Q4 2021 Apollo Commercial Real Estate Finance Inc Earnings Call

February 9, 2022

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

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.

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.

<unk> 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.

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.

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.

<unk> to differ materially from these statements and projections.

In addition, we will be discussing certain non-GAAP measures on this call. Which management beliefs are relevant to assessing the company's financial performance?

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.

These measures are reconciled to GAAP figures in our earnings presentation, which is available on 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.apollo.ret.com or call us at 212-515-3200. At this time, I'd like to turn the call over to company's Chief Executive Officer, Stuart Rothstein.

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 visit our website at Www Apollo R E D.

Dot com or call us at 2125153200 at this time I'd like to turn the call over to 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'm joined today as usual by Scott Weiner, Our Chief investment Officer.

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 Wiener, 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 in 2020.

<unk> 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 MRI and grew its mortgage portfolio to $7 $9 billion at year end, 20% annual increase.

Apollo continued to invest in talent, growing the commercial real estate credit team to 40 investment professionals in the US and Europe , broadening both originations and asset management capabilities.

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 our balance sheet through the addition of $800 million of term leverage throughout the year.

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.

Extending maturities at attractive cost and increasing the pool of unencumbered assets to $1 $9 billion at year end and most importantly, our efforts resulted in a well covered dividend to shareholders.

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 origination.

121 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 in a variety of financing options available to borrowers from see MBS banks and insurance companies.

As discussed throughout the year, there was robust competition in the lending market and a variety of financing options available to borrowers from CNBS, banks and insurance companies, debt funds and mortgage.

These debt funds and mortgage Reits in this market environment relationships reputation and track record are critical components of success and we believe <unk> strong performance is reflective of the core advantages.

In this market environment, relationships, reputation, and track record are critical components of success, and we believe AI's strong performance is reflective of the core advantages that Apollo's commercial real estate credit platform continues to provide the company.

Palos 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 finance.

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 moon.

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 <unk> to participate in several larger transactions that were co originated alongside other Apollo funds, which law.

To me.

Full deployment on behalf of.

Next, I again want to highlight the success we achieved in Europe . Over 60% of AI'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.

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 disintermediation 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.

The types of transactions, quality of equity sponsorship, and deal structures for ARIs, 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 spawns.

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 borrowers relationship, totaling $1.3 billion, and we are very focused on converting those new borrowers into repeat clients.

<unk> 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 new loan commitments, and I anticipate that we will close approximately another $2 billion of commitments prior to the end of the first quarter.

Importantly, our investment momentum is carried into 2022 to date, we have already closed approximately $275 million, new not new loan commitments.

I anticipate that we will close approximately another $2 billion of commitments prior to the end of the first quarter.

While the 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 and ARI's portfolio.

While <unk> 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, AI received $1.9 billion of repayments with over 40% of the total occurring in the forest quarter.

During 2021, <unk> 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 four sale residential products, projects, and over $850 million from loan exposures across a variety of property types in New York City.

Notably <unk>.

<unk> received repayments from over $300 million help hotel loans, approximately $560 million of loans collateralized by for sale residential product 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.

As a result, our overall net exposure in New York City was reduced to 25% as compared to 36% at the end of 2020.

Tiveting to the portfolio, we remain focused on proactive asset management.

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.

Our loan portfolio totaled $7.9 billion a 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 AI's largest outstanding loans, was sold for an amount well in excess of basis, resulting in full repayment of principle, plus all approved contractual and default interest.

Notably subsequent to quarter end, the Oxford Circus retail property collateralized one of Ari's largest outstanding loans were 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 just...

Shifting to financial performance <unk>.

<unk> distributable earnings per share for the year of $1 48 per share, resulting in dividend, resulting in a dividend coverage ratio of 106% for the dollar 40 common stock dividend.

As I have discussed previously the <unk>.

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.

Lord 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 level of leverage level for the company.

The board also seeks to take a longer-term view on achievable, distributable earnings and seek to limit the impact of quarterly fluctuation.

<unk> 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.

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.

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 markets that she's meant in 2020.

I also wanted 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.

Throughout the year, we acted opportunistically to strengthen <unk> balance sheet and term out leverage when economically feasible, we added $800 million of term leverage during the year with successful issuances of both a term loan b and secured notes.

We added $800 million of term leverage during the year with successful issuances of both a term loan B and secured no.

ARI ended the year with $1.9 billion of unencumbered assets, which we believe is one of the highest levels amongst our peer sets.

I 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 mortgage

Importantly, we remain conservative with respect to leverage with the Companys debt to equity ratio at two four times at year end consistent with the ongoing portfolio shift into first mortgages.

Finally, we announce the appointment of Anastasia Miranova, a seasoned mortgage-repefessional to the position of chief financial officer of AI, and she will join us early in the second quarter. I want to thank the team at Apollo, dedicated to AI for all of their hard work this past year, and I look forward to reporting on AI's achievements as we progress into 2022. And with that, we will open the call up for questions. Operator?

Finally, we announced the appointment of anesthesia mirror, Nova a season mortgage REIT professional to the position of Chief Financial Officer of AI and she will join US early in the second quarter.

Want to thank the team at Apollo dedicated to <unk> for all of their hard work. This past year and I look forward to reporting on <unk> achievements as we progress into 2022.

And with that we will open the call up for questions operator.

As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by when we compile the Q&A roster. Our first question.

Sure.

As a reminder to ask a question you will need to press star one on your telephone.

With draw your question press the pound key please standby, while we compile the Q&A roster.

Yes.

Our first question comes from the line.

of Doug Harder from Credit Suisse. Your line is now open.

Doug Harter from Credit Suisse. Your line is now open.

Thanks. Just on the repayment of the UK retail loan, will that create any kind of catch up income in the first quarter with the repayment? No, we were accruing the default interest along the way, Doug, is we were highly confident that we were going to get it.

Thanks.

On the repayment of the U K retail loan will that create any kind of.

Catch up income in the in the first quarter with the repayments.

We were we were accruing the default interest along the way Doug is we were.

Highly confident that we were going to get it paid back.

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 free up some of that capital for redeployment.

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 is being able to kind of free up some of that capital for redeployment.

Yeah, obviously nothing's happened yet of a material mixture. Otherwise, I probably would have included it in my comments, but I would say anecdotally at a high level.

Yeah, 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.

In Brooklyn on the Fulton Street asset, where we've articulated our strategy.

to go forward with a development of a multi-family asset there. We are effectively approaching the market now for a construction loan, and we are also exploring though having committed to the possibility of bringing in a partner on the equity side that would free up some of them.

To go forward with the development of a multifamily asset there.

We are.

Secondly.

Approaching the market now for a construction loan.

And we are also exploring though having committed to them.

The possibility of bringing in a partner on the equity side that would free up some of the.

the capital that AI has invested into the transaction in order to deploy, at least a portion of that capital productably in the short term. I think other near-term possibilities for freeing up.

The capital that has invested into their transaction in order to deploy.

At least a portion of that capital productively in the short term.

Other near term possibilities for freeing up.

some of the non-performing capital today are around our hotel asset in Washington DC, which I think

Some of the nonperforming capital today are around our hotel asset in Washington, D C, which I think.

You know, we are exploring options for selling that asset.

We are exploring options for selling that asset.

Those are probably the two nearest terms paths towards freeing up some of the non-performing capital and then on the other, column focus assets continuing to score different possibilities on the Miami asset and grinding through the asset management on the Liberty Center asset.

Those are probably the two nearest terms paths towards freeing up some.

Some of the nonperforming capital and then on the other.

Column focus assets continuing to score.

Different possibilities on the Miami asset.

And you know grinding through the asset management on the Liberty Center asset.

in Ohio and I would say with respect to

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.

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.

A few additional contracts have been signed.

