Apollo Commercial Real Estate Finance (ARI) 9 Feb 222021 Q4 Earnings call transcript

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are from 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. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

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

proud Thank to estate year leading billion assets for record was at year a our $X.X a Most year, for both professionals, maturities capabilities. through a and the joining XXXX increasing you, team. Finance you increase. volume, commercial commercial XX% us team at originations. mortgages results on Officer. annual I unencumbered dividend performance usual, of extremely credit thank to on Europe, talent, XX growing Earnings extending to to Investment billion grew estate am delivered and resulted at of of $XXX asset $X.X and to Apollo We Estate shareholders. well-covered to Chief transaction as portfolio am ARI ARI, addition the XXXX financial Good in the real continued an cost, Real and by leverage and pool of strong the Operator. real XXXX, ARI the its of U.S. term morning our the our in year-end. and and $X.X loan all Scott investment broadening effort joined today, throughout and the fortified efforts mortgage for billion behalf new Apollo invest the Year-End Weiner, to committed estate in sheet We attractive originations Call. a real management I importantly, Commercial record year-end, in of operational balance of million

in advantages CMBS, of insurance in estate was strong the and few and variety its estate company. REITs. robust to lending core ARI's debt available and strengthened that of themes a banks there market, and of track reflective believe year, performance Apollo's mentioning. the platform the throughout from XXXX, reputation, competition components In and billion is environment, credit, activity commercial are the critical we originations record continues a and funds, There transactions options real companies, leading relationships, financing commercial worth borrowers, of credit discussed As completed commercial real are success, market Across $XX from in XXXX position this mortgage financing. provide estate provider Apollo of global as real our to

First, alongside of deployment funds, ARI Apollo's meaningful the enabled Apollo transactions scale behalf participate on that expertise larger other platform real several to estate in were to commercial co-originated ARI. led which of and credit

Next, credit to structures our Europe The in job I for to of share. over real States, and in United do of of commercial very the market deal the European traditional transactions, capturing expect ARI's to again estate want ARI's as active institutions, European XXXX was well-established Europe, XX% to complete types XXXX. are we quality sponsorship, similar and remain we transactions and in for equity loans highlight Europe, disintermediating volume in Western team the success transactions excellent we financial an continues origination achieved in

billion. totaling were whom borrowers, repeat closed new of very borrowers transactions to our XXXX deals many are want ARI are converting repeat relationships, XX% we that $X.X with top-tier borrower focused into with new also global sponsors. I on And Lastly, eight highlight of clients. those

of commitments the million already we of anticipate approximately commitments, will approximately of $X To $XXX quarter. date, XXXX. have to closed into carried another that first close the and billion has momentum investment loan our end new Importantly, we I prior

amount While is of reflected originations activity ARI's that deployment the estate strength is ARI's significant real of also repayment capital in markets, from pace strength the of benefiting the and in portfolio.

total During ARI repayments, New from received occurring $XXX the a in received in property the XXXX, for-sale collateralized over from $X.X loans, by $XXX projects, York with million and $XXX repayments variety exposures fourth residential ARI of City. XX% quarter. Notably, of over billion approximately of million of hotel of loans across over types million loan

to As XX% XXXX. net to we New focused York remain end reduced of as XX%, City exposure a to overall Pivoting at the proactive management. our result, portfolio, was to the on asset compared

no the changes in amount Circus billion retail resulting of well interest. year-end, per outlook of in default coverage year ratio was reported for call. there per $X.XX quality contractual at and financial full of of our stock the quarter-end, property, Shifting the ARI credit largest repayment all the since to Our and portfolio to Oxford or in accrued principle for credit one $X.XX last a excess loans, collateralizing material dividend. XXX% sold distributable earnings basis outstanding share, resulting Notably, of $X.X of plus loan performance, ARI's for dividend to share the to common an portfolio subsequent were totaled our

originations costs for As new equity level I quarterly returns Board appropriate also have fluctuations. Directors earnings, previously, The and discussed the company. seeks and factors to distributable in a impact achievable on looks the the when the setting from leverage to level dividend, of of on and longer-term limit financing view the seeks the including factoring take multiple at Board asset return

using At to Our the be provide for approval. Board's with XXXX run goal the existing a dividend will anticipate profile we rate, subject leverage. capital dividend annual without the is consistent into a dividend with stable to present, loans or risk deploying higher excessive

ARI quarter year, with feasible. set. year acted of economically dividend successful XXXX also is one $X.X highest levels strengthen the Throughout some for the believe achievements with and I and year, market As Loan during leverage in issuances ended announced of be balance term to our sheet secured to the capital Term leverage we the customary, billion which of first March. million our of we is unencumbered amongst in will out peer opportunistically highlight ARI's want $XXX added term when the our both We assets, of notes. B XXXX.

