8-K
Apollo Commercial Real Estate Finance, Inc. (ARI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 30, 2020
Apollo Commercial Real Estate Finance, Inc.
(Exact name of registrant as specified in its charter)
| Maryland | 001-34452 | 27-0467113 |
|---|---|---|
| (State or other jurisdiction<br> <br>of incorporation) | (Commission<br> <br>File Number) | (IRS Employer<br> <br>Identification No.) |
| c/o Apollo Global Management, Inc.<br> <br>9 West 57th Street, 43rd Floor<br> <br>New York, New York | 10019 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (212) 515-3200
n/a
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br> <br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, $0.01 par value | ARI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On July 30, 2020, Apollo Commercial Real Estate Finance, Inc. (the “Company”) issued a summary press release and a detailed presentation announcing its financial results for the quarter ended June 30, 2020. A copy of the summary press release and the detailed presentation are attached as Exhibit 99.1 and Exhibit 99.2, respectively, hereto and incorporated herein by reference.
The information in Item 2.02 of this Current Report, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, unless it is specifically incorporated by reference therein.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits.
| Exhibit<br>No. | Description |
|---|---|
| 99.1 | Summary press release dated July 30, 2020 |
| 99.2 | Financial results presentation dated July 30, 2020 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Apollo Commercial Real Estate Finance, Inc. | |
|---|---|
| By: | /s/ Stuart A. Rothstein |
| Name: | Stuart A. Rothstein |
| Title: | President and Chief Executive Officer |
Date: July 30, 2020
EX-99.1
Exhibit 99.1
| CONTACT: | Hilary Ginsberg |
|---|---|
| Investor Relations | |
| (212) 822-0767 |
APOLLO COMMERCIAL REAL ESTATE FINANCE, INC.
REPORTS SECOND QUARTER 2020 RESULTS
New York, NY, July 30, 2020 – Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI), today reported results for the quarter and six months ended June 30, 2020.
Second quarter 2020 net income per share of common stock was $0.36 and Operating Earnings (a non-GAAP financial measure defined below) was ($0.07) per share of common stock, and Operating Earnings excluding realized loss on investments and interest rate swap (described below) was $0.38 per share of common stock.
“ARI had another quarter of solid operations, as the Company reported strong earnings, declared a dividend per share of common stock of $0.35 and preserved excess liquidity, ending the quarter with over $487 million of cash,” said Stuart Rothstein, Chief Executive Officer and President of ARI. “I remain extremely proud of the team at Apollo Global Management that supports ARI, as we continue to navigate the ongoing market volatility from the COVID-19 pandemic.”
ARI issued a detailed presentation of the Company’s quarter and six months ended June 30, 2020 results, which can be viewed at www.apolloreit.com.
Conference Call and Webcast:
Members of the public who are interested in participating in the Company’s second quarter 2020 earnings teleconference call should dial from the U.S., (877) 331-6553, or from outside the U.S., (760) 666-3769, shortly before 10:00 a.m. on Friday, July 31, 2020 and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 3195528). Please note the teleconference call will be available for replay beginning at 1:00 p.m. on Friday, July 31, 2020 and ending at midnight on Friday, August 7, 2020. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 3195528. The conference call will also be available on the Company’s website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company’s website.
Operating Earnings
Operating Earnings is a non-GAAP financial measure that the Company defines 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 available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses), other than (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on the Company’s foreign currency hedges, (v) the non-cash amortization expense related to the reclassification of a portion of the Company’s convertible senior notes (the “Notes”) to stockholders’ equity in accordance with GAAP, and (vi) provision for loan losses.
