Apollo Commercial Real Estate Finance (ARI) 1 Aug 232023 Q2 Earnings call transcript

I would 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.

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

presentation, at our undertake our certain of by projections, in statements will are is We company's this financial which or please law. These measures (XXX) measures do our call, website us our required to SEC latest which Stockholders In website. any XXX-XXXX. addition, not obligation unless non-GAAP relevant our the of we to management update to assessing figures GAAP www.apollocref.com visit reconciled forward-looking To earnings be discussing filings, copies the in on obtain believes are at or available performance. section call

Executive company's time, Rothstein. this to over At the like call I'd Officer, Stuart the turn Chief to

thank us operator, you second earnings you, Thank of call. Estate the quarter Commercial on us Finance XXXX and Real those to Apollo morning good and joining

Chief am usual, by Officer, Scott Anastasia As today Mironova, ARI's Officer. joined and Weiner; Chief I Financial Investment

consistent earnings net losses common billion floating prior investments of had portfolio. realized rate the quarter by stock comfortably ARI to above higher driven of $X.X ARI on dividend, base another in distributable tailwinds rate loan

most class. the remain sentiment, ARI's a by performance, around of level portfolio through asset stable. Notwithstanding has loan recalibration, solid highlighted average estate increased to company's types across past basis property negative the the yield the XXX points. months, the sentiment of fundamentals Over Despite weighted XX market the property period approximately prevailing go real continues

valuations potential creating and respect of between to buyers, of and slowdown owners on differences refinancing difference persist, However, economic impact lenders. of -- the opinion -- concerns sellers, with risk potential of the

ongoing muted transaction a be result, to continue price As amidst discovery. volumes

office ARI's lease a The signed construction with the global building loan for portfolio, entire events that during of the occurred transaction. the intent on positive ARI's de-risking borrower XX-year a Within letter for several largest quarter. a loan institution significantly there were financial commitment

is properties As XX% office by Europe. a reminder, of in secured properties ARI's loans by Western approximately with comprised XX% of secured only portfolio

represents repayments extended referenced approximately which $XXX paying ARI's in leasing office for or exposure, the another between guarantees future XX% the XX% loan on a the loans, received Beyond XX% carry borrowers down and encompassing exchange in of costs have situations been outstanding balance transaction and of maturity. costs process above, period totaling of whereby five partial million are for office across are short renewing

end quarter continue and operating $XXX a mezzanine also which and to in Hotel $XXX pre-pandemic since Year ARI expected took to have exceeding to Mayflower full is in partial million date, the occur ARI cash Elsewhere and up performance additional portfolio, has ownership levels. loan or the that repayments net with has there of QX. received or received now million during strong loan flow received an by rated portfolio to certain on the the partial sale secured garage the risk repayment had loan our $XXX X been $XX parking Hotel, of full Renaissance from of And ARI collateral. the by connection loan. secured Las million re-lease ARI paydown Vegas million with subsequent significantly

focused management transactions In extension of and in is on into engaged injecting for issues ongoing asset exchange on general, equity dialogue borrowers and additional ARI's borrowers remain constructive term.

reduced quarter, the expected approximately ARI's unit further occurring ARI's third unit There Year the exposure Steinway second contract made quarter. million by the is exposure non-accrual million $X which $XX that sale this of is the third secured reduction further an quarter under early reduce additional all was through approximately million. close $XX the date, end a of status. put from with unit will ARI's a on by in by to asset loans in to the to quarter, project, the Turning to decision of sales

on While velocity in unit expectations. there of has negotiations resulting been units, handful a modest pickup behind a of in buyer sales and remains foot the active some traffic interest

our Shifting to with access robust balance sheet, continues the engaged additional financing the has from ARI right company's maintain to lenders and remain various actively secured side in liquidity of to capital ARI's in the sector entered company's or diversify expand lender to new ongoing financing. new dialogue a place having new the sources borrowing quarter of with facility secured counterparty. base during into ARI continues and around a potential the capital facilities.

coming reducing repurchased the the due an million convertible to outstanding additional in million $XX an second post ARI and $XX $XXX balance Lastly, notes of additional quarter, the end, quarter million.

well to look stable positioned is to maintaining a of with excess generate remainder we continues that the earnings ARI distributable liquidity. XXXX, while portfolio As

bright the continue We across to borrower see and importantly, meaningful engagement. spots portfolio

