8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 3, 2012

Apollo Commercial Real Estate Finance, Inc.

(Exact name of registrant as specified in its charter)

Maryland	001-34452	27-0467113
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

c/o Apollo Global Management, LLC 9 West 57th Street, 43rd Floor New York, New York	10019
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 515-3200

n/a

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02. Results of Operations and Financial Condition.

On May 3, 2012, Apollo Commercial Real Estate Finance, Inc. (the “Company”) issued an earnings release announcing its financial results for the quarter ended March 31, 2012. A copy of the earnings release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

On May 3, 2012, the Company posted supplemental financial information on the Investor Relations section of its website (www.apolloreit.com). A copy of the supplemental financial information is furnished as Exhibit 99.2 hereto and incorporated herein by reference.

The information in Item 2.02 of this Current Report, including Exhibits 99.1 and 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, unless it is specifically incorporated by reference therein.

ITEM 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	Earnings Release dated May 3, 2012
99.2	Supplemental Financial Information for the quarter ended March 31, 2012

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Apollo Commercial Real Estate Finance, Inc.
By:	/s/ Stuart A. Rothstein
	Name: Stuart A. Rothstein
	Title: President, Chief Executive Office and
	Chief Financial Officer

Date: May 3, 2012

3

Exhibit Index

Exhibit No.	Description
99.1	Earnings Release, dated May 3, 2012
99.2	Supplemental Financial Information for the quarter ended March 31, 2012

4

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE NYSE:ARI

CONTACT:	Hilary Ginsberg
	Investor Relations
	(212) 822-0767

APOLLO COMMERCIAL REAL ESTATE FINANCE, INC. ANNOUNCES

FIRST QUARTER 2012 FINANCIAL RESULTS AND DECLARES A $0.40

PER SHARE QUARTERLY DIVIDEND

— 45% Increase in Operating Earnings Per Share —

New York, NY, May 3, 2012 – Apollo Commercial Real Estate Finance, Inc. (the “Company” or “ARI”) (NYSE:ARI) today reported Operating Earnings (a non-GAAP financial measure as defined below) of $8.8 million, or $0.42 per share, for the three months ended March 31, 2012, representing a per share increase of 45% as compared to Operating Earnings of $5.0 million, or $0.29 per share, for the three months ended March 31, 2011. Net income for the three months ended March 31, 2012 was $9.1 million, or $0.43 per share, as compared to net income of $5.2 million, or $0.29 per share, for the three months ended March 31, 2011.

The Company also announced the Board of Directors declared a dividend of $0.40 per share of common stock which is payable on July 12, 2012 to common stockholders of record on June 29, 2012.

First Quarter Highlights

• Increased Operating Earnings per share by 45%;

• Closed two mezzanine loan transactions totaling $30 million;

• Sold Commercial Mortgage Backed Securities (“CMBS”) with an amortized cost of $137.4 million, which resulted in approximately $262,000 of net realized gains, generated $14.6 million of equity proceeds for reinvestment and lowered the Company’s debt-to-equity ratio to 1.1x;

• Generated $11.2 million of net interest income from the Company’s $666 million investment portfolio, which had a weighted average underwritten internal rate of return (“IRR”) of approximately 14.7% at March 31, 2012; and

• Refinanced TALF debt, which produced $14.1 million of additional investable capital, lowered the weighted average cost of funds by approximately 70 basis points and extended the term of the debt through August 2013.

“ARI’s solid financial performance in the first quarter we believe reflects the high quality of our existing investment portfolio as well the reduction in our financing costs from the pro-active management of our liabilities,” commented Stuart Rothstein, Chief Executive Officer. “We made two mezzanine loan investments during the first quarter and we sold $137 million of short-duration CMBS, which enabled us to lower our leverage and re-invest the equity in higher yielding, longer duration assets. Subsequent to quarter-end, we amended our facility with JP Morgan and lowered our borrowing costs by 50 basis points, which we believe should result in an annual interest expense reduction, based upon the Company’s current usage projections, of approximately $250,000.”

Mr. Rothstein continued, “The credit quality of our portfolio remains stable and we have built a strong pipeline for new investments. We are confident in our ability to deploy capital in investments with strong credit metrics and attractive risk adjusted returns and to extend the duration of our investment portfolio.

First Quarter Investment and Portfolio Activity

Mezzanine Loan – In January 2012, the Company closed a $15 million mezzanine loan secured by a pledge of the equity interest in a borrower that purchased a 165-room hotel and related commercial space in midtown Manhattan. The mezzanine loan is part of a new $80 million three-year (two-year initial term with one one-year extension option) financing package comprised of a $65 million first mortgage and the $15 million mezzanine loan. The mezzanine loan is an interest-only fixed rate loan that bears interest at 12.00% with a 1.00% origination fee, a 0.50% extension fee and a 1.50% exit fee. The mezzanine loan has an appraised loan-to-value of approximately 60% and is expected to generate an IRR of approximately 14%.

