Apollo Commercial Real Estate Finance, Inc

I'd like to remind everyone that today's call and webcasts are being recorded. Please note 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 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.apollocreft.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 you joining us this morning on the Apollo Commercial Real Estate Finance first quarter 2024 earnings call. As usual, I am joined by Scott Wiener, our Chief Investment Officer, and Anastasia Maranova, our Chief Financial Officer. In the first quarter, we began to see signs of life in the commercial real estate market with transaction volumes ticking up. The increase in deal flow is supported by a combination of significant dry powder in existing funds that needs to be put to work, more borrowers having reached a point where they must deal with pending loan maturities, and an increase in consensus around property level valuations. In addition to increased transaction activity, operating fundamentals remain stable to positive across most property types, supported by the continued strength in the economy, with the one notable exception being office properties in certain markets. This operating environment continues to benefit ARI, and its floating rate loan portfolio produced another quarter in which ARI's distributable earnings covered the dividend. With the exception of the loans secured by the Steinway building, which I will address later in my remarks, ARI's portfolio continues to perform well. Notably, there has been a pickup in actual and indicated repayment activity. During the quarter, ARI received $176 million of total repayments, and the current forecast model is tracking another $1 billion of expected repayments over the remainder of the year. Given the increased repayment activity, we anticipate ARI will be more active in deploying capital during the year, and there is an active pipeline of potential transactions. In determining how to deploy available capital, we will continue to assess both potential new investment transactions as well as opportunity to repurchase pieces of ARI's capital structure. Turning now to Steinway, during the quarter we recorded a $142 million specific CECL allowance on a subordinate loan secured by the property, reflecting both the impact of a reduction in pricing expectations and a delay in timing with respect to the sale of the remaining units. As a result of the increased reserve, ARI's net exposure on the asset comprised of a portion of the senior loan and two mezzanine loans was reduced from approximately $594 million at year end 2023 to $457 million at quarter end. Subsequent to quarter end, in an effort to further reduce ARI's net exposure, The property was refinanced with a new senior loan provided by a third party, thereby reducing ARI's net exposure by $108 million. Post the refinancing, ARI's net exposure is now comprised of approximately $357 million of mezzanine loans subordinate to a $200 million senior loan held by a third party. Before I turn the call over to Anastasia, I want to highlight that ARI has now paid a 35-cent dividend per share of common stock for 16 consecutive quarters, and we believe ARI's floating rate portfolio will continue producing distributable earnings sufficient to cover the quarterly distribution for the remainder of 2024. 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. In the first quarter, ARI reported distributable earnings of $0.35 per share of common stock. Gap net loss attributable to common stockholders was $108 million, or $0.76 per diluted share of common stock, reflecting the $142 million CECL allowance recorded for the subordinate loan secured by 111 West 57th Street, also known as Steinway Building. As a reminder, this loan was already on non-accrual status and the additional allowance does not impact distributable earnings. The weighted average risk rating of the portfolio was 3.0 and other than 111 West 57th Street allowance, there was no additional specific CECL allowance taken during the quarter. The general CECL allowance stood at 42 basis points of the loan portfolio's amortized costs at March 31, a six basis points increase as compared to the end of 2023. This change was primarily driven by an increase in the historical loss rate which we obtained from TRAPP database for the purposes of determining general CECL allowance for our portfolio. The increase was also attributable to extended expected loan pay-off dates. ARI portfolio ended the quarter with a carrying value of $8.3 billion, with a weighted average and levered yield of 9.1%, 40 basis points higher than at the end of 2023. During the quarter, we completed $322 million of add-on fundings from previously closed loans, including $213 million funded for the UK pub transaction, which we closed at the end of of the Q4. As Stuart mentioned, we received $176 million of total repayments during the quarter. Subsequent to quarter-end, we received $135 million in proceeds from the sale of our first mortgage secured by a hotel in Honolulu to a third party at 99.5% of part. With regards to real estate owned, The above-grade work continues for the multifamily development in Brooklyn, and both of the hotels generate positive cash flow for ARI. The classification of Atlanta Hotel on the balance sheet was changed during the quarter from held for sale to held for investment due to the sale to prospective buyer no longer being probable. In conjunction with the reclassification, we recorded a catch-up depreciation of $3.6 million representing the amount that would have been recorded had the asset remained as helpful investment throughout the hold period to date. As a reminder, depreciation expense does not impact our distributable earnings. Shifting to the right side of the balance sheet. During the quarter, ARI closed a new secured credit facility with Goldman Sachs in connection with the funding of the UK pubs loan. The total capacity of the facility is 159 million. We also amended and upsized our secured credit facility with Atlas, providing 114 million of additional capacity and amending the term of the facility to two years with an additional one year extension option. Our debt to equity ratio at quarter end was 3.3 times And as a reminder, we have no corporate debt maturities until May 2026. ARI is in compliance with all covenants with respect to our borrowings. Our book value per share excluding general CECL reserves and depreciation was $13.59 as compared to $14.73 at the end of Q4. One dollar of the decline is attributable to the specific CECL allowance on 111 West 57th Street, with the balance also reflecting $0.12 attributed to the vesting and delivery of restricted stock units and $0.07 reflecting the change in the general CECL allowance and depreciation. And with that, we'd like to open the line for questions. Operator, please go ahead.