The weighted-average diluted shares outstanding used for Operating Earnings per weighted-average diluted share has been adjusted from weighted-average diluted shares under GAAP to exclude shares issued from a potential conversion of the Notes. Consistent with the treatment of other unrealized adjustments to Operating Earnings, these potentially issuable shares are excluded until a conversion occurs, which the Company believes is a useful presentation for investors. The Company believes that excluding shares issued in connection with a potential conversion of the Notes from its computation of Operating Earnings per weighted-average diluted share is useful to investors for various reasons, including the following: (i) conversion of Notes to shares requires both the holder of a Note to elect to convert the Note and for the Company to elect to settle the conversion in the form of shares; (ii) future conversion decisions by Note holders will be based on the Company’s stock price in the future, which is presently not determinable; (iii) the exclusion of shares issued in connection with a potential conversion of the Notes from the computation of Operating Earnings per weighted-average diluted share is consistent with how the Company treats other unrealized items in its computation of Operating Earnings per weighted-average diluted share; and (iv) the Company believes that when evaluating its operating performance, investors and potential investors consider the Company’s Operating Earnings relative to its actual distributions, which are based on shares outstanding and not shares that might be issued in the future.
In order to evaluate the effective yield of the portfolio, the Company uses Operating Earnings to reflect the net investment income of its portfolio as adjusted to include the net interest income or expense related to its derivative instruments. Forward points effectively convert the Company’s foreign rate exposure to USD LIBOR, which the Company believes is a better reflection of its operating results and believes the inclusion of the resulting gain or loss in Operating Earnings is useful to its investors. Operating Earnings allows the Company to isolate the net interest income or expense associated with its swaps and caps in order to monitor and project the Company’s full cost of borrowings.
During the second quarter of 2020, the Company terminated its interest rate swap, which was used to manage exposure to variable cash flows on the Company’s borrowings under its senior secured term loan and recorded a realized loss in the condensed consolidated statement of operations. As of June 30, 2020, there are no interest rate swaps on the Company’s condensed consolidated balance sheet. In addition, the Company recorded a net realized loss on the sale of three construction loans and, in connection with a troubled debt restructuring, on one hotel loan.
The Company believes it is useful to investors to also present Operating Earnings excluding realized loss on investments and realized loss on interest rate swap to reflect operating results because the Company’s operating results are primarily comprised of earning interest income on investments net of borrowing and administrative costs, which are the Company’s ongoing operations. The Company believes that investors use Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap, or a comparable supplemental performance measure, to evaluate and compare the performance of the Company and its peers and, as such, believes that the disclosure of Operating Earnings and Operating Earnings excluding realized loss on investments and realized loss on interest rate swap is useful to the Company’s investors.
A significant limitation associated with Operating Earnings as a measure of the Company’s financial performance over any period is that it excludes unrealized gains (losses) from investments. In addition, the Company’s presentation of Operating Earnings may not be comparable to similarly-titled measures of other companies, that use different calculations. As a result, Operating Earnings should not be considered as a substitute for the Company’s GAAP net income as a measure of its financial performance or any measure of the Company’s liquidity under GAAP.
A reconciliation of Operating Earnings, and Operating Earnings excluding realized loss on investments and interest rate swap, to GAAP net income (loss) available to common stockholders is included in the detailed presentation of the Company’s quarter ended June 30, 2020 results, which can be viewed at www.apolloreit.com.
About Apollo Commercial Real Estate Finance, Inc.
Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) is a real estate investment trust that primarily originates, acquires, invests in and manages performing commercial first mortgage loans, subordinate financings and other commercial real estate-related debt investments. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, Inc., a leading global alternative investment manager with approximately $414 billion of assets under management at June 30, 2020.
Additional information can be found on the Company’s website at www.apolloreit.com.
