Apollo Commercial Real Estate Finance, Inc. Q2 FY2024 earnings call

• Update on hospital loan: In March 2022, ARI had a $379 million loan portion on eight Massachusetts hospitals. Loan is current on interest, risk-rated downgraded to 4, with anticipated specific CECL allowance ~$90 million in subsequent quarter. - Second quarter performance: $759 million loan repayments in first 6 months, redeployed $505 million into new transactions, including £270 million in UK post-quarter end. New transactions have lower attachment points and wider spreads. - Portfolio details: At quarter end, 50 loans totaling $8.3 billion. Significant sales momentum at 111 West 57 Street, $74 million gross proceeds from 6 units, senior mortgage pay down, additional units under contract. - Financial results: Distributable earnings $0.35/share, GAAP net income $33 million, portfolio carrying value $8.3 billion, weighted average unlevered yield 8.9%. $116 million gross add-on funding in quarter, year-to-date $438 million. Specific CECL allowance of $7.5 million on Michigan loan. General CECL Allowance 47 basis points. Repurchased 38 million shares, $193 million liquidity, $507 million unencumbered assets. Upsized secured credit facility by $300 million, debt to equity ratio 3.4x.

ARI's portfolio at quarter end was comprised of 50 loans totaling $8.3 billion. During the second quarter, ARI received $759 million of proceeds from loan repayments and sales. Redeployed approximately $505 million of capital into four new transactions, and following quarter end, completed two additional transactions in the United Kingdom totaling approximately ₤270 million. Distributable earnings were $0.35 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 a weighted average unlevered yield of 8.9%. Year-to-date gross add-on funding was $438 million, with $116 million in the quarter. The General CECL Allowance stood at 47 basis points of the loan portfolio's amortized cost at June 30, a 3 basis points increase from Q1.

• Anticipate recording specific CECL allowance for hospital loan in second half of year. - Robust investment pipeline with new transactions having lower attachment points and wider spreads. - Optimistic about redeploying capital as repayments come in, benefiting from Apollo's real estate credit platform. - Expect 2025 to be active with potential for resolution of challenging assets providing capital for deployment.

• Uncertainty around hospital loan resolution with multiple constituents involved. - Volatility in economy and interest rate movements impacting portfolio and transactions. - Potential challenges in recovering value from hospital assets if they are closed.

Q: On the hospital loan, any recourse or obligations to ultimate borrower?

A: No, it's a real estate loan, focus on protecting rights as lender.

Q: Thoughts on timing of hospital loan reserve and if it goes nonperforming?

A: Reserve expected in second half, lot of moving pieces, hard to give clarity.

Q: Pipeline and portfolio turnover with repayments?

A: Robust pipeline, active market, optimistic about redeploying capital.

Q: Dividend sustainability?

A: ROEs on new transactions consistent with historical, dividend discussed with board.

Q: Portfolio maintenance and 2025 outlook?

A: Portfolio likely flattish in 2024, 2025 could be active with resolution of assets providing capital.

Q: 111 West 57th deal and ARI's position?

A: Senior loan paid down, ~$70 million balance under contract, closing in second half.

Q: Adequacy of $90 million reserves?

A: Reserve process consistent with others.

Q: Multifamily approach?

A: Positive macro thesis, favorable window with less competition, deal-by-deal basis.

Q: Europe opportunity and office trends?

A: Positive trends in London, Europe has different capital markets, opportunity in pan-European deals, loan-on-loan financing alive.