Apollo Initiating

U.S.
Research
December 8, 2009
Apollo Commercial Real Estate Finance, Inc.
(ARI:NYSE) Initiation of Coverage
RJ Milligan, (727) 567-2660, Richard.Milligan@RaymondJames.com Rating _________________________________
Paul D. Puryear, (727) 567-2253, Paul.Puryear@RaymondJames.com Outperform 2
Alexander Sierra, Sr. Res. Assoc., (727) 567-2564, Alexander.Sierra@RaymondJames.com
Current and Target Price __________________
REITs: Mortgage __________________________________________________ Current Price (12/7/2009) $17.66
Target Price: $20.00
ARI: Initiating Coverage with an Outperform Rating 52-Week Range $19.20 - $17.01
Suitability High Risk
♦ We are initiating coverage of ARI shares with an Outperform rating. Given the large Market Data ____________________________
void of capital in the commercial real estate market, we believe Apollo has the Shares Out. (mil.) 10.8
infrastructure and experienced management team to take advantage of the Market Cap. (mil.) $191
opportunities. Apollo’s more conservative investment profile (only performing loans) Avg. Daily Vol. (10 day) 90,580
and conservative leverage (~35%) will provide ARI shareholders with a very attractive Dividend/Yield $0.00/0.0%
yield on a risk/return basis. BVPS (09/09) $18.40
ROE % 0%
♦ The company completed an initial public offering on September 24, 2009, in which 10
LT Debt (mil.)/% Cap. $0/0%
million common shares were sold at a price of $20 per share (an additional 500,000
common shares were sold in a private placement) to form a blind pool. The company
Earnings & Valuation Metrics ______________
expects to invest the proceeds by the end of the first quarter of 2010, based on
comments from management. Apollo also intends to create a diversified portfolio of 2008A 2009E 2010E 2011E
performing commercial real estate mortgage loans and commercial mortgage-backed P/E Ratios (GAAP)
securities (CMBS) assets that will be held to maturity, providing stable cash flow yields NM NM 10.6x 9.2x
for stockholders.
♦ Apollo believes it can capitalize on the lack of debt financing availability in the current
environment, as roughly $1.4 trillion of commercial real estate debt matures over the Company Description_____________________
next five years. The company estimates an unleveraged, blended yield of roughly 11- Apollo Commercial Real Estate Finance, Inc is a
12% on its debt investments. commercial real estate finance company (a mortgage
REIT) that is focused primarily on originating, investing
♦ Over time, we expect the opportunity in the commercial real estate financing sector to in, acquiring, and managing senior performing
shrink as new competitors emerge and lending spreads compress. However, we believe commercial real estate mortgage loans, commercial
the window for Apollo to reap above-average risk-adjusted returns will persist for at mortgage-backed securities (CMBS), commercial real
least the next 12-24 months. As a new company with no existing assets, Apollo also estate corporate debt and loans, and other
faces execution risk in deploying the proceeds from the IPO (which we expect by the end commercial real estate-related debt investments in
the U.S. The company is externally advised and
of 1Q10). For a further discussion of these and other risks, please refer to the section
managed by a subsidiary of Apollo Global
titled “Investment Risks” on page 3. Management, LLC, a leading global asset management
♦ Despite the differences between the new commercial mortgage REITs and the more company.
established residential mortgage REITs, we believe Apollo and its peers will trade at or
above book value (the residential mortgage REIT comp group trades at 1.2x book value)
as the market gets more comfortable with their investment programs. Consequently,
our $20.00 price target is based on the stock trading at 1.1x book value of $18.40.
GAAP Q1 Q2 Q3 Q4 Full Total

EPS Mar Jun Sep Dec Year Revenues (mil.)
2008A NA NA NA NA NA NA
2009E NA NA (0.01)A (0.01) (0.02) 2
2010E 0.26 0.48 0.41 0.47 1.66 34
2011E UR UR UR UR 1.93 65
Rows may not add due to rounding. UR: Under Review. No quarterly results for 2008 and 1H09 as Apollo
was organized in June 2009 and completed its IPO in September 2009. Initial public offering within last 12
months; trailing 12-month share price figures represent range since that time.
Please read domestic and foreign disclosure/risk information and Analyst Certification beginning on page 19.
© 2009 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
Apollo Commercial Real Estate Finance, Inc. U.S. Research
Contents
Company Overview ..................................................................................1
Investment Attributes ..............................................................................2
Investment Risks ......................................................................................3
Investment Overview ...............................................................................6
Industry Overview ....................................................................................7
Management Structure and Overview.....................................................10
Outlook: 2009, 2010, and 2011................................................................13
Balance Sheet and Capital Structure........................................................14
Valuation ..................................................................................................14
Conclusion................................................................................................17
Appendices
Income Statement....................................................................................18
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
U.S. Research Apollo Commercial Real Estate Finance, Inc.
Company Overview
Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust (a mortgage REIT) formed
primarily to originate, invest in, acquire, and manage senior performing commercial real estate mortgage
loans, commercial mortgage-backed securities (CMBS), commercial real estate corporate debt and loans,
and other commercial real estate-related debt investments in the U.S. The company’s primary focus will
be originating first mortgage loans with a target size of $25-50 million per loan. The company is externally
advised and managed by a subsidiary of Apollo Global Management, LLC, a leading global asset
management company.
The company was organized in Maryland on June 29, 2009 and commenced operations on September 24,
2009, when it successfully completed an initial public offering in which 10 million common shares were
sold at a price of $20 per share. Concurrent with the public offering, 500,000 common shares were sold in
a private placement to sponsor entity Apollo Global Management and certain affiliates. The net proceeds
from the public offering and the concurrent private placement totaled $208 million, which the company
intends to invest by the end of the first quarter of 2010, based on comments from management.
Apollo expects to create a diversified portfolio of performing commercial real estate mortgage loans and
CMBS assets that will be held to maturity, providing stable cash flow yields for stockholders. The
company will focus its investing efforts on the core, income-producing commercial property types,
including office, retail, multifamily, and industrial. The company will seek to identify properties that have
above-average demographics, market demand generators, competitive leasing rates, stable cash flow
characteristics, and experienced and well-capitalized borrowers.
Apollo believes it can capitalize on the lack of debt financing availability in the current environment, as
roughly $1.4 trillion of commercial real estate debt matures over the next five years. The company
estimates an unleveraged, blended yield of roughly 11-12% on its debt investments. Apollo’s expected
portfolio allocation is shown in the following table.
Investment Type Projected Allocation Return on Equity

