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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. 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 filing with the SEC for important factors that could cause actual results to differ materially from those statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance.
These measures are reconciled to GAAP figures in our earnings presentation, which is available in the stockholders section of our website. 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, Mr. Stuart Rothstein. Please go ahead.
Thank you. Good morning and thank you for joining us on the Apollo Commercial Real Estate Finance Year End 2020 Earnings Call. Joining me this morning are Jai Agarwal and Scott Weiner. We hope that everyone listening continues to be safe and healthy as we work through the challenges related to the pandemic. It is impossible to review ARI's 2020 performance or discuss current market conditions and the implications for ARI's future strategic priorities without acknowledging the initial and ongoing impact of the pandemic.
Ultimately, the real estate market resides at the intersection of the economy and the capital markets. To frame my comments in the appropriate context, it is important to note that despite initial concerns expressed by those who viewed pandemic through the lens of the global financial crisis. Over the past 11 months, the capital markets have remained functioning and experienced a historically rapid recovery. However, overall economic performance is recovering slowly and the ultimate trajectory of the economy will depend on the pace at which fiscal and regulatory policies and capital investment are able to minimize the impact of the pandemic and the ongoing vaccination efforts enabled the reopening of as much of the pre-pandemic economy as possible.
Unlike every other year end earnings call in ARI's history, when we would typically highlight origination volume, growth in the capital base and portfolio, as well as capital efficiency, we believe ARI's performance in 2020 is best measured by the company's balance sheet durability and effective proactive asset management. During the year, the in-place strength of the balance sheet was enhanced through effective liquidity management predicated on strong relationships with each of our lenders as well as opportunistic and well-priced assets sales. ARI's asset management efforts benefited from our ongoing investment in both talent and systems and our historic practice of keeping originators involved with their transactions, which facilitates dialogue with and information flow from our borrowers.
With the tremendous skill set of Apollo's commercial real estate debt team, and the resources, thought leadership and relationships that come from being part of the broader Apollo organization were instrumental to ARI's achievements in 2020 and continue to differentiate ARI in the marketplace. Importantly, the net result of our 2020 efforts was ARI's continued ability to pay a well covered dividend to our shareholders. The onset of the pandemic immediately led to concerns over liquidity throughout the real estate sector and heightened security of balance sheet strength and bank lending relationships across mortgage REITs.
In managing ARI's balance sheet, we have always focused on implementing a leverage strategy consistent with our asset mix, balancing the use of leverage with return targets, not relying on max leverage on any one asset to generate a target return and maintaining an unencumbered pool of loans. We have consistently maintained strong relationships with our lenders, always seeking to keep an open end candid dialogue and ensuring that ARI fully benefits from the one Apollo approach to managing relationships with key financial partners. This approach was validated during 2020 as we materially increased ARI's short-term liquidity without the need for any form of rescue capital or having to access the capital markets from a position of weakness during the peak of capital markets volatility.
Beyond ARI's basic financial strategy, we also chose to opportunistically sell loans at attractive pricing, generating excess liquidity and eliminating some of our construction and future funding commitments. During 2020, ARI sold approximately $634 million of loans at a weighted average price of 98.1% of par generating net proceeds of $208 million. Given the significant amount of capital searching for yields, the market for loan sales remains active and when and if appropriate we may consider additional sales on behalf of ARI.
Another highlight of 2020 was ARI's considered use of its share repurchase plan. In growing ARI, we have maintained our commitment to only issue common stock above book value. In 2020, we remained thoughtful with respect to how our capital allocation could positively impact book value given the pandemic driven downward pressure on our common stock price. As such we determined repurchasing ARI's common stock would achieve the best risk adjusted return on equity for our excess capital.
As a result, we repurchased over $128 million of common stock at an average price of $8.61 resulting in approximately $0.61 per share of book value accretion. I also want to highlight that yesterday we announced our Board of Directors authorized $150 million increase to ARI share repurchase plan providing us with total capacity of $172 million. Pivoting to the portfolio, ARIs focus for 2020 was proactive asset management. Our efforts were greatly enhanced through the access to the resources of the Apollo platform, providing our team with extensive real-time data and information.
