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

October 29, 2014

Supplemental Financial Information Presentation

Q3 2014

Information is as of September 30, 2014 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

Legal Disclaimer

1

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

This presentation may contain forward-looking statements that are 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 management’s control. These forward-looking statements include information about possible

or assumed future results of Apollo Commercial Real Estate Finance, Inc.’s (“ARI” or the “Company”) business, financial condition, liquidity, results of operations, plans and

objectives. When used in this presentation, the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, are

intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: ARI’s business and investment strategy; ARI’s

operating results; ARI’s ability to obtain and maintain financing arrangements; the return on equity, the yield on investments 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 management’s beliefs, assumptions and expectations of future performance, taking into account all information currently available to ARI.

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 ARI. 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, 2013 and other periodic reports filed with the Securities and Exchange

Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov. If a change occurs, ARI’s business, financial condition, liquidity and results of operations may vary

materially from those expressed in ARI’s 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 management to predict those events or how they may affect ARI. Except as required by law, ARI is not obligated to, and does not intend to, update or

revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This presentation contains information regarding ARI’s financial results that is calculated and presented on the basis of methodologies other than in accordance with accounting

principles generally accepted in the United States (“GAAP”), including Operating Earnings and Operating Earnings per share.  Please refer to slide 3 for a definition of “Operating

Earnings” and the reconciliation of “Operating Earnings” to the applicable GAAP financial measure set forth on slide 19.

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.  ARI

makes no representation or warranty, expressed or implied, with respect to the accuracy, reasonableness or completeness of such information.

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

Index performance and yield data are shown for illustrative purposes only and have limitations when used for comparison or for other purposes due to, among other matters, volatility,

credit or other factors (such as number and types of securities).  Indices are unmanaged, do not charge any fees or expenses, assume reinvestment of income and do not employ special

investment techniques such as leveraging or short selling.  No such index is indicative of the future results of any investment by ARI.

Apollo Commercial Real Estate Finance, Inc.

2014 Third Quarter Earnings Call

October 29, 2014

Stuart Rothstein

Chief Executive Officer and President

Scott Weiner

Chief Investment Officer of the Manager

Megan Gaul

Chief Financial Officer, Treasurer and Secretary

Hilary Ginsberg

Investor Relations Manager

2

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

ARI –

Financial Summary

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

3

(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

available

to

common

stockholders,

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),

(ii)

any

unrealized

gains

or

losses

or

other

non-cash

items

included

in

net

income,

(iii)

unrealized

income

from

equity

investments

and

(iv)

the

non-cash

amortization

expense

related

to

the

reclassification

of

a

portion

of

the

senior

convertible

notes

to

stockholders’

equity

in

accordance

with

GAAP.

Please

see

slide

19

for

a

reconciliation

of

Operating

Earnings

and

Operating

Earnings

per

Share

to

GAAP

net

income

and

GAAP

net

income

per

share.

(2)

Commercial

Mortgage

Backed

Securities,

(“CMBS”)

held-to-maturity,

are

net

of

a

participation

sold

during

June

2014.

ARI

presents

the

participation

sold

as

both

assets

and

non-recourse

liabilities

because

the

participation

does

not

qualify

as

a

sale

according

to

GAAP.

At

September

30,

2014,

ARI

had

one

such

participation

sold

with

a

carrying

amount

of

$89,418

(3)

Fixed  charge  coverage  is  EBITDA  divided  by  interest  expense  plus  the  preferred  stock  dividends.

Net interest income

Operating earnings

1,531,453

$  

997,274

$    

Common stockholders' equity

769,436

$    

86,250

$      

537,766

$    

Convertible senior notes

246,054

$    

1.21x

3.8x

Interest income

Interest expense

Operating earnings per share

Diluted weighted average shares of common

stock outstanding

Investments at amortized cost

Net equity in investments at cost

Preferred stockholders' equity

Debt to common equity

Outstanding repurchase agreement borrowings

Fixed charge coverage

($ amounts in thousands, except per share data)

Income Statement

September 30, 2014

September 30, 2013

% Change

September 30, 2014

September 30, 2013

% Change

35,356

$      

85,559

$      

$       

52.8%

(8,786)

$      

(15,802)

$     

(2,909)

