Apollo Commercial Real Estate Finance, Inc

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of the 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 and 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 recent filing with the SEC for important factors that cause actual results to differ materially from these statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, while management believes are relevant to assessing the company's financial performance and reconciled to GAAP figures in our earnings press release, which is available on the Investors Relations 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.apolloritz or call us at 212-515-3200. At this time, I would like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein, so he may begin.

Thank you, Operator, and good morning to those of you joining us on the ARI fourth quarter and full year 2018 earnings call. Joining me in New York this morning, as usual, are Scott Wiener and Jay Agarwal. As we enter ARI's 10th year in the commercial real estate finance business, we are very proud of the platform we have built. Based upon our best-in-class relationships with borrowers and brokers, as well as our well-earned reputation as a reliable, thoughtful, and creative capital source, we firmly believe that the Apollo team has established a leading position in the market. The strength of the platform was evidenced by another record year of lending activity for ARI as the company completed $3 billion of loan originations in 2018, a 50% increase over 2017. The power of the platform was further evidenced by the diversity of deal types, property types, and geographies represented in ARI's 2018 Book of Business. Our ability to understand complex business plans, effectively structure and underwrite deals, and execute quickly enabled ARI to complete 27 unique loan transactions during the year. ARI's average transaction size exceeded $100 million for the first time in 2018, as the continued expansion of its capital base enables ARI to source and participate in larger transactions. Through Apollo's extensive network of existing relationships, as well as recently formed one, ARI expanded its footprint in several new domestic markets during the year. In addition, our international presence grew as our London-based team completed approximately $600 million of lending activity on behalf of ARI. At year end, investments in the U.K. represented approximately 14% of ARI's portfolio. Another key aspect of the platform is our ability to source transactions by co-originating with like-minded senior lenders, including our repo providers. In these situations, we either structure para-pursue senior loans or create attractive senior-junior structures. In either case, we believe our ability to work collaboratively and be diligent and thoughtful in underwriting and structuring has enabled us to repeatedly win mandates alongside our partners. Turning to ARI's capital markets activities, there are a few items of note from 2018. We continue to focus on ways to improve ARI's balance sheet, including expanding capital sources, extending the maturities of liabilities, and, when possible, lowering the all-in cost of capital. ARI's capital base grew by $500 million during the year through the combination of a common stock offering as well as the issuance of common stock for the conversion of our 2019 convertible notes. Both of those equity issuances were executed at notable premiums to book value. During the fourth quarter, ARI issued $230 million of new convertible notes with a 5.38% coupon and a $20.53 price per share initial conversion price or a 10% premium to the common stock price on the date the transaction was priced. We also diversified and expanded our repo providers and now have five counterparties who provide ARI with over $3 billion of capacity. Finally, we ended the quarter with a 1.1 times debt-to-equity ratio, which continues to be the lowest amongst our peer group. As we look to the year ahead, we remain confident in ARI's business model and market position. Our focus remains on finding investments which generate attractive risk-adjusted returns within ARI's core business. In considering new transactions, we rely heavily on the experience and depth of Apollo's real estate credit and equity teams the knowledge gained from transactions both completed and avoided, and the investment discipline, rigor, and process that permeates the entire Apollo organization. Importantly, ARI continues to benefit from the information and analysis that are shared broadly throughout the entire Apollo organization, which we diligently incorporate into our underwriting and structuring. 2019 is off to a strong start. Since January, ARI has committed to $432 million of new commercial real estate loans, and our pipeline remains healthy. We anticipate over $400 million of future fundings in 2019, which we believe will help counterbalance a portion of the loan repayments expected throughout the year. We will remain steadfast to our credit-first methodology while building ARI's pipeline and will be prudent in our capital management in funding new business. We believe the combination of our platform, pipeline, and financial flexibility will enable ARI to continue to generate attractive risk-adjusted returns on its invested capital and provide an attractive dividend to our investors in 2019. And with that, I will turn the call over to Jay to review our financial results.

Thank you, Stuart, and good morning, everyone. For the fourth quarter of 2018, our operating earnings were $61.9 million, or 46 cents per share, and GAAP net income was $46.2 million, or 34 cents per share. For the full year of 2018, our operating earnings were $226 million, or $1.80 per share, and GAAP net income was $192.6 million, or $1.48 per share. During the fourth quarter, we committed $800 million to new transactions, of which $450 million was funded. In addition, we funded $134 million for previously closed loans. Repayments totaled $466 million during the quarter, with $319 million from first mortgages and $147 million from subordinate loans. Importantly, the loans originated during full year 2018, had a weighted average appraised LTV of 58%. At the year end, our portfolio had an amortized cost of $4.9 billion, which is a year-over-year increase of over 30%. The portfolio was comprised of 69 loans with a weighted average all-in yield of 9.3% and a remaining term of just under three years. Ninety-one percent of the loans had a floating interest rate. Moving on, as part of our quarterly asset review process, we recorded a 15 million loan loss provision against a $171 million loan known as Liberty Center. The property continues to be low to mid 80% occupied and is covering our debt service. While our new property manager is making progress with leasing and operations, there's still significant work to be done to stabilize the property. With respect to liquidity, as of December 31st, we had over $575 million of available capital from a combination of cash and availability on our credit lines. Lastly, our book value per common share was $16.20 on December 31st as compared to $16.27 at the end of the prior quarter. This decline was primarily due to the loan loss reserve and was partially offset by the issuance of convertible notes in October. And with that, we'd like to open the line for questions. Operator, please go ahead.