Good day, ladies and gentlemen and welcome to the ARI Q1 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] 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 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 statement. 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 those statements and projections. 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.apolloreit.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. You may begin.

Good morning, and thanks you for joining us on the Apollo Commercial Real Estate Financing first quarter 2015 earnings call. As usual, joining me this morning in New York are Scott Weiner, our Chief Investment Officer; and Megan Gaul, our Chief Financial Officer, who will review ARI's financial results after my remarks. ARI has had an extremely strong start to 2015 building upon the momentum we created in 2014. Year-to-date, the Company closed $195 million of new commercial real estate loan transaction, completed $193 million of common equity offering and amended our JP Morgan credit facility to increase our borrowing capacity and lower our borrowing costs. Collectively, our investment and capital formation activities has led to a steady stream of operating earnings , which enabled our Board of Directors to increase the dividend per common share of 10% in the first quarter to $0.44 per share. The investment transactions closed to date including financing for our portfolio of senior living facilities throughout the United Kingdom, a mixed use development located in Brooklyn and a Hotel in Burbank, California. In addition to the Q1 origination, ARI funded $40 million of additional commitments on loans that it closed - on loans that it previously closed. At this point in the year, ARI has assembled a healthy pipeline of commercial real estate first mortgages and mezzanine loan opportunities and we fully expect that we will close an additional $200 million of transactions over the coming few months. We continue to believe we have constructed a best-in-class origination platform, which has enabled us to win financing mandates due to our solid borrower and intermediate relationships and reputation. We continue to originate a majority of the transactions we complete and we have begun to see real traction with repeat borrowers. Our ability to underwrite and…

Thank you, Stuart, and good morning, everyone. ARI had a strong quarter of financial results across all operating metrics. For the first quarter of 2015, the Company announced operating earnings of $22.2 million or $0.44 per share representing a per share increase of 18.9% as compared to operating earnings of $14 million or $0.37 per share for the first quarter of 2014. Net income available to common stockholders for the same period was $23.7 million in 2015 or $0.47 per share as compared to $15.7 million or $0.42 per share for 2014. A reconciliation of operating earnings to GAAP net income can be found in our earnings release contained in the Investor Relations section of our website www.apolloreit.com. GAAP book value per share at March 31st was $16.44. As a reminder, we do not mark our loans to market for financial statement purposes and currently estimate that the fair value of our loan portfolio at March 31st, 2015 was approximately $9 million greater than the carrying value as of the same date. As Stuart mentioned, we continue to focus on expanding ARIs floating rate loan exposure and at quarter end 61% of our loan portfolio had interest rates that floated over LIBOR. As such we estimate a 50 basis point increase in LIBOR would increase ARI's operating earnings by approximately $0.06 per common share on an annual basis. As I did last quarter, I want to highlight that as we expand our - as we expanded our capital base in the first quarter, our G&A expense has essentially remained constant, creating better operating leverage for our platform. Annualized G&A as a percentage of common book value was 52 basis points at the end of the first quarter, which continues to be one of the lowest percentages among ARI's peer group. Finally, as indicated in our press release, the Board of Directors announced a common stock dividend for the second quarter of 2015 of $0.44 per share. This is the second consecutive quarter of a $0.44 common dividend and as Stuart stated previously, we are confident ARI will earn the dividend in 2015. Based on Monday's closing price ARI's stock offers an attractive 10.2% yield. And with that we'd like to open the line for questions. Operator?

[Operator Instructions] Our first question comes from Steven Delaney with JMP Securities.

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Sure, Hi, it's Scott. Yeah.

Hi, Scott.

Yeah, that was the property in Brooklyn with a developer who we know is currently used as retail and multi-family with highest and best use being used ultimately for re-development of the property into multi-family rental and retail. So you know this is called a pre-development loan or a transitional loan. I think we underwrote it very comfortable at our basis based on existing use and clearly if you look at the redevelopment potentials, your loan to value is even less, but given that, given the nature of the transaction and the cash flow there, it's not suited to a CMBS deal nor really kind of a traditional commercial bank. So we're able to get an attractive unlevered yield and then given our repo facility and really the banks looking at it on a portfolio basis as we mixed in cash flowing assets and non-cash flowing assets and obviously recourse on the repo, we're able to lever that to a - to the stated return. That's really a combination of - a combination of things.

Okay, that's helpful. And so, you use your existing JPMorgan line, so the borrowing terms on there would be consistent with other loans despite the higher coupon that you're receiving.

Yeah, look, we work with the banks, JP and other banks on what the appropriate advances and they look at the credit and they look at obviously the metrics. I think they, like us saw the fundamental value in the property given the ultimate reviews, but they like us also like the downside protection from the fact that what is there. It's not - what I call a high land value, we didn't look at it purely on a land basis. We looked at it, as existing buildings there that produce income or could produce income if we want them to.

