Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Apollo Commercial Real Estate Finance, Inc. | d432433d8k.htm |
| EX-99.1 - EARNINGS RELEASE - Apollo Commercial Real Estate Finance, Inc. | d432433dex991.htm |
 November 2, 2012
Information is as of September 30, 2012 except as otherwise noted.
It should not be assumed that investments made in the future will
be profitable or will equal the performance of investments in this document.
Exhibit 99.2
Supplemental
Financial
Information
Presentation
Q3 2012 |
 1
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Legal Disclaimer
We make forward-looking statements in this presentation and other
filings we make with the SEC within the meaning of 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 our control. These
forward-looking statements include information about possible or assumed
future results of our business, financial condition, liquidity, results
of operations, plans and objectives. When we use the words “believe,”
“expect,”
“anticipate,”
“estimate,”
“plan,”
“continue,”
“intend,”
“should,”
“may”
or similar expressions, we intend to identify forward-looking
statements. Statements regarding the following subjects, among
others, may be forward-looking: our business and investment strategy; our
operating
results;
our
ability
to
obtain
and
maintain
financing
arrangements;
the
return
on
equity,
the
yield
on
investments
and
risks
associated
with investing in real estate assets, including changes in business
conditions and the general economy. The forward-looking
statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all
information currently available to us. Forward-looking statements
are not predictions of future events. These beliefs, assumptions and
expectations can change as a result of many possible events or factors,
not all of which are known to us. Some of these factors are described
under
“Risk
Factors,”
and
“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations”
as
included
in
ARI’s
Annual Report on Form 10-K for the fiscal year ended December 31,
2011. If a change occurs, our business, financial condition, liquidity and
results of operations may vary materially from those expressed in our
forward-looking statements. Any forward-looking statement speaks only as
of the date on which it is made. New risks and uncertainties arise over
time, and it is not possible for us to predict those events or how they may
affect us. Except as required by law, we are not obligated to, and do
not intend to, update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
This presentation may contain statistics and other data that in some
cases has been obtained from or compiled from information made available
by third-party service providers. |
 2
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Apollo Commercial Real Estate Finance, Inc.
2012 Third Quarter Earnings Call
November 2, 2012
Stuart Rothstein
Chief Executive Officer, President and Chief Financial Officer
Scott Weiner
Chief Investment Officer of the Manager
Megan Gaul
Controller of the Manager
Hilary Ginsberg
Investor Relations Manager |
 3
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Financial Summary
(1)
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. Please see slide 23 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share.
(2)
Fixed rate debt refers to the TALF borrowings which were refinanced with
the Wells repurchase facility during January 2012. Income
Statement September 30, 2012
September 30, 2011
% Change
September 30, 2012
September 30, 2011
% Change
15,004
$
13,952
$
7.5%
43,314
$
38,354
$
12.9%
(1,768)
$
(3,716)
$
-52.4%
(6,939)
$
(10,836)
$
-36.0%
Net interest income (in thousands)
13,236
$
10,236
$
29.3%
36,375
$
27,518
$
32.2%
0.44
$
0.38
$
15.8%
1.27
$
1.07
$
18.7%
20,992,312
19,647,989
6.8%
20,983,429
18,261,294
14.9%
Balance sheet
September 30, 2012
December 31, 2011
% Change
605,555
$
860,247
$
-29.6%
362,585
$
318,220
$
13.9%
Common stockholders equity
341,171
$
336,978
$
1.2%
86,250
$
-
$
-
$
251,327
$
242,970
$
290,700
$
0.75x
1.6x
4.3x
3.9x
Three Months Ended
Nine Months Ended
Interest income (in thousands)
Interest expense
(in thousands)
Operating earnings per share
(1)
Basic and diluted weighted average common
shares outstanding
Investments at amortized cost (in thousands)
Net equity in investments at cost (in thousands)
Preferred stockholders equity
Debt to common equity
Fixed rate debt
(in thousands)
(2)
Fixed charge coverage
(3)
