Apollo Commercial Real Estate Finance (ARI) 11 Feb 212020 Q4 Earnings call transcript

Ladies and gentlemen, thank you for standing by. I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. call our to statements. press to Harbor customary like in disclosure release also your the attention Safe I'd regarding forward-looking conference actual you projections. may and webcast SEC statements for recent call and statements that the differ Today's projections could materially factors and those cause filing include with we to to refer forward-looking that important our results most ask and from

law. non-GAAP visit the our SEC measures are the the XXX-XXX-XXXX. In to Rothstein. financial To on Executive the call, obtain is website. update call discussing website statements addition, our not At any go our like Officer, we are to ahead. believes Mr. assessing our call forward-looking will copies filings, this latest available We of by which figures or earnings undertake measures relevant us please These turn obligation www.apolloreit.com certain to GAAP over required in company's projections be or performance. management at in to presentation, to I'd section at Please Chief do time, this reconciled of company's Stuart stockholders unless our which

us you. Finance thank Thank and for the Call. you Estate morning Commercial Apollo Real Year joining Earnings Good XXXX End on

the financial market in the resides those global who pandemic. frame the of of the through by through implications context, Joining lens ARI's capital work conditions despite without pandemic for market expressed review listening at and crisis. is concerns the the it We to Jai or to challenges continues pandemic. the me the this appropriate markets. to is healthy Agarwal performance the intersection the strategic everyone comments impossible important we morning related ARI's Weiner. hope note To priorities discuss to and initial and impact that estate are viewed and Scott real acknowledging the as be It my XXXX safe future economy of ongoing and that initial current Ultimately, the

historically past months, have markets a rapid recovery. the and experienced the Over XX capital remained functioning

performance the economy will and slowly pre-pandemic the regulatory economic the the are the in capital fiscal ongoing overall pace as vaccination we ultimate possible. pandemic as when and we is measured the and best call policies of effective and However, the Unlike is company's impact reopening believe volume, typically recovering portfolio, XXXX minimize as to the by depend able the management. well earnings which in at other capital much sheet efforts highlight economy on and trajectory of enabled investment of would ARI's every durability asset the efficiency, capital in ARI's end year balance growth base and origination history, as performance proactive of

strength in-place each efforts historic from ongoing strong predicated our and as our their of management as and investment the with year, and talent keeping which well with in from both our systems benefited information with involved practice asset of transactions, opportunistic dialogue liquidity flow originators was lenders through relationships borrowers. facilitates the and our enhanced effective on management balance assets the During sheet well-priced of ARI's sales.

the in estate and Apollo broader With of the were leadership team, that commercial in to the tremendous organization ARI relationships Apollo's instrumental thought marketplace. part the from skill to real ARI's and set being and come of debt achievements continue differentiate resources, XXXX

dividend generate heightened on ARI's sector a with a of with our of the strategy balancing concerns ability return the not over leverage and on shareholders. continued have consistent return led of focused mortgage we implementing well maintaining Importantly, one leverage always pay REITs. relying leverage target our pandemic immediately targets, asset the and max our The In estate onset result managing ARI's of an mix, unencumbered relationships was balance liquidity to real sheet loans. to strength across security of bank covered balance to net a pool asset and to sheet, throughout the lending XXXX on use any efforts

consistently to an volatility. fully dialogue to that Apollo candid benefits validated during weakness end or strong capital form materially XXXX partners. key seeking as lenders, without the financial position approach approach of from from was keep capital have access increased rescue ARI's with for during This the relationships ensuring liquidity and peak always short-term our open need maintained We of one of ARI relationships with managing markets capital to a we any markets the the having

excess Beyond of ARI's eliminating generating loans construction attractive sell basic financial future at pricing, we opportunistically and commitments. some to our and chose liquidity also strategy, funding

sold ARI of net million proceeds loans generating of XX.X% approximately of weighted XXXX, at price million. par of a $XXX $XXX During average

of significant when active if amount additional behalf the loan searching yields, remains for Given of for sales and the capital may market on ARI. we sales appropriate and consider

stock have impact common of to issue our highlight stock book commitment XXXX, share growing on maintained allocation given price. value remained with considered we thoughtful Another book In XXXX only of was In pandemic common respect to ARI's capital pressure our positively we could downward ARI, use the repurchase value. above our how plan. its driven