Got it. And just to follow up and wrap up from me, it's interesting this particular property you cited does have a multi-family flavor and you guys have been very involved in New York in multi-family and condo and given that the prevalence of that property type. I'm just curious if you're following the developments with the Federal Home Loan Bank System we've seen I believe it’s three additional mortgage REITs gain access in the last month or so. While it doesn't seem maybe to be a direct fit with commercial mortgage REITs, you guys are a little unique with your multi-family and I'm just wondering if membership in the Home Loan Bank System is something that you're thinking about for your portfolio going forward. Thanks.

Yeah, I would say just one thing, I mean, just to be clear, while the developer views the highest [Indiscernible] our take out will most likely be a construction loan to develop multi-family, we really underwrote it based on the existing use which is retail , just to be clear on that deal.

Got it. Okay.

With respect to the Federal Home Loan Bank, look, we have obviously been following for a number of years, the resi REITs doing in as well, there's one or two commercial guys who have been able to access that. We think it's interesting, we are in active dialog with them as we're aware, they somewhat are going through some regulatory scrutiny and trying to figure out what they want to do with respect to allowing REITs and people using captive insurers to join. So, it's something we're watching closely and we're in process. But I think we do need more resolution and clarity on the regulatory stuff because as it stands now anyone joining basically they can take the money away right away.

Yes.

And I think maybe others have slowdown the [Indiscernible] little difficult to use financing, which can go any day. But we're continuing to track it, yes, I mean, I think through their mandate they are more focused on the residential side and given our activity in residential housing that works well we think. But we're continuing to watch it in and as we get more news or update we will obviously let everyone know.

Fine, thanks. Appreciate the comments, Gentlemen.

Our next question comes from Dan Altshcer with FBR

Thanks and good morning everyone. Stuart, I'm going back to your comment, I think you said around $200 million of future pipeline over next few months. Can you maybe just talk about in some substance kind of the mix there or what type of properties or yields, you might be looking at for what's in the pipeline?

Yes, I'll let Scott comment on it. Go ahead, Scott.

Sure. Yes, I mean, I would say it's a continuation of the themes you seen in the past. So I would say actually in the next couple of days we're going to be closing in approximately $40 million mezz loan on two multi-family properties in Florida with an existing borrower kind of low teen returns, on those we are closing a mezzanine loan on a full-service high-end hotel in a major market, that will be in the next few weeks. We are closing a call it, $40 million first mortgage loan, summary to the Brooklyn deal that we discussed before, where the existing use of the property is retail, but the highest and best use is kind of alternative use redevelopment down the road and the sponsors is working on those plans. But again, we have cash flow in retail that will our first mortgage that will originate. So I mean, that's kind of theme. We still are looking at all -- really all property types, industrial retail continue to like the housing sector in certain markets. So I would say more of the same from what you - what we have done in the past.

Okay. Now that's perfect. In relation to the potential for repayments in, I guess the next year, which is also mentioned. I think the deck reference, maybe it's about $134 million expected this year. Any [Indiscernible] in terms of mix or timing is it heavily weighted at all through the year or is it heavily weighted to one type of loan in the credit structure?

Generally speaking, it's more weighted towards the back half of the year Dan. I think in terms of product type, there is no specific deal so to speak or product type. But if you look at some of the earlier for sale condo transactions that we did, you could probably infer that some of those were getting ready to get paid off. And then there is just a mix of some other loans that we did that could pay off at the latter part of this year, but nothing specific so to speak in terms of uniformity.

Got it. Okay, that's perfect. And then just one follow-up. Stuart obviously, your comment around maybe potentially increasing some leverages maybe not new, I think we've heard that before. At least my simple math says, to get to 1.3 times to 1.5 times that would exceed probably the amount available on the JP Morgan line. So is there anything specific that you are looking at whether it's the idea of another convert or follow on to the convert or other sort of asset-specific financings that maybe get to that number?

I mean, there is nothing specific at this point other than part of our job in managing the right side of the balance sheet is to have a frequent and regular dialog with both the Street in terms of some sort of public security execution as well as with lenders either on upsizing the existing facility or being more creative in terms of how we use existing facilities. Ultimately, it is driven by what assets we put the capital to work in, in terms of what the most efficient way to finance them is. But I would say at this point, we remain pretty optimistic about the pipeline. And I would say, we also remain fairly optimistic about the options available for us to finance and fund that pipeline as needed. So I can't get more specific at this point.

Okay, that's helpful. Appreciate it, thanks.

Our next question comes from Joel Houck with Wells Fargo.

Thanks. Just back on the FHLB issue, it seems like in these recent dialog with some of the other REITs the view is, we'll go ahead and get the membership and start using it, I think largely the theme was that they don't think that Congress is ultimately the one that's going to decide on FHFA and therefore there's not going to be any change. It sounds like you perhaps, I don't want to put words in your mouth, maybe take a different approach and that is, you're going to wait for ultimate clarification before you go ahead and affect the membership, is that the right way to think about it?

