Workflow
Apollo Commercial Real Estate Finance(ARI) - 2023 Q3 - Quarterly Report
ARIApollo Commercial Real Estate Finance(ARI)2023-10-29 16:00
Transcript

Financial Performance - The net income available to common stockholders for Q3 2023 was 43.0million,or43.0 million, or 0.30 per diluted share, compared to 180.0million,or180.0 million, or 1.13 per diluted share in Q3 2022[217]. - For the nine months ended September 30, 2023, the net income available to common stockholders was 2.4million,or2.4 million, or 0.00 per diluted share, down from 260.0million,or260.0 million, or 1.66 per diluted share in the same period of 2022[217]. - Net income before taxes for Q3 2023 was 46.6million,asubstantialincreasefromanetlossof46.6 million, a substantial increase from a net loss of 83.4 million in Q2 2023[233]. - The net income for the nine months ended September 30, 2023 was 11.6million,adecreasefrom11.6 million, a decrease from 269.2 million in the same period of 2022[235]. - Distributable Earnings for the three months ended September 30, 2023, were 52.7million,or52.7 million, or 0.37 per share, compared to 95.9million,or95.9 million, or 0.67 per share, for the same period in the prior year[277]. - Net income related to real estate owned increased by 0.8millionfortheninemonthsendedSeptember30,2023,primarilydrivenbya0.8 million for the nine months ended September 30, 2023, primarily driven by a 4.3 million increase in net income from hotel operations[237]. - The company reported a net realized loss on investments of 43,577,000fortheninemonthsendedSeptember30,2023[285].AssetsandLiabilities−AsofJune30,2023,thecompanyhasapproximately43,577,000 for the nine months ended September 30, 2023[285]. Assets and Liabilities - As of June 30, 2023, the company has approximately 617.1 billion in assets under management[186]. - As of September 30, 2023, total debt obligations amounted to 6.6billion,including6.6 billion, including 1.4 billion of corporate debt and 5.1billionofasset−specificfinancings[254].−Thecompany′sportfoliocomprised5.1 billion of asset-specific financings[254]. - The company's portfolio comprised 7.6 billion in commercial mortgage loans and 0.4billioninsubordinateloansandotherlendingassetsasofSeptember30,2023[270].−Thetotalcarryingvalueofcommercialmortgageloanswas0.4 billion in subordinate loans and other lending assets as of September 30, 2023[270]. - The total carrying value of commercial mortgage loans was 7,561.3 million, with a weighted average coupon of 9.4% and a weighted average all-in yield of 9.3%[207]. - The total unfunded commitment for the commercial mortgage loan portfolio was 693millionasofSeptember30,2023[211].−Thecompanyhad693 million as of September 30, 2023[211]. - The company had 693.1 million of unfunded loan commitments as of September 30, 2023, with an expectation to fund approximately 441.5milliontoexistingborrowersintheshortterm[254].RevenueandIncomeSources−Revenuefromrealestateownedoperationswas441.5 million to existing borrowers in the short term[254]. Revenue and Income Sources - Revenue from real estate owned operations was 20.9 million in Q3 2023, down from 29.2millioninQ22023,resultinginanetincomerelatedtorealestateownedof29.2 million in Q2 2023, resulting in a net income related to real estate owned of 1.0 million, compared to 7.0millioninthepreviousquarter[222].−RevenuefromrealestateownedoperationsfortheninemonthsendedSeptember30,2023was7.0 million in the previous quarter[222]. - Revenue from real estate owned operations for the nine months ended September 30, 2023 was 66.3 million, up from 42.1millioninthesameperiodof2022[235].−Otherincome,netdecreasedby42.1 million in the same period of 2022[235]. - Other income, net decreased by 0.9 million to 1.5millioninQ32023,primarilyduetoa1.5 million in Q3 2023, primarily due to a 1.0 million expense related to a junior mezzanine loan[225]. - Other income, net increased by 4.2millionduringtheninemonthsendedSeptember30,2023,duetohigherbankinterestearnedfromcashbalancesandmoneymarketfunds[242].LoanandInvestmentManagement−Thecompanyprimarilyoriginates,acquires,investsin,andmanagesperformingcommercialfirstmortgageloansandrelateddebtinvestments[186].