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spk00: 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. In addition, we will be discussing certain non-GAAP financial measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreet.com or call us at 212-515-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein.
spk06: Thank you, Operator, and good morning and thank you to those of us joining us on the Apollo Commercial Real Estate Finance first quarter 2021 earnings call. As usual, joining me this morning are Jay Agarwal and Scott Wiener. ARI is off to a solid start for 2021, committing to over $500 million of new transactions and reporting distributable earnings well in excess of the company's dividend per share. As I stated on our last earnings call, we entered this year focused on growing ARI's portfolio. That focus was based on confidence in the strength of the company's capital position, the performance of our existing loans, and the ability of Apollo's real estate credit team to originate attractive, risk-adjusted return opportunities for ARI. Continuing the trend we saw in the second half of 2020, the overall tone of the commercial real estate market remains positive as asset level performance is generally improving and transaction levels are increasing. The economy clearly is benefiting from the combination of COVID relief, fiscal stimulus, and the increasing pace of vaccinations. Specific to our business, we see both the strength of the real estate capital markets and increased investor optimism reflected in recent and anticipated loan repayments, sponsor support of their investments, and our growing pipeline of opportunities. During the quarter, ARI closed two large European loan transactions on behalf of one of our larger clients. In both transactions, the mandates were won due to a strong borrower relationship and the ability to speak for a sizable portion of the overall capital stack, which we were able to split with other vehicles managed by Apollo. ARI's affiliation with the broader Apollo real estate credit platform continues to be a key competitive advantage as it enables ARI to avail itself of the knowledge and resources within Apollo and to benefit from our collaborative efforts in winning large transaction mandates. Given existing available capital, as well as additional expected loan repayments, we are very focused on building a robust pipeline for ARI. Turning briefly to the existing portfolio, recent highlights include the full repayment of a sizable office loan and the repayment of a preferred equity investment in a New York City condo project. We have also seen meaningful sales activity within the properties underlying our residential for sale loans, consistent with recent news of the strengthening New York City housing market. Finally, several of our sponsors have made equity commitments to rebalance certain loans and replenish reserves, and we received a significant pay down on one of our Miami hotel loans. Turning now to the balance sheet, ARI completed a $300 million upsize of our term loan B during the first quarter. The loan has a seven-year term and bears interest at LIBOR plus 350 basis points with a 50 basis points LIBOR floor and was issued at a price of 99. Given the attractive pricing, we felt it was prudent to term out some of our financing as well as meaningfully increase our pool of unencumbered assets. Before I turn the call over to Jay, I just want to highlight the ability of ARI's existing portfolio to generate earnings that covered the 35 cent per share quarterly dividend at 1.1 times. This was achieved even while maintaining excess liquidity on the balance sheet throughout the quarter. Our common stock offers investors a dividend yield in excess of 9% on a stock that is trading slightly below book value, which we believe is extremely attractive in this current low yield environment. And with that, I will turn the call over to Jay to review our financial results.
spk01: Thank you, Stuart. We had a strong first quarter with earnings of $56.1 million, or $0.39 per share. Gap net income available to common stockholders was $55 million, or $0.37 per dilutive share. Our portfolio continues to perform well, generating earnings in excess of the quarterly dividend of $0.35 per share. As of March 31st, our general CECL reserve remained relatively stable quarter over quarter. Gap per value per share prior to the general CECL reserve was $15.35, compared to 1538 at the end of the fourth quarter. Minor decline was due to vesting of restricted stock, which was partially offset by earnings in excess of the dividend. At quarter end, our loan portfolio grew to $6.8 billion, with a weighted average unlevered yield of 6.2 percent in the remaining fully extended term of just around three years. Approximately 88 percent of our floating rate U.S. loans have LIBOR floors that are in the money, with a weighted average floor of 1.46 percent. In addition to the two new loans this quarter, we made $133 million of add-on fundings. Both the new loans were financed under our existing financing facilities. Our secure lenders continue to express a desire to grow their relationship with us. And in certain instances, we are seeing financing spreads at or below pre-COVID levels. Loan repayments for the quarter were $232 million from a combination of full and partial repayments. Lastly, with respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity. As of today, we have $290 million of liquidity and $1.5 billion in unfinanced loan assets. In addition, we have $200 million of potential liquidity available from previously encumbered mortgages. And with that, we'd like to open the line for questions. Operator, please go ahead.
spk00: To ask a question, please press star then one on your touch-tone telephone. To withdraw your question, press the pound key. Our first question comes from Doug Harder with Credit Suisse.
