Apollo Commercial Real Estate Finance, Inc. Announces Third Quarter 2012 Financial Results and Declares a $0.40 per Common Share Quarterly Dividend

16% Increase in Operating Earnings per Share

Marketwired

NEW YORK, NY--(Marketwire - Nov 1, 2012) - Apollo Commercial Real Estate Finance, Inc. (the "Company" or "ARI") (NYSE: ARI) today reported Operating Earnings (a non-GAAP financial measure as defined below) of $9.2 million, or $0.44 per share, for the three months ended September 30, 2012, representing a per share increase of 16% as compared to Operating Earnings of $7.6 million, or $0.38 per share, for the three months ended September 30, 2011. Net income for the three months ended September 30, 2012 was $11.0 million, or $0.52 per share, as compared to net income of $5.5 million, or $0.28 per share, for the three months ended September 30, 2011.

For the nine months ended September 30, 2012, the Company reported Operating Earnings of $26.5 million, or $1.27 per share, representing a per share increase of 19% as compared to Operating Earnings of $19.8 million, or $1.07 per share for the nine months ended September 30, 2011. Net income for the nine months ended September 30, 2012 was $30.0 million, or $1.43 per share, as compared to net income of $17.2 million, or $0.93 per share, for the nine months ended September 30, 2011. 

The Company also announced the Board of Directors declared a dividend of $0.40 per share of common stock, which is payable on January 14, 2013 to common stockholders of record on December 31, 2012. This is the tenth consecutive quarter the Company has paid a $0.40 per common share dividend.

Third Quarter Highlights

  • Increased Operating Earnings per share by 16%;
  • Generated $13.2 million of net interest income from the Company's $605.6 million investment portfolio, which had a current weighted average underwritten internal rate of return ("IRR") of approximately 13.1% and a levered weighted average underwritten IRR of 14.9% at September 30, 2012;
  • Closed two mezzanine loan transactions totaling $16.5 million; and
  • Completed an underwritten public offering of 3,450,000 shares of its 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock, with a liquidation preference of $25.00 per share (the "Series A Preferred Stock"), raising net proceeds of approximately $83.1 million.

"ARI had another solid quarter of operating results and stable credit performance from the Company's investment portfolio," commented Stuart Rothstein, Chief Executive Officer of the Company. "Year-to-date 2012, ARI has deployed $85.6 million of equity into $135.1 million of investments with a weighted average underwritten IRR of 14.5%. We continue to make progress deploying the proceeds from the Company's recent capital raises into well structured transactions with attractive risk adjusted returns. Our investment pipeline remains strong and we have identified compelling financing opportunities across a wide range of commercial property types and geographies."

Commenting on the Company's investment pipeline, Scott Weiner, the Chief Investment Officer of the Manager, said, "As of today, approximately $125 million of commercial real estate debt investments in ARI's pipeline are in closing. While the market is competitive and there are no assurances that we will win the mandate on any specific deal in our pipeline, given the level of deal flow the Company is seeing, we remain confident in our ability to put our capital to work at attractive returns." 

Third Quarter Investment and Portfolio Activity
Mezzanine Loan - In July 2012, the Company closed a $6.5 million mezzanine loan secured by a pledge of the equity interest in a borrower that owns a mixed use project, which consists of 55,585 square feet of Class-A retail and 114,476 square feet of Class-A office in Chapel Hill, North Carolina. The mezzanine loan is part of a new $40.0 million, 10-year fixed-rate financing comprised of a $33.5 million first mortgage and the $6.5 million mezzanine loan. The mezzanine loan has an appraised loan-to-value ("LTV") of approximately 77% and has been underwritten to generate an IRR of approximately 12.0%.

