May 4, 2012 Supplemental Financial Information Presentation Q1 2012 Information is as of March 31, 2012 except as otherwise noted. It should not be assumed that investments made in the future will be profitable or will equal the performance of investments in this document. * * * * * * * * * * * * * Exhibit 99.2 |
1 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Legal Disclaimer We make forward-looking statements in this presentation and other filings we make with the SEC within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: our business and investment strategy; our operating results; our ability to obtain and maintain financing arrangements; the return on equity, the yield on investments and risks associated with investing in real estate assets, including changes in business conditions and the general economy. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as included in ARI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation may contain statistics and other data that in some cases has been obtained from or compiled from information made available by third-party service providers. |
2 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Apollo Commercial Real Estate Finance, Inc. 2012 First Quarter Earnings Call May 4, 2012 Joseph Azrack Chairman Stuart Rothstein Chief Executive Officer, President and Chief Financial Officer Scott Weiner Chief Investment Officer of the Manager Megan Gaul Controller of the Manager Hilary Ginsberg Investor Relations Manager |
3 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Financial Summary (1) Fixed rate debt refers to the TALF borrowings which were refinanced with the Wells repurchase facility during January 2012. (2) Debt service coverage is EBITDA divided by interest expense. Income Statement 2012 2011 % Change 14,429 $ 10,938 $ 31.9% (3,242) $ (3,339) $ -2.9% Net interest income (in thousands) 11,187 $ 7,599 $ 47.2% 0.42 $ 0.29 $ 44.8% 20,966,426 17,551,828 19.5% March 31, December 31, Balance sheet 2012 2011 % Change 666,005 $ 860,247 $ -22.6% 338,377 $ 336,978 $ 0.4% 2.8 Years 2.2 Years 1.1x 1.6x - $ 251,327 $ 355,257 $ 290,700 $ 5.4x 3.9x Three Months Ended March 31, Interest income (in thousands) Interest expense (in thousands) Operating earnings per share Basic and diluted weighted average common shares outstanding Investments at amortized cost (in thousands) Net equity (in thousands) Investments - Weighted average Duration Debt to equity Fixed rate debt (in thousands) (1) Debt service coverage (2) Floating rate debt (in thousands) |
4 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Overview Operating Earnings per Share * For the period from ARI’s initial public offering on September 23, 2009 through December 31, 2009. (1) Return on equity is calculated as annualized operating income for the quarter as a percentage of average equity. -$0.17 $1.09 $1.47 $0.42 -$0.20 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 2009* 2010 2011 Q1 2012 $1.50 $1.60 $0.40 $0.00 $0.40 $0.80 $1.20 $1.60 $2.00 2009* 2010 2011 Q1 2012 $491 $21,771 $38,464 $11,187 $0 $10,000 $20,000 $30,000 $40,000 2009* 2010 2011 Q1 2012 Dividends per Share Net Interest Income ($000s) Return on Equity Based on Operating Income (1) 9.6% 9.3% 9.8% 10.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Q2 2011 Q3 2011 Q4 2011 Q1 2012 |
5 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Q1 Highlights Financial Results & Earnings Per Share Operating Earnings for the quarter ended March 31, 2012 of $8.8 million, or $0.42 per diluted common share (1) – A per share increase of 45% as compared with Operating Earnings per share for the same period in 2011 – Net interest income of $11.2 million for Q1 2012 – Total expenses of $3.3 million, comprised of management fees of $1.3 million, G&A of $0.9 million and non-cash, stock based compensation of $1.1 million GAAP net income for the quarter ended March 31, 2012 of $9.1 million, or $0.43 per diluted common share Dividend Declared a dividend of $0.40 per share of common stock for the quarter ended March 31, 2012 Declared a dividend of $0.40 per share of common stock for the quarter ended June 30, 2012 – 10.1% annualized dividend yield based on $15.87 closing price on May 2, 2012 (1) Operating Earnings is a non-GAAP financial measure that is used to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) non-cash equity compensation expense and (ii) any unrealized gains or losses or other non-cash items included in net income. Please see slide 19 for a reconciliation of operating earnings and operating earnings per diluted common share to GAAP net income and GAAP net income per diluted common share. |
