ARI - Earnings call 3 2023 | Apollo Commercial Real Estate Finance, Inc.

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Operator

I'd 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. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

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

Stuart Rothstein

morning, stock Financial Mironova Finance, base of had XXXX elevated us today Real earnings $X dividend, I Good Scott you rates the on joining Officer. joined Officer, in and quarter for Inc the common thank floating another Weiner; benefiting Apollo Commercial ARI portfolio. ARI's rate and by loan am company's from in Chief Earnings distributable Estate Chief Investment billion Quarter Anastasia the excess third of Call.

prior reported market. to nine first extinguishment of the For a continues realized $X.XX, X.Xx. gain coverage of aspects The resulting environment investments the dividend of of approximately earnings months realized rate higher on debt ratio in all XXXX, estate ARI loss on share and per impact distributable real to of net

For Fed's dialogue hikes most of of rate has the year, the of use rate the inflation. short-term focused on to the reduce

recent in and X the increase XX-year sharp today is rates. However, more notable treasury

X%. has respectively. X-year the points, XXX ARI's Over XXX and risen the has neared earnings Since treasuries and call, weeks, treasury XX-year yield XX-year past QX the on several basis

historical the biased upwards property relationship would move towards this long-term indicate are downward the of that environment. elevated is between rates, in adjusting interest While still and the rate market to longer rates quick interest adjusting cap values light rates in

to remains and mixed. valuations. Companies GDP and weighing the employment respect market print was from short In trajectory earnings economy strong. the also robust Recent The with Weather have the medium-term been on is actually quite of rates, reports uncertainty addition to Bell QX

activity that have However, there been in is, economy multiple slowing. the fact, indicate of economic measures other

As to in remains potential potential slowing refinance estate real the such, level if, towards and performance economy on borrowers' the ability valuations, moving impact is recession. the narrative underlying on operating around fact, property property commercial and focused a

of billion extensions the balance repayment and from Year-to-date, the ARI remainder loan loans paydowns asset full $X backdrop, within received million the for in transaction that the $XXX management. Of exchange was came focus While quarter. reflects active prior the rates stable have debate XXXX, the on such levels. adjust and topics the remained Until valuations volumes asset emphasis these of $XXX portfolio, from sheet industry as mostly well term. stay time borrowers perceived million from the sentiment strategy remains will the an $XXX million below continues, $X including has this we are ARI's in In long and expect consistent general approximately accordingly, billion partial and repayments, throughout bearish. in in from industry around on somewhat light third X with sales,

loan We the in borrowers, their estate real ability has to world. well-capitalized Their for dialogue are and continue the and have support many to modifications and most extensions. of productive our led whom a some sponsors conversations with constructive to willingness largest of properties

significant maturities near-term until Importantly, in no office maturity loan our portfolio office with we XXXX. have dealt with the

we in Europe, office of secured where by reminder, a loans are portfolio the XX% more operating ARI's only As fundamentals half across better asset properties seeing make the than with class. loans up

stable. exposure, ARI's Beyond of quality credit office the remains portfolio

that there are to we Project, condo million expect respect ARI At asset-specific reserves. close under sales. received not With did from during the ARI CECL $XX the contract coming quarter, the months. incremental During will present, any quarter, the Steinway additional in record units

More importantly, on and track weekly another on consistent there of basis. units negotiation an dialogue, foot contract a handful including active is

landscape Shifting liquidity, the as still $XXX cushion the powder of liquidity balance of of with seeing ARI results. is capitalize review right our much Apollo or the activity. level ARI call a there platform. side principal opportunities that, ended repay of the by to million to done, range total over unique to have that convertible outcomes at While October, dry as to the company's remaining be notes broader to which the sheet. ample matured we manage of In are of $XXX the believe of million to utilized and of I on well interest the par. encouraged the ARI on-hand quarter the recent provides part we interesting economic in broader Anastasia financial With benefit as that turn has macro will to approximately