As such capital. we would repurchasing determined risk achieve adjusted return excess equity stock on ARI's for best the common our

of to plan book average in of focus common also announced we for with value $XXX $XXX increase an repurchase to As approximately of of repurchased ARI I Directors was that portfolio, ARIs over we $X.XX a result, per of providing share XXXX the authorized total stock at price highlight want accretion. yesterday proactive management. share our resulting $XXX Board $X.XX capacity us million Pivoting asset million. to million

with to credit continue quality respect destination outlook as Apollo the enhanced to material within of hotels to hotel the a locations; the deposit I types, be providing the call. steady have that Anaheim portfolio, various greatly that our continue and specific the loans, to extensive with to resort the to we the loans in pleased of report the our prior of property REO, are challenge in of carried challenges. data portfolio, roughly platform, giving to see going has am team assets last and about the no dialogue while our with we which respect under extensively real-time LTV various quarters, or was to Anecdotally, our – business the With contract or to recovery the types, assets, underlying the access the hard information. our underlying Hotel portfolio and been being within resources our face there In borrowers the the measured oriented economy. sold are through changes our spoken challenges and were improvement or efforts credit hospitality within Our XX% foreclosed upon is posted. since is

open will additional well York familiar accruing our extremely partnered for an momentum is an is on with The a process of best-in-class Topshops market This The by in redevelop space, property is are Lastly, the our retail a with and as option proceeds loan. excess multifamily since the The currently was houses Oxford existing last redevelop an of bankruptcy. into developer sale at underwrote one the well mortgage including London. loan place initial well-regarded into and earnings Street, on the one respect we the located the with On entered Topshops urban locations were loan filed from into London, most to first the secured two converting property the property stores. the loan while Street credit. company Circus both is to and extremely largest Arcadia marketed the loan District working New a the our considered have and a Design in leasing when we the discuss developer parent site Nike's the quarter, believe Miami Fulton to in we we retaining outcome loan. space currently want for air in With at and Miami default we flagship of we to an Fulton had call we being we later I focus property. date. property it traffic interest, positive The partnership and interest, feedback indicates be local the covered. Last loans, respect Design our is to with who

its flow, of markets, and loans, throughout to on strength its opportunities. look significant the real from benefiting be return activity, which to balance which attractive increase and XXXX, is with ARI of capital platform is in well part and transaction real will repaid capital the XXXX deals. of ahead, The invested. some latter record be into has dry see tremendous sheet is powder position deal believe real As credit pipeline deploy adjusted of that Apollo's interest and to active Also excess estate ARI market continues a began XXXX providing rate entered on transaction enabled current softly which thereby of amounts the commercial on given in estate we a capital real low increased activity. XXXX. capital new of risk build ARI estate believe the we environment the potential to ARI is capitalize positioned to estate has leading remained in additional existing funds, we amount in continued to

this capital financing expecting today on Importantly, the ARIs that provide lenders year. we are willingness indicated for with are their transactions, consistent new the ARI with achievable levered have to are returns and confident back returns we

the generating attractive focus As adjusted capital most ROE. will on risk remain always, on our allocation

We funding and first our capital prudent transaction credit first XXXX, pipeline We will in steadfast methodology, loan our the in and committed continues large in Europe, first will new be our to business. mortgage build. management a remain to to we recently in

able is dividend liquidity XXXX, XXXX. dividend with to sheet the turn annualized to of common share. ARIs was to that the XXX% through most portfolio coverage just I highlight existing Before This generate excess even that was balance reiterate achievable excess of ARI current $X.XX I distributable and in Jai, per call our on over in want earnings a

dividend the results. Our our With yield, call over excess investors in offers common which environment. of XX-plus-percent review turn to yield low I'll attractive believe in an Jai extremely is current that we this stock financial to

Thank you, Stuart.

