Apollo Commercial Real Estate Finance (ARI) 8-K Apollo Commercial Real Estate Finance, Inc. Reports

August 1, 2013

Supplemental Financial Information Presentation

Q2 2013

Information is as of June 30, 2013 except as otherwise noted. 

It should not be assumed that investments made in the future will be profitable or will equal the performance of investments in this document.

Exhibit 99.2

1

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Legal Disclaimer

We make forward-looking statements in this presentation and other filings we make with the Securities and Exchange Commission (“SEC”) within the meaning

of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended

to be covered by the safe harbor provided by the same. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult

to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business,

financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,”

“continue,” “intend,” “should,” “may” or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects,

among others, may be forward-looking: our business and investment strategy; our operating results; our ability to obtain and maintain financing arrangements;

the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes

in business conditions and the general economy.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently

available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many

possible events or factors, not all of which are known to us. Some of these factors are described under “Risk Factors,” and “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” as included in ARI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and

other periodic reports filed with the Securities and Exchange Commission. If a change occurs, our business, financial condition, liquidity and results of

operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is

made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we

are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This presentation may contain statistics and other data that in some cases has been obtained from or compiled from information made available by third-party

service providers.  Past performance is not indicative nor a guarantee of future returns.

2

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Apollo Commercial Real Estate Finance, Inc.

2013 Second Quarter Earnings Call

August 1, 2013

Stuart Rothstein

Chief Executive Officer and President

Scott Weiner

Chief Investment Officer of the Manager

Megan Gaul

Chief Financial Officer

Hilary Ginsberg

Investor Relations Manager

3

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Financial Summary

(1)

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) equity-based  compensation expense

(a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) and (ii) any unrealized gains or losses or other non-cash items included in net income.  Please see

slide 21 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share.

(2)

Fixed charge coverage is EBITDA divided by interest expense plus

the preferred stock dividends.

Income Statement

June 30, 2013

June 30, 2012

% Change

June 30, 2013

June 30, 2012

% Change

18,188

$      

13,880

$           

31.0%

36,324

$      

28,309

$       

28.3%

(955)

$         

(1,929)

$             

-50.5%

(2,024)

$      

(5,171)

$        

-60.9%

Net interest income (in thousands)

17,233

$      

11,951

$           

44.2%

34,300

$      

23,138

$       

48.2%

0.31

$         

0.41

$                

-24.4%

0.70

$         

0.83

$           

-15.7%

37,373,885

20,991,450

78.0%

33,946,329

20,978,938

61.8%

Balance sheet

June 30, 2013

December 31, 2012

% Change

733,431

$    

669,478

$          

9.6%

542,119

$    

444,320

$          

22.0%

Common stockholders equity

599,744

$    

460,674

$          

30.2%

86,250

$      

86,250

$           

-

191,312

$    

225,158

$          

-15.0%

0.4x

0.5x

5.2x

3.3x

Three Months Ended

Six Months Ended

Interest income (in thousands)

Interest expense (in thousands)

Operating earnings per share

(1)

Basic and diluted weighted average common

shares outstanding

Investments at amortized cost (in thousands)

Net equity in investments at cost (in thousands)

Preferred stockholders equity

Debt to common equity

Floating rate debt

(in thousands)

Fixed charge coverage

(2)

4

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

$0.20

$0.29

$0.42

$0.39

$0.31

$0.40

$0.41

$0.31

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

Six Months Ended

June 30, 2010

Six Months Ended

June 30, 2011

Six Months Ended

June 30, 2012

Six Months Ended

June 30, 2013

ARI –

Historical Overview

Operating Earnings per Share

(1)

Dividends per Common Share

Net Interest Income ($000s)

Return

on

Common

Equity

Based

on

Operating

Earnings

(2)

(1)

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become

cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) and (ii) any unrealized gains or losses or other non-cash items included in net income.  Please see slide 21 for a reconciliation of Operating Earnings and Operating

Earnings per Share to GAAP net income and GAAP net income per share.