Mezzanine Loan – In March 2012, the Company closed a $15 million mezzanine loan secured by a pledge of the equity interest in a borrower that owns a 226-room hotel in the Chelsea neighborhood of Manhattan. The mezzanine loan is part of a $70 million, four-year (two-year initial term with two one-year extension options) floating-rate whole loan originated on February 15, 2012 to refinance the property. The interest rate on the mezzanine loan is one-month LIBOR+11.00% with a 0.50% LIBOR floor and 0.50% fee for the second extension. The mezzanine loan is expected to generate an IRR of approximately 12.8%.

Sale of CMBS – In March 2012, the Company sold short duration CMBS with an amortized cost of $137.4 million, which resulted in approximately $262,000 of net realized gains and generated $14.6 million of equity proceeds that the Company used to fund additional loan investments. The sale of the CMBS reduced the Company’s overall leverage and lowered the Company’s debt to equity ratio to 1.1x.

Quarter End Portfolio Summary

The following table sets forth certain information regarding the Company’s investments at March 31, 2012 ($ amounts in thousands):

Description	Amortized Cost		Weighted Average Yield			Debt		Cost of Funds			Equity at cost		Weighted Average IRR *
AAA CMBS	$	330,413		4.3	%	$	286,650		2.1	%	$	43,763		16.1	%
First mortgage loans		108,817		8.3			68,607		3.2			40,210		17.8	%
Subordinate loans		179,336		12.8			—		—			179,336		13.9	%
Repurchase agreements		47,439		13.0			—		—			47,439		13.7	%
Total	$	666,005		7.8	%	$	355,257		2.4	%	$	310,748		14.7	%

* The IRRs for the investments shown in the above table and elsewhere in this press release reflect the returns underwritten by ACREFI Management, LLC, the Company’s external manager. They are calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assume extensions as well as the cost of borrowings and derivative instruments under the Company’s repurchase facility with Wells Fargo Bank, N.A. (the “Wells Facility”). There can be no assurance the actual IRRs will equal the underwritten IRRs shown in the table and elsewhere in this press release. See “Risk Factors” in the reports filed by the Company with the Securities and Exchange Commission 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.

Book Value

The Company’s GAAP book value per share at March 31, 2012 was $16.46, as compared to $16.39 at December 31, 2011. The increase in the Company’s GAAP book value per share from December 31, 2011 to March 31, 2012 was primarily the result of net unrealized gains on the Company’s portfolio of AAA-rated CMBS.

For purposes of GAAP accounting, the Company carries loans at amortized cost and its CMBS securities are marked to market. Management has estimated that the fair value of the Company’s financial assets at March 31, 2012 was approximately $11.9 million greater than the carrying value of the Company’s investment portfolio as of the same date. This represents a premium of $0.58 per share over the Company’s GAAP book value as of March 31, 2012, and results in an estimated market value per share of approximately $17.04.

Subsequent Events

Senior Sub-Participation Interests in First Mortgage Loan – In April 2012, the Company purchased two senior sub-participation interests ($23.8 million of aggregate face value) in a first mortgage loan with a current balance of $120 million secured by over 20 acres of land in the South Boston Waterfront District. The land is entitled for over 5.8 million

buildable square feet and is currently used as parking with approximately 3,325 spaces. The aggregate purchase price of the two senior sub-participation interests was $17.8 million. The senior sub-participation interests each have an interest rate of one-month LIBOR + 1.72% and mature in December, 2012. Upon the repayment of $33 million of the first mortgage loan (of which the Company will receive its pro-rata share) and the payment of an extension fee equal to 0.50% of the outstanding balance of the first mortgage loan, the maturity of the first mortgage loan, including the senior sub-participation interests, can be extended through December, 2013. Assuming the extension occurs and after payment of expenses, the senior sub-participation interests are expected to generate an IRR of approximately 21.9%.

Amended JP Morgan Facility – In April 2012, the Company amended its repurchase facility with JPMorgan Chase Bank, N.A (the “JPM Facility”) to reduce the interest rate spread by 50 basis points to LIBOR + 2.50%. Based upon the Company’s current usage projections, the Company expects the reduced interest rate spread should result in an annual interest expense reduction of approximately $250,000.

Repayment of First Mortgage Loan – In April 2012, a $24 million two-year fixed rate first mortgage on a 155-room boutique hotel in midtown Manhattan was repaid. The loan had an interest rate of 8.00%. The Company repaid $15.4 million of borrowings under the JPM Facility in conjunction with this repayment and approximately $8.6 million of equity was generated for reinvestment.