−ThecompanyutilizestheWARMmethodtodetermineaGeneralCECLAllowanceforthemajorityofloansinitsportfolio,whichissensitivetohistoricallossratesandmacroeconomicconditions[197][198].−Thecompanyevaluatesloan−specificallowanceswhenaborrowerisexperiencingfinancialdifficulty,whichrequiressignificantjudgment[201].−Thefairvalueofcollateralforloansisdeterminedusingmethodssuchasdiscountedcashflowandmarketapproach,whicharesubjecttouncertainty[202].−ThecompanyhasworkedwithborrowerstoexecuteloanmodificationsduetochallengesarisingfromCOVID−19,includingtemporarydeferralsofinterestorprincipal[214].−TheGeneralCECLAllowancedecreasedby4.2 million during the nine months ended September 30, 2023, due to higher bank interest earned from cash balances and money market funds[242]. Loan and Investment Management - The company primarily originates, acquires, invests in, and manages performing commercial first mortgage loans and related debt investments[186]. - The company utilizes the WARM method to determine a General CECL Allowance for the majority of loans in its portfolio, which is sensitive to historical loss rates and macroeconomic conditions[197][198]. - The company evaluates loan-specific allowances when a borrower is experiencing financial difficulty, which requires significant judgment[201]. - The fair value of collateral for loans is determined using methods such as discounted cash flow and market approach, which are subject to uncertainty[202]. - The company has worked with borrowers to execute loan modifications due to challenges arising from COVID-19, including temporary deferrals of interest or principal[214]. - The General CECL Allowance decreased by 5.8 million in Q3 2023, compared to an increase of 2.1millioninQ22023,drivenbyportfolioseasoningandloanrepayments[228].−TheSpecificCECLAllowanceincreasedby2.1 million in Q2 2023, driven by portfolio seasoning and loan repayments[228]. - The Specific CECL Allowance increased by 59.5 million during the nine months ended September 30, 2023, compared to a net decrease of 26.0millioninthesameperiodof2022[245].MarketConditionsandRisks−TheongoingCOVID−19pandemicandgeopoliticaleventshavecontributedtosignificantvolatilityinfinancialmarkets,impactingthecompany′soperations[187].−Thecompanyaimstomanageinterestrateriskbystructuringfinancingagreementswithvaryingmaturitiesandusinghedginginstruments[292].−Theestimatedhypotheticalimpactonnetinterestincomefora50basispointincreaseininterestratesisanincreaseof26.0 million in the same period of 2022[245]. Market Conditions and Risks - The ongoing COVID-19 pandemic and geopolitical events have contributed to significant volatility in financial markets, impacting the company's operations[187]. - The company aims to manage interest rate risk by structuring financing agreements with varying maturities and using hedging instruments[292]. - The estimated hypothetical impact on net interest income for a 50 basis point increase in interest rates is an increase of 5,268,000 for the twelve-month period following September 30, 2023[294]. - The company has a strategic focus on acquiring high credit quality assets to mitigate credit risk and maintain low financing costs[291]. Management and Governance - The company is externally managed by an experienced team from Apollo, benefiting from its global infrastructure[186]. - The company’s financial statements are prepared in accordance with GAAP, requiring estimates and assumptions that involve significant judgment[189]. - The company is subject to investment guidelines that restrict investments to ensure compliance with REIT regulations and avoid registration as an investment company[271]. Shareholder Returns - The company intends to continue making regular quarterly distributions, with dividends declared per share of 0.35forcommonstockand0.35 for common stock and 0.45 for Series B-1 Preferred Stock as of September 30, 2023[275]. - Book value per share as of September 30, 2023, was 14.45,downfrom14.45, down from 15.54 as of December 31, 2022[286]. - Diluted Distributable Earnings per share prior to net realized loss on investments for the nine months ended September 30, 2023, was $0.37, consistent with the same period in 2022[285].