Mezzanine Loan - In September 2012, the Company closed a $10.0 million mezzanine loan secured by a pledge of the equity interests in a borrower that owns an 845,241 square foot Class A office tower complex in downtown Kansas City, Missouri. The mezzanine loan is part of a $70.0 million, 10-year fixed-rate financing with 30-year amortization that will be comprised of the mezzanine loan and a $60.0 million first mortgage loan. The mezzanine loan has an appraised LTV of 72% and has been underwritten to generate an IRR of approximately 12.6%.

Repayments from Repurchase Agreement Secured by CDO Bonds - During the quarter, the Company received $30.7 million of repayments from the repurchase agreement secured by CDO bonds. The Company also recognized $1.0 million of additional interest income during the quarter related to make-whole interest payments, which the Company is entitled to receive on any principal repayments on the repurchase agreement secured by CDO bonds that occur prior to January 23, 2013.

Preferred Offering - On August 1, 2012, the Company completed an underwritten public offering of 3,450,000 shares of its Series A Preferred Stock, including the exercise of the underwriter's option to purchase additional shares. Net proceeds from the offering, after the underwriting discount and estimated offering expenses payable by the Company, were approximately $83.1 million.

Quarter End Portfolio Summary
The following table sets forth certain information regarding the Company's investments at September 30, 2012 ($ amounts in thousands):

                                     



Description
  Amortized Cost   Weighted Average Yield     Debt   Cost of Funds     Equity at cost   Current
Weighted Average IRR (1)
    Levered Weighted Average IRR(2)  
First mortgage loans   $ 104,101   11.3 %   $ 3   2.7 %   $ 104,098   11.3 %   20.2 %
Subordinate loans     196,177   13.2       -   -       196,177   13.9     13.9  
Repurchase agreements     10,975   13.0       -   -       10,975   13.7     13.7  
CMBS - AAA     223,781   4.2       194,069   1.8       29,712   15.6     15.6  
CMBS - Hilton     70,521   5.6       48,898   2.6       21,623   11.7     11.7  
Total   $ 605,555   8.7 %   $ 242,970   1.9 %   $ 362,585   13.1 %   14.9 %
                                           
                                           

(1) The IRRs for the investments shown in the above table and elsewhere in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company's external manager. They are calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assume extensions as well as the cost of borrowings and derivative instruments under the Company's master repurchase agreement with Wells Fargo Bank, N.A. The calculation also assumes extension options on the Wells Facility with respect to the Hilton CMBS are exercised. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table and elsewhere in this press release. See "Risk Factors" in the reports filed by the Company with the Securities and Exchange Commission 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. 

(2) Substantially all of the Company's borrowings under the JPMorgan Facility were repaid upon the closing of the Company's Series A Preferred Stock offering in August 2012. The Company's ability to achieve its underwritten levered weighted average IRR with regard to its portfolio of first mortgage loans is additionally dependent upon the Company re-borrowing approximately $53,000 under the JPMorgan Facility or any replacement facility. Without such re-borrowing, the levered weighted average IRRs will be as indicated in the current weighted average IRR column above.

Book Value
The Company's GAAP book value per share at September 30, 2012 was $16.58, as compared to $16.59 at June 30, 2012. 

For purposes of GAAP accounting, 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 September 30, 2012 was approximately $12.0 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 September 30, 2012, and results in an estimated market value per share of approximately $17.16.

Subsequent Events
Common Stock Offering - In October 2012, the Company completed an underwritten public offering of seven million shares of common stock at a price of $16.81 per share. On November 1, 2012 the underwriters partially exercised their option to purchase additional shares and purchased 404,640 shares of common stock, resulting in total net proceeds to the Company of $124.2 million. The Company intends to use the net proceeds from the offering to acquire its target assets, which include commercial first mortgage loans, commercial mortgage-backed securities, subordinate financings and other commercial real estate-related debt investments, and for general corporate purposes.

Definition of Operating Earnings
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. The table provided below reconciles Operating Earnings to net income. 