(2)

Return on common equity is calculated as annualized Operating Earnings for the period as a percentage of average stockholders equity for the period.

$0.35

$0.40

$0.40

$0.40

$0.35

$0.40

$0.40

$0.40

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

Six Months Ended

June 30, 2010

Six Months Ended

June 30, 2011

Six Months Ended

June 30, 2012

Six Months Ended

June 30, 2013

$0.70

$0.80

$0.80

$0.80

$3,902

$7,599

$11,187

$17,067

$5,056

$9,684

$11,951

$17,233

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Six Months Ended

June 30, 2010

Six Months Ended

June 30, 2011

Six Months Ended

June 30, 2012

Six Months Ended

June 30, 2013

4.3%

6.8%

10.4%

9.6%

6.7%

9.6%

10.0%

7.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Six Months Ended

June 30, 2010

Six Months Ended

June 30, 2011

Six Months Ended

June 30, 2012

Six Months Ended

June 30, 2013

Q1

Q1

Q1

Q1

Q2

Q2

Q2

Q2

$0.51

$0.69

$0.83

$0.70

$34,300

$23,138

$17,283

$8,958

5

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Historical Overview

Operating Earnings per Share

(1)

(1)

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense (a portion of which may become

cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) and (ii) any unrealized gains or losses or other non-cash items included in net income.  Please see slide 21 for a reconciliation of Operating Earnings and Operating

Earnings per Share to GAAP net income and GAAP net income per share.

(2)

Return on common equity is calculated as annualized Operating Earnings for the period as a percentage of average stockholders equity for the period.

Dividends per Common Share

Net Interest Income ($000s)

Return on Common Equity Based on Operating Earnings  

(2)

$1.50

$1.60

$1.60

$0.40

$0.40

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

2010

2011

2012

YTD 2013

$0.80

$1.09

$1.47

$1.50

$0.39

$0.31

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

2010

2011

2012

YTD 2013

$0.70

$21,771

$38,464

$48,677

$17,067

$17,233

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2010

2011

2012

YTD 2013

$34,300

10.8%

6.9%

9.6%

7.8%

0.0%

3.0%

6.0%

9.0%

12.0%

Q3 2012

Q4 2012

Q1 2013

Q2 2013

6

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Q2 Highlights

Financial Results & Earnings Per Share

Operating

Earnings

for

the

quarter

ended

June

30,

2013

of

$11.7

million,

or

$0.31

per

diluted

common

share

(1)

–

Net interest income of $17.2 million for Q2 2013

–

Total expenses of $4.0 million, comprised of management fees of $2.6 million, G&A of $1.0 million and non-cash stock

based compensation of $0.4 million

–

GAAP

net

income

available

to

common

stockholders

for

the

quarter

ended

June

30,

2013

of

$9.9

million,

or

$0.27

per

diluted common share

Dividends

Declared a dividend of $0.40 per share of common stock for the quarter ended September 30, 2013

–

10.0%

annualized

dividend

yield

based

on

$15.98

closing

price

on

July

30,

2013

Declared

a

dividend

on

the

Company’s

8.625%

Series

A

Cumulative

Redeemable

Perpetual

Preferred

Stock

of

$0.5391 per share for stockholders of record on June 28, 2013

(1)

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted

for (i) equity-based compensation expense (a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding) and (ii) any

unrealized gains or losses or other non-cash items included in net income.  Please see slide 21 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per

share.

