I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are from 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.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.

Thank you, Operator. Good morning and thank you all for joining us on the Apollo Commercial Real Estate Finance Year-End 2021 Earnings Call. I am joined today, as usual, by Scott Weiner, our Chief Investment Officer. ARI delivered strong operational and financial results in 2021, and I am extremely proud of the effort and performance of our team. We committed to $3.2 billion of new mortgages on behalf of ARI, and grew its mortgage portfolio to $7.9 billion at year-end, a 20% annual increase. Apollo continued to invest in talent, growing the commercial real estate credit team to 40 investment professionals in the U.S. and Europe, broadening both originations and asset management capabilities. We fortified the balance sheet through the addition of $800 million of term leverage throughout the year, extending maturities at an attractive cost, and increasing the pool of unencumbered assets to $1.9 billion at year-end. Most importantly, our efforts resulted in a well-covered dividend to ARI shareholders. 2021 was a record year for real estate transaction volume, leading to a record year for commercial real estate loan originations. As discussed throughout the year, there was robust competition in the lending market and a variety of financing options available to borrowers, from CMBS, banks and insurance companies, debt funds, and mortgage REITs. In this market environment, relationships, reputation, and track record are critical components of success, and we believe ARI's strong performance is reflective of the core advantages that Apollo's commercial real estate credit platform continues to provide the company. Across commercial real estate credit, Apollo completed $13 billion of transactions in 2021 and strengthened its position as a leading global provider of commercial real estate financing. There are a few themes from our originations activity in 2021 worth mentioning. First, the scale and expertise of Apollo's commercial real estate credit platform enabled ARI to participate in several larger transactions that were co-originated alongside other Apollo funds, which led to meaningful deployment on behalf of ARI. Next, I again want to highlight the success we achieved in Europe; over 60% of ARI's 2021 origination volume was for transactions in Western Europe, as our well-established European commercial real estate credit team continues to do an excellent job disintermediating traditional financial institutions and capturing market share. The types of transactions, quality of equity sponsorship, and deal structures for ARI's European loans are very similar to the transactions we complete in the United States, and we expect to remain active in Europe in 2022. Lastly, I want to highlight that 60% of our 2021 deals were with repeat borrowers, many of whom are top-tier global sponsors. ARI also closed transactions with eight new borrower relationships, totaling $1.3 billion, and we are very focused on converting those new borrowers into repeat clients. Importantly, our investment momentum has carried into 2022. To date, we have already closed approximately $275 million of new loan commitments, and I anticipate that we will close approximately another $2 billion of commitments prior to the end of the first quarter. While ARI's pace of originations and deployment is benefiting from the strength of the real estate capital markets, that strength is also reflected in the significant amount of repayment activity in ARI's portfolio. During 2021, ARI received $1.9 billion of repayments, with over 40% of the total occurring in the fourth quarter. Notably, ARI received repayments from over $300 million of hotel loans, approximately $560 million of loans collateralized by for-sale residential projects, and over $850 million from loan exposures across a variety of property types in New York City. As a result, our overall net exposure to New York City was reduced to 25%, as compared to 36% at the end of 2020. Pivoting to the portfolio, we remain focused on proactive asset management. Our loan portfolio totaled $7.9 billion at year-end, and there were no material changes to the credit quality of the portfolio or to our credit outlook since our last call. Notably, subsequent to quarter-end, the Oxford Circus retail property, collateralizing one of ARI's largest outstanding loans, was sold for an amount well in excess of basis resulting in full repayment of principal plus all accrued contractual and default interest. Shifting to financial performance, ARI reported distributable earnings per share for the year of $1.48 per share, resulting in a dividend coverage ratio of 106% for the $1.40 common stock dividend. As I have discussed previously, the Board of Directors looks at multiple factors when setting the dividend, including asset level returns and the return on equity from new originations factoring in financing costs and the appropriate leverage level for the company. The Board also seeks to take a longer-term view on achievable distributable earnings and seeks to limit the impact of quarterly fluctuations. Our goal is to provide a stable dividend without deploying capital into loans with a higher risk profile or using excessive leverage. At present, we anticipate the annual dividend for 2022 will be consistent with the existing dividend run rate, subject to the Board's approval. As is customary, our first quarter dividend for 2022 will be announced in March. I also want to highlight some of our capital market achievements in 2021. Throughout the year, we acted opportunistically to strengthen ARI's balance sheet and term out leverage when economically feasible. We added $800 million of term leverage during the year, with successful issuances of both the Term Loan B and secured notes. ARI ended the year with $1.9 billion of unencumbered assets, which we believe is one of the highest levels amongst our peer set. Importantly, we remain conservative with respect to leverage, with the company's debt-to-equity ratio at 2.4 times at year-end, consistent with the ongoing portfolio shift into first mortgages. Finally, we announced the appointment of Anastasia Mironova, a seasoned mortgage REIT professional, to the position of Chief Financial Officer of ARI, and she will join us early in the second quarter. I want to thank the team at Apollo dedicated to ARI for all of their hard work this past year, and I look forward to reporting on ARI's achievements as we progress into 2022. And with that, we will open the call up for questions.