spk04: Thanks. Can you just give us an update on other loans where you have specific reserves, any kind of progress or updates there, and kind of thoughts around timelines for resolution?
spk06: Yeah, Doug. Hey, it's Stuart. Obviously, the first thing I'd say is... You know, nothing's changed in terms of the reserve levels, and obviously you should interpret that as meaning nothing really material has gone on with respect to those transactions. I think anecdotally, to just highlight a few things, I think I've commented previously that with respect to the loan on the aggregation in Brooklyn, we're going ahead with a partner. in building multifamily on that site. It's going to be a several-year process to actually do the development, so that gives you some sense of timeline and sort of when you might expect anything material to change with respect to that asset, but very confident in our partnership feel good about the market overall and like the path we're headed on with respect to that particular asset. With respect to Miami, again, I think you've heard me comment previously, we've sort of taken the reverse approach on that asset relative to Brooklyn, which is despite the site's to support greater density in terms of entitlements, we're actually going to leave the assets effectively as they are for now and focus on more of a shorter-term retail lease-up strategy. And while I'm not at liberty to disclose anything at this point, I would say the reception from the market overall has been fairly positive, both in terms of um, national as well as local tenants, um, and would expect that, um, you know, you'll see some news with respect to lease up on that, um, sooner rather than later. Um, and I think, um, I think the quality of tenants will highlight the longterm value of that location. Um, and then with respect to, um, you know, Liberty center, uh, in Ohio, And then our hotel asset in D.C., you know, really just blocking and tackling at this point. I think we're encouraged by the pickup and the overall level of economic activity. Still waiting for D.C. to open more fully with respect to the hotel asset. But I would say probably what is most encouraging across the hotel portfolio is really just the amount of capital and the strength of bids that we're seeing in the market for well-located hotel assets. So nothing specific to announce at this point, but probably more to come on that in the future.
spk04: Great. Thank you, Stuart.
spk00: Sure. Our next question comes from Steve Delaney with J&P Securities.
spk03: Good morning, everyone. Congratulations on being the first commercial mortgage REIT to report this quarter. Good to hear everybody. I think you get a props for that, right? At least Jay does.
spk06: Absolutely.
spk03: Let's do a kind of big picture. You commented on New York. It was just great to hear the, I detected optimism certainly in your voice and in your reply there to Doug. Switching, looking a little farther away, you've got $2.3 billion, almost a third of the portfolio in U.K. or the continent. Can you kind of share with us what your team in London is, what the environment is like there relative to COVID reopening? You know, are they on pace with what you're seeing here in the States or lagging a bit? Just a sense of what that market is like. Thank you.
spk06: Yeah, sure. I mean, I think there's, you know, let me answer it a couple different ways because I think there's both differences and similarities. I think, you know, at a high level, if we think about Europe as a place and the more time I spend in Europe, I realize it's actually just a bunch of disparate countries that happen to be on the same continent as opposed to actually being a place. You know, I would say clearly behind the U.S. in terms of economic recovery, vaccine rollout, quantum of fiscal stimulus, right? It lags, you know, the best macro economic analysis I've seen, some of which is done by talent inside Apollo would indicate that Europe as a whole collectively is sort of six weeks behind the U.S. in terms of recovery and, you know, call it a pacing towards back to normal. And I would say the U.K., is ahead of that, and then other countries that we would consider as target markets are a little behind that. So I think that's sort of the story on the COVID side. I think in terms of what's going on in the real estate market, I think there continues to be a fair measure of similarity between the U.S. and Europe in the sense that there's a lot of capital available for real estate investments. A lot of it is actually managed by the same sponsors you'd see in the U.S., you'd see in Europe. People are viewing real estate as, in light of COVID, as a place where they might be able to find yield, they might be able to find opportunity. So there's plenty of liquidity in the market. There's plenty of transaction flows. And I think what that means to us as a lender is that there's lots of deal flow to look at. And ultimately, as we think about our business, what we do in Europe is very similar to what we do in the U.S. and vice versa, similar types of transactions, similar quality of borrower or sponsorships. Generally speaking, similar deal structures with some minor tweaks to deal with different tax regimes, et cetera, in Europe. But overall, we sort of take an agnostic view between the U.S. and Europe as we're looking at new deal flow because there really is a lot of similarity between what we do in both regions.
spk03: Got it. Very, very helpful. A quick follow-up. Caravan holiday home property type. Just a quick description generally of that. I assume it's somewhat seasonal, you know, vacationing and such. But are these kind of like, you know, moderate price resort type properties? How would you describe it?