Forward-Looking Statements
Certain statements contained in this press release constitute forward-looking statements as such term is defined in 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 the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, the words believe, expect, anticipate, estimate, plan, continue, intend, should, may or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: macro- and micro-economic impact of the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the impact of the COVID-19 pandemic on the Company’s financial condition, results of operations, liquidity and capital resources; market trends in the Company’s industry, interest rates, real estate values, the debt securities markets or the general economy; the timing and amounts of expected future fundings of unfunded commitments; the return on equity; the yield on investments; the ability to borrow to finance assets; the Company’s ability to deploy the proceeds of its capital raises or acquire its target assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
EX-99.2
Q2 2020 Financial Results July 30, 2020 Exhibit 99.2
Forward Looking Statements and Other Disclosures This presentation may contain forward-looking statements that are 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 management’s control. These forward-looking statements may include information about possible or assumed future results of Apollo Commercial Real Estate Finance, Inc.’s (the “Company,” “ARI,” “we,” “us” and “our”) business, financial condition, liquidity, results of operations, plans and objectives. When used in this presentation, the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the macro- and micro-economic impact of the COVID-19 pandemic; the severity and duration of the COVID-19 pandemic; actions taken by governmental authorities to contain the COVID-19 pandemic or treat its impact; the impact of the COVID-19 pandemic on our financial condition, results operations, liquidity and capital resources; ARI’s business and investment strategy; ARI’s operating results; ARI’s ability to obtain and maintain financing arrangements; the timing and amounts of expected future fundings of unfunded commitments; and 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 management’s beliefs, assumptions and expectations of future performance, taking into account all information currently available to ARI. 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 ARI. Some of these factors are described under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in ARI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020 and other filings with the Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. If a change occurs, ARI’s business, financial condition, liquidity and results of operations may vary materially from those expressed in ARI’s 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 management to predict those events or how they may affect ARI. Except as required by law, ARI is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation contains information regarding ARI’s financial results that is calculated and presented on the basis of methodologies other than in accordance with accounting principles generally accepted in the United States (“GAAP”), including Operating Earnings and Operating Earnings per share. Please refer to page 18 for a definition of “Operating Earnings” and the reconciliation of the applicable GAAP financial measures to non-GAAP financial measures set forth on page 17. 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. ARI 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. Unless the context requires otherwise, references in this presentation to “Apollo” refer to Apollo Global Management, Inc., together with its subsidiaries, and references in this presentation to the “Manager” refer to ACREFI Management, LLC, an indirect subsidiary of Apollo Global Management, Inc.
