Apollo Commercial Real Estate Finance (ARI) 26 Oct 212021 Q3 Earnings call transcript

Good day and thank you for standing by. Welcome to the Apollo Commercial Real Estate Finance Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] 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. replay release. call audio our available the press earnings about of is this in Information like call regarding also disclosure I'd to in Safe the our Harbor customary press release forward-looking your statements. attention to we the these and results webcast to cause our forward-looking projections refer Today's conference statements important ask filings factors may you with call that recent actual from and for statements projections. differ include and materially and SEC most could to that

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

- you Apollo this morning those Good of Finance call. joining Real Thank you. of third are to Estate morning those who and Commercial thank you the us us on quarter earnings

Agarwal. and this me Jai Scott are Joining Weiner morning

prior end quarters towards move market. the XXXX, trends of commercial in the we see real from we As to continue similar estate

pipeline and be the well industry asset have regions accelerate regardless financing the capital been and low estate and investment remain in quickly an level metrics across measured overall There real operating - asset Real presence a Specifically, as The for at real rapid sponsorship challenged. Commercial we property well-positioned, to the high platform fund as record significant estate volumes a real lending transaction to supporting flows highly institutional transactions year. Apollo across financing approximately ARI. three on the for is gateway $X.X ARI XXXX is current continues and consistent markets. interest real pace non-bank quarters year markets. the should the proven and with pace insurance US positive of broad improve. type properties market. surpassed competitive the sooner and of European of economy and first continue estate a recover terms consistent combination to In the performance commercial levels robust mix and environment with has to geographic types of the as more beneficial, again in underlying to well-funded in at recovery quality incredibly the of improving such recovered In lending companies asset commercial the continues be highly of recovery that for present, a CMBS, both billion volume lenders has commercial new as rate for activity of the the a and completed to the estate economy. have contrast strength of with Ultimately market debt those performance, through be track and liquid winners, clear The most should of and Estate banks, At and continues activity environment, class, transactions

have close that we year for of $XXX and quarter totals should in the million We already other pre-pandemic additional an transactions to will working position origination large combination worth our reputation our competition end. reflective slightly that structure and through underwrite of XXXX team's we loan loan and year-to-date ARI developed, expect is by originations approach transactions do ARI's a committed Europe, has levels are as a number to strong ability of market and It continue team is less highlighting favor which to the transactions. fourth of

result quarter of transactions very Europe in transactions, what portfolio ARI's European To the represent a similar loans XX% approximately deal and I success we to reiterate in are of equity at of United sponsorship for ARI's of properties the complete States. As end. quality types structures securing loans have Europe, our in said previously, the

Through have repayments currency additional portfolio. since market an million loan diversified has to and repaid portfolio lending received repayment CRE $XXX forward more borrow loans end. in also is European to type lend we and and almost by we activity in of have quarter contracts currency we of and strength the risk led The normalized $XXX September loan hedge. our XX, of Our property million manage geography as use local and

Our encouraging construction including are being assets sale occupancy the of plans achieving their residential economy general from projects, business signs units repayments sold. for reflect as certificates and achieving transitional

result, quarter end. ARI's decline a to continues of exposure at As only approximately XX% the construction representing portfolio

positive Manhattan across office seen have repayment increased portfolio properties, as In quality stable well and quarter, anecdotes from focused projects. loans our and credit traffic with the a of large our foot also leasing continue this We loans. we progress loan at of other make securing the remains including activity general, our our as portfolio office to

to of finish are I Pamela from minute In the women X and expertise. Both Board addition ARI insight the and corporate our year, Carmencita expanded Board executives highlights, Carlton recent remarks, ARI with take senior Whonder. and Directors greatly want company's governance XX Before highlight with benefit will of my a their from I we past of to members to believe to some the respect Directors.