spk06: I mean, I would, you know, and I don't want to disparage them. I'd probably just, you know, they're somewhere between moderate price hotels and moderate priced sort of campgrounds, for lack of a better phrase. I think they are viewed as a business that is very well suited in an environment where there is a clear desire to vacation, but it is quite likely that a greater percentage of that travel will be more intra-regional as opposed to inter-regional. And it is both, you know, both a Real estate business, as well as an operating business at the end of the day, no difference in hospitality. And, you know, a business that I would say in underwriting the transaction, big benefit to the real estate team at Apollo for being able to speak with other parts of Apollo that have looked at this type of real estate from a business perspective historically. But that's the way I think about it.
spk03: Yeah, no, very interesting. Sounds pretty solid. So thanks for the comments. Thanks, Steve.
spk00: Our next question comes from Stephen Laws with Raymond James.
spk02: Hi, good morning. A couple of questions as things continue to normalize a little bit. Around PIC income, year over year obviously impacted, but how do we think about that moving forward and what do you view as really a normalized level there you know, as the loan portfolio, you know, puts COVID further behind?
spk06: Yeah, I mean, let me answer it this way, Stephen, and I think it's hard to say this is what's going to be a normalized level on a go-forward basis because I think it's somewhat dependent on, you know, portfolio mix in terms of, you know, high level, obviously you're more likely to see PIC in a construction loan than in a non-construction loan. You're more likely to see PIC in a mezzanine position versus a senior position. I think as you look at our portfolio and sort of think about where the portfolio was and where the portfolio is headed, if you just look at our continued shift from mezzanine loans to first mortgages, and then also some of the prior comments that I've made on recent calls with respect to probably limiting the appetite overall for construction and also highlighting that while we're still open for business, there are probably not as many discreet mezzanine opportunities to look at. So maybe we'll create some of our own along the way, some whole loan positions, but there's certainly not as much to look at on the discrete side of things. And then some of the lumpier mezzanine transactions that are already in the loan portfolio that people are aware of. I think we are probably running right now at what I would consider to be the high end of the range with respect to PIC income. And if you look out, you know, over coming quarters and years, unless we make a shift in where we see opportunity at some point in the future, I think you're likely to see the PIC income continue to tick down over time as things pay off, things get to stability, et cetera.
spk02: Great. That's helpful, Collar Stewart. Thank you. Sure. Jay, touching base on G&A, kind of as we, you know, look forward, it's down from, you know, trending down a little bit. Looking back at 2019, it was $24 million. Kind of we look at a pre-COVID year. You know, what are your thoughts on what, you know, given what's in place now, what annualized G&A expenses look like?
spk01: Sure, yeah. I would think of annualized G&A ex-RSUs. of around nine and a quarter million dollars on a round rate basis.
spk02: Great. Thank you very much. Appreciate it.
spk00: Our next question comes from Jade Romani with KBW.
spk07: Thank you very much for taking the questions. Stuart, just wanted to see if you could comment as to where you're seeing levered returns, if you're seeing compression in the magnitude of returns and also where you're finding, you know, the most interesting opportunities right now?
spk06: Yeah, I mean, I think, look, I think from a return perspective, you know, things feel very similar to where they were pre-pandemic. So, I would say the components of it have shifted a little bit. I would say from the loan perspective, You know, spreads are definitely compressing. You know, generally speaking, I would say we're sort of in a broad range, call it high threes to high fours these days for the types of stuff we look at on the senior side and definitely, you know, lower LIBOR floors, right? LIBOR floors are probably, you know, 25 to 50 bits these days versus where they were, you know, previously when LIBOR was higher. And if you look across our portfolio, LIBOR floors are probably one and a half percent on average today. That being said, you know, we're able to pick up, you know, some benefit in the terms of how we lever our first mortgages with our various bank relationships. I would say we've picked up, you know, some spread in our favor there. And I would say we're continuing to get, you know, comfortable leverage levels on what we show to banks. And I'll again remind everybody that rarely, if ever, do we take full leverage on anything that we're levering. So again, you know, I think levered ROEs are still in that plus or minus 11.5 to 12% range these days. And it feels very much like it did pre-pandemic, which again I think goes back to comments I've made in the past on just how quickly the capital markets for real estate in general recovered. I think there are probably somewhat better ROEs available today if you wanted to get a little bit more aggressive with respect to construction, a little bit more aggressive with respect to certain types of hospitality assets, not all types of hospitality assets. And then I won't even really comment on sort of retail these days because we don't have much appetite for it. And then I think in terms of opportunities, obviously the question Steve asked, you know, gave me a chance to highlight that we continue to be active both in the U.S. and Europe. And I think if anything, you know, as I think about Europe, on the margin, maybe slightly less competitive, maybe a little bit easier for us to disintermediate banks or securitization financing than it is here in the U.S. But then I think for things in the U.S., you know, again, the types of assets we're looking at, you know, I would say that the biggest difference I'd probably draw between what we're doing today versus what we've done historically on the margin, Slightly less in the New York area, but we're still willing to look in New York, but slightly less in the New York area. And then, you know, again, not as much focus on construction, not as much focus on for-sale residential these days as we think about opportunities. And, you know, in a positive way, we're still finding other places to put capital.