Anastasia With to review the over that, I will call turn quarter. results to the ARI's financial for

level as prior a quarter yield course earnings coverage or Thank distributable net I'm the loss ARI the extinguishment of the and everyone. a dividend results XX sorry, of XX. XX.X maintained $X.XX investments common declared QX per XXX% XX.X% of of debt you, of with last stock million quarters. of financial Stuart, ratio This gain June to dividend dividend per We in consistently share, share. the $XX.X on and translates good of over realized consistent -- $X.XX and produced realized to another on morning, of

$X.XX with ended balance GAAP diluted net an yield loss share principal of with common was X.X%. outstanding $XX.X weighted the average billion stock. portfolio $X.X quarter of unlevered million of a ARI's per or

loan in Phoenix, Arizona. received previously closed full During a the and fundings repayment $XXX from $XXX hotel in ARI funded secured $XX quarter, add-on including million by a million of million a loan repayments, from loans

general loan partially allowance This by impact amortized a macroeconomic remaining as June seasoning, expected and points offset During was was an prepayments. as of attributable there our the The cost some terms increase $X.X it million, conservative portfolio's to more increase of increase the portfolio of in bringing to outlook XX. CECL quarter, in changes basis as of well for the loans. of basis is the loan XX

CECL With the respect we A to on the million to risk junior the rating $XXX downgraded Allowance Specific the a during and mezzanine Steinway X. building, quarter, loan recorded

increased Specific loan mezzanine also allowance against recorded the B We full the on $XX.X junior disposition. the by resulting CECL previously in million, Allowance

With was a respect $XX.XX, the book therefore, junior and loan a compliance decrease with reserves mezzanine wrote B We, from to CECL representing and maintain general our to liquidity. ARI covenants from a excluding $XX to is per realizing planning quarter off loss of strong borrowings, ARI's previous depreciation share beneficial was end. which perspective. us million, all tax value in X% continues

quarter, quarter facilities. a to $XXX credit that capacity which new credit us, liquidity, secured into $XXX on facility of total mentioned, sources. during combination our undrawn cash with a the ARI expanding million ARI Stuart was counterparty a million the with further entered capital existing and ended As is new of

X.Xx debt-to-equity $XXX end was and company quarter of assets. at the estate million Our unencumbered real ratio had

And with that, questions. ahead. we the would please to open like line Operator, to go

our [Operator with question first BTIG. Sarah Barcomb comes Instructions] from Our next

You proceed. may

everyone. Hi,

end? you way at now given bit that the Steinway that XXX in were Tower Just all to do of loss versus and potential the what on expecting you reaction the you. Thank Do want now ring-fenced we are a you touch you feel XXth West have why that think I at stock more. QX seeing the today,

high earnings perspective. times I perspective Thanks, level, and Look, we where Sarah. on think various a best on said deals we as sort are and a as at It's timing can on I've of multiple get price done calls, to both assess Stuart. trying a

velocity had in have number we that dialogue on buyers, would were signed. with based units of think terms we the hopeful certainly I be various would of more that potential be there

what from perspective. And certainly think, a I dialed I I at we respect expectations timing. are we seeing are think think we pricing point, reasonably back confident with this to still in have

the of from I senior turning time, additional think on future structure, create have by interest pricing eliminated over pressure position certainly of accrual a basis a off perspective. creep I capital we any puts think to not us which the in the parts

Foot there is handful on, I think traffic dialogue at active up. this point, on a of definitely going units. is

think how we forecast the reasonable look reserve, seems based the on at current what forecast how we I to us, out. dialogue and today we as out it is

everybody's benefit, reserve from in nominal time accounting is of value up an perspective, both analysis. the as there before said money this with we a for coming think think I have a analysis I as well

based So or it we way perspective. as timing does be us what on as have in I on But here quarters, we we confident feel today, reserved accurate estimate to sitting pricing a out require written the and we we seen, off. based dialogue have coming can over and the say, certainly today, done looking would have from

questions. for moment One

comes KBW. question with next from Our Rahmani Jade

may proceed. You

large XXX if on that question look is be the just you Because haven't at the that penthouses? and sale much. seem remaining risk we that there as units you average I it per how further feet, me relates reserved first the guess of much price Thank square potentially be, hard very to of to would write-downs. such prices to predict portion very could would

be of try to So aspect understand. to that one would deal this

is the But we unit interest other better Yes, we per some and other unit does unit the trying and a But traffic more just I the certain it's dollars the units. if units regardless where by away would middle respects, uniqueness pacing. at and of your occur Obviously, I in the timing just the you the it's versus level I high no, units would think just I say chip And about in there's at of the outstandings. to get building. penthouse certainly of it whether took about overemphasize the say appreciate the in and analysis foot building, than would sold building, the timing. Jade. as think say question, versus of not units one perspective level question, ultimately,

remaining? about units there Are XX

a that, little are less than bit There yes.