No, what I think we are working through the process. I would say at this point, it is easier for someone with a clearly defined pure residential mandate to get through the process, where I think it is a longer, more involved discussion for those that have more of a commercial bend and may touch the residential side. So we're continuing to work through the process. So I would say, given the other financing alternatives available to us, it's not a call it primary mandate, so to speak. So we're not necessarily pounding the table. I think we are working through the process, trying to do it in a very commercial way and we'll see where the process ultimately leaves. And if someone said tomorrow, that you could now be a member of the Fed, I think we would put the membership in place and see how we could use it going forward. So it's not a delay, so to speak. It's just the process at this point.

Okay. Thank you, very much. Appreciate it.

Our next question comes from Jade Rahmani with KBW.

Hi, thanks for taking the question. Just wanted to ask you about the pipeline, if it's still weighted toward whole loans and first mortgages and whether you do sub debt mezzanine preferred equity, those types of investments are still equally or possibly more attractive than levering first mortgages. So where do you stand on the investment strategy?

Yes, I think, it's Scott, I mean, I think I gave some color on the pipeline. But I think it's a continuation of really both strategies. We're still finding interesting opportunities on the first mortgage side where we can use our repo facility, then we're still finding interesting opportunities on the subordinate debt side. So from a percentage, it's probably maybe equal. But it's obviously for us it's really deal-by-deal as we're looking at. But we still think that we're blocking and tackling and finding good opportunities in both areas across different geographies and property types to be honest.

Okay. And can you give a sense for where incremental yield on first mortgages, and sub debt mezz are right now?

Look, I mean it's obviously, a lot depends on the specific deal. I would say for your highly cash lowing lower leverage yields, we're seeing stuff get done is up 2% by the banks. But at the same time, there are deals that are getting done north of [Indiscernible]. I think it's the nature of the type of deals and what's the execution and leverage and what makes sense. Obviously things that are more in transitional nature get a higher yield. Construction loans, we've seen banks doing construction loans in the mid to high threes, 400 over with recourse and obviously to the extent a borrower doesn't kind of fit the bank, it will be higher. And I would say, kind in the middle of that stuff is what I'll call lightly transitional maybe it's a hotel or something that that's ramping up, that could be more mid to high three's even low fours. The conduit The conduit market, I'm sure you've heard from others that's a sub-4% fixed rate market. Life insurance companies are doing stuff in the mid-threes and conduits are kind of in the high threes for 10-year fixed rate. Obviously we don't, and ARI playing all those markets. On the mezzanine side, again there is a very active senior mezzanine market, that could be a time in the 6% or 6.5% fixed rate range going all the way to double digits depending on again attachment points, LTV, property type, type of deal. So, I would say, consistent with past quarters where I would say you're seeing the market maybe move tighter really on the most senior first mortgage loans is given what's going on in Europe and other markets and banks looking to put out capital. And I would say, given the mezzanine market and the transitional market are all people like ourselves looking for the same yield, you really haven't seen, you really haven't seen any tightening, to the extent there is tightening. It's really private plus financing is done in cheaper. So if [Indiscernible] for the same return and mezzanine is still really an unlevered product. So we're all kind of still working for the same unlevered yield on the mezzanine space.

Great, thank you. Are there other types of investments that you're considering at this point? And can you give an update on the bank investment. I saw the JV on the balance sheet declined and the amount of - the loss actually, there was no loss through the income statement?

Yes, we actually sold the portion of the bank this quarter, it's about 40% - about 50% of the investment in the bank this quarter. And there was no incomes reported for the bank this quarter.

And I think as we talked about initially with the bank, the view was, the bank was obviously attractive for a lot of different reasons, with one, the views was that once you're kind of a member of a club if you will , and the regulatory nature of the banking system in Europe, in Germany that there will be other opportunities to grow and acquisition opportunities. So from a longer-term perspective, we felt as if our co-investors in the firm, tobring in another investor who could be sitting alongside us as we looked at other - as we looked at other opportunities.

And in terms of other investments, I think in the past you've cited net lease, wondering if there is anything on the table that you might consider beyond the core strategy?

Look at this point, I think we're seeing more than enough to do in what we're good at. We continue to explore other ways to put capital to work. But first and foremost, we are a lender against commercial real estate. And the expectation should be that, that is what we are going to do on a go-forward basis.

Great. And just lastly on LTV, we get a lot of questions on this for the sector in general, but does the V that you described represent property basis, market value, and do you think that the LTV on the underlying property value at the time of origination would be materially different from what you reported in the presentation?

I mean we feel it’s base right. Typically, most of what we're doing is a new origination of loans was based on appraisal value at the time we, you know, for underwriting purposes will occasionally haircut that. But generally speaking, LTV is based on the appraised value at the time we do a deal and to the extent, there is a reappraisal later on for the loan, due to a requirement or some other mandate, we will adjust LTV. I would say generally speaking, given what we've got on our balance sheet and given the way. The underlying real estate is performing as well as based on sort of where the equity markets for real estate have gone recently, I would say we are conservatively - our estimate of value is conservative and value has probably risen since most of the deals were originated.

Great. Thank you, very much for taking the questions.

Thanks, Jade.

[Operator Instructions] I'm not showing any further questions at this time, I'd like to turn the call back over to our host.

I think we're all done at this point. Thanks for everybody participating. Thanks to operator.