$        

443.2%

26,570

$      

69,757

$      

53,086

$       

31.4%

20,768

$      

52,805

$      

36,954

$       

42.9%

0.44

$         

1.24

$         

1.05

$           

18.1%

47,068,929

37,379,469

25.9%

42,538,744

35,103,285

21.2%

Three Months Ended

Nine Months Ended

19,671

$           

79.7%

$               

892.8%

18,786

$           

41.4%

13,272

$           

56.5%

0.35

$                

25.7%

Balance sheet

September 30, 2014

December 31, 2013

% Change

55,995

(885)

848,761

$          

80.4%

676,855

$          

47.3%

596,706

$          

28.9%

86,250

$           

-

202,033

$          

166.2%

$                 

100.0%

0.4x

5.3x

(1)

(1)

(2)

(3)

-

Operating Earnings ($000s)

(1)

Net Interest Income ($000s)

Dividends per Common Share

(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 available to common stockholders, 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), (ii) any unrealized gains or losses or other non-cash items included in net income, (iii) unrealized income from equity

investments and (iv) the non-cash amortization expense related to the reclassification of a portion of the senior convertible notes to stockholders’

equity in accordance with GAAP.  Please see slide 19 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP net

income and GAAP net income per share.

Operating

Earnings

per

Common

Share

(1)

ARI –

Historical Financial Overview

$1.24

$1.05

$1.20

$1.20

$1.20

$1.20

$1.27

$1.07

$52,805

$36,954

$26,538

$19,775

$27,518

$36,375

$53,086

$69,757

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$5,047

$8,796

$7,086

$8,526

$7,643

$9,218

$11,963

$13,991

$11,721

$18,045

$13,272

$20,768

Nine Months Ended

September 30, 2011

Nine Months Ended

September 30, 2012

Nine Months Ended

September 30, 2013

Nine Months Ended

September 30, 2014

$0.00

$0.40

$0.80

$1.20

$1.60

$0.29

$0.42

$0.39

$0.37

$0.40

$0.41

$0.31

$0.42

$0.38

$0.44

$0.35

$0.44

Nine Months Ended

September 30, 2011

Nine Months Ended

September 30, 2012

Nine Months Ended

September 30, 2013

Nine Months Ended

September 30, 2014

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$7,599

$11,187

$17,067

$19,403

$9,683

$11,951

$17,233

$23,784

$10,236

$13,236

$18,786

$26,570

$0.00

$0.40

$0.80

$1.20

$1.60

Nine Months Ended

September 30, 2011

Nine Months Ended

September 30, 2012

Nine Months Ended

September 30, 2013

Nine Months Ended

September 30, 2014

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

Nine Months Ended

September 30, 2011

Nine Months Ended

September 30, 2012

Nine Months Ended

September 30, 2013

Nine Months Ended

September 30, 2014

4

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

5

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

ARI –

Q3 Financial Highlights

Financial Results & Earnings Per Share

Operating Earnings for the quarter ended September 30, 2014 of $20.8 million, or $0.44 per share of common

stock, a 26% per share increase as compared to Operating Earnings of $13.3 million, or $0.35 per share of

common

stock

for

the

quarter

ended

September

30,

2013

(1)

–

Net interest income of $26.6 million for Q3 2014

–

Total expenses of $4.6 million, comprised of management fees of $3.2 million, G&A of $1.1 million and equity-based

compensation of $0.3 million

–

Net income available to common stockholders for the quarter ended September 30, 2014 of $17.3 million, or $0.37 per

diluted share of common stock

Dividends

Declared a dividend of $0.40 per share of common stock for the quarter ending December 31, 2014

–

9.8% annualized dividend yield based on $16.40 closing price on October 27, 2014

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 September 30, 2014

Book Value

GAAP book value of $16.42 per share as of September 30, 2014

(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 available to common stockholders, 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) (ii) any unrealized gains or losses or other non-cash items included in net income (iii) unrealized

income

from

equity

investments

and

(iv)

the

non-cash

amortization

expense

related

to

the

reclassification

of

a

portion

of

the

senior

convertible

notes

to

stockholders’

equity

in

accordance

with

GAAP.

Please

see

slide

19

for

a

reconciliation

of

Operating

Earnings

and

Operating

Earnings per

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

6

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

ARI –

Q3 New Investments

(1)

Based upon committed amount of loan.

