Apollo Commercial Real Estate Finance (ARI) 7 Feb 242023 Q4 Earnings call transcript

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

statements non-GAAP the measures are In projections financial required on the call, is website. discussing addition, not any our or we are believes assessing will available We of which figures earnings undertake measures unless relevant These obligation certain to GAAP in company's forward-looking law. be performance. management by in to update presentation, to section do this reconciled Stockholders our which our

filings, of To at or call obtain copies at latest www.apollocref.com our visit website XXX-XXXX. (XXX) us our please SEC

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

operator. Officer. Good Apollo Commercial Thank Chief and the our to Earnings Quarter Weiner, Finance Fourth by usual you Estate Call. Financial Scott Anastasia on morning, XXXX of Officer; today you you, Chief our joined us Real as joining and Investment thank I'm Mironova, those

XXXX In XXXX at the like, sector. for estate feels many start the start ways, where the of of much very we were commercial real

the consensus interest the to impact uncertainty elevated negative a use the significant maturities future rates. of with real If long-term for of of by on pending was and over of entering both interest sentiment properties concerning case commercial trajectory you the there respect and the path XXXX, recall, estate, fueled valuations lack economy on concerns office debt rates and

the further to market. to and continuing half the volatility rates concern in The raise XXXX in the the added and Fed, in treasury XX-year uncertainty of rates the notable first

estate portfolios notable perspective. money failure generally the banks further the real pessimistic of several commentary from added with regional center and regarding reserves coupled negative to their addition, banks, In increased

process than of interest but all market recent While transactions there cautious in buyers lower were environment. potential face sellers estate play higher rate interest chose notable overall lenders, remain some real and environment, was for to revaluing which started time owners, of transaction significantly and volume years as the in the including participants, uncertain a throughout and an XXXX, economic rate

As year. bps to landing increasing enter soft XXX confidence ability the engineer of and rate is XXXX, there in of Fed's XXX to type some expectations the throughout Fed we cuts of

essentially did at muted. rate long the as year, XXXX. exactly, is was higher it On fears of where last the present, the it XX-year are that end, beginning at quickly And moving of

respect However, to further estate while may on the economy commercial and optimism to focus be there around continues narrative real more the degradation. value asset rates, with

to much use value address away rate still to and in to addition long-term structures for Pivoting is be the done the debate, a higher from loan environment uncertainty over There exceptions Notable multifamily in of face commercial has have the of of supply. markets experience estate performance remained positive. certain to to well include growth elevated the rent pockets as across begun much maturities lingering assets. operating capital the asset declining real that certain case level office stable in as sector

climate long notable from aligned and closely property years. last in the benefit new the over the a property will that with Over we be will term, few performance operating decrease sectors level expect supply many macroeconomic broader

and proactive on was asset respect liquidity, to expanding diversifying With focused a year management and excess while XXXX financing sources. maintaining ARI,

of demonstrated the covered ARI rate the the power Given dividend the distributable tailwinds earnings, from earnings loan comfortably higher base strong floating achieved company's and portfolio. rates, which

loan transactions LTVs. compelling valuation, these as and pivoted and quarter, originate secured loan loans lower an existing credit into X strategically X strong loans fourth upsizing new we and $XXX with opportunities at pricing in ARI attractive Europe. All identified structures of recent million the deployed to of During the properties

loans, appropriate. had during portfolio. XXXX, totaling team year, ARI's billion. $X.X paydowns repayments remained and the year-end, loan extensions, and XX million the sales and billion office ARI to in Shifting $X.X actively negotiating our engaged including received from Throughout At ARI $XXX completing borrowers, loans. with where

operations with focus hotels levels. assets, REO throughout Washington, year, NOI the flow from X the asset the For produced hotel cash stable above generating D.C. ARI's pre-pandemic

also reserve at a nothing units is the Steinway, are Based to on quarter. on to the the additional was our activity as sale building, it done the value was respect fourth nominal contract. recent views achievable negotiations estimates, X no and X But not we achievable with value changed on quarter, in under additional of as closed respect consistent previous on fourth until is Recent activity during handful generally a unit have are accounting does reminder, of assessment more With active a There require recorded such, there however, the and value. sellout. with present units, done. of

the level both realization. remaining value nominal timing based as Any expected of to be potential change units will reserve as of well the future of upon the assessment

a few Before ARI's on dividend. Anastasia, turn call me the over comments I let to quarterly make

at we rate it level dividend XXXX. since in dividend $X.XX has proactively reminder, the of per beginning run is and our been a at the As the right reduced pandemic that share, quarterly

is As ultimately it and board dependent is the I and Board dividend basis. reviewed stated previously, action, on have discussed a on quarterly by and the declared times ultimately many

indicates for dividend present, per share. with of the $X.XX our is current approval, modeling the it comfortable While subject level to Board remain that future that we at current

on provide questions this obviously light basis, that the but it we to I at We a will review anticipated, wanted time. in context of go-forward Board with that

will call I the With to over turn that, Anastasia.