conservative ongoing to with respect remain at year-end, shift company's consistent into first leverage, portfolio the times ratio with the X.X with we debt-to-equity at Importantly, mortgages.

we want Finally, in the to call team Officer Operator? up early to seasoned on she we with we as thank announced appointment at second will Chief Mironova, ARI's all Apollo open ARI. of for work join quarter. Anastasia to this mortgage professional, for Financial reporting look their REIT And the a of progress position us will the I hard forward to the the dedicated questions. year, achievements XXXX. And ARI that, I of and past into of

the Doug Harter from Suisse. line [Operator Instructions] first Our from question of Credit comes

Your line open. now is

Thanks.

Just with of the repayment the in repayments? retail first income on the loan, U.K. will the catch-up quarter create of that kind any

the default along back. were Doug, as accruing going we that we get confident No, it interest way, paid were highly were the to we

Stuart. kind redeployment? of any Great, list of assets, update can around then to thank be up you that you being free some us give the able and capital some might as of just for you, And where other watch

asset, I go probably forward a would comments. free the nothing's that a strategy And there, on of would a productively in a order market the the are to approaching for the level, of to, at a that happened exploring, we've side Brooklyn, But articulated the to capital of would partner committed in high also short-term. on otherwise multi-family construction now have transaction are included possibility say where our equity nature, haven't into yet Obviously, of in with in it deploy ARI capital Fulton anecdotally, material the Yes. up least I portion effectively development invested a asset loan. Street my the we at though the of has we in that bringing some

from in some and probably around the project, hotel I York, would Steinway I Center the traffic, interest of in done asset, for a think asset foot non-performing be column, the D.C., And we buyers, few of better in through options near-term construction, Miami that different capital. to exploring terms then on the of asset, think the New certainly the have work possibilities to more more possibilities paths grinding for towards the definitely with to additional assets, then asset potential today definitely respect but capital the other two progress contracts and selling continuing been explore some sale I are Liberty finishing Those side. our up signed, nearest-term in up are the which here Washington, say management Ohio. other on focus on freeing non-performing are And freeing on asset.

Thank you.

the line of from Hayes comes question next from Our BTIG. Tim

open. now is line Your

the around remarks. Stewart. Hey, prepared divided in good comments your morning, Appreciate the

is net basis? leverage shifted higher do comes the have you costs brought portfolio don't saw is a it like you given, it dividend be Any more bit net going very was But growth corporate coverage maybe Just What of maybe on end I think as at can or on contraction want you in robust. a annual expectations quarter, I would that first it earning you cover little sounds look higher debt. the believe back on think know from, pipeline before And what kind touch an be kind comments as the payments this so what more kind the the but quarter, funding is some rates to that about for there where I of that a bit little on far that also like, of growth of to today, bit dependent and where quarter. get you this not but year? confidence higher you've is to helpful. gives obviously, the of on the are the to And

Yes, look, work where of the ended, I then through sort think me let you and start we question. --

Sure.

earnings note. comes occurred the comment curve, version it the when we was out would and envision some close. would that the dependent for It's level, forcing pickup asset-specific exists can think some today, control matures privately recognize dividend at to sort on the certainly we changing is lot say, to I saw are repayments And on end form certainly transactions, spoken negotiated a of the which convertible basis put secured we the closing leverage, what repaid be the took of beneficial often rates the on; don't in at extent facility, is I quarter timing an reflects ours. timing We asset you But leverage. focus potential these not XX% of with of pipeline leverage really are pipeline, short unexpected the I've between this earn to just on are returns at and not fourth obviously the not using of people we roughly times with to curve. pace corporate And anything run that my internally, know the leverage ROE the on replaced. end and respect would challenges of the things think corporate overall we deals a what just; I given I to then I things the in on doing committing have of a later really if place in that typically it it, of getting then day, alludes of on the the the short-term of when expecting we to we're end of rose. on model will of capital call the But perspective. of sort covering But respect given sector say to and a which the of recently, year leverage, expectations clearly And corporate financing and increasing that from really that which the short are borrowing across years not a the to as typically, piece of say what the deals.

