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 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.apollocref.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 Weiner, our Chief Investment Officer; and Anastasia Mironova, 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 hospitals. That joint venture then leased the properties to Steward Health Care, 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 30, 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 3 to a 4. 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 10-Q 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 a 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 6 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. 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 leveraged 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 were significant sales momentum at 111 West 57 Street with 6 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 $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 the weighted average unlevered yield of 8.9%. In addition to the new investments, Stuart 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 6 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 a $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-rated 4. In conjunction with recording a specific CECL allowance for this loan, we downgraded the risk-rating to a 5. It is worth noting that this loan is current on all its contractual debt service payments. The General CECL Allowance stood at 47 basis points of the loan portfolio's amortized cost at June 30, a 3 basis points increase as compared to the end of Q1. This increase was primarily attributable to new loan originations as well as a more adverse outlook for certain property types. Our total CECL allowance was 440 basis points of the loan portfolio amortized cost basis at June 30, which represents $2.47 per share of book value. ARI book value per share, excluding general CECL 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 a 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 covenants. 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 a $74 million of accretive financing for the Mayflower Hotel in Washington, DC, enabling ARI to earn an enhanced leveraged return on equity as we continue to monitor the market to determine the optimal time to sell the hotel. We also upsized our secured credit facility with Barclays during the quarter, providing ARI with an additional $300 million of additional capacity. Our debt to equity ratio at quarter end was 3.4x. 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.

Our first question comes from Doug Harter with UBS. You may proceed.

Thanks, and good morning. On the hospital loan, just wondering if you have any recourse or obligations to the ultimate borrower, and the operator of the hospitals?

No, we do not.

Got it. So it's just the real estate?

I mean, it's a real estate loan from our perspective, Doug. And we'll do what we can to protect our rights as a lender.

Great. And I guess just as you think about that asset class, how do you think about recovery values, or to the extent that some of those hospitals are ultimately closed?

I think while we initially viewed them as a portfolio of eight hospitals, we now see each as an individual asset. Things are somewhat in flux, but we are working to evaluate each piece of collateral separately and determine how to maximize recovery while also considering the concerns of other stakeholders involved.

Great. Appreciate it.

Thank you, Stuart.

Thank you. Our next question comes from Rick Shane with JPMorgan. You may proceed.

Thank you everyone for taking my question. The world has changed significantly over the past month regarding the outlook on interest rates. I'm interested in understanding that over the next few years, we will likely encounter two timelines. One involves facing new challenges within the portfolio, and the other pertains to addressing existing troubled loans. Can you elaborate on whether we are nearing the end of the emergence period and if you have a clearer understanding of where the risks lie in the portfolio? Will the focus going forward be on resolution? Can you give us an indication of what stage we are at in each of these areas?

Yes, I think I agree with the general premise of your question, Rick, which I feel like we sort of know what our focus list is or what our hot spots are. And I think at this point we're focused on a path towards resolution, which could play out over some time. And I think we've all been around this sector long enough to know that just because there is a stated maturity date or a target resolution date, sometimes things can go through an iterative process where it plays out over time. I think we are encouraged by the fact that the market in general, there seems to be more activity, which I think that leads to some enhanced clarity around where value is and where things can get resolved. But I would say sitting here today, given where you started the question, I feel like we've got a good sense of what those things are that we need to focus on. And it's really a matter of getting to resolution on the things that are on our focus list while at the same time making sure we're doing a good job of getting capital that comes back to us redeployed into transactions we're excited about.

Got it. And look, there's a concept of rational expectations. And I'm curious how quickly you see the rate outlook impacting sentiment and behavior amongst your borrowers. I mean, again, we are just weeks into this in terms of a pretty seismic shift in terms of rate outlook. But you guys are in the market every day. You're having conversations. Are you seeing the tenor of things change that quickly? Or what should we expect in terms of how you think borrowers are going to potentially become more aggressive about defending their positions given the carrying costs are likely to go down over the next 12 to 24 months?

Yes, I mean, I think you're asking the right question. I think it is anecdotal at best right now because things are occurring fairly quickly and it's also arguably a month where people sort of get somewhat detached for a period of time. But I could say certainly anecdotally I would say both in terms of existing borrowers as well as potential new transactions in the market, anecdotal evidence suggests that there is renewed interest on the equity side of the real estate business in general for people feeling like if they can sort of step into assets today, they might end up in a fairly attractive financing market from a rate perspective sooner than they might have thought.

Got it. Really appreciate it, Stuart. Thank you so much.

Thank you. Our next question comes from Stephen Laws with Raymond James. You may proceed.

Hi, good morning. Stuart, I guess first to follow up on Doug's question around the hospital, any thoughts on how timing plays out, or do you expect the loan to go nonperforming? I know you said it's current as of today. And will that specific reserve hit in Q3 or are there events that happen further out in the future that drive that way?