(2)

The Internal Rate of Return (“IRR”) for the investments shown in this presentation reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager (the “Manager”), calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but

assuming that extension options are exercised and that the cost of borrowings remains constant over the remaining term.  With respect to certain loans, the IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and

associated loan repayments, and assumes 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 that

the actual IRRs will equal the underwritten IRRs shown above.

See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be

significantly lower than anticipated”

included in the Company’s Annual Report on Form 10-K for the year ended December

31, 2013 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.

Summary of New Investments

Q3 2014

9 Months Ended

9/30/2014

Number of Loans Closed

3

11

Capital Committed to Loans

($ in thousands)

46,725

$         

608,715

$        

Fixed Rate %/Floating Rate %

(1)

32%/68%

32%/68%

First Mortgage %/Subordinate Loan %

26%/74%

48%/52%

Weighted Average Loan-to-Value

63%

62%

Equity Invested in CMBS

($ in thousands)

35,631

$         

75,001

$         

Weighted Average Duration of CMBS

2.8 years

2.8 years

Total Capital Committed

($ in thousands)

82,356

$         

683,716

$        

Weighted Average IRR

(2)

15%

14%

ARI –

Q3 Investment, Portfolio & Capital Markets Activity

Investment and Portfolio Activity

KBC Bank Deutschland AG (“KBCD”) Transaction

€30.7 million ($39.5 million) investment in an entity that acquired a minority participation in KBCD

KBCD had total assets of €2,187 billion as of December 31, 2013

KBCD

was

renamed

Bremer

Kreditbank

AG

and

will

operate

under

the

name

BKB

Bank

Loan Repayment

$50

million

principal

repayment

from

a

mezzanine

loan

secured

by

a

portfolio

of

Florida

office

properties

Realized IRR ~ 13%

Capital Markets Activity

Convertible Notes Offering

$112.5 million net proceeds raised from the underwritten public offering of $111.0 million aggregate principal

amount of 5.50% Convertible Senior Notes due 2019; Notes were priced at 102% of face value, plus accrued

interest from, and including, March 17, 2014

Initial conversion rate equal to 55.3649 shares of common stock per $1,000 principal amount of Notes, which

is equivalent to a conversion price of approximately $18.06 per share of common stock

Amendment of Credit Facility

During the quarter and subsequent to quarter end, expanded borrowing capacity of master repurchase

agreement with Deutsche Bank AG to $300.0 million from $200.0 million

–

–

–

–

–

–

–

–

7

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

8

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

ARI –

Commercial Real Estate Debt Portfolio Overview

Asset Type

($000s)

Amortized

Cost

Borrowings

Equity

at

Cost

(1)

Remaining

Weighted

Average Life

(years )

(2)

Current

Weighted

Average

Underwritten

IRR

(3)(4)

Levered

Weighted

Average

Underwritten

IRR

(3)(4)(5)

First Mortgage Loans

$           369,924

$          122,722

$           247,202

2.9

13.0%

15.6%

Subordinate Loans

585,504

-

585,504

3.2

12.8

12.8

CMBS,

held-to-maturity

(6)(7)

64,580

-

64,580

4.6

12.2

12.2

CMBS

511,445

-

99,988

2.5

16.1

16.1

Investments at September 30, 2014

$        1,531,453

$          537,766

$           997,274

3.0 Years

13.1%

13.7%

(1)

CMBS includes $30.1 million of restricted cash related to the Company’s master repurchase agreement with UBS AG (the “UBS Facility”) and $26.5 million related to investments purchased but not yet settled.

(2)

Remaining Weighted Average Life assumes all extension options are exercised.

(3)

Borrowings under the Company’s master repurchase agreement with JPMorgan Chase Bank, N.A. (the “JPMorgan Facility”) bear interest at LIBOR plus 250 basis points, or 2.7% at September 30, 2014. The IRR calculation further assumes the JPMorgan Facility or any replacement facility will remain available over the life of these

investments.

(4)

The underwritten IRR for the investments shown in this table reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and that the cost of borrowings remains  constant over the remaining term.  With

respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes 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 that the actual IRRs will equal the underwritten IRRs shown in the table. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be

significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 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

(5)

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 $52,278 in total under the JPMorgan Facility or any replacement facility with similar terms.   Without such re-borrowing, the levered

weighted average underwritten IRRs will be as indicated in the current weighted average underwritten IRR column above.  

