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

Information is as of June 30, 2015, 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.

Supplemental

Financial

Information

Package

–

Q2

2015

July 29, 2015

Exhibit 99.2

Forward Looking Statements and Other Disclosures

1

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

may

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;

and

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”

included

in

ARI’s

Annual

Report

on

Form

10-K

for

the

fiscal

year

ended

December

31,

2014

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

18.

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.

ARI Q2 2015 Earnings Call

2

July 29, 2015

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

Financial Summary

3

($ amounts in thousands, except per share data)

Income Statement

June 30, 2015

June 30, 2014

% Change

June 30, 2015

June 30, 2014

% Change

44,734

$      

29,042

$           

54.0%

84,770

$      

50,202

$       

68.9%

(11,917)

$     

(5,258)

$             

126.6%

(23,399)

$     

(7,015)

$        

233.6%

Net interest income

32,817

$      

23,784

$            

38.0%

61,371

$      

43,187

$       

42.1%

Operating earnings

(1)

26,385

$      

18,045

$            

46.2%

48,608

$      

32,036

$       

51.7%

0.45

$         

0.42

$                

7.1%

0.89

$         

0.80

$            

11.3%

59,022,217

43,009,354

37.2%

54,621,401

40,236,109

35.8%

Balance sheet

June 30, 2015

December 31, 2014

% Change

2,110,378

$  

1,618,623

$       

30.4%

1,230,808

$  

1,026,556

$       

19.9%

Common stockholders' equity

958,594

$    

768,819

$           

24.7%

86,250

$      

86,250

$            

-

878,352

$    

622,194

$           

41.2%

Convertible senior notes

247,305

$    

246,464

$           

0.3%

1.2x

1.2x

2.9x

2.8x

Three Months Ended

Six Months Ended

Interest income

Interest expense

Operating earnings per diluted share

(1)

Diluted weighted average shares of common

stock outstanding

Investments at amortized cost

(2)

Net equity in investments at cost

Preferred stockholders' equity

Debt to common equity

(3)

Outstanding repurchase agreement borrowings

Fixed charge coverage

(4)

(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 unconsolidated joint venture; (iv) foreign currency gains/losses (v) 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 18 for a reconciliation of Operating Earnings and Operating Earnings per Share to GAAP Net Income and GAAP Net Income per share.

(2)

Includes Commercial Mortgage-Backed Securities, (“CMBS”) held-to-maturity, which 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 June 30, 2015, ARI had one such participation sold with a carrying amount of $89,646. Subordinate loans also are net of a participation sold in February 2015.  At June 30, 2015, this participation sold had a face amount of £20,000 and a

carrying amount of $31,345.

(3)

Debt to common equity is net of participations sold.

(4)

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

$7,599

$11,187

$17,067

$19,403

$28,554

$9,683

$11,951

$17,233

$23,784

$32,817

$10,236

$13,236

$18,786

$26,570

$10,946

$12,303

$20,021

$27,049

$0

$15,000

$30,000

$45,000

$60,000

$75,000

$90,000

$105,000

2011

2012

2013

2014

2015

Historical Financial Overview

4

Operating Earnings ($000s)

(1)

Net Interest Income ($000s)

Dividends per Share of Common Stock

Operating

Earnings

per

Share

of

Common

Stock

(1)

$48,608

$61,371

$0.89

$0.88

$5,047

$8,796

$11,963

$13,991

$22,222

$7,086

$8,526

$11,721

$18,045

$26,385

$7,643

$9,218

$13,272

$20,768

$8,277

$7,376

$14,488

$21,179

$0

$15,000

$30,000

$45,000

$60,000

$75,000

$90,000

2011

2012

2013

2014

2015

$0.29

$0.42

$0.39

$0.37

$0.44

$0.40

$0.41

$0.31

$0.42

$0.45

$0.38

$0.44

$0.35

$0.44

$0.39

$0.27

$0.39

$0.45

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

2011

2012

2013

2014

2015

$0.40

$0.40

$0.40

$0.40

$0.44

$0.40

$0.40

$0.40

$0.40

$0.44

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.40

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

2011

2012

2013

2014

2015

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

unconsolidated

joint

venture;

(iv)

foreign

currency

gains/(losses);

and

(v)

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

18

for

a

reconciliation

of

Operating

Earnings

and

Operating

Earnings

per

Share

to

GAAP

Net

Income

and

GAAP

Net

Income

per

share.

