Apollo Commercial Real Estate Finance (ARI) 26 Apr 222022 Q1 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2022 Apollo Commercial Real Estate Finance, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I’d like to remind everyone that today’s call and webcast are being recorded. are of they Estate Commercial that Inc. Finance, note the Apollo property Real Please unauthorized any broadcast prohibited. any that and in form strictly is Information of our replay about is the in available this earnings call release. press audio to like in disclosure release Safe press also to the call I’d our statements. customary forward-looking regarding Harbor attention your to SEC include cause Today’s refer recent most to may and materially for factors and could forward-looking differ the that important call results statements conference webcast we these projections, actual our filings statements and and ask you from with that projections.

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

our earnings Good billion XXXX increase. Thank Investment Company’s representing at totaled commercial call. estate on who end, Officer; are I Mironova. the billion Officer, a to had joined committing and joining quarter XXXX, Chief morning the you, an quarter new Chief ARI forward those quarter XX% extremely real momentum $X.X first Financial am strong operator. The of $X.X by us loan year-over-year Finance from and transactions. Estate Apollo Anastasia you active year, thank of loan portfolio Weiner, Scott Carrying first the us to ARI’s Commercial new today Real

continue while impact landing of and To to at underwriting. respect thoughtful create active And is opportunities, we quarter for a impact time it not possible United Most of widening the active States Fed the disciplined the strong ARI’s the markets. ability portfolio broader soft date, economic inflation, volatility to for and behalf financings engineer as estate seeking that a as the positions CMBS the markets those volumes markets and remain CRE, spreads of the in and a uncertainty, market. opportunities another in slowdown Pivoting generate slower environment, new that to same the at market the loan property share dividend of produced investment importantly, ARI. a Not avoid there’s the an of We remainder covered surprisingly, first of the and to $X.XX capitalize common of in the has that focus well the with to Our rising to to and ARI, on interesting for variety pipeline, will the in around the types the may Europe. distributable new understanding a in in market dividend. the combination Western encompass quarter with active for per than of capital year. securitization transactions in well is risk-adjusted the volatility however and on believe real cover remain ARI capital markets earnings a And distributable the coupled dialogue pace recession. pullback on prior CLO investments led earnings being rates, year. both, ARI transaction increasing the deployment, stock active, investments

Thus be appropriately Shifting million $XXX us in from pricing QX management of which on Apollo’s and from platform underwriting enables proactive strong of far enhances analysis asset information global returns And loans. with we integrated and a thoughtfully data us portfolio, insight, an an and risk-adjusted real-time think one quarter our management. in meaningful we and to access to to fast-changing second provides the environment. focused expect areas through billion investment Our all information additional approximately closed another closing. $X remain in has originations the ARI perspective, with to

reported call, a on of As well-located which we London. asset including ARI our largest was secured on repaid fully interest by retail loans, its in one prior default was

Street rating we junior X. moved B the of XXX to the loan XXth quarter, risk by mezzanine secured During West a

believe expected on future as recorded as for the we to a reserve. assessing raised present we actively of that able Mayflower And brokerage $XX of our the assets, we is and and over amount equal the a basis, cash Hotel, optimistic begin marketing given an nominal sell require ARI value XX are flows past accounting asset property. recent ARI’s will in we capital firm engaged the ARI in million While the hotel With sales by determine guidance recoverability a basis basis, be significant well to to respect to protected amount months. principles above or market hotel the for as investing in such, comps

to questions. to as Finally, to ARI’s new And experience be success. a with will open ARI’s excited welcome and CFO. Operator? knowledge we She to ARI for we we call of and wealth expect future meaningful the Anastasia brings are a that, her contributor

you. from Credit first [Operator our line question Harter comes Suisse. the of Doug Instructions] And with Thank

just up how the about Stuart. coming about Hi, extended bit think kind to as It more the is the we days that like of XXth. should little unfolds? coming about could here months, fully maturity weeks, Could how on looks more a we Hoping loan few XXX, of a in talk you talk loans.