Floating rate debt (in thousands)
(3)
Fixed charge coverage is EBITDA divided by interest expense plus the
preferred stock dividends. |
 4
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
$0.40
$0.40
$0.40
$0.40
$0.40
$0.40
$0.00
$0.40
$0.80
$1.20
$1.60
$2.00
Nine Months Ended September 30,
2011
Nine Months Ended September 30,
2012
$7,599
$11,187
$9,683
$11,951
$10,236
$13,236
$0
$10,000
$20,000
$30,000
$40,000
Nine Months Ended September 30,
2011
Nine Months Ended September 30,
2012
$0.29
$0.42
$0.40
$0.41
$0.38
$0.44
$0.00
$0.40
$0.80
$1.20
$1.60
Nine Months Ended September 30,
2011
Nine Months Ended September 30,
2012
ARI –
Nine Month Overview
Operating Earnings per Share
Dividends per Common Share
Net Interest Income ($000s)
Return
on
Common
Equity
Based
on
Operating
Earnings
(1)
$1.20
$1.20
$1.07
$1.27
$36,375
$27,518
6.8%
10.4%
9.6%
10.0%
9.3%
10.8%
0.0%
3.0%
6.0%
9.0%
12.0%
Nine Months Ended September 30,
2011
Nine Months Ended September 30,
2012
Q1
Q1
Q2
Q3
Q2
Q3
(1)
Return on common equity is calculated as annualized Operating Earnings
for the period as a percentage of average stockholders equity for the period. |
 5
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
$21,771
$38,464
$11,187
$11,951
$13,236
$0
$10,000
$20,000
$30,000
$40,000
2010
2011
YTD 2012
$1.09
$1.46
$0.42
$0.41
$0.44
$0.00
$0.40
$0.80
$1.20
$1.60
2010
2011
YTD 2012
$1.50
$1.60
$0.40
$0.40
$0.40
$0.00
$0.40
$0.80
$1.20
$1.60
$2.00
2010
2011
YTD 2012
ARI –
Historical Overview
Operating Earnings per Share
(1)
Return on common equity is calculated as annualized Operating Earnings
for the period as a percentage of average stockholders equity for the period.
Dividends per Common Share
Net Interest Income ($000s)
Return
on
Common
Equity
Based
on
Operating
Earnings
(1)
$1.20
$1.27
$36,375
9.8%
10.4%
10.0%
10.8%
0.0%
3.0%
6.0%
9.0%
12.0%
Q4 2011
Q1 2012
Q2 2012
Q3 2012 |
 6
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q3 Highlights
Financial Results & Earnings Per Share
Operating Earnings for the quarter ended September 30, 2012 of $9.2
million, or $0.44 per diluted common share
(1)
–
A per share increase of 16% as compared with Operating Earnings per
share for the same period in 2011 –
Net interest income of $13.2 million for Q3 2012
–
Total expenses of $3.9 million, comprised of management fees of $1.5
million, G&A of $1.1 million and non-cash, stock based
compensation of $1.3 million –
GAAP net income for the quarter ended September 30, 2012 of $11.0
million, or $0.52 per diluted common share
Dividends
Declared a dividend of $0.40 per share of common stock for the quarter
ended December 31, 2012 –
Tenth consecutive quarter of maintaining consistent dividend
level –
9.5% annualized dividend yield based on $16.91 closing price on
October 31, 2012 Declared a dividend on the Company’s 8.625%
Series A Cumulative Redeemable Perpetual Preferred Stock
of
$0.4432
per
share
for
the
partial
quarterly
period
that
began
on
August
1,
2012
and
ended on
October 15, 2012
(1)
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. Please see slide 23 for a reconciliation of operating earnings and operating earnings per diluted common
share to GAAP net income and GAAP net income per diluted common
share. |
 7
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q3 Highlights
Investment and Portfolio Activity
Mezzanine Loan, Mixed-Use Project, Chapel Hill, NC
$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
Part of a new $40 million, 10-year fixed rate financing comprised
of a $33.5 million first mortgage loan and the $6.5 million
mezzanine loan Appraised LTV –
77%; Interest rate –
11.1%, interest only
Underwritten
IRR
(1)
–
12.0%
Mezzanine Loan, Office Complex, Kansas City, MO
$10 million mezzanine loan secured by a pledge of the equity interest
in a borrower that owns a 845,241 square foot Class-A
office tower complex Part of a $70 million, 10-year fixed
rate financing comprised of a $60 million first mortgage loan
and the $10 million mezzanine loan Appraised LTV
– 72%; Interest rate –
11.75% with 30 year amortization
Underwritten
IRR
(1)
–
12.6%
(1)
The internal
rates
of
return
(“IRR”)
for
the
investments
listed
reflect
the
returns
underwritten
by
the
Manager,
calculated
on
a
weighted
average
basis
assuming
no
dispositions,
early
prepayments
or
defaults
but
assumes
extensions
as
well
as
the
cost
of
borrowings and
derivative
instruments
under
the
Company’s
master
repurchase
agreement
with
Wells
Fargo
Bank,
N.A.
