ARI - Earnings call transcript Q4 2017 | Apollo Commercial Real Estate Finance, Inc.

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Operator

Good morning. My name is Tasha, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q4 2017 Apollo Commercial Real Estate Finance, Inc. Earnings Conference Call. [Operator Instructions]. everyone call remind being webcast to recorded. like that and today's are I'd they of the Estate note are Please that property Finance, Apollo Inc. Real Commercial strictly and any unauthorized in form that broadcast is any prohibited. release. this the about available earnings audio of Information call replay in is our press like to customary I'd disclosure to safe statements. forward-looking your release press our regarding call harbor attention also the in the factors to Today's we ask and could conference and our recent results materially statements most projections, to call important and and from forward-looking webcast SEC filings actual cause these with you that projections. may refer for include differ that statements

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

Stuart Rothstein

CFO. of again, and the over $X a morning was by Once New funding operator, investments. me of joining on ARI, Agarwal, XXXX morning. to for good this in our you, is the and Thank everyone joining billion record call us origination highlighted York year Jai

report and in once for total XXXX operating and return of common creative in was via investments growth again delivering to XX.X%. reliable, I capital financing to ARI's returns resulted source and ARI ability Our to accretive to strong stakeholders. for pleased borrowers our raise continue am stockholders source successful our results to attractive strategic

totaling originations the and year, loan closed ARI had transactions. average XX mortgages of of weighted the loan first a interest X.X%. portfolio of year-end, billion rate. yield the XX% At a XX were with total ARI's loans $X.X loans During all-in floating closed XX% held

had of Importantly, loans portfolio term XX% of interest X.X average had the rates the years. remaining a floating weighted in and the portfolio

investment since side that up real company's for in of approximately year in to equity release, investing portfolio free ARI's would levered other We commercial the by less the commercial successful of estate CMBS the caused of detailed company's a real into the I with to have the a Shifting CMBS allocated IRR the loans, volatility XXXX, mark-to-market portfolio generated like now respect and was diversification. has and the found of sold QX. compelling in estate felt coupled the ARI focus CMBS with risk-return less As loans. investments inception redeployment press for and become to bonds. the balance to to had in book remainder profile we XX%. simplify of remaining in CMBS sheet. ARI the core have quarterly our formation appropriate to time it than the the ARI, highlight very a capital value

of X/X% $XXX During on In $XXX possible to XXXX, focus outstanding providers, capital. diversifying a our capital bringing the million lowering expanding convertible we sheet, additional balance an when sources notes, and fourth of of the X cost overall the ARI's quarter, with extending issued notes reopened million. our total we and and optimizing focused the on term financing company's ARI's the debt

our capacity pipeline. In new ARI investment addition, facility $XXX financing million providing we a increased to Goldman first for our mortgage with Sachs, closed loans fund with

new an optimistic year model January, and investments million has business market pipeline position. already and the to we closed of our As healthy. we ARI respect Since of ARI's look with remain ahead, to remains $XXX excess

over The loans will year. of LIBOR which increases during help Importantly, counterbalance rates. interest the bode loan to million future have we floating believe repayments XXXX, XX% estimate portfolio of as our the continued enable results. ARI We and will Jai for scheduled well pipeline fundings $XXX review for with to attractive a And financial over in that, call will our provide combination our of investors continue to the the I flexibility turn XXXX. platform, well-covered to to dividend financial our to

Jai Agarwal

you, everyone. Stuart, morning, and good Thank

share, XXXX. realized quarter the sale our and of or $XX.X operating costs were XXXX, losses associated as or $X.XX XXXX these million or $X.XX million million share to the per our which $XX.X the items, for income were per our of per CMBS fourth the to million earnings $XX.X earnings $X.XX GAAP or Adjusting same $XX.X XXXX. compares operating For $X.XX This was per million for $X.XX share. in $XX.X with in compared reflects net in per share share portfolio. or period

million $X available of earnings connection in our income larger projects. to website. GAAP four loans press noted in in in section one earnings earnings construction As of the Investor income operating repayment the York of fourth the against of release for our net the reconciliation with A New quarter mezzanine condo prepayment our includes City of release, Relations is

on to for quarterly. are The be average loan X framework to You risk X.X. disclose will scale risk. started year-end, to notice ratings was at a transfers reviewed rating the the to highlight X assess ratings in designed portfolio. we credit that weighted is to a provide At portfolio each and credit will of in This and risk our

are of are originated for the report only assigned the transitional will closing. disclose weighted the LTVs, at LTV business, at average nature portfolio most we Consequently, or when Given quarter-end. our loans rating loan-to-value, the and lending longer will no of entire three in loans a portfolio