(6)

CMBS, held-to-maturity, represents a loan the Company closed during May 2014 that was subsequently contributed to a securitization during August 2014.  During May 2014, the Company closed a $155,000 floating-rate whole loan secured by the first mortgage and equity interests in an entity that owns a resort hotel in Aruba. During June

2014, the Company syndicated a $90,000 senior participation in the loan and retained a $65,000 junior participation.  During August 2014, both the $90,000 senior participation and the Company's $65,000 junior participation were contributed to a CMBS securitization.  In exchange for contributing its $65,000 junior participation, the

Company received a CMBS secured solely by the $65,000 junior participation.

(7)

CMBS, held-to-maturity, are net of a participation sold during June 2014.  ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.  At September 30, 2014, ARI had one such participation sold with a carrying amount of $89,418.

Diversified Commercial Real Estate Debt Portfolio with Amortized

Cost Basis of $1.5 billion

Net

Invested

Equity

at

Amortized

Cost

Basis

(1)

Gross

Assets

at

Amortized

Cost

Basis

(1)

(1)

CMBS,

held-to-maturity

are

net

of

a

participation

sold

during

June

2014.

ARI

presents

the

participation

sold

as

both

assets

and

non-recourse

liabilities

because

the

participation

does

not

qualify

as

a

sale

according

to

GAAP.

At

September

30,

2014,

ARI

had

one

such

participation

sold

with a carrying amount of $89,418.

ARI –

Commercial Real Estate Debt Portfolio Overview

CMBS

34%

First Mortgage Loans

24%

Subordinate Loans

38%

CMBS, held-to-

maturity

4%

CMBS

10%

First Mortgage

Loans

25%

Subordinate Loans

59%

CMBS, held-to-

maturity

6%

9

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

ARI –

Commercial Real Estate Debt Portfolio Diversification

The Commercial Real Estate Debt Portfolio is diversified by property type and geographic location

Geographic Diversification by Net Equity

(1)

Property Type by Net Equity

(1)

(1)

CMBS, held-to-maturity, are not included in “Securities”

for this calculation. CMBS, held-to-maturity are net of a participation sold during June 2014.  ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale

according to GAAP.  At September 30, 2014, ARI had one such participation sold with a carrying amount of $89,418.

10

Securities

13%

Residential

42%

Industrial

3%

Hotel

23%

Mixed Use

3%

Office

6%

Healthcare

5%

Ski Resort

5%

New York City

32%

Northeast (excluding

NYC)

4%

Securities

14%

Southeast

5%

Mid

-

Atlantic

6%

Midwest

7%

West

13%

Southwest

4%

International

15%

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

11

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

ARI –

Loan Portfolio -

Maturity and Type

Fully Extended Loan Maturities and Future Fundings

(1)(2)(3)(4)

(1)

Basedupon

Face

Amount

of

Loans;

Doesnot

include

CMBS,butdoes

include

CMBS,held-to-maturity.

(2)

Maturities reflect the fully funded amounts of the loans.

(3)

CMBS, held-to-maturity are net of a participation sold during June 2014.  ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.  At September 30, 2014, ARI had onesuch participation sold with a carrying

amount of $89,418.

(4)

Future funding dates are based upon the Manager’s projections and are subject to change.

Loan

Position

and

Rate

Type

(1)(3)

50% Floating Rate/50% Fixed Rate

%

of

Floating

Rate

Loans

With

LIBOR

Floor

–

31%

Weighted

Average

LIBOR

Floor

–

0.44%

Senior Loan Fixed

18%

Subordinate Loan

Fixed

32%

Subordinate Loan

Floating

32%

Senior Loan

Floating

18%

12

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

ARI –

Loan Portfolio –

Loan Level LTV (Through Last Invested Dollar)

(1)

Both loans are for the same property.

(2)

Both loans are for the same property.

(3)

LTV is based upon the committed amount of $80 million.

(4)

This is CMBS, held-to-maturity and is net of a participation sold.  ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.  At September 30, 2014, this participation sold had a carrying amount of $89,418.

(5)

Based upon £32.1 face amount converted to USD based upon the conversion rateon 9/30/2014.

(6)

Ending LTV is based upon the committed amount of $19.5 million.