Whole Loans 40% 7.5-9%
Newly Issued CMBS 20% 12-14%
Legacy CMBS 20% 15%
B Notes/Mezz 20% 12-14%
Source: Company filings, Raymond James.
Following a ramp-up period, we expect the company to pay an annualized dividend of $1.49-1.66, which
implies an 8.4-9.4% yield based on the December 7, 2009 stock price.
International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 1
Investment Attributes
High Quality Target Investments; Modest Leverage
Apollo is targeting performing commercial loans, with a bias toward holding the senior position in the
asset capital structure. We believe Apollo’s focus on high credit quality investments (predominantly
investment-grade CMBS and senior positions in whole loans) should help insulate the company in the
event fundamentals in the commercial real estate sector continue to deteriorate materially. The
company’s risk-averse, hold-to-maturity business model differentiates Apollo from its peers, as other
recently formed commercial mortgage REITs employ strategies that include pursuing riskier distressed
debt investments and/or engaging in opportunistic transactions in order to create value. Given the
checkered past of the mortgage REIT industry and our skepticism about the strength of this economic
recovery, we favor Apollo’s more stable, conservative business model.
The company’s capital structure is expected to be similarly conservative with debt at 35% of total assets
(excluding TALF financing). This compares favorably to past mortgage REITs that have employed higher
leverage to boost returns, a strategy that works in a sound real estate environment but becomes a
significant burden in downcycles when loan delinquencies/defaults begin to mount. We expect Apollo to
periodically return to the capital markets to raise equity (we have modeled offerings in 2010 and 2011) in
order to grow its assets while maintaining modest leverage levels.
Experienced Management Team
Apollo’s management team has extensive experience in identifying, analyzing, financing, and managing
real estate investments, therefore providing the company with a competitive advantage in the
mortgage REIT industry. The external management team is led by President and CEO Joseph Azrack, a 30-
year veteran in the real estate industry. Mr. Azrack has significant prior experience in dealing with real
estate debt investments, having been actively involved in the origination of new mortgage loans and the
purchase of investment-grade and below-investment-grade CMBS at AEW Capital Management in the
1990s. Mr. Azrack is the head of the investment committee, which also includes Chief Investment Officer
Scott Weiner, who has over 13 years of experience in real estate finance and lending, and Chief Financial
Officer Stuart Rothstein, who has over 15 years of experience in the real estate industry. The investment
committee features seven members and is tasked with advising the management team with respect to
the company’s investment strategy, portfolio holdings, sourcing, and financing and leverage strategies, as
well as approving the company’s investments.
We believe the management team has the ability to successfully capitalize on the dislocation in the capital
markets and generate above-average returns on commercial real estate debt investments without taking
on unnecessary risk. The management team is uniquely qualified to identify these opportunities and has
the experience necessary to avoid the pitfalls that have plagued the mortgage REITs in the past (over-
levering and taking on riskier, higher-yielding investments when spreads begin to contract).
Apollo Sponsorship/Sourcing Capabilities
Apollo benefits from its relationship with sponsor Apollo Global Management, a well-regarded asset
manager that has a large network of connections in the real estate investing and financing
communities. Founded in 1990, Apollo Global Management, LLC, is a leading global alternative asset
manager with a track record of successful private equity and credit-oriented capital markets investing
with assets under management of approximately $38.3 billion and 389 employees, including 131
investment professionals, as of June 30, 2009. One of Apollo Commercial Real Estate’s strengths will be
2 International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863
its ability to originate whole loans as opposed to acquiring existing loans, and we believe Apollo Global
Management’s wide range of contacts in the commercial real estate sector will provide Apollo
Commercial Real Estate with a valuable source of deal flow and real estate market intelligence,
differentiating the company from other mortgage REITs.
No Legacy Portfolio
Apollo is a new mortgage REIT that does not have an existing pool of troubled assets. Many of the
existing commercial mortgage REITs have been hampered by nonperforming loans in this difficult
economic environment. Additionally, the steep drop in commercial real estate prices means a large
number of loans held by older mortgage REITs are now underwater (the value of the loan now exceeds
the value of the property). The new generation of mortgage REITs such as Apollo is not saddled by any
problem loans. In addition, the more conservative underwriting methodologies that have arisen as a
result of the fallout in the commercial real estate sector (as well as recession-adjusted property values)
will only strengthen the underlying quality of Apollo’s loan portfolio.
Dividend Yield
We expect Apollo to pay an annualized $1.66 per share dividend after the initial offering is fully
invested. This implies an attractive yield of 9.4% based on the December 7, 2009 stock price, and
compares favorably to the 3.8% average yield for the NAREIT Equity REIT Index. Initially, Apollo will pay a
“stub” dividend, as we are projecting EPS of $(0.01) in 4Q09. However, in the first half of 2010, Apollo will
announce a more normalized dividend going forward as the company will have greater clarity on its
projected cash flows for the year. We are basing our dividend assumption on our 2010 EPS estimate of
$1.66, resulting in a 100% payout ratio. For the full-year 2011, we believe the company will pay an
annualized rate of $1.80, which equates to a payout ratio of 93%, an 8.4% growth rate over the 2010 pay
rate. Our projected dividend in 2011 is based on an EPS estimate of $1.93.
Attractive Valuation
Shares of Apollo trade at ~1.0x book value (4% discount). This compares to Apollo’s peer group of new
commercial mortgage REITs that trade at 1.0x book value and a peer group of residential mortgage REITs
that trade at 1.2x book value. We are also projecting a total dividend payment of $1.66 per share in 2010,
which implies an attractive dividend yield of 9.4%.
Investment Risks
Competition
Apollo may face diminishing returns as banks and other financial institutions re-enter the market over
the next several years. The disarray in the financial industry over the past couple of years has trimmed
the field of lenders in the commercial real estate sector. Apollo plans to capitalize on the lack of debt
financing availability by originating whole loans and investing in commercial real estate debt investments.
However, Apollo faces competition from well-capitalized institutions such as insurance companies,
pension funds, and other opportunity funds. One factor that may work to Apollo’s advantage is the size of
the loans the company plans to originate, which should be in the $25-50 million range. Insurance
companies and pension funds typically deal in larger loans (typically $75 million or higher), placing
Apollo’s target loans below the investment threshold for most of these institutions.
Apollo also faces competition from other mortgage REITs, as three new commercial mortgage REITs have
gone public in recent months – Starwood Property Trust (STWD), Colony Financial (CLNY), and CreXus
Investment Corp. (CXS). Each new mortgage REIT employs a different investment strategy (with varying
risk tolerances), and in aggregate the companies raised ~$1.5 billion ($3 billion with 50% leverage). There
will naturally be a certain amount of overlap in the assets these companies target, but the total ~$1.5
billion is a minimal amount of capital given $1.4 trillion of commercial real estate debt maturities over the
next five years. It also appears the wave of mortgage REIT IPOs has ended for the time being, but if the
opportunity in the sector persists we may see new competitors emerge.
The banking sector is in the process of deleveraging, limiting the supply of capital from what has been a
traditional source of debt financing for commercial real estate. A large number of commercial real estate
loans are held by banks – roughly $800 billion maturing through 2014, according to research firm
Foresight Analytics – with two-thirds estimated to be underwater. However, many of these properties
still generate sufficient cash flow to cover the debt payments, and some banks have decided to extend
these maturing loans. This practice may reduce the opportunity set for Apollo, though given the
magnitude of the commercial real estate capital requirements over the next few years, we believe Apollo
will still have ample opportunities. As the economic recovery unfolds and the banking sector
recapitalizes, we expect increased competition will lead to a contraction in spreads. Nevertheless, we
believe the window for Apollo to reap above-average risk-adjusted returns will persist for at least the next
12-24 months.
Compressing Investment Spreads; Interest Rate Risk
Mortgage REITs earn the spread between the yield of their investment portfolio and the cost of capital,
and to the extent lending spreads compress, the company’s earnings growth may be affected. In the