So, it's are perspective, from at deployment really, our new level [work] generating [Ph]. the asset the we're ROEs

trying capital some new here be succeed timing is deployed sort light some can a penny view best some are And there be impact deployment I that and well capital on from things taking deployments then can and a being the earnings year hoped but as from going if very timing capital where of obviously a a think or and are policy at line back dividend that as we'll as we we're think a comments we up of achieve perspective, our it leakage. typical there, were as and non-earning didn't into line Doug's would certainly repayments to can. perspective think the as there's day. of to I efficient pickup have vis-à-vis indicates question, up as my in to we're turning we optimistic There that's ROEs, this of meant on are as focused might quarter we to from best indicate end successful as cautious in not as I And be that if reference we to that that well. on the that

but commitments And touch looks it on from of convert that's how credit to wanted thinking this I maybe counterparties helpful came no, kind some for of your good breakdown looks like the because since some also just of bit. extended in that. total a it, facilities, liquidity, so you a it a super brought like And of Right, about thank you just you're year. the up you segue kind

there as you that expecting had might in quarter. to So, not you also this kind as are you some -- be up. But last have maturity much like coming quarter draw you growth of

needs? how So, do you growth these kind you guess you balance position? capital of with balance I liquidity -- about do How your how think do

ties some of address of i.e., me a think But there. and for what on we'll significant We'll what and do corporate secured also our markets I the have notes. dialog around say what well. active an but in and created all are term between cognizant some some is movement from would on very upheaval of relationships duration. convert interplay those separate the we our secured markets, have say I I on terms of banks of we relationships, lending about cost of banks we relationships the decide to And capital with has some relationships we focus with into to there But obviously, combination reducing of increasing those we've we And been access new dialog markets, as previously sort loan, who in as reason away the sort best that bringing Yes, on asset respects think corporate in which to given model to look available the of say in done the a the and style if those think variety for at converts an what we asset it absent we the would leverage how breakdown, extent constant it. level. we notes, any do corporate the all convertible markets, ability net-net have we'll to version existing access I is in financing that internally company to to the call do convertible level we addressing of debt notes. our explore path we of whatever with need them markets to the have in other

the comments, Very for Thanks helpful. Stuart.

Sure.

you. Thank

James. Our next line of question comes from Stephen Raymond Laws the from

line Your is now open.

Hi, morning. good

Morning, Stephen.

Morning, Stuart.

and your comments your bit pretty of sales U.K. substantially believe, the touched is portfolio. XX%. international especially maybe but to loan little now the little a up certainly find exposure on Europe York you is a peer I can you group? relative New have XX% about And and You in on You bit team the now, that there, more the why attractive? mix highest talked about of

tired competitive of Yes. is team because to let me mean market think done a it it is. our in seem in than me differently think it I really probably makes it than their I I past as I and the Europe approach have referring easier jobs less -- because

of very we I transaction, we most of -- the terms to in a are active we a we important Europe, that as dynamic type well importantly this a as sponsorship, think markets what comfortable couple lender think of think the as and mirror in in from are are perspective, I image do that what system there as in in legal perspective. lender of a you notion a we U.S. do Europe we protected from are reiterate U.S. of on want is do the as type a about things And we I going it's

of in we than agnostic currency in in deal hedge our to whatever residual no U.S. someone and back is why works U.S. if here there it's finance and perspective deal its a that different pipeline from the I think approach Particularly, the ability local Europe, much a is that to So, then working dollars.

the think I in Europe CMBS to U.S. is it's fair a market; a not say here exists while it in is there robust as market as

there. So, to things affords get opportunity done us a more little bit

And I in trade think CMBS is in Europe where found asset, partner particularly large other of somewhat do also larger borrower in the single partnering dynamic Apollo of deals less do competitors. market or Either really Europe. with there we U.S. lot are as the given depth we'd Europe Capital -- the ends with size a find depth some that tighter in up who be you also we single a different deals the respects have deals due being perceived of willing firms what will often is here often in oftentimes actually we others. where

which it's benefit back not doing and think I'd to niche a for And in you doing about hedging attractive. the pretty I things, Euro due look very economic And a lot deals to USD, business a deals makes and as Europe of then created those in think driver terms very relationships and capability, we from think Europe, of benefit helped a over there. real reason credit provides based in London connectivity economically of USD, one it nice to then estate There deal, definitely to not then, the and credit ourselves there, do in result, active economically, is also for Apollo but differentials. actually we've to estate rate a the thing a interest the an real business So, which is relationships real hedging last I back reasons it to much it it's as again, has benefit, but but is Europe team underwriting in so equity the using transactions. estate of our has is source data firm say as that

in So, really think well executed we've I Europe.

a here continues I'm Europe portfolio? is the U.S. of case. to to and to be it meaningful going not the percentages, but predict the look mix be going a Europe at Certainly continue I would sitting the And to As part pipeline, be today, that of

all Stuart. international Great. comments the exposure. the on Thanks, I appreciate