Best guess today is that the reserve should be coming in the second half of the year. There's just a lot of moving pieces, a lot of constituents involved, and we don't want to sound non-responsive, but it is playing out daily and it's tough to give any more clarity right now.

Understood. Shifting gears to the investment pipeline, pretty active quarter there with a lot of new originations, that's continued in July. I think it's coincidental, but Q2 had four U.S. loans, July had two Europe loans. But can you talk about your pipeline, what you expect as far as portfolio turning over with repayments coming in the back half and being recycled into new investments? And should we take this recent pace of the last 4 months and expect that to continue over the remainder of the year?

I mean, look, as I indicated in my response to the question from Rick, it's a pretty active market right now. I think both equity investors and lenders are finding ways to get transactions done. And I would say if anything, the volatility around the economy over the last week or so and what that certainly implies for certain people vis-à-vis rate movements probably only adds to the positive momentum behind transaction activity. So broadly speaking across the real estate credit business at Apollo the pipeline is robust and we're looking at a lot of things and we're going to have a pretty robust year in terms of overall deployment and I think we remain optimistic about AMI getting paid back on the things we anticipated repaying this year and as a result we think we're well-positioned to get that capital redeployed as capital comes back to us.

Great. And then finally wanted to touch on the dividend. The current dividend rate implies about a 10.5% ROE on book and pro forma for the specific reserve coming on the hospital loan, it would be a little over an 11% return on book. Do you view that as sustainable, given your outlook for portfolio returns and kind of what you're seeing on the new investment side?

I mean, I think as I implied in my remarks, we're generating ROEs consistent with what we've done historically. So that feels good. I think as OA, we'll handle the dividend through our quarterly discussion with the Board, which is plus or minus 5 weeks from now. I think for us, we just want to make sure we are being mindful of what the earnings trajectory looks like over time. Obviously, there's positive momentum for us as we bring back and hopefully some of the underperforming capital, but we might be facing a different interest rate curve environment, so a lot of factors will go into the dialogue overall, but just in terms of the ROEs we're generating on new transactions, they're pretty consistent with where they've been historically.

Great. Appreciate the comments this morning, Stuart. Thank you.

Thank you. Our next question comes from Steve Delaney with Citizens JMP Securities. You may proceed.

Thanks. Good morning, Stuart and team, and congratulations on your full coverage in a challenging market for the second quarter. My question builds on Stephen's, looking back at the first half of the year. Interestingly, or perhaps by design, your portfolio was $8.3 billion at year-end '23, and it's right around the same figure, within 100 million, as of June 30. As we look toward the second half of the year, do you think the best approach for analysts and modeling would be to maintain a relatively stable portfolio? It seems you're identifying opportunities that would prevent significant shrinkage. I'm curious about your perspective—can you sustain the portfolio? Also, considering the potential for a lender's market developing over the next one to two years after this year, could 2025 see a considerable influx of new equity into commercial real estate? What are your expectations and hopes for 2025 after we finish this year? Thank you very much.

So I'd say a few things. I think your notion of 2024 sort of moving sideways in terms of portfolio size is a reasonable assumption. We'll get capital back. We'll put capital out. But there's really not a catalyst for growth per se. So again, don't give me a hard time if we're talking $100 million in either direction, but that feels pretty good. I think sitting here today and I'm looking at it both through the lens of what we're seeing in our real estate credit business, but also what we and others are thinking about vis-à-vis various tools of real estate equity capital. I do think 2025 could be a pretty active year. Obviously there's sort of an overall economic overlay around that, but if we achieve the hoped-for soft landing with some moderation of interest rates, with the economy in there, I do think there's still a lot of capital looking to be active and 2025 could be pretty busy. I think the greatest opportunity for us to be growing and more active in 2025 is around turning some of our more challenging asset management situations into resolutions which give us back capital with which to deploy. So if you go back to my comments, I'm harping on getting the senior paid back on 111 West 57th because once the senior is paid back, every incremental dollar of unit sales comes back to us directly, which provides capital to put to work offensively. And then obviously, I think everybody's aware of some of the other situations we're involved in as well.

That's helpful. And of course, if we get something close to a 3% fed funds rate, I guess that doesn't do anything but help that scenario, right, for 2025?

I think you're right. Yes.

Yes. All right. Thanks. Stay well.

You as well.

Thank you. Our next question comes from Jade Rahmani with KBW. You may proceed.

Thank you very much. Starting with 111 West 57th, if we could just summarize the deal and ARI's position, could you give the remaining units left to be sold at this stage?

I'd rather not be specific on the number of units, but to start the question, Jade, as I sort of indicated in remarks, we ended the first quarter with there being a $200 million senior loan in front of ARI's position that has been paid down to about $140 million and there's roughly another $70 million of units under contract. So we think we are in short order down to $70 million in front of us with confidence around continued sales on that.

So the $70 million that's under contract, over what time frame will that close?

It'll close during the second half of the year.

Okay. And as of the second quarter, ARI's position included $261 million of senior debt and $74 million and $28 million of junior debt for a total of $363 million.