signaling for I Yes. I we’ve some this -- expectation think the think been Look, quite time.

think the will I in stay ARI loan.

think, be I way junior I the finish of capitalized some runway to at of sales get give terms financing from in we the and absolutely But away think loan also the the line restructuring that a weeks the fully there the in ARI project more construction exposure portion are of capital and activity. in terms got to such the is at throughout in will capital broadly, the stack. the has structure senior portion of loan. changes

And update and give sales of I that in of just any are there, kind can what Difficulty] [Technical you kind you seeing you kind the broader terms activity, with comfort us the guess, kind give on of of that statement?

factors. would I of a Yes. couple say, construction process. a is One from

on finishing and throughout in construction and site at momentum terms critical a there think to of we progress basis. Someone There’s to strong the first from asset. sales clearly on foremost, Apollo’s is sort package, finish the getting the line, which amenity of weekly then the asset, in

building or positive were begun under TCOs received that sort in a units sections section Prior building. of deposit -- has a that’s the So, TCO development. infections in have put closing the of received as of

able on an see getting talking that as closed lead last being are So there contracts. creating to is publicly a on we would their front. definitely some as actually are yet weeks I would perspective, signed, continues about the And believe to predominantly Doug, expect interest. though Though, if from of discussions with and well. believe basis I up. COVID that is contracts be foreign say, move marketing The perspective underwriting consistent few result a been sort direction continues numbers would I we is transaction a a legitimate lastly, people on And think in clear nothing’s will units. would I been people we terms from domestic around interest thing of move to positive it interest clearly people certainly our that year-over-year where units there’s positive from be, traffic perspective. a in as last say, I announced perspective then, we the being into say actual momentum will to from to the from meaningful units And the reasonably will foot that pricing perspective, I’d reunderwrote things in units in say, that guess, world

Thank Securities. of Steve JMP the with comes from DeLaney line next you. And our question

guess, test plans to protect for that business you for ahead the at front how basis you in there Thanks. year the to here we higher, trying I too. to end, rate cushion rates, build this borrowers some -- underwriting are we’re a or that? is, obviously buy caps a you some stress sitting a years. when But XXX at XXX, that, second last then, of are cases Stuart, important you all to is haven’t people guys in Do various in carry? are And use the conversation do cycles? And points the this require have about your But several project, thinking Fed first -- risk? kind follow-up the thinking the interest hopefully swaps had part. That’s just higher

sure. Yes,

reverse, your answer I’ll So, questions in Steve.

the answer is yes. So,

preponderance caps that things, of money the say some is, On people I movements. the would of transactions, the forcing we’re buy to cap of it side terms out in of excessive in rate protection provide

I on your movements regards in almost is the test a which certainly carry mathematical a from exercise point, stress easier some underwriting think, perspective. rate we I think perspective, from

the to an values, rate exit their movement, of be do, that is, et because continued than certainly situations. there cetera, phenomenon? to in and sure emphasis to and what and from year about. we capitalized economic I two the inside are what longer movements for extent things really would exit look part variables various term is anything choppiness are but rate not the all debates Are others between anything, that making shops figure a isn’t carried capital different the think trying harder But of we a path there times there’s interplay not cap it’s our not Are you, at pullback? days, from, big out of part our movements various real I markets. on shop, to all rate to in Is a -- perspective, And it’s one the some growth? one say, we to if underwriting to definitely, away through Obviously, scenarios, there’s these probably phenomenon? the shy and time, tied trying lot a and think rate, they a other

Yes. That makes sense.

you’ve at with both only as the in markets? your not lending course, but and Of Europe to broader well got macro, look U.S., the UK the

Correct.

planning to up ran you’ve project, about point CMA the hire look WD construction Brook, in for the your the Friday, Last suggesting loan. [ph] that to piece a reached Brooklyn a

general that timeline don’t that. Just about to knowledge the this the are market a for build-out then, general you on -- they bring what and project? just market could Witkoff big Witkoff, some two make And this, questions of know, of I idea some comments table?