you the just be being on we think non-accrual previously assumptions I quarter, earnings around $XX that the impact on, And to in an the around then $X.XX annual question I now do expired annually said some of making yields, be you estimated would second recall, interest $X.XX. impact have million. an then an position rate cap full for And also second would which

another So that's to EPS $X.XX $X.XX impact.

there year? of do provide this imminently? you it something and stands? So about the that year-end would any do be that, Is we And a could think we parameters assess to all commentary next if be dividend to where going expect decision for Or great. or how

pleasure. my Yes,

say it way. would have Let We three difficulty] this that investments ultimately me I are under [technical answer

Operator?

stand by. Please Hello.

Jade, do please? is you mind repeating This the Anastasia. question,

technology Sorry. Looks morning. having some difficulty like this with we're

Yes, it Anastasia. got I

so not Steinway put we reflected on question, I think, and Jade, the that to did after And answer non-accrual in cap interest month. then burn quarter. rate your was off, this one

And saying. our already into this quarter takes the of cover through comfortably end dividend the account we impact you're think the actually based the lot I on So, a that of year. projections

the not can So, to much and Anastasia your kind maybe as math you're of go of seeing those But question, answer think things, of you -- we're as impact I offline. through combination not an your I'm anticipating. Hilary, and

Stephen with comes Laws Raymond Our from question James. next

you debt for $X sale, on kind know XQ on REO I revisit million kind specifically the Stuart, asset. And prepared little DC remarks, bit that. Hotel your that, assets of in wanted update to the hotel, for touched held the but Atlanta on timing no a income, then, that of of on is

think on have held you to about hold or to You into how looking the exit asset? hotel some Is operate sale mandate or debt that may something look for DC that moving Brooklyn or you do development. the do

-- I'm able sure to not not it's was Scott again. if rejoin. Stuart sure I'm Yes,

brought So new We over. take addressing asset, the and did that, Atlanta it. a rebranded management so we that with

now it for-sale. we're the which there. Sheridan, is transition. been flag, done, we Wyndham but the till there Nothing done dialogue unsolicited, moved active it why a hopeful had formally will into was it is a the some is it's We've which pleased translate under is approaches with So some happening sale, to

Marriott doing pre-COVID. actually performance markets. on get respect have well flagged continue brokerage we're work to to in the hotel the better market. updates the continue in with firms to and Again, than to brought the With is Mayflower various evaluate remarks, the prepared in to doing Hotel, management we dialogue the and kind with referenced Obviously, as there Marriott, of

positive flow the so, through. that And is is flowing cash

execution And for we we source evaluate it makes the of on mentioned, don't the markets. us, next you we'll of this As it. early have to And yes, because later year, debt a liquidity year, any we'll continue if certainly advantage take sense, think that. is

fully pouring very in then, I New last Brooklyn deal multifamily move And strong. multifamily the capitalized financing. continues everything. The continues York was, market is and along, the That to the to market multifamily be third City with think the debt one development foundation, Brooklyn party

need to just that continues built. So to get

And maybe it thanks. to a income? one Great, the numbers that amount before think, you mentioned then in or millions interest have I Anastasia, question. was in contributed non-accrual. QX for on Jade's it to went follow-up do -- net month -- Do XQ Steinway was interest that have you

Yes. Thank this you for question.

put we Xst. Steinway mentioned, on effective have you May as So, non-accrual

into a you $X.XX this this So, in translate about earnings if for net QX. it per quarter, share was loss

mentioned, So interest on quarterly basis question, full terminated our basis, account response that into Steinway, as as But in to has which in a looking is as per cap, mentioned, Jade's Jade the $X.XX and into the based it's now as has well account June. share rate about non-accrual previously on projections taken forward. stack early on Scott taken

are in and QX remainder of will comfortably the that we be projecting the QX We year. the able to still for dividend cover

questions. for moment One

Richard with Our next JP Morgan. question comes from Shane

You may proceed.