spk07: And have you seen any pullback from the GSEs? And does that present... a potential opportunity to maybe land on, you know, more stabilized multifamily and potentially put more financing on those kinds of assets than, you know, ARI's typical loan?
spk06: Yeah, you know, I would say at a high level, Jade, from our perspective, we haven't really seen a noticeable shift. What we're able to do on the multifamily side continues to be more lease up, you know, call it bridge financing in between during the lease-up phase with an expectation that there's a GSE takeout on the back end. We spend a lot of time looking, but I would say at this point in time, no real material change in that overall environment that has led to any material opportunities for us.
spk07: Thanks very much. Just lastly, touching on credit, could you talk about what drove the increase in amortized costs of the loans that already have specific CECL reserves? And just generally speaking, were there any negative changes in credit?
spk06: Yeah, you know, I guess I'd answer your questions in reverse. I would say credit generally stable. The biggest increase in reserves for, you know, advances or costs for stuff that we've already got reserves on, about two-thirds of that. was due to the acquisition of some air rights relative to the development we're going to do on the Fulton Street development in Brooklyn. And then there were just some other small sort of immaterial protective advances made on some of the other loans. But the bulk of what you're seeing in the increase in amortized costs was the acquisition of air rights for the development in Brooklyn, which was always part of our business plan once we decided to go forward with the development there.
spk07: Thanks very much.
spk00: Sure. Our next question comes from Charlie Arrestio with JP Morgan.
spk05: Hey, good morning, guys. Thanks for taking the questions. I was looking at the interest income line for the subordinated loan portfolio. I noticed that it dipped lower in the fourth quarter and rebounded pretty sharply this quarter, despite the overall loan balances being pretty flat there. So I'm just wondering, how should we think about the run rate of that portfolio given, you know, I'm assuming the new origination volumes are probably going to be more focused on the senior loan side.
spk06: Yeah, I think what you're seeing, Charlie, is really two things. I think with respect to sort of, you know, the dip in the fourth quarter last year, I think in some respects, you know, as we were working through extending duration on certain of those loans, working with borrowers to give them a little bit more runway, maybe adjusting economics a little bit. Probably more of that than we expected hit in the fourth quarter, and it was really reflective of sort of as the economics of a loan change over time. You need to be at the right point at sort of a moment in time with respect to how you're recognizing certain fees that you might get paid for extension or on payoff, things like that. And you saw, you know, more than we would have expected in that true up hit in the fourth quarter. I think Q1 is more reflective of sort of where economics are on those loans today, sort of on a run rate basis. But to my earlier comments, you know, I do think, you know, and it was sort of prefaced in your question, I do think there's not a lot of fresh MES coming into the book right now. So as we get paid off on some of the higher-yielding MES that's in our book today, I think you're going to see that line item just trickle down over time more just due to portfolio construction.
spk05: Okay. That's really helpful. Thanks, Stuart. Sure. And then if we could get – Any update on 111 West 57th? I think we're getting kind of close to the maturity date on that one. So just curious how things are progressing on that.
spk06: I mean, look, from a construction perspective, it is progressing. You know, to the extent you're in the area, the building looks more and more finished from the outside. And there's, you know, significant amount of work going on on the inside. I think it's fair to say I would expect things to be extended beyond the stated maturity date, just given sort of delays that occurred last year, and you sort of need to make up that time on the back end. I would say foot traffic is very positive in terms of sales activity, and we would expect there to be more sales activity coming in the near to midterm. So it's moving in the right direction, but it definitely lost some time last year due to both the pandemic as well as some construction challenges due to weather, et cetera. So would expect that we'll be in that loan beyond the stated maturity date, but it is moving in the right direction.
