I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release.

I’d also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements.

Today’s conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

In addition, we will be discussing certain non-GAAP measures on this call which management believe are relevant to assessing the Company's financial performance and our reconciled to GAAP figures in our earnings press release which is available on the Investor Relations section of our website.

We do not undertake any obligations to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreit.com, or call us at 212-515-3200. At this time, I’d like to turn the call over to the Company’s Chief Executive Officer, Stuart Rothstein..

Thank you, operator. Good morning and thank you all for joining us on the ARI fourth quarter 2016 earnings call. Joining me this morning are Scott Weaver, our Chief Investment Officer of our Manager and Jai Agarwal, our Chief Financial Officer who will review ARI’s financial results after my remarks.

2016 was an extremely active year for ARI, highlighted by completing the acquisition of Apollo Residential Mortgage, originating and funding over $1.4 billion of investments and successfully growing our equity market capitalization to over $2 billion.

Our ability to continue to find attractive investments and to be strategic and creative in sourcing accretive capital resulted in ARI once again delivering strong operating results and a well covered attractive common stock dividend to our investors.

Specifically ARI’s operating earnings for the year ended December 31, 2016 excluding the expenses associated with the AMTG transaction totaled $148 million, a 32% increase over the prior year.

On a per share basis, operating earnings for 2016 also excluding the merger expenses were $2.02 per share which represents a 6% increase over 2015 and resulted in strong 1.10 times coverage of ARI's $1.84 dividend per share of common stock.

As I mentioned, ARI completed over $1.2 billion of new investments and funded an incremental $140 million during the year for previously closed loans. As a result of this record level of activity, ARI’s portfolio grew 27% from the prior year end and ended the year north of $3 billion.

Notably, 87% of the portfolio is comprised of floating rate loans which leaves ARI well-positioned for rising short-term interest rates. Jai will comment specifically on the increased earnings potential from increases in LIBOR during his remarks.

Further, the weighted average loan to value on the portfolio remains consistent at 63% and the expected weighted average levered IRR is a robust 13.8%.

In short, we are finding investments that meet our risk adjusted return expectations while constructing a portfolio that is diversified both geographically and across property sectors and maintains a stable credit profile.

Beyond just the volume of capital deployed in 2016, it is worth noting several important trends with respect to our investment activity and our growing portfolio.

Notably over the past 12 months, ARI significantly increased the Company's first mortgage loan portfolio, which totaled $1.6 billion at year-end as compared to less than $1 billion at the end of 2015. I think it is somewhat underappreciated that approximately 60% of ARI's loan portfolio is comprised of senior loan.

As ARI has grown its capital base, the Company has become more active in the larger floating rate first mortgage loan market. During 2016, we originated 10 floating rate first mortgage loan transactions at an average size of approximately $85 million and an average rate of LIBOR plus just under 600 basis points.

Using modest leverage from ARI’s attracted in place bank financing facilities, we are able to generate IRR's on these investments in the low-to-mid teens. You have heard me speak often about the depth and quality of our originations platform and the benefit borrower see in our ability to structure and execute transactions.

We believe our results in 2016 clearly demonstrate the value of the platform we have built. During the year, we directly originated approximately 83% of our loans and over 60% of our transactions were with repeat borrowers. A few quick highlights from the portfolio, two of ARI's condominium loans were repaid and fall during the quarter.

The first transaction is $62 million first mortgage loan for the conversion of an existing commercial building and the Greenwich Village, submarket of New York City generated a gross unlevered realized IRR of just north of 11%.

The second deal, a $65 million first mortgage loan for the construction of a new luxury condominium in Bethesda, Maryland, generated gross unrealized IRR of 13.5%.

The remainder of our four sale residential portfolio, which is now six assets totaling about $440 million of commitments, continues to perform well and has a weighted-average loan to net sellout of approximately 60%. Away from the loan portfolio, we continue to trim our CMBS holdings.

During the quarter we took advantage of favorable market conditions and sold one of our legacy AJ bonds at a price of where the bond had previously been marked. In addition, we’ve received a partial pay down at par on one of our bonds, which was marked at 73%.

Our investment in CMBS continues to wind down as bonds repay and we will continue to opportunistically pursue sales transactions as market conditions warrant. During 2016, our CMBS holdings decreased by over $135 million or approximately 27% and totaled only $368 million at year-end.

