Apollo Commercial Real Estate Finance(US:ARI)2023-10-29 16:00Financial Performance - The net income available to common stockholders for Q3 2023 was $43.0 million, or $0.30 per diluted share, compared to $180.0 million, or $1.13 per diluted share in Q3 2022[217]. - For the nine months ended September 30, 2023, the net income available to common stockholders was $2.4 million, or $0.00 per diluted share, down from $260.0 million, or $1.66 per diluted share in the same period of 2022[217]. - Net income before taxes for Q3 2023 was $46.6 million, a substantial increase from a net loss of $83.4 million in Q2 2023[233]. - The net income for the nine months ended September 30, 2023 was $11.6 million, a decrease from $269.2 million in the same period of 2022[235]. - Distributable Earnings for the three months ended September 30, 2023, were $52.7 million, or $0.37 per share, compared to $95.9 million, or $0.67 per share, for the same period in the prior year[277]. - Net income related to real estate owned increased by $0.8 million for the nine months ended September 30, 2023, primarily driven by a $4.3 million increase in net income from hotel operations[237]. - The company reported a net realized loss on investments of $43,577,000 for the nine months ended September 30, 2023[285]. Assets and Liabilities - As of June 30, 2023, the company has approximately $617.1 billion in assets under management[186]. - As of September 30, 2023, total debt obligations amounted to $6.6 billion, including $1.4 billion of corporate debt and $5.1 billion of asset-specific financings[254]. - The company's portfolio comprised $7.6 billion in commercial mortgage loans and $0.4 billion in subordinate loans and other lending assets as of September 30, 2023[270]. - The total carrying value of commercial mortgage loans was $7,561.3 million, with a weighted average coupon of 9.4% and a weighted average all-in yield of 9.3%[207]. - The total unfunded commitment for the commercial mortgage loan portfolio was $693 million as of September 30, 2023[211]. - The company had $693.1 million of unfunded loan commitments as of September 30, 2023, with an expectation to fund approximately $441.5 million to existing borrowers in the short term[254]. Revenue and Income Sources - Revenue from real estate owned operations was $20.9 million in Q3 2023, down from $29.2 million in Q2 2023, resulting in a net income related to real estate owned of $1.0 million, compared to $7.0 million in the previous quarter[222]. - Revenue from real estate owned operations for the nine months ended September 30, 2023 was $66.3 million, up from $42.1 million in the same period of 2022[235]. - Other income, net decreased by $0.9 million to $1.5 million in Q3 2023, primarily due to a $1.0 million expense related to a junior mezzanine loan[225]. - Other income, net increased by $4.2 million during the nine months ended September 30, 2023, due to higher bank interest earned from cash balances and money market funds[242]. Loan and Investment Management - The company primarily originates, acquires, invests in, and manages performing commercial first mortgage loans and related debt investments[186]. - The company utilizes the WARM method to determine a General CECL Allowance for the majority of loans in its portfolio, which is sensitive to historical loss rates and macroeconomic conditions[197][198]. - The company evaluates loan-specific allowances when a borrower is experiencing financial difficulty, which requires significant judgment[201]. - The fair value of collateral for loans is determined using methods such as discounted cash flow and market approach, which are subject to uncertainty[202]. - The company has worked with borrowers to execute loan modifications due to challenges arising from COVID-19, including temporary deferrals of interest or principal[214]. - The General CECL Allowance decreased by $5.8 million in Q3 2023, compared to an increase of $2.1 million in Q2 2023, driven by portfolio seasoning and loan repayments[228]. - The Specific CECL Allowance increased by $59.5 million during the nine months ended September 30, 2023, compared to a net decrease of $26.0 million in the same period of 2022[245]. Market Conditions and Risks - The ongoing COVID-19 pandemic and geopolitical events have contributed to significant volatility in financial markets, impacting the company's operations[187]. - The company aims to manage interest rate risk by structuring financing agreements with varying maturities and using hedging instruments[292]. - The estimated hypothetical impact on net interest income for a 50 basis point increase in interest rates is an increase of $5,268,000 for the twelve-month period following September 30, 2023[294]. - The company has a strategic focus on acquiring high credit quality assets to mitigate credit risk and maintain low financing costs[291]. Management and Governance - The company is externally managed by an experienced team from Apollo, benefiting from its global infrastructure[186]. - The company’s financial statements are prepared in accordance with GAAP, requiring estimates and assumptions that involve significant judgment[189]. - The company is subject to investment guidelines that restrict investments to ensure compliance with REIT regulations and avoid registration as an investment company[271]. Shareholder Returns - The company intends to continue making regular quarterly distributions, with dividends declared per share of $0.35 for common stock and $0.45 for Series B-1 Preferred Stock as of September 30, 2023[275]. - Book value per share as of September 30, 2023, was $14.45, down from $15.54 as of December 31, 2022[286]. - Diluted Distributable Earnings per share prior to net realized loss on investments for the nine months ended September 30, 2023, was $0.37, consistent with the same period in 2022[285].