchase additional shares of the Company's common stock by reinvesting some or all of the cash dividends received on their shares of the Company's common stock. In addition, the Plan permits participants to make optional cash investments of up to $10,000 per month, and, with the Company's prior approval, optional cash investments in excess of $10,000 per month, for the purchase of additional shares of the Company's common stock.
The Plan is administered by a division of Wells Fargo Bank, N.A. ("Wells"). Stockholders and other persons may obtain a copy of the Plan prospectus and an enrollment form by contacting Wells at (800) 468-9716 or (651) 450-4064, if outside the United States, or visiting Wells' website at www.shareowneronline.com.
This communication does not constitute an offer to sell or the solicitation of an offer to buy securities.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company's control. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company's ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands--except share and per share data)
---------------------------------------------------------------------------
June 30, December 31,
2014 2013
---------- ------------
Assets:
Cash $ 63,335 $ 20,096
Restricted cash 30,127 30,127
Securities available-for-sale, at estimated fair
value 23,281 33,362
Securities, at estimated fair value 324,724 158,086
Commercial mortgage loans, held for investment 343,810 161,099
Subordinate loans, held for investment 748,227 497,484
Interest receivable 15,183 6,022
Deferred financing costs, net 5,088 628
Other assets 975 600
---------- ------------
Total Assets $1,554,750 $ 907,504
========== ============
Liabilities and Stockholders' Equity
Liabilities:
Borrowings under repurchase agreements $ 446,224 $ 202,033
Convertible senior notes, net 139,362 -
Participations sold 89,182 -
Derivative instrument 1,093 -
Accounts payable and accrued expenses 5,260 2,660
Payable to related party 2,966 2,628
Dividends payable 20,665 17,227
---------- ------------
Total Liabilities 704,752 224,548
Stockholders' Equity:
Preferred stock, $0.01 par value, 50,000,000
shares authorized and 3,450,000 shares issued
and outstanding in 2014 and 2013 35 35
Common stock, $0.01 par value, 450,000,000
shares authorized, 46,848,675 and 36,888,467
shares issued and outstanding in 2014 and 2013,
respectively 468 369
Additional paid-in-capital 860,421 697,610
Retained earnings (accumulated deficit) (10,132) (14,188)
Accumulated other comprehensive loss (794) (870)
---------- ------------
Total Stockholders' Equity 849,998 682,956
---------- ------------
Total Liabilities and Stockholders' Equity $1,554,750 $ 907,504
========== ============
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands--except share and per share data)
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
----------- ----------- ----------- -----------
Net interest income:
Interest income from
securities $ 4,366 $ 3,014 $ 6,785 $ 6,101
Interest income from
commercial mortgage
loans 6,438 3,676 10,449 7,268
Interest income from
subordinate loans 18,238 11,498 32,968 22,953
Interest income from
repurchase agreements - - - 2
Interest expense (5,258) (955) (7,015) (2,024)
----------- ----------- ----------- -----------
Net interest income 23,784 17,233 43,187 34,300
Operating expenses:
General and
administrative
expenses (includes
$362 and $788 of
equity-based
compensation in 2014
and $428 and $1,311
in 2013,
respectively) (1,479) (1,437) (2,921) (3,333)
Management fees to
related party (2,966) (2,600) (5,531) (4,759)
----------- ----------- ----------- -----------
Total operating expenses (4,445) (4,037) (8,452) (8,092)
Interest income from
cash balances 4 16 4 16
Unrealized gain/(loss)
on securities 4,749 (1,421) 6,934 (2,500)
Foreign currency gain 959 - 959 -
Loss on derivative
instruments (includes
$1,093 and $1,093 of
unrealized losses in
2014 and $57 and $130
of unrealized gains
in 2013,
respectively) (1,093) (2) (1,093) (3)
----------- ----------- ----------- -----------
Net income 23,958 11,798 41,539 23,721
----------- ----------- ----------- -----------
Preferred dividend (1,860) (1,860) (3,720) (3,720)
----------- ----------- ----------- -----------
Net income available to
common stockholders $ 22,098 $ 9,929 $ 37,819 $ 20,001
=========== =========== =========== ===========
Basic and diluted net
income per share of
common stock $ 0.51 $ 0.27 $ 0.94 $ 0.59
=========== =========== =========== ===========
Basic weighted average
shares of common stock
outstanding 42,888,747 36,880,410 40,021,722 33,511,889
=========== =========== =========== ===========
Diluted weighted average
shares of common stock
outstanding 43,099,354 37,373,885 40,236,109 33,946,329
=========== =========== =========== ===========
Dividend declared per
share of common stock $ 0.40 $ 0.40 $ 0.80 $ 0.80
=========== =========== =========== ===========
CONTACT:
Hilary Ginsberg
Investor Relations
(212) 822-0767