But definitely more work to be done in terms of finishing construction and then progress on the sales side.

Okay.

Yeah.

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

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

Hey, good morning Stewart. Appreciate the comments around the dividend and your prepared remarks. Just kind of want to maybe touch on that a little bit more given, you know, obviously not earning at this quarter.

Hey, good morning, Stuart I appreciate the comments around the dividend in your prepared remarks, just kind of wanted to maybe touch on that a little bit more given obviously not earning at this quarter.

that there was what I saw to be in that 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 you know, they think about kind of where the portfolio is today. You know, funding costs have also.

There was one eight by Saudi net contraction so far in the first quarter, but it sounds like the pipeline is very robust and I don't know where payments are going to look like but maybe you get back to net growth before the end of the quarter, but as you think about kind of where the portfolio is today funding cost have also kind of shifted a little bit higher.

shifted a little bit higher as you brought on more corporate debt. You know, what gives you the confidence that you believe you can cover the dividend on an annual basis? And where do you think that kind of that coverage comes from? Is it growth and a little bit higher leverage or, you know, is some of it dependent on kind of the expectations for higher rates this year? Any comments on that would be helpful.

As you brought on more corporate debt.

It 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 is it growth and a little bit higher leverage work is done.

Depending on on kind of the expectation for higher rates this year.

Any comments on that would be helpful.

Yes look I think we let me start sort of where you ended and then and then work through the question.

We certainly run a run a version of the model.

Internally there.

It 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.

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 picked up across the sector if short-term rates rose. I would say my comment with respect to

Recently, which sort of alludes to the potential pickup across the sector. If if short term rates rose.

Yes, I would say my comment with respect to covering the dividend is not dependent on it.

covering the dividend is not dependent on

Call it.

call it the the the expectations of the short end of the curve. It's really just

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

I think a lot of what took place in the fourth quarter was really timing between.

When repayment occurred and.

who are 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 timing when it comes to forcing things to close. But I would say just given the pace of...

The closing of deals and Ive spoken for years on the 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 timing when it comes to forcing things to close but I would say just given the pace of that.

the pipeline, what I think we can earn on the pipeline on a

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

ROE basis, given returns at the asset level, and then really not doing anything unexpected.

Unexpected with respect to leverage, which is to say we typically, to the extent we're using assets specific leverage

<unk> 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...

Typically financing things at roughly 70% on a secured.

Borrowings facility and then.

And then not changing the.

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...

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, you know, from our perspective, the ROEs were generating with the asset level on new deployment work. I think we are obviously very focused on being as efficient as from a capital deployment perspective as we can be vis-a-vis timing and trying to line up.

Focus on getting that repaid and replaced but I don't envision increasing corporate corporate leverage so it's really.

From our perspective, the ROE were generating at the asset level on new deployment work I think we are obviously very focused on being as efficient as from a capital deployment perspective, as we can be vis vis timing and trying to line up.

you know, 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...

Payments 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

A quarter, where things didn't line up as best as we would've hoped from a timing perspective and it indicates.

We're a penny light here or there. That's not going to impact

We're a penny lite here or there that's not going to impact.

given the policy at the end of the day and then, you know, to reference.

<unk> dividend policy at the end of the day and then you know to reference back.

to Doug's question, if we are successful in turning some of the non-earning capital into capital that can be the...

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 and earnings from that as well that we're sort of taking a cautious view on but are certainly optimistic that we'll proceed on some of that to see her as well.

And achieve our typical roe's.

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 will succeed on some of that this year as well.

Right.

Right. No, that's a super helpful kind of breakdown of how you're thinking about it. So thank you for that. And just, you know, a good segue since you kind of brought up the convert this year. And I just wanted to kind of touch on liquidity.

That's super helpful.

Kind of breakdown of how youre thinking about it so thank you for that.

Good segue since you kind of brought up.

This year and I, just wanted to kind of touch on liquidity.

because it looks like you extended some of your credit facilities, but it looks like maybe the total commitments from some counter parties also came in a bit. So not as much to draw there as you had in the last quarter. It sounds like you might be expecting some growth this quarter, but you also have that maturity coming up. So just how do you balance?

Because it looks like you extended some of your credit facilities, but it looks like maybe the total commitments from some count Counterparties also came in a bit so.

Not as much to draw there as you had in the last quarter. It sounds like you're you might be expecting some growth. This quarter, but you also have that maturity coming up so I guess, how do you balance how do you think about your liquidity position, how do you balance growth with with kind of these capital needs yes.

How do you think about your liquidity position? How do you balance growth with what's kind of these capital?

Yeah, look, I think we sort of separate them in some respects, which is to say, you know, to me, what we decide to do on the convert.

Yeah look I think I think we sort of separate them in some respects, which is to say you know.

To me, what we decided 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 will explore all of those as we think about how to address.

ties into the access to capital we've created for the company in a variety of, of call it corporate level debt markets, i.e. term loan, convertible notes, secured notes, will explore all of those as we think about how to address the convertible notes and will, you know, focus on the best combination of cost and duration. But I say...

Rest of the convertible notes and we'll focus.

Focus on the best combination of.

Cost and duration, but I think you know.

You know, given what we've done in those markets previously, absent any, you know, significant upheaval in the markets, I think we'll have an ability to access there, but away from those markets.

Given what we've done in those markets previously.

Absent any.

Significant upheaval in the markets I think we'll have an ability to access their but away from those markets.

you know, constant dialogue with banks around our secured lending relationships. I would say there's been some movement in terms of banks and who we

Constant dialogue with banks around our secured lending relationships.

I would say there has been some movement in terms of banks and who we are.

are increasing our relationships with and sort of reducing some other relationships, but also active dialogue on bringing in.

Our increasing our relationships with them and sort of reducing some other relationships, but also active dialogue.

I'm, bringing in some new relationships as well.

new relationships as well. And obviously very cognizant of the interplayable between what we do on an asset level and what we do at the corporate level. I would say net net of all of that is, you know, we have a version of our model internally that, you know, if for whatever reason the corporate style financing markets break down, we have a path to address.

And obviously very cognizant of the interplay between.

Between what we do on an asset level and what we do at the corporate level.

I'd say net net of all of that is you know.

We have a version of our model internally that you know if for whatever reason the corporate style financing markets breakdown.

We have a path to addressing.

the converts with existing available asset leverage to the extent we need.

The the converts with existing available asset leverage to the extent we need it.

Very helpful. Thanks for the comments, Stuart. Sure.

Very helpful. Thanks for the comments Stuart.

Sure.

Yeah.

Thank you.

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

Question comes from the line of Stephen Laws from Raymond James Your line is now open.

Hi, good morning.

Yeah.

One more thing, Stuart. You touched a little bit on your comment, especially on the loan sales in New York now, 25%. UK is up pretty substantially, and international is now, I believe, 45% of the portfolio. You talked about your team there, but can maybe go into a little bit more about Europe and why you find that attractive. Certainly have the highest mix of exposure or relative to the peer group.

Stuart you touched a little bit on your comments, especially on the loan sales here in New York now, 25%. So U K is up pretty substantially in international is now I believe 45%.

Of the portfolio.

When you talked about your team there, but can you maybe go into a little bit more about Europe , and why you find that attractive certainly have the highest mix of exposure relative to the peer group.

Yeah, I mean, I think, and let me approach it differently than I've done in the past, because I think our team in Europe is probably tired of me referring to it as a less competitive market, because it makes their job seem easier than it really is. I think a couple of things going on from a dynamic perspective, and I do want to, I think it's important to reiterate this notion that what we do in Europe ,

Yeah, I mean, I think and let me approach it differently than I've done in the past because I think I think our team in Europe is probably tired of me referring to it as a less competitive market because it makes their job seem easier than it really is.