(1)

5

Q2 Financial Highlights

Financial Results & Earnings Per Share

Operating Earnings for the quarter ended June 30, 2015 of $26.4 million, or $0.45 per diluted share

of common stock, a 7.1% per share increase as compared to Operating Earnings of $18.0 million, or

$0.42

per

diluted

share

of

common

stock

for

the

quarter

ended

June

30,

2014

(1)

–

Net interest income of $32.8 million

–

Total expenses of $5.9 million, comprised of management fees of $3.9 million, G&A of $1.2 million and

equity-based compensation of $0.8 million

–

Net income available to common stockholders for the quarter ended June 30, 2015 of $22.8 million, or $0.39

per diluted share of common stock

Dividends

Declared a dividend of $0.44 per share of common stock for the quarter ending September 30, 2015

10.7% annualized dividend yield based on $16.40 closing price on July 27, 2015

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 30, 2015

Book Value

GAAP book value of $16.41 per share as of June 30, 2015

(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

unconsolidated

joint

venture;

(iv)

foreign

currency

gains/(losses);

and

(v)

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

18

for

a

reconciliation

of

Operating

Earnings

and

Operating

Earnings

per

Share

to

GAAP

Net

Income

and

GAAP

Net

Income

per

share.

Q2 –

New Investments and Funding

6

Summary of New Investments

Quarter Ended

6/30/2015

6 Months Ended

6/30/2015

Number of Loans Closed

9

12

Capital Committed to New Loans

($ in thousands)

$446,118

$553,321

Capital Deployed in New Loans

($ in thousands)

$196,143

$296,617

Fixed Rate %/Floating Rate %

(1)

6%/94%

8%/92%

First Mortgage %/Subordinate Loan %

(1)

11%/89%

15%/85%

Weighted Average Loan-to-Value

54%

56%

Weighted Average Levered IRR

(2)

15%

15%

Funding of Previously Closed Loans

($ in thousands)

$51,483

$91,393

(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, 2014 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.

7

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)

Fully-Levered

Weighted

Average

Underwritten

IRR

(3)(4)

First Mortgage Loans

$       704,040

$        428,835

$      275,205

3.1 Years

18.0%

18.0%

Subordinate

Loans

(5)(6)

894,926

15,613

847,968

3.7

13.4

13.4

CMBS

511,412

433,904

107,635

1.9

16.2

16.2

Investments at June 30, 2015

$    2,110,378

$        878,352

$   1,230,808

3.1 Years

14.6%

14.6%

(1)

CMBS includes $30.1 million of restricted cash related to the Company’s master repurchase agreement with UBS AG (the “UBS Facility”).

(2)

Remaining Weighted Average Life assumes all extension options are exercised.

(3)

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, 2014 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. 

(4)

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 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.

(5)

Subordinate loans include CMBS, held-to-maturity, which 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.  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 June 30, 2015, ARI had

one such participation sold with a carrying amount of $89,646.

(6)

Subordinate loans also are net of a participation sold during February 2015.  The Company presents the participations sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.  At June

30, 2015, the Company had one such participation sold with a face amount of £20,000 and a carrying amount of $31,345.

Commercial Real Estate Debt Portfolio Overview

8

Net

Invested

Equity

at

Amortized

Cost

Basis

(1)

Geographic Diversification by Net Equity

Property Type by Net Equity

(1)

Subordinate

loans

include

CMBS,

held-to-maturity

and

are

net

of

participations

sold

of

$120,991.

ARI

presents

the

participations

sold

as

both

assets

and

non-recourse

liabilities

because

the

participation

does

not

qualify

as

a

sale

according

to

GAAP.

CMBS

9%

First Mortgage

Loans

22%

Subordinate Loans

69%

Securities

9%

Residential -

rental

13%

Industrial

6%

Hotel

18%

Mixed Use

1%

Office

3%

Healthcare

8%

Ski Resort

4%

Retail

7%

Residential -

for

sale

31%

New York City

26%

Northeast (excluding

NYC)

4%

Securities

9%

Southeast

7%

Mid-Atlantic

9%

Midwest

13%

West

13%

Southwest

3%

International

16%

Commercial Real Estate Loan Portfolio –

Maturity and Type

9

Fully Extended Loan Maturities and Future

Fundings

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

(1)

Based

upon

face

amount

of

loans;

Does

not

include

CMBS,

but

does

include

CMBS,

held-to-maturity.

(2)

Maturities

reflect

the

fully

funded

amounts

of

the

loans.