current environment, Apollo believes it can generate an unleveraged, blended 11-12% return on its debt
investments. However, we expect these yields to decline as the credit markets improve over time, placing
future earnings growth at risk. In the past, compressing spreads have led some mortgage REITs to take on
higher leverage or take on riskier, higher-yield loans in order to boost returns, increasing their risk profile.
In real estate downcycles, when cash flows diminish and property values plunge, this has proven
disastrous for the mortgage REIT sector. Falling into this “yield trap” or employing higher leverage to
amplify returns remains our largest concern in regards to the long-term viability of mortgage REITs in
general. In Apollo’s case, we believe the company’s stringent, credit-oriented approach and highly
experienced management team should help mitigate this risk.
Additionally, we believe Apollo's share price is susceptible to interest rate swings as investors compare
mortgage REIT dividend yields to alternative fixed income or yield-related investments. Much like a bond,
a rising interest rate environment may place downward pressure on the stock price (and vice versa).
Interest rate movement will also cause fluctuations in Apollo’s earnings stream, as the company is
expected to finance some of its debt investments with a floating rate credit facility. This introduces
refinancing risk as the company uses short-term financing for longer-term debt investments.
Blind Pool
Apollo does not own any assets at the moment. Although Apollo has outlined its target assets and
allocations, the company has yet to announce any investments to date. We also cannot analyze the credit
risk of the company’s loans/debt investments until the portfolio has been established. In the meantime,
investors are essentially placing their faith in the management team to identify opportunities that provide
a favorable risk/reward profile and their ability to invest the cash proceeds from the IPO in a relatively
short period of time. If the company is slow to invest the IPO proceeds or falls short of its target return on
investments (expected at 11-12%), our estimates may be at risk.
Conflicts of Interest
Apollo Commercial Real Estate Finance may engage in transactions with sponsor Apollo Global
Management or its affiliates that may conflict with the best interests of shareholders. Apollo Global
Management beneficially owns roughly 4.6% of Apollo Commercial Real Estate Finance’s outstanding
common stock. Additionally, the company is externally managed by members of the Apollo Global
Management organization. Any transactions between Apollo Commercial Real Estate Finance and Apollo
Global Management may result in less favorable terms for the company than if the agreement had been
negotiated at arm’s length. In order to mitigate this risk, all transactions with Apollo Global Management
require approval by a majority of the company’s independent directors.
As an asset manager, Apollo Global Management controls multiple investment funds, potentially creating
a conflict of interest if Apollo Commercial Real Estate Finance’s target assets overlap with the suitability
for another Apollo Global Management-sponsored vehicle. Currently, no other Apollo Global
Management vehicle focuses on Apollo Commercial Real Estate Finance’s target assets as part of its core
investment strategy and Apollo Global Management has agreed it will not sponsor or manage any U.S.
publicly traded REIT that invests primarily in Apollo Commercial Real Estate Finance’s target asset classes.
However, Apollo Global Management may sponsor another U.S. publicly traded REIT that invests
generally in real estate assets but not primarily in Apollo Commercial Real Estate Finance’s target assets,
while other Apollo Global Management sponsored entities may also invest in Apollo Commercial Real
Estate Finance’s target asset classes from time to time as part of their larger business strategies.
Capital Markets Risk
Mortgage REITs, such as Apollo, are dependent on access to the capital markets for growth. If the
ability to execute deals involving the issuance of debt or equity securities becomes impaired, the end
result could be minimal or no growth for the company. The loss of capital market access could be caused
by a level of financial leverage that is too high, increased loan loss risk, or any other factor that might be
seen to significantly impede REIT operations.
Government Restrictions
Apollo’s yield and investment timeline may be affected by the company’s inability to participate in the
TALF program. Starwood Property Trust Inc. (STWD), a commercial mortgage REIT and a peer to Apollo
Commercial Real Estate, was asked by the New York Fed to not participate in the most recent CMBS
offering (Developers Diversified Realty – DDR) due to fears that international shareholders (of any public
company) may benefit from TALF financing. On Starwood Property Trust’s 3Q09 conference call, CEO
Barry Sternlicht told investors the company was working with other “compatriots in the space” to address
the issue with the Fed and believes the Fed will publish updated regulations in the next 30 days (from
11/16/09). While TALF-financed CMBS issues are not a main focus of Apollo, the inability to participate in
the programs could negatively affect the company’s yield projection or investment timeline.
Dividend Risk
Apollo intends to pay out ~100% of taxable income. After the company invests all of its cash proceeds
and then invests its borrowed proceeds, we expect the company to raise additional equity if it continues
to see investment opportunities. Additional equity raises could result in a temporary dividend cut as the
company intends to pay out 100% of its taxable income (more shares mean a lower dividend). We would
expect the company to increase the dividend as it invests the proceeds of any additional equity raises.
Investment Overview
Apollo is focused primarily on originating, investing in, acquiring, and managing senior performing
commercial real estate mortgage loans, commercial mortgage-backed securities, commercial real estate
corporate debt and loans, and other commercial real estate-related debt investments in the U.S. The
following is a description of the company’s target assets.
Whole Loans
Whole mortgage loans are performing loans secured by a first mortgage lien on a commercial property.
We believe Apollo will seek to originate whole loans in the $25-50 million range. Apollo may retain the
entire loan, or may structure the loan in a manner that allows the company to sell the lower-yielding
portions of the loan while retaining the higher-yielding subordinate investment. The company may also
seek to enhance the returns of all or a senior portion of its commercial mortgage loans through
securitizations, assuming the CMBS market recovers. Apollo will not pursue loans that are non-
performing or distressed at the time of purchase.
Commercial Mortgage-Backed Securities (CMBS)
CMBS are collateralized by commercial mortgage loans. Apollo will generally target “investment grade”
CMBS, which are defined as securities rated Aaa/AAA through Baa3/BBB by the nationally recognized
rating agencies. The company will focus on “newly issued CMBS” (issued on or after September 1, 2009),
as well as “legacy CMBS” (issued prior to January 1, 2009) with an emphasis on tranches that have
retained the highest credit rating (Aaa/AAA) based on the current underwriting criteria of the nationally
recognized rating agencies. The company does not plan to invest in “non-investment grade” CMBS at this
time. Apollo intends to utilize TALF financing on its investment in some CMBS issues (which can be
levered up to 85%).
Non-Core Assets
The company may also opportunistically invest in the following non-core asset classes.
Commercial Real Estate Corporate Debt
Commercial real estate corporate debt (including REITs) may be in the form of a term loan or a revolving
credit facility, generally secured by the company’s assets. Apollo may choose to acquire above or below
investment-grade corporate bonds that may or may not be secured by any assets. Other securities which
meet the company’s investment guidelines include REIT convertible bonds.
B Notes
“B Note” is a moniker for the junior or subordinated interest in a commercial real estate loan secured by a
first mortgage on a single large commercial property or a group of related properties (while the senior
interest is referred to as an “A Note”).
Mezzanine Loans
Mezzanine loans are secured by pledges of the borrower’s ownership interests in the property. These
loans are subordinate to whole mortgage loans (secured by first or second mortgage liens) but senior to
the borrower’s equity in the property.
Miscellaneous Assets
The company may invest in other mortgage assets, if necessary, to maintain its REIT status and/or its
exemption from registering as an investment company under the 1940 Act.
Capital Allocation
The company plans to leverage the management team’s extensive industry relationships to originate most
of the loans in its portfolio, thus whole loans are expected to comprise a large percentage of the portfolio
at 30-50%. Newly issued CMBS is expected to comprise 20-40% of the portfolio, while legacy CMBS will be
in the 0-20% range. The non-core assets (expected at 10-30%) will most likely be predominantly
comprised of newly originated B notes and mezzanine loans. Apollo plans to fully invest the proceeds
from the IPO by the end of 1Q10, a goal we believe is attainable. The following table depicts the asset
class return and allocation expectations.
Investment Type Projected Allocation Return on Equity