my Thanks morning. this for taking questions

as one of triggers walk -- a the First, projection realized timing about losses. and in are from the think just the the actually to of the I you loss? the second with we think were that create what struggling is realized we Can everybody space, through quarter things perspective, --

part most think to Sure. that as think about I this analysis I model, recovery the tax mean, update referenced think there other whereas Stuart it's you at I two-fold. want be is, talk will One on reserve Anastasia, of and don't we we do a impact? time. the our look junior of mezz, the

discount is And factor. so a there

we we hopeful dollar had because are absolute taken, sale prices of are have if that we will be So that reserve just discount estimates to than our correct, our recovery the higher time mentioned, Whereas junior, think a on Anastasia take there of tax recover it'll implication. the is also that. sell as we the don't to think we period that But we over units. a

want you do to talk about that? Anastasia, So

piggybacking And against the we the reserve on where and Yes, the Scott's had mezzanine It's previously stand on absolutely. Stuart's position. position. an million definitely million based $XX remarks today, we remarks, bottom, earlier $XX.XX junior

to XXX% And was That the a So it reserved. It CECL raising became had this Specific the to fully it. tax unrecoverable treatment, for position far Allowance deemed timing as is taking have in you us to quarter an take opposed was take loss are current why it allowance to There opportunity quarter. we as CECL it highlighting. we an the which advantageous us later. be opted the against realized as that

it. Got

And so to continue bit this a little further.

talked versus really realized look have about distributable coverage year-to-date earnings loss metrics. guys is There guys a you So excluding including the And you it realized expectation When the of probably at and year. on $X.XX through two earnings we losses. the are are dividend. dividend basis, about there

return payout the Is as dividend the characterized of then So below be is upon that capital? will XXX%. partially for ratio a that the a year actually the implication based

in are middle now. we think the year I Yes, of the

end have the we as the complete the year. So we assessment near of to will

it on stages. I in bottom-line be here the I the early But earnings still today. projections think fully will is our as covered dividend the that think is based of So

projection on for excluding covered an Fully distributable losses. earnings basis earnings,

That's Yes. correct.

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

may You proceed.

remainder the Thanks. kind to of just your plan you plans settle of and the once year? liquidity of talk you about hold convert, Can amount the you the

can absolutely. is take Yes, that. Anastasia. I This

maintaining can our the focused the for ARI. and excess preceding see from Based definitely of towards as we on I year, look is in debt. And where are think we're October. definitely already June as have quarter, comfortably the liquidity of that rest you the quarter and forward current notes we liquidity June are the it that some XX, of due of down we on paying bought as coming pieces convertible is clear back as XX,

available so year $XXX at we're cash XX. June as any debt our million existing or coming that, on it you don't maintaining year up capacity as actually, us to liquidity stood principal we well continue next liquidity have Other having -- we'll cushion this significant and of definitely will But So, overall, see continue corporate outstanding XXXX. and as maturities on available -- it's facilities. focused a excess than

the you I needed be or to how about if of the extra And options the kind create unencumbered or drive guess assets to main think liquidity creating that more liquidity would you the extra source do for liquidity?

I it think, as you think about a can combination.

We capacity on have available our facilities.

We credit have revolving our facility.

a We in assets. healthy activity repayment have level our our We're definitely also portfolio. projecting unencumbered of

be can sources of our liquidity these going of all So forward. potential

company. Our next Steve JMP question comes Securities, from Citizens with a DeLaney

world, seen commented the obviously I'm Look, obviously, asset has you've curious, in portfolio, management, billion been estate the and the the six the just there. this to lending. priority year. think lenders, some for liquidity top out shrinkage you've finance pretty would about morning. curious for $X companies, months I your commercial real on appetite $XXX terms of which million what just first of know I'm new is the there's attractive

you you where are focus loans, and you would opportunities? where see do best new if the considering So,

take Scott, want do you that? to

look, Yes, up mentioned, you to Sure. think I Yes. build we as I continue liquidity. mean,

getting We repayments. are

So plenty across and are liquidity platform. in active there we the our very And of is market look, overall activity.