(“Wells
Facility”).
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. See “Risk
Factors” in the Company’s Annual Report on Form
10-K for the year ended December 31, 2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the
investments over time. |
 8
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q3 Highlights
Investment and Portfolio Activity (cont.)
Repurchase Agreement Secured by CDO Bonds Repayments
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
(1)
Capital Markets Activity
Preferred Stock Offering
Completed
an
underwritten
public
offering
of
3,450,000
shares
of
its
8.625%
Series
A
Cumulative
Redeemable
Perpetual Preferred Stock (the “Series A Preferred Stock”),
raising net proceeds of approximately $83.1 million Portfolio
Summary Total investments with an amortized cost of $606 million
at September 30, 2012 Current
weighted
average
underwritten
IRR
of
approximately
13.1%
and
levered
weighted
average
underwritten
IRR
of
approximately
14.9%
at
September
30,
2012
(2)
(1)
The Company
is
entitled
to
receivemake-whole
interest
payments
on
any
principal
repayments
on
the
repurchase
agreement
secured
by
CDO
bonds
that
occur
prior
to
January
2013.
(2)
The internal
rates
of
return
(“IRR”)
for
the
investments
listed
reflect
the
returns
underwritten
by
the
Manager,
calculated
on
a
weighted
average
basis
assuming
no
dispositions,
early
prepayments
or
defaults
but
assumes
extensions
as
well
as
the
cost
of
borrowings
and
derivative
instruments under the Wells Facility. 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. See “Risk Factors” in the Company’s
Annual Report on Form 10-K for the year ended December 31,
2011 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments over time. Substantially all of the Company’s borrowings under the Company's master
repurchase facility with JPMorgan Chase Bank, N.A. (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 levered weighted average underwritten IRR 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 IRR with regard to its portfolio of first mortgage loan will be significantly lower than
the amount
shown above, as indicated by the weighted average underwritten IRR
above. |
 9
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q3 Highlights and Subsequent Events
Book Value
GAAP book value of $16.58 per share as of September 30, 2012
Fair
value
of
$17.16
per
share
as
of
September
30,
2012
(1)
ARI
closed
at
$16.91
on
October
31,
2012,
a
2.0%
premium
to
GAAP
book
value
per
share
Subsequent Events
Common Stock Offering
–
Completed
an
underwritten
public
offering
of
7,404,640
shares
of
common
stock,
including
the
partial exercise of the underwriters’
option to purchase additional shares, at a price of $16.81 per
share, resulting in net proceeds to the Company of $124.2 million
(1)
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
carryingvalue
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. |
 10
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Portfolio Overview
Asset Type
($000s)
Amortized
Cost
Borrowings
Equity
at Cost
Remaining
Weighted
Average Life
(years )
(1)
Current
Weighted
Average
IRR
(2)(3)
Levered
Weighted
Average
IRR
(4)
First
Mortgage
Loans
(2)
$104,101
$3
$104,098
2.1
11.3%
20.2%
Subordinate Loans
196,177
-
196,177
5.4
13.9
13.9
Repurchase Agreements
10,975
-
10,975
1.5
13.7
13.7
CMBS -
AAA
223,781
194,069
29,712
2.1
15.6
15.6
CMBS -
Hilton
70,521
48,898
21,623
3.1
11.7
11.7
Investments at September 30, 2012
$605,555
$242,970
$362,585
3.3 Years
13.1%
14.9%
As of September 30, 2012.