Whole Loans 40% 7.5-9%
Newly Issued CMBS 20% 12-14%
Legacy CMBS 20% 15%
B Notes/Mezz 20% 12-14%
Source: Company filings, Raymond James.
Industry Overview
In the wake of the turmoil in the financial sector over the past couple years, the availability of debt
financing for commercial real estate has been greatly diminished as many traditional financial institutions
are in the process of delevering along with the lack the funds or inclination to lend in the current
environment. The CMBS markets, another source of financing, remain muted (though showing some
signs of life), therefore expanding the supply-demand imbalance for debt financing in the commercial real
estate sector. The expected capital void over the next few years should provide opportunities for
companies such as Apollo to generate above-average risk-adjusted returns in commercial real estate debt
investments.
The total value of institutional quality U.S. commercial real estate is approximately $4.8 trillion, which is
supported by approximately $3.6 trillion of debt (75% loan-to-value). Over the next five years, roughly
$1.4 trillion (or 40% of the outstanding debt) is scheduled to mature. The following charts illustrate the
composition of the commercial real estate market.
Source: Urban Land Institute’s Emerging Trends in Real Estate,

Raymond James.
Source: Urban Land Institute’s Emerging Trends in Real Estate,

Raymond James.
Commercial Real Estate Debt Maturities ($ in billions)

Total
CMBS
$400.0
Fixed $193
Floating 46
$350.0 $338.0 $331.0 Insurance 111
$296.0 Bank/Thrift 1,066
$300.0 Total $1,416
$247.0
$250.0
($ in billions)
$204.0
$200.0
$150.0
$100.0
$50.0
$0.0
2009 2010 2011 2012 2013
CMBS - Fixed Rate CMBS - Floating Rate Insurance Company Bank/Thrift
Source: Mortgage Bankers Association, Federal Reserve, Raymond James.
Many of these loans face refinancing challenges, as the underwriting standards of the past few years have
proven aggressive in hindsight. That, combined with one of the worst recessions in U.S. history, has
resulted in diminishing cash flows and/or large property value declines for many commercial real estate
properties. The subsequent rise in loan delinquencies and defaults has been a large contributor to the
dearth in capital availability in commercial real estate, as many banks remain saddled by portfolios of
troublesome assets (on both the commercial and residential side). About two-thirds of the $800 billion in
commercial real estate loans held by banks that mature between now and 2014 are underwater (the loan
value exceeds the property value), according to research firm Foresight Analytics. A large number of
these loans are held in small and regional banks, essentially removing some of the competition for the
$25-50 million commercial real estate loans that Apollo intends to originate.
However, the U.S. government is doing everything in its power to stabilize the banking sector and restore
liquidity to the corporate lending market. This may help shrink the debt capital void in the commercial
real estate market over time, though we believe this will be a multiyear process. Newly issued guidelines
allow banks to reclassify nonperforming loans (subdividing them into performing and nonperforming
segments) to ease the bank’s capital requirements, which should help some banks avoid failure. In the
event that a commercial property is underwater but generates enough cash to cover the debt service
requirements, the bank may seek to extend the loan when it matures in order to avoid recognizing a loss.
This may shrink the pool of commercial mortgage loans that require refinancing in the near term, but it
may also discourage banks from lending while troubled loans remain on their books.
As the credit crunch took hold in 2008, debt financing became much more expensive, pushing cap rates
higher. Concurrently, the difficult macroeconomic landscape placed downward pressure on income
growth (lower occupancy and rental rates), exacerbating the situation and ultimately driving substantial
price declines across the commercial real estate sector.
CMBS Spreads over 10 Yr Treasury

6000
5000
Basis Points
4000
3000
2000
1000
0
Oct-07
Oct-08
Oct-09
Jun-07
Jun-08
Jun-09
Aug-07
Dec-07
Aug-08
Dec-08
Aug-09
Apr-08
Apr-09
Feb-08
Feb-09
AAA AA A
Note: AAA Super Senior Tranche depicted above.