6 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Q1 Highlights Investment and Portfolio Activity New Investments – $15 million mezzanine loan on a 165-room hotel and commercial space in New York, NY with an underwritten internal rate of return (“IRR”) of approximately 14.0% (1) – $15 million mezzanine loan on a 226-room hotel in New York, NY with an underwritten IRR of approximately 12.8% (1) CMBS Sale – Sold $137.4 million of CMBS, which resulted in approximately $262,000 of net realized gains, generated approximately $14.6 million of equity proceeds for reinvestment and lowered the Company’s debt to equity ratio to 1.1x Portfolio Summary Total investments with an amortized cost of $666 million at March 31, 2012 Weighted average underwritten IRR of approximately 14.7% (1) Financing Overview TALF Refinancing – Refinanced TALF debt with Wells Facility; Increased advance rate generated approximately $14.1 million of additional investable capital, lowered cost of funds by approximately 70 basis points and extended the term of the debt through August 2013 (1) The internal rates of return (“IRR”) for the investments listed reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and derivative instruments under the Company’s master repurchase agreement with Wells Fargo Bank, N.A. (“Wells Facility”). There can be no assurance the actual IRRs will equal the underwritten IRRs shown. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments over time. |
7 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Q1 Highlights and Subsequent Events Book Value GAAP book value of $16.46 per share as of March 31, 2012 – ARI closed at $15.87 on May 2, 2012 or at a 3.6% discount to book value per share Fair value of $17.04 per share as of March 31, 2012 (1) Subsequent Events New Investments – Acquired two senior sub-participation interests with an aggregate face value of $23.8 million, part of a $120 million first mortgage loan secured by 20 acres of land in the South Boston Waterfront District, which is entitled for over 5.8 million buildable square feet and is currently used as parking with approximately 3,325 spaces. The aggregate purchase price of the senior sub-participation interests was $17.8 million (75% of face value) and they are expected to generate an IRR of approximately 21.9%, after the payment of expenses (2) Amended Facility – Amended the JP Morgan repurchase facility to reduce the interest rate spread by 50 basis points (LIBOR + 2.50%); Based upon the Company’s current usage projections, the Company expects the reduced spread should result in an annual interest expense reduction of approximately $250,000 Loan Repayment – Received repayment from a $24 million first mortgage loan on a hotel in midtown Manhattan, which generated $8.6 million of equity for reinvestment after repayment of $15.4 million of borrowings (1) The Company carries loans at amortized cost and its CMBS securities are marked to market. Management has estimated that the fair value of the Company’s financial assets at March 31, 2012 was approximately $11.9 million greater than the carrying value of the Company’s investment portfolio as of the same date. This represents a premium of $0.58 per share over the Company's GAAP book value as of March 31, 2012. (2) The internal rates of return (“IRR”) for the investments listed reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and derivative instruments under the Wells Facility. There can be no assurance the actual IRRs will equal the underwritten IRRs shown. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments over time. |
8 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Portfolio Overview Asset Type ($000s) Amortized Cost Borrowings Equity at Cost Remaining Weighted Average Life (years ) (1) Weighted Average IRR (2)(3) First Mortgage Loans (2) $108,817 $68,607 $40,210 2.4 17.8% Subordinate Loans 179,336 - 179,336 5.5 13.9% Repurchase Agreements 47,439 - 47,439 2.0 13.7% AAA CMBS 330,413 286,650 43,763 1.5 16.1% Investments at March 31, 2012 $666,005 $355,257 $310,748 2.8 Years 14.7% As of March 31, 2012. (1) Remaining Weighted Average Life assumes all extension options are exercised. (2) Borrowings under the Company’s master repurchase facility with JPMorgan bear interest at LIBOR plus 300 basis points, or 3.2% at March 31, 2012. The IRR calculation further assumes the JPM repurchase facility will remain available over the life of these investments. (3) The IRR for the investments shown in the above table reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and derivative instruments under the Wells Facility. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the table over time. |
9 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Portfolio Overview Diversified Investment Portfolio with Amortized Cost Basis of $666 million Weighted Average IRR of Approximately 14.7% (1) Net Invested Equity at Amortized Cost Basis ($000s) Gross Assets at Amortized Cost Basis ($000s) As of March 31, 2012. (1) The IRR for the investments shown in the above charts reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and derivative instruments under the Wells Facility. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the charts. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments over time. AAA CMBS 50% First Mortgages 16% Subordinate Loans 27% Repurchase Agreements 7% AAA CMBS 14% First Mortgages 13% Subordinate Loans 58% Repurchase Agreements 15% |