Subordinate Financings

First Mortgage Loans

Description ($ in thousands)

Location

Balance at 

9/30/2014

Starting LTV

Ending LTV

Subordinate - Condo Development

New York

73,844

$              

32%

47%

Subordinate - Resort Hotel

(4)

Aruba

65,000

$              

35%

60%

Subordinate - Condo Development

(5)

London

52,034

$              

45%

78%

Subordinate - Healthcare Portfolio

Various

50,000

$              

57%

62%

Subordinate - Hotel Portfolio

Various

47,172

$              

50%

57%

Subordinate - Multifamily Conversion

New York

44,000

$              

51%

78%

Subordinate - Ski Resort

California

40,000

$              

35%

54%

Subordinate - Condo Conversion

(1)

New York

35,545

$              

30%

53%

Subordinate - Industrial Portfolio

Various

32,000

$              

66%

73%

Subordinate - Condo Conversion

(2)

New York

29,601

$              

30%

56%

Subordinate - Hotel 

New York

28,250

$              

59%

67%

Subordinate - Hotel Portfolio

Minnesota

24,560

$              

56%

68%

Subordinate - Mixed Use

Pennsylvania

22,500

$              

54%

69%

Subordinate - Hotel

New York

20,000

$              

50%

61%

Subordinate - Multifamily/Condo/Hotel

(6)

Various

18,791

$              

80%

90%

Subordinate - Ski Resort

Montana

15,000

$              

46%

56%

Subordinate - Multifamily

New York

14,608

$              

35%

47%

Subordinate - Office

New York

14,000

$              

61%

70%

Subordinate - Office

Missouri

9,747

$                

60%

70%

Subordinate - Office

Michigan

8,828

$                

41%

53%

Subordinate - Mixed Use

North Carolina

6,525

$                

63%

75%

Total/Weighted Average

652,005

$           

63%

Description ($ in thousands)

Location

Balance at

9/30/2014

Starting LTV

Ending LTV

First Mortgage - Destination Homes

Various

101,000

$           

-

49%

First Mortgage - Condo Conversion

(1)

New York

45,496

$              

-

30%

First Mortgage - Hotel

Pennsylvania

34,000

$              

-

65%

First Mortgage - Condo Conversion

(2) 

New York

33,675

$              

-

30%

First Mortgage - Hotel

New York 

31,115

$              

-

41%

First Mortgage - Multifamily

New York

30,000

$              

-

63%

First Mortgage - Office

New York

26,968

$              

-

35%

First Mortgage - Condo Development

(3)

Maryland

25,000

$              

-

65%

First Mortgage - Hotel

Maryland

24,684

$              

-

61%

First Mortgage - Condo Development

Maryland

20,000

$              

-

67%

Total/Weighted Average

371,938

$           

49%

13

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

ARI –

CMBS Portfolio

(1)

Face

Amortized Cost

Remaining Weighted

Average Life with

Extensions (years)

Estimated

Fair Value

Debt

Net Equity

at Cost

(2)

CMBS –

Total

$               521,545              $              511,445                 

2.5 Years

$            517,620            $       415,044         

$       99,988         

CMBS

CUSIP

Description

07388YAB8

BSCMS 07-PW16 A2

61754KAC9

MSC 07-IQ14 A2

92978YAB6

WBCMT 07-C32 A2

61751NAD4

MSC 2007-HQ11 A31

92978TAB7

WBCMT 2007-C31 A2

92978PAJ8

WBCMT 2006-C29 AJ

07388QAH2

BSCMS 2007-PW17 AJ

07401DAH4

BSCMS 2007PW18 AJ

46625YVZ3

JPMCC 2005-CB13 AJ

50180CAG5

LBUBS 2006-C7 AJ

60688CAJ5

MLCFC 2007-9 AJ

05947US25

BACM 2005-3 AJ

CMBS

CUSIP

Description

59025KAG7

MLMT 2007-C1 AM

22546BAH3

CSMC 2007-C5 AM

36159XAH3

GECMC 2007-C1 AM

46627QBC1

JMPCC 2006-CB15 AM

46631BAJ4

JPMCC 2007-LD11 AM

14986DAJ9

CD 2006-CD3 AJ

17311QBN9

CGCMT 2007-C6 AJ

17313KAK7

CGCMT 2008-C7 AJ

20047QAH8

COMM 2006-C7 AJ

61755YAK0

MSC 2007-IQ15 AJ

46629YAH2

JPMCC 2007-CB18AJ

173311QAE0

CGCMT 2007-C6 AJFX

(1)

Does not include CMBS, held-to-maturity.