7

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Q2 Highlights

Investment and Portfolio Activity

Mezzanine

Loan

–

National

Warehouse

Portfolio

–

$32

million

fixed

rate

mezzanine

loan

secured

by

a

pledge

of

the

equity

interests

in

the

owner

of 15 warehouse facilities totaling 2.8 million square feet spanning nine states

–

10-year term

–

Underwritten

LTV

–

75%

–

Underwritten  IRR

(1)

~ 12%

Mezzanine Loan –

Multifamily Conversion, New York, NY

–

$44 million floating rate mezzanine loan secured by a pledge of the equity interests in the

owner of five adjacent commercial buildings totaling approximately 411,000 gross square feet

that are expected to be converted into multifamily rental apartments in the Gramercy Park

section of New York City

–

15-month term (one-year initial term and one three-month extension)

–

Underwritten

LTV

–

78%

–

Underwritten IRR

(1)

~ 14%

(1)

The internal rates of return (“IRR”) for the investments listed reflect the returns underwritten by ACREFI Management, LLC (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes that

extension options are exercised and that the cost of borrowings and derivative instruments under the Company’s master repurchase agreement with Wells Fargo Bank, N.A. (“Wells Facility”) remains constant over the remaining terms and extension terms under

the facility. There can be no assurance the actual IRRs will equal the underwritten IRRs shown. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of some of the factors that could adversely

impact the returns received by the Company from the investments over time.

8

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Q2 Highlights

Investment and Portfolio Activity

Repayments

–

Principal

repayment

on

a

$15

million

mezzanine

loan

secured

by

a

hotel

in

New

York

City

–

Received

$1.2

million

yield

maintenance

payment;

Total

realized

IRR

on

investment

–

19%

(1)

Portfolio Summary

Total

investments

with

an

amortized

cost

of

$733

million

at

June

30,

2013

Current

weighted

average

underwritten

IRR

of

approximately

13.1%

and

levered

weighted

average

underwritten

IRR

of

approximately

14.2%

at

June

30,

2013

(1)

Book Value Per Share

GAAP book value of $16.26 per share as of June 30, 2013

Fair

value

of

$16.55

per

share

as

of

June

30,

2013

(2)

(1)

The IRR  for the investments listed reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions are exercised and that the cost of borrowings and derivative instruments under

the Wells Facility remains constant over the remaining terms and

extension terms under the facility. The calculation also assumes extension options on the Wells Facility with respect to the Hilton CMBS are exercised.With respect to the mezzanine loan for the New York City

multifamily condominium conversion that closed in December 2012 and the mezzanine loan for the New York City condominium construction that closed in January 2013, the IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the

remaining commitments and associated loan repayments, as well as

assuming no defaults.  IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a

percentage

of

the

investment.

It

is

the

discount

rate

that

makes

the

net

presentvalue

of

all

cash

outflows

(the

costs

of

investment)

equal

to

the

net

present

value

of

cash

inflows

(returns

on

investment).It

is

derived

from

the

negative

and

positivecash

flows

resulting

from

or

produced

by

each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the

dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly.

See “Risk Factors”

in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of some of the factors that could adversely impact

the

returns

received

by

the

Company

from

the

investments

over

time.

Substantially

all

of

the

Company’s

borrowings

under

the

Company's

master

repurchase

facility

with

JPMorgan

Chase

Bank,

N.A.

(the

"JPMorgan

Facility")

were

repaid.

The

Company's

ability

to

achieve

its

levered weighted average underwritten IRR is additionally dependent upon the Company re-borrowing approximately $53 million under the JPMorgan Facility or any replacement facility.

Without such re-borrowing, the levered weighted average IRR with regard to its portfolio of

first mortgage loan will be significantly lower than the amount shown above, as indicated by the current weighted average underwritten IRR above.

(2)

The Company carries loans at amortized cost and its commercial mortgage-backed securities (“CMBS”) are marked to market.  Management has estimated that the fair value of the Company’s financial assets at June 30, 2013 was approximately $10,6 million greater than the

carrying value of the Company’s investment portfolio as of the same date.  This represents a premium of $0.29 per share over the Company's GAAP book value as of June 30, 2013.