Our first question comes from the line of Doug Harter from Credit Suisse. Your line is now open.

Thanks. Just on the repayment of the U.K. retail loan, will that create any kind of catch-up income in the first quarter with the repayments?

No, we were accruing the default interest along the way, Doug, as we were highly confident that we were going to get it paid back.

Great, thank you, Stuart. And then just any update you can give us around some of the other watch list assets, and where you might be as being able to kind of free up some of that capital for redeployment?

Yes. Obviously, nothing's happened yet of a material nature, otherwise I probably would have included it in my comments. But I would say anecdotally, at a high level, in Brooklyn, on the Fulton Street asset, where we've articulated our strategy to go forward with the development of a multi-family asset there, we are effectively approaching the market now for a construction loan. And we are also exploring, though haven't committed to, the possibility of bringing in a partner on the equity side that would free up some of the capital that ARI has invested into the transaction in order to deploy at least a portion of that capital productively in the short term. I think other near-term possibilities for freeing up some of the non-performing capital today are around our hotel asset in Washington, D.C., which I think we are exploring options for selling that asset. Those are probably the two nearest-term paths towards freeing up some of the non-performing capital. And then on the other column, focus assets, continuing to explore different possibilities on the Miami asset, and grinding through the asset management on the Liberty Center asset, in Ohio. And I would say with respect to the Steinway project, here in New York, certainly better foot traffic, definitely more interest from potential buyers, a few additional contracts have been signed, but definitely more work to be done in terms of finishing construction, and then progress on the sale side.

Thank you. Our next question comes from the line of Tim Hayes from BTIG. Your line is now open.

Hey, good morning, Stuart. Appreciate the comments around the dividend in your prepared remarks. Just want to maybe touch on that a little bit more, given obviously, not earning at this quarter, there was what I saw to be net contraction so far in the first quarter, but it sounds like the pipeline is very robust. And I don't know what payments are going to look like, but maybe you get back to net growth before the end of the quarter. But as I think about kind of where the portfolio is today, funding costs have also kind of shifted a little bit higher as you've brought on more corporate debt. What gives you the confidence that you believe you can cover the dividend on an annual basis? And where do you think kind of that coverage comes from, is it growth and a bit higher leverage or is some of it dependent on the expectations for higher rates this year? Any comments on that would be helpful.

Yes, I think we should start where you ended and then address your question.

Sure.

We certainly run a version of the model internally, that reflects some of what people are expecting on the short end of the curve, which would clearly be beneficial from an earnings perspective. And obviously saw the piece you put out recently, which sort of alludes to the potential pickup across the sector if short-term rates rose. I would say my comment with respect to covering the dividend is not dependent on; call it, the expectations of the short end of the curve. It's really just; I think a lot of what took place in the fourth quarter was really timing between when repayments occurred and sort of the closing of deals. And I've spoken for years on the challenges of committing capital to deals that we know are ours. But at the end of the day, these are privately negotiated transactions, and we oftentimes are not in control of the timing when it comes to forcing things to close. But I would say, just given the pace of the pipeline, what I think we can earn on the pipeline on a ROE basis given returns at the asset level, and then really not doing anything unexpected with respect to leverage, which is to say we typically, to the extent we're using asset-specific leverage, typically financing things at roughly 70% on a secured borrowing facility, and then not changing the overall corporate leverage as it exists today, recognize we have some of that corporate leverage that matures later on this year in the form of a convertible note. And we will certainly focus on getting that repaid and replaced. But I don't envision increasing corporate leverage. So, it's really, from our perspective, the ROEs we're generating at the asset level are new deployment. I think we are obviously very focused on being as efficient as from a capital deployment perspective as we can be vis-à-vis timing and trying to line up repayments and new deployments as best as we can. There might be some leakage. And I think my comments were meant to indicate that if there is a quarter where things didn't line up as best as we would have hoped from a timing perspective, and it indicates we're a penny light here or there, that's not going to impact dividend policy at the end of the day. And then to reference back to Doug's question, if we are successful in turning some of the non-earning capital into capital that can be deployed and achieve our typical ROEs, I think there's pickup in earnings from that as well that we're sort of taking a cautious view on but are certainly optimistic that we'll succeed on some of that this year as well.