(1)
Remaining Weighted Average Life assumes all extension options are
exercised. (2)
Borrowings under the Company’s master repurchase facility with
JPMorgan (the “JPM Facility”) bear interest at LIBOR plus 250 basis points, or 2.7% at September 30, 2012. The IRR calculation further assumes the JPM Facility or any replacement facility
will remain available over the life of these investments.
(3)
The IRR for the investments shown in the above table reflect the
returns underwritten by the Manager, calculated on a weighted average
basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and
derivative instruments under the Wells Facility. 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.
See “Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2011 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.
(4)
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.
|
 11
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Portfolio Overview
Diversified Investment Portfolio with Amortized Cost Basis of $606
million Net Invested Equity at Amortized Cost Basis
Gross Assets at Amortized Cost Basis
CMBS -
AAA
8%
CMBS -
Hilton
6%
Repurchase
Agreements
3%
First Mortgages
29%
Subordinate
Loans
54%
CMBS -
AAA
37%
CMBS -
Hilton
12%
First Mortgages
17%
Subordinate
Loans
32%
Repurchase
Agreements
2% |
 12
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Loan Portfolio Diversification
The loan portfolio is diversified by property type and geographic
location Loan Portfolio -
Geographic Diversification by Face
Amount
(1)
Loan Portfolio -
Property Type by Face Amount
(1)
(1)
Does not include CMBS (AAA or Hilton) or repurchase agreement investment
secured by CDO bond. (2)
Other category includes the subordinate financing on a ski resort and a
first mortgage loan on a development site with income producing parking lots.
Hotel
37%
Office
15%
Retail
25%
Mixed
Use/Other
(2)
23%
Northeast
47%
Southeast
7%
Mid-Atlantic
17%
Midwest
9%
West
20% |
 13
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI
–Loan
Portfolio
-
Maturity
and
Type
Fully
Extended
Loan
Maturity
Schedule
($000s)
(1)
(1)
Based upon Face Amount of Loans; Does not include CMBS (AAA or Hilton)
or repurchase agreement investment secured by CDO bond. Loan
Position and Rate Type (1)
ARI’s Loan Portfolio had a face amount of $305 million at
September 30, 2012 $0
$23.8
$0
$99.5
$66.0
$40.0
$0
$50.0
$8.9
$0
$16.5
$0
$20
$40
$60
$80
$100
$120
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Senior Loan
Fixed
28%
Mezzanine
Loan Fixed
23%
Mezzanine
Loan Floating
13%
Subordinate
Loan Fixed
13%
Subordinate
Loan Floating
8%
Preferred
Equity Fixed
8% |
 14
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Loan Portfolio –
Loan Level LTV (Through Last Invested Dollar)
(1)
Ending LTV represents the current loan balance as a percentage of the
value as of the date of investment for all loans except the $31,633 New York, NY hotel loan, which is as of March 2011.