issues consideration reminder, continue processes. We recognize as to of of our ARI the ESG and issues incorporates investment to decision-making importance a analysis ESG our into and stakeholders

our made tenure to thank him pursue be and us see to leaving ARI will in a New moment the has sorry during will to I Year Jai be to early wanted to his we opportunities. CFO, go. contributions Agarwal other Jai Lastly, take who valuable

good greatest was below him a contributions us will and hands. his of leave One building team strong he in

that, the call for his a results. we Jai will seamless. to for search begun I already And departure turn replacement his the review last expect have financial our will and over time to We with be

Hi Stuart.

yields to decline per or quarter, rate GAAP at per XX% that available portfolio from depreciation $XX increased on share. billion, last The The hedges. General are share quarter $X.XX loan per Our the common $XX end earnings diluted CECL $X.XX income end floors $XX.XX were end value increased was of the term the had share. distributable have unlevered was previous floating a X.X% from of currency in was or GAAP portfolio stockholders million due extended weighted of gains LIBOR under Reserve and money This US just slightly at slight book the for fully loans of years. quarter due of to remaining unrealized three million net the $XX.XX increase average the quarter. with prior a primarily to loan of weighted floor to a repayments. in today X.XX%. Approximately our average $X.X to

we quarter, the made funded. first which During mortgage, million $XXX $XXX of million were

combination cash $XXX and XXXX. We million extended $XXX with We made JP of previously a secure of the in respect covenants capacity increased fundings of the almost we to With and also loans. add-on our strong which borrowings, to are September to for facility our closed compliance was maintain Morgan liquidity. our We million on with quarter of ended X.X maturity all lines. liquidity, total and continue to with billion

X.X and billion ratio ended with quarter equity slightly of to debt at quarter end unencumbered decreased times, we the to loan Our $X.X assets.

years. and to Stuart, this over half the with ahead. this miss for questions, been wanted individuals. the talented Board have like of opportunity I that, the fortunate go please offered all I'd and ARI five will support working with importantly, open of very thank Lastly, colleagues last most line for very I And to to group truly my I Scott, Operator, the and at Apollo feel

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

just see tough Stuart, too know - you loans just where, for Can few were lower like but read today? to than about market this looks loan was the Thanks. opportunities it kind or of you into that the talk it's kind quarters. whether one-offs I is yield the new loans, significantly a those on into new prior of always quarter much

I tightening. say spreads think think both, mix that directionally, it's it's are I of but a fair to

a me given on think the I seat seat, and that I sitting think us I in lender tighter in these think, say, alternatives of are where you've don't it's favors days. just market in versus that, my surprised borrower previous the are clearly that any calls his or heard general are trading Scott sitting things yield

and take it But by relative that would occurred today tighter fair what quarter returns they to the risk light or ago. years go-forward it three are ago, we think, three out where in versus go-forward So basis. on risk as two on two certainly sure, sit call say to a it's the putting the ascribe today achievable I'm we dollars I where sat I a for certainly ROEs were than years or basis not

Yes, in US, costs Right. more that leverage I matters. costs Europe also than add, are we've our in financing available, just it's mix so Scott. and have more would come found have also financing that efficient the so the

are after So an financing, returns when targeted. unlevered in the think line what that's an at yield with unlevered yield. always the we've you I look But

kind are those Scott, just range you're as - if returns could what you that just, what, is? levered today me, And remind of targeting

about thought always Doug. we've think I mean, I XX% plus,

but for XX%. have to were ROEs or the some we've call years at of years plus we it that, where ARI, we is think XX terms I thought overachieve enough always could fortunate of levered in existence minus

US than is and And different - the while might funding, across there's the Europe? the yield and be that consistent pretty asset

you'll quarter, I it's achieve the look as we're both you but in comments, of if look, in think, as think as fourth little to well internationally. I returns Europe, types us in domestically, what I expecting do Yeah, net-net, better indicated those my at see a