9

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Subsequent Events

Investment Activity

Mezzanine Loan –

Office Building, New York, NY

–

$14.0 million fixed rate mezzanine loan (purchased for $13.6 million or ~ 97% of face value)

secured by a pledge of the equity interests in the owner of the office component of a 432,717

square foot building located in downtown New York City

–

10-year term

–

Underwritten LTV –

70%

–

Underwritten  IRR

(1)

~ 13%

(1)

The IRRs for the investments listed reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions are exercised and that the cost of borrowings and derivative

instruments under the Wells Facility remains constant over the remaining terms and extension terms under this facility. There can be no assurance the actual IRRs will equal the underwritten IRRs shown. See “Risk Factors”

in the Company’s Annual Report on Form 10-K

for the year ended December 31, 2012 for a discussion of some of

the factors that could adversely impact the returns received by

the Company from the investments over time.

10

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Portfolio Overview

Asset Type

($000s)

Amortized

Cost

Borrowings

Equity

at Cost

Remaining

Weighted

Average Life    

(years )

(1)

Current

Weighted

Average

IRR

(2)(3)

Levered

Weighted

Average

IRR

(4)

First Mortgage Loans

(2)

$143,492

$3

$143,489

2.1

11.0%

15.8%

Subordinate Loans

354,865

-

354,865

4.2

13.8

13.8

CMBS -

AAA

165,553

144,200

21,353

1.4

15.8

15.8

CMBS -

Hilton

69,521

47,109

22,412

2.4

12.6

12.6

Investments at June 30, 2013

$733,431

$191,312

$542,119

3.0 Years

13.1%

14.2%

(1)

(2)

(3)

(4)

As of June 30, 2013.

Remaining Weighted Average Life assumes all extension options are exercised.

Borrowings under the Company’s master repurchase facility with JPMorgan (the “JPMorgan Facility”) bear interest at LIBOR plus 250 basis points, or 2.7% at June 30, 2013. The IRR calculation further assumes the JPMorgan Facility or any

replacement facility will remain available over the life of these investments.

The IRR for the investments shown in the above table reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions are exercised and that

the cost of borrowings and derivative instruments under the Wells Facility remains constant over the remaining terms and extension terms under this facility. The calculation also assumes extension options on the Wells Facility with respect to the

Hilton CMBS are exercised. With respect to the mezzanine loan for the New York City multifamily condominium conversion that closed in December 2012 and the mezzanine loan for the New York City condominium construction that closed in

January 2013, the IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, as well as assuming no defaults.  IRR is the annualized

effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present

value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction

involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the

dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table. See “Risk Factors” in the Company’s

Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the table over time.

Substantially all of the Company’s borrowings under the JPMorgan Facility were repaid.  The Company's ability to achieve its underwritten levered weighted average IRR with regard to its portfolio of first mortgage loans is additionally

dependent upon the Company re-borrowing approximately $53,000 under the JPMorgan Facility or any replacement facility.   Without such re-borrowing, the levered weighted average IRRs will be as indicated in the current weighted average

IRR column above.

11

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Portfolio Overview

Diversified Investment Portfolio with Amortized Cost Basis of $733 million

Net Invested Equity at Amortized Cost Basis

Gross Assets at Amortized Cost Basis

CMBS -

AAA

23%

CMBS -

Hilton

9%

First Mortgages

20%

Subordinate

Loans

48%

CMBS -

AAA

4%

CMBS -

Hilton

4%

First Mortgages

27%

Subordinate

Loans

65%

12

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Portfolio Diversification

The portfolio is diversified by property type and geographic location

Geographic Diversification by Net Equity

Property Type by Net Equity

(1)

Other category includes the subordinate financing on a ski resort and a first mortgage loan on a development site with income producing parking lots.

Securities

8%

Residential

30%

Hotel

32%

Office

9%

Retail

4%

Mixed

Use/Other(2)

11%

Industrial

6%

New York City

49%

Northeast

(excluding NYC)

3%

Securities

8%

Southeast

2%

Mid-Atlantic

9%

Midwest

11%

West

13%

Southwest

5%

13

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Loan Portfolio -

Maturity and Type

Fully Extended Loan Maturity Schedule ($000s)

(1)(2)

(1)

Based upon Face Amount of Loans; Does not include CMBS (AAA or Hilton).