This represents only 12% of ARI’s assets and just 5% of our net equity more specifically AJ bonds represent just 7% of ARI’s assets and less than 4% of net equity. In order to finance our investment pipeline in December. In December ARI completed an offering of 10.5 million shares of common stock raising net proceeds of approximately $180 million.

ARI issued the stock at a 6% premium over our 930 book value per share. The capital raise in both this offering and the AMTG transaction represents over six $600 million of a creatively issued new equity in 2016. Notably, including our preferred stock, ARI’s equity market capitalization has surpassed the $2 billion mark.

We also expanded and diversified our funding capacity in 2016. We upsized our main credit facility with JPMorgan to $800 million and we entered into a new $300 million facility with Deutsche Bank to finance first mortgage loans. As we look to be the year ahead, we believe the current economic climate remains very favorable for our business model.

2017 is a peak year for commercial real estate loan maturities with close to $400 billion of loans maturing. In addition, there are continues to be a surplus of dry powder to invest for real estate private equity funds many of which will target transitional assets that will be in need of flexible structured financing.

Since January, ARI’s has already close to $200 million of new investments and we are optimistic about our current pipeline. Our relatively low level of leverage gives us the ability to add incremental debt to find new loans.

We believe the combination of our platform pipeline and financial flexibility will enable ARI to continue to provide a well covered attractive dividend to our investors in 2017. And with that, I'll turn the call over to Jay to review our financial results..

Thank you, Stuart, and good morning, everyone. For the first quarter of 2016, our operating earnings were $41 million or $0.49 of share compared to $32.4 million or $0.48 of share in 2015. GAAP net income for the same period in 2016 was $49.7 million was $0.60 of share as compared to $21.4 million or $0.32 of share in 2015.

During the quarter, we sold the remainder of the AMTG assets for $34 million in proceeds. The sale was at a premium to the carrying value and resulted in a realized gain of $5.3 million or $0.06. This gain was partially offset by a loss of $1.2 million or $0.01 from the sale of the CMBS bond sold above the September 30 mark.

So while the bond was a positive, while the sales was a positive to book value, it did result in a modest loss based on cost basis. For the full-year 2016, our operating earnings excluding merger expenses were $148 million or $2.02 a share compared to $113 million or $1.90 a share for 2015.

A reconciliation of operating earnings to GAAP net income is available in our earnings release in the Investor Relations section of our website. GAAP book value increased from $15.94 to $16.12 a share at quarter end. The increase primarily was due to an accretive capital raise, gain on sale of asset and slightly higher marks on our CMBS bonds.

With respect to leverage, we ended the quarter with a 1.0 times debt-to-common equity ratio. At this level, we believe we have the ability to prudently use leverage to fund future investment growth and still maintain a conservative leverage level.

Given that in the short-term, we use proceeds from our December capital raise to pay down our JPMorgan facility, we enter 2017 with capacity on both the JP and the Deutsche Bank clients. We anticipate using both facilities to fund our investment pipeline. While our capital base continues to grow, our G&A expense ratio has essentially remain flat.

Annualized G&A for Q4 as a percentage of equity was 40 basis points, which continues to be one of the lower percentages amongst our peer group. As Stuart mentioned, at December 31, 87% of the loans in our portfolio has floating interest rates.

We anticipate that our 100 basis point increase in LIBOR would generate an additional $0.17 a share in annual operating earnings. Given our positive outlook for 2017, we are confident in ARI’s ability to generate annual operating earnings in excess of the dividend.

We expect operating earnings for Q1 to be impacted by the December capital raise and ramp up during the year. Finally, I wanted to highlight our dividend. Based on Monday's closing price, our stock offers an attractive 10.2% yield. Our board will meet again in mid-March to discuss the Q1 dividends and we will make an announcement shortly thereafter.

And with that, we would like to open the lines for questions. Operator, please go ahead..

Thank you. [Operator Instructions] And our first question comes from the line of Steve DeLaney with JMP Securities. Your line is now open..

Good morning and thanks for taking my questions. I noticed in the press release when you reviewed fourth quarter lending activity under the $330 million of senior first mortgages, the levered IRR was 14.7%.

