Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Apollo Commercial Real Estate Finance, Inc. | d715971d8k.htm |
| EX-99.1 - EX-99.1 - Apollo Commercial Real Estate Finance, Inc. | d715971dex991.htm |
 April 30, 2014
Supplemental Financial Information Presentation
Q1 2014
Information is as of March 31, 2014 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 |
 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,
2013
and
other
periodic
reports
filed
with
the
Securities
and
Exchange
Commission.
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.
Apollo makes no representation or warranty, expressed or implied, with
respect to the accuracy, reasonableness or completeness of such information.
Past performance is not indicative nor a guarantee of future
returns. Index performance and yield data are shown for
illustrative purposes only and have limitations when used for comparison or for other purposes due to, among other matters,
volatility,
credit
or
other
factors
(such
as
number
and
types
of
securities).
Indices
are
unmanaged,
do
not
charge
any
fees
or
expenses,
assume
reinvestment
of
income
and
do
not
employ special investment techniques such as leveraging or short
selling. No such index is indicative of the future results of
any investment by ARI. |
 2
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Apollo Commercial Real Estate Finance, Inc.
2014 First Quarter Earnings Call
April 30, 2014
Stuart Rothstein
Chief Executive Officer and President
Scott Weiner
Chief Investment Officer of the Manager
Megan Gaul
Chief Financial Officer, Treasurer and Secretary
Hilary Ginsberg
Investor Relations Manager |
 3
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Financial Summary
Income Statement
March 31, 2014
March 31, 2013
% Change
21,160
$
18,135
$
16.7%
(1,757)
$
(1,068)
$
64.5%
Net interest income (in thousands)
19,403
$
17,067
$
13.7%
Operating earnings (in thousands)
13,991
$
11,963
$
17.0%
0.37
$
0.39
$
-5.1%
37,341,050
30,480,689
22.5%
Balance sheet
March 31, 2014
December 31, 2013
% Change
843,669
$
848,761
$
-0.6%
706,802
$
676,855
$
4.4%
Common stockholders equity (in thousands)
601,662
$
596,706
$
0.8%
86,250
$
86,250
$
-
166,994
$
202,033
$
-17.3%
Convertible senior notes (in thousands)
139,163
$
-
$
100.0%
0.5x
0.4x
5.1x
5.3x
Three Months Ended
Interest income (in thousands)
Interest expense (in thousands)
Operating earnings per share
(1)
Diluted weighted average shares of common
stock outstanding
Investments at amortized cost (in thousands)
Net equity in investments at cost (in thousands
Preferred stockholders equity (in thousands)
Debt to common equity
Outstanding borrowings (in thousands)
Fixed charge coverage
(2)
)
(1)
Operating Earnings is a non-GAAP financial measure that is used by
the Company to approximate cash available for distribution and is defined by the Company as net income available to common stockholders, computed in accordance with
GAAP, adjusted for (i) equity-based compensation expense (a
portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) (ii) any unrealized
gains or losses or other non-cash items included in net income and
(iii) the non-cash amortization expense related to the reclassification of a portion of the senior convertible notes to stockholders’ equity in accordance with GAAP. Please see
slide 20 for a reconciliation of Operating Earnings and Operating
Earnings per Share to GAAP net income and GAAP net income per share.
(2)
Fixed charge coverage is EBITDA divided by interest expense plus the
preferred stock dividends. |
 4
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Historical Financial Overview
Operating Earnings ($000s)
(1)
Net Interest Income ($000s)
Dividends per Common Share
Operating Earnings per Share
(1)
(1)
Operating Earnings is a non-GAAP financial measure that is used by
the Company to approximate cash available for distribution and is defined by the Company as net income available to common stockholders, computed in accordance with GAAP, adjusted for (i) equity-based compensation
expense (a portion of which may become cash-based upon final vesting
and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) (ii) any unrealized gains or losses or other non-cash items included in net income and (iii) the non-cash amortization
expense related to the reclassification of a portion of the senior
convertible notes to stockholders’ equity in accordance with GAAP. Please see slide 20 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share.