Liquidity Summary Results See footnotes on page 18 Excludes benefit of forward points on currency hedges related to loans denominated in currencies other than USD $511 million Current Liquidity Financial Results Capitalization Loan Portfolio 1.7x Debt-to-Equity Ratio1 $1.0 billion Current Unencumbered Loan Assets2 Net interest income of $70.8 million Net income available to common stockholders of $56.8 million, or $0.36 per diluted share of common stock Operating Earnings3 excluding realized loss on investments and interest rate swap of $59.0 million, or $0.38 per diluted share of common stock Declared a common stock dividend of $0.35 per share for Q2 2020, resulting in a 92% payout ratio Refinanced existing secured credit facility with Barclays into a private securitization with $782 million of senior notes outstanding Repurchased a total of 5.5 million shares of common stock for $43.8 million at a weighted average price of $7.96 per share Long duration liabilities with nearest corporate debt maturity of August 2022 Total loan portfolio of $6.4 billion Weighted average unlevered all-in yield4,a of 6.7% 95% of loans have floating interest rates 90% of US floating-rate loans have in-the-money LIBOR floors Ended quarter with $487 million in cash on hand and $31 million of approved and undrawn credit capacity Sold three construction loans, generating $122 million in proceeds and eliminating over $250 million of future funding obligations As of July 29, 2020, $480 million of cash on hand and $31 million of approved and undrawn credit capacity As of July 29, 2020, unencumbered loan assets of $1.0 billion
Income Statement ($ and shares in millions, except for per share data) Net interest income Net income available to common stockholders Net income per diluted share of common stock5 Operating Earnings3 excluding realized loss on investments and interest rate swap Operating Earnings3 excluding realized loss on investments and interest rate swap per diluted share of common stock Financial Summary See footnotes on page 18 Book Value per Share6 Roll Forward Three Months ended June 30, 2020 $70.8 56.8 $0.36 59.0 $0.38
Excludes loans on non-accrual Conversion to USD on date of funding Assuming 1-Month LIBOR is held at current levels Business Update Portfolio Update Strong second quarter collections of interest payments due (99.8%a received) with July expected to be 99.8%a Completed $112.0 million of add-on fundings during the quarter Sold three construction loans to entities managed by affiliates of the Manager during the quarter at a weighted average price of ~97.7% of par; generated $122 millionb of liquidity, eliminated over $250 million of future funding commitments, and recorded a realized loss of $1.4 million In July, sold a £97.5 million mortgage loan secured by a residential for-sale property in London, UK to a third party; resulted in net sale proceeds of $36.6 millionb (99.5% of par) after repayment of associated Credit Suisse secured credit facility Continue to maintain constructive, ongoing dialogue with borrowers A sponsor of a NYC hotel loan recently contributed ~$15 million of cash equity to cover shortfalls; ARI simultaneously reduced the loan amount by $15 million to $143 million, in line with previously recorded reserves; the loan was upgraded from a risk rating of 5 to 3 Pro-Active Capital Management Continue to maintain strong liquidity position; ended quarter with $487 million in cash on hand, $31 million of approved and undrawn credit capacity, and $1.1 billion of unencumbered loan assets Repurchased a total of 5.5 million shares of common stock for $43.8 million at a weighted average price of $7.96 per share Refinanced existing secured credit facility with Barclays into a private securitization with $782 million of senior notes outstanding; key features include: Elimination of daily margining provisions; annual (third-party) credit valuations with increased LTV cushion LTV covenant holiday for six months through December 2020 Terminated interest rate swap with notional amount of $500 million, resulting in interest expense savings of ~$10 million per annumc
Capital Structure Overview See footnotes on page 18 Capital Structure Detail Capital Structure Composition ($ in mm) $2,243 $3,440 $495 $575 $169 10 11 9 12 ~65% W.A. Advance Rate Across Secured Debt Obligations 1.7x Debt to Equity Ratio1 2.3x Fixed Charge Coverage7 Secured Debt Obligations Common Equity Book Value Convertible Notes Term Loan B Preferred Stock Book Value per share as of 6/30/20 including General CECL Reserve was $14.81 8 a
See footnotes on page 18 Liquidity ($ in mm) Cash on hand Approved & Undrawn Credit Capacity Represents amounts approved and undrawn under secured credit facilities. While these amounts were previously contractually approved and/or drawn, in certain cases, the lender’s consent is required for us to (re)borrow these amounts a Additional Sources of Liquidity Operating cash flow $1.0 billion of unencumbered loan assets Loan repayments and amortization ($1.4 billion of final maturities through 202110) Liquidity as of 3/31/20 Current Liquidity as of 7/29/20 Liquidity as of 6/30/2012