Definition of Operating Earnings

Operating Earnings is a non-GAAP financial measure that is used to approximate cash available for distribution and is defined by the Company as net income, computed in accordance with GAAP, adjusted for (i) non-cash equity compensation expense and (ii) any unrealized gains or losses or other non-cash items included in net income. The table provided below, reconciles Operating Earnings to net income.

Reconciliation of Operating Earnings to Net Income

The table below reconciles Operating Earnings and Operating Earnings per share with net income and net income per share for the three months ended March 31, 2012 and 2011 ($ amounts in thousands):

	Three Months Ended March 31,  2012			Earnings Per Share (Diluted)			Three Months Ended March 31, 2011			Earnings Per Share (Diluted)
Operating Earnings:
Net income	$	9,093		$	0.43		$	5,180		$	0.29
Adjustments:
Unrealized (gain) loss on securities		(1,385	)		(0.06	)		(26	)		—
Unrealized gain on derivative instruments		5			—			(459	)		(0.02	)
Non-cash stock-based compensation expense		1,083			0.05			351			0.02
Total adjustments:		(297	)		(0.01	)		(134	)		—
Operating Earnings	$	8,796		$	0.42		$	5,046		$	0.29
Basic and diluted weighted average common shares outstanding:		20,966,426						17,551,828

Teleconference Details:

The Company will be hosting a conference call to discuss its financial results on Friday, May 4, 2012 at 10:00 a.m. Eastern Time. Members of the public who are interested in participating in the Company’s first quarter 2012 earnings teleconference call should dial from the U.S., (877) 263-2989, or from outside the U.S., (702) 928-7168, shortly before 10:00 a.m. and reference the Apollo Commercial Real Estate Finance, Inc. Teleconference Call (number 72053464). Please note that the teleconference call will be available for replay beginning at 12:00 p.m. on Friday, May 4, 2012, and ending at midnight on Friday, May 11, 2012. To access the replay, callers from the U.S. should dial (855) 859-2056 and callers from outside the U.S. should dial (404) 537-3406, and enter conference identification number 72053464.

Webcast:

The conference call will also be available on the Company’s website at www.apolloreit.com. To listen to a live broadcast, please go to the site at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. A replay of the call will also be available for 30 days on the Company’s website.

Supplemental Information

The Company provides supplemental financial information to offer more transparency into its results and make its reporting more informative and easier to follow. The supplemental financial information is available on the investor relations section of the Company’s website at www.apolloreit.com.

About Apollo Commercial Real Estate Finance, Inc.

Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) is a commercial mortgage real estate investment trust that primarily originates, invests in, acquires and manages senior performing commercial real estate mortgage loans, commercial mortgage-backed securities and other commercial real estate-related debt investments throughout the U.S. The Company is externally managed and advised by ACREFI Management, LLC, a Delaware limited liability company and an indirect subsidiary of Apollo Global Management, LLC, a leading global alternative investment manager with $75 billion of assets under management at December 31, 2011.

Additional information can be found on the Company’s website at www.apolloreit.com.

Dividend Reinvestment Plan

The Company has adopted a Direct Stock Purchase and Dividend Reinvestment Plan (the “Plan”). The Plan provides new investors and existing holders of the Company’s common stock with a convenient and economical method to purchase shares of its common stock. By participating in the Plan, participants may purchase additional shares of the Company’s common stock by reinvesting some or all of the cash dividends received on their shares of the Company’s common stock. In addition, the Plan permits participants to make optional cash investments of up to $10,000 per month, and, with the Company’s prior approval, optional cash investments in excess of $10,000 per month, for the purchase of additional shares of the Company’s common stock.

The Plan is administered by a division of Wells Fargo Bank, N.A. (“Wells”). Stockholders and other persons may obtain a copy of the Plan prospectus and an enrollment form by contacting Wells at (800) 468-9716 or (651) 450-4064, if outside the United States, or visiting Wells’ website at www.shareowneronline.com.

Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements as such term is defined in 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 the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When used in this release, 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: 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. For a further list and description of such risks and uncertainties, see the reports filed by the Company with the Securities and Exchange Commission. The forward-looking statements, and other risks, uncertainties and factors are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. Forward-looking statements are not predictions of future events. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands – except share and per share data)