$13,830
$28,054
$33,914
$51,443
$13,991
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2010
2011
2012
2013
Q1 2014
$1.09
$1.44
$0.37
$0.00
$0.40
$0.80
$1.20
$1.60
$2.00
2010
2011
2012
2013
Q1 2014
$1.50
$1.60
$1.60
$1.60
$0.40
$0.00
$0.40
$0.80
$1.20
$1.60
$2.00
2010
2011
2012
2013
Q1 2014
$21,771
$38,464
$48,677
$73,107
$19,403
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
2010
2011
2012
2013
Q1 2014
$1.47
$1.50 |
 5
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q1 Highlights
Financial Results & Earnings Per Share
Operating
Earnings
for
the
quarter
ended
March
31,
2014
of
$14.0
million,
or
$0.37
per
diluted
share
of
common
stock
(1)
–
Net interest income of $19.4 million for Q1 2014
–
Total expenses of $4.0 million, comprised of management fees of $2.6
million, G&A of $1.0 million and equity-based
compensation of $0.4 million
–
GAAP
net
income
available
to
common
stockholders
for
the
quarter
ended
March
31,
2014
of
$15.7
million,
or
$0.42
per
diluted share of common stock
Dividends
Declared a dividend of $0.40 per share of common stock for the quarter
ended June 30, 2014 –
9.4% annualized dividend yield based on $17.04 closing price on April
28, 2014 Declared a dividend on the Company’s 8.625% Series
A Cumulative Redeemable Perpetual Preferred Stock of $0.5391 per
share for stockholders of record on March 31, 2014 (1) Operating Earnings is a
non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income available to common stockholders, computed
in accordance with GAAP, adjusted for (i) equity-based compensation
expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy
income tax withholding) (ii) any unrealized gains or losses or other
non-cash items included in net income and (iii) the non-cash amortization expense related to the reclassification of a portion of the senior convertible
notes to stockholders’ equity in accordance with GAAP.
Please see slide 20 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share. |
 6
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Q1 Highlights
Investment and Portfolio Activity
First
Mortgage
Loan
–
Maryland
Condominium
Development
$80 million floating rate first mortgage loan ($25 million of which was
funded at closing) for the development of a 50-unit luxury
condominium Term
–
30
months
with
a
6-month
extension
option
Underwritten
loan-to-net-sellout
(inclusive
of
cash
held
as
collateral)
–
68%
Underwritten IRR
(1)
~ 15%
Loan Repayment
Principal
repayment
from
a
$15
million
mezzanine
loan
secured
by
a
hotel
in
New
York
City
Realized IRR ~ 14%
Capital Market Activity
Amendment of Wells Facility
Extended the maturity date for one year to March 2015 and lowered the
interest rate to LIBOR+80 basis points
(1) The IRR for the investments shown in
this presentation reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but
assuming that extension options are exercised and that the cost of
borrowings under the master repurchase agreement with Wells Fargo Bank, N.A. (the “Wells Facility”) remains constant over the remaining terms and extension terms under this facility. With respect to
certain loans, the IRR calculation assumes certain estimates with
respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that
accounts for the time-value of money and represents the rate of
return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net
present value of cash inflows (returns on investment). It is derived
from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the
investments), whether positive, such as investment returns, or negative,
such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can
be no assurance that the actual IRRs will equal the underwritten IRRs
shown above. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than
anticipated” included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2013 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.
|
 7
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Capital Markets Activity (cont.)