With existing we leverage, quarter the metric the that that ratio. not ended portfolio the equity the updated and property, positive a As underlying trends originated system negative LTVs or associated it from and the the a in reflect respect newly we reported date loan better to rating risk the to were X.Xx risk credit not the debt-to-common was with with ongoing assessing was implemented in framework. a felt provides meaningful

the quarter, with Sachs a Goldman facility During entered new fund Bank with loans. Deutsche terminated $XXX the into first and remaining to million mortgage CMBS facility we

As of debt capacity on our over of million have $XXX secured we today, facilities.

to value. book Turning

Our the of common per quarter the convertible accretive highlight book portfolio. both the value the QX at common $XX.XX notes of to $XX.XX and at $XX.XX end during and CMBS at wanted share compared the XX of that sale loss from helped the to issuance the stock was offset QX fourth XXXX. I December

our less forward, Going CMBS sale. value we be anticipate following book to volatile

Based the to dividend. price and XXXX, XX.X% dividends. highlight deduction our REIT on of quarter, Cuts wanted Jobs on Acts of Wednesday's now offers of the And our ordinary for a XX% per rate stock closing dividend individual recent investors yield. and Tax attractive I our benefit an run Finally, $X.XX receive

meet the with will make Operator, mid-March that, the again to for line please board we'd we and like Our in go QX will shortly thereafter. open dividend ahead. discuss to questions. And an announcement

Operator

[Operator Instructions].

Your first Ben of question comes from Securities. the JMP Zucker line from

Benjamin Zucker

pulling you of thank very or marching tenure all, guess, earnings it and borrower rating a positively, in sentiment? picture, could I'm I I guys your all, be business if environment impacting some can just guess, demand comment for wondering so just higher because, that's you the disclosure the keeps Obviously, market I First from on new forward. and that. helpful, supplement. big That's negatively current at risk appreciate

what are curious and just out now. hearing you So right guys seeing there

Stuart Rothstein

either been I direction. dramatic there Ben, think at hasn't a mean, shift a Yes. I in high level,

level healthy a clearly of are active. there's think still I activity. Folks

thinking were most more in a I about do of if think what that refinancing during little days probably sometime as year, right now, keeping focused you we that are you these this the more on about based. tenure thinking on fixed opposed something rate bit to mind is LIBOR-based margin, you're it

seeing you a clearly would think, speaking, on status I But as of activity, quo borrowing of the little of terms generally on describe healthy the the side. I level So of competitive that. margin, sort be market in might

But the on in nothing nothing attractive So the versus rates given overall, sort an still gone recently. I lender overreaction, or other, or of dramatic with of in say towards would way the of financing biased terms terms options. what's one borrower headline

Benjamin Zucker

definitely sources. helpful. about financing Well, that's your Thinking

you're you good something guys seen collateral of sure large market your rate loan financing for is as of in loans types have a tool and that CLO floating peers look was yet. think target of the tapped if don't some you XXXX the guys recently also these CMBS wondering I'm we've general? the take I your are advantage use segment aware, in CLO products, to this I As or market. And might

Stuart Rothstein

go to the executions competitors, be look, with down mean, of think those a a have I CLO. we dialogue path, impressive. from certainly I been we in by an headline If chose would engage likely underwriter perspective, that our certainly the active who

into is between be And I difference with dissimilar, debt versus think are borrowings the work surprised the honest call more it, while CLO X.X cost at of the repayment cost I actually average what our the the X someone, the that collateral costing to side, of goes all-in going longer if - you think reflect overall the we if attractive be outstanding. financing all-in get CLO of that cost cost actually also you financing. that in is numbers I think in is the don't look cost, some an And not on overall I that the repo headline think that actually of, a to when loans dig would you. you up. today respects, your to with you have actually book years, initial again, the financing, financing, think I

at active it. in on discussions it. look we So engaged We're

be at I collateral option. said a I point we I'd it's think But overreaching some wouldn't a will viable I do do CLO if where be we in have XXXX. -

looking sort again, just think, we're this at point. several engaged options one and it's at I dialogue in of of