(2)

For the NYC condominium conversion loan that closed in December 2012 and the NYC condominium construction loan that closed in January 2013, the maturities reflect the fully funded amounts of the loans. 

Loan Position and Rate Type

(1)

$16.9

$44.0

$116.8

$98.1

$120.0

$84.9

$-

$8.9

$-

$16.4

$32.0

$0

$20

$40

$60

$80

$100

$120

$140

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

66%

Fixed

Rate/34%

Floating

Rate

Senior Loan Fixed

17%

Subordinate Loan

49%

Subordinate Loan

22%

Senior Loan

12%

Fixed

Floating

Floating

14

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

Loan Portfolio –

Loan Level LTV (Through Last Invested Dollar)

First Mortgage Loans

Subordinate Financings

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Description ($ in thousands)

Location

Balance at     

June 30, 2013

Starting

LTV

Ending

LTV

First Mortgage -

Condo Conversion

(1)

New York

45,000

$             

0%

31%

First Mortgage -

Hotel

New York 

31,443

$             

0%

42%

First Mortgage -

Office

New York

27,293

$             

0%

35%

First Mortgage -

Hotel

Maryland

25,111

$             

0%

62%

First Mortgage -

Parking/Development Site

Massachusetts

16,890

$             

0%

21%

Total

145,737

$          

(1)

Both loans are for the same property; Ending LTV for the Condominium Conversion mezzanine loan is based upon the committed amount of $35 million. 

(2)

Ending LTV is based upon the aggregate face value ($23.8 million) of the senior sub-participation interests at the date of investment; ARI purchased the senior sub-participation interests for $17.8 million

(approximately 75% of face value).

(2)

Description ($ in thousands)

Location

Balance at    

June 30, 2013

Starting

LTV

Ending

LTV

Subordinate -

Condo Development

New York

58,699

$             

33%

45%

Subordinate -

Hotel Portfolio

Various

49,516

$             

53%

60%

Subordinate -

Multifamily Conversion

New York

44,000

$             

51%

78%

Subordinate -

Ski Resort

California

40,000

$             

34%

54%

Subordinate -

Industrial Portfolio

Various

32,000

$             

67%

75%

Subordinate -

Hotel Portfolio

New York

25,000

$             

56%

60%

Subordinate -

Hotel Portfolio

Minnesota

24,904

$             

57%

69%

Subordinate -

Retail

Virginia

23,605

$             

60%

73%

Subordinate -

Multifamily Conversion

New York

18,000

$             

48%

60%

Subordinate -

Hotel

New York

15,000

$             

56%

69%

Subordinate -

Office

Missouri

9,914

$               

61%

71%

Subordinate -

Office

Michigan

8,888

$               

42%

54%

Subordinate -

Mixed Use

North Carolina

6,525

$               

64%

77%

Subordinate -

Condo Conversion

(1)

New York

350

$                  

31%

55%

Total

356,402

$          

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

15

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI –

CMBS Portfolio

Face

Amortized

Cost

Remaining Weighted

Average Life with

Extensions (years)

Estimated

Fair Value

Debt

Net

Equity at

Cost

CMBS –

AAA

$163,162

$165,553

1.4

$165,173

$144,200

$21,353

CMBS –

Hilton

71,498

69,521

2.4

71,944

47,109

22,412

CMBS –

Total

$234,660

$235,074

1.8 Year

$237,117

$191,309

$43,765

CMBS -

AAA

CUSIP

Description

07388YAB8

BSCMS 07-PW16 A2

07401DAB7

BSCMS 2007-PW18 A2

12513YAC4

CD 2007-CD4 A2B

61754KAC9

MSC 07-IQ14 A2

92978YAB6

WBCMT 07-C32 A2

CMBS -

AAA

CUSIP

Description

36246LAB7

GSMS 2007-GG10 A2

46630JAK5

JPMCC 2007-LDPX A2S

61751NAD4

MSC 2007-HQ11 A31

92978TAB7

WBCMT 2007-C31 A2

CMBS –

Hilton

CUSIP

Description

05956KAA6

BALL 2010-HLTN

16

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Portfolio Metrics –

Quarterly Migration Summary

Portfolio Metrics ($ in thousands)