Convertible Notes Offering
$143.75 million aggregate principal amount of 5.50% Convertible Senior
Notes due 2019 (the “Notes”) Initial conversion rate
equals 55.3649 shares of common stock per $1,000 principal amount of Notes, which is equivalent
to a conversion price of $18.06 per share of common stock,
representing a 10% conversion premium based upon the closing
price of the Company’s common stock of $16.42 per share on March 11, 2014
Portfolio Summary
Total investments with an amortized cost of $844 million at March 31,
2014 Current
weighted
average
underwritten
IRR
of
approximately
12.6%
and
levered
weighted
average
underwritten
IRR
of
approximately
14.1%
at
March
31,
2014
(1)
Book Value Per Share
GAAP book value of $16.21 per share as of March 31, 2014
Fair
value
of
$16.31
per
share
as
of
March
31,
2014
(2)
ARI –
Q1 Highlights
(1)
The underwritten IRR for the investments shown in this presentation
reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options
are exercised and that the cost of borrowings under the Wells Facility
remains constant over the remaining terms and extension terms under this facility. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with
respect to the timing and magnitude of future fundings for the remaining
commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and
represents the rate of return on an investment over a holding period
expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash
inflows (returns on investment). It is derived from the negative and
positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the
investments), whether positive, such as investment returns, or negative,
such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest
accordingly. There can be no assurance that the actual IRRs will equal
the underwritten IRRs shown above. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future
returns that may be significantly lower than anticipated” included
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 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. In
addition, substantially all of the Company’s borrowings under the Company’s master repurchase agreement with JP Morgan Chase Bank, N.A. (the “ JPMorgan Facility”) were
repaid. 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 $88,000 under the JPMorgan Facility
or any replacement facility. Without such re-borrowing,
the levered weighted average underwritten IRRs would be the current weighted average underwritten IRR.
(2)
The Company carries loans at amortized cost and its CMBS are marked to
market. Management has estimated that the fair value of the Company’s financial assets at March 31, 2014 was approximately $3.7 million greater than the carrying value of the
Company’s investment portfolio as of the same date. This
represents a premium of $0.10 per share over the Company's GAAP book value as of March 31, 2014. |
 8
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Subsequent Events
First Mortgage Loan –
Portfolio of Luxury Destination Club Residences
Mezzanine Loan –
Pre-development of London Condominium
Commercial Mortgage Backed Securities (“CMBS”)
Investment $210 million fixed rate, five-year first mortgage
loan secured by a portfolio of 229 single-family and
condominium homes located across North and Central America, the Caribbean and England;
Simultaneously with closing, ARI syndicated $104 million of the first
mortgage to other funds managed by affiliates of Apollo Global
Management, LLC and retained a $106 million participation
Underwritten
unlevered
IRR
(1)
~
8.2%;
Underwritten
levered
IRR
(1)
~
15%
$54.0 million (£32.1 million) fixed rate, nine-month mezzanine
loan in connection with the purchase of an existing commercial
building that is expected to be re-developed into a 173,000
salable square foot residential condominiums in Central London
Appraised
LTV
–
78%
Underwritten
IRR
(1)
~
12%
$24.7 million of equity deployed to acquire legacy CMBS originally
rated AAA with an aggregate purchase price of $123.4 million and
a weighted average life of 3.2 years Financed using $98.7 million
of borrowings under a new $100 million term repurchase facility
Underwritten
IRR
(1)
~
17%
(1)
The underwritten IRR for the investments shown in this presentation
reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and that the cost of
borrowings under the Wells Facility remains constant over the remaining
terms and extension terms under this facility. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining
commitments and associated loan repayments, and assumes no defaults. IRR
is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It
is the discount rate that makes the net present value of all cash
outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction
involving more than one investment, cash flows resulting from or
produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or
are expected to occur, and compounding interest accordingly. There can
be no assurance that the actual IRRs will equal the underwritten IRRs shown above. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may
lead to future returns that may be significantly lower than
anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 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.
Appraised Loan-to-Value (“LTV”) – 49%
|
 9
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI –
Portfolio Overview
Asset Type
($000s)
Amortized
Cost
Borrowings
Equity
at Cost
(1)
Remaining
Weighted
Average Life
(years )
(2)
Current
Weighted
Average
Underwritten
IRR
(3)(4)
Levered
Weighted
Average
Underwritten
IRR
(3)(5)
First Mortgage Loans
$ 185,513
1.9
11.1%
18.8%
Subordinate Loans
484,979
-
484,979
3.7
13.1%
13.1%
CMBS
173,174
166,991
36,310
3.1
13.9%
13.9%
Investments at March 31, 2014
3.2 Years
12.6%
14.1%
As of March 31, 2014.