Yes, I think a couple of things going on from a dynamic perspective, and I do want to.

I think it's important to reiterate this notion that what we do in Europe is a mirror image of what we do in the U S. In terms of type of sponsorship type of transaction and most importantly, as a lender as we think about the markets, we're active in and Europe .

is a mirror image of what we do in the US in terms of type of sponsorship, type of transaction, and most importantly as a lender, as we think about the markets we're active in in Europe , we're very comfortable that from a legal system perspective, we are as well protected as a lender there as we are in the US. So that is why I think we approach

We're very comfortable that from a legal system perspective, we are as well protected as a lender there as we are in the U S. So that is why I think we approach much of our pipeline from its somewhat agnostic perspective, and that there would be if a deal works and its in Europe , it's no different than a deal working.

Much of our pipeline from a someone agnostic perspective and that if a deal works in it's in Europe , it's no different than a deal working.

here in the US, particularly the ability to finance in local currency and then hedge whatever residual.

Here in the U S, particularly the.

The ability to finance in local currency and then you know hedge whatever residual is there.

back to us dollars i think in the i think it's fair to say in Europe

Back to U S dollars.

I think it's fair to say in Europe .

While there's a CNBS market, it is not as robust a market as exist here in the US. So, it affords us a little bit more opportunity to get things done there. I think we have also found, in some respects, larger deals in the US actually trade tighter often, particularly given the depth due to the depth of the single asset, single borrowers CNBS market here, And in thedire.

While there is a C MBS market. It is not as robust a market as exist here in the U S. So affords us a little bit more opportunity to get things done there I think we have also found.

In some respects larger deals in the U S actually trade tighter often particularly given the death due to the depth of the single asset single borrower see MBS market here are somewhat different dynamic in Europe , where.

different dynamic in Europe where

There's less less who are willing to do really large deals in Europe , and you will often find a lot of what we do of size in Europe ends up being deals, where we partner with others either other Apollo capital are often times.

there's less, less who are willing to do really large deals in Europe and you will often find a lot of what we do of size in Europe ends up being deals where we partner with others, either other Apollo capital or oftentimes.

partnering with firms that would be perceived as competitors. So I think we've created a very nice niche for ourselves.

<unk> with firms that we'd be perceived as competitors. So I think we've created a very nice niche for ourselves there and then economically it's not the driver of doing things, but as you think about hedging from.

there and then economically, it's not the driver of doing things, but as you think about hedging from...

Euro back to USD due to interest rate differentials. There actually is an economic.

Euro back to U S D. Due to interest rate differentials. There actually is an economic benefit to doing deals in Europe , and then hedging back to USD, which again, it's not the reason to do a deal but economically.

benefit to doing deals in Europe and then hedging back to USD, which again, it's not the reason to do a deal, but economically. It makes those

It makes those deals look pretty attractive and then the last thing I'd say is yeah.

look pretty attractive. And then the last thing I'd say is, one of the reasons we benefit our real estate credit business benefits so much in Europe is that Apollo as a firm.

One of the reasons, we benefit our real estate credit business benefit so much in Europe is that Apollo as a firm has a very active real estate equity business in Europe .

has a very active real estate equity business in Europe and it provides a lot of data relationships and connectivity.

And it provides a lot of data relationships and connectivity.

for the real estate credit team over there, which is based in London, and I think is a result. It is definitely...

For the real estate credit team over there, which is based in London, and I think as a result.

It is definitely helped.

in terms of underwriting capability, but also using relationships to source transacts.

In terms of underwriting capability, but also using relationships to source transactions. So I think we've executed really well in Europe .

So I think we've executed really well in Europe . As I look at the pipeline, it continues to be a mix of Europe and the US. And I'm not gonna predict percentages, but as Europe gonna continue to be a meaningful part of the portfolio, certainly sitting here today.

As I look at the pipeline.

It continues to be a mix of Europe , and the U S and you know I am not going to predict percentages, but as Europe continue to be a meaningful part of the portfolio certainly sitting here today that would be the case.

Great, appreciate all the comments on the International Exposure. Thanks to it. Sure.

Great appreciate all the comments on the international exposure Thanks sure sure.

Yeah.

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

Thank you. Our next question comes from the line of Jade Ramani from K VW. Your line is now open.

Thank you very much.

One of your peers acquired a loan portfolio from a bank and it seemed that this was the first such acquisition in some time. I know from our bank analyst that the stress test recently increased, assumed loss rates, commercial real estate, which could have a negative impact on bank allocation of capital towards CRE lending. So wondering if you see that as a-

One of your peers acquired loan portfolio from a bank.

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 CRE lending. So wondering if you see that as an.

Entity.

in the space and perhaps is some reduction in bank originations partly explaining the surge in originations that the mortgage rate have.

The space and perhaps is some reduction in bank originations partly explaining.

<unk> and origination.

Originations at the mortgage rates have evidence.

Great question. Let me comment on both parts of it, because I think there were two parts. But I think with respect to the first part,

Great question, let me comment on both parts of it because I think there were 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

A lot of connectivity with with banks generally speaking and always looking for ways to.

Thanks generally speaking and always looking for ways to

Transact with each other, that being said, I would put, you know,

Transact with each other that being said I would put you know the concept of buying portfolios in the banks at least from our perspective is.

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.

Potential that something Episodically happens, but certainly not viewed as a primary driver of deployment for us as we look forward in.

In 2022, I would say our activities will still be very much deal specific originations. So to your first question and then I think to the second part of your question.

to your first question. And 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

I would still say that the primary.

Source of activity for.

For the mortgage rates. These days is the combination of.

The amount of dry powder available in value-add and opportunistic funds that has been getting deployed from...

The amount of dry powder available in value add and opportunistic funds that has been getting deployed from.

the fall of 2020 continuing into this year, creating opportunities for us and our peers to lend in situations where, you know.

The fall of 2020, continuing into this year, creating opportunities for us and our peers to lend in situations, where you know assets.

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 you know 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

Theyre not stabilized there is a business story around what somebody wants to do.

With the asset and I would say this notion of you know.

Borrowers in transitional assets wanting to borrow from.

Situtions, 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...

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 rate, part of the lending sector. We still see the banks being...

React as needed them 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.

The lending sector.

We still see the banks being.

you know, on par, pretty active here in the US. So, you know, 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 over.

Yeah on par pretty active here in the U S.

Don't think 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, you know, historically AI has veered towards...

Thank you very much and credit.

Historically <unk> has veered toward.

You know, I don't know how you wanna characterize it, but within the mortgage-repeat space, probably at the higher end of the credit risk spectrum, partly due to structure rather than basis, you know, as an in-construction loans, et cetera. But how do you see credit on new originations were prior? And if it is a lower credit risk,

Yeah, I don't know, how you want to characterize it but within the mortgage REIT space, probably at the higher end of the credit risk spectrum.

Partly due to structure rather than basis.

Mezzanine construction loans et cetera, but.

But how do you see credit on new originations versus prior and if it is a lower credit risk.

Product, you know, what would you say is the primary region for that?

Product what would you say is the primary reason for that.

I mean, I think what you've seen shift in art portfolio actually started pre-pandemic. If you go back to some of my comments from, you know, even...

I mean, I think what you've seen shifts in our portfolio actually started pre pandemic. If you go back to some some of my comments from even early 2019 at.

early 2019. You know, at that point, as we had gotten larger as a company and also as the real estate cycle had at that point was, you know, 10 years into recovery, we had clearly shifted more of what we were doing to senior loans from a structural perspective. In fact, as though I would say at that point, we were still comfortable taking more.

At that point as we had gotten larger as a company and also as the real estate cycle had at that point was you know 10 years into recovery, we had clearly shifted more of what we were doing too.