10 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Loan Portfolio Diversification As of March 31, 2012, first mortgages and subordinate loans represented 71% of ARI’s investment portfolio’s net equity The loan portfolio is diversified by property type and geographic location Loan Portfolio - Geographic Diversification by Net Equity (1) Loan Portfolio - Property Type by Net Equity (1) (1) Does not include CMBS or repurchase agreement investment secured by CDO bond. (2) Other category includes the subordinate financing on a ski resort. Hotel 47% Office 13% Retail 26% Other (2) 14% Northeast 50% Southeast 5% Mid-Atlantic 5% Midwest 22% West 18% |
11 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI –Loan Portfolio - Maturity and Type $24.0 $0 $47.4 $99.8 $65.4 $40.0 $0 $50.0 $8.9 $0 $20 $40 $60 $80 $100 $120 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fully Extended Loan Maturity Schedule ($000s) (1) (1) Based upon Amortized Cost; Does not include CMBS or repurchase agreement investment secured by CDO bond. Loan Position and Rate Type (1) ARI’s Loan Portfolio had an amortized cost basis of $288 million at March 31, 2012 Senior Fixed 46% Mezzanine/ Preferred Equity Fixed 30% Mezzanine Floating 12% Subordinate Loan Fixed 12% |
12 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Loan Portfolio – Loan Level LTV (Through Last Invested Dollar) (1) Ending LTV represents the loan-to-value as of the date of investment for all loans except the $32,000 New York, NY hotel loan, which is as of March 2011. Description ($ in thousands) Location Balance at March 31, 2012 LTV (Senior Mortgage) Ending LTV (1) First Mortgage - Hotel New York 31,739 $ 0% 40% First Mortgage - Office New York 27,587 $ 0% 54% First Mortgage - Hotel Maryland 25,491 $ 0% 58% First Mortgage - Hotel New York 24,000 $ 0% 40% Subordinate - Ski Resort California 40,000 $ 32% 64% Subordinate - Retail Various 30,000 $ 58% 69% Subordinate - Retail Virginia 25,397 $ 60% 74% Subordinate - Hotel Portfolio New York 25,000 $ 40% 60% Subordinate -Retail Various 20,000 $ 58% 74% Subordinate - Hotel New York 15,000 $ 51% 63% Subordinate - Hotel New York 15,000 $ 51% 65% Subordinate - Office Michigan 8,939 $ 53% 70% Total 288,153 $ 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% |
13 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Senior Loan Portfolio Description ($000’s) Date of Investment Maturity Date (1) Original Face Amount Current Face Amount Coupon Amortization Schedule Property Size Current Loan Amount Appraised LTV (2) Hotel New York, NY Jan-10 Feb-15 $32,000 $31,739 8.25% 30 year 151 rooms $210/ key 40% Office Condo (Headquarters) New York, NY Feb-10 Feb-15 28,000 27,587 8.00 30 year 73,419 sq. ft. $377/ sq. ft. 54% Hotel Silver Spring, MD Mar-10 Apr-15 26,000 25,491 9.00 25 year 263 rooms $97/ key 58% Hotel New York, NY Aug-10 Aug-12 24,000 24,000 8.00 Interest only 155 rooms $155/ key 40% Total . . $110,000 $108,817 8.31% (1) Maturity date assumes all extension options are exercised. (2) Appraised LTV represents the loan to value as of the date of investment for all loans except the $32,000 New York, NY hotel loan, which is as of March 2011. (3) Interest rate includes 10% current payment with a 3% accrual. Description ($000’s) Date of Investment Maturity Date Original Face Amount Current Face Amount Coupon Amortization Schedule Property Size Current Loan Amount Appraised LTV (2) Repurchase Agreement (3) Sept-10 Mar-14 $47,439 $47,439 13.00% Interest only N/A N/A N/A Total $47,439 $47,439 13.00% |
14 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – Subordinate Loan Portfolio Description ($000’s) Date of Investment Maturity Date (1) Original Face Amount Current Face Amount Coupon Amortization Schedule Current Loan Amount Appraised LTV (2) Senior Mezz – Retail Various Dec-09 Dec-19 (3) $30,000 $30,000 12.24% Interest only $86/ sq. ft. 69% Junior Mezz – Retail Various Dec-09 Dec-19 (3) 20,000 20,000 14.00 Interest only $91/ sq. ft. 74% Office Michigan May-10 Jun-20 9,000 8,939 13.00 25 year $82/ sq. ft. 70% Ski Resort California Apr-11 May-17 (4) 40,000 40,000 13.25 Interest only $356/ key 64% Hotel Portfolio New York (5) Aug-11 July-16 (6) 25,000 25,000 11.49 (L+10.49%) Interest only $339/ key 60% Retail Center Virginia (7) Oct-11 Oct-16 (7) 25,000 25,397 14.00 Interest only $281/ sq. ft. 74% Hotel (8) New York Jan-12 Jan-15 15,000 15,000 12.00 Interest only $484/ key 63% Hotel (9) New York Mar-12 Feb-16 15,000 15,000 11.50 (L+11.00%) Interest only $310/ key 65% Total . . $179,000 $179,336 12.76% (1) Maturity date assumes all extension options are exercised (2) Appraised LTV represents the loan to value as of the date of investment. (3) Prepayments are prohibited prior