(2)

Includes

$30.1

million

of

restricted

cashrelated

to

the

UBS

Facility

and$26.5million

related

toinvestmentspurchased

not

yet

settled.

14

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

Portfolio Metrics –

Quarterly Migration Summary

Portfolio Metrics ($ in thousands)

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

(Investment balances represent amortized cost)

First Mortgage Loans

369,924

$         

343,810

$         

185,516

$         

161,099

$         

160,893

$         

Subordinate Loans

585,504

659,045

484,979

497,484

394,554

CMBS

511,445

339,724

173,174

190,178

218,019

CMBS - Held-to-Maturity

(1)

64,580

-

-

-

-

CMBS - Hilton

-

-

-

-

69,587

Total Investments

1,531,453

$      

1,342,579

$      

843,669

$         

848,761

$         

843,053

$         

(Investment balances represent net equity, at cost)

First Mortgage Loans

247,202

$         

197,112

$         

185,513

$         

140,716

$         

160,890

$         

Subordinate Loans

585,504

659,045

484,979

497,484

394,554

CMBS

99,988

(4)

70,325

(5)

36,310

(5)

38,655

(5)

36,760

(6)

CMBS - Held-to-Maturity

(1)

64,580

-

-

-

-

CMBS - Hilton

-

-

-

-

23,049

Net Equity in Investments at Cost

997,274

$         

926,482

$         

706,802

$         

676,855

$         

615,253

$         

Levered Weighted Average Underwritten IRR

(2)

13.7%

(7)

13.9%

(7)

14.1%

(7)

14.1%

(7)

13.9%

(7)

Weighted Average Duration

3.0 Years

3.2 Years

3.2 Years

3.3 Years

3.0 Years

Loan Portfolio Weighted Average Ending LTV

(3)

58.0%

58.0%

58.0%

58.0%

55.0%

Borrowings Under Repurchase Agreements

537,766

$         

446,224

$         

166,994

$         

202,033

$         

227,167

$         

Convertible Senior Notes

246,054

$         

139,362

$         

139,163

$         

-

$                

-

$                

Debt-to-Common Equity

1.2x

0.9x

0.5x

0.4x

0.5x

(1)       CMBS, held-to-maturity are net of a participation sold during June 2014.  ARI presents the participation sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.  At September 30, 2014, ARI had one

such participation

sold with a carrying amount of $89,418.

(2)       The underwritten  IRR for the investments shown in this presentation reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions,

early prepayments or defaults but assuming that extension options are exercised and that the

cost of borrowings remains constant over the remaining term.  With respect to certain loans, the underwritten IRR calculation assumes certain estimates with respect to the timing and magnitude

of future fundings for the remaining commitments and associated

loan repayments,

and assumes 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 that the actual IRRs will equal the underwritten IRRs shown in the table.

See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may

lead to future returns that may be significantly lower than anticipated”

included in the Company’s Annual Report on Form 10-K for the year ended December

31, 2013 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

(3)       Does not include CMBS.

(4)       Includes $30.1 million of restricted cash related to the UBS Facility and $26.5 million related to investments purchased not yet settled.

(5)       Includes $30.1 million of restricted cash related to the UBS Facility.

(6)       Includes $15.8 million of restricted cash related to the UBS Facility and $16.4 million of future borrowings related to unsettled trades

(7)       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 $52,278 under the JPMorgan Facility or any replacement facility

with similar terms with regard to its portfolio of first mortgage loans.

Without such re-borrowing, the levered weighted average underwritten IRR will be

lower than the amount shown above, as indicated in the current weighted average underwritten IRR column on slide 8.

15

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

ARI had total borrowings outstanding of $538 million at September 30, 2014:

ARI’s

borrowings

had

the

following

remaining

maturities

at

September

30,

2014:

Financing Overview

Facility ($000s)

Debt Balance

Weighted

Average

Remaining

Maturity

(1)

Cost of Funds

Wells Facility

$                     20,990

0.4

1.0%

UBS Facility

133,899

4.0

2.8%

Deutsche Bank Facility

260,155

3.5

3.8%

JP Morgan Facility

122,722

0.3

2.7%

Total Borrowings at September 30, 2014

$537,766

2.8 Years

3.2%

Facility ($000s)

Less than 1 year

1 to 3 years

3 to 5 years

Total

Wells Facility

$                   20,990

$                              -

$                           -

$                   20,990

UBS Facility

(1)

-

133,899

-

133,899

Deutsche Bank Facility

5,530

153,463

101,162

260,155

JP Morgan Facility

122,722

-

-

122,722

Total Borrowings at September 30, 2014

$                 149,242

$                  287,362

$               101,162

$                 537,766

(1)

Assumes extension options on the UBS Facility are exercised.