Senior loans from a structural perspective, though I would say at that point, we were still.

Comfortable taking more you know.

putting ourselves in more situations where more was being done to the real estate, whether it was construction, heavy redevelopment, renovation, et cetera. 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.

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.

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 managed transactions from time to time, but really.

I don't see that changing meaningfully, episodically we look at meds 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.

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, you know, what is being done to the real estate? You know, 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, you know, assets are being upgraded, things are being renovated.

And first mortgages and then in terms of you know.

What is being done to the real estate.

Yeah, 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 you.

Assets are being upgraded things are being renovated.

you know, 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, you know, something is being done to the real estate as opposed to just a, you know, leased up place.

So maybe taking the asset level risk down a bit, but I'd say 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.

No.

Lease up play for lack of a better phrase.

And just on those two, you know, changing attributes.

And just on those two.

Changing attributes.

you know structural as well as execution. Is it a function of lessons learned? Is it a function of you feel that maybe the real state correction didn't really happen falling out from COVID because of the way that market reacted and all the government's support? Or is it really just a relative value calculus where you feel, you know, what you're doing now? First, mortgage is but less construction is where the best relative value is.

Structural as well as execution is it a function of lessons learned is it a function of you feel that maybe the real estate corrections didn't really happen.

Falling out from Covid because of the way the market reacted and all the government support or is it really just a relative value calculus, where you feel you know what youre doing now first mortgages, but less construction is where the best relative.

Relative values.

I mean, I think it's a little bit of a few things. I think from a risk adjusted return perspective, I think to the extent we can generate ROEs that work without taking ground up construction risk. I think it's the prudent way to think about deployments for the vehicle. I also think, you know, to where you started the question.

It gets a little bit of a few things I think from a risk adjusted return perspective, I think to the extent, we can generate <unk> that work without taking ground up construction risk I think it's the prudent way to think about deployment for the vehicle. I also think you know to where you started the question.

Yeah, there was a one quarter hiccup in the real estate market. I realized there are still certain property types that might be more challenged than others. But what occurred during the pandemic, at least to date, was really not about real estate. And there was really no...

Yeah, there was a one quarter hiccup in the real estate market I realize there are still certain property types that might be more challenged than others, but you know.

What occurred during the pandemic at least to date.

It was really not about real estate and there was really no you.

cleansing downturn, whatever you want to call it. In real estate, I do think one of the other things that certainly influence ours are sinking, though, is one of the impacts of the pandemic, was it certainly...

Cleansing downturn, whatever you want to call it and real estate I do think you know.

One of the other thing that one of the other things that's certainly influencing our thinking though is one of the impacts of the pandemic was it certainly.

did delay delivery of things that were in construction during the pandemic, either due to, you know,

Did delay delivery of things that were in construction during the pandemic either due to you know.

shutdowns due to safety mandates, delivery of materials, challenges with labor, etc. So a lot of what was in the development pipeline is being delivered later, which means you're getting that development supply delivered later. And I would say it causes us to take a more...

Cut downs due to safety mandates delivery of materials challenges with labor et cetera. So a lot of what was in the development pipeline is being delivered later, which means you're getting that development supply delivered later and I would say, we it causes us to take a more concern.

conservative view with respect to newly created product now because you still need to absorb what is being delivered later

With a view with respect to newly created product now because you still need to absorb what is being delivered later.

But ultimately the answer is where I started, which is to the extent we can generate the ROE we want to generate without having to take that asset level risk. We think it's the right way to think about deployment.

But ultimately the answer is is where I started which is you know to the extent, we can generate the ROE we wanted to generate without having to take that asset level risk. We think it's the right way to think about deployment.

Thank you for taking the questions of course.

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

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

thanks good morning short or they touched on the uh... we noticed the meslon pales to and that's uh... that's always positive to good sign of the market uh... i want to touch on hotel because you know at the end of the uh... of last year or twenty four percent of the portfolio um... and in terms of new commitment in the first quarter

Thanks, Good morning, good morning, Jay touched on the we noticed the Mezz loan payoffs too and that's our that's always positive.

Good sign of the market.

I wanted to touch on hotel because at the end of the last year or 24% of the portfolio.

And in terms of new commitments in the first quarter.

that between urban and 18 and leisure 21, you're almost 40% of commitments. You just comment briefly, well, one, specifically were those, are those US-based loans or were they Europe , but regardless of geography, how are you feeling about the hotel sector at this time and exactly what specific kinds of hotel situations are you finding attractive? Thank you.

It between urban at 18, and leisure 21, almost 40% of.

Of commitments can you just comment briefly.

And specifically, where those are those U S space.

Loans or would they Europe , but regardless of geography.

Are you feeling about the hotel sector.

At this time and exactly kind of what specific concept hotel situations are you finding attractive. Thank you.

Yeah, I appreciate the question, Steve. Look, obviously as part of the pandemic, we started breaking things out between, you know, 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.

Yeah I appreciate the question, Steve look obviously as part of the pandemic, we started breaking things out between you know call, it urban and leisure or destination and urban.

Look I think the performance of things that fall into the category of leisure or destination has been.

remarkably strong. We're very comfortable with the existing portfolio and would certainly seek to add.

Remarkably strong.

We're very comfortable with the existing portfolio and we would certainly seek to add.

Yeah, additional of those types of hotels to the portfolio, because I think one of the things that's been proven.

Additional of those types of hotels to the portfolio because I think one of the things.

Improving 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.

as a result of the pandemic is, you know, 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...

I think the urban is a bit more mixed we were actually seeing yeah.

A nice pickup in performance across the existing portfolio pretty much through the fall and then Omacron hit, which obviously was a bit of a hiccup for everyone. That being said, despite some choppiness on the...

A nice pick up in performance across the existing portfolio pretty much through the fall.

And then omicron hit, which which obviously was a bit of a hiccup for everyone.

That being said despite some choppiness.

On the.

operating performance side. There's actually been a pretty robust market in terms of just

Operating performance side, there's 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 DC hotel. Certainly a much more cautious view with respect to deploying additional capital into hotels that we would define as urban. At this point, but we like the hotel space.

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, Yeah, certainly a much more cautious view with respect to deploying.

Additional capital into hotels that we would define as urban.

At this point, but we like the hotel space in General we think it is poised to.

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're getting paid.

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're getting paid for the risk.

great this good color and when you come in at earlier about you know real estate funds drive powder and a lot of it with an opera tunistic bent

Great. That's good color and when you commented earlier about real estate funds dry powder and a lot of it with an opportunistic Bert.

hotels are so specialized in terms of those particular you know 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 or abroad are you seeing act the flow of opportunistic money in the creating the purchase and sale activity is some of that specifically focused you know on the hotel industry.

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 that.

The flow of opportunistic money into 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 could tell you that there were definitely vehicles formed.

Yes, I Couldnt give you an exact percentage, but I can tell you that there were definitely.

Vehicles formed.

during the pandemic to target hospitality opportunities 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 CNBS, etc. So there's definitely hotel focus capital looking at what took place as a very opportunist.

During the pandemic to target hospitality opportunities specifically.

And there are also.

There have definitely been ventures.

Ventures formed between.

Capital and managers as well as capital and those who seek to.

You know pickoff assets through see MBS et cetera, So there's definitely.

Hotel focus capital looking at what took place is a very opportunistic scenario.

Excellent. That's very helpful. Thanks so much to it.

Excellent that's very helpful. Thanks, so much to it.

Yeah.

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

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. I'll talk a little bit about the trajectory and run rate. When we look at distributable earnings prior to realized loss.

Hey, everybody. Thanks for taking my questions. This morning.

Talk a little bit about the trajectory and run rate.

