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 the GAAP figures in our earnings presentation, which is available in the stockholder section of our website. We do not undertake any obligation to update 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 us for joining us on the Apollo Commercial Real Estate Finance Second Quarter 2024 Earnings Call. As usual, I am joined today by Scott Wiener, our Chief Investment Officer, and Anastasia Maranova, our Chief Financial Officer. Before I speak about ARI's second quarter performance and portfolio updates, I would like to provide an update on the subsequent event disclosed in the 10-Q filed yesterday. In March of 2022, ARI and other Apollo managed entities co-originated a 55% loan to cost first mortgage loan secured by eight hospitals in Massachusetts. At origination, ARI's portion of the loan totaled $379 million. The loan was made in connection with the capitalization of a joint venture between two parties to own the hospital. That joint venture then leased the properties to Steward Healthcare who also served as the operator of the hospitals. Apollo did not lend to Steward and does not have any involvement in Steward's operations of the hospitals or performance under the lease. The structure and covenants in the loan have provided for cash collateral and amortization since origination. that represents approximately 11% of the original loan balance. And ARI's amortized cost was $342 million as of June 30th, 2024. As of today, the loan remains current on all contractual interest payments. Steward filed for Chapter 11 bankruptcy in May 2024. During the second quarter, the loan's risk rating was downgraded from three to a four. Subsequent to quarter end, bids were received and the bid process and negotiations are continuing to evolve with multiple constituencies. While there is still a high degree of uncertainty based upon the information available as of the 10Q filing and taking into account Steward's bankruptcy court documents made publicly available on July 30th, We currently anticipate recording a specific CECL allowance in the subsequent quarter, which we currently estimate to be approximately $90 million. The actual specific CECL allowance may differ materially based on continuing development. Shifting to second quarter performance, ARI continued to receive a healthy level of loan repayments, which totaled $759 million for the first six months of the year. During the quarter, ARI redeployed approximately $505 million of capital into four new transactions, and following quarter end, we completed two additional transactions in the United Kingdom, totaling approximately 270 million pounds. All of these new vintage transactions have lower attachment points and wider spreads than the legacy loans in our portfolio. and are structured to enable ARI to earn attractive levered ROEs on newly deployed capital. As we continue to receive capital back, we benefit from the broader pipeline of Apollo's real estate credit platform, which continues to gain market share and fill the void in the market as traditional capital sources retrench. Turning now to the portfolio, at quarter end, ARI's portfolio was comprised of 50 loans totaling $8.3 billion. During the quarter, there was significant sales momentum at 111 West 57th Street, with six units closing, totaling approximately $74 million of gross proceeds, which were used to pay down the senior mortgage that is currently held by a third party. Notably, subsequent to quarter end, an additional two units went into contract, including one of the penthouses. Following the pay down and inclusive of what is under contract, the senior loan will have a balance of approximately $70 million once those units close. There has been a renewed marketing effort through the hiring of a new sales brokerage team renowned for their global luxury market leadership. Their dedicated focus on this property, coupled with their international reach, has already proven successful, and we are confident this momentum will continue. 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. ARI reported distributable earnings of 35 cents per share of common stock for the second quarter. GAAP net income attributable to common stockholders was $33 million, or $0.23 per diluted share of common stock. ARI portfolio ended the quarter with a carrying value of $8.3 billion and the weighted average unlevered yield of 8.9%. In addition to the new investments here discussed, during the quarter, we completed $116 million of gross add-on funding from previously closed loans, bringing year-to-date gross add-on funding to $438 million. For the first six months of 2024, ARI received $759 million of proceeds from loan repayments and sales. Subsequent to quarter end, we received an additional $421 million from the repayments of three senior and one subordinate loans. During the quarter, ARI recorded $7.5 million specific CECL allowance on a subordinate loan secured by our interest in a Class A office building in Troy, Michigan, that had previously been risk-graded for. In conjunction with recording a specific CECL allowance for this loan, we downgraded its risk-grading to a 5. It is worth noting that this loan is current on all its contractual debt service statements. The general CECL allowance stood at 47 basis points of the loan portfolio's amortized cost at June 30, a three basis points increase as compared to the end of Q1. This increase was primarily attributable to new loan origination as well as a more adverse outlook for certain property types. Our total CECL allowance was 440 basis points of the loan portfolio's amortized cost basis at June 30, which represents $2.47 per share of book value. ARI book value per share, excluding general TESOL reserves and depreciation, was $13.62, up from $13.58 at the end of last quarter. We repurchased 38 million of our common stock during the quarter at the weighted average price of $10.16 per share, which was $0.11 accretive to book value and generated 15.3% ROE. Post-quarter end, we acquired an additional $2 million of our common stock at the weighted average price of $9.92 a share. With respect to our borrowing, a rise in compliance with all continents. The company ended the quarter with $193 million of total liquidity comprised of cash on hand, undrawn credit capacity on existing facilities, and loan proceeds held by the servicer. At June 30, we also held $507 million of unencumbered assets. During the quarter, ARI put in place $74 million of accretive financing for the Mayflower Hotel in Washington, D.C., enabling ARI to earn an enhanced leverage return on equity as we continue to monitor the markets to determine the optimal time to sell the hotel. We also upside our secured credit facility with Barclays during the quarter, provide an ARI with an additional 300 million of additional capacity. Our debt to equity ratio at quarter end was 3.4 times. As a reminder, we have no corporate debt maturity until May, 2026. And with that, we would ask the operator to open the line for questions.