Source: Bloomberg and Raymond James (through December 4, 2009).
CMBS Spreads over 10 Yr Treasury

12000
10000
Basis Points 8000
6000
4000
2000
0
Dec-07
Dec-08
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Feb-08
Feb-09
Jun-07
Jun-08
Jun-09
Aug-07
Aug-08
Aug-09
BBB BBB-
Source: Bloomberg and Raymond James (through December 4, 2009).
The Federal Reserve hopes to resurrect the CMBS market through the Term Asset-Backed Securities Loan
Facility (TALF) program, which provides non-recourse loans to investors of AAA-rated CMBS. Although we
have seen some encouraging signs in recent months [such as Developers Diversified Realty Corp (DDR)
offering the first TALF-eligible CMBS], it still remains to be seen whether the TALF program will ultimately
succeed in its goal. However, in the DDR deal, only 20% of the buyers planned to use TALF financing,
signaling a renewed appetite for CMBS. In the near- to intermediate-term, there is no obvious refinancing
source for the roughly $240 billion of CMBS that mature over the next five years.
Given this backdrop, we believe there is a multiyear window of opportunity to generate above-average
returns investing in commercial real estate debt, though we expect spreads to narrow over time as
traditional lenders re-enter the market and the credit market reverts to historical norms.
Management Structure and Overview

Apollo is externally managed and advised by ACREFI Management, LLC (“the Manager”), a recently
formed indirect subsidiary of Apollo Global Management. The Manager will be responsible for the
selection, purchase, and sale of the company’s assets, the sourcing of financing, and will also provide the
company with advisory services. The Manager will handle the day-to-day operations of the company and
provide support staff as Apollo will not have any employees. However, the Manager will be under the
supervision and oversight of the board of directors.
The Manager will not receive an incentive fee, but will receive a base management fee equal to 1.5% per
year of Apollo’s stockholders’ equity, calculated and payable quarterly in arrears. In the event the
management agreement is terminated without cause (requires a two-thirds vote by the independent
directors), the termination fee will be equal to 3x the average annual base management fee earned by the
Manager during the prior 24-month period immediately preceding the termination date. The following
table compares Apollo’s compensation structure to that of the other new commercial mortgage REITs.
Company Management Fee (% of equity) Incentive Fee Overhead/G&A
Apollo Commercial Real Estate Finance, Inc. 1.5% None 1% of equity
Colony Financial, Inc. 1.5% 20% above an 8% hurdle
0.5% in the first year, 1.0% in the

CreXus Investment Corp. None
following six months, 1.5% thereafter
20% above an 8% hurdle
Starwood Property Trust, Inc. 1.5% 1% of equity
(50% paid in shares)
Source: Company filings.
The board of directors has granted 257,500 restricted common shares (~2.4% of the outstanding common
shares) to the company’s officers, the Manager’s personnel, and the independent directors under the
company’s 2009 equity incentive plan, which is intended to align shareholder interests with management.
The shares will vest over a three-year period.
Joseph F. Azrack
President, CEO, and Head of Investment Committee
Mr. Azrack is the president and chief executive officer of the company, as well as a director. He is also the
president and chief executive officer of the Manager and the head of the Manager’s investment
committee. Mr. Azrack is the managing partner of Apollo Global Real Estate Management, L.P., a position
he has held since August 2008. Mr. Azrack has 30 years of real estate investment management
experience. Prior to joining Apollo, from 2004 to 2008, Mr. Azrack was president and chief executive
officer of Citi Property Investors where he chaired the firm’s management and investment committees,
directing investment policy and strategy. From 1996 to 2003, he was chief executive officer and chairman
of AEW Capital Management, L.P., founder and president of the AEW Partners Funds (1988 to 2003), a
director of Curzon Global Partners (1998 to 2003), and founder and chairman of IXIS AEW Europe (2001 to
2003). Mr. Azrack served with AEW from 1983 to 2003. Mr. Azrack graduated from Columbia University
with an MBA and from Villanova University with a BS.
Scott Weiner
Vice President, Chief Investment Officer, and Investment Committee member
Mr. Weiner is a vice president and the chief investment officer of the Manager and is a member of the
Manager’s investment committee. Mr. Weiner joined Apollo in 2009 from Barclays Capital where he was
in charge of the U.S. Commercial Real Estate Large Loan and Structured Loan business from 2005 to 2009
(managing director from 2006 to 2009 and director from July 2005 to January 2006). From 1996 until
2005, he held various positions at Lehman Brothers, including senior vice president (December 2003 to
July 2005) in the commercial real estate finance area where he specialized in structured first mortgage
and mezzanine investments. Mr. Weiner graduated from Johns Hopkins University with a BA in
international studies.
Stuart A. Rothstein
Chief Financial Officer, Treasurer, Secretary, and Investment Committee member
Mr. Rothstein is the company’s chief financial officer, secretary, and treasurer. He is also the chief
financial officer, secretary, and treasurer of the Manager, in addition to being a member of the Manager’s
investment committee. Mr. Rothstein was previously co-managing partner of Four Corners Properties, a
real estate investment company that acquired over $200 million of real estate in Silicon Valley. Prior to
Four Corners Properties, Mr. Rothstein served as a director of KKR Financial Advisors LLC from January
2005 to March 2006, overseeing all investments in commercial real estate. Mr. Rothstein also served as
acting chief financial officer of KKR Financial Holdings LLC through May 2005. From 2002 to 2004, Mr.
Rothstein was an executive vice president and chief financial officer of the Related Capital Company, also
serving as chief financial officer for three publicly traded operating companies, CharterMac, American
Mortgage Acceptance Company, and Aegis Realty. Mr. Rothstein graduated from Stanford University with
an MBA and Pennsylvania State University with a BS in accounting.
Eric Press
Vice President and Investment Committee member
Mr. Press is a vice president of the Manager and a member of the Manager’s investment committee. He
is also a director of the company. Mr. Press has been a partner of Apollo Private Equity since November
2008. Mr. Press joined Apollo in 1998. From 1992 to 1998, Mr. Press was associated with the law firm of
Wachtell, Lipton, Rosen & Katz, specializing in mergers, acquisitions, restructurings, and related financing
transactions. From 1987 to 1989, Mr. Press was a consultant with The Boston Consulting Group, a
management consulting firm focused on corporate strategy. Mr. Press graduated magna cum laude from
Harvard College with an AB in Economics and from Yale Law School, where he was a senior editor of the
Yale Law Review.
Marc Rowan
Mr. Rowan is a vice president of the Manager and is a member of the Manager’s investment committee.
Mr. Rowan has been a senior managing director and director of Apollo Global Management, LLC since July
2007 and a managing partner of Apollo since October 1990. Mr. Rowan co-founded Apollo Management
in 1990. Prior to joining Apollo, from 1985 to 1990, Mr. Rowan was a member of the mergers &
acquisitions group of Drexel Burnham Lambert, Incorporated, with responsibilities in high yield financing,
transaction idea generation, and merger structure negotiation. Mr. Rowan graduated summa cum laude
from The University of Pennsylvania’s Wharton School of Business with a BS and an MBA in Finance.
Henry R. Silverman
Mr. Silverman is the chairman of the board of directors. He is also a vice president of the Manager and a
member of the Manager’s investment committee. Mr. Silverman is the chief operating officer of Apollo
Global Management, LLC and joined Apollo in 2009. From November 2007 until February 2009,
Mr. Silverman served as a consultant for Apollo. From July 2006 until November 2007, Mr. Silverman
served as chairman of the board and chief executive officer of Realogy Corporation, formerly Cendant’s
real estate division. Mr. Silverman was chief executive officer of Cendant Corporation from December
1997 until the completion of Cendant’s separation plan in August 2006, as well as chairman of the board
of directors from July 1998 until August 2006. Mr. Silverman served as president of Cendant from
December 1997 until October 2004. Mr. Silverman continues to serve as a director and chairman of the
board of Realogy Corporation, a position he has held since July 2006. Mr. Silverman graduated from
Williams College in 1961 and the University of Pennsylvania Law School in 1964.
James Zelter
Mr. Zelter is a vice president of the Manager and is a member of the Manager’s investment committee.
Mr. Zelter is the managing partner of Apollo’s capital markets business. Mr. Zelter joined Apollo in 2006.
Prior to joining Apollo, Mr. Zelter was with Citigroup and its predecessor companies from 1994 to 2006.
Most recently, as the managing director and global head of the Special Situations Investment Group, he
was responsible for the global expansion and strong financial performance of the Special Situations
Investment Group, a proprietary investment group he founded within Citigroup’s Fixed Income division.
From 2003 to 2006, while with Citigroup, Mr. Zelter also served on the Global Fixed Income Management
Committee and the Fixed Income Division Planning Committee. From 2003 to 2005, Mr. Zelter was chief
investment officer of Citigroup Alternative Investments, and prior to that, from 1997 to 2003, he was
responsible for the firm’s Global High Yield franchise. Mr. Zelter graduated from Duke University with a
degree in economics.
Corporate Governance, Board of Directors
Apollo’s Board of Directors consists of seven members, four of which are independent. The members of
the management team on the board include President and CEO Joseph F. Azrack, Vice President and
Investment Committee member and Chairman of the Board Henry R. Silverman, and Vice President and
Investment Committee member Eric Press. All positions on the board are up for election at the annual
meeting of shareholders.
The independent directors will receive $75,000 per year, paid in 50% cash and 50% restricted stock which
vests over three years. Additionally, each independent director received 5,000 shares of restricted
common stock upon completion of the IPO.
The board has a traditional structure comprised of three committees: audit, compensation, and
nominating and corporate governance. All are comprised solely of independent members of the board.
Outlook: 2009, 2010, and 2011