Yes.

of number around people construction They I estate sized the got Florida quite focused. and York talk client high-end New a an been side, successfully. real if those on projects to think have of historically reasonable in done particularly you a the Witkoff’s reputation and business, ours. excellent have

we’ve at So, pretty in and the looking it’s their or wise, roughly, floor we’re the say, where build to had lot year a foundation I what they partner. look a expertise. terms two of And a tower, a work, confidence point it’s doing at minus XX-storey at plus bring skills Timing could you’re from firsthand development or table start a we a two. there’s a of significant would

around So, it’s for positive. on reaction two-year But build. I to say to has -- those And good the anything. been has strategy. partnering a doing proven discussions say, financing is roughly would based would the I be early say that out initial Witkoff us. a the the I pretty commit with would -- interested from to financing, construction too WD

question comes Shane Rick of with Morgan. next line our from the And JP

looking shift. I’m immediate XX sensitivity the hypothetical at the interest we’ve table ground XX-Q in a covered or Basically, XX% So, month. it rate and of about since that in XXst, a March basis-point talks chart sitting about

this sort rate-sensitive experiencing through are to you if where what sort detail I we us in more fully model volatile asset you bit of in environment is do can you’re shift so through where a -- not can again, levels become -- just the So, we at curious little as sensitive really that. you how am asset window sort sort walk we’re of And you of think of then, the floors? things? understand

Yes.

you, XXX with chart, think place goes put a which XX be is pretty move think a the good I from to a our at we to move. out basically supplemental, basis-point honest best look basis-point it, to I in Rick,

in I it. to think level, gives sense positively become a of dollar that SOFR So, I roughly say, you would I about And with it how think better moving then, to you lower. a correlated I it’s the -- seeing is cross actually start terms of So, X% in about to little think you of of LIBOR the would from the think world, high say, interest U.S. the contracts, us sort Europe, rates a to way right? sort move. when

starts So, XX us interest correlated basis points to from positively in Europe an rate asset make perspective.

you once positively in become XX on that about an correlated, ROE? for expect it would increase about so should the basis LIBOR, given beta X.X, in leverage, a then, XXX the ROE we we And of basis-point think basis about that points pickup is every

Yes. I mean, broadly directionally or correct. that’s

We’re typically XX% correct. turns things It’s with LTV. certainly of LTV, financing point, XX% ballpark this at some at X at leverage some

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

about first I hand, color up months. how the say, was average deal signals in was rate Healthy, pretty the by give of if that surged, What outlook or CMBS, you very fall you Could sensitive, XX%, we’re on you much that volumes consistent market? seeing? levels all activity characterize X%, is mixed transaction price. would deal some On this last volumes trends some Unit picking is the not overall activity at are I’m is the quarter in please but one kind off, recalibrating. up? the trading market in sure which up some point, but would the currently? being driven were diminished Seeing two

thing Yes, think always numbers, call the lot say business. really throughout of it definitely healthy moderating it first first year-end XXXX And view a part XXXX. the respect quarter from latter with but of what we as quarter to I saw, year numbers prior I I one all think, is finishing from I’d

dialogue lot XXXX. along the quarter getting things what of you lot the activity. year, also at what on a deal side, then time equity seeing end year of Apollo to it real think I just the early and this the but I credit done look still plenty lot a there’s from estate to So, I folks spend with in with And in There a you lot on side, of because of line in taking the of came to a into to were finish I humming pursue. were momentum, a part would we’re still the to a the obviously I both, still were at it the lenders a I at longer last think lot being the or saw little thoughtful. fourth things say, little of still year lot on, cautious to, of at. bit deals there say, line. activity things is would of bit going of on that look are was get agreed or more finish are a

the say, borrowers little or world equilibrium. center extent prior I the would plenty the on to towards I that borrowers. pendulum there’s things, the say, would towards more favors earnings moving think I’ve the options calls, still of for I a made bit probably days. comment is But these more

