I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance Incorporated, and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections. We do not undertake any obligation to update our forward-looking statements or projections, unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreit.com or call us at (212) 515-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Mr. Stuart Rothstein.

Good morning, everybody, and thank you, again, for joining us on the Apollo Commercial Real Estate Finance Second Quarter 2013 Earnings Call. Joining me this morning in New York, as usual, are Scott Weiner, our Chief Investment Officer; and Megan Gaul, our Chief Financial Officer, who will review ARI's financial results after my remarks. The commercial real estate sector continued to perform well in the second quarter, amidst the volatility in the fixed income markets. During the latter part of June, the Fed's commentary regarding the improving economic picture and the future plans for reducing the amount of Quantitative Easing led to a sharp rise in interest rates. Following the rise in rates, pricing on a handful of CMBS transactions widened relative to prior comps and quoted conduit spreads on new transactions began to widen. Thus far, in the third quarter, rates have begun to stabilize, and spreads on recent CMBS transactions have tightened slightly relative to the late June deals. Despite the slight slowdown in the CMBS market, issuance year-to-date is $48.8 billion, which is greater than the total volume for all of 2012, and most market participants are still expecting total issuance this year of approximately $60 billion. It is important to note that the comments by the Fed and the subsequent volatility in the fixed income markets had a much greater impact on the markets for residential mortgage-backed securities as opposed to the investments in ARI's portfolio or the pipeline of potential opportunities that we are currently evaluating for the company. While the mortgage REITs focused on RMBS had to adjust expectations with respect to duration, extension risk, and the paring back of QE III, these issues are not relevant to the fundamentals of ARI. We recognize that from a technical trading perspective, rising rates and their…

Thanks, Stuart. I want to remind everyone that we posted our supplemental financial information package on our website, which contains detailed information about the portfolio, as well as ARI's financial performance. For the quarter ended June 30, 2013, we announced operating earnings of $11.7 million or $0.31 per share as compared to operating earnings of $8.5 million or $0.41 per share for the 3 months ended June 30, 2012. As we indicated in our press release, operating earnings this quarter reflected a $1.2 million yield maintenance payments the company received in connection with the prepayment of a $15 million mezzanine loan. Net income available to common shareholders for the quarter ended June 30, 2013 was $9.9 million or $0.27 per share as compared to $9.9 million or $0.47 per share for the quarter ended June 30, 2012. For the 6 months ended June 30, 2013, the company reported operating earnings of $23.7 million or $0.70 per share, as compared to operating earnings of $17.3 million or $0.83 per share for the 6 months ended June 30, 2012. Net income available to common stockholders for the 6 months ended June 30, 2013 was $20 million or $0.59 per share, as compared to $19 million or $0.91 per share for the 6 months ended June 30, 2012. A reconciliation of operating earnings and operating earnings per share to GAAP net income and GAAP net income per share can be found in our earnings release contained in the Investor Relations section of our website, www.apolloreit.com. GAAP book value per share at June 30, 2013 was $16.26. As a reminder, we do not mark our loans to market for financial statement purposes and currently estimate there's another $0.29 per share of value when our loans are mark-to-market, and as such, estimate our market value…

[Operator Instructions] Our first question comes from Jade Rahmani of KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Can you provide any commentary on how loan pricing has changed since interest rates began to move? And on your target loans, where spreads are currently, and if there's any other discernible changes you'd like to note?

Scott, you want to tell him?

Sure. I would say you're seeing the biggest change, clearly, in the fixed-rate loan market. Clearly, for fixed-rate VaRs, just given that, that price is off. The draw [ph] in the swap rate of the U.S. treasury, those rates have gone up considerably. Also, CMBS spreads widened for those VaR in the CMBS market on that side. You also have the life insurance companies, who, obviously, do fixed rate. Before, as a lot of them had floors, they weren't that competitive on a fixed-rate market, but now, with all-in rates going higher, they're able to achieve that. For us, on the mezzanine side, given really -- or the first mortgage side for that matter, really, given the focus that we have on the floating rate business, we're not really seeing any really dramatic change, if you will. I would say one could argue around the economy and things improving and credit fundamentals, but I would say with respect to our fixed-rate mezz that we closed earlier in the year, that's an absolute rate. And while we do look at spreads, we, obviously, also look at the absolute rate that we're achieving, and on the floating rate side, it's floating rate, and that market hasn't really changed. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And the originations that you announced, the 2 in the quarter and the 1 post current, how do those yields compare with the existing portfolio?