When we look at distributable earnings prior to realized losses.

continued to be under pressure. You have commented on your confidence in the ability to retain the dividend or expectations and retain the dividend into 2022. I'm curious when we think about the fourth quarter, how we should

<unk> continued to be under pressure you have commented on your confidence in the ability to retain the dividend our expectations and retain the dividend into 2022.

I'm curious when you think about the fourth quarter, how we should.

put into context the timing of everything that happened. You mentioned, for example, that a lot of the repayments were late in the quarter. So what does that imply for an NII run rate? And where do you need to get to in order to start covering the dividend added distributors?

Put into context, the timing of everything that happens you mentioned for example that a lot of the repayments were late in the quarter. So what does that imply for <unk>.

<unk> run rate and where do you need to get to in order to start covering the dividend down to distributable earnings.

Yeah, I'd say a couple things. So first of all, I think as you think about the fourth quarter.

Yeah, I'd 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 GNA for the fourth quarter, which was probably about a penny of impact, which was due to...

Rick.

There was definitely a pick up 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.

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 you know 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.

there in the fourth quarter. And then I think, you know, 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.

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.

Appointment, but it sort of happened a little quicker.

On the.

on the repayment side and the redeployment side of things. I think from a run rate perspective, as you think about, you know, net interest income, I think we expect to be pretty close to run rate.

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're getting to a net interest income that is 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.

In the first quarter and might lag a little bit between the first and second quarter, but ultimately you are getting to a net interest income that you know is in the high fifty's low $60 million range from a run rate perspective.

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.

Stuart two things first of all I clearly misunderstood the timing I reversed it. So that's helpful and thank you for that.

Clarity in terms of the NII that.

That helps us set expectations appropriately really appreciate both sure.

Yeah.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Stuart Rothstein for closing remarks.

Thank you. At this time, I'm showing no further questions. How would like to turn the call back over to Stuart Rocks theme for closing remarks?

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

Thank you operator, and thanks to everybody who participated this morning, we will speak to you in another couple of months. Thanks al.

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

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

[music].

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

I'd like to remind everyone that today's call and webcast are being recorded please.

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.

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 St. Harvard disclosure and 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.

Results to differ materially from these statements and projections.

In addition, we will be discussing certain non- GAAP measures on this call, which management beliefs are relevant to assessing the company's financial performance.

In addition, well 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 gap figures in our earnings presentation, which is available in the stockholders section of our website.

These measures are reconciled to GAAP figures in our earnings presentation, which is available on 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 filing, please visit our website at www.apoloret.com or call us at 212-515-3200. At this time, I'd like to turn the call over to Company's Chief Executive Officer, Stuart Rothstein.

We do not undertake any obligation to update our forward looking statements or projections unless required by law to obtain copies of our latest S. E. SEC filings. Please visit visit our website at Www Apollo R E I T dot com or call us at 21251.

53200 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, UN 2021 earnings call. I am joined today as usual by Scott Weiner, our chief investment officer.

AI delivered strong operational and financial result 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 AI and grew its mortgage portfolio to $7.9 billion at year end, a 20% annual income.

<unk> 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 Iraq 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 fortify the balance sheet through the addition of $800 million of term leverage throughout the year.

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 U.S.

Extending maturities at attractive cost and increasing the pool of unencumbered assets to $1.9 billion at year end and most importantly, our efforts resulted in a well covered dividend to our shareholders 2021 was a record year for real estate transaction volume.

Most importantly, our efforts resulted in a well-covered dividend to ARI share.

2021 was a record year for real estate transaction volume, leading to a record year for commercial real estate loan originate.

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 C. M. B S banks and insurance companies debt funds and mortgage rates in this market environment.

Relationships reputation and track record are critical components of success and we believe <unk> 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 announced.

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.

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.

First the scale and expertise of Apollo's commercial real estate credit platform enabled <unk> to participate in several larger transactions that were co originated alongside other Apollo funds, which led to meaningful deployment on behalf of.

Institutions, and capturing market share the types of transactions quality of equity sponsorship and deal structures for our EIS European loans are very similar to the transactions, we complete in the United States and we expect to remain active in Europe in 2022.

The types of transactions, quality of equity, sponsorship, and deal structures for ARIs, 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 spawns.

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 borrowers relationship, totaling $1.3 billion, and we are very focused on converting those new borrowers into repeat clients.

I 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 is carried into 2022 to date, we have already closed approximately $275 million, new not 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 ARIs 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 ARIs portfolio.

While our eyes 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 forest quarter.

During 2021, a or I received $1 $9 billion of repayments with over 40% of the total occurring in the fourth quarter.

Notably a R. I received repayments from over $300 million help hotel loans, approximately $560 million of loans collateralized by for sale residential product projects and over $850 million from loan exposures across a variety of property types in new.

Your city as a result, our overall net exposure in New York City was reduced to 25% as compared to 36% at the end of 2020.

As a result, our overall net exposure to New York City was reduced to 25% as compared to 36% at the end of 2020.

Tiveting to the portfolio, we remain focused on proactive asset management.

Our loan portfolio totaled $7.9 billion a 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 AI's largest outstanding loans, was sold for an amount well in excess of basis, resulting in full repayment of principle, plus all approved contractual and default in...

Shifting to financial performance <unk> reported distributable earnings per share for the year of $1 48 per share, resulting in dividend, resulting in a dividend coverage ratio of 106% for the dollar 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 cost and the appropriate level of leverage level for the company.

The board also seeks to take a longer-term view on achievable, distributable earnings and seek to limit the impact of quarterly fluctuation.

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 and present.

Our goal is to provide a stable dividend without deploying capital into loans with a higher risk profile or using excessive leverage.

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 markets achievements in 2020.

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 a term loan B and secured no.

ARI ended the year with $1.9 billion of unencumbered assets, which we believe is one of the highest levels amongst our peer sets.

I 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 mortgage

Importantly, we remain conservative with respect to leverage with the Companys debt to equity ratio at two four times at year end consistent with the ongoing portfolio shift into first mortgages.

Ali we announced the appointment of anesthesia mirror, Nova a season mortgage REIT professional to the position of Chief Financial Officer of <unk> and she will join US early in the second quarter.

I want to thank the team at Apollo dedicated to our eye for all of their hard work. This past year and I look forward to reporting on our eyes achievements as we progress into 2022 and with that we will open the call up for questions operator.

As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the fountain. Please stand by when we compile the Q&A roster. Our first question.

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Draw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line.

of Doug Harder from Credit Suisse. Your line is now open.

Doug Harter from Credit Suisse. Your line is now open.

Oh. Thanks, I was just on the repayment of the U K retail loan what will that create any kind of a catch up income in the in the first quarter with the repayments.

Thanks. Just on the repayment of the UK 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, is we were highly confident that we were gonna get it.

No. We were we were accruing the default interest along the way he diagnosed me where I'm 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 redeploy.

And then just any update you can give us around some of the other you know watch list assets.

And where you might be is being able to kind of a free up some of that capital for redeployment.

Yeah, obviously nothing's happened yet of a material mixture. Otherwise, I probably would have included it in my comments, but I would say anecdotally at a high level.

Yeah, 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 a development of a multi-family asset there. We are effectively approaching the market now for a construction loan and we are also exploring though having committed to the possibility of bringing in a partner on the equity side that would free up some of.

In Brooklyn on the Fulton Street asset, where we've articulated our strategy.

To go forward with the development of a multifamily asset there.

We are effectively are approaching the market now for a construction loan.

And we are also exploring though have been committed to.

The possibility of bringing in a partner on the equity side that would free up some of them.

the capital that AI has invested into the transaction in order to deploy at least a portion in that capital productively in the short term. I think other near term possibilities for freeing up.

The capital that <unk> has invested into their transaction and 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.