securitized definitely there’s slowdown of a the think, a in markets. somewhat I

on I still say, I of as goes means economy. And that what varied mean, earlier my rate think Obviously, think there’s what to to comments and buy market. movements a are equity healthy willing securitization there the I -- market. to but me lenders which to you the in I capital things, there describe in participate would the to an pacing are modest has would things, define in But it healthy looking that things opinions markets and in all together, that as back the I looking that still general a slowed which I it think slowing capital, indicates a had borrowers the on has impact of all And put when and for do, the it volatility sort markets. market something down. would So, pace, to do still define

these are avenues keep non-banks looking can of as borrowers, a primary in their or then, the Let’s cost you And of of their business already capital. mind, in talk primary theme sponsors at is significant plans? how borrower one debt these to factor of

order plan to the definition, on So paying their by strategies. business in flexibility have premium a they that execution and are

looking rate strategies. How deal to expect perhaps increases Fed as Do may flow? they’re you you they that? value think further by be rate significantly real about at So, less sensitive you agree or add do the diminish do

you fair raise I point. a think,

I seeking of There’s a think, to equity you the room know, returns I borrowers their between these think were the are of you of where on lot if sort question, think your you of and equity. about going on what with sort cost target most of leverage achieve. returns

of a we out out in say, leverage, So, gapping We’ve a cost the of a I despite credit. in yet. of cost there’s the gapping positive seen modest speaking, sort would seen credit. haven’t uptick generally

estate would ranges I cost and getting time. And on people it’s environment honest sort But think to what So, it’s as of leverage for about ultimate for rises probably on with sell-through, we as it, of arguably lease-up, people the I think about and most something and value point. as in less on the exit we’re think achievable. think sensitivity the still mean then impact done say, the rate actually about elevated you, plan what’s within is, be of relevant continued fair some the think real business cost I an more to rate extent the et cetera, economic relevant whatever a

not business So, we’re our people the from dramatically I sensitize at where would perspective, impact plan. at definitely least say, but yet it, say we’re I would level, it seeing

the plans, Dramatically impact deal dramatically flow? business or impact

forward rates, sensitize activity. and I still their In people investment you’re seeing strategy. they’re plans, sense still still are I both. equity their the think that would moving generally they with And business say in confident

very Okay, to good great. hear. And

not as view, comment a I’m York the if your In recently. made sure questions you at some investor to terms outset of getting just New overall, market

I think weak people spots. are just for looking

the got strong, outlook but York a Clearly, office then, Broadway, What there City. there’s estate? perhaps, And thoughts York might overall vibrancy market. New Midtown office So, large large that and Also, in of very default attention. market a and been geopolitical into around was slowing. a people’s and market condo and lot has that the perhaps B, are asset City, XXXX real your New about the be for plays Class debate the C the Class uncertainty loan of health

It’s a say, all there’s a specifically of I’d touched answer not it, on. big And that with I couple question. one fits of that think things you’ve

the due little a things York, getting newly And there significant need bit that which by some older can I new what provide space. on the secured is levels at added and our clear more portfolio we’re leasing created to in sort for just TIs newly out refinanced that tell commission we’re to there’s would leases positive we’re rent sort on in sense, probably hearing to space more likely transactions we’re to demand projects expectation renovated, couple New involved be office -- above what created seeing space. think recently get are in, real in then office created office is a have a exposures side, of But separation between of anecdotally a and two space, commoditized exceeded underwritten. developed, remodeled as my concessions, I of least cost whether built of I is in well, and out. also the our the that Not seems both on underwriting in was and surprisingly, TI say, and you what

