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 Apollo Commercial Real Estate, 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. In addition, we'll be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance and are reconciled to GAAP figures in our earnings press release. which is available on the Investor Relations website section of our website. We do not undertake any obligations to update our forward-looking statements or projections unless required by law. To obtain copies of the 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 a call over to the company's Chief Executive Officer, Stuart Rothstein. You may begin, sir.

Thank you, Operator. Good morning, and thank you to those of us joining us on the ARI second quarter 2019 earnings call. Joining me in New York this morning are Scott Wiener and Jay Argyle. Before I discuss ARI's success year-to-date, I want to take a few minutes to provide an update on our perspective on the current state of the commercial real estate lending market. After a slow start to the year in the U.S., the market quickly returned to being highly competitive with a mix of both public and private lenders chasing transactions and creating generally favorable conditions for borrowers. Spreads have remained tight, and with expectations for LIBOR to decrease in the future, nominal yields on new transactions have come in. We continue to be active in pursuing transactions in the U.S., but it is clear from our activity year to date, we are taking a somewhat cautious approach to the market and finding more compelling opportunities to invest ARI's capital in Europe. As I have mentioned before, Apollo, on behalf of various forms of capital, is one of the more active players in both European real estate equity and debt transactions. Apollo's London-based CRE debt team is well-known and highly regarded in the markets. which enables ARI to benefit from their extensive reach and access to deal flow. Over the past five years, the team has completed over $3 billion of transactions throughout the continent on behalf of ARI and other managed accounts. The team has successfully formed first-call relationships with high-quality real estate owners and sponsors throughout Europe and has completed a significant number of transactions with repeat clients. In approaching the deployment of ARI's capital, we remain agnostic as to investing in the US or Europe. As such, in evaluating transactions and reviewing our pipeline, we regularly compare potential opportunities in both regions. At present, we believe there are opportunities to generate more interesting risk-adjusted returns by completing transactions in Europe, which are further enhanced from the attractive cost of currency hedging driven by regional interest rate differentials, as well as our ability to source low-cost financing in local currency. For the first six months of the year, ARI has committed capital to nine transactions totaling $1 billion and has funded approximately $190 million for previously closed loans. Given the record year we had in 2018 – which included a number of transactions with future funding components, we have been able to both keep our capital invested and have the luxury of being somewhat selective in our pursuit of new transactions. There have been several transactions in our own portfolio that have sought to refinance for additional proceeds or obtain extensions or have transitioned from construction loans to inventory loans, and we have chosen not to participate in the refinancings because we felt the returns were not commensurate with the increased risk profile. I would like to conclude my comments on investing by reiterating a general philosophy I have discussed with many of you at conference presentations or non-deal roadshow meetings. Regardless of geography, our fundamental approach to managing ARI's capital and investing in new transactions is to focus on protecting principle and And then we seek the most attractive risk-adjusted returns available consistent with our view of the appropriate attachment point in any specific transaction. Turning now to our capital markets activities, the second quarter was highlighted by our efforts to opportunistically capitalize on favorable market conditions and enhance ARI's balance sheet. In May, we completed both another accretive common stock offering as well as ARI's very successful debut offering in the term loan B market. Both transactions further strengthened ARI's capital structure and provided the company with ample liquidity for future investment activity. The debut term loan B offering totaled $500 million and has a seven-year term. ARI received a BA3 BB- corporate rating from Moody's and S&P, respectively. and the term loan was rated BA2BB-. The loan was priced at LIBOR plus 275 basis points, and subsequent to closing, we swapped the floating rate loan to fixed at an all-in cost for seven-year money of 4.87%. By all accounts, the transaction was extremely successful and enabled ARI to add non-mark-to-market term leverage to our capital structure. Before I turn the call over to Jay, I wanted to mention that the multifamily property in Williston, North Dakota underlying an ARI loan was sold during the quarter for approximately $33 million, which was approximately $2 million in excess of ARI's GAAP cost basis. While the investment underperformed, I am proud of the efforts of the investment and asset management teams who diligently focused on achieving the most favorable outcome and allowed ARI to recoup some of the initial impairment. And with that, I will turn the call over to Jay to review our financial results.

Thank you, Stuart. For the second quarter of 2019, our operating earnings were $69.1 million, or $0.47 per share. These numbers exclude the realized loss associated with a North Dakota loan of $12.5 million, or $0.09 per share. Gap net income for the quarter was $56.5 million, or $0.37 per share. During the second quarter, we closed five loan transactions, totaling $564 million, and funded an additional $78 million on previously closed loans. Repayments during the quarter totaled $168 million. At quarter end, our portfolio had an amortized cost of $5.4 billion, which is a 12% year-over-year increase. The portfolio is comprised of 71 loans with a weighted average unlevered yield of 9% and a remaining term of just under three years. And 93% of the loans in the portfolio had a floating interest rate. As Stuart mentioned, in May, we completed a common stock offering of 17.2 million shares at a net price of $18.25, which is a 1.13 times book value multiple. The shares generated a net proceeds of approximately 315 million, and we used 172.5 million of those proceeds to redeem the 8% Series C preferred stock at par. And at quarter end, our total common equity market cap was over 2.8 billion. The offering was accretive to book value per share, which increased to $16.30 from $16.13 at the end of Q1. Lastly, with respect to liquidity and leverage, as of quarter end, we had over 900 million of available capital in the form of cash and availability on our credit lines. And we ended the quarter with a one times debt to equity ratio, which continues to be the lowest amongst our peer group. And with that, we'd like to open the line for questions. Operator, please go ahead.