Some of the nonperforming 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 terms paths towards freeing up some of the non-performing capital. And then on the other column focus assets, continuing to score different possibilities on the Miami asset and grinding through the asset management on the Liberty Center asset.

Those are probably the two nearest terms paths towards freeing up some.

Some of the nonperforming capital and then on the other.

Column focus asset I'm continuing to explore you know.

Different possibilities on the Miami asset and you know grinding through the asset management on the Liberty Center asset.

in Ohio and I would say with respect to

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 sales side.

Okay.

Yeah.

Thank you. Our next question comes from the line of Tim Hayes from B P. I G. Your line is now open.

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

Hey, good morning Stewart. I appreciate the comments around the dividend and your prepared remarks. Just kind of want to maybe touch on that a little bit more given, obviously not earning at this quarter.

Hey, good morning, Stuart I appreciate the comments around the dividend in your prepared remarks, just kind of wanted to maybe touch on that a little bit more I'm, giving you know obviously not earning at this quarter.

But there was one eight by sort of the net contraction so far in the first quarter, but it sounds like the pipeline is very robust and you know I don't know where payments are going to look like but maybe you get back to net growth them before the end of the quarter, but you know as they think about kind of where the portfolio is today funding costs have also kind of shifted a little bit higher.

that there was what I saw to be in that contraction so far in the first quarter, but it sounds like the pipeline is very robust and I don't know, or payments are going to look like, but maybe you get back to net growth before the end of the quarter. But you know, they think about kind of where the portfolio is today, you know, funding costs have also.

As you brought on more corporate debt.

It gives you the confidence that you believe you can cover the dividend on an annual basis, and where do you think it kind of that coverage comes from is it is it growth and a little bit higher leverage work and some of it dependent on on kind of the expectations for higher rates this year.

Comments on that would be helpful.

Yeah, look, I think we let me start sort of where you ended and then work through the question. You know, we certainly run a, 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.

Yeah look I think we are let me start sort of where you ended and then and then work through the question.

You know, we certainly run a run a version of the model are internally.

It 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

Recently, which sort of alludes to the potential pick up across the sector. If if short term rates rose mhm, Yeah, I would say my comment with respect to covering the dividend is not dependent on call. It the the expectations of the short end of the.

Covering the dividend is not dependent on the expectations of the short end of the curve. It's really just...

Curve. Its really just you know I think a lot of what took place in the fourth quarter was really timing between.

You know, I think a lot of what took place in the fourth quarter was really timing between...

when repayments occurred and

When repayment occurred.

In Q1.

who are 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 timing when it comes to forcing things to close. But I would say just given the pace of

The closing of deals and Ive spoken for years on the you know 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 often times are not in control of timing when it comes to forcing things to close them, but I would say just given the pace of that.

the pipeline, what I think we can earn on the pipeline on a

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

ROE E 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 you know.

Unexpected with respect to leverage, which is to say we typically, to the extent we're using assets specific leverage

you know, 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.

Typically financing things at roughly 70% on a secured borrowing.

Borrowing facility and then now.

And then not changing the overall corporate leverage as it exists today recognize we have some.

Some of that corporate leverage that matures later on this year in the form of a convertible note, and we will certainly...

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, you know, from our perspective, the ROEs were generating the asset level on new deployment work. I think we are obviously very focused on being as efficient as from a capital deployment perspective as we can be vis-a-vis timing and trying to line up.

So I'm getting that repaid and replaced but I don't envision increasing corporate corporate leverage. So it's really you know from our perspective.

<unk> the ROE were generating at the asset level on new deployment work I think we are obviously very focused on being as efficient as from a capital deployment perspective, as we can be vis vis timing and trying to line up.

You know, 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...

Repayments and new deployments as best as we can there might be some leakage them 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 indicated

<unk> quarter, where things didn't line up as best as we would've hoped from a timing perspective and it indicates.

We're a penny light here or there. That's not going to impact

We're a penny lite here or there that's not going to impact.

given the policy at the end of the day and then, you know, to reference.

Dividend policy at the end of the day and then you know to reference back.

you know, to Doug's question, you know, if we are successful in turning some of the non-earning capital into capital that can be...

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 and earnings from that as well that, you know, we're sort of taking a cautious view on, but are certainly optimistic that we'll proceed on some of that for sure as well.

Uh huh and achieve our typical roe's.

I think there's pick up in earnings from that as well that you know, we're sort of taking a cautious view on but are certainly optimistic that we will succeed on some of that this year as well.

Right no.

That's super helpful.

Kind of breakdown of of how Youre thinking about it and thank you for that.

A good segue since you kind of brought up the convert this year and I just wanted to kind of touch on liquidity.

Because it looks like you extended some of your credit facilities, but it looks like maybe the the total commitments from some count Counterparties also came in a bit so I'm.

Not as much to draw there as you had in the last quarter. It sounded like you're you might be expecting some growth. This quarter, but you also have that maturity coming up so I guess, how do you balance how do you think about your liquidity position, how do you balance growth with with kind of these capital needs yes.

How do you think about your liquidity position? How do you balance growth with what's kind of these capital?

Yeah, look, I think we sort of separate them in some respects, which is to say, you know, to me, what we decide to do on the convert.

Look I think I think we sort of separate them in some respects, which is to say you know to me what we decided to do on the convert ties into the access to capital. We've created for the company in a variety of of call. It corporate level debt markets I E term loan convertible notes secured.

Notes will 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 them, but I think given what we've done in those markets previously absent any.

Given what we've done in those markets previously, absent any significant upheaval in the markets, I think we'll have an ability to access there, but away from those markets.

Significant upheaval in the markets I think we'll have an ability to access their but away from those markets.

you know, constant dialogue with banks around our secured lending relationships. I would say there's been some movement in terms of banks and who we...

Constant dialogue with banks around our secured lending relationships.

I would say there's been some movement in terms of banks and who we are are.

are increasing our relationships with and sort of reducing some other relationships, but also active dialogue on bringing in.

Our increasing our relationships with them and sort of reducing some other relationships, but also active dialogue.

And bringing in some new relationships as well.

new relationships as well. And obviously very cognizant of the interplayable between what we do on an asset level 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 break down, we have a path to address.

And obviously very cognizant of the interplay between.

Between what we do on an asset level and what we do at the corporate level I would say net net of all of that is you know.

We have a version of our model internally that you know if for whatever reason the corporate style financing markets break down.

We have a path to addressing.

the converts with existing available asset leverage to the extent we need.

The the converts with existing available asset leverage to the extent we need it.

Very helpful. Thanks for the comments Stuart.

Very helpful. Thanks for the comments, Stuart. Sure.

Sure.

Okay.

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

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

Hi, good morning, good morning.

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

Good morning, Stuart you touched a little bit on your comment, especially on the loan sales here in New York now, 25% you know U K is up pretty substantially and in international is now I believe 45%.

<unk> of the portfolio.

You know when you talked about your team there.

But can you maybe go into a little bit more about Europe , and why you find that attractive certainly has the highest mix of exposure relative to the peer group.

I think it's important to reiterate this notion that what we do in Europe .

is a mirror image of what we do in the US in terms of type of sponsorship, type of transaction, and most importantly, as a lender, as we think about the markets we're active in in Europe , we're very comfortable that from a legal system perspective, we are as well protected as a lender there as we are in the US. So that is why I think we approach

As a mirror image of what we do in the U S. In terms of type of sponsorship type of transaction and most importantly, as a lender as we think about the markets. We're active in in Europe .

We're very comfortable that from a legal system perspective, we are as well protected as a lender there as we are in the U S. So that is why I think we approach much of our pipeline from is somewhat agnostic perspective, and that there would be if a deal works and its in Europe , it's no different than a deal working.

Much of our pipeline from a someone like agnostic perspective, and that if a deal works in it's in Europe , it's no different than a deal working.

here in the US, particularly the ability to finance in local currency and then hedge whatever residual.