to the fourth year of the loan and any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%. (4) Prepayments are prohibited prior to the third year of the loan and any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%. (5) Includes a LIBOR floor of 1% and three one-year extension options subject to certain conditions and the payment of a 0.25% fee for the fourth and fifth year extensions. (6) Prepayments are prohibited prior to February 2013 and any prepayments thereafter are subject to spread maintenance premiums. (7) Interest rate of 14.0% includes a 10.0% current payment with a 4.0% accrual. There are two one-year extension options subject to certain conditions. (8) Includes a 1.00% origination fee, a one-year extension option subject to certain conditions and a 0.50% extension fee as well as a 1.50% exit fee. (9) Includes a LIBOR floor of 0.50%, two one-year extension options subject to certain conditions and the payment of a 0.50% fee for the second extension. |
15 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) ARI – CMBS Portfolio Face Amortized Cost Remaining Weighted Average Life with Extensions (months) Estimated Fair Value Debt Net Equity at Cost TOTAL CMBS $324,798 $330,413 18 $330,896 $286,650 $44,246 AAA CMBS CUSIP Description 07388YAB8 BSCMS 07-PW16 A2 07401DAB7 BSCMS 2007-PW18 A2 12513YAC4 CD 2007-CD4 A2B 46629MAB1 JPMCC 2006-LDP8 A2 61754KAC9 MSC 07-IQ14 A2 92978YAB6 WBCMT 07-C32 A2 AAA CMBS CUSIP Description 07401DAB7 BSCMS 2007-PW18 A2 36246LAB7 GSMS 2007-GG10 A2 46630JAK5 JPMCC 2007-LDPX A2S 61751NAD4 MSC 2007-HQ11 A31 92978TAB7 WBCMT 2007-C31 A2 |
16 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Financials |
17 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Consolidated Balance Sheets (in thousands—except share and per share data) March 31, 2012 December 31, 2011 Assets: Cash and cash equivalents 31,452 $ 21,568 $ Securities available-for-sale, at estimated fair value 151,964 302,543 Securities, at estimated fair value 178,932 251,452 Commercial mortgage loans, held for investment 108,817 109,006 Subordinate loans, held for investment 179,336 149,086 Repurchase agreements, held for investment 47,439 47,439 Principal and interest receivable 5,959 8,075 Deferred financing costs, net 1,308 2,044 Other assets 14 17 Total Assets 705,221 $ 891,230 $ Liabilities and Stockholders' Equity Liabilities: Borrowings under repurchase agreements 355,257 $ 290,700 $ TALF Borrowings - 251,327 Derivative instruments, net 483 478 Accounts payable and accrued expenses 1,126 1,746 Payable to related party 1,289 1,298 Dividends payable 8,553 8,703 Deferred revenue 136 - Total Liabilities 366,844 554,252 Stockholders' Equity: Common stock, $0.01 par value, 450,000,000 shares authorized 20,561,032 shares issued and outstanding in 2012 and 2011, respectively 206 206 Preferred stock, $0.01 par value, 50,000,000 shares authorized and no shares outstanding - - Additional paid-in-capital 337,789 336,209 Accumulated other comprehensive income 382 563 Total Stockholders' Equity 338,377 336,978 Total Liabilities and Stockholders' Equity 705,221 $ 891,230 $ |
18 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Consolidated Statement of Operations 2012 2011 Net interest income: Interest income from securities 5,323 $ 6,656 $ Interest income from commercial mortgage loans 2,234 2,313 Interest income from subordinate loans 5,313 1,909 Interest income from repurchase agreements 1,559 60 Interest expense (3,242) (3,339) Net interest income 11,187 7,599 Operating expenses: General and administrative expenses (includes $1,083 and $351 of non-cash stock based compensation in 2012 and 2011, respectively) (2,036) (1,380) Management fees to related party (1,289) (1,088) Total operating expenses (3,325) (2,468) Interest income from cash balances 1 5 Realized gain on sale of securities 262 - Unrealized gain on securities 1,385 $ 26 $ Gain (loss) on derivative instruments (includes $(5) and $459 of unrealized gains (losses) in 2012 and 2011, respectively) (417) $ 18 $ Net income 9,093 $ 5,180 $ Basic and diluted net income per share of common stock 0.43 $ 0.29 $ Basic and diluted weighted average common shares outstanding 20,966,426 17,551,828 Dividend declared per share of common stock 0.40 $ 0.40 $ Three months ended March 31, |
19 COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”) Reconciliation of Operating Earnings to Net Income Three Months Ended March 31, 2012 Earnings Per Share (Diluted) Three Months Ended March 31, 2011 Earnings Per Share (Diluted) Operating Earnings: Net income $9,093 $0.43 $5,180 $0.29 Adjustments: Unrealized gains on securities (1,385) (0.06) (26) - Unrealized gains on derivative instruments 5 - (459) (0.02) Non-cash stock-based compensation expense 1,083 0.05 351 0.02 Total adjustments: (297) (0.01) (134) - Operating Earnings $8,796 $0.42 $5,046 $0.29 Basic and diluted weighted average common shares outstanding 20,966,426 17,551,828 |