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Inside Apollo’s Real Estate Segment

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Positive performance

As of March 31, 2017, Apollo Global Management (APO) was managing $12 billion in its Real Estate division, of which $8.4 billion was fee-generating. Apollo’s FRE (fee-related earnings) in its Real Estate segment has been positive, driven by new equity products in Asia and the US.

In 1Q17, APO’s combined gross returns for its two real estate US equity funds, the US Real Estate Fund I and the US Real Estate Fund II, stood at 3.8%.

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In 1Q17, the division’s total revenues stood at $19.7 million, as compared to $15.7 million in 1Q16, showing an increase of ~25.5% on a YoY (year-over-year) basis, mainly due to the increase in management fees from $13.5 million in 1Q16 to $16.3 million in 1Q17. The rise also rode on the strong performance of the Apollo Asia Real Estate Fund, the Apollo Commercial Real Estate Finance Fund (ARI), and US Real Estate Fund II.

Notably, APO’s alternative asset managing peers (XLF) reported the following operating margins on a trailing-12-month basis:

  • KKR & Company (KKR): 56.27%
  • Carlyle Group (CG): 26.93%
  • Blackstone (BX): 48.40%

APO’s Real Estate division makes investments in real estate equity and debt. Real estate equity includes the recapitalization and acquisition of real estate assets, platforms, and portfolios, while real estate debt includes commercial mortgage backed securities, mezzanine, and first mortgage loans.

Carried interest income

In 1Q17, Apollo realized $1.7 billion in its Real Estate segment, and eal estate debt funds accounted for$0.3 billion. In 1Q17, its total carried interest income stood at $2.6 million, as compared to $1.4 million in 1Q16.

This rise has been mainly due to its carried interest of $1.8 million from the US Real Estate Fund II in 1Q17, which was partially offset by a decline of $0.6 million in its carried interest from CPI funds in Europe in 1Q17.

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