Apollo Commercial Real Estate Finance, Inc

Good day. 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 Financing 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 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.apollocraft.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, and good morning and thank you to those of us joining us today on Apollo Commercial Real Estate Financing's second quarter 2022 earnings call. I am joined today by Anastasia Maranova, our Chief Financial Officer. The first half of the year was the most active in ARI's history, as our team completed a record $3.1 billion of new loan originations on behalf of the company. The robust pace of deployment enabled ARI to effectively and efficiently deploy capital, including the $530 million of net equity received from approximately $1.2 billion of gross repayment. Importantly, ARI achieved distributable earnings that covered the $0.35 per share quarterly dividend and is well positioned for the remainder of the year. While the broader Apollo CRE debt team remains active in the market, we can now be selective with respect to additional deployment on behalf of ARI while continuing to produce distributable earnings that support the $0.35 per share quarterly common stock dividend. Also, reaffirming prior comments, ARI is in position to repay the 2022 convertible senior notes that mature in August with available capital and without having to complete any public capital markets transactions. Shifting to the portfolio, ARI's loan portfolio totaled $8.9 billion at quarter end, a 19% increase over the second quarter of 2021. credit quality remains stable, and as evidenced by the repayments in the quarter, our borrowers continue to achieve business plans and have access to capital to refinance our loans. As a reminder, 98% of the portfolio is comprised of floating rate loans. As illustrated on page 15 of our financial results, the increase in benchmark rates over the past quarter has had a clear benefit to ARI's net interest income, and we are clearly well positioned for further increases in benchmark rates. It is also worth noting that 40-plus percent of ARI's portfolio is comprised of loans on European assets. We continue to remain comfortable with ARI's European credit exposure, and as page nine of the financial results highlights, ARI has used local market financing and hedging to effectively mitigate any currency risk. With respect to repayment activity, year-to-date, 11 loans representing approximately $1 billion fully repaid, and there was additional $200 million of partial repayment. Included in the second quarter repayments was one of ARI's larger New York City office loans, which contributed to ARI's overall office exposure being reduced to 20%. We continue also to make progress with our focus loans. Construction has begun on the Fulton Street Multifamily Tower in Brooklyn. The project is now known as The Brook, and we are excited about ARI's partnership with the Witkoff Company to execute the development. Support for the project is evidenced by the fully negotiated construction loan we received from two well-regarded real estate lenders, which is expected to close in the next few weeks. It is also worth noting that operating performance of the Mayflower Hotel continues to improve. As mentioned on prior calls, we are actively working on selling the hotel and are encouraged by the response from potential investors. Finally, with respect to 111 West 57th Street, unit closings have begun with additional units under contract expected to close in the coming months. The traffic numbers are strong and have been boosted recently with more foreign buyers returning to the market. Interest in the building remains high with several active negotiations currently taking place and the response to the furnished model residences is positive. That being said, there is still work to be done with respect to increasing the pace of sales activity which we anticipate will pick up in the fall coinciding with the robust marketing campaign and finished amenities. With that, I will turn the call over to Anastasia to review ARI's financial results for the quarter.

Thank you, Stuart, and good morning, everyone. For the second quarter, we reported another quarter of stable financial results with distributable earnings of $49.5 million, or $0.35 per share. GAAP net income available to common stockholders was $67.9 million, or $0.48 per share, and diluted net income of $0.44 per share. GAAP book value per share prior to the general CISO allowance and depreciation increased slightly to $15.19 as compared to $15.01 at the end of the first quarter, primarily attributable to net unrealized gains on our foreign currency and interest hedges. As we have previously highlighted, we take several steps to mitigate our foreign currency risk, given that 44% of the loans in our portfolio are secured by properties in Europe. We hedge our exposure on net equity basis for all foreign currency nominated transactions by entering into forward currency contracts as closing. As we have witnessed during this period of significant fluctuations in foreign currency rates, our hedging strategy has proven effective. Our portfolio remains well positioned for rising interest rates, as 98% of our loans are floating rates. At quarter end, 87% of our US and 100% of our UK floating rate loans were in excess of their respective floors. Therefore, we have begun to see the benefits of the increased rates flow through to our net interest income. An additional increase of 50 basis points in the US and the UK would lead to an incremental four and three cents per share respectively of net interest income. As of June 30th, our general CECL allowance increased slightly quarter over quarter due to new loan originations and the more adverse macroeconomic outlook, which was partially offset by the impact of portfolio seasoning. With respect to specific CECL allowance, during this quarter, we reversed 10 million of previously recorded allowance against our loan secured with a multifamily development in Brooklyn, known as The Brook. The reversal is primarily driven by additional value creation in the underlying property achieved through development activities performed to date. This reversal in specific CECL allowance was partially offset by a $7 million allowance we recorded this quarter against a loan secured by a hotel in Atlanta, Georgia. The hotel has had a slower than anticipated recovery following the onset of COVID-19 pandemic. The aggregate changes during the quarter resulted in overall CECL reserve of approximately 2.2% of amortized cost basis and is relatively flat quarter over quarter and compared to year end. With respect to our borrowings, we are in compliance with all covenants and continue to maintain strong liquidity. We ended the quarter with $266 million of total liquidity which was a combination of cash and undrawn credit capacity on our existing facilities and 1.7 billion of unencumbered loan assets. Our debt to equity ratio at quarter end increased to three as our portfolio continues to migrate towards predominantly first mortgage loans. And with that, we'd like to open the line for questions. Operator, please go ahead.