We're doing things -- consistently sort of in the broadly speaking 12% to 15% range, depending on risk, property type, nature of the real estate. So generally speaking, still seeing things consistent with what we've seen before. And generally speaking, LTV's consistent with what we've seen before.

Yes. I mean, we're in the process of closing a transaction, actually, hopefully today, that if it does, we'll put in the Q, and obviously, subsequently disclose. That is -- it's an acquisition. It's sub-70%. LTV I think it's called 69 LTV. It's a floating rate loan. Our expected IRR is approximately 12%, so very in line. And obviously, kind of somewhat -- closing subsequent to everything that's happened the past few months with rates, so in line, and then we have [ph] our pipeline. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Sorry, you were going to say about your pipeline?

No, I'm just saying our pipeline in terms of Stuart was saying that we're seeing consistently that, that range of IRRs is kind of consistent. So consistent with what we've been doing in the past, both from an IRR perspective and a leverage perspective.

Our next question comes from Dan Altscher of FBR. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: I was wondering, can you maybe elaborate a little bit more, I guess, on the potential for a net lease strategy? I guess, how potentially big do you see this getting? Or can you talk about maybe the operator you're looking at or what geography or property types, anything, a little bit more on the potential structure there?

Yes. I mean, look, it's something we've talked about previously. I think, clearly, I don't think we're unique, so to speak, in the mortgage REIT space, where folks have added net leased exposure to the portfolio. Clearly, the duration is attractive. I think the cash-on-cash levered returns are attractive, and I think it just gives us another arrow in the quiver. I think, for us over the last few years, as we've looked, we're certainly not trying to compete with the existing public, non-traded REITs or the, excuse me, public REITs that focus on the net lease space or the non-traded REITs that focus on the space for larger portfolios. We're really looking at it at a more, call it, asset-by-asset basis. And what we've been looking for is really an operator that brings real expertise in the space, whether it be acquisition built-to-suit development, leasing in management capabilities, as well as something we could benefit from the existing Apollo infrastructure on the credit side of things. And without revealing who our JV partner is until the venture gets sort of some legs and starts doing some real deals, we think we've formed a good venture with someone who's got a lot of experience in this space. We will look at things on, generally speaking, a national platform. I think it will be fairly granular in terms of deal activity. So it will literally be building a business asset by asset until we can get some scale, and then maybe think about doing things on a portfolio basis. And I think -- look, I think the hope is over the next 6 to 12 months, you could see a deployment of, call it, $25 million to $50 million of equity as we sort of test our theory. And if we end up being proven correct, I think you've entered a business where you could grow way beyond that capital allocation. But I think, as is typical for the way we do things around here at Apollo, relative to the size of ARI, I think $25 million to $50 million of equity over the next few quarters is probably the way to think about testing our hypothesis. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Great. That's really good detail. And then there are plenty of your competitors in the public market that have net lease businesses also, so it's not that dramatic a shift for investors to take a grasp on or understand. Just one more if I may, if rates are to move higher from here, that's obviously great potentially for the lending business. But we did see a little bit of the mark-to-market in the CMBS portfolio. If that's maybe the call, moving forward, is there are an opportunity to maybe try to wind down that portfolio or sell it ahead of maturity schedule to kind of mitigate that mark-to-market?

I mean, look, based on what we put most of that CMBS in place, and let's separate the Hilton CMBS piece, which I think most market participants would expect is going to get paid off before maturity, the legacy AAA CMBS that we still own, which goes back to 2009, 2010 as part of the TALF program, that stuff effectively was expected to be paid off already. I think we were prudent in putting in place financing that allowed for extension on the -- of the underlying investments, which basically benefited the IRR we're earning on the investment over time. I think it's such short duration that, while I think there was a modest tick-up in pricing, we're not expecting much price volatility in that stuff just given how much duration is remaining. And I think we've always viewed that, as to the extent we found longer duration investments that made sense, we always have the ability trade out of that CMBS if we need to just to fund new investments. So I think we're okay with where we are now. I don't -- I wouldn't expect much price volatility. I think it does have some impact on the balance sheet just because it's the only thing we do mark-to-market versus our portfolio of mortgage loans and mezz loans, but I think it will wind down fairly shortly here. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Yes, and the other reason I kind of asked that is because if the new net lease venture is going to maybe be a $25 million, $50 million of equity kind of -- or capital allocation, I mean, there -- that could be a potentially a swap, in my opinion, from a -- from the CMBS, just trying to -- without having to raise new capital, that could just be a clean kind of swap perhaps?