	March 31, 2012		December 31, 2011
Assets:
Cash and cash equivalents	$	31,452	$	21,568
Securities available-for-sale, at estimated fair value		151,964		302,543
Securities at estimated fair value		178,932		251,452
Commercial mortgage loans, held for investment		108,817		109,006
Subordinate loans, held for investment		179,336		149,086
Repurchase agreements, held for investment		47,439		47,439
Principal and interest receivable		5,959		8,075
Deferred financing costs, net		1,308		2,044
Other assets		14		17
Total Assets	$	705,221	$	891,230
Liabilities and Stockholders’ Equity
Liabilities:
Borrowings under repurchase agreements	$	355,257	$	290,700
TALF borrowings		—		251,327
Derivative instruments, net		483		478
Accounts payable and accrued expenses		1,126		1,746
Payable to related party		1,289		1,298
Dividends payable		8,553		8,703
Deferred revenue		136		—
Total Liabilities	$	366,844	$	554,252
Commitments and Contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 450,000,000 shares authorized, 20,561,032 shares issued and outstanding in 2012 and 2011		206		206
Preferred stock, $0.01 par value, 50,000,000 shares authorized and no shares outstanding		—		—
Additional paid-in-capital		337,789		336,209
Accumulated other comprehensive income		382		563
Total Stockholders’ Equity		338,377		336,978
Total Liabilities and Stockholders’ Equity	$	705,221	$	891,230

Apollo Commercial Real Estate Finance, Inc. and Subsidiaries

Condensed Consolidated Statement of Operations (Unaudited)

(in thousands – except share and per share data)

	Three months ended March 31, 2012			Three months ended March 31, 2011
Net interest income:
Interest income from securities	$	5,323		$	6,656
Interest income from commercial mortgage loans		2,234			2,313
Interest income from subordinate loans		5,313			1,909
Interest income from repurchase agreements		1,559			60
Interest expense		(3,242	)		(3,339	)
Net interest income		11,187			7,599
Operating expenses:
General and administrative expenses (includes $1,083 and $351 of non-cash stock based compensation in 2012 and 2011, respectively)		(2,036	)		(1,380	)
Management fees to related party		(1,289	)		(1,088	)
Total operating expenses		(3,325	)		(2,468	)
Interest income from cash balances		1			5
Realized gain on sale of securities		262			—
Unrealized gain on securities		1,385			26
Gain (loss) on derivative instruments (includes $(5) and $459 of unrealized gains (losses) in 2012 and 2011, respectively)		(417	)		18
Net income	$	9,093		$	5,180
Basic and diluted net income per share of common stock	$	0.43		$	0.29
Basic and diluted weighted average common shares outstanding		20,966,426			17,551,828
Dividend declared per share of common stock	$	0.40		$	0.40

EX-99.2

May 4, 2012

Supplemental Financial Information Presentation

Q1 2012

Information is as of March 31, 2012 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

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

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,

2011.

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.

2

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

Apollo Commercial Real Estate Finance, Inc.

2012 First Quarter Earnings Call

May 4, 2012

Joseph Azrack

Chairman

Stuart Rothstein

Chief Executive Officer, President and Chief Financial Officer

Scott Weiner

Chief Investment Officer of the Manager

Megan Gaul

Controller of the Manager

Hilary Ginsberg

Investor Relations Manager

3

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

ARI –

Financial Summary

(1)

Fixed rate debt refers to the TALF borrowings which were refinanced with the Wells repurchase facility during January 2012.

(2)

Debt service coverage is EBITDA divided by interest expense.

Income Statement

2012

2011

% Change

14,429

$         

10,938

$                 

31.9%

(3,242)

$          

(3,339)

$                  

-2.9%

Net interest income (in thousands)

11,187

$         

7,599

$                    

47.2%

0.42

$              

0.29

$                      

44.8%

20,966,426

17,551,828

19.5%

March 31,

December 31,

Balance sheet

2012

2011

% Change

666,005

$       

860,247

$              

-22.6%

338,377

$       

336,978

$              

0.4%

2.8 Years

2.2 Years

1.1x

1.6x

-

$                 

251,327

$              

355,257

$       

290,700

$              

5.4x

3.9x

Three Months Ended March 31,

Interest income (in thousands)

Interest expense (in thousands)

Operating earnings per share

Basic and diluted weighted average common shares

outstanding

Investments at amortized cost (in thousands)

Net equity (in thousands)

Investments - Weighted average Duration

Debt to equity

Fixed rate debt(in thousands)

(1)

Debt service coverage

(2)

Floating rate debt (in thousands)

4

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

ARI –

Overview

Operating Earnings per Share

*

For

the

period

from

ARI’s

initial

public

offering

on

September

23,

2009

through

December

31,

2009.

(1)

Return on equity is calculated as annualized operating income for the quarter as a percentage of average equity.