First Mortgage Loans
Subordinate Financing
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Description ($ in thousands)
Location
Balance at
September 30,
2012
Starting
LTV
Ending
LTV
(1)
First Mortgage - Hotel
New York
31,633
$
0%
40%
First Mortgage - Office
New York
27,480
$
0%
53%
First Mortgage - Hotel
Maryland
25,351
$
0%
56%
First Mortgage - Parking/Development Site
(2)
Massachusetts
23,844
$
0%
28%
Total
108,308
$
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Description ($ in thousands)
Location
Balance at
September 30,
2012
Starting
LTV
Ending
LTV
(1)
Subordinate - Ski Resort
California
40,000
$
29%
56%
Subordinate - Retail
Various
30,000
$
58%
68%
Subordinate - Retail
Virginia
25,953
$
60%
74%
Subordinate - Hotel Portfolio
New York
25,000
$
40%
60%
Subordinate -Retail
Various
20,000
$
58%
72%
Subordinate - Hotel
New York
15,000
$
51%
63%
Subordinate - Hotel
New York
15,000
$
51%
65%
Subordinate - Office
Missouri
10,000
$
62%
72%
Subordinate - Office
Michigan
8,923
$
53%
68%
Subordinate - Mixed Use
North Carolina
6,525
$
65%
77%
Total
196,401
$
(2)
Ending LTV is based upon the aggregate face value ($23.8 million) of
the senior sub-participation interests at the date of investment; ARI purchased the senior sub-participation interests for
$17.8 million (75% of face value). |
 15
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Senior Loan Portfolio
Description ($000’s)
Date of
Investment
Maturity
Date
(1)
Original
Face
Amount
Current
Face
Amount
Coupon
Amortization
Schedule
Property
Size
LTV
(2)
Hotel
New York, NY
Jan-10
Feb-15
$32,000
31,633
8.25%
30 year
151
rooms
40%
Office Condo (Headquarters)
New York, NY
Feb-10
Feb-15
28,000
27,480
8.00
30 year
73,419
sq. ft.
53%
Hotel
Silver Spring, MD
Mar-10
Apr-15
26,000
25,351
9.00
25 year
263
rooms
56%
Parking/Development Site
Boston, MA
Apr-12
Dec-13
23,844
23,844
1.98%
(L+1.72%)
Interest
Only
20 acres
28%
Total
.
.
$109,844
$108,308
6.99%
(1)
Maturity date assumes all extension options are exercised.
(2)
LTV represents the current loan balance as a percentage of the value as
of the date of investment for all loans except the $31,633 New York, NY hotel loan, which is as of March 2011.
(3)
Interest rate includes 10% current payment with a 3% accrual.
Description ($000’s)
Date of
Investment
Maturity
Date
Original
Face
Amount
Current
Face
Amount
Coupon
Amortization
Schedule
Property
Size
LTV
(2)
Repurchase Agreement
(3)
Sept-10
Mar-14
$47,439
10,975
13.00%
Interest
only
N/A
N/A
Total
$47,439
$10,975
13.00% |
 16
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Subordinate Loan Portfolio
Description ($000’s)
Date of
Investment
Maturity
Date
(1)
Original Face
Amount
Current Face
Amount
Coupon
Amortization
Schedule
LTV
(2)
Senior Mezz –
Retail
Various
Dec-09
Dec-19
(3)
$30,000
30,000
12.24%
Interest
only
68%
Junior Mezz –
Retail
Various
Dec-09
Dec-19
(3)
20,000
20,000
14.00
Interest
only
72%
Office
Troy, MI
May-10
Jun-20
9,000
8,923
13.00
25 year
68%
Ski Resort
Mammoth Lakes, CA
Apr-11
May-17
(4)
40,000
40,000
14.00
Interest
only
56%
Hotel Portfolio
New York,
NY
(5)
Aug-11
July-16
(6)
25,000
25,000
11.49
(L+10.49%)
Interest
only
60%
Retail Center
Woodbridge, Virginia
(7)
Oct-11
Oct-16
(7)
25,000
25,953
14.00
Interest
only
74%
Hotel
New York, NY
(8)
Jan-12
Jan-15
15,000
15,000
12.00
Interest
only
63%
Hotel
New York, NY
(9)
Mar-12
Feb-16
15,000
15,000
11.50
(L+11.00%)
Interest
only
65%
Mixed Use
Chapel Hill, NC
July-12
July-22
6,525
6,525
11.10
Interest
only
77%
Office
Kansas City, MO
Sept-12
Sept-22
10,000
10,000
11.75
30 year
72%
Total
$195,525
$196,401
13.2%
(1) Maturity date assumes all extension options are
exercised. (2) LTV represents the current loan
balance as a percentage of the value as of the date of investment.
(3) Prepayments are prohibited prior to the fourth year of the loan and
any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%.
(4) Prepayments are prohibited prior to the third year of the loan and
any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%.