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q2 2012

(Investment balances represent amortized cost)

First Mortgage Loans

143,492

$        

142,833

$        

142,921

$        

104,101

$        

103,320

$        

Subordinate Loans

354,865

286,569

246,246

196,177

179,602

Repurchase Agreement

-

-

6,598

10,975

41,696

CMBS -

AAA

165,553

188,824

203,463

223,781

280,697

CMBS -

Hilton

69,521

69,912

70,250

70,521

70,719

Total Investments

733,431

$        

688,138

$        

669,478

$        

605,555

$        

676,034

$        

(Investment balances represent net equity, at cost)

First Mortgage Loans

143,489

$        

142,830

$        

142,918

$        

104,098

$        

50,260

$         

Subordinate Loans

354,865

286,569

246,246

196,177

179,602

Repurchase Agreement

-

-

6,598

10,975

41,696

CMBS -

AAA

21,353

24,620

26,636

29,712

32,520

CMBS -

Hilton

22,412

22,175

21,922

21,623

21,260

Net Equity in Investments at Cost

542,119

$        

476,194

$        

444,320

$        

362,585

$        

325,338

$        

Weighted Average IRR

(1)

14.2%

(2)

14.2%

(2)

14.1%

(2)

14.9%

(2)

15.0%

Weighted Average Duration

3.0 Years

3.0 Years

3.1 Years

3.3 Years

2.9 Years

Loan

Portfolio

Weighted

Average

Ending

LTV

(3)

56.0%

53.6%

55.6%

58.0%

57.1%

Borrowings

191,312

$        

211,944

$        

225,158

$        

242,970

$        

350,696

$        

The IRR for the investments shown in the above table reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assumes extensions are exercised and that the cost of

borrowings and derivative instruments under the Wells Facility remains constant over the remaining terms and extension terms under this facility. The calculation also assumes extension options on the Wells Facility with respect to the Hilton CMBS are

exercised. With respect to the mezzanine loan for the New York City multifamily condominium conversion that closed in December 2012 and the mezzanine loan for the New York City condominium construction that closed in January 2013, the IRR calculation

assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, as well as assuming no defaults.  IRR is the annualized effective compounded return rate that accounts for

the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net

present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by

each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest

accordingly. There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table. See “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of some of the factors that

could adversely impact the returns received by the Company from the investments shown in the table over time.

Represents an underwritten levered weighted average IRR.  The Company's ability to achieve the underwritten levered weighted average IRR,  additionally depends upon the Company re-borrowing approximately $53,000 under the JPMorgan Facility or any

replacement facility with regard to its portfolio of first mortgage loans.   Without such re-borrowing, the levered weighted average IRR will be significantly lower than the amount shown above, as indicated in the weighted average IRR column on page 10. 

Does not include CMBS (AAA or Hilton).

(1)

(2)

(3)

17

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

ARI had total borrowings outstanding of $191.3 million at June 30, 2013

ARI’s borrowings had the following remaining maturities at June 30, 2013:

Financing Overview

Facility ($000s)

Debt Balance

Weighted

Average

Remaining

Maturity

(1)

Cost of

Funds

Hedged

Cost of

Funds

Wells

Facility

(1)

$191,309

1.1

1.4%

1.5%

JPMorgan Facility

3

1.6

2.7%

2.7%

Total Borrowings at June 30, 2013

$191,312

1.1 Years

1.4%

1.5%

Facility ($000s)