In prior quarters, we have spoken extensively about the challenge within various – challenges within various types, property types, or specific assets in our portfolio, giving the underlying LTV of our loans, the going dialogue with our borrowers and the measured recovery in the economy. I am pleased to report that there are no material changes to the credit quality of the portfolio or to our credit outlook since the last call.
Anecdotally, with respect to our loans underlying the hospitality assets, we continue to see steady improvement within the roughly 65% of our portfolio, which are resort or destination locations; while business oriented hotels continue to face challenges. With respect to the Anaheim Hotel that was foreclosed upon and is being carried as REO, the hotel is under contract to be sold and a hard deposit has been posted.
Lastly, with respect to our two of our largest focus loans, we have had positive momentum at both the Miami Design District loan and the Fulton Street loan. With respect to Miami Design since the last earnings call we entered into a partnership with an extremely well-regarded local developer who is converting the space into an open air market place and working on leasing the existing space, while retaining the option to redevelop the property at a later date. On Fulton Street, we partnered with a best-in-class New York developer to redevelop the site into a multifamily property.
The one additional loan I want to discuss is our first mortgage secured by an urban retail property in London. The property is located in one of the most traffic locations on Oxford Circus in London, and it houses Topshops and Nike's flagship stores. Last quarter, Topshops parent company Arcadia filed for bankruptcy. This was an outcome we considered when we underwrote the loan as we were extremely familiar with the credit. The property is currently being marketed for sale and the initial feedback from the process indicates the proceeds will be well in excess of our loan. The loan is currently accruing interest, including default interest, and we believe we are well covered.
As we look ahead, we believe ARI is well positioned to capitalize on the significant increase in real estate transaction activity, which began in the latter part of 2020 and has continued in 2021. The commercial real estate market is benefiting from the low interest rate environment and record amounts of dry powder in real estate funds, which is leading to increased deal activity. ARI entered 2021 with excess capital on its balance sheet and is position to deploy that capital into attractive risk adjusted return opportunities.
Also given the current strength of the capital markets, we believe ARI will be repaid on some of its existing loans, thereby providing additional capital to be invested. Apollo's real estate credit platform remained active throughout 2020, and continues to see a tremendous amount of transaction flow, which has enabled ARI to softly build a pipeline of potential new deals.
Importantly, ARIs lenders have indicated their willingness to provide ARI with financing for new transactions, and we are confident that levered returns achievable today are consistent with the returns on the capital we are expecting back this year. As always, our focus on capital allocation will remain on generating the most attractive risk adjusted ROE. We will remain steadfast to our credit first methodology, and we will be prudent in our capital management in funding new business. We recently committed to our first transaction in 2021, a large first mortgage loan in Europe, and the pipeline continues to build.
Before I turn the call over to Jai, I want to just highlight that ARI is a 104% dividend coverage in 2020, and reiterate that ARIs existing portfolio was able to generate distributable earnings in excess of the current annualized $1.40 dividend per common share. This was achievable even with excess liquidity on our balance sheet through most of 2020. Our common stock offers investors in excess of an 11-plus-percent dividend yield, which we believe is extremely attractive in this current low yield environment.
With that I'll turn the call over to Jai to review our financial results.
Thank you, Stuart.
Before I give you earnings; why don't you discuss keyword financing arrangements? From March 15th of last year total deleveraging on $3.5 billion financing arrangements were $190 million, which is less than 6% of outstanding balance. Our strong relationships with key counter parties were beneficial as we navigated volatility in the capital markets throughout the past 11 months. We also proactively worked with our financing partners and availed ourselves of the benefits of the broader Apollo platform to ensure adequate liquidity and term out financing.