(1)
Includes $30.1 million of restricted cash related to the UBS
Facility.
(2)
Remaining Weighted Average Life assumes all extension options are
exercised.
(3)
Borrowings under the JPMorgan Facility bear interest at LIBOR plus 250
basis points, or 2.7% at March 31, 2014. The IRR calculation further assumes the JPMorgan Facility or any replacement facility will remain available over the life of these investments.
(4)
The underwritten IRR for the investments shown in this table reflect the
returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised
and that the cost of borrowings under the Wells Facility remains
constant over the remaining terms and extension terms under this facility. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and
magnitude of future fundings for the remaining commitments and
associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an
investment over a holding period expressed as a percentage of the
investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived
from the negative and positive cash flows resulting from or produced by
each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns,
or negative, such as transaction expenses or other costs of investment,
taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal
the underwritten IRRs shown in the table. See “Item 1A—Risk
Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2013 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
(5)
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 $88,000 in total under the JPMorgan Facility or any
replacement facility with similar terms. Without such
re-borrowing, the levered weighted average underwritten IRRs will be as indicated in the current weighted average underwritten IRR column above.
706,802
$
166,994
$
3
$
843,669
$
185,516
$ |
 10
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI
–
Portfolio
Overview
Diversified Investment Portfolio with Amortized Cost Basis of $844
million Net Invested Equity at Amortized Cost Basis
Gross Assets at Amortized Cost Basis |
 11
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI
–
Portfolio
Diversification
The portfolio is diversified by property type and geographic location
Geographic Diversification by Net Equity
Property Type by Net Equity
(1)
Other category includes the subordinate financing on a ski resort
|
 12
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI
–
Loan
Portfolio
-
Maturity
and
Type
Fully
Extended
Loan
Maturity
Schedule
($000s)
(1)(2)
(1)
Based upon Face Amount of Loans; Does not include CMBS.
(2)
Maturities reflect the fully funded amounts of the loans.
Loan
Position
and
Rate
Type
(1)
54% Floating Rate/46% Fixed Rate
Senior Loan Fixed
13%
Subordinate Loan
Fixed
33%
Subordinate Loan
Floating
39%
Senior Loan
Floating
15%
$91.0
$200.0
$-
$8.8
$-
$0
$40
$80
$120
$160
$200
$240
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$32.0
$30.3
$111.0
$101.2
$185.7 |
 13
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI
–
Loan
Portfolio
–
Loan
Level
LTV
(Through
Last
Invested
Dollar)
First Mortgage Loans
Subordinate Financings
Description ($ in thousands)
Location
Balance at
March 31, 2014
Starting
LTV
Ending
LTV
First Mortgage - Condo Conversion
(1)
New York
45,000
$
0%
29%
First Mortgage - Condo Conversion
(2)
New York
33,333
$
0%
29%
First Mortgage - Hotel
New York
31,242
$
0%
41%
First Mortgage - Office
New York
27,095
$
0%
35%
First Mortgage - Condo Development
Maryland
25,000
$
0%
65%
First Mortgage - Hotel
Maryland
24,853
$
0%
62%
Total
186,523
$
Description ($ in thousands)
Location
Balance at
March 31, 2014
Starting
LTV
Ending
LTV
Subordinate - Condo Development
New York
69,035
$
32%
46%
Subordinate - Office Portfolio
Florida
50,000
$
73%
82%
Subordinate - Hotel Portfolio
Various
48,271
$
52%
60%
Subordinate - Healthcare Portfolio
Various
47,000
$
58%
64%
Subordinate - Multifamily Conversion
New York
44,000
$
51%
78%
Subordinate - Ski Resort
California
40,000
$
34%
54%
Subordinate - Condo Conversion
(1)
New York
35,000
$
29%
52%
Subordinate - Industrial Portfolio
Various
32,000
$
66%
74%
Subordinate - Hotel Portfolio
Minnesota
24,696
$
57%
68%
Subordinate - Mixed Use
Pennsylvania
22,500
$
54%
69%
Subordinate - Multifamily Conversion
New York
18,000
$
48%
60%
Subordinate - Multifamily/Condo/Hotel
(3)
Various
17,500
$
80%
90%
Subordinate - Office
New York
14,000
$
61%
70%
Subordinate - Office
Missouri
9,814
$
60%
70%
Subordinate - Office
Michigan
8,849
$
42%
54%
Subordinate - Mixed Use
North Carolina
6,525
$
63%
76%
Subordinate - Condo Conversion
(2)
New York
297
$
29%
55%
Total
487,487
$
(1)
Both loans are for the same property.