We are currently modeling EPS of $(0.02) in 2009, $1.66 in 2010, and $1.93 in 2011. Our 2011 EPS
estimate represents 16% growth over 2010. In our model, we assume the company maintains roughly 30-
35% leverage (excluding TALF financing) and returns to the equity markets at the midpoint of 2010 and
three months into 2011, issuing 7.5 million shares each time. Our model also includes a management fee
of 1.5% of shareholders’ equity and general REIT expenses of 1% of shareholders’ equity, per
management guidance.
Earnings Model
($ in thousands except per share data)
3Q09A 4Q09E 2009E 1Q10E 2Q10E 3Q10E 4Q10E 2010E 2011E
Net Investments - 63,000 63,000 210,000 300,000 365,000 430,000 430,000 690,000
Net Investment Income 1 1,523 1,524 4,375 6,812 9,965 11,003 32,154 58,368
Net Income (91) (88) (179) 2,764 5,201 7,533 8,570 24,068 46,049
Average Common Shares Outstanding (Diluted) 10,500 10,500 10,500 10,758 10,758 18,258 18,258 14,508 23,883
Net Income/Share (fully diluted) $ (0.01) $ (0.01) $ (0.02) $ 0.26 $ 0.48 $ 0.41 $ 0.47 $ 1.66 $ 1.93
Source: Company documents and Raymond James estimates.
Balance Sheet and Capital Structure

The company raised $208 million of net proceeds at $20 per share, and now has ~10.8 shares outstanding.
Apollo currently has no debt but has targeted a leverage ratio of 35% of debt-to-total assets (excluding
TALF-sponsored CMBS financing), which is conservative in our opinion. Overall company leverage will
appear higher, as Apollo may use up to 85% leverage for CMBS where non-recourse financing is available
through the TALF program.
We expect Apollo to close on a new credit facility in the near future, and for modeling purposes we are
assuming an interest rate of LIBOR plus 300 bp with no LIBOR floor. As previously mentioned, we are also
assuming equity raises at the beginning of 3Q10 and 2Q11 (7.5 million shares each) as the company
continues to grow its asset base. Apollo is also responsible for the repayment of a deferred underwriting fee
associated with the IPO totaling $10 million, which is triggered when the company’s return on equity
exceeds an 8% hurdle rate for four consecutive quarters. We believe this will occur in the first quarter of
2011.
Consolidated Balance Sheet

(dollars in thousands)
Assets 9/30/2009
Cash and cash equivalents 210,001

Accrued interest receivable 1
Total Assets 210,002
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses 75

Other liabilities 1,879
Due to affiliate 138
Deferred underwriting fee 10,000
Total Liabilities 12,092
Common stock 107

Additional paid-in-capital 197,894
Accumulated deficit (91)
Total Stockholders' Equity 197,910
Total Liabilities & Stockholders' Equity 210,002
Source: Company 10-Q filing.
Valuation
We employ several methods in valuing mortgage REITs, including book value analysis and peer group
comparison, which includes dividend yield and multiple analysis. We believe that book value is the best
valuation yardstick for mortgage REITs over the long term. However, as Apollo’s book value is currently
comprised solely of cash, we believe dividend yield comparison (based on our estimated dividend) is the
most appropriate valuation metric at the moment.
Book Value
Apollo currently trades at ~1.0x its book value (4% discount) of $18.40 per share. This compares to a peer
group of new commercial mortgage REITs that trade at 1.0x book value. However, as Apollo begins to
invest the proceeds from its IPO, we expect the stock to trade at a premium to book value similar to the
peer group of residential mortgage REITs that trade at 1.2x book value.
Commercial Mortgage REIT Comparable Company Analysis

as of 12/07/09
(amounts in millions except per share data)
Price Market Book Price/

Ticker Company Name 12/07/09 Value Value (1) BV (1)
New Commercial Mortgage REITs

CLNY Colony Financial, Inc. 19.31 $ 283 $ 18.81 1.0x
CXS CreXus Investment Corp. 13.42 $ 243 $ 14.18 0.9x
STWD Starwood Property Trust, Inc. 19.38 $ 922 $ 18.65 1.0x
Mean $ 87 1.0x
Median $ 283 1.0x
Residential Mortgage REITs