-$0.17

$1.09

$1.47

$0.42

-$0.20

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

2009*

2010

2011

Q1 2012

$1.50

$1.60

$0.40

$0.00

$0.40

$0.80

$1.20

$1.60

$2.00

2009*

2010

2011

Q1 2012

$491

$21,771

$38,464

$11,187

$0

$10,000

$20,000

$30,000

$40,000

2009*

2010

2011

Q1 2012

Dividends per Share

Net Interest Income ($000s)

Return

on

Equity

Based

on

Operating

Income

(1)

9.6%

9.3%

9.8%

10.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Q2 2011

Q3 2011

Q4 2011

Q1 2012

5

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

ARI –

Q1 Highlights

Financial Results & Earnings Per Share

Operating Earnings for the quarter ended March 31, 2012 of $8.8 million, or $0.42 per diluted

common share

(1)

–

A per share increase of 45% as compared with Operating Earnings per share for the same period in 2011

–

Net interest income of $11.2 million for Q1 2012

–

Total expenses of $3.3 million, comprised of management fees of $1.3 million, G&A of

$0.9 million and non-cash, stock based compensation of $1.1 million

GAAP net income for the quarter ended March 31, 2012 of $9.1 million, or $0.43 per diluted

common share

Dividend

Declared a dividend of $0.40 per share of common stock for the quarter ended March 31, 2012

Declared a dividend of $0.40 per share of common stock for the quarter ended June 30, 2012

–

10.1%

annualized

dividend

yield

based

on

$15.87

closing

price

on

May

2,

2012

(1)

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

equity compensation expense and (ii) any unrealized gains or losses or other non-cash items included in net income. Please see slide 19 for a reconciliation of operating earnings and operating earnings per diluted common

share to GAAP net income and GAAP net income per diluted common share.

6

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

ARI –

Q1 Highlights

Investment and Portfolio Activity

New Investments

–

$15 million mezzanine loan on a 165-room hotel and commercial space in New York, NY with an underwritten

internal

rate

of

return

(“IRR”)

of

approximately

14.0%

(1)

–

$15 million mezzanine loan on a 226-room hotel in New York, NY with an underwritten IRR of approximately

12.8%

(1)

CMBS Sale

–

Sold $137.4 million of CMBS, which resulted in approximately $262,000 of net realized gains, generated

approximately $14.6 million of equity proceeds for reinvestment and lowered the Company’s debt to equity

ratio to 1.1x

Portfolio Summary

Total investments with an amortized cost of $666 million at March 31, 2012

Weighted

average

underwritten

IRR

of

approximately

14.7%

(1)

Financing Overview

TALF Refinancing

–

Refinanced TALF debt with Wells Facility; Increased advance rate

generated approximately $14.1 million of

additional investable capital, lowered cost of funds by approximately 70 basis points and extended the term of

the debt through August 2013

(1)

The

internal

rates

of

return

(“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

as

well

as

the

cost

of

borrowings

and

derivative

instruments

under

the

Company’s

master

repurchase

agreement

with

Wells

Fargo

Bank,

N.A.

(“Wells

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,

2011

for

a

discussion

of

some

of

the

factors

that

could

adversely

impact

the

returns

received

by

the

Company

from

the

investments

over

time.

7

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

ARI –

Q1 Highlights and Subsequent Events

Book Value

GAAP book value of $16.46 per share as of March 31, 2012

–

ARI closed at $15.87 on May 2, 2012 or at a 3.6% discount to book value per share

Fair

value

of

$17.04

per

share

as

of

March

31,

2012

(1)

Subsequent Events

New Investments

–

Acquired two senior sub-participation interests with an aggregate face value of $23.8 million, part of a $120

million first mortgage loan secured by 20 acres of land in the South Boston Waterfront District, which is

entitled for over 5.8 million buildable square feet and is currently used as parking with approximately 3,325

spaces.  The aggregate purchase price of the senior sub-participation interests was $17.8 million (75% of face

value)

and

they

are

expected

to

generate

an

IRR

of

approximately

21.9%,

after

the

payment

of

expenses

(2)

Amended Facility

–

Amended

the

JP

Morgan

repurchase

facility

to

reduce

the

interest

rate

spread

by

50

basis

points

(LIBOR +

2.50%); Based upon the Company’s current usage projections, the Company expects the reduced spread

should result in an annual interest expense reduction of approximately $250,000

Loan Repayment

–

Received repayment from a $24 million first mortgage loan on a hotel in midtown Manhattan, which

generated $8.6 million of equity for reinvestment after repayment of $15.4 million of borrowings

(1) 

The Company carries loans at amortized cost and its CMBS securities are marked to market.  Management has estimated that the fair value of the Company’s financial assets at March 31, 2012 was approximately $11.9 million greater than the carrying value of the Company’s

investment

portfolio

as

of

the

same

date.

This

represents

a

premium

of

$0.58

per

share

over

the

Company's

GAAP

book

value

as

of

March

31,

2012.