Benjamin Zucker

originations might basis, just that the maybe it out created. XX guys you your funding to like Maybe if Okay. about when willing additional and over $XXX a fund aren't would guess quarterly the this is comments like deployment. Page the just your $XXX of this But have just at year-end. commitments predict appreciate million-plus now future these on turning based funding on Well, had helpful. magnitude that to data to of origination of that hard an I'm subsequent best provide curious very subsequent could provided, - you some the schedule the to in capital fundings the an future commitments throw on given thoughts I - looks your captured be on there's an they you of million future And annual pace quickly guys as deck. funding that's a understanding of basis.

Stuart Rothstein

confident think more But highly think for again, The that more magnitude $XXX feel little Yes. uncertain Obviously, a sort provide give is little million, is year. this scope capital the of doing stage. going a following we to this about we terms it what what referred dialogue provided, and go on color expectations construction beyond we're to, bit the I the is you was up margin sense out. we more at what of just of in of the that And can certainly is on lending, annual timing little to a we call, think, you I year. a when for planned as this

Benjamin Zucker

that maybe Real asset lastly, or just maybe that North And Great. was I Dakota. multifamily wondering for I on at loan can. all. in improved your if has even changed quickly outlook if

call prices you think first took rig in crude up think double count it area almost last that XXXX. earnings what bit and a loss I since was the is the are in when provision the

looking wondering your now. are I how from seat was So things right

Stuart Rothstein

this get outlook's a Yes. range don't rosy think the barrel oil Williston has economy. been margin, want the But too $XX Look, yes, on of reflected I sort in in picture. - certainly to paint our a improved. I

general. but particular I running Rents I the think leasing And have have multifamily And would that homes think stronger the units, steadily just multifamily were I them. consistent in Williston, asset, above in on pool, of on are think, the multifamily of that's of then we terms market I which not collateral, a occupancies single-family now our four part in tone sold moved with XX%. say the XXX on still much, generally there's is the side. rental XX

leaves about then us on both will progress single-family would And make spring as months to more able what four unfinished, path collateral. probably contract. selling in perhaps excess to Williston, down be. lots, finished to of I under realistically we have the think actually, more do the I it that just Another monetizing and optimistic that some And be about we those winter are being can somewhat the homes, say, puts able further think in us of the the

a So Williston. yes, tone generally to better I say would there's

the the to I written rig that think a about think in I sort be fair, us asset tone but I better what's count, extent a think, it's I strategy think tone growth, our just homes, think job clearly to media we're for amortize To of haul, single-family I continue you to appropriate better in still selling down. the for the long there's to got is read it. the position and

generally, in were, we terms better a bit to months little call ago. where So XX XX of it,

Benjamin Zucker

the your all portfolio. Great. rid Well, congrats getting of on CMBS and appreciate comments, Stuart, also

at looking the those I simpler be statement forward marks. without lot think will income a going

Operator

Instructions]. [Operator

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

Jade Rahmani

if your mortgages loans? between in mezzanine this could was as to expectations of terms I and mix year you wondering comment first

Stuart Rothstein

a always preconceived year predict, speak. very so Jade, go to into basis. look a to tough any just much it We little with on deal-by-deal we don't It's because bit plans, the at

being the little who given with, some as given know, both in more bit control you'll lend of over increased first has of early that where size, lending been toward which, look of the transactions, it'll those think and moving, XXXX, them, side of mortgage relationships formed to portfolio the think if bit a you also ability to said, part us, we're a think as I be be capital partners as of I given weighted that's pursuing been trend we little and more - trend the do in as continue. and our XXXX well at our situations sort I you have you I'll call the if things, see that

Jade Rahmani

your result, And as leverage increase? we expect should to expectations a

Scott Weiner

debt took we'd be entity. think perspective, - at an never the we the to leverage leverage. it company. think turns levered comfortable leverage. Today, we'd X.X think were purely that. call would said zero about if And loans, right we've Oftentimes, doing running I with approached company Xx I I a were around two if turns Look, from at, trend, of natural more very we're just right, we actually it, equity. Yes. you We've if in theoretical the be But first we're first mortgages, XXX% mezz all as have mortgages, consistent incremental do we're some