(3)

Subordinate

loans

include

CMBS,

held-to-maturity

and

are

net

of

participations

sold

of

$120,991.

ARI

presents

the

participations

sold

as

both

assets

and

non-recourse

liabilities

because

the

participation

does

not

qualify

as

a

sale

according

to

GAAP.

(4)

Future

funding

dates

are

based

upon

the

Manager’s

projections

and

are

subject

to

change.

Loan

Position

and

Rate

Type

(1)(3)

69% Floating Rate/31% Fixed Rate

Senior Loan Fixed

9%

Subordinate Loan

Fixed

22%

Subordinate Loan

Floating

33%

Senior Loan

Floating

36%

$112.6

$164.1

$294.5

$215.8

$536.4

$566.3

$50.0

$30.2

$32.0

$-

$25.0

$222.7

$165.6

$56.1

$0

$100

$200

$300

$400

$500

$600

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Future funding commitment

Fully extended maturity

Loan Portfolio –

Loan Level LTV (Through Last Invested Dollar)

10

First Mortgage Loans

Description ($ in thousands)

Location

Balance at

6/30/2015

Starting LTV

Ending LTV

First Mortgage -

Destination homes

Various

97,413

$           

0%

49%

First Mortgage -

Retail

New York

85,770

$            

0%

57%

First Mortgage -

Pre-development loan

New York

67,300

$            

0%

58%

First

Mortgage

-

Retail

(1)

Ohio

67,000

$            

0%

55%

First Mortgage -

Multifamily

North Dakota

56,542

$            

0%

71%

First Mortgage -

Destination homes

New York/Hawaii

50,000

$            

0%

75%

First

Mortgage

-

Condo

development

(2)

Maryland

50,000

$            

0%

65%

First Mortgage -

Hotel portfolio

Various

45,400

$            

0%

63%

First Mortgage -

Pre-development loan

Florida

45,000

$            

0%

75%

First Mortgage -

Multifamily

New York

34,500

$            

0%

72%

First

Mortgage

-

Condo

conversion

(3)

New York

34,190

$            

0%

30%

First Mortgage -

Hotel

Pennsylvania

34,000

$            

0%

65%

First

Mortgage

-

Condo

development

(4)

Maryland

26,000

$            

0%

66%

First Mortgage -

Pre-development loan

Florida

16,800

$            

0%

73%

Total/Weighted Average

709,915

$         

61%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

(1)

LTV is based upon the fully committed loan amount of $165 million.

(2)

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

(3)

This first mortgage loan is for the same property  as the $30 million NYC condo conversion mezzanine loan listed on page 11.

(4)

LTV is based upon the fully committed loan amount of $65.1 million.

11

Loan Portfolio –

Loan Level LTV (Through Last Invested Dollar)

Subordinate Financings

Description ($ in thousands)

Location

Balance at 

6/30/2015

Starting LTV

Ending LTV

Subordinate

-

Condo

development

(1)

New York

81,602

$           

32%

48%

Subordinate

-

Resort

hotel

(2)

Aruba

64,895

$            

35%

60%

Subordinate

-

Condo

development

(3)

New York

64,595

$            

50%

60%

Subordinate

-

Healthcare

portfolio

(4)

UK

54,100

$            

51%

70%

Subordinate

-

Pre-development

loan

(5)

London

54,033

$            

45%

78%

Subordinate -

Healthcare portfolio

Various

50,000

$            

57%

62%

Subordinate -

Industrial portfolio

New York

45,000

$            

61%

79%

Subordinate -

Pre-development loan

New York

44,000

$            

48%

71%

Subordinate

-

Condo

development

(6)

New York

41,226

$            

22%

42%

Subordinate -

Ski resort

California

40,000

$            

36%

61%

Subordinate -

Hotel portfolio

Various

32,566

$            

42%

48%

Subordinate -

Industrial portfolio

Various

32,000

$            

65%

72%

Subordinate

-

Condo

conversion

(7)

New York

30,053

$            

30%

57%

Subordinate -

Hotel

Arizona

25,000

$            

46%

58%

Subordinate -

Hotel  portfolio

Minnesota

24,334

$            

56%

67%

Subordinate

-

Multifamily

(8)

Florida

22,000

$            

66%

80%

Subordinate -

Hotel

Washington D.C.