AGNC American Capital Agency Corp. 26.53 $ 645 $ 22.23 1.2x
NLY Annaly Capital Management, Inc. 18.45 $ 10,199 $ 16.52 1.1x
CIM Chimera Investment Corporation 3.96 $ 2,654 $ 3.27 1.2x
HTS Hatteras Financial Corp. 29.55 $ 1,070 $ 26.07 1.1x
RWT Redwood Trust, Inc. 14.47 $ 1,124 $ 11.68 1.2x
Mean $ 3,138 1.2x
Median $ 1,124 1.2x
ARI Apollo Commercial Real Estate Finance, Inc. 17.66 $ 190 18.40 1.0x
(1) EPS and book value are consensus Street estimates per SNL Financial as of 12/07/09, unless
otherwise noted.
Source: Thomson Reuters, SNL Financial, Raymond James estimates.
Multiple Comparison
On a multiple basis, shares of Apollo trade at a premium to the peer group of new commercial mortgage
REITs. Our EPS estimates in 2010 and 2011 are $1.66 and $1.93, respectively. ARI shares are trading at
10.6x our 2010 EPS estimate and 9.2x our 2011 EPS estimate. This represents premiums of 11% and 5% in
2010 and 2011 over the peer group, respectively, which carry an average EPS multiple of 9.6x and 8.8x in
those years. However, given that Apollo and its peers have no track record to date (all are still primarily
comprised of cash) and their relative earnings potential is hypothetical at this point, we believe peer
multiple valuation is less relevant for the time being and should be taken with a grain of salt. With that
said, once Apollo and its peers have established their initial investment portfolios, we would not be
surprised to see shares of ARI trade at a premium to the peer group on a multiple basis, given Apollo’s
high credit quality focus and more predictable cash flows.
Commercial Mortgage REIT Comparable Company Analysis

as of 12/07/09
(amounts in millions except per share data)
EPS
Price Market EPS Growth EPS Mutliple (1)
Ticker Company Name 12/07/09 Value 2009E 2010E 2011E 2011E 2010E 2011E
New Commercial Mortgage REITs

CLNY Colony Financial, Inc. 19.31 $ 283 $ 0.06 $ 2.23 $ 2.14 -4.0% 8.7x 9.0x
CXS CreXus Investment Corp. 13.42 $ 243 $ 0.08 $ 1.41 $ 1.66 17.7% 9.5x 8.1x
STWD Starwood Property Trust, Inc. 19.38 $ 922 $ 0.03 $ 1.81 $ 2.11 16.6% 10.7x 9.2x
Mean $ 87 10.1% 9.6x 8.8x
Median $ 283 9.5x 9.0x
Residential Mortgage REITs

AGNC American Capital Agency Corp. 26.53 $ 645 $ 6.10 $ 4.95 $ 4.33 -12.5% 5.4x 6.1x
NLY Annaly Capital Management, Inc. 18.45 $ 10,199 $ 2.72 $ 3.00 $ 2.73 -9.0% 6.2x 6.8x
CIM Chimera Investment Corporation 3.96 $ 2,654 $ 0.46 $ 0.62 NA NA 6.4x NA
HTS Hatteras Financial Corp. 29.55 $ 1,070 $ 4.82 $ 4.99 $ 4.90 -1.8% 5.9x 6.0x
RWT Redwood Trust, Inc. 14.47 $ 1,124 $ 0.30 $ 1.72 NA NA 8.4x NA
Mean $ 3,138 -7.8% 6.4x 6.3x
Median $ 1,124 6.2x 6.1x
ARI Apollo Commercial Real Estate Finance, Inc. 17.66 $ 190 $ (0.02) $ 1.66 $ 1.93 16.2% 10.6x 9.2x
(1) EPS and book value are consensus Street estimates per SNL Financial as of 12/07/09, unless otherwise noted.
Source: Thomson Reuters, SNL Financial, Raymond James estimates.
Dividend Yield
Apollo has yet to announce a dividend and will likely initially pay a “stub” dividend in late 2009 or early
2010 as the company ramps up its investment portfolio. Once Apollo has fully invested the proceeds from
its public offering, we expect the company will pay a normalized annual dividend of $1.66 per share,
which equates to a dividend payout ratio of 100% and implies a dividend yield of 9.4% based on ARI’s
stock price as of December 7, 2009. This compares favorably to the 3.8% average dividend yield of the
NAREIT Equity REIT Index.
REITs are required to pay out a dividend of at least 90% of taxable income, and in Apollo’s case, taxable
income and net income should be one and the same (as the company does not own real estate and
therefore records no depreciation expense). Thus, we arrive at a dividend range of $1.49-1.66 per share
(payout ratio of 90-100% of taxable income) based on our 2010 EPS estimate of $1.66. In 2011, we are
projecting a dividend range of $1.74-1.93 per share based on our 2011 EPS estimate of $1.93. For the full-
year 2011, we believe the company will pay an annualized rate of $1.80, which equates to a payout ratio
of 93%, an 8.4% growth rate over the 2010 pay rate.
Conclusion
We are initiating coverage of ARI shares with an Outperform rating and a $20 price target. Our price
target is based on the stock trading at 1.1x book value of $18.40, as we believe Apollo will trade at or
above book value as the market gets more comfortable with their investment program, similar to the
valuation of more established residential mortgage REITs (trade at 1.2x book value). Given the large void
of capital in the commercial real estate market, we believe Apollo has the infrastructure and experienced
management team to take advantage of opportunities. Apollo’s more conservative investment profile
(only performing loans) and conservative leverage (~35%) will provide ARI shareholders with a very
attractive yield on a risk/return basis.
Public companies mentioned in this Document.

Recent RJ Rating RJ Rating
Company Name Ticker Exchange Closing Price (if Applicable) Organization
American Capital Agency Corp. AGNC NASDAQ 26.53
Annaly Capital Management Inc. NLY NYSE 18.45
Chimera Investment CIM NYSE 3.96
Colony Financial Inc. CLNY NYSE 19.31
CreXus Investment Corp. CXS NYSE 13.42
Hatteras Financial Corp. HTS NYSE 29.55
Redwood Trust Inc. RWT NYSE 14.47
Starwood Property Trust Inc. STWD NYSE 19.38
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for
rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states.
Income Statement
EPS: $ (0.01) $ (0.01) $ (0.02) $ 0.26 $ 0.48 $ 0.41 $ 0.47 $ 1.66 $ 1.93
Apollo Commercial Real Estate Finance, Inc.
EARNINGS MODEL
($ in thousands unless indicated)
3Q09A 4Q09E 2009E 1Q10E 2Q10E 3Q10E 4Q10E 2010E 2011E
Net Investments 0 63,000 63,000 210,000 300,000 365,000 430,000 430,000 690,000
Revenues
Interest Income 1 1,523 1,524 4,375 7,223 10,166 11,873 33,637 64,553
Expenses
Interest Expense - - - - 411 201 870 1,482 6,185
Management Fees - 717 717 717 717 1,204 1,204 3,842 6,347
REIT Expenses 92 893 985 893 893 1,229 1,229 4,244 5,972
Total Expenses 92 1,611 1,703 1,611 2,022 2,634 3,302 9,568 18,504
Net Income (91) (88) (179) 2,764 5,201 7,533 8,570 24,068 46,049
Net Investment Income 1 1,523 1,524 4,375 6,812 9,965 11,003 32,154 58,368
EBITDA (91) (88) (179) 2,764 5,612 7,734 9,440 25,551 52,234
Interest Coverage Ratio NA NA NA NA 13.7x 38.4x 10.9x 17.2x 8.4x
Average Common Shares and Units Outstanding (Diluted) 10,500 10,500 10,500 10,758 10,758 18,258 18,258 14,508 23,883
Net Income/Share $ (0.01) $ (0.01) $ (0.02) $ 0.26 $ 0.48 $ 0.41 $ 0.47 $ 1.66 $ 1.93
Div/share $ - $ - $ - $ 0.42 $ 0.42 $ 0.42 $ 0.42 $ 1.66 $ 1.80