(2)
Both loans are for the same property. The mezzanine loan ending
LTV is based upon the committed amount of $29.4 million.
(3)
Ending LTV is based upon the committed amount of $19.5 million.
|
 14
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
(1)
CMBS
–
Total
$171,778
$173,174
3.1 Years
$176,611
$166,991
$36,310
CMBS
CUSIP
Description
07388YAB8
BSCMS 07-PW16 A2
61754KAC9
MSC 07-IQ14 A2
92978YAB6
WBCMT 07-C32 A2
61751NAD4
MSC 2007-HQ11 A31
92978TAB7
WBCMT 2007-C31 A2
CMBS
CUSIP
Description
59025KAG7
MLMT 2007-C1 AM
22546BAH3
CSMC 2007-C5 AM
36159XAH3
GECMC 2007-C1 AM
46627QBC1
JMPCC 2006-CB15 AM
46631BAJ4
JPMCC 2007-LD11 AM
(1)
Includes $30.1 million of restricted cash related to the UBS
Facility. |
 15
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Portfolio
Metrics
–
Quarterly
Migration
Summary
Portfolio Metrics ($ in thousands)
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
(Investment balances represent amortized cost)
First Mortgage Loans
185,516
$
161,099
$
160,893
$
143,492
$
142,833
$
Subordinate Loans
484,979
497,484
394,554
354,865
286,569
CMBS
173,174
190,178
218,019
165,553
188,824
CMBS - Hilton
-
-
69,587
69,521
69,912
Total Investments
843,669
$
848,761
$
843,053
$
733,431
$
688,138
$
(Investment balances represent net equity, at cost)
First Mortgage Loans
185,513
$
140,716
$
160,890
$
143,489
$
142,830
$
Subordinate Loans
484,979
497,484
394,554
354,865
286,569
CMBS
36,310
(2)
38,655
(2)
36,760
(2)
21,353
24,620
CMBS - Hilton
-
-
23,049
22,412
22,175
Net Equity in Investments at Cost
706,802
$
676,855
$
615,253
$
542,119
$
476,194
$
Levered Weighted Average Underwritten IRR
(1)
14.1%
(3)
14.1%
(3)
13.9%
(3)
14.2%
(3)
14.2%
(3)
Weighted Average Duration
3.2 Years
3.3 Years
3.0 Years
3.0 Years
3.0 Years
Loan Portfolio Weighted Average Ending LTV
(4)
58.0%
58.0%
55.0%
56.0%
53.6%
Borrowings under repurchase agreements
166,994
$
202,033
$
227,167
$
191,312
$
211,944
$
Convertible senior notes
139,163
$
-
$
-
$
-
$
-
$
(1)
The underwritten IRR for the investments shown in
this presentation reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and that the cost of
borrowings under the Wells Facility remains constant over the remaining
terms and extension terms under this facility. With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining
commitments and associated loan repayments, and assumes no defaults. IRR
is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is
the discount rate that makes the net present value of all cash outflows
(the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction
involving more than one investment, cash flows resulting from or
produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are
expected to occur, and compounding interest accordingly. There can be no
assurance that the actual IRRs will equal the underwritten IRRs shown in the table. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead
to future returns that may be significantly lower than anticipated”
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 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)
Includes $15.8 million of restricted cash related to the UBS Facility
and $16.4 million of future borrowings related to unsettled trades at September 30, 2013 and $30.1 million of restricted cash related to the UBS Facility at December 31, 2013 and March 31, 2014, respectively.