20,000

$            

61%

69%

Subordinate -

Hotel

New York

20,000

$            

50%

61%

Subordinate -

Hotel

California

20,000

$            

58%

74%

Subordinate

-

Multifamily/Condo/Hotel

(9)

Various

19,500

$            

79%

90%

Preferred

Equity

-

Multifamily

(8)

Florida

15,500

$            

80%

89%

Subordinate -

Ski resort

Montana

15,000

$            

46%

59%

Subordinate -

Multifamily

New York

14,608

$            

35%

47%

Subordinate -

Office

New York

14,000

$            

61%

70%

Subordinate -

Office

Missouri

9,639

$              

59%

69%

Subordinate -

Office

Michigan

8,782

$              

41%

52%

Subordinate -

Mixed-use

North Carolina

6,525

$              

62%

75%

Total/Weighted Average

868,958

$         

64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

(1)

LTV is based upon the fully funded loan amount of $60 million plus PIK interest.

(2)

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 June 30, 2015, this participation sold had a carrying amount of $89,646.

(3)

LTV is based upon the fully committed loan amount of $105 million.

(4)

Based upon £34.4 face amount converted to USD based upon the conversion rate on June 30, 2015, net of participation of $31,345.

(5)

Based upon £31.2 face amount plus PIK converted to USD based upon the conversion rate on June 30, 2015.

(6)

LTV is based upon the fully funded loan amount of $275 million.

(7)

Loan is for the same property as the $34.1 million NYC condo conversion first mortgage loan listed on page 10.  LTV for the mezzanine loan is based upon the fully committed amount of $29.4 million plus PIK interest.

(8)

Mezzanine loan and preferred equity are secured by the same portfolio of properties.

(9)

LTV is based upon the fully funded loan amount of $19.5 million.

12

CMBS Portfolio

(1)

Face

Amortized Cost

Remaining Weighted

Average Life with

Extensions (years)

Estimated Fair

Value

Debt

Net Equity at

Cost

(2)

CMBS –

Total

$              520,833

$                   511,412

1.9 Years

$                  518,851

$            433,904

$                    107,635

CUSIP

Description

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

61756UAJ0

MSC 2007-1Q16 AJ

46629YAH2

JPMCC 2007-CB18AJ

173311QAE0

CGCMT 2007-C6 AJFX

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

(1)

Does not include CMBS, held-to-maturity.

(2)

Includes $30.1 million of restricted cash related to the UBS Facility

Portfolio Metrics –

Quarterly Migration Summary

13

(1)

Subordinate loans include CMBS, held-to-maturity and are net of participations sold of $120,991.  ARI presents the participations sold as both assets and non-recourse liabilities because the participation does not qualify as a sale according to GAAP.

(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, 2014 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.

(5)

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

(6)

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 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 7. 

(7)

Net of participations sold.

Portfolio Metrics ($ in thousands)

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

(Investment balances represent amortized cost)

First Mortgage Loans

704,040

$        

563,390

$        

458,520

$        

369,924

$        

343,810

$        

Subordinate Loans

(1)

894,926

736,838

625,881

650,084

659,045

CMBS

511,412

510,740

534,222

511,445

339,724

Total Investments

2,110,378

$     

1,810,968

$     

1,618,623

$     

1,531,453

$     

1,342,579

$     

(Investment balances represent net equity, at cost)

First Mortgage Loans

275,205

$        

421,862

$        

290,396

$        

247,202

$        

197,112

$        

Subordinate Loans

(1)

847,968

707,201

625,881

650,084

659,045

CMBS

107,635

(4)

106,963

(4)

110,279

(4)

99,988

(5)

70,325

(4)

Net Equity in Investments at Cost

1,230,808

$     

1,236,026

$     

1,026,556

$     

997,274

$        

926,482

$        

Levered Weighted Average Underwritten IRR

(2)

14.6%

(6)

14.2%

(6)

13.4%

(6)

13.7%

(6)

13.9%

(6)

Weighted Average Duration

3.1 Years

3.0 Years

3.2 Years

3.0 Years

3.2 Years

Loan Portfolio Weighted Average Ending LTV

(3)

62.0%

62.0%

62.0%

58.0%

58.0%

Borrowings Under Repurchase Agreements

878,352

$        

575,433

$        

622,194

$        

537,766

$        

446,224

$        

Convertible Senior Notes

247,305

$        

246,881

$        

246,464

$        

246,054

$        

139,362

$        

Debt-to-Common Equity

1.2x

(7)

0.9x

(7)

1.2x

(7)

1.1x

(7)

0.8x

(7)

Financing Overview and Interest Rate Sensitivity

14

Facility ($000s)

Debt Balance

Weighted Average

Remaining

Maturity

(1)

Weighted

Average Rate

UBS Facility

$                   133,899

3.2 Years

2.8%

Deutsche Bank Facility

300,005

2.8

3.7

JPMorgan Facility

395,572

2.6

2.5

Goldman Sachs Loan

48,876

3.8

3.7

Total Borrowings at June 30, 2015

$                  878,352

2.7 Years

3.7%

Variable Rate Investments & Liabilities

Variable Rate Liabilities

(1)

Assumes extension options on the UBS Facility are exercised.