Q2 Repayment Activity & Subsequent Events See footnotes on page 18 Summary of Repayments and Sales Subsequent Events £36.8 million ($45.4 million)14 repayment of a floating-rate mortgage loan secured by a multifamily property in London, UK Sold three construction loans to entities managed by affiliates of the Manager during the quarter at a weighted average price of ~97.7% of par; generated $122 million14 of liquidity, eliminated over $250 million of future funding commitments, and recorded a realized loss of $1.4 million $19.1 million in partial loan repayments from a combination of deleveraging and condo sales proceeds In July, sold a £97.5 million mortgage loan secured by a residential for-sale property in London, UK to a third party; resulting in net sale proceeds of $36.6 million14 (99.5% of par) after repayment of associated Credit Suisse secured credit facility In July, refinanced an existing $68.0 million mezzanine loan into $68.0 million of a $110.8 million mortgage loan, and subsequently financed the unencumbered loan asset, resulting in proceeds of $44.2 million $26.7 million in add-on fundings, $24.7 million of which were for mortgage loans and $2.0 million of which were for subordinate loans, with $9.0 million in expected secured credit facility advances (34% of fundings)a Subject to, in certain cases, approval of lender
($ in mm) 6/30/2020 3/31/2020 Number of Loans 71 Loans 75 Loans Total Investments, net $6,388 $6,431 Invested Net Equity, at Cost16 $2,948 $2,874 Weighted Average Unlevered All-in Yield on Loan Portfolio4,a 6.7% 6.7% Weighted Average Remaining Fully-Extended Term13 3.1 Years 3.3 Years Weighted Average Portfolio Risk Rating13 3.1 3.1 Loan Position by Invested Net Equity at Amortized Cost Loan Portfolio Overview See footnotes on page 18 Loan Position at Amortized Cost 15 15 a) Excludes benefit of forward points on currency hedges related to loans denominated in currencies other than USD
New York City 37% West 11% Midwest 9% Southeast 8% Southwest 3% Northeast 2% Loan Portfolio Diversification See footnotes on page 18 ($ in mm) 12 Other US includes the following geographies: Southwest (3%), Northeast (2%), and Mid-Atlantic (1%) Other property types include the following property types: Multifamily (4%), Industrial (4%), Mixed Use (3%), and Retail Center (1%) Note: Map does not show locations where percentages are 1% or lower Italy 2% United Kingdom 19% Spain 4% Germany 3% b
See footnotes on page 18 Senior Loan Portfolio Overview (Page 1 of 2) ($ in mm) 17 10, 13
See footnotes on page 18 Senior Loan Portfolio Overview (Page 2 of 2) ($ in mm) 10, 13 17 17 17 12 17 Loan was sold subsequent to quarter end a
Subordinate Loan15 Portfolio Overview In the form of a single-asset, single-borrower CMBS Refinanced into a mortgage loan subsequent to quarter end ($ in mm) See footnotes on page 18 17 a a 18 18 12 12 10, 13 12 b
Future Fundings and Maturities Profile See footnotes on page 18 Fully Extended Loan Maturities10 ($ in mm) Expected Future Fundings12,19 Rest of Year Net Future Funding Roll Forward (as of July 30th)a Expected future fundings after 2020: 2021: ~$688 million in gross future fundings (98% Mortgage / 2% Mezzanine) 2022 & Beyond: ~$402 million in gross future fundings (99% Mortgage / 1% Mezzanine) Net of expected secured credit facility advances and carry costs in the form of interest (net of advances) payable to ARI Represents future funding obligations associated with our remaining interest in a UK construction loan that was sold prior to quarter end b ($ in mm)
Appendix
(in thousands - except share data) June 30, 2020 December 31, 2019 f Assets: Cash and cash equivalents $487,165 $452,282 Commercial mortgage loans, net a,b 5,343,437 5,326,967 Subordinate loans and other lending assets, net b 1,044,400 1,048,126 Derivative assets, net 49,294 — Other assets 45,218 52,716 Loan proceeds held by servicer — 8,272 Total Assets $6,969,514 $6,888,363 Liabilities and Stockholders' Equity Liabilities: Secured debt arrangements, net (net of deferred financing costs of $15,079 and $17,190 in 2020 and 2019, respectively) $3,425,098 $3,078,366 Convertible senior notes, net 563,583 561,573 Senior secured term loan, net (net of deferred financing costs of $7,737 and $7,277 