Anastasia Mironova

stockholders a which yesterday's results portfolio $X.XX with share, per million common quarter produced approximately dividend QX, the closing financial income ended net share common to with share. dividend per $XX quarter available of yield unlevered of X.X%. an ARI per cost the $X.XX amortized $X.XX diluted or of translates average used an billion price. of of was GAAP consistent $X annualized weighted common yield basis declared of of in or and another $XX.X ARI's XX% stock. earnings stock We million to in distributable

by cost and incremental CECL during million $XX loans $XXX repayment loan was general we of declined no points The the primarily specific closed and fundings quarter, full in including four transactions.There the of seasoning. portfolio XX. loan million allowance in across quarter. of General decrease taken is and previously attributable overall repayments stands amortized fundings outpacing allowance to as funded allowance at basis activity $XXX million received XX repayments, September CECL add-on million the from CECL $X.X of During the loan basis portfolio's

value XX. Our of a the cost flat are to in covenants CECL book per to strong basis points allowance compared XX liquidity. we borrowings, maintain is portfolio's all ARI's depreciation total X CECL with continue With general to compliance amortized reserves to relatively excluding respect quarter and share, basis, basis was ARI's as $XX.XX, increase loan end. of XXX and September a points June last

repaid ARI the quarter, cash we and capacity unencumbered end mentioned, hand. facilities. corporate $XXX the credit million the the convertible had next with our of comprised real of cash servicer due total came notes that and held assets debt repayment, of until cash liquidity in October is maturity estate hand, With Total by existing XXXX. undrawn liquidity. Stuart on million At this on of million As not on $XXX of proceeds $XXX

please X.Xx. the ahead. open like Our would With we debt-to-equity line end at ratio to that, was questions. quarter Operator, for go

Operator

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

Sarah Barcomb

could risk the you that's in work, given origination hoping market? opportunities was during new quarter, own maybe good. opportunity looking structure I weren't meaningful to put loan out money talk There capital or the the migrations is about your set there in to liquidity

Stuart Rothstein

over looking high for I for be to last at plus thinking ARI. fair, as level, might minus, actually say, say opportunities would about we would at that weeks, I Yes. Sarah, or ARI for about say, and opportunities Look, today. are a think work earnest, would actively ARI the I four in started we've things

range the say and similar certainly in broadly speaking, not I potentially in industrial, would hotel, There's construction SOFR office of things, would in mid-X% some there's Europe. are the X% no exposure. property in there likely to type think plus, be types. that maybe opportunities call it, I U.S. though

things been have As close a of in and comfortable billion the a billion in available year-to-date, so worth certainly on in more profile $X.X of we daily go-forward firm, the liquidity existing about to to to of are us a or of terms less are we've weeks sense We're in speaking, place on market taking I broadly portfolio have little say probably and terms four basis. a a done where last commitments. where what's of would getting the bit both us. terms $X over the and the change opportunities basis

Sarah Barcomb

stronger what happens half see rated year? stay outlook to these those for levels pivot assets, your is your in higher curious credits bit first next does the see meeting Currently, longer for in outlook for a how year. if I'm change portfolio, of for SOFR calling forward in the next the We'll how the Fed of X at longer a those we X and the we are curve this for week. at your just camp,

Stuart Rothstein

almost Yes, of some about respects I it's mean about world, shorter we the in more I end of end about think some the the think as longer the curve. and less curve stability the at

move long the was first had, of the some half this you there financing to year, rate were it, pretty the lower curve. medium shifted this bit X% today a think respects. of like and in when market If people robust That is call a than felt it around X-year fixed the during given was year, things range-bound the end about upward,

move coming from XX market, think that more as capital year may our range the valuations impact can a levels somewhat bound what levels. the may short-term then around financing think I rates X It's confident about be more what back volatility activity, perspective, into about the those dismiss Fed underwriting to is think on transaction in those the of may the valuations are people some people and confidence of what I or cap to around start be. Not and getting market. or level about not at

sense looking cap for that real can relationships estate are from looking X- on to the level historical the to it's what think actually they as I start XX-year rates and XX-year rates about think and range and perspective, some treasuries value. market X- a then people bound is between

Operator

comes James. question Raymond Our from with Laws next Stephen

Stephen Laws

in markets, in office you the time over I trends comments Stuart, your the a it just the exposures inside half of lower Can spend difference the two in within Europe. at outside points larger attachment difference environment portfolio? appreciate better work something higher in the in your the about your the talking maybe breakout loan some around Is but Europe? it office on and Is about different level, metrics also Europe. macro

