Apollo Commercial Real Estate Finance, Inc

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2022 Apollo Commercial Real Estate Finance, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I'd like to remind everyone that today's call and webcast are being recorded. Please know 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. 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 gap 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.apollorate.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.

Thank you, Operator. Good morning, and thank you to those of us who are joining us on the Apollo Commercial Real Estate Finance First Quarter 2022 Earnings Call. I am joined today by Scott Wiener, our Chief Investment Officer, and ARI's new Chief Financial Officer, Anastasia Maranova. Carrying forward the strong momentum from 2021, ARI had an extremely active first quarter of the year, committing $1.8 billion to new commercial real estate loan transactions. The company's loan portfolio totaled $8.4 billion at quarter end, representing a 22% year-over-year increase. Our new investments encompass loan transactions for a variety of property types in both the United States and Western Europe. Most importantly, ARI's portfolio produced another quarter of distributable earnings that covered the $0.35 per share common stock dividend, and we believe the combination of the first quarter's strong deployment coupled with an active pipeline well positions ARI to continue to generate distributable earnings that will cover the dividend for the remainder of the year. Pivoting to the real estate investment and capital markets environment, Transaction volumes for new investments and financings remain active, however, at a slower pace than the prior year. Not surprisingly, there is increasing focus and dialogue around the impact of inflation, rising rates, and the ability of the Fed to engineer a soft landing and avoid a recession. To date, the volatility in the broader capital markets has led to a widening of CMBS spreads as well as a slowdown in the CRE-CLO markets. ARI is not active in the securitization markets, and it is possible that the pullback in those markets may create interesting risk-adjusted opportunities for ARI. We remain active in the market on behalf of ARI, seeking to capitalize on opportunities while at the same time being disciplined and thoughtful with respect to understanding economic uncertainty, market volatility, and the impact on underwriting. Our access to real-time data and information from all areas of Apollo's integrated global investment management platform provides us with meaningful information and insight, which enhances our underwriting and analysis and enables us to thoughtfully think through appropriately pricing risk-adjusted returns in a fast-changing environment. Thus far in the second quarter, ARI has closed an additional $530 million of loans and we expect Q2 to be another strong one from an originations perspective with approximately $1 billion in closing. Shifting to the portfolio, we remain focused on proactive asset management. As we reported on our prior call, ARI was fully repaid, including default interest, on one of its largest loans, which was secured by a well-located retail asset in London. During the quarter, we moved the Junior B mezzanine loan secured by 111 West 57th Street to a risk rating of five. While we believe ARI's basis is protected by expected sales on a nominal basis, accounting principles and guidance require that we determine present value of future cash flows in assessing recoverability, and as such, ARI recorded a $30 million reserve. With respect to the Mayflower Hotel, ARI engaged a brokerage firm to begin actively marketing the property, and we are optimistic we will be able to sell the asset in an amount equal to or above our basis, given recent comps in the market for hotel assets, as well as the significant amount of capital raised for hotel investing over the past 18 months. Finally, we are excited to welcome Anastasia as ARI's new CFO. She brings a wealth of knowledge and experience to ARI, and we expect her to be a meaningful contributor to ARI's future success. And with that, we will open the call for questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. And our first question comes from the line of Doug Harder with Credit Suisse.