(3)
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 $88,000 under the JPMorgan Facility or any replacement facility with similar
terms with regard to its portfolio of first mortgage loans.
Without such re-borrowing, the levered weighted average underwritten IRR will be lower than the amount shown above, as indicated in the current weighted average underwritten IRR column on page 9.
(4)
Does not include CMBS. |
 16
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
ARI had total borrowings outstanding of $167 million at March 31,
2014: ARI’s borrowings had the following remaining
maturities at March 31, 2014:
Financing Overview
Facility ($000s)
Debt Balance
Weighted Average
Remaining
Maturity
(1)
Cost of Funds
Wells Facility
$
33,092
0.9 years
1.0%
UBS Facility
133,899
4.5 years
2.8%
JPMorgan Facility
3
0.8 years
2.7%
Total
Borrowings
at
March
31,
2014
$
166,994
3.8 years
2.4%
Facility ($000s)
Less than 1 year
1 to 3 years
3 to 5 years
Total
Wells Facility
$
33,092
$
-
$
-
$
33,092
UBS Facility
(1)
-
5,004
128,895
$
133,899
JPMorgan Facility
3
-
-
$
3
Total
Borrowings
at
March
31,
2014
$
33,095
$
5,004
$
128,895
$
166,994
(1)
Assumes extension options on the UBS Facility are exercised.
|
 17
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Financials |
  18
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Consolidated Balance Sheets (Unaudited)
(in thousands—except share and per share data)
March 31, 2014
December 31, 2013
Assets:
Cash
126,473
$
20,096
$
Restricted cash
30,127
30,127
Securities
available-for-sale, at estimated fair value 25,477
33,362
Securities, at
estimated fair value 151,134
158,086
Commercial mortgage loans,
held for investment 185,516
161,099
Subordinate loans, held for
investment 484,979
497,484
Interest receivable
6,220
6,022
Deferred financing costs, net
5,135
628
Other assets
550
600
Total Assets
1,015,611
$
907,504
$
Liabilities and Stockholders'
Equity Liabilities:
Borrowings under repurchase agreements
166,994
$
202,033
$
Convertible senior notes,
net 139,163
-
Accounts payable and accrued expenses
2,289
2,660
Payable to related party
2,565
2,628
Dividends payable
16,688
17,227
Total
Liabilities 327,699
224,548
Stockholders' Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and
3,450,000 shares issued and outstanding in 2013 and 2012
35
35
Common stock, $0.01 par value, 450,000,000 shares authorized 37,125,475
and 36,888,467 shares issued and outstanding in 2014 and 2013,
respectively 371
369
Additional paid-in-capital
701,797
697,610
Retained earnings
(accumulated deficit) (13,404)
(14,188)
Accumulated other
comprehensive loss (887)
(870)
Total Stockholders' Equity
687,912
682,956
Total Liabilities and
Stockholders' Equity 1,015,611
$
907,504
$
|
 19
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
Consolidated Statement of Operations (Unaudited)
March 31, 2014
March 31, 2013
Net interest income:
Interest income from securities
2,419
$
3,087
$
Interest income from commercial mortgage
loans 4,011
3,592
Interest income from subordinate
loans 14,730
11,454
Interest income from repurchase
agreements -
2
Interest expense
(1,757)
(1,068)
Net interest income
19,403
17,067
Operating expenses:
General and administrative expenses (includes $426 and $883 of
equity-based compensation in 2014 and in 2013, respectively)
(1,442)
(1,895)
Management fees to related party
(2,565)
(2,160)
Total operating expenses
(4,007)
(4,055)
Unrealized gain (loss) on securities
2,184
(1,080)
Loss on derivative instruments (includes $72
of unrealized gains in 2013)