Stuart Rothstein

or case the think just we've U.S. versus from same in certain the perspective here I is Europe Yes. return our in debate the in obviously Europe office for space in to of office use markets Look, comment There's terms the experienced the biggest in obviously, factor that not high-level U.S. the the

serious that between what I be of other is thing markets to Europe say markets to transition tended markets The unlike really in other we is Bell et call gateway markets would long the more are, that the Europe term leasing more of going other are the still policy, much of think I the markets. Then Europe a living, the the is here impacts would is assets equity cetera. concerns, major modern the on Europe. about in where Europe we markets We've ESG are may financing more the in the city U.S., to traditionally concerns viability for around there impact that in tax a Western need Weather the that furthers an that legacy exists instead clearly U.S. thing think due I cost that in stick and of asset in to Europe concerns, relevant the

Stephen Laws

wanted assets. and the how talk to As a should we to of expect follow-up, any quarters? the I both for but from timing to over Can outlook impacts you coming see seasonality REO potential in about the resolutions those seasonal switch the also

Stuart Rothstein

D.C. Yes, hotel. the start with

heard expectations in hotel hotel for year you've excess well performance earnings the it prior calls, levels me As of exceeded is at performing has where of say performing the on the was pre-pandemic. and this

now, looking be about the one component around go That out seeing and There'll of D.C. slowdown start it for ramp you'll at of certainly but some very not tourist optimistic the will we're seasonality improved, through summer performance budgeting of of forecasting say and is the the periods remain there has pickup to improved to the the of cycle cycle hotel and next performance Atlanta the we're as D.C. the we the hotel hotel. to year, being encouraged year the year. holiday time, next around hotel. said, continue through at part obviously right as slower the Obviously, a same spring We performance hotel. the then in I early the in by get season, rate it but is next a then hotel. would

know certainly well convention process said, is business remain hotel gives no certainly to couple based us all of that comments, you being around hotel sale where a in built a then the this That but get marked point. historically leased other to as hotel more a this continued flow. I past was continues sale occurs. dialogue a in bit REO respect at as is obviously, be I dialogue is my that it little hotel, of the development that have up, as on hotel confidence think with traffic asset would along around the parties will that say we hotel the we're the is a point. potential in guarantees that of with pace, the Then our having to nicely but Brooklyn, a moving which multiyear the at portfolio and from only

Operator

with Rick Our JPMorgan. next question from Shane comes

Richard Shane

couple book a curious, a perspective plus accretion the back paid yields repayments assets. that at to to book stock quarter. opportunities, new the you're on capital value down liquidity and doesn't A the on the the discount side, both this dividend make into value to return from describing buy X%. of Obviously, things. given SOFR question also economic progress the I'm and opportunity regarding it solid sense Sarah's good in look from more new deploy first was When terms perspective? I converts, of that

Stuart Rothstein

look Yes, It's this and and radar have I quarters I it's think back, think several screen, on we always and you our about about. always talked something Rick.

the has have the have in place. structure of on responded structure, company I what's to what ARI, active and and buyer with amount got I that addition around think the have be but around closely a our time We're affords back the significant probably versus in we could go-forward it our most the right we're comment, very viability the both parts Yes, stock basis to of of and during years, certainly part would company Board buybacks bought honest looking stock business countervailing and past for where screen. that point the in as moment capital trade, certainly at and with and we've investment that internally with anything we momentary long-term going in the at we trading, the terms experience a of pandemic likely in debate follow prior stock it's in long on Sarah's putting new respect to to way et and indicate because value think in attractive as economic a stock term doesn't shrinking with capital effects on it do much as dollars other some of really have somewhat be decision. on a we It's out you, cetera. is the may certainly on to do business also right about whatever for opportunities definitely it should right the but do to we also constant and the liabilities not may are long-term think the not and vis-a-vis new or radar. book radar it common us a always a It's fleeting, protect There's the analysis. concerns

Scott Weiner

loan XXX, clarify, when referenced level The an Stuart I'd talking the that's SOFR, to financing add readily unlevered basis. today. available also we're about plus the is on

levered IRR. say, solving at XXX. looking a mid-teen plus at would doing unlevered for, loans we're Not we're I deals, As just

Richard Shane

to I'll your will I question. all of back a if that calculus don't not. enter when know or or stock, you into start think at have If buying second

was want this Second ask thing repurchases we aware did I CLO there were be to from the that any of? should quarter

Stuart Rothstein

don't a have We CLO.