Here in the U S, particularly the.

The ability to finance in local currency and then you know hedge whatever residual is there.

back to US dollars. I think it's fair to say in Europe .

Back to U S dollars I think in the I think it's fair to say in Europe .

While there's a CNBS market, it is not as robust a market as exist here in the US. So, it affords us a little bit more opportunity to get things done there. I think we have also found, you know, in some respects, larger deals in the US actually trade tighter often, particularly given the depth due to the depth of the single asset, single borrowers CNBS market here, but the average criteria is somewhat answering the criteria – the information centre highlights a cultural aspect.

While there is a C M. B S market. It is not as robust a market as exist here in the U S. So affords us a little bit more opportunity to get things done there I think we have also found.

In some respects.

Larger deals in the U S actually trade tighter often particularly given the death due to the depth of the single asset single borrower see MBS market here are somewhat different dynamic in Europe , where.

different dynamic in Europe where

There's less, less who are willing to do really large deals in Europe , and you will often find a lot of what we do of size in Europe ends up being deals where we partner with others, either Apollo, Capitol, or oftentimes partnering with firms that we'd be perceived as competitors. So I think we've created a very nice niche for ourselves.

<unk> with firms that we'd be perceived as competitors, who I think we've created a very nice niche for ourselves there and then economically it's not the driver of doing things, but as you think about hedging from.

there and then economically, it's not the driver of doing things, but as you think about hedging from...

Euro back to USD due to interest rate differentials. There actually is an economic.

benefit to doing deals in Europe and then hedging back to USD, which again, it's not the reason to do a deal, but economically it makes those

It makes those deals look pretty attractive and then the last thing I'd say is yeah.

look pretty attractive. And then the last thing I'd say is, one of the reasons we benefit our real estate credit business benefits so much in Europe is that Apollo as a firm.

One of the reasons, we benefit our real estate credit business benefit so much in Europe is that Apollo as a firm has a very active real estate equity business in Europe , and it provides a lot of data relationships and connectivity.

has a very active real estate equity business in Europe and it provides a lot of data relationships and connectivity.

for the real estate credit team over there, which is based in London, and I think is a result. It is definitely...

For the real estate credit team over there, which is based in London, and I think as a result.

It is definitely helped in terms of underwriting capability, but also using relationships to source transactions. So I think we've executed really well in Europe .

in terms of underwriting capability, but also using relationships to source transact.

As I looked at the pipeline.

It continues to be a mix of Europe , and the U S and you know I'm not going to predict percentages, but as Europe continue to be a meaningful part of the portfolio certainly sitting here today that would be the case.

Great, appreciate all the comments on the International Exposure. Thanks to it.

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

Sure.

Yeah.

Thank you. Our next question comes to the line of Jade Romani from KVW. Your line is now open.

Thank you. Our next question comes from the line of Jade Ramani from K B W. Your line is now open.

Thank you very much.

One of your peers acquired a loan portfolio from a bank and it seemed that this was the first such acquisition in some time. I know from our bank analyst that the stress test recently increased the sum loss rate on commercial real estate, which could have a negative impact on bank allocation of capital towards CRE lending. So wondering if you see that as a...

One of your peers acquired a loan portfolio from a bank.

And it seemed 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.

Real estate, which could have a negative impact on bank allocation of capital towards theory lending. So wondering if you see that as an opportunity.

into space and perhaps is some reduction in bank originations, partly explaining the surge in originations that the mortgage rate have.

In the space and perhaps is some reduction in bank originations, partly explaining the surge in originations.

Originations at the mortgage rates have evidence.

Great question. Let me comment on both parts of it, because I think there were two parts. But I think with respect to the first part,

Great question, let me comment on both parts of it because I think there were 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

A lot of connectivity with with banks.

Banks generally speaking and always looking for ways to

Banks generally speaking and always looking for ways to.

Transact with each other, that being said, I would put, you know,

Transact with each other that being said I would put you know the concept of buying portfolios in the banks at least from our perspective.

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 originations. So to your first question and then I think to the second part of your question.

to your first question. And 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

You know I would still say that the primary.

Source of activity for.

For the mortgage rates. These days is the combination of.

The amount of dry powder available in value add and opportunistic funds that has been getting deployed from

The amount of dry powder available in value add and opportunistic funds that has been getting deployed from.

You know, the fall of 2020 continuing into this year, creating opportunities for us and our peers to lend in situations where, you know,

The fall of 2020, continuing into this year, creating opportunities for us and our peers to lend in situations, where you know assets are not stabilized there is a business story around what somebody wants to do.

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, you know, 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 plans.

With the asset and I would say this notion.

Borrowers in transitional assets wanting to borrow from institutions, where theyre 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...

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 rate part of the lending sector. We still see the banks being...

React as needed them 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.

The lending sector.

We still see the banks being.

you know, on par, pretty active here in the US. So, you know, 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 over.

Yeah on par pretty active here in the U S. So I don't think 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, you know, historically AI has veered towards

Thank you very much and credit.

Historically IRI has veered toward.

I don't know how you want to characterize it, but within the mortgage-repec space, probably at the higher end of the credit risk spectrum, partly due to structure rather than basis, you know, as an in-construction loans, etc. But how do you see credit on new originations were prior? And if it is a lower credit risk...

Yeah, I don't know, how you want to characterize it but within the mortgage REIT space, probably at the higher end of the credit risk spectrum.

Partly due to structure rather than basis.

Mezzanine construction loans et cetera, but.

But how do you see credit on new originations versus prior and if it is a lower credit risk.

Product, you know, what would you say is the primary reason for that?

Product you know what would you say is the primary reason for that.

I mean, I think what you've seen shift in our portfolio actually started pre-pandemic. If you go back to some of my comments from, you know, even...

I mean, I think what you've seen shifts in our portfolio actually started pre pandemic. If you go back to some some of my comments from even early 2019 at.

early 2019. You know, at that point, as we had gotten larger as a company and also as the real estate cycle had at that point was, you know, 10 years into recovery, we had clearly shifted more of what we were doing to senior loans from a structural perspective. So I would say at that point we were still comfortable taking more.

At that point as we had gotten larger as a company and also as the real estate cycle had at that point was you know 10 years into recovery, we had clearly shifted more of what we were doing too.

Senior loans from a structural perspective, though I would say at that point, we were still yet to come.

Vertebral, taking more you know.

Putting ourselves in more situations, where more was being done to the real estate, whether it was construction heavy redevelopment renovation et cetera.

putting ourselves in more situations where more was being done to the real estate, whether it was construction, heavy redevelopment, renovation, et cetera. I think coming out of the other side, you know, the pandemic, I would say structurally, everything we are doing at this point is a senior loan.

I think coming out of the other side.

Hey, endemic 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 meds transactions from time to time, but really don't expect much to happen. There are so structurally, I would expect to see us continue to remain.

Don't see that changing meaningfully episodically, we looked at managed 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.

And first mortgages and then in terms of you know.

What is being done to the real estate.

Yeah, 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 things are being renovated.

So maybe taking the asset level risk down a bit, but I'd say 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.

No.

Lease up play for lack of a better phrase.

And just on those two, you know, changing attributes.

And just on those two.

You know 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 state correction did really happen, falling out from COVID because of the way that market reacted and all the government's support? Or is it really just a relative value calculus where you feel what you're doing now, first mortgages, but the less construction is where the best relative value

You know structural as well as execution is it a function of lessons learned is it a function of you feel that maybe the real estate corrections didn't really happen.

Relative values.