Moving to earnings; I wanted to highlight at the beginning of this quarter we will use the words distributable earnings instead of operating earnings with no change to the definition. For the fourth quarter of 2020, our distributable earnings prior to realized loss and investments were $51 million or $0.36 per share of common stock. Distributable earnings were $21 million or $0.15 per share. And the realized loss on investment was comprised of $25 million in previously recorded specific CECL reserves and $5 million on loan sales and restructurings. GAAP net income available to common stock holders was $33 million or $0.23 cents per share, and the common stock dividend for the quarter was $0.35 per share.
As of December 31st, our agenda sees a reserve remained relatively unchanged gliding by 3 basis points to 68 basis point. And our total CECL reserve now stands at 3.24% of our portfolio. Moving to book value; GAAP book values per share prior to the gender CECL reserve was $15.38 as compared to $15.30 at the end of the third quarter. The increase was primarily due to the accretive share repurchases; Stuart mentioned earlier. Since the end of the first quarter of last year, our book value prior to general CECL reserve increased by $0.44 per share.
At quarter-end, our $6.5 billion loan portfolio had a weighted average unlevel yield of 6.3% and the remaining fully extended term of just under three years. Approximately 90% of our floating rate U.S. loans have LIBOR floors that are in-the-money today with a weighted average floor of 1.46%. We completed $109 million of add-on fundings during the quarter for previously closed loans, bringing a total add-on fundings to $413 million for 2020.
And lastly, with respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity. As of today, we have $250 million of cash in hand, $13 million of approved and undrawn credit capacity and $1.1 billion in unencumbered loan assets.
And with that we'd like to open the line for questions. Operator, please go ahead.
Thank you. [Operator Instructions] Our first question comes from Doug Harter with Credit Suisse. Your line is open.
Thanks. Can you talk about that liquidity and kind of how you're thinking about, kind of what a normalized level is and kind of over what time period or what events you kind of want to see to move there?
Yes. Sure Doug. And I think we talked about this on the last call as well. Look, I think, just to frame things in context, I think before the pandemic hit we were generally running the company it's called plus or minus $75 million to $100 million called excess liquidity at any point in time. Obviously post pandemic that number got well north of $500 million and we've since taken it down, call into the $300 million to $400 million range. Look, I think as we move through, as the economy starts to recover, we're going to continue to move more towards running the company the way we used to. I think that will take time. I'd also encourage you to perhaps not over-focus on anything from a quarterly basis because it's certainly possible that as we move forward at the end of any quarter, there are going to be times where we are highly confident that we're going to get paid back on something. But it might not yet show up in ending quarterly numbers. But I think sitting here today, looking out over the next year given our expectations for recovery in the economy, I think you're looking out over the next plus or minus 12 months to 18 months to start moving back towards a level where we used to run the company, but it'll be a progression. So you'll start seeing kick down overtime
And I guess along those lines, I guess would you, I guess if the opportunities presented themselves and were attractive, would you consider kind of tapping into those unencumbered assets to create extra liquidity for investments or kind of, how do you think about that as an additional source of liquidity, kind of at some point?
Look, the genesis of the unencumbered asset pool historically has been, we were always strident in not putting any leverage whatsoever on our individual mezzanine loans. And even though we knew there was leveraged capacity against those loans, I would say sitting here today we still very much view that pool of unencumbered assets as a liquidity source of last resort and not a leveraged source that we would choose to use to necessarily play offense within the short-term.
Got it. Thank you, Stuart.
Sure.
Thank you. Our next question comes from Steve DeLaney with JMP Securities. Your line is open.
Thanks. Good morning, everyone.
Good morning, Steve.
Stuart, this may – first let me applaud the buyback. Obviously the stocks moved up nicely from the average of $9 in the fourth quarter, but it's nice to have that in your pocket and good for you all for executing on it in the fourth quarter. Stuart, just it may really be more directed to Jai, but we're getting to the point now where things that maybe six, 12 months ago, there were specific reserves underneath CECL that were assigned on some projects?
And you're working whether it's loan sales or other types of transactions. You're now working through those to the point where we're having realized losses, which I think we were all kind of focused on because of your policy and your approach that when – there is a realized loss that it's going to impact distributable income. So I guess what I'd like to understand and whether the third quarter is an example with the $25 million or the $5 million item.