(5) Includes a LIBOR floor of 1% and three one-year extension
options subject to certain conditions and the payment of a 0.25% fee for the fourth and fifth year extensions.
(6) Prepayments are prohibited prior to February 2013 and any
prepayments thereafter are subject to spread maintenance premiums.
(7) Interest rate of 14.0% includes a 10.0% current payment with a 4.0%
accrual. There are two one-year extension options subject to certain conditions.
(8) Includes a 1.00% origination fee, a one-year extension option
subject to certain conditions and a 0.50% extension fee as well as a 1.50% exit fee.
(9) Includes a LIBOR floor of 0.50%, two one-year extension options
subject to certain conditions and the payment of a 0.50% fee for the second extension. |
 17
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
CMBS Portfolio
Face
Amortized
Cost
Remaining Weighted
Average Life with
Extensions (years)
Estimated
Fair Value
Debt
Net
Equity at
Cost
CMBS –
AAA
$219,706
$223,781
2.1
$225,351
$194,069
$29,712
CMBS –
Hilton
74,054
70,521
3.1
74,239
48,898
21,623
CMBS –
Total
$293,760
$294,302
2.3
$299,590
$242,967
$51,335
CMBS -
AAA
CUSIP
Description
07388YAB8
BSCMS 07-PW16 A2
07401DAB7
BSCMS 2007-PW18 A2
12513YAC4
CD 2007-CD4 A2B
46629MAB1
JPMCC 2006-LDP8 A2
61754KAC9
MSC 07-IQ14 A2
92978YAB6
WBCMT 07-C32 A2
CMBS -
AAA
CUSIP
Description
36246LAB7
GSMS 2007-GG10 A2
46630JAK5
JPMCC 2007-LDPX A2S
61751NAD4
MSC 2007-HQ11 A31
92978TAB7
WBCMT 2007-C31 A2
CMBS –
Hilton
CUSIP
Description
05956KAA6
BALL 2010-HLTN |
 18
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Portfolio Metrics –
Quarterly Migration Summary
(1)
The IRR for the investments shown in the above table reflect the
returns underwritten by the Manager, calculated on a weighted average
basis assuming no dispositions, early prepayments or defaults but assumes extensions as well as the cost of borrowings and
derivative instruments under the Wells Facility. 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.
See “Risk Factors”
in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2011 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)
Represents
an
underwritten
levered
weighted
average
IRR.
The
Company's
ability
to
achieve
the
underwritten
levered
weighted
average
IRR,
additionally
depends
upon
the
Company
re-borrowing
approximately
$53,000
under
the
JPMorgan
Facility
or any
replacement facility with regard to its portfolio of first mortgage
loans. Without such re-borrowing, the levered weighted
average IRR will be significantly lower than the amount shown above, as indicated in the weighted average IRR column on page 10.
(3)
Does not include CMBS (AAA or Hilton) or repurchase agreement investment
secured by CDO bond. Portfolio Metrics ($ in thousands)
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
(Investment balances represent amortized cost)
First Mortgage Loans
104,101
$
103,320
$
108,817
$
109,006
$
109,192
$
Subordinate Loans
196,177
179,602
179,336
149,086
123,960
Repurchase Agreement
10,975
41,696
47,439
47,439
47,439
CMBS -
AAA
223,781
280,697
330,413
554,716
575,981
CMBS -
Hilton
70,521
70,719
-
-
-
Total Investments
605,555
$
676,034
$
666,005
$
860,247
$
856,572
$
(Investment balances represent net equity)
First Mortgage Loans
104,098
$
50,260
$
40,210
$
40,286
$
40,178
$
Subordinate Loans
196,177
179,602
179,336
149,086
123,960
Repurchase Agreement
10,975
41,696
47,439
47,439
47,439
CMBS -
AAA
29,712
32,520
43,763
81,409
84,089
CMBS -
Hilton
21,623
21,260
-
-
-
Net Equity in Investments at Cost
362,585
$
325,338
$
310,748
$
318,220
$
295,666
$
Weighted Average IRR
(1)
14.9%
(2)
15.0%
14.7%
14.2%
14.0%
Weighted Average Duration
3.3 Years
2.9 Years
2.8 Years
2.2 Years
2.3 Years
Loan Portfolio Weighted Average Ending LTV
58.0%
57.1%
59.3%
58.8%
57.2%
Borrowings
242,970
$
350,696
$
355,257
$
542,027
$
560,906
$