day So we're making market in loans. every the

have, point time be it to own capital liquidity this looking ARI, at we we think fundings don't the do do have that for fundings. we've deals, our I because made future structure, whether new even keep that decision we future if at in

but market of where attractive open. signs we showing are financing attractive that -- really been other On things. in bar a are that I evaluate conversions life. The continue and space, market, there to warehouse markets hotel as say, is we always get the things, spreads. We've deals deals to the would CRE/CLO even opposed can

we're same and works. actually very we're have time, earning the business the earning dividend past, model liquidity. on always we're good our And it's that same So, in But at comfortable time, at the I to comfortably unlike the think, the cash. money

like not as much it's at of has we as things. Sure it we're a think getting I X%. been, continue to drag as look

look I cash than something But to are this higher the repay going the the we -- as look repayments point, originations. But continue we sitting we think, back doing we're on turn always in and to at more extent than can the not be term. to at we're to expect near on

from Instructions] [Operator comes question KBW. with Jade Our next Rahmani

unrelated wanted -- up, like just to portfolio, to improved. performance things But the a follow I so seems Yes, ask across actually Steinway.

perhaps If could that? call if specific seems. any on things any seen out? why you comment Any on performance comments So have you haven't loans Europe improved like stresses solid you'd and it remains pretty elsewhere? But there's seems

that Jade. very pleased think, much. we've we're take a said issue you dealing would the with is as I our the Thank mean, that compliment, performance. always We've Steinway I I with. been look --

got As in paid referenced, of mezzanine last one on X Las portfolio. our and one off loans loans been Vegas. actually other repayments in a of There's rated our the hotel Yes.

dealt So that with issues said. something early always like our we've on, is we which

hotel manage loans the did them. active our their early think quite in they've and support and leverage dealt work and in they continue we two them, borrowers sense, to equity to with honestly just have who Thankfully, in that in So believe and land because high in problems good we really continued have Brooklyn, on never with borrowers. stable deals

there, or or of weren't been be return spot industrial at there. a currency our hospitality And had so office. has we whether terms in bright we risk exposure hedged Europe obviously to it

and continued world to work So great, portfolio. is don't obviously every transaction the look, pleased in be Not aren't day, actively de-risks there London that get we've rest to the borrowers, pay-downs. -- going that it we is bank's transaction headquarters new we've of work to but been on dramatically. with with The the say

lease rating that signed, So upgraded. that efficiently I when to would is be expect

But terms again, that the we'll our is will cash Right announcement. weeks, to upgrade of modeling We now, continue on and overall, be just in. I know that But it's we repayments a lengthy, got and that when of few gets yes, deals. And part lengthy then see and notices that signed in have of coming in heads just loan. public to lease next we've various repayments. think

yield table something overall the just on or is subordinate overview. the being piece, loan shows in -- the And that was the X.X%, but I Thanks. consistent the mainly it $XXX.X is is in Steinway X.X%. portfolio the pretty yields the modification? balance mean, loan else XX-Q Is there at reflecting million. portfolio showing portfolio The

pretty only much was Yes, you paid mortgage, of for we're sub the near-term, say own off. CMBS, hotel getting to historical we the by in all a in debt Las is the we the piece so accounting it's have, reasons. Because first Steinway would it, in end is debt really, going that anticipate the debt there. got think quarter, I Vegas that sub of subordinate paid be that's and the reality Steinway. is But it's then of off stack. a in And which whole There we this the

-- put like we in said, which, that we on So non-accrual.

So shrink. item that continue line will to

an the interest or picking at is mezzanine yielding X.X%? So of Steinway rate on

It's non-accrual. a

So can.... you

We're any income. not taking

Zero.

Zero.

Okay.

yield the and that and that that's reflect? actually table, in does performing what total loans the then does accrual X%? it mezzanine mean, accrual So balance What just non-accrual. is on the are Maybe this

the why that's yield tough. so And is

Yes.

then million-plus have at So XX%, you at right? a $XX you it zero zero. stuff and million, $XXX had of taking million you at are other at XX% majority You and $XX had

So that's the way...

right. for that. That Thanks makes All clarifying sense.

remarks. Scott now I'd you. like over turn the to Thank closing for call Weiner any to back

everyone summer. rest Stuart, and the more enjoy the you operator, us of I Anastasia you, joining thank And follow-up to and the both Thank available. has today. are anyone Thank for you. any extent questions, And

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

now may You disconnect.