Jai, if you could kind of describe the events – timing or events. If there are different types of things beyond just obviously a foreclosure and then the sale, if there are other types of developments or transactions that would lead you to look at that and say, okay, now we're going to realize this loss. I apologize for the rambling question; I hope the intent came through.
No. That's fine. Hey Jai, why don't you comment? And then if I have anything to add, I'll add on the back.
Thanks Stuart. Sure, Steve, that's a good question. So the way realized losses are defined is that they are upon the earlier of when a loan is actually dissolved, or we believe it is near certain that this loss will be realized. So the $25 million that we just talked about that is comprised the largest number there is a Quarry Springs loan, which was about $14 million realized lost that occurred in the fourth quarter when we sold the last unit. And about $10 million is from the Pittsburgh loan which was restructured where we actually forget some of reserves and the loan is now performing. Those are the key examples.
Okay. So you took a loan, like a troubled debt restructuring, where you just worked with the barn [ph] and forgave principal, that's a realized loss, but then at the lower balance, it's now outperforming.
Well, actually, I mean its Scott. Actually with an actual acquisition, so in connection with an acquisition we reduced our loan amount. So it's a new bar where with fresh equity into the deal, not – but the concept the same.
Oh I see, thank you, Scott.
Yes, the concepts the same. We took a reserve whether it’s a new borrower or an existing borrower; someone is putting – willing to put in fresh equity in exchange for us sort of reconstituting our loan either at a lower balance or other terms within the loan. So that’s the concept we are seeing.
Okay. And the term resolution in Bethesda, I guess, do I understand that is whatever economic interest in those remaining for sale condos, that that is off your books, off your balance sheet, and it's now somebody else's issue?
We have no ongoing involvement with the project units have been sold.
Okay. Great. All right, well that's what I hear today. Thanks for the color, appreciate it.
Yes.
Thank you. Our next question comes from Jade Rahmani with KBW. Your line is open.
Thank you very much. On the credit outlook, I guess to start with; are there [indiscernible] in the specific CECL reserve and definitely good to see final resolution on the FASB, as well as the district hotel in Pittsburgh receiving that additional equity and can recapitalize?
There are loans that take more or less time from an asset management perspective, but I think the way to, and look it's a portfolio of 60 loans, watch lists are not focused list are not were high touch on all the different loans we've made. I think at this point, Jade obviously the reserves we've taken to-date on specific assets are those that we feel require a reserve but were close to everything going on in the portfolio. And the conclusion at this point as indicated in my comments is that overall credit outlook is fairly stable and nothing else at this point requires any sort of individual reserve.
And in terms of commercial real estate overall, we have been seeing through the CMBS market, a gradual improvement in delinquency rates, however, grace – loans and grace period have been modestly picking up suggesting there could be potentially an increase in the delinquency rate in the months to come. Do you think that the industry overall is sort of the worst is behind it in terms of credit resolution or 2021 is really going to be a continued story of commercial real estate credit loan workouts?
I think it's a complicated question because a lot of it depends on what happens with the economy going forward. I think the optimistic view would be that we seem to be on a path toward recovery in terms of addressing the pandemic and where the economy is headed. And the other added benefit for real estate is that there is an abundance of capital in the world that can either be accessed by those already facing credit challenges on their assets or those looking to opportunistically step into assets that are challenging.
And I think our sale of the hotel in Anaheim is reflective of that. I think it really depends on the trajectory going forward. And I think it really – your question really hinges. Do we continue along the path that most believer on right now, or is there another unexpected shock to the system overall? It's not to say there won't be workouts that, that take place. It's not to say that there still aren't broadly speaking in the real estate market assets that need to be addressed. But I think to your question, which is the things change dramatically. I think it really depends on what happens with the overall economy in the path of recovery.
Thank you. Appreciate that the total CECL reserved is at about 30% of the portfolio, which I think is amongst the highest of your peers. Can you also have the ability to provide us the dollar amount or percentage of loans on non-accrual? The dollar amount or percentage of loans that have been modified since March and finally the percentage interest collections?