you you don't outstanding arrangements? total XXth X% why less arrangements keyword financing $X.X million, discuss year is which than March Before billion of financing balance. on earnings; were of I last deleveraging From give $XXX

the key in months. relationships navigated beneficial were the Our counter parties strong we as throughout XX with capital markets past volatility

partners the liquidity ourselves of and adequate financing out financing. proactively Apollo availed our also of and worked broader ensure term benefits the platform with to We

earnings to the use this of Moving distributable beginning to earnings the words will definition. quarter with to earnings; we I wanted the at instead change of operating highlight no

distributable $X million restructurings. for were $X.XX GAAP holders was loan share. per fourth common XXXX, And Distributable $XX and was to prior million reserves the loss earnings investment million on stock stock common of and $X.XX million share, realized of our was in the CECL on sales per million or realized or of previously earnings stock. quarter available share and $XX $X.XX For to per quarter investments $XX recorded were comprised or specific $XX the net dividend per income share. and cents $X.XX the common loss

unchanged XXst, relatively our to our of basis portfolio. reserve basis As remained sees agenda at CECL stands gliding reserve our by total of X.XX% X And December a point. points now XX

of fundings strong bringing At to add-on with to add-on loan the the fully quarter quarter. the floor our just term with prior U.S. $XXX average share. And was to billion to liquidity. for gender quarter-end, due completed XXXX. of book We all general the reserve to lastly, X.XX%. of Stuart of increased million that closed yield in-the-money covenants remaining share Approximately for we last year, Since end earlier. in respect Moving loans with mentioned repurchases; accretive floors value third continue end prior as floating The $X.XX our value; a to fundings extended the are are first our to XX% compared weighted $XXX unlevel loans, $XX.XX reserve of under weighted at to quarter per $X.X had by during CECL book $XX.XX was portfolio GAAP share previously three CECL values average borrowings, the and today million have X.X% rate a a book increase of the primarily per LIBOR the maintain of compliance our years. and total of

$X.X we ahead. capacity undrawn with As million we'd $XXX that cash open and loan the and like in Operator, And go unencumbered to today, for $XX questions. in please million line approved of of have credit assets. of billion hand,

Thank you. comes from [Operator Harter Instructions] Credit Our first Doug Suisse. question with

is open. line Your

kind time thinking over Thanks. events that to of what Can level and talk want kind period move you what how of kind of a about liquidity is to of and there? about, what you're you or normalized kind see

the got I that I minus as company called to talked number And company were on recover, context, and we've call since starts plus million down, Doug. just in $XXX million it's the Look, Sure post to through, we well. the pandemic think $XXX economy think more pandemic north well I $XX call frame we $XXX Obviously move used Yes. I the called any we to of as things the generally time. move at hit towards this before taken into we to think, range. $XXX running million continue to as Look, million excess to. we're going last it point way the the liquidity running million think to about in or

ending a next the year be start you're recovery company, I it's our next not level the anything in looking to forward given highly looking that going over towards because back progression. certainly times that for to might paid quarterly we over-focus minus I the at where think yet will of the a economy, are or something. move it'll think any out we take basis going quarter, months also used end there the back be to that possible where But sitting a get perhaps we're I'd you not out to think XX numbers. I show on as we are XX plus run here to over moving quarterly from but up on to months today, time. it But in confident encourage expectations

you'll down seeing overtime kick So start

as those guess And themselves think would if opportunities assets create to I point? I of, into I you lines, some liquidity, unencumbered at would along presented you, liquidity guess of of the source were you consider attractive, that additional those of how investments do guess extra or and about kind for kind kind an tapping

were any genesis capacity of Look, here of a against leveraged strident use And today on knew always pool loans, not mezzanine individual and historically last pool of asset in the unencumbered to that liquidity much very still within the unencumbered putting would offense been, source was as whatsoever sitting loans. has we though say a necessarily resort to the that our we those even leveraged source we leverage not would assets we I short-term. view play there choose

you, Got Stuart. it. Thank

Sure.

Thank you.

with Steve Our DeLaney next question comes from JMP Securities.

Your line is open.

everyone. morning, Good Thanks.