Reconciliation of Operating Earnings to Net Income
The tables below reconcile Operating Earnings and Operating Earnings per share with net income and net income per share for the three and nine months ended September 30, 2012 and 2011 ($ amounts in thousands):

                     
    Three Months Ended
September 30, 2012
    Earnings Per Share (Diluted)     Three Months Ended
September 30, 2011
  Earnings Per Share (Diluted)
Operating Earnings:                            
Net income   $ 10,992     $ 0.52     $ 5,512   $ 0.28
Adjustments:                            
  Unrealized (gain) loss on securities     (3,010 )     (0.14 )     1,511     0.07
  Unrealized (gain) loss on derivative instruments     (40 )     -       202     0.01
  Non-cash stock-based compensation expense     1,276       0.06       418     0.02
Total adjustments:     (1,774 )     (0.08 )     2,131     0.10
Operating Earnings   $ 9,218     $ 0.44     $ 7,643   $ 0.38
                             
Basic and diluted weighted average Common shares outstanding:     20,992,312               19,647,989      
                             
                             
                     
    Nine Months Ended
September 30, 2012
    Earnings Per Share (Diluted)     Nine Months Ended
September 30, 2011
  Earnings Per Share (Diluted)
Operating Earnings:                            
Net income   $ 29,995     $ 1.43     $ 17,212   $ 0.93
Adjustments:                            
  Unrealized (gain) loss on securities     (6,473 )     (0.31 )     118     0.01
  Unrealized (gain) loss on derivative instruments     (228 )     (0.01 )     1,291     0.07
  Non-cash stock-based compensation expense     3,244       0.16       1,154     0.06
Total adjustments:     (3,457 )     (0.16 )     2,563     0.14
Operating Earnings   $ 26,538     $ 1.27     $ 19,775   $ 1.07
                             
Basic and diluted weighted average common shares outstanding:     20,983,429               18,261,294      
                       
                       

Teleconference Details:
The Company will host a conference call to discuss its financial results on Friday, November 2, 2012 at 10:00 a.m. Eastern Time. Members of the public who are interested in participating in the Company's third quarter 2012 earnings teleconference call should dial from the U.S., (877) 263-2989, or from outside the U.S., (702) 928-7168, shortly before 10:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 39079606). Please note that the teleconference call will be available for replay beginning at 12:00 p.m. on Friday, November 2, 2012, and ending at midnight on Friday, November 9, 2012. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406 and enter conference identification number 39079606.

Webcast
The conference call will also be available on the Company's website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company's website.

Supplemental Information
The Company provides supplemental financial information to offer more transparency into its results and make its reporting more informative and easier to follow. The supplemental financial information is available in the investor relations section of the Company's website at www.apolloreit.com.

About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) is a commercial mortgage real estate investment trust that primarily originates, invests in, acquires and manages senior performing commercial real estate mortgage loans, commercial mortgage-backed securities and other commercial real estate-related debt investments throughout the U.S. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with approximately $105 billion of assets under management at June 30, 2012. 

Additional information can be found on the Company's website at www.apolloreit.com.

Dividend Reinvestment Plan
The Company adopted a Direct Stock Purchase and Dividend Reinvestment Plan (the "Plan"). The Plan provides new investors and existing holders of the Company's common stock with a convenient and economical method to purchase shares of its common stock. By participating in the Plan, participants may purchase additional shares of the Company's common stock by reinvesting some or all of the cash dividends received on their shares of the Company's common stock. In addition, the Plan permits participants to make optional cash investments of up to $10,000 per month, and, with the Company's prior approval, optional cash investments in excess of $10,000 per month, for the purchase of additional shares of the Company's common stock. 