Jade Rahmani

incremental compared yields mezzanine a are other distinctly? been where what or are spreads on had comment spreads projecting. first than incremental on your bit you Can to mortgage perhaps mortgages loans and I seem higher that REITs, think we commercial

Stuart Rothstein

of I the or higher execution lending first there's, risk of lot heavy on a And perceived more where a be one project a and what a you're different to to going stabilized of have redevelopment actually it at some project in think mortgage depends business obviously, Look, Yes. is less return sort or least, against. than asset a plan. construction on

XXXX quarter been we what by in what or what's movement of to spreads, generally But XX think, announced don't the a you to mortgages perceived for I do. driven a basis of if in more what market a bit at done in points able probably speak, first the we've of we've I more to the little fourth for it's less risky. do tends quarter tighter been think - first be bit that looked up to and lot and terms XX broadly, so there's think as stable XXXX, the little I of in

generate on again, say think historically I little the today, I'll we've again, to of been points the doing, that. the paid the to I return structuring think we're with more slightly XX is not remind day, because can able deal able creative it's transactions think a that listening, on true is the again, the on in transaction, business there's - figure bit a a spreads we at because, things structure. the the basis extent still perspective, to return, is there a out more to in else more plan at the think XX and what business execution we're and to end view But a comfortable be market, and side, being day, that we mezz everybody is risk to to finding what get comfortable from just your we right, but get on higher no of handful with deal-by-deal the able more things little will a trying of be. on you we're end in certainly large competition. where our by And competition fairly and risk-adjusted excess dig find, where think side diligence world what hasn't I the been bit might I been it's competition we're And than generating

Jade Rahmani

just your million of quarter there and $XXX range you million. to and but so million terms quarters dipped fundings And something In only were couple to this million originations quarters looking outsized a far $XXX $XX million historically, average where the quarterly disclose repayment. in of $XX $XXX of did fundings back and fundings of far so few a

dividend pick to XQ expect fundings lag and quarter? expect to do be reaccelerate up run later we in this Or should year? a half and the earnings perhaps you the then of below in the to second So

Stuart Rothstein

would The lumpy. end the of are about quarter, the portfolio used of that said, their that end of what everything what between sort of the and work get think, it's think expect now legal happen definitely if seeing. that together. business That on our own, I my at Deals line with my that pipeline tough ultimately, historically work, the disclaimer now happen placements expect and the there I But now look pretty Again, and I are coming being to and add of sort between quarter. back private diligence quickly I to you're first and have things are you're fairly a I'll to some just life of That talking basis. standard will, about sort this refrain. I in numbers quarterly lumpy to is then standard think a to tied

Jade Rahmani

that it your you I to deal $XX January the whether did as one your loans. And retail still was showing the in comment with Miami - repay each think of can million XXXX maturities, as that urban scheduled? table

Stuart Rothstein

Yes, it repaid.

Jade Rahmani

Okay.

longer no that's outstanding? So

Stuart Rothstein

Correct.

Jade Rahmani

also could the guys you have Ohio, update in just a retail a provide then, on And rated Center which an you as four? - Liberty loan as

Stuart Rothstein

Yes. but operationally, service asset. again, I is margin. low mean, it, it's, leased not wide XXs It call a by a debt covering percent

I work in focusing of think there's where leasing asset we not I think there management are And in still the on asset spend may be that the may one an it's of done the this given from of or perspective. - marketing be I overall headed a think terms size lot and country, strategy. to retail and given time

little conversations - our one done, on radar think think some bit that and throughout the move as four monitoring screen, management the bit point, still the more it we'd But to on be is one interesting going of I change through from this there's to view. leasing I is something and that at much could we'll that a is closely very leasing work reflective an I be see year asset it's one think a more - success year. perspective we and like the little progress

Operator

[Operator Instructions].

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

Melissa Wedel

commitments. Wedel A on follow-up is Shane Rick question This today. the Melissa unfunded for

old the quarter, that compressed may deployed, versus more this commitments previously of think capital fair that environment? about a As to mean we be spread think receive is in about spread and we seeing unfunded current would kind that pricing the as funded being it

Stuart Rothstein

That's right.