-
-
Net income
17,580
$
11,932
$
Preferred dividends
(1,860)
(1,860)
Net income available to common
stockholders 15,720
$
10,072
$
Basic and diluted net income per share of common
stock 0.42
$
0.33
$
Basic weighted average shares of common
stock outstanding 37,122,842
30,105,939
Diluted weighted average shares of common stock outstanding
37,341,050
30,480,689
Dividend declared per share of common stock
0.40
$
0.40
$
Three months ended
|
 Reconciliation of Operating Earnings to Net Income
20
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
March 31, 2014
Earnings Per Share
(Diluted)
March 31, 2013
Earnings Per Share
(Diluted)
Operating Earnings:
Net income available to common stockholders
$15,720
$0.42
$10,072
$0.33
Adjustments:
Unrealized (gain)/loss on securities
(2,184)
(0.06)
1,080
0.04
Unrealized gain on derivative instruments
-
-
(72)
-
Equity-based compensation expense
426
0.01
883
0.02
Amortization of convertible notes related to equity
reclassification 29
-
-
-
Total adjustments:
(1,729)
(0.05)
1,891
0.06
Operating Earnings
13,991
$0.37
$11,963
$0.39
Basic weighted average shares of common stock outstanding
37,122,842
30,105,939
Diluted weighted average shares of common stock outstanding
37,341,050
30,480,689
Three Months Ended |
 Financial Metrics –
Quarterly Migration Summary
COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)
21
(1)
Operating Earnings is a non-GAAP financial measure that is used by
the Company to approximate cash available for distribution and is defined by the Company as net income available to common stockholders, computed in accordance with
GAAP, adjusted for (i) equity-based compensation expense (a portion
of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) (ii) any unrealized
gains or losses or other non-cash items included in net income and
(iii) the non-cash amortization expense related to the reclassification of a portion of the senior convertible notes to stockholders’ equity in accordance with GAAP. Please see
slide 20 for a reconciliation of Operating Earnings and Operating
Earnings per Share to GAAP net income and GAAP net income per share.
(2)
The Company carries loans at amortized cost and its CMBS securities are
marked to market. Management estimates the fair value of the Company’s financial assets.
(3)
Return on common equity is calculated as annualized Operating Earnings
for the period as a percentage of average stockholders’ equity for the period.
Financial Metrics
($ in thousands, except per share data)
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Net Interest Income
19,403
$
20,020
$
18,786
$
17,233
$
17,067
$
Management Fee
2,565
2,627
2,625
2,600
2,160
General and Administrative Costs
1,016
1,046
1,009
1,009
1,012
Non-Cash Stock Based Compensation
426
1,392
784
428
883
Net Income Available to Common Stockholders
15,720
$
14,004
$
11,041
$
9,929
$
10,072
$
GAAP Diluted EPS
0.42
$
0.37
$
0.29
$
0.27
$
0.33
$
Operating Earnings
(1)
13,991
$
14,488
$
13,272
$
11,721
$
11,963
$
Operating EPS
(1)
0.37
$
0.39
$
0.35
$
0.31
$
0.39
$
Distributions Declared to Common Stockholders
0.40
$
0.40
$
0.40
$
0.40
$
0.40
$
GAAP Book Value per Common Share
16.21
$
16.18
$
16.18
$
16.26
$
16.41
$
Fair Value per Common Share
(2)
16.31
$
16.42
$
16.44
$
16.55
$
16.71
$
Total Stockholders' Equity
687,912
$
682,956
$
682,887
$
685,994
$
691,185
$
Diluted weighted average shares of common stock outstanding
37,341,050
37,390,369
37,379,469
37,373,885
30,105,939
9.4%
9.7%
8.9%
7.8%
9.6%
Return on Common Equity Based on Operating Earnings
(3) |