in 2020 and 2019, respectively) 485,179 487,961 Accounts payable, accrued expenses and other liabilities c 120,190 100,712 Payable to related party 9,958 10,430 Derivative liabilities — 19,346 Total Liabilities $4,604,008 $4,258,388 Stockholders’ Equity: Preferred stock, $0.01 par value, 50,000,000 shares authorized: Series B preferred stock, 6,770,393 shares issued and outstanding ($169,260 liquidation preference) $68 $68 Common stock, $0.01 par value, 450,000,000 shares authorized, 148,326,806 and 153,537,296 shares issued and outstanding in 2020 and 2019, respectively 1,483 1,535 Additional paid-in-capital 2,781,111 2,825,317 Accumulated deficit (417,156 ) (196,945 ) Total Stockholders’ Equity $2,365,506 2,629,975 Total Liabilities and Stockholders’ Equity $6,969,514 $6,888,363 Consolidated Balance Sheets Includes $5,330,380 and $4,852,087 pledged as collateral under secured debt arrangements in 2020 and 2019, respectively Net of $242,025 CECL Allowance in 2020, comprised of $197,481 Specific CECL Allowance and $44,544 General CECL Allowance. Net of $56,981 provision for loan loss in 2019 Includes $4,119 of General CECL Allowance related to unfunded commitments on our loans in 2020
(in thousands - except share and per share data) Three months ended Six months ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net interest income: Interest income from commercial mortgage loans $75,641 $77,458 $157,496 $155,744 Interest income from subordinate loans and other lending assets 32,616 41,043 66,634 81,882 Interest expense (37,498 ) (33,511 ) (78,703 ) (69,806 ) Net interest income $70,759 $84,990 $145,427 $167,820 Operating expenses: General and administrative expenses (includes equity-based compensation of $4,252 and $8,515 in 2020 and $4,294 and $8,195 in 2019, respectively) (6,425 ) (6,574 ) (12,956 ) (12,725 ) Management fees to related party (9,957 ) (10,259 ) (20,225 ) (19,872 ) Total operating expenses ($16,382 ) ($16,833 ) ($33,181 ) ($32,597 ) Other income 591 484 1,351 1,002 Realized loss on investments (16,405 ) (12,513 ) (16,405 ) (12,513 ) Reversal of (provisions for) loan losses a 25,169 15,000 (158,296 ) 15,000 Foreign currency translation gain (loss) 2,559 (7,777 ) (35,390 ) (883 ) Gain (loss) on foreign currency forward contracts (includes unrealized gains (losses) of $9,004 and $53,432 in 2020 and $10,787 and ($4,198) in 2019, respectively) (2,995 ) 11,186 67,496 4,466 Loss on interest rate hedging instruments (includes unrealized gains (losses) of $50,756 and $15,208 in 2020 and ($13,113) in 2019, respectively) b (3,095 ) (13,113 ) (38,643 ) (13,113 ) Net income (loss) $60,201 $61,424 ($67,641 ) $129,182 Preferred dividends (3,385 ) (4,919 ) (6,770 ) (11,754 ) Net income (loss) available to common stockholders $56,816 $56,505 ($74,411 ) $117,428 Net income (loss) per basic share of common stock $0.37 $0.38 ($0.50 ) $0.83 Net income (loss) per diluted share of common stock $0.36 $0.37 ($0.50 ) $0.80 Basic weighted-average shares of common stock outstanding 151,523,513 145,567,963 152,735,852 140,117,813 Diluted weighted-average shares of common stock outstanding 182,083,702 174,101,234 152,735,852 169,418,177 Dividend declared per share of common stock $0.35 $0.46 $0.75 $0.92 Consolidated Statements of Operations Comprised of ($9,500) and $140,500 of Specific CECL (Reversals) Reserve and ($15,669) and $17,796 of General CECL (Reversals) Reserve for the three and six months ended June 30, 2020, respectively Includes realized loss of $53.9 million in connection with the termination of our interest rate swap
(in thousands - except share and per share data) Three months ended Six months ended Operating Earnings3: June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net income (loss) available to common stockholders: $56,816 $56,505 ($74,411 ) $117,428 Adjustments: Equity-based compensation expense 4,252 4,294 8,515 8,195 Unrealized (gain) loss on interest rate swap (50,018 ) 13,113 (14,470 ) 13,113 (Gain) loss on foreign currency forwards 2,995 (11,186 ) (67,496 ) (4,466 ) Foreign currency (gain) loss, net (2,559 ) 7,777 35,390 883 Unrealized gain on interest rate cap (738) — (738) — Realized gains relating to interest income on foreign currency hedges, net 1,088 325 1,344 744 Realized gains relating to forward points on foreign currency hedges, net 1,318 44 3,489 2,476 Amortization of the convertible senior notes related to equity reclassification 765 721 