Thank you for the breakdown of your thoughts. Since you mentioned the conversion this year, I wanted to discuss liquidity. It seems you've extended some of your credit facilities, but the total commitments from certain counterparties appear to be slightly reduced. This means there may be less available to draw from compared to last quarter. You're possibly anticipating some growth this quarter, but you have a maturity coming up too. How do you approach your liquidity position and balance growth with these capital requirements?

Yes, look I think we sort of separate them in some respects which is to say to me what we decide to do on the convert ties into the access to capital we've created for the company in a variety of call it corporate level debt markets, i.e., term loan, convertible notes, secured notes. We'll explore all of those as we think about how to address the convertible notes. And we'll focus on the best combination of cost and duration. But I think given what we have done in those markets previously absent any significant upheaval in the markets, we'll have an ability to access there. But away from those markets, constant dialog with banks around our secured lending relationships, I would say there has been some movement in terms of banks and who we are increasing our relationships with and sort of reducing some other relationships but also active dialog on bringing in some new relationships as well. And obviously, very cognizant of the interplay between what we do on an asset and what we do at the corporate level. I would say net-net of all of that is we have a version of our model internally that if for whatever reason the corporate style financing markets breakdown, we have path to addressing the converts with existing available asset leverage to the extent we need it.

Very helpful. Thanks for the comments, Stuart.

Sure.

Thank you. Our next question comes from the line of Stephen Laws from Raymond James. Your line is now open.

Hi, good morning.

Morning, Stephen.

Morning, Stuart. You touched a little bit on your comments especially on the loan sales in New York now 25%. U.K. is up pretty substantially and international is now, I believe, 45% of the portfolio. And you talked about your team there, but can maybe a little bit more about Europe and why you find that attractive? You certainly have the highest mix of exposure relative to the peer group?

Yes, let me approach it differently this time because I think our team in Europe is probably tired of hearing me describe it as a less competitive market, as that makes their jobs seem easier than they truly are. A few dynamics are at play here. It's important to emphasize that what we do in Europe closely mirrors our operations in the U.S. regarding sponsorship types, transaction styles, and importantly, our comfort level as lenders. We feel well protected in Europe from a legal perspective, just as we do in the U.S. This leads us to view our pipeline without geographical bias; if a deal makes sense in Europe, it is akin to a deal succeeding in the U.S. We particularly appreciate the ability to finance in local currency and hedge any remaining exposure back to U.S. dollars. While there is a CMBS market in Europe, it does not match the robustness of the U.S. market, giving us a bit more room to maneuver and close deals there. Interestingly, in the U.S., larger deals often have tighter trade, especially due to the depth of the single asset, single borrower CMBS market, which has different dynamics in Europe, where fewer players are interested in large deals. Additionally, much of what we do in Europe involves partnerships, either with other parts of Apollo Capital or with firms that might be seen as competitors, carving out a nice niche for ourselves. Economically, while it's not the main reason for pursuing deals, there's a tangible benefit to hedging from Euro back to USD due to interest rate differentials, making European deals quite appealing from a financial perspective. Lastly, our real estate credit business in Europe benefits significantly from Apollo's active real estate equity operations there, offering valuable data, relationships, and connections for our credit team based in London. This has certainly bolstered our underwriting abilities and helped us source transactions effectively. Overall, we've executed well in Europe, and as I consider our pipeline, it remains a blend of European and U.S. opportunities. While I won't specify percentages, I can confidently say that Europe will continue to play a significant role in our portfolio moving forward.

