Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) reported distributable earnings exceeding the common stock dividend in its third-quarter 2023 earnings call. The earnings were driven by elevated base rates in its $8 billion floating rate loan portfolio. However, the company noted that the current high-interest rate environment, coupled with economic uncertainty, is impacting the real estate market and property valuations.
Key takeaways from the call include:
- ARI's distributable earnings for the first nine months of 2023 were $1.33, resulting in a dividend per share covered ratio of approximately 1.3 times.
- The company's strategy focuses on active balance sheet and asset management, having received $1 billion from loan repayments year-to-date.
- The credit quality of ARI's portfolio remains stable, with no significant office maturity until 2025.
- ARI ended the quarter with approximately $480 million of total liquidity.
- The company is also seeing positive activity and interest in the Steinway project.
During the call, CEO Stuart A. Rothstein discussed the impact of the Federal Reserve's decision on short-term market volatility. He stated that the market is looking for stability in rates on a five to ten year level, allowing for historical comparisons and value assessments. He also highlighted the differences between the European and US office markets, noting that Europe lacks the same return-to-office debate and still favors traditional major markets.
Rothstein mentioned the strong performance of ARI's DC Hotel and optimistic outlook for next year, while the Atlanta Hotel's performance has improved at a slower rate. Discussions are ongoing regarding the potential sale of the Atlanta Hotel and the progress of the Brooklyn development.
On the topic of capital deployment, Rothstein stated that ARI considers both new asset opportunities and stock buybacks but expressed concerns about shrinking the company and the right capital structure. The company remains focused on long-term viability and investment in the business.
CFO Scott Weiner clarified that they are looking for mid-teen levered IRRs in deals, and that loan-level financing is readily available. Weiner stated that they are comfortable with the dividend for this year and expect consistency for next year, with coverage by earnings. He also noted that the fundamentals of ARI's portfolio are generally strong across property types and geographies, despite values being down in the US and Europe, with more liquidity and activity in the European office market.
The call concluded with remarks on ARI's strong cash flow and coverage for the dividend, with the goal to maintain consistency in the dividend for next year. The speakers also noted a shift towards floating interest rates due to the decrease in the difference between fixed and floating rates, and a robust pipeline for financings and acquisitions.
InvestingPro Insights
InvestingPro's real-time data and tips provide a deeper understanding of Apollo Commercial Real Estate Finance, Inc.'s (ARI) financial health and future prospects.
According to InvestingPro data, ARI's market cap stands at $1.41 billion. Despite a negative P/E ratio of -147.07, the company maintains a healthy dividend yield of 14.06%, reflecting its commitment to rewarding its shareholders. Notably, ARI's revenue for the last twelve months as of Q3 2023 was $267.1 million, although it experienced a decline of 17.42%.
Two key InvestingPro tips for ARI are worth considering. First, the company has a high shareholder yield, paying a significant dividend to its shareholders, a fact that is validated by its sustained dividend payments for 14 consecutive years. Second, despite not being profitable over the last twelve months, analysts predict that ARI will return to profitability this year. This suggests that the company's strategic focus on active balance sheet and asset management is expected to yield positive results.
For more comprehensive data and tips, consider exploring InvestingPro's product that includes a wealth of additional insights. For instance, there are seven more InvestingPro tips related to ARI that could provide further understanding of the company's financial standing and market position.
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