Apollo Commercial Real Estate Finance(ARI) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the first nine months of 2023, the company reported distributable earnings of $1.33 per share, resulting in a dividend per share coverage ratio of approximately 1.3 times [4] - In Q3 2023, distributable earnings were $52.7 million or $0.37 per share, with a common stock dividend declared at $0.35 per share, translating to an annualized dividend yield of approximately 15% [10] - GAAP net income available to common stockholders was $43 million or $0.30 per diluted share [10] - The total CECL allowance as of September 30 was 274 basis points of the loan portfolio's amortized cost basis, a four basis points increase compared to June 30 [12] Business Line Data and Key Metrics Changes - The company received $1 billion from loan repayments year-to-date, including $286 million in Q3, with $520 million from the full repayment of eight loans [7] - The weighted average unlevered yield of the portfolio was 8.9% at the end of the quarter [10] - The office loans constituted only 19% of the portfolio, with more than half of the loans secured by properties in Europe [8] Market Data and Key Metrics Changes - The yield on five-year and ten-year treasuries rose by 139 and 126 basis points, respectively, since the Q1 earnings call [5] - The employment market remains robust, and Q3 GDP was strong, but other economic indicators suggest a slowing economy [6] Company Strategy and Development Direction - The company maintains a consistent strategy focused on active balance sheet and asset management, with no significant office maturity until 2025 [7] - The company is exploring opportunities in the U.S. and Europe, particularly in industrial and hotel sectors, while avoiding office exposure [15] Management's Comments on Operating Environment and Future Outlook - The management expressed a bearish sentiment regarding the commercial real estate market until interest rates stabilize and valuations adjust [6] - The company remains optimistic about the performance of its hotel assets, particularly in Washington D.C., while acknowledging seasonal fluctuations [23] Other Important Information - The company ended the quarter with approximately $480 million in total liquidity, providing a cushion for various economic outcomes [9] - The company repaid $176 million of convertible notes that matured in October, with the next corporate debt maturity not until 2026 [12] Q&A Session Summary Question: Opportunities for deploying capital given good liquidity - Management is actively looking at opportunities in the U.S. and Europe, particularly in industrial and hotel sectors, while avoiding office exposure [15] Question: Outlook for one to three rated assets if rates remain high - Management believes stability at the longer end of the curve is crucial for transaction activity and capital confidence [17][18] Question: Differences in office market dynamics between Europe and the U.S. - The use case for office space in Europe is more stable, with less debate about return to office compared to the U.S. [20] Question: Outlook for REO assets and seasonal impacts - The performance of the D.C. hotel has exceeded expectations, while the Atlanta hotel is improving but not as rapidly [23] Question: Consideration of stock buybacks versus new asset acquisitions - Management is considering stock buybacks but is cautious about shrinking the company and its capital structure [27][28] Question: Credit performance outlook across capital pools - Fundamentals remain strong across various property types, excluding office, with continued capital allocation by sponsors [34]