Great. I appreciate all the comments on the international exposure. Thanks, Stuart.

Sure.

Thank you. Our next question comes from the line of Jade Rahmani from KBW. Your line is now open.

Thank you very much. One of your peers acquired a loan portfolio from a bank. And it seems that this was the first such acquisition in some time. I know from our bank analysts that the stress test recently increased assumed loss rates on commercial real estate, which could have a negative impact on bank allocation of capital towards their lending. So, wondering if you see that as an opportunity in the space and perhaps if some reduction in bank originations is partly explaining the surge in originations that the mortgage REITs have evidenced.

Great question. Let me comment on both parts of it because I think there were two parts of it. I think, with respect to the first part, I would say clearly one of the benefits of sitting inside a place like Apollo is there's broadly a lot of connectivity with banks generally speaking and always looking for ways to transact with each other. That being said, I would put the concept of buying portfolios in the banks, at least from our perspective, as potential that something episodically happens, but certainly not viewed as a primary driver of deployment for us as we look forward in 2022. I would say our activities will still be very much deal-specific origination. So, to your first question, then I think to the second part of your question, I would still say that the primary source of activity for the mortgage rates these days is the combination of the amount of dry powder available in value add and opportunistic funds that have been getting deployed from the fall of 2020 continuing into this year, creating opportunities for us and our peers to lend in situations where assets are not stabilized. There is a business story around what somebody wants to do with the asset and I would say this notion of borrowers in transitional assets wanting to borrow from institutions where they're dealing principal-to-principal and to the extent things don't go according to business plan, or things go better than business plan. There's a direct dialogue with someone who can pick up the phone and react as needed to adjust the financing to what's going on at the asset. So, I think that's been the primary driver of why you've seen continued percentage growth in terms of the mortgage REIT part of the lending sector. We still see the banks being on par pretty active here in the U.S. So, I don't think any pullback from the banks yet has been reflected in terms of a lack of competition from that sector as we see it overall.

Thank you very much. And credit historically, ARI has veered toward you, I don't know how you want to characterize this, but within the mortgage REIT space probably at the higher end of the recovery we had clearly shifted more of what we were doing to senior loans. From a structural perspective, though I would say at that point we were still comfortable taking more. Putting ourselves in more situations, where more was being done to the real estate, whether it was construction, heavy redevelopment, renovation, etc. I think coming out of the other side of the pandemic, I would say structurally everything we are doing at this point is a senior loan. I don't see that changing meaningfully episodically. We look at marriage transactions from time-to-time, but really don't expect much to happen there. So, structurally, I would expect to see us continue to remain in first mortgages and then in terms of what is being done to the real estate. I would put construction now more in the episodic bucket as opposed to something that we were a little bit more focused on in the '17, '18, '19 timeframe. And I think we're really focused on those situations where assets are being upgraded, and things are being renovated. So, maybe taking the asset-level risk down a bit, but I still think generally speaking we're probably going to be in more situations where something is being done to the real estate, as opposed to just a lease-up play for lack of a better phrase.

And just on those two changing attributes, structural as well as execution. Is it a function of lessons learned? Is it a function of you feel that maybe the real estate correction didn't really happen falling out from COVID because of the way that market reacted and all the government support or is it really just a relative value calculus where you feel, what you're doing now first mortgages, but less construction is where the best relative value is?

I believe it stems from several factors. From a risk-adjusted return perspective, we need to generate returns on equity that work without taking on ground-up construction risk. This seems like a sensible approach for deploying our vehicle. Also, regarding your initial question, there was a brief setback in the real estate market recently. While certain property types may still face challenges, the pandemic didn't lead to a significant downturn in real estate. One major influence on our thinking has been the pandemic's impact on construction timelines, which were delayed due to shutdowns, safety mandates, and issues with material delivery and labor. Consequently, many projects in the development pipeline are being completed later than expected, meaning that development supply is arriving on a delayed schedule. This situation compels us to adopt a more cautious outlook on newly created products since we still need to manage the absorption of this delayed delivery. Ultimately, my answer remains that to the extent we can achieve our target returns on equity without accepting asset-level risk, we believe that's the best approach for deployment.

Thank you for taking the questions.

Of course.

Thank you. Our next question comes from the line of Steve DeLaney of JMP Securities. Your line is now open.

Thanks. Good morning, Stuart.