Sure.

you. Thank

question next line of Our Rahmani from the comes Jade KBW. from

is line Your now open.

very you much. Thank

peers One And real acquired time. your this our was towards commercial seems the of have I bank know and rates bank acquisition could of portfolio assumed a stress it impact test which a allocation bank. from loan a analysts the that from increased loss on on lending. theory from recently negative first that such estate, capital

the in So, reduction is if have mortgage that partly wondering opportunity originations bank as explaining surge the see and perhaps originations, space REITs you in some an the in evidence. that

Great question.

both me of I parts it two there of think on because Let parts were it. comment

look not much XXXX. I the as episodically forward still driver origination. in with say happens, would of concept say to said, a with a as as of part, generally banks from would banks, other. deployment looking each clearly something certainly benefits portfolios of connectivity that perspective in speaking of primary lot for I viewed our being That sitting I always one place very would of for we and the is respect at put buying will the like us activities deal-specific Apollo think, broadly I first our be to a but ways there's inside potential with the transact least

funds powder the of this in has the and these not I opportunities to of the wants to somebody and what wanting better I where are to would value needed available what's year, notion the plan, business rates and plan. part stabilized. lend been to the someone where Fall borrowers There's asset go your source from at to continuing who mortgage or So, in us on go say going dry to up pick with for situations around question, our think this according that direct add for do things the they're is into assets, institutions the than of assets I adjust deployed story of business activity with of to as amount getting your don't days asset. business and to combination second things would transitional phone primary can of then in and the the principal-to-principal There still that extent question, is opportunistic peers from dialogue the XXXX react a borrow first say dealing a financing to creating

on So, of the the I active why the of pretty that's growth think the of been percentage still continued primary terms REIT part in par seen sector. the U.S. see driver We mortgage here banks in you've lending being

a think been I think overall. from we see competition yet from I in don't it any pullback of banks reflected the So, has lack of as don't terms sector that

where within Thank toward historically higher you the had shifted at probably to et space taking but in how ARI more to what And we end From characterize construction, though situations, clearly senior we ourselves doing were would was we more difficulty] at credit REIT the still has say you that done don't [technical of was much. more the heavy whether it recovery the more. this, real comfortable veered renovation, being mortgage redevelopment, want I structural perspective, of Putting were you, cetera. point to very a loans. I know estate,

there. other senior would this marriage the pandemic, We everything point out that loan. look time-to-time, transactions the at doing think at see side of expect I but don't meaningfully I of we from really structurally, episodically. coming much to a say are changing don't I happen is

are on 'XX a being are were see renovated. being first opposed that really would and expect we think assets the then more episodic in done something what is 'XX, focused to as of would bit in 'XX, remain construction where to in real upgraded, in timeframe. put more bucket And estate. being situations we're now I little mortgages to us I the the terms those structurally, focused things continue So, to on I

down I So, to up lease maybe speaking bit, to for taking situations the play a asset estate, think the something better a we're done more generally is where of real opposed level to risk phrase. in lack but still be a as going being just probably

attributes, a Is that estate the And lessons structural function of reacted well out learned? you maybe where didn't it government or as support of execution. changing COVID is is of first you the the Is way where as a really value and calculus really because is? just from it falling correction mortgages, but on those it all that function relative market two feel, less just doing the real happen a value now relative you're what best construction feel

think I bit mean, things. a few I a of little it's

a we to need that can think adjusted without extent return taking the ground ROEs I up I from construction perspective; risk. generate work risk

was property might during of the impacts what not that's real other about be the our are you influenced whatever -- call do is it's there quarter one think, was challenges estate types one to due a in due of to realized started the the it want pandemic, other safety no at things delivery to certainly way I occurred pandemic, of think also real cetera. downturn, et certainly delay, shutdowns things to question. and one really one was others. estate. that to the thing did was the construction that it either deployment pandemic, is materials, But the of the were I prudent labor, date mandates, in our I estate to think to still more with there real of There thinking least in I where delivery though, the certain hiccup you cleansing for think that about market. the during vehicle. really challenged than

because ROEs us what which And conservative causes So, supply level would is development delivered later. the delivered is, of what now, with where is to we you're getting having absorb the need think a later, that We I generate development about lot generate but can delivered is means still to created it's product way extent take that was we to deployment. asset say started your view more pipeline ultimately, being -- right to answer to take newly I without want later, respect a the we in you to the the which to think being it risk.

Thank taking you for the questions.