A lot of questions there. In terms of the amount of loans on non-accrual is plus or minus around $500 million, or roughly about $200 million of our equity on a net basis, if you think about levered ROEs or things like that. I am going to have Hilary circle back with you after the call with her and Jai, and we can get you the rest of the information pretty quickly.
Okay. Thank you. And then just lastly, in terms of originations, when you think we should start to model in aside from the funding commitments you've made a pickup in origination? Should we even be thinking as early as the first quarter?
I think economically – I think headline wise as early as late in the first quarter, I think economically you'd probably think in terms of things closing and economics benefiting us in second quarter and then going forward from there.
Thank you for taking the questions.
Thanks, Jade.
Thank you. Our next question comes from Charlie Arestia with JPMorgan. Your line is open.
Hi, good morning guys. Thanks for taking the questions. Most have been covered already, but I had a question around distributable earnings excluding the realized losses. Do you think that this potentially ignores or possibly distorts the impact of the underlying collateral credit performance? I understand you guys disclosed distributable EPS also including the impact of the realized losses, but do you think there could be some noise in there for investors with two distributable earnings numbers as this sector transitioned away from core operating and into distributable earnings?
Look I can't comment on how people are going to interpret the information. I think from our perspective, the reason we presented at both ways is first of all if you think about things from a book value perspective, shifting something from a previously taken reserve to a realized loss is a net zero from a book value impact. So I think that is relevant to how people interpreted our numbers. And then if you think about what we and the industry large are trying to help people understand in terms of using distributable earnings. Again most of the realized loss that was taken in the fourth quarter were on assets that were not providing any meaningful input to our earnings to begin with. So again, I think, it's there for people to interpret. I think it is fairly consistent with the way we were treating things back in the old operating earnings nomenclature period. So that was sort of our thinking behind it.
Okay, got it. Thank you.
Sure.
And then given the upsized share buyback, how are you guy’s kind of weighing the bias towards share repurchases versus deploying towards new deals in sort of the range of investment opportunities available to you or continue de-leveraging? Where do you see that today? And maybe how do you see that evolving throughout 2021?
Look the bias at a high level is to be in the market originating deals, growing the portfolio or replacing assets in the portfolio. I think the purpose of this share repurchase plan is to be there to the extent you get an unforeseen shocks to the capital markets, which sends stock prices to levels that we think from an economic perspective are just too compelling to ignore. Obviously, it was pretty clear that we were a fairly frequent buyer of this stock when it was at $9 and below. I think as it's moved up nicely, which I think it was, you know, Steve DeLaney mentioned on the call earlier.
If you look at just a pure ROE perspective on buying stock back or levered ROE on invested capital, you're starting to get to the point where – and it's pretty close, if not more compelling to be putting dollars into loans. And I guess the last overarching comment would be in most instances, ties are going to go to – to investing in the business, keeping the business going, staying in the market and doing deals. So I think it's fair to look at the share repurchase plan as something to be used when you see severe impacts to the stock in the capital markets.
Understood. Thanks, Stuart, appreciate all the color.
Thanks, Charlie.
Thank you. Our next question comes from Tim Hayes with BTIG. Your line is open.
Hi. Good morning, Stuart. Thanks for taking my questions here. My first one…
Sure.
Yes – and I appreciate the color you gave on some of the more notable loans in your prepared remarks, but if we can maybe just focus on some of these and dig a little bit deeper. The urban retail UK loan that defaulted in the quarter, it sounds like there should be a positive resolution. But just curious if you have any sense of when a sale may close and if you expect that may trigger repayment of your loan ahead of the contractual maturity date.
Yes, I mean, not to delve too much into it and could speak offline, right. So to put things in perspective, Topshop, which is the tenant. Obviously, it's in the process of being sold at this point. Once that transaction is resolved then we can focus on the real estate. I think it is likely that we will be in the market this year selling the asset and I would say the current expectation is that that will get wrapped up at some point this year.