which X.XXx. $X.XX in and good had results million everyone. share, resulted distributable Thank coverage strong $XXX a of per operating of Reported in Stuart, ARI of year you, morning, XXXX. dividend earnings or

diluted unlevered yield than $XX per stocks. of portfolio than was higher XXX $X.XX with and XXXX. to of carrying basis the common ARI end X.X%, average income weighted notably, XXX value billion, common of share end with points $X.X net points GAAP at XXXX, basis higher ended of a year of a available at million the or the stockholders

the Stuart closed As funded the during across funded to and of quarter. commitments quarter, $XXX will end, was the future. rest $XXX during quarter million million mentioned, be these in the we $XXX subsequent of new deals. million was commitments funded X

completed also $XXX loans and from previously in million fundings million add-on received repayments. We closed loan of $XXX

loans not note caps. place. an putting expiration. in principal where initial was portfolio pending tied portfolio conditions XX% most approximately of the ] are of We borrower's Currently, covered Important our monitor expirations are include the there that final engage expiring concerned place caps in maturity part new a year-end, in to balance loans new of for we closely expirations the of in of with are and of put to to cap. our upon As extension a cap which interest by ability our to [ borrowers rate the replace the caps any ensure with loans, are

and rate loans interest in In caps, the other reserves portfolio for projections interest include our addition structural and interest carry guarantees. to

quarter. of portfolio's no basis was There points a at As points basis to X.X. The average at CECL the ago. the rating risk loan a basis amortized of XX increase CECL stood December was specific X as year year-end, general weighted of incremental during allowance portfolio cost the allowance the XX, compared taken a

overall partially relation particularly was a in from increase more The the year. the to certain by loan decreased course balance offset activity of macroeconomic adverse the attributable $X.X and repayment in outstanding portfolio primarily from outlook outlook, outpacing over loan general was fundings. negative impact macroeconomic billion The CECL portfolio loan $X.X to billion to seasoning asset of classes. allowance the Notably, principal the

loan December points of was total amortized basis. XX, basis the allowance As portfolios cost XXX CECL our of

notes is came of principal in this our until repaid book $XXX with excluding depreciation, debt flat CECL and outstanding with covenants of strong borrowings, to are not general With in quarter. continue on due to October was cash convertible last repayment, that corporate to ARI compliance liquidity. next per we all remaining million respect maturity hand. XXXX. share, $XX.XX, our relatively ARI reserves maintain balance the With value and

on by at continue asset, an the the Picking up the return to with ended Washington hotel, we loan X.Xx. recently capacity our servicer. for as the sell end market comprised D.C. was regards incremental total the facilities monitor on million quarter to at to into remarks to with facility, on hotel cash hand our ARI's of credit drawing Stuart's generating on time of optimal credit pledged the debt-to-equity determine and held ARI. revolving ratio leverage was proceeds quarter existing liquidity $XXX ARI

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

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

you assets? timing talk about problem the of of little existing a could Hoping bit potential your resolution

Yes.

say, relaunching sort I no But -- the through we with year bringing if there back of in possible we'll thinking it's sales dialogues about to interested previously, of particular as create would we whether know on really, dialogues, it and of before with from respect to now dialogue more indicated to have or it think to of gets some buyers. continue that I now players, a the the sort not. a hotel, being formal who or first working sale, might line makes don't get the sale. I result local be will of half sort with think, we're What some it has reassess selling. in effort. sort to -- finish in there I potential been Atlanta that Doug, a resolved order, probably in this value market in of terms we've sense Don't been knew more operations think