That struck me as being higher than normal and I wondered if you could comment on what percentage of the $330 million were construction or development in nature maybe such as the LA retail one that you may. Thanks..

None of them were construction specifically Steve..

Okay..

So it's pretty clean from that perspective, again I think not to over analyze a particular quarter, right. The business is somewhat lumpy, some deals might have more structure than others. But I would say from a risk perspective what we did in the fourth quarter is sort of consistent with what we've been doing all along..

Okay..

There is nothing unique in that..

Okay. Thank you. We know you do the residential for sale and you mentioned the Bethesda project earlier. Do you know off the top of your head, if you would – you classify your portfolio between senior subordinate you give us Geo, you give us property type.

Do you have a feel Stuart, that you could give us an estimate of how much of the total – I guess were $2.8 billion or so now? How much of the total would you classify as construction or development on a percentage basis?.

I’ve got it on my finger tips here somewhere, so look I think at a high level, if you think about it from a construction perspective, it is probably today on a funded basis somewhere between $350 million to $400 million, so I’ll….

Okay..

15% to 20% depending..

That’s helpful..

One thing to clarify, in the fourth quarter it is – we do have one first mortgage that got funded in the fourth quarter. That is a construction loan, but it's pre-leased to a very highly rated credit. So it's not – and when you guys talk often about our construction is more a condo or little more speculative.

This was a pre-lead – I think it’s a AA credit type thing, it was a data center which we did that on those books..

Okay. Thanks..

We think they are originating the quarter. We had a big funding in the quarter, so that was some of the numbers in there, but it wasn’t actually one of the loans that we originated. But I just wanted to make it clear because we did have a big funding in the quarter for that loan..

Appreciate that Scott. Okay, thanks.

And could you guys provide us with an update on the interest accrual status on the North Dakota multifamily loan?.

Yes. So I think as we intimate in our last earnings call, we had an interest reserve that ran through the end of last year. There is no longer an interest reserved in place. The loan is affectively through our earnings. We're basically taking the estimated cash flow for the year.

So while we're still entitled to the full interest to the extent it is can be paid at some point in the future at this point. From an earnings perspective, we are just taking expected cash during the year..

Okay. Do you have a sweep – you're sweeping that I assume..

Yes..

Okay. Got it.

So whatever comes in less operating expenses, I guess is what your returns going to be?.

Yes..

Okay. Got it. So we're now more of an NOI rather than NII I guess kind of scenario..

Yes, correct..

Okay. And just one final.

Your Series A preferred, it has a relatively high coupon [8 and 58’s]and I was just curious if that issue has a five-year call feature?.

It is call of those starting in August of this year, Steve, so it does have a call feature and I think without over promising I would say we've already started a dialogue and I would say we're paying close attention to both the preferred market as well as just other sources of capital that would allow us to at some point replace that with a cheaper form of capital..

Got it. Well, thank you for the comments this morning..

Thanks Steve..

And our next question comes from the line of Jade Rahmani with KBW. Your line is now open..

Good morning. This is actually Ryan on for Jade. Thanks for taking my questions.

Just wondering if you could just comment on overall credit trends on a sequential or perhaps year-over-year basis both for ARI’s portfolio and what you're seeing in the market overall?.

Yes. I’ll let Scott comment..

Look, obviously with commercial real estate, I mean there's different markets and pockets which are stronger and weaker in any one time, obviously we've talked about for example the Miami condo market which we had avoided having gone through some weakness.

So I mean I would say overall given our size we're very much able to pick and choose our battles and so while we don't necessarily contrarily focused on market, there are certain things what we avoid such as Class B regional malls and things where those binary risk like [Pure Land] as we've been able to find deals that we find attractive.

I would say possibly from a competitive sense not seeing anyone doing crazy things or rational things, obviously everyone might take a different view on an asset if you will maybe a little bit on pricing, but we don't necessarily sit back and shake our heads, I can't believe someone is giving that much leverage and things like that.

I will say for higher leverage than then we would do an ARI. We have seen, but I would call more traditional equity players coming in. So as equity funds and others who are looking for mid-to-high teen returns which is the high return than we're looking for an ARI. Is there are many more chance to find them on the pure equity side.