Less than 1

year

1 to 3 years

3 to 5 years

Total

Wells

Facility

(1)

$146,401

$44,908

$-

$191,309

JPMorgan Facility

-

3

-

3

Total Borrowings at June 30, 2013

$146,401

$44,911

$-

$191,312

(1)

Assumes extension options on both the JP Morgan Facility and the Wells Facility are exercised. At June 30, 2013, the interest rate with respect to outstanding borrowings used to finance AAA CMBS was LIBOR plus

105bps and the interest rate with respect to outstanding borrowings used to finance the Hilton CMBS was LIBOR plus 175bps.

18

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Financials

19

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Consolidated Balance Sheets

(in thousands—except share and per share data)

June 30, 2013

December 31, 2012

Assets:

Cash

156,797

$                 

108,619

$                 

Securities available-for-sale, at estimated fair value

52,909

67,079

Securities, at estimated fair value

184,208

211,809

Commercial mortgage loans, held for investment

143,492

142,921

Subordinate loans, held for investment

354,865

246,246

Repurchase agreements, held for investment

-

6,598

Interest receivable

4,830

4,277

Deferred financing costs, net

1,018

678

Other assets

-

203

Total Assets

898,119

$                 

788,430

$                 

Liabilities and Stockholders' Equity

Liabilities:

Borrowings under repurchase agreements

191,312

$                 

225,158

$                 

Derivative instruments, net

25

155

Accounts payable and accrued expenses

1,367

1,265

Payable to related party

2,600

2,037

Dividends payable

16,821

12,891

Total Liabilities

212,125

241,506

Stockholders' Equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized and 3,450,000 shares issued and outstanding in 2013

and 2012

35

35

Common stock, $0.01 par value, 450,000,000 shares authorized 36,880,410 and 28,044,106 shares issued and

outstanding in 2013 and 2012, respectively

369

280

Additional paid-in-capital

695,572

546,065

Retained earnings (accumulated deficit)

(9,320)

574

Accumulated other comprehensive loss

(662)

(30)

Total Stockholders' Equity

685,994

546,924

Total Liabilities and Stockholders' Equity

898,119

$                 

788,430

$                 

20

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Consolidated Statement of Operations

June 30, 2013

June 30, 2012

June 30, 2013

June 30, 2012

Net interest income:

Interest income from securities

3,014

$               

3,230

$               

6,101

$              

8,552

$               

Interest income from commercial mortgage loans

3,676

2,791

7,268

5,026

Interest income from subordinate loans

11,498

5,859

22,953

11,172

Interest income from repurchase agreements

-

2,000

2

3,559

Interest expense

(955)

(1,929)

(2,024)

(5,171)

Net interest income

17,233

11,951

34,300

23,138

Operating expenses:

General and administrative expenses (includes $428 and $1,311 of

equity-based compensation in 2013 and $886 and $1,969 in 2012,

respectively)

(1,437)

(2,762)

(3,333)

(4,798)

Management fees to related party

(2,600)

(1,292)

(4,759)

(2,581)

Total operating expenses

(4,037)

(4,054)

(8,092)

(7,379)

Interest income from cash balances

16

-

16

1

Realized gain on sale of securities

-

-

-

262

Unrealized gain (loss) on securities

(1,421)

2,078

(2,500)

3,463

Loss on derivative instruments (includes unrealized gains of $57 and

$130 in 2013 and $192 and $187 in 2012, respectively)

(2)

(65)

(3)

(482)

Net income

11,789

$          

9,910

$            

23,721

$          

19,003

$          

Preferred dividends

(1,860)

-

(3,720)

-

Net Income available to common shareholders

9,929

$            

9,910

$            

20,001

$          

19,003

$          

Basic and diluted net income per share of common stock   

0.27

$                

0.47

$                

0.59

$                

0.91

$                

Basic and diluted weighted average shares of common stock outstanding

37,373,885

20,991,450

33,946,329

20,978,938

Dividend declared per share of common stock

0.40

$                

0.40

$                

0.80

$                

0.80

$                

Three months ended

Six months ended

21

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Reconciliation of Operating Earnings to Net Income