Steve. morning, Good

just underneath working six, point other Jai, some getting XX were transactions. where or this it first sales stocks ago, me pocket the Stuart, your may to quarter. in Stuart, months fourth moved in in assigned to were directed maybe that now executing reserves the let to types the applaud it up nice the have for may it's buyback. it's for more average from Obviously the and the be nicely specific – loan we're but you $X of fourth things all quarter, CECL that good you're that on And but of there really projects? on whether

realized when is we're which were and point I your we You're on impact working those distributable a where that policy there to the through it's of losses, focused – of income. going having all to think kind realized approach your because that loss now

hope of I guess like understand item. Jai, So you describe intent of then loss. are that the things the would or there we're to the now question; for I the – transactions are rambling obviously types going just timing could $XX through. say, apologize that $X and to kind If a realize I'd types developments lead you events is whether an other foreclosure if if came the what example events. I this look quarter sale, third beyond million and the or million with at and of different there to the or okay,

then fine. to if Hey Jai, have add add, the why That's No. don't back. on And comment? you anything I I'll

Stuart. a Thanks that's Sure, Steve, question. good

when upon it earlier the is a near loss we way the realized dissolved, that realized. this is they will defined So are that believe of actually certain is loan losses or be are

Quarry the there million that a when talked about fourth quarter loan, about is realized the $XX the $XX million that which occurred number largest that performing. sold some $XX the we So comprised which in is Springs are actually from is million the key the is reserves we loan lost we was just was last about of Pittsburgh Those where and the And forget unit. restructured loan now examples.

Okay.

barn loss, that's you then principal, now So outperforming. like a a [ph] loan, restructuring, took and a worked with the you the realized balance, lower just debt but at forgave troubled where it's

actual mean we an its amount. with acquisition actually, reduced connection Actually loan an I our Well, with acquisition, in so Scott.

fresh it's – with but a concept deal, equity where the So not the new same. into the bar

Oh you, Scott. I thank see,

took it’s the – loan someone fresh or the exchange or us concepts our Yes, a sort in borrower; lower other a reserve equity willing the new reconstituting loan. same. putting at existing We terms either within balance an is put to in a whether borrower for of

concept the we that’s are seeing. So

I term guess, sale issue? is whatever in that do that books, your in the now economic And Okay. interest Bethesda, I sheet, your understand off balance else's resolution off remaining for that and condos, somebody it's those is

ongoing no have project with sold. units been the We have involvement

I what Okay. the right, color, Thanks today. well appreciate Great. All it. hear for that's

Yes.

you. Thank

Jade question with next comes KBW. Rahmani Our from

Your line open. is

much. Thank you very

the credit receiving the the as as that start reserve I specific and definitely recapitalize? outlook, on CECL Pittsburgh to On equity can final resolution additional with; to hotel well guess FASB, good the there district in and are [indiscernible] in see

not all we've are but loans management different focused portfolio less made. think loans, loans not a and were on high XX watch to, the that lists are asset take or look time the way of it's more There are list I touch from an perspective,

is those feel obviously to-date require nothing point, to but were point the that are at Jade fairly close everything we any And we've going a conclusion individual think the and specific my this on overall portfolio. the reserves this outlook point on this at in reserve else reserve. in indicated requires I of as is assets that comments stable taken credit at sort

overall, terms modestly been have And to to in suggesting is be in the delinquency come. months overall seeing – have grace up we commercial in CMBS a terms estate loan increase rates, XXXX loans is in market, grace real of potentially the there is an delinquency of real the could going been worst commercial or improvement of period the and however, the gradual you in picking really estate rate that story it credit be a continued think industry workouts? behind resolution Do sort credit of through

I think it's complicated economy the with happens depends a what it going lot a of forward. question because on

I recovery is a of is real that an And pandemic in toward seem and added the is on view headed. of optimistic there the think we would addressing path the be abundance be where benefit the to economy for other that estate terms the or of credit in And our capital Anaheim world assets either in that are that. is hotel I on step that of to their reflective facing sale challenging. those by those into be already think accessed the challenges can looking assets opportunistically

to It's But the in change to I estate assets won't now, it continue be think still the not hinges. another going think things shock is system the that your addressed. that to broadly path think really place. say really It's believer I overall? right or workouts which Do aren't there trajectory most unexpected along take we to that I – dramatically. question, that And your depends it on the real not the be really is to say there speaking on that, forward. question need there market

in happens economy path of depends think I the really it what the recovery. overall on with