(2)

The internal rates of return (“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 as well as the cost of borrowings and derivative

instruments under the Wells 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, 2011 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 –

Portfolio Overview

Asset Type

($000s)

Amortized

Cost

Borrowings

Equity

at Cost

Remaining

Weighted

Average

Life  

(years )

(1)

Weighted

Average

IRR

(2)(3)

First Mortgage Loans

(2)

$108,817

$68,607

$40,210

2.4

17.8%

Subordinate Loans

179,336

-

179,336

5.5

13.9%

Repurchase Agreements

47,439

-

47,439

2.0

13.7%

AAA CMBS

330,413

286,650

43,763

1.5

16.1%

Investments at March 31, 2012

$666,005

$355,257

$310,748

2.8 Years

14.7%

As of March 31, 2012.

(1)

Remaining Weighted Average Life assumes all extension options are exercised.

(2)

Borrowings

under

the

Company’s

master

repurchase

facility

with

JPMorgan

bear

interest

at

LIBOR

plus

300

basis

points,

or

3.2%

at

March

31,

2012.

The

IRR

calculation

further

assumes

the

JPM

repurchase

facility

will

remain available over the life of these investments.

(3)

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

as

well

as

the

cost

of

borrowings

and

derivative

instruments

under

the

Wells

Facility.

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,

2011

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.

9

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

ARI –

Portfolio Overview

Diversified Investment Portfolio with Amortized Cost Basis of $666 million

Weighted

Average

IRR

of

Approximately

14.7%

(1)

Net Invested Equity at Amortized Cost Basis ($000s)

Gross Assets at Amortized Cost Basis ($000s)

As of March 31, 2012.

(1)

The

IRR

for

the

investments

shown

in

the

above

charts

reflect

the

returns

underwritten

by

the

Manager,

calculated

on

a

weighted

average

basis

assuming

no

dispositions,

early

prepayments

or

defaults

but

assumes

extensions

as

well

as

the

cost

of

borrowings

and

derivative

instruments

under

the

Wells

Facility.

There

can

be

no

assurance

the

actual

IRRs

will

equal

the

underwritten

IRRs

shown

in

the

charts.

See

“Risk

Factors”

in

the

Company’s

Annual

Report

on

Form

10-K

for

the

year

ended

December

31,

2011

for

a

discussion

of

some

of

the

factors

that

could

adversely

impact

the

returns

received

by

the

Company

from

the

investments

over

time.

AAA CMBS

50%

First Mortgages

16%

Subordinate

Loans

27%

Repurchase

Agreements

7%

AAA CMBS

14%

First Mortgages

13%

Subordinate

Loans

58%

Repurchase

Agreements

15%

10

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

ARI –

Loan Portfolio Diversification

As of March 31, 2012, first mortgages and subordinate loans represented 71% of

ARI’s investment portfolio’s net equity

The loan portfolio is diversified by property type and geographic location

Loan Portfolio -

Geographic Diversification by Net

Equity

(1)

Loan Portfolio -

Property Type by Net Equity

(1)

(1)

Does

not

include

CMBS

or

repurchase

agreement

investment

secured

by

CDO

bond.

(2)

Other category includes the subordinate financing on a ski resort.

Hotel

47%

Office

13%

Retail

26%

Other (2)

14%

Northeast

50%

Southeast

5%

Mid-Atlantic

5%

Midwest

22%

West

18%

11

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

ARI –Loan Portfolio -

Maturity and Type

$24.0

$0

$47.4

$99.8

$65.4

$40.0

$0

$50.0

$8.9

$0

$20

$40

$60

$80

$100

$120

2012

2013

2014

2015

2016

2017

2018

2019

2020

Fully

Extended

Loan

Maturity

Schedule

($000s)

(1)

(1)

Based upon Amortized Cost; Does not include CMBS or repurchase agreement investment secured by CDO bond.

Loan Position and Rate Type

(1)

ARI’s Loan Portfolio had an amortized cost basis of $288 million at March 31, 2012

Senior Fixed

46%

Mezzanine/ 

Preferred

Equity Fixed

30%

Mezzanine

Floating

12%

Subordinate

Loan Fixed

12%

12

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

ARI –

Loan Portfolio –

Loan Level LTV (Through Last Invested Dollar)

(1)

Ending LTV represents the loan-to-value as of the date of investment for all loans except the $32,000 New York, NY hotel loan, which is as of March 2011.