June 30, 2013

Earnings Per Share

(Diluted)

June 30, 2012

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

$9,929

$0.27

$9,910

$0.47

Adjustments:

Unrealized (gain)/loss on securities

1,421

0.03

(2,078)

(0.09)

Unrealized gain on derivative instruments

(57)

-

(192)

(0.01)

Equity-based compensation expense

428

0.01

886

0.04

Total adjustments:

1,792

0.04

(1,384)

(0.06)

Operating Earnings

11,721

$0.31

$8,526

$0.41

Basic and diluted weighted average common shares outstanding

37,373,885

20,991,450

Three Months Ended

June 30, 2013

Earnings Per Share

(Diluted)

June 30, 2012

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

$20,001

$0.59

$19,003

$0.91

Adjustments:

Unrealized (gain)/loss on securities

2,500

0.07

(3,463)

(0.16)

Unrealized gain on derivative instruments

(130)

-

(187)

(0.01)

Equity-based compensation expense

1,311

0.04

1,969

0.09

Total adjustments:

3,681

0.11

(1,681)

(0.08)

Operating Earnings

23,682

$0.70

$17,322

$0.83

Basic and diluted weighted average common shares outstanding

33,946,329

20,978,938

Six Months Ended

22

COMMERCIAL REAL ESTATE FINANCE, INC. (“ARI”)

Financial Metrics –

Quarterly Migration Summary

(1)

Operating Earnings is a non-GAAP financial measure that is used by the Company to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) equity-based compensation expense

(a portion of which may become cash-based upon final vesting and settlement of awards should the holder elect net share settlement to satisfy income tax withholding)

and (ii) any unrealized gains or losses or other non-cash items included in net income.  Please see

slide 21 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net income and GAAP net income per share.

(2)

The Company carries loans at amortized cost and its CMBS securities are marked to market.  Management estimates the fair value of the Company’s financial assets.

(3)

Return on common equity is calculated as annualized Operating Earnings for the period as a percentage of average stockholders equity for the period.

Financial Metrics

($ in thousands, except per share data)

Q2 2013

Q1 2013

Q4 2012

Q3 2012

Q2 2012

Net Interest Income

17,233

$         

17,067

$         

12,303

$         

13,236

$         

11,951

$         

Management Fee

2,600

2,160

2,040

1,518

1,292

General and Administrative Costs

1,009

1,012

935

1,154

1,876

Non-Cash Stock Based Compensation

428

883

380

1,276

886

Net Income Available to Common Stockholders

9,929

$           

10,072

$         

7,108

$           

10,992

$         

9,910

$           

GAAP Diluted EPS

0.27

$              

0.33

$              

0.26

$              

0.52

$              

0.47

$              

Operating Earnings

(1)

11,721

$         

11,963

$         

7,375

$           

9,218

$           

8,526

$           

Operating EPS

(1)

0.31

$              

0.39

$              

0.27

$              

0.44

$              

0.41

$              

Distributions Declared to Common Stockholders

0.40

$              

0.40

$              

0.40

$              

0.40

$              

0.40

$              

GAAP Book Value per Common Share

16.26

$           

16.41

$           

16.43

$           

16.58

$           

16.59

$           

Fair Value per Common Share

(2)

16.55

$           

16.71

$           

16.84

$           

17.16

$           

17.22

$           

Total Stockholders' Equity

685,994

$        

691,185

$        

546,924

$        

427,421

$        

341,518

$        

Basic and diluted weighted average common shares

outstanding

37,373,885

30,105,939

27,608,787

20,992,312

20,991,450

Return on Common Equity Based on Operating Earnings

7.8%

9.6%

6.8%

10.8%

10.0%

(3)