Yes, I mean, I think, that's a fair way to think about it. I think as we look at the balance sheet, we're always trying to assess where capital might come from, either through asset sales or some prepayments that we may get at some point in the future. So we certainly take that into consideration.

Our next question comes from Rick Shane of JPMorgan. Richard B. Shane - JP Morgan Chase & Co, Research Division: So when we look at the interest income on a sequential basis, it's essentially flat. But when we back out the fact that last quarter, there was $2.5 million of yield maintenance, this quarter, there was only $1.2 million, the recurring yield within the portfolio increased modestly. I'd love to get a sense as to what you think the exit rate was because of the timing of the deals that you did during the quarter, and then put that in the context of how big -- how much you think you need to grow the portfolio from here in order to be covering the dividend on a recurring basis?

Yes. I mean, I think taking it backwards, I mean, I think -- look, I think covering the dividend is really about efficient use of capital. I think in terms of the returns at which we've invested in, as Scott mentioned earlier, we're still putting capital out without a dramatic shift in terms of what the portfolio's generating. I think the issue of earnings relative to dividend is really one around capital efficiency, and I think we -- between a capital raise and some prepayments that were not anticipated, so to speak, right? We've invested $225 million worth of capital, but still have a ways to go, i.e., call it $60 million, $70 million worth of deals to do in order to be more fully using our capital. I think if you look back on past quarters, whenever we've been substantially invested, we've earned the dividend. Clearly, that's the expectation today given the pipeline. I think we went into this quarter, and certainly, the consensus estimates reflected it, knowing that we were going to be below the dividend by what I'd call a meaningful amount just due to the capital raise that we did, and just the timing between when you commit to deals and when you actually get deals closed. I think the dividend is something that we continue to discuss on a quarterly basis with the board. And the discussion is really around, as you mentioned, Rick, return levels or achievable return levels, but it's also around capital efficiency and the need to balance, call it, having dry powder versus your ability to sort of time closings and be in business and making sure that when you make commitments, you can live up to your commitments. So it's sort of an ongoing discussion with the board. Richard B. Shane - JP Morgan Chase & Co, Research Division: Hey, Stuart, a couple of comments there -- comment and question. I think you guys have been very transparent in terms of what the trajectory was going to be, and I think it's also clear that it is a matter of capital deployment because I think that the returns on the investments have really been within the sort of the boundaries that everybody anticipated. What I heard from your comment was -- and I want to see how fine a point we can put on this, is it $60 million or $70 million of net investments in place for a full quarter that gets you there to covering the dividend? Is it -- I just want to get some context of how much capital needs to be deployed on a run-rate basis to where you think that will be?

Yes. I mean, I think, on a net basis, so putting aside repayments, I mean, roughly you need, call it, plus or minus $60 million of additional equity to be invested on a full quarter base to sort of get us where we need to be.

Our next question comes from Joel Houck.

This is Charles Nabhan from Joel Houck's team. At quarter's end, you have about $156 million in cash on hand. That's obviously before the transaction completed after the quarter, and then you have the Wells Fargo facility. Could you talk about the lending capacity on the current balance sheet?

Yes, I mean, the Wells Fargo facility is effectively a facility matched against our CMBS investments as they exist today. So there's no existing capacity on the Wells Fargo facility. Where we do have some capacity is on the JPMorgan facility, which is a -- it's a $100 million facility, but it is primarily for the purpose of borrowing against first mortgages. And given our existing portfolio of first mortgages, we have somewhere in the neighborhood of $50 million of capacity on that facility. The one thing I'd caution against on the $150 million of cash on the balance sheet at the end of the quarter is, as Scott mentioned, we already closed one deal at the end of the quarter. We have another deal that's in closing today. And we also had -- if you look back at past announcements on deals we've done, a couple of deals that have future funding commitments, so you need to keep some powder dry to meet those future funding commitments. Clearly, we have sort of used or viewed the JPMorgan facility as the, call it, shock absorber, so to speak, in the capital structure, and we'll try and get cash invested as quickly as possible. And we might need to keep some of the JPMorgan capacity available for some of those future funding commitments.

Great. And as a follow-up, getting back to the commentary on the net lease business, which I realize is in its development phases, but how should we think about potential IRR on the $25 million to $50 million in equity that you're thinking about deploying?