spk05: Thanks very much.
spk00: Sure. Our next question comes from Tim Hayes with BTIG.
spk08: Hey, good morning, Stuart. Just one more from me. And I know that you've had pretty constructive comments on credit broadly, but can you just touch on your New York City office exposure and maybe if you'd be able to pass along just some broad trends, you know, how rent collection has been in that portfolio and how have occupancy and rent trends been there within those assets and any types of promotion that sponsors are kind of running to get some tenants in the building without, you know, locking themselves in at a much lower rent for the next 10 years?
spk06: Yeah, I mean, I'll give you a mix of sort of anecdotes that are both, you know, with respect to our portfolio as well as obviously just being in the market, sort of what we're hearing, what we're seeing people do, and then also working for a company that is a uh, loser of space in New York as well. You know, first and foremost, um, you know, most, not all, but most of our portfolio on office in New York are, you know, obviously we were the lender on something that was transitional, right? Something was being done to the real estate. It was being, uh, renovated, redeveloped with a plan towards sort of lease up. And most of our portfolio was sort of still in the lease up. so there's not much to be gleaned with respect to the actions of in-place tenants. I would say anecdotally the foot traffic amongst those that are potential users of space is definitely increasing, and I would say it is increasing in the context of rent levels probably being down plus or minus 15% relative to where they were pre pandemic. Um, so I think you're starting to see more activity. I feel like the market has adjusted a little bit and obviously there continues to be a fair bit of, um, sublease overhang in the city as well. Um, you know, I think the other thing that's going on right now is I think most companies are still trying to figure out, um, what their strategy will be going forward from a New York footprint perspective. I think there seems to be a general consensus that people want to maintain a footprint in New York. I think people are trying to figure out the balance between, you know, the need maybe to shrink that footprint slightly to give people more optionality in terms of where they work versus the need to probably use space a little differently than you have historically, which may lead towards, um, more space per person than we saw heading into the pandemic. Um, I still think this is going to play out over a long time in New York as sort of, uh, for the most part, you've got long place, long-term leases in place, and people are still sort of thinking through their decisions. I would say the last comment I'll make on our portfolio specifically, A, very confident in the quality of sponsorship we've got on each of our office deals. I would say the strength of the capital markets in general leaves us feeling pretty confident that there are definitely paths to liquidity for our borrowers to take us out if and when they start proving Some measure of business plan, they don't need to achieve full business plan. And then lastly, I would say we continue to see our equity sponsors committing additional capital to their deals as they need to either to rebalance their existing loans as necessary or in working in partnership with us as borrower as they adjust their business plan. slightly. Um, so all in all, uh, seems to be moving in the right direction, but I would say, you know, at this point, um, what we need our borrowers to do is really to create the product they envisioned. Um, it's more about doing that and having something that is a refurbished office asset for the market. It's less about worrying about in place tenancy right now.
spk08: That's all really good color. Um, And I guess just on one of those last comments there about, I know modifications are normal course of business for you even before the pandemic, but how would you describe the cadence of modifications this quarter versus the past few? Is it, you know, lower than it had been, or is it still just, are you seeing kind of more borrowers come back to the well on that front?
spk06: Oh, it's definitely less of a frenzy than it was. Call it than prior quarters in the middle of the pandemic. There are still various assets that require, you know, dialogue, but in many respects, you know, sort of the way you preface the question, it feels like it was, you know, maybe before the pandemic, right? Certain borrowers achieve business plans. Certain borrowers don't achieve business plan. And in the nature of lending against transitional assets, there are things that require dialogue. but I would say the discussions are much more of what we would describe as sort of ordinary course of business as opposed to, you know, if we were having this conversation, you know, nine to 12 months ago when we were sort of in the depths of this thing and there was a lot less clarity in terms of where things were headed.
spk08: Makes sense. And I guess just last one for me. Sure. Yeah, just a quick maybe housekeeping question. You know, is there any notable change in interest collections from you this quarter? I imagine the answer is no, given, you know, your comments around credit. But just curious if there's, you know, any notable change quarter to quarter there.
spk06: Yeah, nothing. Nothing worth noting.
spk08: Okay. Great. Well, thanks again for taking my questions. Thank you, Tim.
spk00: I'm showing no further questions in queue at this time. I'd like to turn the call back to Stuart Rothstein for closing remarks.
spk06: Thank you all for participating this morning, and we'll talk to you again next quarter. Thank you.
spk00: This concludes today's conference call. Thank you for participating. You may now disconnect.
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