Understood, that's helpful. And then on the Red Sky capital loans, I appreciate the comments there, but maybe if you could just give us a little bit more color with in Miami how lease up has been in that asset and then with the Brooklyn asset just how redevelopment has been going there and any expected timeline that you can provide and whether that's moving along on schedule.
Yes. I think working in reverse of your question, I think with respect to Brooklyn for those that know the site at the time we got more active in the project, the demolition hadn't yet taken place. So if anybody wants to drive by the site, these days you'll now see that demolition is well underway. And then you're looking at a couple years timeline to actually physically construct what is going to be constructed there, which will be approximately 600 multi-family units, a mix of market rate and affordable, and then there will be some Street retail underneath the multifamily, but we're very happy with the partnership we formed on that transaction.
Things are moving at a pace that is encouraging. And it's now just a construction deal and we will continue to update on progress, but it's moving in the way it needs to move. I think with respect to Miami, we formed the partnership I referred to fairly recently. I would say there's been fairly positive interest both from the market as well as prospective tenants as things of a material nature occur on the leasing side. We'll provide updates as needed. And then, longer term, I think there's a bigger decision to be made vis-à-vis timing and participation are not in the redevelopment, but we'll provide updates on the leasing front as things become material.
Okay. That's helpful. And yes, I'm just going to keep going on the list here, if that's okay. The other three assets, I think that we keep an eye on or have been keeping an eye on are the Mayflower Hotel in DC, the Cincinnati retail center, the Liberty Center, and then 111 West 57th. So in any order you want to take those, if there's any material updates to pass along whether it's encouraging or not would be helpful.
Again, if it was truly material, we'd spent a lot more time talking about it. I think no particular order on the Liberty Center assets. There's actually been a fair bit of leasing that's taking place. Again, there is still a ways to go there. We've commented previously that part of the ultimate exit on Liberty Center will be shifting some of the nature of the retail to other uses. I would say that the two most positive things that have occurred recently on Liberty Center is that there has been a decent sized non-retail lease signed recently that begins to change the nature of that asset. And then there is, I would say, exploratory works being done on the ability to use some of the land available at Liberty Center to add additional multifamily around the site, which would be a net positive both economically as well as also creating additional density at the location.
I think on the Mayflower, per my comments on business-oriented hotels still being somewhat challenged. I think the Mayflower is doing as best as they can in this environment, either with a mix of, call it, transient occupancy as well as they locked into some bigger uses related to whether it's healthcare workers, national guard, others that are looking for places to house, how is individuals that have been drawn into Washington given recent events in Washington, DC, but I'd say there's still work to be done on Mayflower and of the three assets that you mentioned, Mayflower might be the most closely tied to just an overall recovery of the economy what it was pre-pandemic.
And then I take on 111 West 57th street, construction continues. There continues to be good interest from prospective buyers, which I would say is very consistent with the dramatic uptick in residential sales activity in Manhattan in general. Over the later December through early February period, there has been a lot of condo activity throughout Manhattan. Obviously, you're going to see more, more deal flow and things that are a lower price point, but I would say we're pretty encouraged by what we're seeing in terms of prospective buyers. And would hope that there'll be more announcements on units being put under contract sooner rather than later at the asset.
Yes, that's good to hear. And one question broadly about these assets and then I'll hop back in the queue. But just whether it was material or not, I mean, did you see movements in your specific reserves against these assets? I'm just curious if we added additional reserves to any of these loans or by 1 have released some given some of the positive comments you just made.
No, there's no movements – no movements on the reserves at Liberty Center or Mayflower – sorry Jai. And just to be clear, we've never taken a reserve at 111 West 57th street.
Excuse me, great.
So just to clarify that
Okay. Well, guys, I appreciate you taking my questions and I'll hop back in the queue.
Thanks, Tim.
I'm showing there's no other questions in the queue. I'd like to turn the call back to Mr. Rothstein for any closing remarks.
Operator, thank you. And thank you to all of you for participating today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.