B actually think or dearth interest, as activity. I think there’s you C said, commoditized on of of or I a space, lack quality the

seems have numbers. the square demand, we market’s the to I condo coming think, very-healthy would extremely XX least pandemic. out And bifurcation sitting I still of the per any strong not a of foot at on whatever months seen on the there’s evidence strong real here been price for side. XX last, been, slowdown. be side, today, So There the a it’s say, office to

you for we to and hospitality continue And asset last that bookings fairly I’ll comment expected but in seems what a to we for strong, which from an then, side pickup anyway, absent trending lot condo February, April, ask I momentum it tourism hospitality your about better point, direction. the perspective, side. pandemic So, in January positive geopolitically, Clear class but of forward or a, didn’t the that unforeseen time pretty and anything it impact the spent hopefully it, in on a on think and positive thinking than Omicron is looking like a say, about, see spring from would March the is and means are on a is I side. indicator that

say thoughtful well. need in exposures York, to So, be about there’s with. are that doing but what you I it’s New clearly would I definitely things live just think you’re mixed willing very And to

question next the Stephen James. from our And with of line Laws comes Raymond

lot maybe there improved for of conference Can lending conversely, more on ask conditions than Difficulty] And spoke leverage Europe. a ago? quarter, able a [Technical I’ve about provided you’re but is I it’s that in we talk you’re maybe the you’ve and last there since the know asked Apollo lot call, three environment? covered platform, growth. you and to got Europe, last exposure and the anything there months to some got cautious about about, this any

a I it mean, lender’s environment attractive think continues level, from high still at a perspective. be I to an

basically speaking, a your of sponsorship, equity same lender same perspective ability, around of yourself ultimately, same as legally. quality general to assets, business is protect If and assets, generally plans quality same

terms it So, crowded number et to the this there’s appreciate of competitive. But it on cetera. players, London say And when relative basis, not Europe. as my a size about market, of securitization team I a U.S., either but is in it, lot of -- again like in in is just doesn’t it’s

job generate done in opportunities. relationships continuing lender the in market, to great has interesting having just So, think on building a becoming team our a presence, their borrowers I the ground with leading there fantastic and

its of anything, inside I economy Apollo, spend a has I who think challenges make those at say, predictions, to inside Europe would recession probably to that we there firm is If the those side to slightly well. talk think lot about extent is. U.S. macroeconomic as that are flip say, than as would I we time the but risk not is trying the broadly European that the the for things, a more

factors cetera. decisions, et underwriting into certainly that So,

I been in So, in given to thinking think a perspective. XX opportunities, of would our XX perspective. focus But say, months from we’ll Europe uncertainty get stressing really over positive it’s deals strength can and team economic we the business we as terms We of just see interesting there. credit still through comfortable more from debate whether a not or something with our

next question the Hagen Our from comes BTIG. of Eric line with

how one, if Thanks. the the end financing for of of markets how share the Number metrics, it? on some you’re second on myself. retail a and the do feel quarter, loan comfortable position big And of coupon couple like A the then, choppy, since can little in of the the you UK you do stay loan key the the running? cash origination a one,

Yes.

available hundred which the we’ve few we unencumbered cash. a $X.X have books, on need the liquidity I million just think, always or more always are as coming money got we any cash address than dollars liquidity going and We’ve been running both, of in. efficiency about in terms money think best out and tend to short vis-à-vis But probably of extent cash. can billion typically to liquidity, actual of We’ll we of remember, to concerns. assets

feel there. very protected we So, well

best-in-class centers retail terms proven just nature in the pandemic-resilient two was UK, that as transaction is retail-resilient. In a outlet be announced, we it to of that shifting the remarkably both, well space as of

think perspective. specific our we’ve of debt exposure’s from basis sort typically would on cap roughly deals, returns, to plus ROE ballpark, sort need be low-double-digit not low-double-digit then, a perspective, what with go and consistent it to us Europe floater a rates you about the XXX, we’re into And Our XXX of of XX% a don’t We it’s a where on lending in for LTV. which is points disclose sort think if yield protected. we done but lever capitals then broadly, of yields we sort

no showing time. Thank further you. I’m this at questions

back any So, with I’ll Rothstein, Stuart to the CEO, that, remarks. call for turn over closing

Thank answer time taking morning. the forward go all And if this basis. you, questions appreciate are to any everybody Anastasia I and questions, now myself, are Thanks. any there operator. Hilary, available on follow-up a obviously,

gentlemen, may disconnect. call. and Ladies for you And now Thank today’s conference participating. this concludes you