Description ($ in thousands)

Location

Balance at

March 31, 2012

LTV (Senior

Mortgage)

Ending LTV

(1)

First Mortgage - Hotel

New York 

31,739

$              

0%

40%

First Mortgage - Office

New York

27,587

$              

0%

54%

First Mortgage - Hotel

Maryland

25,491

$              

0%

58%

First Mortgage - Hotel

New York

24,000

$              

0%

40%

Subordinate - Ski Resort

California

40,000

$              

32%

64%

Subordinate - Retail

Various

30,000

$              

58%

69%

Subordinate - Retail

Virginia

25,397

$              

60%

74%

Subordinate - Hotel Portfolio

New York

25,000

$              

40%

60%

Subordinate -Retail

Various

20,000

$              

58%

74%

Subordinate - Hotel 

New York

15,000

$              

51%

63%

Subordinate - Hotel

New York

15,000

$              

51%

65%

Subordinate - Office

Michigan

8,939

$                

53%

70%

Total

288,153

$           

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

13

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

ARI –

Senior Loan Portfolio

Description ($000’s)

Date of

Investment

Maturity

Date

(1)

Original

Face

Amount

Current

Face

Amount

Coupon

Amortization

Schedule

Property

Size

Current

Loan

Amount

Appraised

LTV

(2)

Hotel

New York, NY

Jan-10

Feb-15

$32,000

$31,739

8.25%

30 year

151

rooms

$210/

key

40%

Office Condo (Headquarters)

New York, NY

Feb-10

Feb-15

28,000

27,587

8.00

30 year

73,419

sq. ft.

$377/

sq. ft.

54%

Hotel

Silver Spring, MD

Mar-10

Apr-15

26,000

25,491

9.00

25 year

263

rooms

$97/

key

58%

Hotel

New York, NY

Aug-10

Aug-12

24,000

24,000

8.00

Interest

only

155

rooms

$155/

key

40%

Total

.

.

$110,000

$108,817

8.31%

(1)

Maturity date assumes all extension options are exercised.

(2)

Appraised LTV represents the loan to value as of the date of investment for all loans except the $32,000 New York, NY hotel loan, which is as of March 2011.

(3)

Interest rate includes 10% current payment with a 3% accrual.

Description ($000’s)

Date of

Investment

Maturity

Date

Original

Face

Amount

Current

Face

Amount

Coupon

Amortization

Schedule

Property

Size

Current

Loan

Amount

Appraised

LTV

(2)

Repurchase Agreement

(3)

Sept-10

Mar-14

$47,439

$47,439

13.00%

Interest

only

N/A

N/A

N/A

Total

$47,439

$47,439

13.00%

14

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

ARI –

Subordinate Loan Portfolio

Description ($000’s)

Date of

Investment

Maturity

Date

(1)

Original

Face

Amount

Current

Face

Amount

Coupon

Amortization

Schedule

Current

Loan

Amount

Appraised

LTV

(2)

Senior Mezz –

Retail

Various

Dec-09

Dec-19

(3)

$30,000

$30,000

12.24%

Interest

only

$86/

sq. ft.

69%

Junior Mezz –

Retail

Various

Dec-09

Dec-19

(3)

20,000

20,000

14.00

Interest

only

$91/

sq. ft.

74%

Office

Michigan

May-10

Jun-20

9,000

8,939

13.00

25 year

$82/

sq. ft.

70%

Ski Resort

California

Apr-11

May-17

(4)

40,000

40,000

13.25

Interest

only

$356/

key

64%

Hotel Portfolio

New York

(5)

Aug-11

July-16

(6)

25,000

25,000

11.49

(L+10.49%)

Interest

only

$339/

key

60%

Retail Center

Virginia

(7)

Oct-11

Oct-16

(7)

25,000

25,397

14.00

Interest

only

$281/

sq. ft.

74%

Hotel

(8)

New York

Jan-12

Jan-15

15,000

15,000

12.00

Interest     

only

$484/           

key

63%

Hotel

(9)

New York

Mar-12

Feb-16

15,000

15,000

11.50

(L+11.00%)

Interest 

only

$310/         

key

65%

Total

.

.

$179,000

$179,336

12.76%

(1)  Maturity date assumes all extension options are exercised

(2)  Appraised LTV represents the loan to value as of the date of investment.

(3) Prepayments are prohibited prior to the fourth year of the loan and any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%. 

(4) Prepayments are prohibited prior to the third year of the loan and any prepayments thereafter are subject to prepayment penalties ranging from 5% to 1%.

(5) Includes a LIBOR floor of 1% and three one-year extension options subject to certain conditions and the payment of a 0.25% fee for the fourth and fifth year extensions.

(6) Prepayments are prohibited prior to February 2013 and any prepayments thereafter are subject to spread maintenance premiums.

(7) Interest rate of 14.0% includes a 10.0% current payment with

a 4.0% accrual.  There are two one-year extension options subject to certain conditions.

(8) Includes a 1.00% origination fee, a one-year extension option subject to certain conditions and a 0.50% extension fee as well as a 1.50% exit fee.