been of CECL highest amount dollar dollar I Thank amongst to you reserved think the percentage which or percentage ability and loans us The Appreciate have interest your the you. percentage is also total finally the at XX% portfolio, modified the of since Can about is loans March of peers. of provide the that that or on have non-accrual? collections? amount the

there. questions lot of A

like if million the of or roughly with circle rest or terms you to the minus equity is we think loans about Jai, call million, the can plus of and I information In of things the that. about ROEs pretty after on you non-accrual $XXX a of or Hilary levered have quickly. am on her $XXX get going net back you our with and basis, amount around

in originations, to we in Okay. from as start commitments And you've the the as in you origination? we aside should thinking terms when made of Thank a Should you. lastly, then quarter? just model funding pickup first be early think even

first from think I economics think second think think headline then wise early of the economically and there. benefiting things in closing as and in – terms you'd going in economically I quarter, as probably I late forward us quarter

Thank you taking the questions. for

Jade. Thanks,

Thank you.

from JPMorgan. comes next Our question Charlie Arestia with

Your open. line is

including been guys or some excluding distorts core taking but could that I you covered Hi, underlying transitioned investors good for you Most realized distributable this losses, Do the disclosed as this earnings collateral performance? earnings but already, sector distributable numbers with distributable question I think morning the guys. EPS possibly distributable Thanks be earnings? losses. potentially questions. away the impact the two there had for into the from there around do have ignores think the in credit a operating understand of you impact also noise and of realized

are going people how information. on comment can't to the interpret I Look

net the about from from book you is book a of a first our we zero value shifting from think a reserve a think realized perspective, I loss something both reason all value is presented ways taken perspective, impact. a previously at from to things if

large the fourth input So in meaningful providing people our relevant assets were to of were distributable about was industry loss using quarter interpreted Again trying we if any in earnings. the our to that realized help that think with. understand people earnings you most not to the on taken begin terms what to I then are of think that is And how and numbers.

So for to interpret. again, there I people think, it's

the consistent old back fairly is operating it think the things earnings period. I way in treating with we nomenclature were

behind sort it. that our So thinking was of

Okay, got Thank it. you.

Sure.

versus how weighing of buyback, of do share Where the range you sort deals new of repurchases are evolving that throughout the given the to And share de-leveraging? towards deploying do investment bias available today? maybe guy’s or how And in see see you you that opportunities towards upsized XXXX? continue kind then you

bias the originating portfolio. the in high be portfolio assets at replacing deals, the is to Look growing the a market or level in

an repurchase be purpose the is the extent stock there to think stock and was markets, to share were Obviously, shocks sends just that this are to clear from below. economic you think an we fairly to it of we plan get pretty a which capital perspective it that was compelling to ignore. $X unforeseen too this frequent I prices buyer levels when the of at

I which mentioned think it's Steve moved on was, as up know, it think you the nicely, earlier. DeLaney call I

the a just it's at be look going, stock are be dollars levered the ROE on go instances, most ties to investing last in going more back perspective pretty business, close, and overarching if deals. compelling putting And ROE to business to you starting on – would in not where point get invested into doing or you're guess to capital, I and to staying buying keeping comment – loans. If market in the pure the to the

used think I you to at share as So impacts the to to stock markets. the capital in when something fair severe it's plan repurchase look see be the

all Understood. the color. appreciate Thanks, Stuart,

Charlie. Thanks,

you. Thank

BTIG. with from comes question Hayes Tim next Our

is line Your open.

Good morning, one… first questions for my Stuart. taking here. Hi. My Thanks

Sure.

repayment just these resolution. retail on little ahead of loans notable expect of I a of defaulted loan that but sounds sale it your curious remarks, Yes may can quarter, the the contractual in the the But loan and you in UK and dig there trigger maybe should we some deeper. if when be that a of close if just gave a bit – any and if like your sense you on prepared The date. appreciate focus positive may you urban of more color maturity some have

Yes, speak right. to delve not I and offline, into much too it mean, could

is then So in this things which that at point. real resolved the the it's process put sold Once is we Obviously, of can perspective, transaction focus in estate. tenant. being the to Topshop, on