Richard Shane

For secured I the financing, apologize.

Stuart Rothstein

part. Not on our

Operator

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

Jade Rahmani

and manage. Or next pools and pressure? broader be pockets credit Would would oversee capital you outlook the year? the as that third wanted about did your characterize More to view in quarter the see across stable? of I your importantly, quarter all ask for fourth what of you you

Stuart Rothstein

clarify, already? credit what or to are more about the we've talking across performance dollars outstanding continue you of about Jade, to got put just portfolio to appetite out

Jade Rahmani

outstanding what's of performance Credit already.

as talk of more ARI's as you pools broadly the portfolio If across well capital that all you could oversee? to

Scott Weiner

to say would continue slowed would also more would strong. in Absolutely. across be certain has we like different see we think to strong. retail, I I portfolio. to our, at Look, being depends it which would tends down? continue be office that is and I'll fundamentals would particular, type to you're NOI, geography. improving multifamily markets Class see, I A office. ESG. exclude our you I have the well continue it the say the say industrial, fundamentals In I obviously multifamily, Whether even on portfolio the property self-storage, say, I looking Sunbelt, given say, REIT publicized vehicles would

rate a to ARI that an and extension property. where continues on quarter. on was not has is a floating of of between be delta. make fundamentals. would just the a the people XX-year past We has have and positive getting the some say, positive not say allocate continue are a and on seen in paying spec rise Clearly, commit and seen borrowing would of to of people's just willing and deal on. interest do the done one that capital much delta see into looking to do continue as leasing change capital We rate on necessarily looking the say, rate X-year deal say that. borrowing in would tackling. fixed We've a interest generally would the it's an also we the I rate borrowers to whether call debt, definitely long-term I down helping to investors I over suites in less out view where got rates for phone sponsors their I to given just putting where the is there long-term lot off is sponsor not It fixed overall, gone want a capital. tenants where decisions their X-year blocking built lot deals, up, changed overall, fixed value.

X-year the to in as floating near rates bars to I back term fixed a for opposed types. continues to go pipeline It the see rate. come financings, in locking that there more but still the think hope including across are acquisitions than on acquisitions. way be There that down, by starting property be given robust to to people fixed, you're continues down market,

Jade Rahmani

a Just on to Europe focus second. for

think pockets as funds of adjustments. of Or an of see to merely write-downs accounting a accounting I valuation the take that think there's you the phenomenon standards to rates? take impact Do the of marks because and Europe valuation mark-to-market banks willingness reflecting more in IFRS that of starting more are weakness in you Europe and or of a is well? some there, accounting, been

Scott Weiner

whether indisputable. or Look, values are U.S. Europe. the That's right, in down,

on wrote banks. obviously You U.S. the

we been say liquidity I U.S. I'm I If we a of think do accounting and marks. in is are late. XX% of and we sure. loan values to see a in, Stuart's summaries earlier There's look market selling. of banks, in in impaired. London see the difference. do down. down not the sure levered I'm insurance Clearly, are a office office particular, Europe would just, values taking There's in driving, trades XX% more in bunch obviously still XX%, point, terms not we're made more buying not

in I way again, I being from is down but activity more which, confirming values market, historical, in on down. think would some there's say, again, there stuff going European is Milan. the office

Jade Rahmani

ARI. to Turning

conclusion? and dividend? in dividend, ARI the as flow Something Do there's Or would coverage. I've as well implications making of think operations for XXXX that been you you the results, strong the both cash tracking from hold had the off closely very to on has sustainability that relative year-to-date significant is quarter and

Stuart Rothstein

covered this is year. dividend our to goal is forecasting as I a the we've from obviously next we're point, always given earnings. initial to year. this think that quarter-to-quarter The dividend consistent I keep for for by level would the very say, at comfortable at with I indicated, and mean

expecting but general to year, for we're sitting dividend. forecast certainly We here the will for level next consistency of continue a today,

Operator

closing call any I'd now to like turn the back Stuart remarks. to over Rothstein for

Stuart Rothstein

Thank and to morning. thanks you you, of those participated operator, that this

Operator

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

disconnect. now may You

Apollo Commercial Real Estate Finance (ARI) 31 Oct 232023 Q3 Earnings call transcript