With D.C., would in at that I to see financing the we trying market this before as it's to And generating Mayflower where do goes levered probably in rates Hotel in attractive the a her pretty overall sell asset. actually Anastasia return, respect want and terms anything of formal say comments. point, to mentioned

our earn change perspective, the It on that about asset we really from a that capital by removing from nature amount. is selling a large balance just sheet. could But what of return ROE doesn't

the we've leasing think lot progress a perspective. to pivoting Ohio, retail I asset from made of in a

a value the little occupancy some basis interesting We ideas ] asset overall lower team entitlements outparcel an from and our to low [ XXs create The has getting density. done also through bit additional are some more management some or things percentage. for in

world possible, if year. sometime look exit, front, with At overall, in little on a X But XX renewal done from months. to next, the we've if successful of significant tenants work over say, a bit I'll to not site, the think I a to early be got that be, would some of perspective, good where environment assuming the knowing next but again, will the part we

really no And it's on There's way no force anything a from to perspective. the in then -- Steinway anything Building, there's by unit bulk of unit. terms

unit grind So it to the over several just in literally quarters through is by coming over unit years. trying it

And 'XX, it, late chance then in development built Brook, is obviously, to excuse up, through The asset. a lease 'XX, call we that's -- me, that 'XX, would be that will the envision which multifamily Brooklyn, 'XX, when exit and

lower along some have equity ideas way a potentially on I our some of but JV time. at commitment, We as this that time the not plan anything at -- explored way would to

question next from Raymond with James. comes Laws Our Stephen

comments think as Stuart. I the those Certainly different appreciate around helpful I Doug's assets. question, about

the there's talked about Chicago you've maybe in on a also think office that? past. loan, Any update I

commitment by in loans office we leasing And lease supported complete, at sponsors. redo point, activity, pretty basis, feel from we've million up. And it the originated taking of We encouraged X it, One at outstanding. good that. on call activity are lease asset. by indication I'd the and have was Both would $XXX Chicago. based what that this a initial we're XXXX. and about amount I are well our of late on got place a based in That's say say We their seeing pretty we

down from got and an our negotiated XXXX, recently to asset portfolio, received guarantees believe. we've modest had And older then would in to the that additional continue expect since plus sponsorship. another I asset We sponsor that's based asset Chicago, additional the dialogue. paydown support pay an a in the on we've We

plus will -- They about, to occupied is itself point, this building they asset. indication. sponsorship the now, is given every XX% at but minus, continue support continue in or the Right

questions around expecting. couple were new XQ what above a I of like investments originations. was And Certainly,

in pivot that I as think as you remarks capital. mentioned a of far somewhat your prepared deploying

do and you originations portfolio increase year, each looking Kind of quarter, the Or more this repays on maybe over Do around -- other? the and can line going you're it grow the not about you your 'XX? think X see on originations whole, talk expectations you and to are new net repayments over to expect kind year? the in of isolated at

to Look, them I up. match we're trying think

of you into built what we sort up cautious the saw was transactions. and had of through think approach I had at taken that like to fact a last We some the about. felt XXXX the it much we and had good liquidity deploy end fairly felt year opportunity of

our Doug the year I year we of up rest really in year, any of pacing sort this per certainly or we year. and of we the deployment think which is this some the is underperforming And question do by some I needs the when in I be to the early some by of capital rest I deployment assets at the doing got dependent, wouldn't X. se. our from assuming free in anything, of for multiply think the ahead of tied If way asked, way things think end for

And expected repayments, sure a respect then little over far with our that making be I ]. we're too out repayments scapes we think actually going before get cautious, [ happen to still bit to

lastly, new again, half much where over like investment of X too the now the that's is occurred. in not but read portfolio activity quarter, then little to a it Europe. And into And Great. looks trying

themselves you're market just talk were Or you that about you U.S.? in Can in versus what of attractive? these the the unique like deals European presented opportunities kind are seeing that

of then classes, types, was larger hostel one a if right, pubs. at of And And was us vacation, in was the as of Obviously, business where of bit the in which certainly, the interesting. off Apollo deals a able I to ability and also the hostels of knowledge sectors transaction, to terms hostile. i.e., ARI their a some asset create where a traditional you little one we mean a portfolio size not just asset participate perspective. were look think from economics that real not with afforded the I had other broadly, perspective, structure parts estate transactions run

We are billion of The over Apollo team, at much transactions the U.S. active U.S. business XXXX, estate the of a in real was did that credit worth again, as $XX overall. in still in and

So the screen continues radar be U.S. the the to for on business overall.

