Apollo Commercial Real Estate Finance (ARI)
Q4 2012 Earnings Call
February 28, 2013 10:00 am ET
Executives
Stuart A. Rothstein - Chief Executive Officer, President, Chief Financial Officer, Principal Accounting Officer, Treasurer, Secretary and Director
Megan Gaul
Scott Weiner - Director
Analysts
Gabriel J. Poggi - FBR Capital Markets & Co., Research Division
Joel Jerome Houck - Wells Fargo Securities, LLC, Research Division
Richard B. Shane - JP Morgan Chase & Co, Research Division
Presentation
Operator
I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements.
Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreit.com or call us at (212) 515-3200.
At this time, I'd like to turn the call over to the Company's Chief Executive Officer, Stuart Rothstein.
Stuart A. Rothstein
Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance, Inc. Fourth Quarter 2012 Earnings Call.
Joining me this morning in New York are Scott Weiner, our chief Investment Officer; and Megan Gaul, our Controller, who will review ARI's financial results after my remarks.
The commercial real estate sector regained its footing in 2012, the year in which we saw a strengthening CMBS market and improving operating fundamentals across the industry. Transaction volume for commercial real estate sales in 2012 reached $147 billion, which while still well off the $243 billion peak in 2007, was robust and was a 20% increase over commercial real estate sales volume in 2011.
Investor demand was driven by improving market fundamentals and attractive yields relative to other asset classes. Distressed sales made up only 11.5% of observed traits in December 2012, the lowest level witnessed since the end of 2008. This reduction in distressed deal volume has been driving higher, more consistent pricing. Pricing in the 6 major metropolitan areas of the U.S.: New York, Boston, D.C., Chicago, San Francisco and LA, has returned to peak levels experienced in 2007. And as of the end of 2012, commercial property prices nationally stood 33% above the levels reached in January 2010 trough and 20% below the November 2007 peak.
The increase in transaction volume led to an overall increase in financing volume as well. U.S. CMBS issuance in 2012 was $48 billion, a 37% increase over 2011.
2013 is already shaping up to be a strong year, with over $13 billion of CMBS issuance year-to-date, and total issuance is expected to reach $65 billion for the year. The strength in the commercial real estate market witnessed in 2012 enabled ARI to have a very successful year.
Our focus remained on identifying opportunities across our target asset classes that provide attractive, risk-adjusted returns. We worked very diligently to enhance our deal-sourcing capabilities by making sure we are a first-call relationship for many conduit lenders, balance sheet lenders and mortgage brokers, effectively becoming a co-originator of choice for a piece of larger financings.
ARI also continued to benefit from the deep relationships that Apollo has built with many of the key players in the real estate finance market. As a result, ARI completed over $264 million of new transactions in 2012, with a weighted average IRR of approximately 13% on $215 million of committed equity.
The transactions represented a broad range of investments, including first mortgages, CMBS and subordinated loans, and further diversified ARI's portfolio, which had a total amortized cost of $669 million and a levered weighted average underwritten IRR of 14.1% at December 31, 2012. Funding for new transactions came from a combination of capital recycling from older investments, a modest use of leverage and the proceeds from our 2 recent capital raises. ARI's total stockholders' equity increased 62% in 2012 as compared to total stockholders' equity at the end of 2011.
In August, we completed an underwritten public offering of 3.4 million shares of the company's 8.625% Series A Cumulative Redeemable Perpetual Preferred Stock, generating net proceeds of approximately $83 million.
In October, we completed an offering of 7.4 million shares of common stock, including a partial exercise of the Greenshoe, and raised net proceeds of $124 million.
Both offerings enabled ARI to raise capital for new investments, while protecting the company's book value per share. As we indicated on our third quarter earnings call, we had a healthy pipeline in which to deploy this capital, and ARI has gotten off to a strong start, both at the end of 2012 and through the early weeks of 2013.
Since the beginning of the year, we have closed 3 new transactions totaling $103 million of committed equity. Our pipeline remains strong and we continue to find ample investment opportunities in our target asset classes. Shifting over to the other side of our balance sheet, ARI made considerable changes to our financing facilities in 2012, which resulted in a lower overall cost of capital for the company.
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