Of course.

you. Thank

comes DeLaney question of next line JMP from Our the Securities. Steve of

open. now is line Your

Thanks. Stuart. morning, Good

morning. Good

pay Jade we at a and - the the hotel touched and the of mezzanine it the in at last that always too looks new good quarter, was on commitments it's of the that's end wanted market. of because offs year, it portfolio. And noticed -- to sign the XX, between first positive the touch in of XX% terms urban XX XX% commitments. leisure almost of I

this time? you kinds exactly were where those the sector comment feeling Thank just hotel And [indiscernible], U.S. loans are and You But, are finding you. specific what based at specifically that briefly how you or hotel they attractive? Europe. regardless situations about geography, of

in remarkably destination call things performance appreciate urban destination pandemic question, or category things Yes. out part of I or the and the as obviously we it the the strong. been has fall I leisure that started and of Look, breaking think between of urban. Steve. Look, leisure

certainly comfortable of portfolio. very lock result somewhere. and to people are to We of seek go enough And on because is improvement pandemic want long I with for hotel their one existing with get definitely as the those the add up and of of additional families you types think they vacation to portfolio the would a the

Absolutely.

space which We bit pretty nice performance been Omicron and on side, tie to more the into existing back in in hiccup operating does additional urban something choppiness perhaps a seeing on mixed. a more being a cautious a hotel deploying respect then, were pretty just happening hotels And was of for capital urban side at we everyone. of the this actually Certainly, a despite terms would other my that bit market general. obviously is point. activities sale to which has our this pretty a poised on to portfolio with once urban pandemic. much earlier with across recover we hotels, comment the in performance view it as of is get we the pickup year That some D.C. the think much hotel. like robust Washington, said, fall. I actually this there We purchase strongly to hit through think the But,

for So, those where opportunities to are paid will we we for risk. think we continue look getting the

[Ph], and when good earlier Great, you about and real lot opportunistic dry with it powder color. [event] it's estate hotels an a of And commented specialized. are funds so

there here run of real the are an industry? money and aboard. focused the asset estate as into Are sale specifically seeing U.S. borrowers in on the of money whether hotel that purchase of investors, class activity, creating potential of flow is In that specifically particular opportunistic are or some the hotels that you and that's terms pools those targeting you've

I you Yes. can between percentage. give as were off there cetera. formed tell ventures managers CMBS specifically. And the been pick have and opportunity during also well you seek and hospitality couldn't are definitely pandemic et an those to as formed vehicles exact through there I capital capital target to definitely But there who - assets

what at So, scenario. opportunistic capital is is place hotel-focused looking a there very took definitely

Thanks so helpful. Excellent. That's much, very Stuart.

Yes.

Thank you.

line from comes question from JPMorgan. of the next Rick Shane Our

Your now open. is line

repayments morning. trajectory on your to have late of losses you about the the dividend Hey You dividend Can in how Thanks look of lot XXXX. retain that this to the When happens? mentioned curious put the example little distributable ability everything retain at continue a when run questions and my under the quarter, the for a the think expectations and we realized confidence we about context talk earnings am fourth commented should the prior everybody. in I the or taking were quarter. you pressure, the to rate? for bit in timing and that we

So, [Ph] an imply what for start do need to rate? does you FII get dividend order the to covering where distributable in run earnings? to And [and]

say things. couple would Yes, I of a

our about we definitely about pickup some the to loan. you the fourth Rick, So, term penny all, quarter, first loan was a which quarter, in probably on to things I fourth the of was change as was due think on effectively think which for term of impact amendments a did G&A the there

then, repayments there was So, quarter say quarter. I of had than the in think to actually in some extent comments the redeployment. a sooner the taking think place was what that took did place some impact I fourth of there's the fourth what you probably I penny in my And

knew on the redeployment. But, So, the happened the redeployment knew side we we little deals side quicker back. sort capital things. than We the it a repayment of for which of was of coming spoke lot had

we might interest a pretty are be as expect perspective I $XXs-low million rate it as think the you about call and rate lag think interest second first from net the run after close perspective bit income. as income you a rate about in to to high quarter. I income, present we well. ultimately in a net net first dividend interest $XX getting It think between But run quarter. it run a range the We think to from little the preferred

things. two Stuart,

clearly I all, timing. it. I of misunderstood First reversed the

you for Really thank And helpful. of expectations helps appreciate NII both. set the terms that the appropriately. us in that's clarity So,

Sure.

showing I turn Rothstein questions. to no like over would further for Stuart this At you. I to time, the call remarks. closing am Thank back

Operator, everybody and, this you, who participated thanks Thank morning. to

another to of speak We in you will all. months. Thanks couple

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

may disconnect. You now