The Plan is administered by a division of Wells Fargo Bank, N.A. ("Wells"). Stockholders and other persons may obtain a copy of the Plan prospectus and an enrollment form by contacting Wells at (800) 468-9716 or (651) 450-4064, if outside the United States, or visiting Wells' website at www.shareowneronline.com

Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in 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 the Company's control. These forward-looking statements include information about possible or assumed future results of the Company's business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; the Company's ability to deploy the proceeds of it's capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company's beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands--except share and per share data)
 
    September 30, 2012   December 31, 2011
Assets:            
  Cash   $ 67,994   $ 21,568
  Securities available-for-sale, at estimated fair value     81,405     302,543
  Securities, at estimated fair value     218,185     251,452
  Commercial mortgage loans, held for investment     104,101     109,006
  Subordinate loans, held for investment     196,177     149,086
  Repurchase agreements, held for investment     10,975     47,439
  Principal and interest receivable     4,107     8,075
  Deferred financing costs, net     1,090     2,044
  Other assets     207     17
Total Assets   $ 684,241   $ 891,230
             
Liabilities and Stockholders' Equity            
Liabilities:            
  Borrowings under repurchase agreements   $ 242,970   $ 290,700
  TALF borrowings     -     251,327
  Derivative instruments, net     251     478
  Accounts payable and accrued expenses     1,965     1,746
  Payable to related party     1,520     1,298
  Dividends payable     10,114     8,703
Total Liabilities   $ 256,820   $ 554,252
             
Stockholders' Equity:            
  Preferred stock, $0.01 par value, 50,000,000 shares authorized and 3,450,000 shares outstanding in 2012     35     -
  Common stock, $0.01 par value, 450,000,000 shares authorized, 20,572,112 and 20,561,032 shares issued and outstanding in 2012 and 2011, respectively     206     206
  Additional paid-in-capital     422,273     336,209
  Retained Earnings     4,808     -
  Accumulated other comprehensive income     99     563
Total Stockholders' Equity     427,421     336,978
Total Liabilities and Stockholders' Equity   $ 684,241   $ 891,230
             
             
   
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries  
Condensed Consolidated Statement of Operations (Unaudited)  
(in thousands--except share and per share data)  
   
    Three months ended
September 30,
    Nine months ended
September 30,
 
    2012     2011     2012     2011  
Net interest income:                                
  Interest income from securities   $ 3,674     $ 6,316     $ 12,227     $ 19,419  
  Interest income from commercial mortgage loans     2,825       2,276       7,851       6,886  
  Interest income from subordinate loans     6,144       3,784       17,316       8,861  
  Interest income from repurchase agreements     2,361       1,576       5,920       3,188  
  Interest expense     (1,768 )     (3,716 )     (6,939 )     (10,836 )
Net interest income     13,236       10,236       36,375       27,518  
                                 
Operating expenses:                                
  General and administrative expenses (includes $1,276 and $3,244 of non-cash stock based compensation in 2012 and $418 and $1,154 in 2011, respectively)     (2,430 )     (1,297 )     (7,229 )     (4,089 )
  Management fees to related party     (1,518 )     (1,241 )     (4,099 )     (3,430 )
Total operating expenses     (3,948 )     (2,538 )     (11,328 )     (7,519 )
  Interest income from cash balances     -       2       1       10  
  Realized gain on sale of securities     -       -       262       -  
  Unrealized gain (loss) on securities     3,010       (1,511 )     6,473       (118 )
  Loss on derivative instruments (includes $40 and $228 of unrealized gains in 2012 and $202 and $1,291 of unrealized losses in 2011, respectively)     (87 )     (677 )     (569 )     (2,679 )
Net income     12,211       5,512       31,214       17,212  
Preferred Dividends     (1,219 )     -       (1,219 )     -  
Net income available to common stockholders   $ 10,992     $ 5,512     $ 29,995     $ 17,212  
                                 
Basic and diluted net income per share of common stock   $ 0.52     $ 0.28     $ 1.43     $ 0.93  
                                 
Basic and diluted weighted average common shares outstanding     20,992,312       19,647,989       20,983,429       18,261,294  
                                 
Dividend declared per share of common stock   $ 0.40     $ 0.40     $ 1.20     $ 1.20  
                                 
                                 
Contact:
CONTACT:
Hilary Ginsberg
Investor Relations
(212) 822-0767

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