16

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

Financials

17

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

Consolidated Balance Sheets (Unaudited)

(in thousands—except share and per share data)

September 30, 2014

December 31, 2013

Assets:

Cash

58,649

$                  

20,096

$                  

Restricted cash

30,127

30,127

Securities available-for-sale, at estimated fair value

17,919

33,362

Securities, at estimated fair value

499,701

158,086

Securities, held-to-maturity

153,998

-

 ��                       

Commercial mortgage loans, held for investment

369,924

161,099

Subordinate loans, held for investment

585,504

497,484

Investment in unconsolidated joint venture

38,719

-

Derivative instrument

1,933

-

Interest receivable

17,072

6,022

Deferred financing costs, net

8,124

628

Other assets

1,342

600

Total Assets

1,783,012

$              

907,504

$                 

Liabilities and Stockholders' Equity

Liabilities:

Borrowings under repurchase agreements

537,766

$                 

202,033

$                 

Convertible senior notes, net

246,054

-

Participations sold

89,418

-

Investments purchased, not yet settled

26,540

-

Accounts payable and accrued expenses

3,602

2,660

Payable to related party

3,193

2,628

Dividends payable

20,753

17,227

Total Liabilities

927,326

224,548

Stockholders' Equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized and 3,450,000 shares issued and outstanding in 2014

and 2013 ($86,250 aggregate liquidation preference)

35

35

Common stock, $0.01 par value, 450,000,000 shares authorized 46,848,675 and 36,888,467 shares issued and

outstanding in 2014 and 2013, respectively

468

369

Additional paid-in-capital

867,598

697,610

Retained earnings (accumulated deficit)

(11,661)

(14,188)

Accumulated other comprehensive loss

(754)

(870)

Total Stockholders' Equity

855,686

682,956

Total Liabilities and Stockholders' Equity

1,783,012

$              

907,504

$                 

18

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

Consolidated Statement of Operations (Unaudited)

September 30,

2014

September 30,

2013

September 30,

2014

September 30,

2013

Net interest income:

Interest income from securities

6,129

$               

2,533

$               

12,914

$             

8,634

$               

Interest income from securities, held to maturity

2,219

-

2,219

-

Interest income from commercial mortgage loans

8,025

4,954

18,475

12,222

Interest income from subordinate loans

18,983

12,184

51,951

35,137

Interest income from repurchase agreements

-

-

-

2

Interest expense

(8,786)

(885)

(15,802)

(2,909)

Net interest income

26,570

18,786

69,757

53,086

Operating expenses:

General and administrative expenses (includes $308 and $1,096 of

equity-based compensation in 2014 and $784 and $2,095 in 2013,

respectively)

(1,434)

(1,793)

(4,355)

(5,126)

Management fees to related party

(3,193)

(2,625)

(8,725)

(7,384)

Total operating expenses

(4,627)

(4,418)

(13,080)

(12,510)

Income from equity investment

(88)

-

(88)

-

Interest income from cash balances

21

3

26

19

Unrealized gain/(loss) on securities

(2,147)

(1,472)

4,787

(3,973)

Foreign currency gain/(loss)

(3,596)

-

(2,637)

-

Gain/(loss) on derivative instruments (includes $3,026 and $1,933 of

unrealized gains in 2014 and $25 and $155 of unrealized gains in

2013, respectively)

3,026

1

1,933

(1)

Net income

19,159

$          

12,900

$          

60,698

$          

36,621

$          

Preferred dividends

(1,860)

(1,859)

(5,580)

(5,580)