I mean, look, I think conservatively, putting aside what you may want to assume on ultimate exit value of assets, I think consistent with everything else we've done, I think we tend to be conservative, but we've always tried to shoot for at least, call it, 12%-plus returns on our invested capital, and certainly, that would be a minimum for the net lease business.

Our next question comes from Ken Bruce of Bank of America, Merrill Lynch.

I'm sorry, I jumped on the call a little late. So if you covered this in your prepared remarks, I apologize, but I was hoping to get a sense as to if you've seen a significant change in market activity levels, given the volatility in rates that we witnessed earlier in the second quarter, and how you're thinking about -- you'd mentioned of, I think, a fairly strong pipeline, but how you're thinking the activity levels will prevail here just given the backup in rates?

Yes, I mean, I think I'll let Scott answer in a minute, but I think going back to the initial remarks, I think, look, the general commentary was that from a fundamental underpinnings of our business, what has occurred in rates is far more relevant to those here at Apollo who spend time thinking about investing in the residential mortgage-backed security space, given the impact of rates on duration issues, extension risk and then the overall dialogue around QE III. We certainly understand from a technical perspective that rising rates might have some impact on our stock just due to fund flows, call it, out-of-yield-oriented products or fund flows that now find other yields more attractive. But I think, in terms of the fundamentals of the real estate business to the extent rates are rising, I would argue that's actually -- if they're rising because of good economic activity, it's a good thing for our existing collateral, and it's also probably a good thing for our opportunities set in the future, given the ability to invest in a rising rate environment. I'll let Scott comment sort of on the day-to-day, what he's seeing in terms of deals.

Yes, I mean, I think, I -- someone had a similar question earlier. I mean, I think, obviously, you see the biggest change on the fixed-rate market, just given how that's priced off the swap rate. But I still think on an all-in rate basis, the rates are still very attractive. I was at a conference, where someone was saying, no one ever thought the 10-year would break through 3%, let alone 2%. So the fact that we're still kind of in the mid-2s, historically, it's still very, very attractive on the floating rate, which is a huge component of, obviously, our business, and just the market in general. In many ways, the borrowing cost are going down today from a senior perspective, as the CMBS market and balance sheet both compete for product. As I also said, we haven't really seen a big change in the mezzanine market or the type of floating rate loans that we do just given that they're not geared towards the CMBS market. From an activity and volume perspective, it continues to be very robust both obviously with REITs buying and private investors and equity funds. So there was probably a little bit of a pause as people just waited to see where things were going. And I would expect as we get into August, maybe there'll be a little bit more of a pause at the end of August, but it seems that people are still very optimistic around the fundamentals and the ability to -- depending on what type of investor you are to generate the right return to your capital.

Okay. And are you seeing any change in terms of competitiveness in the market? You hear some of your peers that effectively are capable of writing the big check. They think it effectively kind of gets them out of what is a very competitive market. Your -- that's not your wheelhouse, but how are you seeing competition in spread levels kind of work their way into what you're looking to invest in?

Well, I think, you mentioned, I mean, what we're really trying to do kind of more bespoke more structured transactions. If 10 people are going to show up for a transaction and it's brokered, that's not really where we want to play. I mean, we work with both repeat borrowers as well as senior capital sources who care who's behind them. So we're doing a lot with balance sheets. So as those balance sheet gets more aggressive and competitive on a senior piece, it actually is good for us from a mezz perspective just because the borrower looks at the blended cost of funds. I think we certainly have seen on those bigger ticket deals that don't really work for CMBS as some of our brethren have kind of entered the business, I think we have seen pricing come down. Because I think people -- they're looking at kind of -- as leverage comes in to the space for them, they're obviously looking at their rev [ph] return, which allows them to bring down their cost of funds. I think borrowers are benefiting from that.

And well, you probably figured out where I'm going with this. I'm trying to reconcile the kind of the market backdrop to are seeing in your primary business, if you will. And then as you kind of look at the alternatives to, whether it be in the net lease business or other areas if that's being essentially driven by what are more difficult operating backdrop in the primary market or what's kind of necessitating that move? If it's necessity at all or if it's just strategic in nature?