put were X returns. particular case, the from Europe, of risk-adjusted certainly, as we things were decision X the achievable X to think ARI's perspective. transaction would in But more the had interesting a We about on we then some obviously, lease-up capital about sponsorship I made continue Europe or where -- to the it. from work, upsizing just as in this succeeded new the to we of seeing existing perspective. in And things our say which thought an transactions

Rahmani with Our from Jade next question KBW. comes

Just a around Chicago. follow-up to Steve's question

bifurcated we've pressure on there. Manhattan On market Island some Island clearly Manhattan the Since but could other office, where comment Long a City, you and seen City? market, Long

Yes.

the came junior the on in restructuring that Island someone capital XXXX. the a is Significant us. overall. behind did in certainly Long already in was from and in came in It strong to structure, we a institution us think, space I City capital asset

they our expenses and for that was to restructuring I as would and set there's option available transaction who today. from I City interest continues since Long ] certainly, that the some taken say, And occur. lower of up as look been say that's year, would several would say cost I Manhattan. to perspectives, has tenants, perspective, lease-up [ done a Island leasing was place years to capital be from a from happened, at there last TI have us runway

direction. generally right moving in So the

right add. of And set it's stop. And above the is this Scott. subway would Jade, I

really in centrally for relocate terms on a city so access the of the over incentives And city. of it's bunch historically, the all located So people has there. whole side, to tax

So of it's low-cost in located, kind to essentially addition being a alternative.

And from a benefiting we're long lease term. really very

major tenants, if by leases XX-year which the the on Target, let well like with XXX% XX, center. you're anchored familiar as is have X We retail, as

of and So most a government as both tenant. a large tenants, is the pleased. actually was think Stuart which was lot City by recent touring, lot mentioned, I A New us lease, very activities, of the group York sponsorship government

credit there really for a Class this, of So A folks and a have looking building. you then lot other

loan Manhattan, It square got And a first $XXX foot. put in Jade, our the then is in we've basis was Were we sub exposure. dollar the place X a in senior of XXXX. mortgage, half last

sub a in around debt not capital, for us. restructure injection debt, that say the subordinate transaction is [indiscernible] of to side all us sponsorship on of There some those are some, beneath I the least sort where, a would of or of maybe us, at cetera, of are in sort equity at et running point, chance I to levels this and structure with out we stage beneath capital at we're dialogue think, in play already appetite, sub the give of to X time.

it like to more next specifically So in in dialogue we of -- on have terms productive what's time next phone happen. the probably a should the seems the likely we're

So asset, there's challenging subordination feel covered? a but adequately enough you where

today, here Sitting yes.

get and a at, question, you example, a for people bigger then -- just modifications. of performance tons a lot we of They see And if they about Okay. CLOs questions delinquency can see look picture give credit and but sense issues.

current of a level driver default? But interest ultimately, established into what from in In replenished? reserve initially and come is percentage property a versus funded interest an words, goes Does that reserve is loan it of out mind, other stays of of most your whether flows? is or what the cash later

look redevelopment, we is whether you in a are you if fact we look think also heavy maybe more at higher, or and development that assets transition, the I when of our slightly right, could So it what is approximately do It to fact, of and clear, probably our interest XX% you our Hilary but factoring lot get after depends, reserves. of interest, right? number a I the income, at ground-up looked, out be current last think portfolio paid

the when ordinary cost baking you're you a structuring the that a way or doing loan But it's deal construction a are into significant in interest redevelopment or predevelopment loan loan.

no cover I And in loan. expected, better of cash it I things doing effectively it's a the that baking flows as or -- there to phrase. think you're development redevelopment for are you're obviously, when are particularly, lack into think interest so nature,

comes with JPMorgan. Rick Shane question next from Our

you thank detail on to Is bit additional terms your hedging now, an et down about the the we seemingly Anastasia, a approaching little of hedging as for actually caps, in of to are the coming down? love cetera. I'd inflection price the rates. talk borrowers' cost of starting dynamics in caps given come

second sort they borrowers does haven't the they down, have and this the so buying can up -- they interest payment instead part the instead, it of And alternative building reserve? away of come do paid the recapture haven't wasted way, rates of if of sort that of caps self-insurance through the reserve is, --