Our with comes next Hayes Tim question BTIG. from

now, think do the that announced team broader does My into recently trillion parent just just you think curious we Apollo goal curious, Real XXXX I'm fits materially increased that question by capacity bigger, you and and how ARI about a in also has and into broader mean and the origination you see just fits credit ARI first gotten reach has that initiative? where AUM to expect five initiative years Estate that its

estate Apollo certainly credit in about real it's Yes, business, billion what happen say, afford ARI $XX to going of the to unknown, a what's today of of opportunity, which quarter I but is business a look business. think at that markets roughly broadly fair light represents it's

our we terms and hopefully think, of my about just optimistic estate to sheer comments of a for and originate quarters real other The get year, places about sort in that to people pace call record very credit we're we to for. continue pre-pandemic a of for got end I speaking on and year originate much lot we across in the of I thinking the the levels the this team volume transactions ARI. is broadly line time, ARI, feel on be ability spend behalf ARI transaction by that we on origination with across to don't point time think of going to

there for insurance think, goes we is platform. do from market. is very expectation subject estate happens forward, the between what what well and It and for this continued I - support affiliated to in in sheet ARI point So obviously for growth continued on but work to real company the balance both what credit combination insurance our

observations expand hearing headlines can expand, gave so with could you specific anything fundamentals like appreciate New there. York office as loan underlying trends positive negative share or little bit City that have you can assets then of it And just on maybe your office. team, of other are relates more of I you mixed or false and the just feel trends, days the and to color from York New I any about these City a kind you equity portfolio Thanks. you

Yes.

- - a tenant what office a committed New what perspective giving done be we're firm, as a continues York for both I'm the that but we've Let lender, as doing ARI you it's a space. to to also as me - as

of been and in that There real being newly space to recently York continues lending and be for finishes, upgraded the ARI created and we're interest a created in think foot does a on those is as obviously given estate focus et most of what clearly or traffic typically product finding New has what current strong and anecdotally there interested a healthy where situations I what office what renovated lender, level systems, that for terms is improved. desire is newly to are most standards, in is cetera. we're

way seen in fully, able I of looking we've seen and think to more I little be newer and commoditized the in to of portfolio more definitely encouraged there seeing it as previously. When can who are work sublease our because multiple older transitional as space they the I've you softness So have more you not definitely might to think to think, through in been at that bit product, market, I across by more product uncommon, languishing of a space think are the is it's product, get in that lease those afford they look as - my ability the career it didn't cycles. affords way

high So struggle. more space I end, is I towards will there newly and created continued think, think, space commoditized to - bias continue

is of kind over on mature But a what are expiring that so as in next, I it XX% over of that's within the that market. time we've CMBS your portion there their well, years recently consistent of those office more a more a or that And so and kind pretty or tenant follow-up this billion role to frame. CMBS three is insights. of read I so hearing I peers like call like CMBS has with appreciate feel scheduled and of been decent office of some the the from loans about just or $XX between that or stat

notable be going create creates do just with any headwinds does these transitional the then higher that other and market environment, opportunities the some side, potential that curious or CMBS for disturbance in certain on has the can lenders refinanced? of I'm loans, into office So creating you the disturbance loans if rate to potentially think that to

No, I great think it's a question.

to to it's result I know early is be. net too probably think the what going

of opportunity, get to where probably question two - share question, of really point are things and amount your I opportunity I as XXX that sudden a that that real continuing it and rate premised might and with here distressed some think defines your the also what, us implied old what just that we myself, it tenure environment. I notion like is too need never to go of capital that the sitting the is early to a environment all for the real all of to into rate that and on to and the a hard believe factor think to seek creates, sort and was high higher it's we're at of know. of

And so.

Yes.

I look, happen in think I lot think, three can a years.

indicated lot my improvement, is distress. improvement in I comments, there think I path a I as of think, towards steady continued and a not

this any I sloping what I to you, think gently but keep if upward the eye environment think along question, of like on of trend in economy too your at implied on the be by the we we implications continues a inflation conviction terms so was do recovery I to recovery point. a might close the and one its as next rate economic over two years, think, higher it's sense have of early real

Laws Our Raymond with next question James. comes from Stephen

Maybe kind expenses, going wanted we've on on to asset got trends are the variable I quarter - expenses, how when think of operating versus how about about the asset? then REO. a the the as touch fixed that, and with the as I now improve should things and hotel Stuart, think I with

mean, think, I I look.

the into into our point, quarter a I asset with this, but month we history know your think we're to the given well obviously - our only extremely it.