I think it's strategic. It's really not a reaction. I mean, we don't view there being a market back up. As I mentioned earlier in the call, I mean, we're closing a deal today that's very consistent with what we've been doing in the past, and we have deals in the pipeline that we're closing that are consistent. I mean, it's a function of we've been exploring the space for a while and trying to find the right partner and right entrée. And as you've seen, that the public market that certainly bid up the stock of the net lease REITs to the point that they could buy things at a very low cap rate, very accretively. So we needed just to find the right part of the market that made sense. I do think the part -- additional yields that we like is the duration. Clearly, while in the last quarter, we did close a 10-year call protected deal, a lot of our portfolio is shorter and floating rate. And so as we've talked about before, while we're putting out capital, we're also getting capital back. So one of the attractions of the net lease is the duration and the longevity of it, if you will, and also, look, we're also now a bigger company. And so it didn't make sense when we're $200 million or $300 million of capital to be doing net lease. As we're growing and looking at other options, as we've talked in the past, we chose not to do the single family for rent. We kind of view that more as a trade than a business. We haven't done distressed investing when we felt the net lease business, both from an Apollo overall platform and the REITs specifically, was consistent with the strategy.

Our next question comes from Steve Delaney of JMP Securities.

I was a little late hopping on because we had 3 calls at 10:00 a.m. So my apologies if any of this has been -- I've got -- just got a couple of quick questions. I apologize if you've already covered it. Interesting developments going on as you've observed, I'm sure in sort of the CLO/CMBS market, pricing below LIBOR 200, you've got about $140 million of senior loan collateral currently. Are you looking at that, for those loans, how much more would you need to originate in the bridge loan bucket to be able to take advantage of some of that financing? Realizing that, right now, you're -- you've got some cash capacity, but down the road, it would seem that might be a good move for you.

Yes, look, clearly, we look at that, I mean, around Apollo, we're actually one of the bigger CLO issuers and managers. So we're very familiar with the technology, and certainly, The Street likes to show us ideas. I mean, for now, as you mentioned, we do have cash that we're in the process of investing, and then we do have capacity on our JPMorgan line to lever it. I think, actually, the JPMorgan line, while slightly higher in cost than what you reference as CLO cost. Once you factor in issuance cost, and that we get higher leverage, I think we're actually better off right now using the JP facility. Strategically, I think one of your brethren asked about before, I mean, that's not -- doing senior loans at kind of, what I'll call it, high pricing because then we can put leverage on it, but that hasn't been a strategy that we've pursued. Obviously, there are others in the space who have focused solely on that, with the idea being that because they're doing senior loans, they can kind of pay out a lower dividend. The senior loans that we tend to do tend to be the whole loans where we can get paid on a levered basis, the rate that makes sense. So it might be something like a New York City deal with some conversion aspects or things like that, but I think to the extent we do a first mortgage, with the idea of putting leverage on it for now, we would be using the JP facility.

Okay. And Scott, you led right into my second question was -- which follows up on Ken's. Just sort of the pricing pressure and competition, and your recent activity, it's definitely been concentrated on the mezz side, and we've got a lot of new entrants into this bridge of space and a lot of new capital and weirdly seeing some price compression there in terms of spread over LIBOR. But I'm looking at your mezz book, you were 12.9 underwritten IRR unlevered at March. You're 13.8 in June, and we look at what you're originating, everything looks like 12, 13, 14. So -- I mean, it doesn't -- are you seeing any increased pressure on yields? It seems like you can get what you're targeting?

Yes. I mean, look, I think we can certainly get what we're targeting. I think part of the benefit is size. I'm not going to say we wanted to invest billions. We could do that or certainly without kind of changing the credit profile. As I mentioned before, we certainly are seeing senior loan pricing coming in. I mean, you have large bank balance sheets who are back in the space, the CMBS floating rate market functioning. And then you do have some of our brethren and other sources of capital looking to do big senior loans and then applying leverage. So I would say for cash flowing assets, yes. Your senior loan market has certainly come in. I think that the approach that we have taken is to partner with those folks who are looking at the CMBS or balance sheet execution and doing the mezz. And as I mentioned today, we're closing a deal today with a balance sheet consistent with what we've been doing. We have another deal in our pipeline where we're providing the whole loan at our kind of yields. So I would say we've been able to achieve that. I mean, we do always look at that senior loan market, and kind of does it make sense with leverage? And obviously, sometimes, it would just be, in some ways, easier to do that and take the lower yield. And going back to the dividend discussion, we kind of always have that debate is, do I move quicker to put on a lower-yielding asset, but then I'm locked into that for a period of time? Or do I wait a little while and put on a higher-yielding asset that we like?

[Operator Instructions] At this time, there are no further questions. I would like to thank the participants for joining today.

Thanks, operator. Thanks, everybody.

Thank you. Have a wonderful day.