1,519 1,630 Provision for (reversals of) loan losses (25,169 ) (15,000 ) 158,296 (15,000 ) Total adjustments ($68,066 ) $88 $125,849 $7,575 Operating Earnings3 ($11,250 ) $56,593 $51,438 $125,003 Realized loss on investments 16,405 12,513 16,405 12,513 Realized loss on interest rate swap 53,851 — 53,851 — Operating Earnings3 excluding realized loss on investments and realized loss on interest rate swap $59,006 $69,106 $121,694 $137,516 Weighted-average diluted shares – Operating Earnings3: Weighted-average diluted shares – GAAP 151,523,513 174,101,234 152,735,852 169,418,177 Weighted-average unvested RSUs 2,026,918 1,846,173 2,017,080 1,847,860 Reversal of hypothetical conversion of the Notes — (28,533,271 ) — (29,300,364 ) Weighted-average diluted shares – Operating Earnings3 153,550,431 147,414,136 154,752,932 141,965,673 Operating Earnings3 Per Share ($0.07 ) $0.38 $0.33 $0.88 Operating Earnings3, excluding realized loss on investments and realized loss on interest rate swap, Per Share $0.38 $0.47 $0.79 $0.97 Computation of Share Count for Operating Earnings3 Basic weighted-average shares of common stock outstanding 151,523,513 145,567,963 152,735,852 140,117,813 Weighted-average unvested RSUs 2,026,918 1,846,173 2,017,080 1,847,860 Weighted-average diluted shares - Operating Earnings $153,550,431 147,414,136 154,752,932 141,965,673 Reconciliation of GAAP Net Income to Operating Earnings3 See footnotes on page 18
Footnotes Represents total debt, less cash and loan proceeds held by servicer divided by total stockholders' equity, adjusted to add back the General CECL Allowance in line with our covenants. Represents loan assets with no asset-specific financing. Pursuant to our Term Loan B agreement, we are required to maintain 1.25x our unencumbered assets, which is comprised of unencumbered loan assets, cash and other assets. Includes impact of recent loan sales in May. Operating Earnings is a non-GAAP financial measure that we define 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 available to common stockholders, (iii) unrealized income from unconsolidated joint ventures, (iv) foreign currency gains (losses), other than (a) realized gains/(losses) related to interest income, and (b) forward point gains/(losses) realized on our foreign currency hedges, (v) the non-cash amortization expense related to the reclassification of a portion of our convertible senior notes to stockholders’ equity in accordance with GAAP, and (vi) provision for loan losses and impairments. Please see page 17 for a reconciliation of GAAP net income to Operating Earnings. Weighted Average Unlevered All-in Yield on the loan portfolio is based on the applicable benchmark rates as of period end on the floating rate loans and includes accrual of origination, extension, and exit fees. For non-US deals, yield excludes incremental forward points impact from currency hedging. Refer to our 10-Q financials for the calculation of our net income (loss) per diluted share of common stock. Book value per share of common stock is common stockholders’ equity divided by shares of common stock outstanding. Fixed charge coverage is EBITDA divided by interest expense and preferred stock dividends. Unless otherwise noted, represents outstanding principal balance or liquidation preference. Debt balance includes GBP & EUR converted to USD using applicable June 30, 2020 spot rate. Assumes exercise of all extension options. Effective June 2020, ARI entered into a 3-year interest rate cap to cap LIBOR at 0.75%. This effectively limits the all-in coupon on ARI’s Term Loan B to a maximum of 3.50%. Amounts and percentages may not foot due to rounding. Based on loan amortized cost. Conversion to USD on date of funding. Includes two subordinate risk retention interests in securitization vehicles classified as Subordinate Loans. Invested Net Equity, at Cost is the amortized cost of loans less principal balance of secured debt arrangements; does not include debt secured by proceeds held by servicer. Amortized cost for these loans is net of the recorded provisions for loan losses and impairments. Both loans are secured by the same property. Future funding dates and amounts are based upon the Manager’s estimates, which are derived from the best information available to the Manager at the time. There is no assurance that the payments will occur in accordance with these estimates or at all, which could affect our operating results.