to we've cutting much think as in cut at done we there's and asset job I can not - sure our the think I I'm there. a terms effective expenses an as of more

the, to a a the I'll nice path actually revenue it was recovery the over call from the before think perspective. summer, I on uprising Delta asset

to is side I the optimistic come feel future a forward revenue we on think that as as on expense to to there and opposed I more begins the we improvement basis. up as also move side, think, in quarters open go-forward DC

call from I upside be rather what there perspective, sooner capital asset it might our an full from we to a on some interested later there path that performing ride those gets to if could. the a would stabilization asset perspective, rather the a in such are - as be this the than side towards capital and point be would the think because into I turn we'd at performance asset exit a think, before acquiring

appreciate the maturity switching the I like multifamily, looks the it is know to of and Brooklyn update this year. I December

you think allowance, I also Qs looks so more market favorable has like recently your CECL specific a outlook. given, reduced it the

how that asset give think on maybe you can and that So out update plays Brooklyn us in an coming the you months?

we've a well-known as companies. with known the formed a developer so Yes, real estate Witkoff partnership

will with demolition a them, a combination be next XX be in minus lease one a foundation do This of market units. a sometime affordable creating tower, completed, would two We build, in of partnership we multifamily to or has expect rate Effectively forward assets up. will this legacy what and year early are been work story going year plus the year. ultimately

into you're year So that place. like development will project in do financing take next about XXXX, construction us I during put a will three we sometime think year, though, looking really

up I real this two given strength Brooklyn, the is economically York but is the think to risk. correctly, is, if we construction of multifamily year a to I ARI project think execute strength there recently, the with market given three of for upside potential there risk, New lease

recovery So to of looking today, terms economic and where terms to but benefit in we in need well, I execute forward the is potential what ARI. sit like we of

elevated, million think of side this prepayments expected $XXX leverage been I now have and quarter. fundings to but Switching little roughly the you cited

leverage of more quarter, a As of shift of in X.X end the at focus really kind portfolio on the some out was think this turnover of we mortgages, higher months XX of leverage first to I the or loans to to move like you mix is a standpoint? from out senior X a where think target in of the would the - for of what where you a portfolio run and kind

notes if think markets think very the strategy as prudent assets out pandemic wanting to about maintain bond to we've market, portfolio we on a access the to terms market, corporate unencumbered some the specific of access been able finance Yes, convinced think market the coming that - keep convertible of of I is loan asset term sheet. it and that capital I various to combined balance with leverage also in the the

end of factor the at at quarters think of this between think and sort state I sort day, I X probably to turns run business we somewhere all of of in, basis. you that the a when leverage X.X steady on X

Right. Appreciate I've closing, future. the your Jai, insight and Stuart. luck color And in enjoyed you the the good - working years. with comment in just appreciate over

Thank you.

Our with Rahmani next from Jade comes question KBW.

is This Obaidi held decrease for is to on that asset? color income loans subordinate My for question from the any and you give Is in first can on is sequential that sale what that drove loan? related Jade. Sarah subordinate the

I taken income portfolio refer shrinking you in the we project, our as think also there. portion what driving to what's the XX-Q of refer just subordinate Steinway Yes, some comments loans loan action and mezzanine the mezzanine we've in the of the a on is also where I'd then on in general decrease both loan around a to

provision my expect do And further question recovery? Okay. next you is,

to asset. leaves In Fulton think in there's I that go. the around me Street about general, lot work think Stephen just of I Though I execution again, Brooklyn to asset a on made comments optimistic the

risk, think, lot got potential provisions Brooklyn to think they prospects sitting visibility here I That value time mix and the the But perception think said, are between I wouldn't path resolution. today, I execution any we've I best and entail Miami there, more think I think both reflective being think, have risk and for of offer of recovery. complexity economic and asset appropriately the expect of today, the execution additional change. we both our until a I I asset near-term the

during quarter? modifications any And were there the loan significant

no. None,

None.