Good morning.

Jade mentioned that we also observed the mezzanine payoffs, which is encouraging and indicates a positive market trend. I wanted to discuss the hotel sector, as it represented 24% of our portfolio at the end of last year. In terms of new commitments during the first quarter, it appears that nearly 40% came from urban at 18 and leisure at 21. Could you provide some insight into whether these loans were U.S.-based or European? Regardless of location, how do you currently view the hotel sector? What specific types of hotel investments are you finding appealing? Thank you.

Yes. I appreciate the question, Steve. Look, obviously as part of the pandemic we started breaking things out between call it urban and leisure or destination and urban. Look, I think the performance of things that fall in the category of leisure or destination has been remarkably strong. We are very comfortable with the existing portfolio and would certainly seek to add additional of those types of hotel to the portfolio because I think one of the improvement as a result of the pandemic is you lock people up with their families for long enough and they definitely want to get on vacation and go somewhere.

Absolutely.

I think the urban is a bit more mixed. We were actually seeing a nice pickup in performance across the existing portfolio pretty much through the fall. And then, Omicron hit which obviously was a bit of a hiccup for everyone. That being said, despite some choppiness on the operating performance side, there has actually been a pretty robust market in terms of just purchase and sale activities on urban hotels, which does tie back to my earlier comment on perhaps something happening this year with our Washington, D.C. hotel. Certainly, a much more cautious view with respect to deploying additional capital into hotels that we would as urban at this point. But, we like the hotel space in general. We think it is poised to recover pretty strongly once we get to the other side of this pandemic. So, we will continue to look for those opportunities where we think we are getting paid for the risk.

Great, and it's good color. And when you commented earlier about real estate funds dry powder and a lot of it with an opportunistic angle, hotels are so specialized. In terms of those particular real estate investors, are there pools of money that you've run into potential borrowers that are specifically targeting hotels as an asset class whether that's here in the U.S. or abroad? Are you seeing the flow of opportunistic money and creating the purchase and sale activity, is some of that specifically focused on the hotel industry?

Yes. I couldn't give you an exact percentage. But I can tell you there were definitely vehicles formed during the pandemic to target hospitality opportunity specifically. And there have definitely been ventures formed between capital and managers, as well as capital and those who seek to pick off assets through CMBS, etc. So, there is definitely hotel-focused capital looking at what took place as a very opportunistic scenario.

Thank you. Our next question comes from the line of Rick Shane from JPMorgan. Your line is now open.

Hey everybody. Thanks for taking my questions this morning. Can you talk a little bit about the trajectory and run rate? When we look at distributable earnings prior to realized losses continue to be under pressure; you have commented on your confidence and the ability to retain the dividend or expectations and retain the dividend in 2022. I am curious when we think about the fourth quarter, how we should put in the context of the timing of everything that happens? You mentioned, for example, that a lot of the repayments were late in the quarter. So, what does imply for an FII run rate? And where do you need to get to in order to start covering the dividend distributable earnings?

Yes, I would say a couple of things. So, first of all, I think as you think about the fourth quarter, Rick, there was definitely a pickup in G&A for the fourth quarter, which was probably about a penny of impact, which was due to some things we did on our term loan to effectively change the amendments on the term loan. So, there's probably a penny of impact there in the fourth quarter. And then, I think what I did say in my comments was I think what actually took place to some extent in the fourth quarter was that you had the repayments taking place sooner than some of the redeployment. So, we knew the capital was coming back. We knew we had deals that spoke for a lot of the redeployment. But, it sort of happened a little quicker on the repayment side than the redeployment side of things. I think from a run rate perspective as you think about net interest income, I think we expect to be pretty close to run rate in the first quarter. It might lag a little bit between the first and second quarter. But ultimately you are getting to a net interest income in the high $50s-low $60 million range from a run rate perspective as we present, call it, net interest income. We think about it after the preferred dividend as well.

Stuart, two things. First of all, I clearly misunderstood the timing. I reversed it. So, that's helpful. And thank you for the clarity in terms of the NII; that helps us set expectations appropriately. Really appreciate both.

Sure.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Stuart Rothstein for closing remarks.

Thank you, Operator, and thanks to everybody who participated this morning. We will speak to you in another couple of months. Thanks all.

This concludes today's conference call. Thank you for participating. You may now disconnect.