Net income available to common stockholders

17,299

$          

11,041

$          

55,118

$          

31,041

$          

Basic and diluted net income per share of common stock   

0.37

$                

0.29

$                

1.30

$                

0.88

$                

Basic weighted average shares of common stock outstanding

46,848,675

36,883,002

42,332,380

34,647,941

Diluted weighted average shares of common stock outstanding

47,068,929

37,379,469

42,538,744

35,103,285

Dividend declared per share of common stock

0.40

$                

0.40

$                

1.20

$                

1.20

$                

Three months ended

Nine months ended

19

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

Reconciliation of Operating Earnings to Net Income

September 30, 2014

Earnings Per Share

(Diluted)

September 30, 2013

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

17,299

$                    

0.37

$                         

$11,041

0.29

$                         

Adjustments:

  Unrealized (gain)/loss on securities

2,147

0.04

1,472

0.04

  Unrealized (gain)/loss on derivative instruments

(3,026)

(0.07)

(25)

-

  Foreign currency loss

3,596

0.08

-

-

  Equity-based compensation expense

308

0.01

784

0.02

  Income from equity investment

88

-

-

-

  Amortization of convertible notes related to equity reclassification

356

0.01

-

-

Total adjustments:

3,469

0.07

2,231

0.06

Operating Earnings

20,768

$                    

0.44

$                         

13,272

$                    

0.35

$                         

Basic weighted average shares of common stock outstanding

46,848,675

36,883,002

Diluted weighted average shares of common stock outstanding

47,068,929

37,379,469

Three Months Ended

September 30, 2014

Earnings Per Share

(Diluted)

September 30, 2013

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

55,118

$                    

1.30

$                         

31,041

$                    

0.88

$                         

Adjustments:

  Unrealized (gain)/loss on securities

(4,787)

(0.11)

3,973

0.11

  Unrealized (gain)/loss on derivative instruments

(1,933)

(0.05)

(155)

-

  Foreign currency loss

2,637

0.06

-

-

  Equity-based compensation expense

1,096

0.03

2,095

0.06

  Income from equity investments

88

-

-

-

Amortization of convertible notes related to equity reclassification

586

0.01

-

-

Total adjustments:

(2,313)

(0.06)

5,913

0.17

Operating Earnings

52,805

$                    

1.24

$                         

36,954

$                    

1.05

$                         

Basic weighted average shares of common stock outstanding

42,322,380

34,647,941

Diluted weighted average shares of common stock outstanding

42,538,744

35,103,285

Nine Months Ended

20

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 available to common stockholders, computed in accordance with GAAP,

adjusted

for

(i)

equity-based

compensation

expense

(a

portion

of

which

may

becomecash-based

upon

final

vesting

and

settlement

of

awards

should

the

holder

elect

net

share

settlement

to

satisfy

income

tax

withholding)

(ii)

any

unrealized

gains

or losses

or

other

non-

cash

items

included

in

net

income(iii)

unrealized

income

from

equity

investments

and

(iv)

the

non-cash

amortization

expense

related

to

the

reclassification

of

a

portion

of

the

senior

convertible

notes

to

stockholders’

equity

in accordance with GAAP.  Please see slide 19

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

(2)

Return

on

commonequity

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)

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Net Interest Income

26,570

$          

23,784

$          

19,403

$          

20,021

$          

18,786

$          

Management Fee

3,193

2,966

2,565

2,627

2,625

General and Administrative Costs

1,126

1,117

1,016

1,046

1,009

Non-Cash Stock Based Compensation

308

362

426

1,392

784

Net Income Available to Common Stockholders

17,299

$          

22,098

$          

15,720

$          

14,004

$          

11,041

$          

GAAP Diluted EPS

0.37

$               

0.51

$               

0.42

$               

0.37

$               

0.29

$              

Operating Earnings

(1)

20,768

$          

18,045

$          

13,991

$          

14,488

$          

13,272

$          

Operating EPS

(1)

0.44

$               

0.42

$               

0.37

$               

0.39

$               

0.35

$              

Distributions Declared to Common Stockholders

0.40

$               

0.40

$               

0.40

$               

0.40

$               

0.40

$              

GAAP Book Value per Share of Common Stock

16.42

$             

16.30

$             

16.21

$             

16.18

$             

16.18

$           

Total Stockholders' Equity

855,686

$         

849,998

$         

687,912

$         

682,956

$         

682,887

$        

Diluted weighted average shares of common stock outstanding

47,068,929

43,099,354

37,341,050

37,390,369

37,379,469

Return on Common Equity Based on Operating Earnings

(2)

10.8%

10.6%

9.4%

9.7%

8.9%