distributable Okay. level earning? still EPS stabilized is lastly, or excess reached a And has at just there $X.XX

third quarters, the think level the in which which we the we earned dividend I Look, first covered quarter. earned, X it I out out in think the EPS, we

bit how are best the in publicly and that bit think challenge a control. we is of out a but new repayments part and is efficient a deployment, our a market not depends is we of origination to which of traded market doing capital that always I up based a timing a line of the can private it on and on market combination is both little

were think return is resolution there that depends of reach part on of it stabilized of assets we are some today. also I able income not level - on a to generating focus quickly, or the how

efficiency through. think beyond we've long term, potential I need there term, of both got I assets near that challenges the $X.XX. in we So I terms capital in think is to think But focused some the work and

next JPMorgan. Our Instructions] comes [Operator from Rich question with Shane

of Jai, Thank I'm it space. the technical talked a taking cautious curious sounds given just you're you of seeing help what's you Stuart, business in the if makes that you. about and rates plans and frankly same are covenants are on in how that capital market of in supply terms years, competitively curious some of think a it's we're impacting type you the of little sense terms your questions recognizing you aggressive. because both more more and the going structure great of in but from bit erosion the the spread way for all will perspective? for pressures pricing my in we seeing deal in is I'm factors, thank like any over whether ways miss in interest you that the or a competitive

I point, in a I a say level would way good at go think in back and I way. good as my and high 'XX, look always to 'XX a No, touch

seeing measurable think of I thing. yet. sort any that's level not on And just good sloppiness You're a

of think pricing. or different to I compete extent a on think documents different view structures, want people or to think structures the I I view a of documents, underwriting,

we've I don't compete the today, any that's set. sitting I to approach here noticeable day, And but as think fine. that's to given peer seen competitive think in reasoned think market overall the a or I way any set amongst think weakening of their on I

the be in one and about to the closely are watch clear cause CLO for just concern competitors XX is finance heard have type want a growth in that's a balance extent for think decision. of time But market some of sheet of think very moment their that now, all, at financing coming is some time very the the to maybe moment don't a it to CLO concerns who obviously out little finance years lenders that in other choose CRE, of I thing me our structure is which of talk a committed me structure. I versus balance we I think bit I potentially something to sort corporate PTSD also that I continue sheet is you that through think at XXXX.

about. a intention potential those think as in balance again scale the I that the that we We things long-term in you that some you originate but we have who the point I a those be us as of again would became think moment's about at seen try the types what it is really yet, market because if and are concern truly at sheet track we in securitize to look market, at, securitization probably real just think want overall the look a wakening and they notice of enter to being closely future of committed and as no things for types the haven't prevalent at what can lender.

if in also helpful. get pricing, because portfolio you in Europe, I mentioned the And to you that credit very extent is reduced structure, intensity there risk is clearly potential Europe, curious now is landscape miss had I XX% the in That's Europe Europe. competitive better the that competitive the in - think competition less lower impacts that that am you - of

on to I maybe competition. Right. the And in comments no make just mean my doesn't Again context, less put sure margin. competition

there So still people of against. we that compete is plenty

to the think are also Europe within our a of of be we've But on might own, it's think and some Europe reside. think, different continent, done I've has sponsorship also and on I us an where I about that terms many seems great able think, to times different regions business better that much structure, you tighter win job large protecting to I but is a, for with countries the bit a - us but winning equity a this with mandates in a with bunch Rich differentiate of our effectively and in lender. partnering on team par, and repeat fantastic can mandates a necessarily when been large others has working done job win value of point, not on thing, a structures Europe, and Europe in like where of different a just countries really a said not it's as we esoteric

of things the structures folks terms easy countries like to lender figuring think, process, us I think the who and done life we've finish and make make to borrower they think, work effective efficient made out in has which we lend that fantastic to getting job in. the line. as in how their of doing I we've with very for and team in are a I business a our work able proven our And for

That concludes turn today's session. back to for the question-and-answer Stuart I'd like closing remarks. call to Rothstein

you everybody for as and much, always, thank Thank you very operator participating. to

participating. Thank conference This for concludes today's you call.

disconnect. now may You