Yes.

Okay. Just wanted to make sure that was clear. Turning to the health care situation, can you say whether this will be an REO property? Because it's quite complicated. The owner of the real estate is in a joint venture 50-50, and then there was an operator. There's media reports that the operator rejected the lease. There's reports that there weren't bids on at least two of the hospitals, and also that the rent payments are too high, complicating the situation. So I know there's ongoing negotiations with the state and such. But do you anticipate this will be an REO?

I think I'll refer back to what I said to, I think was Doug's question, which is at this point. I think you need to think about it as eight individual assets as opposed to one consolidated portfolio. And I think it is certainly possible that there will be differentiated outcomes for different hospitals.

Okay. And then the adequacy of the $90 million reserves, sorry to say this about the industry, but mortgage REITs don't tend to be overly conservative when it comes to reserves. Anything you could talk about as to how you got to the $90 million? I know it is about 26% of ARI's loan exposure, but any color on that?

I think the process we went through for this reserve was consistent with the process we've been through for every other specific seasonal reserve we've taken.

And on the new origination front, I've always appreciated ARI's differentiated perspective on multifamily. And so now I see two multifamily loans, which are refinanced loans at quite a low LTV as well. So I'm not sure if that's a future projected stabilized LTV or what the basis is. But how are you thinking about approaching the multifamily space, something historically ARI has not really played in?

Yes, look, I think the perspective at the macro level is that long-term, there is still need for and demand for high-quality multifamily. So we like the space in general. Our historic reticence with respect to multifamily has been a combination of concerns over valuations, competition in certain situations from GSEs, etc. I think sitting here today, we've been in a window whereby on the margin there's been for a brief period of time, maybe less competition on certain of the transactions we've pursued. We like the long-term macro positioning of multifamily and we found some situations that work for us. As always, we continue to run the portfolio on a bottoms-up deal by deal basis. So I would not read into this any change in sort of overall thesis or a desire to create something at a certain percentage. We'll continue to look deal by deal, but for a moment in time, given the volatility in the marketplace, the team was able to source some pretty interesting opportunities. So we've always had a positive macro thesis about this space. It's really been about sort of valuations at a moment in time and how we thought about the ROEs on a risk-adjusted basis for multifamily deals versus other opportunities.

The two deals mentioned in the presentation include at least one in California that seems to be a new Class A build, possibly a luxury option. Can you clarify what your strategy is? Are these deals that involve financing for recently completed constructions, or…

Yes.

Okay.

It's new product lease-up plays.

All right. Thanks a lot for taking the questions.

Yes, I believe the one in D.C. was constructed recently, around 2016. It is not a typical lease-up situation. As you may remember, D.C. had some very lenient laws regarding tenants, especially during COVID, which led to disruptions like evictions that the sponsor has been addressing. In this case, it was a refinancing for the sponsor who invested significant equity, reduced the loan, and is currently working on improving the rent roll.

Thank you.

Thank you. Our next question comes from Eric Dray with Bank of America. You may proceed.

Hi, good morning. Jade covered most of my questions, but just one I guess is can you talk a little bit about the opportunity in Europe and kind of what you're seeing over there in terms of the pipeline? And also was just curious about kind of the office trends there. Most of the upcoming office maturities in your portfolio are in Europe. So any color you could kind of give on that would be interesting as well.

Scott, go for it.

Sure, I'll start with the office question. Similar to the U.S., each market and city has its own dynamics. Fortunately, most of our exposure is in London, which remains one of the stronger markets with people returning to the office. Additionally, in London and Europe, more emphasis is placed on LEED certification and environmentally friendly offices compared to the U.S., which is taken seriously by tenants. As a result, there is a strong demand for modern green spaces. London is also considered a safe haven for investment, attracting international capital. Consequently, we are seeing tenants in London returning to the office and signing leases for newer buildings. Financing and acquisition capital are also available. Our largest office asset is in London, where we have a 20-year lease with a major financial institution as their headquarters. This asset continues to generate revenue over time, which explains the increase in our office exposure. Overall, we're observing positive trends in London and other European markets. Regarding deal opportunities in Europe, the market has not developed a significant CMBS framework. Instead, it has a more robust corporate bond market that REITs have utilized. The absence of a substantial CMBS market means that while the U.S. might see more deals through the SASB market, Europe does not have this advantage. We've identified opportunities in pan-European deals that involve multiple jurisdictions, which banks are more cautious about. We have strong technology and acquisition capabilities in various property sectors, allowing us to pursue larger deals with Apollo Capital across multiple funds without taking on syndication risks. These conditions provide us with a competitive advantage. Additionally, the loan-on-loan or warehouse financing sector remains active in Europe, enabling us to secure attractive financing terms. Currently, there isn't much of a currency advantage between the pound and the dollar, although there is still a slight edge in the European market.

Thank you. I would now like to turn the call back over to Mr. Rothstein for any closing remarks.

Thank you all for participating.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.