(3) |
 19
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Financing Overview
Facility ($000s)
Debt Balance
Weighted
Average
Remaining
Maturity
(1)
Cost of
Funds
Hedged
Cost of
Funds
Wells Facility
$242,967
1.3
1.8%
1.9%
JP Morgan Facility
3
0.3
2.7
2.7
Total Borrowings at September 30, 2012
$242,970
1.3
1.8%
1.9%
Facility ($000s)
Less than 1 year
1 to 3 years
3 to 5 years
Total
Wells Facility
(1)
$196,275
$4,914
$41,778
$242,967
JP Morgan Facility
3
-
-
3
Total Borrowings at September 30, 2012
$196,278
$4,914
$41,778
$242,970
ARI had total borrowings outstanding of $243 million at September 30,
2012 ARI’s borrowings had the following remaining maturities
at September 30, 2012:
(1)
Assumes extension options on Wells Facility are exercised. Borrowings
outstanding under the Wells Facility bear interest at LIBOR plus 125bps, 150bps or 235bps depending on the collateral pledged. |
 20
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Financials |
  21
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Consolidated Balance Sheets
(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
$
|
 22
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Consolidated Statement of Operations
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 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 shareholders
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
$
Three months ended September 30,
Nine months ended September 30, |
 23
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Reconciliation of Operating Earnings to Net Income
September 30, 2012
Earnings Per Share
(Diluted)
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)
1,151
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)
1,771
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
Three Months Ended
September 30, 2012
Earnings Per Share
(Diluted)
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
3,457
0.16
1,154
0.06
Total adjustments:
(3,244)
(0.16)
2,563
0.14
Operating Earnings
$26,751
$1.27
$19,775
$1.07
Basic and diluted weighted average common shares outstanding
20,978,938
18,261,294
Nine Months Ended |
 24
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Financial Metrics –
Quarterly Migration Summary
(1)
Operating Earnings is a non-GAAP financial measure that is used to
approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) non-cash equity compensation expense and (ii) any
unrealized gains or losses or other non-cash items included in net
income. Please see slide 23 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share.
(2)
The Company carries loans at amortized cost and its CMBS securities are
marked to market. Management estimates the fair value of the Company’s financial assets.
(3)
Return on common equity is calculated as annualized Operating Earnings
for the period as a percentage of average stockholders equity for the period.
Financial Metrics
($ in thousands, except per share data)
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Net Interest Income
13,236
$
11,951
$
11,187
$
10,946
$
10,236
$
Management Fee
1,518
1,292
1,289
1,297
1,241
General and Administrative Costs
1,154
1,876
953
929
879
Non-Cash Stock Based Compensation
1,276
886
1,083
634
418
Net Income Available to Common Stockholders
10,992
$
9,910
$
9,093
$
8,669
$
5,512
$
GAAP Diluted EPS
0.52
$
0.47
$
0.43
$
0.41
$
0.28
$
Operating Earnings
(1)
9,218
$
8,526
$
8,795
$
8,278
$
7,644
$
Operating EPS
(1)
0.44
$
0.41
$
0.42
$
0.39
$
0.38
$
Distributions Declared to Common Stockholders
0.40
$
0.40
$
0.40
$
0.40
$
0.40
$
GAAP Book Value per Common Share
16.58
$
16.59
$
16.46
$
16.39
$
16.34
$
Fair Value per Common Share
(2)
17.16
$
17.22
$
17.04
$
16.80
$
17.02
$
Total Stockholders' Equity
427,421
$
341,518
$
338,377
$
336,978
$
336,045
$
Return on Common Equity Based on Operating Earnings
10.8%
10.0%
10.4%
9.8%
9.3%
(3) |