Scott, give maybe of like sort of a of with sort view holistic do borrowers? just you want to dialogue the

cap Yes. think Look, borrower every Look, philosophy. do I think different a have I come down. costs has

it estate and broader have We platform. the -- I'm generally real across seeing

many interest done to because and we effectively it. prepaying our Obviously, we have originations. as we willing But who have haven't across they to buying more coverage want platform, caps, in are so money actually the borrowers, mentioned, new pay

way it. buy money want to really have the requiring out borrowers, insurance cap, and other of of it's We kind and a who

type what that of Again, the our and rate underwriting coverage also we on part from perspective, would is leverage we're of and what doing, what depends have. kind interest of the it

you much someone I on be with credit say, building spend cap, I say, guarantee. an flows cash deal, the sort you a that comfortable money it's to up from But less generally, of reserve. would if wants might on have interest or perspective, so the some and buy where generally, would not coverage, a feel and/or very the would

buy guarantee, definition, a for have So that the out and ] funding money will [ a you're, a borrower oftentimes carry want to term. a by to look on less loans, expensive, and the you kind of of example, construction where or cap like forward, with something you shorter

has focused make flowing you're coverage, Clearly, that financing sure if want is asset, and if very cap to asset be that lower on what an you a is you going cash a that cover. because will, to multifamily, you're you

Okay. That's...

-- some borrow obviously, now, fixed -- then, are mean rate borrowers right? borrowing And borrowings market, thing, loans. that's if I -- fully that's the can the obviously other in fixed

to the helpful. that That's Anastasia, apologize. And I is -- then follow-up

said recall Where capped point. you've loans think metric this that the that in hearing past. I I context? that is And at XX% in don't historical have of

of principal Yes. And balance. it the was XX%

Yes.

they're them if we're gets make. -- right? the think guarantee, trade off guarantee willing we and whereas strong right? there, I willing is interest, a And Rich, carry again, ways, in have you to sponsor capital that, a to full someone a we give That having gives some us that can better certainly that's

would other where have the say of on form a some deals I we enhancement. So because cap, credit it's have supplemental don't we

[Operator Our from JMP. question with Steve Delaney next Citizens comes Instructions]

I'd Steven, of foreign like ARI. to Clearly, market distinctive go Apollo feature your back that's about comment investment. last most the to

here, XX% City. your portfolio noting York U.K. Just the and deck have just in XX% of New in you the in

I'm curious. any NPLs lending had the there? the just good a or performance. couple activity you've a or any U.K. that. around of your foreclosures on of markets know based generally, I you questions European had in Just Have

[ I row. appreciate shots XX in ] guys you asking like the where announcer, like made -- an you're a

No. strong Europe. To performance had date, very we've in

ourselves U.S. Europe about many multiple like the the ability heard the me do system. quality we through in quality of terms about You of way to ways, times Europe think of protect legal assets, we because in talk sponsorship, why we

to loan relative the transaction. sure the value sponsorship on in underlying make assets, to our where to achieve But had plan. our say, did sufficient cases, haven't business estate were whole real not of not we we was It's made those

borrower Everything personality. -- at -- different right? What's Every a gosh, Yes. the unique. story, has loan every is a is person is everything

that like like maybe lenders business or But the just that that the that, U.S.? gives of market than gives -- a anything use borrowers? over is Is doing U.K., custom in technical that control make one I'll word, -- lending there more safer the there principle helps

people in much wouldn't London -- here. wouldn't as because I they I say is loans can safer money Scott. as just lose say it's on can anything this and obviously,

I would around don't there over that say you are norms see of some kind there ongoing here. really covenants

So whereas tests structured the and cash we've deals in maybe with U.K. generally, in you U.S., always obviously, and our the triggers Europe extension ongoing

You would often see, very breached, I would in enforcements table, addition to those covenants type rule of law triggers, to if that obviously is the there. say, we everyone of actually have they're financial and strong bring

And I just attracting center say, been it's capital. would just of London a historically,

somewhere, refinanced even recently buildings got I read in outside the office we of billion offer. London. office there's GBP I Across were some right ARI our So X like portfolio under in now, think, office portfolio, that

just the have how also, large think other again, it's And U.S. that's to we I across it. parts So it's look so us, But we there, Europe, like a attracting It's a of of Europe for the really, really market we look platform. team from liquid power we well, the Asia at it. as people

how a close solid advantage to Well, taken and that congrats of on you've XXXX.

to Rothstein like over now any would turn I for the to you. closing back call Thank remarks. Mr.

extent, there call always Obviously, are talk. all who the follow-up you to morning. Myself, Anastasia Hilary Thanks, Thank this and the are available everybody. questions. on participated to

participation. your Thank you Thank for you.

disconnect. now may You