I mean, I think it's a little bit of a few things. I think from a risk adjusted return perspective, I think to the extent we can generate ROEs that work without taking ground up construction risk. I think it's the prudent way to think about deployment for the vehicle. I also think, you know, to where you started the question. Um,

Yeah, there was a one quarter hiccup in the real estate market I realize there are still certain property types that might be more challenged than others, but you know.

What occurred during the pandemic at least to date.

was really not about real estate and there was really no

It was really not about real estate and there was really no you.

you know, cleansing downturn, whatever you want to call it. In real estate, I do think, you know, one of the other things that certainly influence ours are sinking, though, is one of the impacts of the pandemic. Was it certainly...

Cleansing downturn, whatever you want to call it and real estate I do think one of the other thing that one of the other things that's certainly influencing our thinking though is one of the impacts of the pandemic was it certainly do.

did delay delivery of things that were in construction during the pandemic, either due to, you know,

Did delay delivery of things that were in construction during the pandemic either due to you know.

shutdowns due to safety mandates, delivery of materials, challenges with labor, etc. So a lot of what was in the development pipeline is being delivered later, which means you're getting that development supplied delivered later. And I would say it causes us to take a more...

Cut downs due to safety mandates delivery of materials challenges with labor et cetera. So a lot of what was in the development pipeline is being delivered later, which.

Which means you're getting that development supply delivered later and I would say, we it causes us to take a more conservative view with respect to newly created product now because you still need to absorb what is being delivered later.

conservative view with respect to newly created product now because you still need to absorb what is being delivered later

But ultimately the answer is where I started, which is to the extent we can generate the ROE we want to generate without having to take that asset level risk, we think it's the right way to think about deployment.

Thank you for taking the questions of course.

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

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

Thanks, Good morning, Stuart Good morning, Jay touched on the we noticed the Mezz loan payoffs too and that's our that's always positive.

thanks the morning store or they touched on the uh... we noticed the meslon palestu and that's uh... that's always positive the good sign of the market uh... i want to touch on hotel because you know at the end of the uh... last year twenty four percent of the portfolio and in terms of new commitments in the first quarter

Good sign of the market.

I wanted to touch on hotel because you know at the end of the last year or 24% of the portfolio and in terms of new commitments in the first quarter. It looked spat between urban at 18 and leisure 'twenty, one you almost 40% of.

that between urban and 18 and leisure 21, you're almost 40% of commitments. You just comment briefly, what one, specifically were those, are those US-based loans or were they Europe , but regardless of geography, how are you feeling about the hotel sector at this time and exactly what specific kinds of hotel situations are you finding attractive? Thank you.

Commitments can you just comment briefly.

And specifically, where those are those U S space.

Loans or would there Europe , but regardless of geography.

How are you feeling about the hotel sector.

At this time and exactly kind of what specific concept hotel situations are you finding attractive. Thank you.

Yeah, I appreciate the question, Steve. Look, obviously, as part of the pandemic, we started breaking things out between, you know, 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.

Yeah I appreciate the question, Steve look obviously as part of the pandemic, we started breaking things out between you know call, it urban and leisure or destination and urban.

Look I think the performance of things that fall into the category of leisure or destination has been.

remarkably strong. We're very comfortable with the existing portfolio and would certainly seek to add.

Remarkably strong.

We're very comfortable with the existing portfolio and we would certainly seek to add yeah.

Yeah, additional of those types of hotels to the portfolio, because I think one of the things that's been proven.

Additional of those types of hotels to the portfolio because I think one of the things.

Proven as a result of the pandemic is.

as a result of the pandemic is, you know, you lock people up with their families for long enough and they definitely wanna get on vacation and go somewhere. Absolutely. I think the urban is a bit more mixed. We were actually seeing...

A lot of people up with their families for long enough and they definitely want to get on vacation and go somewhere.

I think the urban is a bit more mixed we were actually seeing yeah.

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...

A nice pick up in performance across the existing portfolio pretty much through the fall and then omicron hit, which which obviously was a bit of a hiccup for everyone.

That being said despite some choppiness.

On the <unk>.

operating performance side. There's actually been a pretty robust market in terms of just

Operating performance side, there's actually been a pretty robust market in terms of just purchasing.

purchase and sale activities on urban hotels, which does tie back to my earlier comment on, perhaps something happening this year with our Washington DC hotel. Certainly a much more cautious view with respect to deploying additional capital into hotels that we would define as urban. At this point, but we like the hotel space.

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, Yeah, certainly a much more cautious view with respect to deploying.

Additional capital into hotels that we would define as urban.

At this point, but we like the hotel space in General we think it is poised to.

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're getting paid.

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're getting paid for the risk.

great that's good color and when you come in earlier about you know real estate funds drop out or and a lot of it with an opera tunistic bit

Great. That's good color and when you commented earlier about you know real estate funds dry powder and a lot of it with an opportunistic Bert.

Hotels are so specialized in terms of those particular you know.

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 into 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 could tell you that there were definitely vehicles formed.

Yes, I Couldnt give you an exact percentage, but I can tell you that there were definitely.

Vehicles for us.

During the pandemic to target hospitality opportunities specifically.

And there are also.

They're definitely been ventures.

Ventures formed between.

Capital and managers as well as capital and those who seek to.

Pickoff assets through see MBS et cetera, So there's definitely a.

Hotel focus capital looking at what took place is a very opportunistic scenario.

Excellent. That's very helpful. Thanks so much to do it.

Excellent that's very helpful. Thanks, so much to it you got it.

Yeah.

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

Hey everybody, thanks for taking my questions this morning. I'll talk a little bit about the trajectory and run rate. When we look at distributable earnings prior to realized loss.

Hey, everybody. Thanks for taking my questions. This morning.

Talk a little bit about the trajectory and run rate.

When we look at distributable earnings prior to realized losses.

continued to be under pressure. You have commented on your confidence in the ability to retain the dividend or expectations and retain the dividend in the 2022. I'm curious when we think about the fourth quarter, how we should...

<unk> continued to be under pressure you have commented on your confidence in the ability to retain the dividend expectations and retained the dividend into 2022.

I'm curious when you think about the fourth quarter, how we should.

Put into context, the timing of everything that happened you mentioned for example that a lot of the repayments were late in the quarter. So what does that imply for <unk>.

put into context the timing of everything that happened. You mentioned, for example, that a lot of the repayments were late in the quarter. So what does that imply for an MII run rate? And where do you need to get to in order to start covering the dividend out of distributors?

<unk> run rate and where do you need to get to in order to start covering the dividend down to distributable earnings.

Yeah, I'd say a couple things. So first of all, I think as you think about the fourth quarter.

Yeah, I'd 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 GNA for the fourth quarter, which was probably about a penny of impact, which was due to...

Rick There was definitely a pick up 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.

Some things we did on our term loan to effectively change the amendments on the term loan so theres, probably a penny of impact there in the fourth quarter and then I think you know I think what I did say in my comments was I think what actually took place.

there in the fourth quarter. And then I think, you know, 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.

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.

On the repayment side than the redeployment side of things I think from a run rate perspective, as you think about.

on the repayment side and the redeployment side of things. I think from a run rate perspective, as you think about, you know, net interest income, I think we expect to be pretty close to run rate.

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're getting to a net interest income that, you know, is in the, you know, high 50s, low 60 million dollar range from a run rate perspective, as we present, call it net interest income. We think about it after the preferred dividend.

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 that you know is.

As in the.

High fifties 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 does.

That helps us set expectations appropriately really appreciate both sure.

Yeah.

Thank you, at this time I'm showing no further questions. I would like to turn the call back over to Stuart Rocks theme for closing remarks.

Thank you at this time I'm 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 months. Thanks all.

Thank you operator, and thanks to everybody who participated this morning, we will speak to you in another couple of months. Thanks al.

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

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

Q4 2021 Apollo Commercial Real Estate Finance Inc Earnings Call

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