I the current some year. think that the at asset this that I that selling be this up in get point will say likely market it we would the is is expectation and will wrapped year

Understood, has if more the I just give how Brooklyn that's helpful. expected capital can lease been Red provide And asset in you comments and schedule. a that's the along with could then color Miami just loans, asset with but timeline then maybe there, and us little Sky been redevelopment there and appreciate on how going any that in up has that the you whether moving on bit

Yes.

think in respect the know the more I reverse that for yet think we taken demolition Brooklyn question, those your in place. to I at the time with working hadn't project, of got site active the

construct there, well So will going mix market approximately these if be And affordable, multi-family anybody see wants is to XXX demolition which actually a underway. be now to you'll looking then and there in units, couple encouraging. we that drive is transaction. then by now the retail physically we a site, the to very what partnership happy rate construction constructed days that you're but with we're at will Things a some of and the years to will Street to underneath the moving on just it's and it's at deal pace And but are moving continue update that way a be is multifamily, it on needs formed move. timeline progress,

partnership fairly things fairly occur the from as as been formed tenants as would leasing not as participation the become the to We'll on the updates material. referred with well are there's provide material side. on both interest a there's in updates recently. redevelopment, nature a to market be I I prospective front I of we longer And vis-à-vis but positive think the leasing Miami, say I timing think then, term, needed. and bigger made as provide things we'll decision respect to

here, And that's list I'm helpful. to if okay. That's going yes, the going on Okay. just keep

we The the eye an assets, retail the the then Liberty and think eye XXth. other DC, Center, on keep center, XXX or keeping been that an I West Cincinnati are have in three Hotel on Mayflower

to updates order take you So helpful. along any not be in to material pass encouraging those, or want any there's whether would it's if

Again, was lot a spent truly about we'd talking time it. if more material, it

will uses. begins shifting on two There's a particular leasing to to Again, the occurred Liberty I some has of nature is exit the recently then bit to use the fair no been still being there on to ultimate order of is, the done ways think land multifamily Center additional of would on I I Liberty additional add as the that of works retail of have on also available density there sized nature the that be location. assets. the Center a other change economically Liberty go things positive part Center the Liberty at a there around positive say, that's asset. would be site, ability net the decent creating as commented taking that which most at lease recently to say non-retail some And actually both would that that Center well a is previously We've signed that place. been the there. of exploratory

hotels my Mayflower, challenged. I on comments on the still somewhat being per business-oriented think

that work national uses well others the call recent a but whether individuals workers, events mix guard, to say they transient think Mayflower to DC, drawn given into this as is have for in are can related I'd healthcare house, there's places how Washington, looking it, been to that buyers, it's is in the be into And still I Washington as XXth occupancy environment, Mayflower of, as best say doing some they bigger tied the locked assets I as general. with the to sales consistent be with be dramatic interest Mayflower in street, in economy you done mentioned, then most would construction prospective very overall just take of the West activity to might XXX an recovery on good was of pre-pandemic. from residential what it on I is uptick closely three in continues Manhattan that There which continues. and either

been being that things lot put later the what there'll under activity seeing throughout in point, announcements more of Manhattan. more, the more period, encouraged you're contract And I would at later price and prospective February but rather there units sooner through to condo deal pretty by than would we're Over December of say early that be are see we're on has lower asset. Obviously, terms going buyers. a hope a flow

reserves hop good you given specific broadly was any assets about movements some against question additional or if I one and these made. curious it to that's released these positive I'm not, just then have assets? of material in the queue. did of mean, some added we just I'll your Yes, these in loans or hear. back reserves whether you see X And just by comments But to the

Center Liberty a no No, Jai. movements at just the clear, be movements there's never – Mayflower West no on taken we've reserves And at sorry XXth reserve to or – XXX street.

me, Excuse great.

just that clarify to So

I'll Okay. in hop my Well, appreciate taking back questions you queue. and the guys, I

Tim. Thanks,

no call any to there's showing to turn I'm the closing back in Mr. other questions like queue. Rothstein I'd for the remarks.

And Operator, you of you participating all thank you. thank to for today.

call. this you Ladies participating. conference for and concludes today's gentlemen, Thank

now may disconnect. great You Everyone a have day.