Melissa Wedel

risk-reward And Okay. as business, with evolving origination at all forward the prospects go your in altering spreads new you then are CRE given parameters sort and generally? you of

Stuart Rothstein

more my puts us senior earlier we've again, that certainly comments, done I mean, capital in I think, the to back structure.

terms some higher don't see later large structure, transactions, at the - I fundamentally, originate if if will nominal on where loan-to-cost paid things capital probably, lines things at move we're to in loan-to-value certain of you'll think the granular we too transaction any bright risk business capital place we'll in this or on time about on seeing draw bottoms-up think a looking something. being and I in lower I the very we But year could is where the that for we're think many a appropriately much find perspective we in stacked sense taking. the from the want

speaking, which very activity the reflective generally reflective today we years recovery that long-dated. our that of is strong nine it's But is equally of are certainly originations into think looking that lend the fact I which that economic our cycle, being and actually is operating reflected the of fact overall lend the are to logical or lot or willing that the against. the for - to are in a are assets are is performance which comps of assets against the we either we that

our it we're ways what that underwriting current information well reflective is analysis transactions, sure and most So most we looking at as relevant both both our situation I cuts to be perceive I as the of the the to time. at think to and whenever the just we're think trying make

Melissa Wedel

up Okay. just follow to that. I guess, on

you sort more seeing? over economic of look the you Or years, the macro at operating in next assuming assuming are As couple of a moderation are the that environment? any you're persistent you environment tailwinds

Stuart Rothstein

even I think - go, X we've back we've cap values rates where the in where look out been pessimistic where per to this square think think years years, two of per ago, residual able X, to key go. and we're fairly prices goes where a I go, I foot extent fairly terms taken prices go, always always

in pessimism, now. think more any of But has do negative view right terms think on that supposed to as skepticism going don't our which we're I retain lenders. and So what's I think we I gotten

like, always to might at recovery we that long-dated quickly been be the I approach with we've thoughtful respects, about need this least used three think is talking change. things consistent how fact for a we've last it it's and the historically because about generally feels years, in the some

Operator

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

Jade Rahmani

Maryland condo just your April. Could expectations matures The there? update you in Bethesda, on project give an

Stuart Rothstein

Yes.

think it's we're that paid unrealistic off I April. in getting

I you'll unit condo the we this at think a time project. XX impairment, took is if recall, the

were to condos. Today, unsold we're condos I XX unsold down we think roughly XX there at impairment. the XX or the time took

again, it chipping of away to unit-by-unit, the at tour project. reaction pleased and of who generally sort So continue speaking, be, come in those with the

challenge the you people we just get of up pretty price foot in say more asset we think to to because I going throughout year. one when paid the this and would think hit traffic. right the about both But in step the at foot when I - success traffic really getting at sort getting of is chip been rate has that be good, in actually level the of actually terms away is I

Jade Rahmani

lot the And within project in last longer Like, and XX a be to cause is that than the prohibitive a point units concentration? XXXX? what's extreme remaining, would price there at handful - of an

Stuart Rothstein

a I'd comment was concentration. that I of units. and a on two don't a think there's project three-bedroom make general mix the par,

units there's I than two-bedroom more on par, units. think left three-bedroom

are we the range. But reasonable within have at the three-bedroom cycle two-bedroom but or anything and slightly as this all a my like our of you gave point dollar there's me project. in units. It's more price not a margin, perspective choice, in life remaining the per foot of not if square on all So where rather price higher point, nominal units from I'd a value value, bunch that. if That's than penthouse it's

Jade Rahmani

And to wondering, you I looking you happen maturity what your or refinanced available a to simple back with was versus date do loans percentage a historically, as have payoff? extended of at

Stuart Rothstein

can follow up post at together and certainly it but have it my don't fingertips, we I call. Jade, pull

Operator

are to no call comments. time. over There Stuart any this further to I'd Rothstein now for like questions further Mr. at turn the

Stuart Rothstein

everybody Thanks, morning. for thanks participating operator, this and

Operator

Ladies Have wonderful concludes today's this and your a day. you Thank conference. for gentlemen, participation.

all may You disconnect.

Stuart Rothstein	President ,CEO & Director
Jai Agarwal	CFO, Treasurer, Secretary & Principal Accounting Officer
Scott Weiner	CIO
Benjamin Zucker	JMP Securities LLC
Jade Rahmani	KBW
Melissa Wedel	JPMorgan Chase & Co.

Apollo Commercial Real Estate Finance (ARI) 15 Feb 182017 Q4 Earnings call transcript