(2)

Based upon the Company’s portfolio as of June 30, 2015, any such hypothetical impact on interest rates on the Company’s variable rate borrowings does not consider the effect of any change in overall economic activity that could occur in a rising interest rate

environment.  Further, in the event of a change in interest rates of that magnitude, the Company may take actions to further mitigate the Company’s exposure to such a change.  However, due to the uncertainty of the specific actions that would be taken and their

possible effects, this analysis assumes no changes in the Company’s financial structure.

$1,202,245

$(485,903)

$716,342

Variable Rate Assets

Net Equity

ARI anticipates a 0.5% increase in

LIBOR results in approximately a

$0.05 per diluted share of common

stock increase in Operating

Earnings

annually

(2)

15

Financials

16

Consolidated Balance Sheets

(in thousands—except share and per share data)

June 30, 2015

December 31, 2014

Assets:

(Unaudited)

Cash

48,848

$                 

40,641

$                 

Restricted cash

34,547

30,127

Securities available-for-sale, at estimated fair value

-

17,105

Securities, at estimated fair value

518,851

522,730

Securities, held-to-maturity

154,391

154,283

Commercial mortgage loans, held for investment

704,040

458,520

Subordinate loans, held for investment

830,181

561,182

Investment in unconsolidated joint venture

20,021

37,016

Derivative assets

262

4,070

Interest receivable

12,817

10,829

Deferred financing costs, net

8,898

7,444

Other assets

582

1,200

Total Assets

2,333,438

$             

1,845,147

$             

Liabilities and Stockholders' Equity

Liabilities:

Borrowings under repurchase agreements

878,352

$                

622,194

$                

Convertible senior notes, net

247,305

246,464

Participations sold

120,991

89,584

Derivative liabilities

2,109

-

Accounts payable and accrued expenses

8,253

7,578

Payable to related party

3,890

3,240

Dividends payable

27,694

21,018

Total Liabilities

1,288,594

990,078

Stockholders' Equity:

Preferred stock, $0.01 par value, 50,000,000 shares authorized and 3,450,000 shares issued and outstanding in 2015

and 2014 ($86,250 aggregate liquidation preference)

35

35

Common stock, $0.01 par value, 450,000,000 shares authorized 58,429,155 and 46,900,442 shares issued and

outstanding in 2015 and 2014, respectively

584

469

Additional paid-in-capital

1,062,857

868,035

Retained earnings (accumulated deficit)

(15,965)

(10,485)

Accumulated other comprehensive loss

(2,667)

(2,985)

Total Stockholders' Equity

1,044,844

855,069

Total Liabilities and Stockholders' Equity

2,333,438

$            

1,845,147

$             

17

Consolidated Statements of Operations

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Net interest income:

Interest income from securities

8,265

$             

4,366

$              

16,553

$            

6,785

$              

Interest income from securities, held to maturity

3,349

-

6,394

-

Interest income from commercial mortgage loans

11,968

6,438

22,061

10,449

Interest income from subordinate loans

21,152

18,238

39,762

32,968

Interest expense

(11,917)

(5,258)

(23,399)

(7,015)

Net interest income

32,817

23,784

61,371

43,187

Operating expenses:

General and administrative expenses (includes $821 and $1,939 of

equity-based compensation in 2015 and $362 and $788 in 2014,

respectively)

(2,059)

(1,479)

(4,414)

(2,921)

Management fees to related party

(3,887)

(2,966)

(7,228)

(5,531)

Total operating expenses

(5,946)

(4,445)

(11,642)

(8,452)

Income from unconsolidated joint venture

384

-

384

-

Interest income from cash balances

6

4

16

4

Realized loss on sale of securities

-

-

(443)

-

Unrealized gain on securities

(2,273)

4,749

1,136

6,934

Foreign currency gain

2,867

959

5,588

959

Loss on derivative instruments

(3,197)

(1,093)

(6,241)

(1,093)