They are offering uncertain deals to go higher leverage. So there are some deals that we’re doing where we're having capital be behind us, at a higher return, which I would say is new from – I don’t say again competitive I would say it's more complimentary. So we're not competing with them and they're coming in behind us on deals..

The only thing I would add Ryan, just to be you’re right and I know part of your role is to ask about what's going on macro wise, right. Again, I think it's just important to realize that at any given point in time our portfolio is 35 to 40 sort of the spoke position.

So I think while macro trends are always interesting and certainly we think about them as we're doing things.

At the end of the day, we're a bottoms up deal by deal investor and I think given our size and the size of the overall market as macro trends have been slow, I think we've sort of proven over the last seven plus years, our ability to find one off deals that makes sense for what we're trying to do with our capital..

Right, thanks. And just specifically you have some decent exposure to the retail market in Florida.

Are those – I'm referring to two senior loans, are those loans in Miami and can you see if they are with repeat borrowers and just perhaps what your overall view of that market is for retail with those loans?.

Yes, they are with a borrower that we've had an extensive relationship with. I would describe them as from a lenders perspective, assets that work all day long as retail and from an underwriting perspective or we’re already comfortable with the assets at retail.

I would say the equity in the transaction on a longer-term basis views the aggregation of those retail assets is a site that they are acquiring for redevelopment at some point in the future. Whether we decide to play in redevelopment or not will be a decision made when they're ready to move on what their longer-term plans are.

So it's really, I'd call it neighborhood street retail as opposed to any type of mall retail and we're very comfortable with way that retail works in the neighborhood in which is located..

And that was our larger deal we’ve done historically.

The deal that we announced in the press release that's actually with the new borrower – new developed relationship within that, that is made in Maine ground floor retail condo, similar to what you’d see in that and another markets, tremendous walking traffic, but that's right off the beach in South Beach..

Great.

And just moving on to loan yield trends, given the moving rates we've seen, how would you characterize spreads stable, compressing – perhaps widening at all with rates?.

Again, I think going back to macro I think it's very much depends on the product. I would say, where we don't play – the trophy casually property where well some others I would say yes, those are probably I think those spreads have come down a little bit. I would say on the lightly transitional stuff that we play in pretty consistent.

Again, it's a same players. The floating rate CMBS markets for smaller deals does not come back, maybe it will, but for now it hasn’t. So we're competing with others who have a similar cost of capital and some more return. Aspirations, I would say in construction lending to the extent people are looking at senior construction loans that has widened.

I would say that is an area where there are fewer banks willing to do that. So I think people like us and others have kind of stepping into occasionally, but I would say to the extent our bank is willing to do it. I think they’ve noticed their pricing power and wind up their pricing a little bit..

Great. And then just one last one if I could.

Can you comment on potential M&A in the specialty finance space? Is this something you view as attractive and would you potentially look to adding another business lines such as say CMBS or special servicing?.

Look, before I talk specifically about special servicing or CMBS, I think at a high level M&A is always on the radar screen as we think to grow our business and certainly to the extent we can use an attractive currency to buy something in an attractive return is something we spend a lot of time looking at, so I’d say the hit rate or the ability to get something done is always challenging.

I’d say specifically to your questions on the CMBS side, I would say we have no immediate desires whatsoever to be in the conduit lending space for the CMBS business.

And I would say on the servicing side who knows to those who acquired platforms five, six years ago, which ended up being very attractive financial transactions giving the ongoing fee streams, but I’d say there's nothing on our radar screen today vis-a-vis special servicing, but to your broader question we certainly do think about various M&A possibilities with what growing the platform, but nothing immediately on the horizon..

Great. Thanks for taking my questions..

You got it..

[Operator Instructions] And our next question comes from the line of David Anderson with [indiscernible]. Your line is now open..

Good morning, guys. Thanks for taking the call.

I was just wondering if you could provide any more color on the project at 111 West 57 Street and if you had any information you could share about anticipated closings and when those might take place in the future?.

I mean look at a high level construction is continuing as expected in the project is on track to be completed sometime next year from a construct perspective. From a closings perspective or a marketing perspective there's really nothing we can update on at this point..

Great. Thank you very much..

Got it. End of Q&A.

And I'm showing no further questions at this time. I’ll now turn the call back over to Stuart Rothstein for closing remarks..

Thank you, operator and thanks for those who participated this morning..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day..