(9) Includes a LIBOR floor of 0.50%, two one-year extension options subject to certain conditions and the payment of a 0.50% fee for the second extension.

15

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

ARI –

CMBS Portfolio

Face

Amortized

Cost

Remaining Weighted

Average Life with

Extensions (months)

Estimated

Fair Value

Debt

Net

Equity at

Cost

TOTAL CMBS

$324,798

$330,413

18

$330,896

$286,650

$44,246

AAA CMBS

CUSIP

Description

07388YAB8

BSCMS 07-PW16 A2

07401DAB7

BSCMS 2007-PW18 A2

12513YAC4

CD 2007-CD4 A2B

46629MAB1

JPMCC 2006-LDP8 A2

61754KAC9

MSC 07-IQ14 A2

92978YAB6

WBCMT 07-C32 A2

AAA CMBS

CUSIP

Description

07401DAB7

BSCMS 2007-PW18 A2

36246LAB7

GSMS 2007-GG10 A2

46630JAK5

JPMCC 2007-LDPX A2S

61751NAD4

MSC 2007-HQ11 A31

92978TAB7

WBCMT 2007-C31 A2

16

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

Financials

17

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

Consolidated Balance Sheets

(in thousands—except share and per share data)

March 31, 2012

December 31, 2011

Assets:

Cash and cash equivalents

31,452

$                        

21,568

$                        

Securities available-for-sale, at estimated fair value

151,964

302,543

Securities, at estimated fair value

178,932

251,452

Commercial mortgage loans, held for investment

108,817

109,006

Subordinate loans, held for investment

179,336

149,086

Repurchase agreements, held for investment

47,439

47,439

Principal and interest receivable

5,959

8,075

Deferred financing costs, net

1,308

2,044

Other assets

14

17

Total Assets

705,221

$                      

891,230

$                      

Liabilities and Stockholders' Equity

Liabilities:

Borrowings under repurchase agreements

355,257

$                      

290,700

$                      

TALF Borrowings

-

251,327

Derivative instruments, net

483

478

Accounts payable and accrued expenses

1,126

1,746

Payable to related party

1,289

1,298

Dividends payable

8,553

8,703

Deferred revenue

136

-

Total Liabilities

366,844

554,252

Stockholders' Equity:

Common stock, $0.01 par value, 450,000,000 shares authorized 20,561,032 shares issued and outstanding in 2012

and 2011, respectively

206

206

Preferred stock, $0.01 par value, 50,000,000 shares authorized and no shares outstanding

-

-

Additional paid-in-capital

337,789

336,209

Accumulated other comprehensive income

382

563

Total Stockholders' Equity

338,377

336,978

Total Liabilities and Stockholders' Equity

705,221

$                      

891,230

$                      

18

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

Consolidated Statement of Operations

2012

2011

Net interest income:

Interest income from securities

5,323

$                   

6,656

$                   

Interest income from commercial mortgage loans

2,234

2,313

Interest income from subordinate loans

5,313

1,909

Interest income from repurchase agreements

1,559

60

Interest expense

(3,242)

(3,339)

Net interest income

11,187

7,599

Operating expenses:

General and administrative expenses (includes $1,083 and $351 of non-cash

stock based compensation in 2012 and 2011, respectively)

(2,036)

(1,380)

Management fees to related party

(1,289)

(1,088)

Total operating expenses

(3,325)

(2,468)

Interest income from cash balances

1

5

Realized gain on sale of securities

262

-

Unrealized gain on securities

1,385

$                   

26

$                         

Gain (loss) on derivative instruments (includes $(5) and $459 of unrealized

gains (losses) in 2012 and 2011, respectively)

(417)

$                     

18

$                         

Net income

9,093

$                   

5,180

$                   

Basic and diluted net income per share of common stock   

0.43

$                      

0.29

$                      

Basic and diluted weighted average common shares outstanding

20,966,426

17,551,828

Dividend declared per share of common stock

0.40

$                      

0.40

$                      

Three months ended March 31,

19

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

Reconciliation of Operating Earnings to Net Income

Three

Months Ended

March 31, 2012

Earnings Per Share

(Diluted)

Three

Months Ended

March 31, 2011

Earnings Per Share

(Diluted)

Operating Earnings:

Net income

$9,093

$0.43

$5,180

$0.29

Adjustments:

Unrealized gains on securities

(1,385)

(0.06)

(26)

-

Unrealized gains on derivative instruments

5

-

(459)

(0.02)

Non-cash stock-based compensation expense

1,083

0.05

351

0.02

Total adjustments:

(297)

(0.01)

(134)

-

Operating Earnings

$8,796

$0.42

$5,046

$0.29

Basic and diluted weighted average common shares outstanding

20,966,426

17,551,828