Net income

24,658

$         

23,958

$         

50,169

$         

41,539

$         

Preferred dividends

(1,860)

(1,860)

(3,720)

(3,720)

Net income available to common stockholders

22,798

$         

22,098

$         

46,449

$         

37,819

$         

Basic and diluted net income per share of common stock   

0.39

$               

0.51

$               

0.85

$               

0.94

$               

Basic weighted average shares of common stock outstanding

58,429,155

42,888,747

54,020,978

40,021,722

Diluted weighted average shares of common stock outstanding

59,022,217

43,099,354

54,621,401

40,236,109

Dividend declared per share of common stock

0.44

$               

0.40

$               

0.88

$               

0.80

$               

Three months ended

Six months ended

18

Reconciliation of Operating Earnings to Net Income

June 30, 2015

Earnings Per Share

(Diluted)

June 30, 2014

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

46,449

$                   

0.85

$                        

37,819

$                   

0.94

$                        

Adjustments:

Equity-based compensation expense

1,939

0.04

788

0.02

Unrealized gain on securities

(1,136)

(0.02)

(6,934)

(0.17)

Unrealized loss on derivative instruments

6,241

0.11

1,093

0.03

Foreign currency gain

(5,588)

(0.10)

(959)

(0.02)

Amortization of convertible senior notes related to equity reclassification

1,087

0.02

229

-

Income from unconsolidated joint venture

(384)

(0.01)

-

-

Total adjustments:

2,159

0.04

(5,783)

(0.14)

Operating Earnings

48,608

$                   

0.89

$                        

32,036

$                   

0.80

$                        

Basic weighted average shares of common stock outstanding

54,020,978

40,021,722

Diluted weighted average shares of common stock outstanding

54,621,401

40,236,109

Six Months Ended

June 30, 3025

Earnings Per Share

(Diluted)

June 30, 2014

Earnings Per Share

(Diluted)

Operating Earnings:

Net income available to common stockholders

22,798

$                   

0.39

$                        

$22,098

0.51

$                        

Adjustments:

Equity-based compensation expense

821

0.01

362

0.01

Unrealized (gain)/loss on securities

2,273

0.04

(4,749)

(0.11)

Unrealized loss on derivative instruments

3,197

0.06

1,093

0.03

Foreign currency gain

(2,867)

(0.05)

(959)

(0.02)

Amortization of convertible senior notes related to equity reclassification

547

0.01

200

-

Income from unconsolidated joint venture

(384)

(0.01)

-

-

Total adjustments:

3,587

0.06

(4,053)

(0.09)

Operating Earnings

26,385

$                   

0.45

$                        

18,045

$                   

0.42

$                        

Basic weighted average shares of common stock outstanding

58,429,155

42,888,747

Diluted weighted average shares of common stock outstanding

59,022,217

43,009,354

Three Months Ended

19

Financial Metrics –

Quarterly Migration Summary

Financial Metrics

($ in thousands, except per share data)

Q2 2015

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Net Interest Income

32,817

$         

28,554

$         

27,049

$         

26,570

$         

23,784

$         

Management Fee

3,887

3,341

3,236

3,193

2,966

General and Administrative Costs

1,238

1,238

1,315

1,126

1,117

Non-Cash Stock Based Compensation

821

1,117

481

308

362

Net Income Available to Common Stockholders

22,798

$         

23,653

$         

20,182

$         

17,299

$         

22,098

$         

GAAP Diluted EPS

0.39

$              

0.47

$              

0.43

$              

0.37

$              

0.51

$             

Operating Earnings

(1)

26,385

$         

22,222

$         

21,179

$         

20,768

$         

18,045

$         

Operating Diluted EPS

(1)

0.45

$              

0.44

$              

0.45

$              

0.44

$              

0.42

$             

Distributions Declared to Common Stockholders

0.44

$              

0.44

$              

0.40

$              

0.40

$              

0.40

$             

GAAP Book Value per Share of Common Stock

16.41

$            

16.44

$            

16.39

$            

16.42

$            

16.30

$           

Total Stockholders' Equity

1,044,844

$     

1,046,482

$     

855,069

$        

855,686

$        

849,998

$       

Diluted weighted average shares of common stock outstanding

59,022,217

50,171,687

47,085,617

47,068,929

43,099,354

Return on Common Equity Based on Operating Earnings

(2)

11.0%

10.9%

11.0%

10.8%

10.6%

(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 unconsolidated joint venture; (iv) foreign currency gains or 

losses; and  (v) 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 18 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.