EPS Payout (fully diluted) 0% 0% 0% 161% 86% 101% 88% 100% 93%
Closing Price, End of Period $ 18.30 $ 18.57 $ 18.57 $ 18.95 $ 19.32 $ 19.71 $ 20.11 $ 20.11 $ 21.34
Equity Market Cap. 196,862 199,815 199,815 203,811 207,888 359,881 367,079 367,079 549,649
Consolidated Debt - - - - 45,046 20,922 85,922 85,922 214,981
Total Capitalization 196,862 199,815 199,815 203,811 252,934 380,803 453,001 453,001 764,630
LT Debt/Total Cap. 0.0% 0.0% 0.0% 0.0% 17.8% 5.5% 19.0% 19.0% 28.1%
LT Debt/Assets 0.0% 0.0% 0.0% 0.0% 17.7% 5.7% 20.0% 20.0% 31.2%
Book Value Per Share $18.40 $18.40 $18.40 $18.40 $18.40 $18.19 $18.19 $18.19 $18.36
Price/Book 1.0x 1.0x 1.0x 1.0x 1.1x 1.1x 1.1x 1.1x 1.2x
Return on Equity 0.0% 3.1% 3.1% 8.8% 13.8% 12.0% 13.3% 12.1% 13.3%
Return on Assets 0.0% 2.9% 2.9% 8.3% 10.7% 10.9% 10.2% 10.2% 9.9%
Important Investor Disclosures

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contrary to law or regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This
research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or
solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment
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The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy
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Analyst Information
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sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or
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The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities.
No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations
or views contained in this research report. In addition, said analyst has not received compensation from any subject
company in the last 12 months.
Ratings and Definitions

Raymond James & Associates (U.S.) definitions
Strong Buy (SB1) Expected to appreciate and produce a total return of at least 15% and outperform the S&P 500 over the next six
months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected
to be realized over the next 12 months.
Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next 12 months. For higher yielding and more
conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the
relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12 months.
Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months and is potentially a source
of funds for more highly rated securities.
Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.
Raymond James Ltd. (Canada) definitions

Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX
Composite Index over the next six months.
Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months.
Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve
months and is potentially a source of funds for more highly rated securities.
Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve
months and should be sold.
Raymond James Latin American rating definitions

Strong Buy (1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months.
Buy (2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months.
Hold (3) Expected to perform in line with the underlying country index.
Underperform (4) Expected to underperform the underlying country index.
Raymond James European Equities rating definitions

Strong Buy (1) Absolute return expected to be at least 10% over the next 12 months and perceived best performer in the sector
universe.
Buy (2) Absolute return expected to be at least 10% over the next 12 months.
Fair Value (3) Stock currently trades around its fair price and should perform in the range of -10% to +10% over the next 12 months.
Sell (4) Expected absolute drop in the share price of more than 10% in next 12 months.
Rating Distributions
Out of approximately 769 rated stocks in the Raymond James coverage universe, 48% have Strong Buy or Outperform ratings (Buy),
44% are rated Market Perform (Hold) and 8% are rated Underperform (Sell). Within those rating categories, 24% of the Strong Buy-
or Outperform (Buy) rated companies either currently are or have been Raymond James Investment Banking clients within the past
three years; 13% of the Market Perform (Hold) rated companies are or have been clients and 14% of the Underperform (Sell) rated
companies are or have been clients.
Suitability Categories (SR)

For stocks rated by Raymond James & Associates only, the following Suitability Categories provide an assessment of potential risk
factors for investors. Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are
assigned only to stocks rated Strong Buy or Outperform.
Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.
Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the
potential for long-term price appreciation.
Aggressive Growth (AG) Medium or higher risk equities of companies in fast growing and competitive industries, with less
predictable earnings and acceptable, but possibly more leveraged balance sheets.
High Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive
issues, higher price volatility (beta), and risk of principal.
Venture Risk (VR) Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk
associated with success, and a substantial risk of principal.
Raymond James Relationship Disclosures

Raymond James expects to receive or intends to seek compensation for investment banking services from the subject
companies in the next three months.
Company Name Disclosure

Apollo Commercial Real Raymond James & Associates co-managed an initial public offering of 10.0 million ARI shares at
Estate Finance, Inc. $20.00 per share in September 2009.
Stock Charts, Target Prices, and Valuation Methodologies

Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative
and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject
to change depending on overall economic conditions or industry- or company-specific occurrences. We employ several methods in
valuing mortgage REITs such as Apollo, including book value analysis and peer group comparison, which includes dividend yield and
multiple analysis.
Risk Factors
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely
impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations
could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management,
financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S.
economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment
prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards,
and possible political and economic instability.
Specific Investment Risks Related to the Industry or Issuer
REITs Industry Risk Factors
Investment Risks
An investment in any REIT involves certain risks particular to the company and to the real estate industry in general. Prospective
investors should carefully consider the appropriateness of the stock and carefully consider the following risk factors and critical
variables before making an investment.
Economic Risk
An extended downturn in the national economy could negatively affect consumers' disposable income and spending patterns, job
growth, travel expenditures, interest rates, and subsequently, the stock price of REITs in any sector. In addition, fluctuations in
certain local or regional markets throughout the country could impact key properties in a REIT's portfolio, which could be located
anywhere in the nation geographically. In a depressed economic environment, access to equity capital may also be restricted or
costly, to the point of becoming impractical. It is important to note that the performance of the real estate industry in general
typically trails that of the national economy.
Interest Rate Risk
The REIT industry has historically been negatively correlated with changes in interest rates. In addition, many REITs are exposed to
variable interest rates, which could lead to increased interest expense during times of rising interest rates and could ultimately
impair net income. Certain parts of a REIT's business may be dependent upon achieving a spread between its cost of financing and
the yield achieved on acquisitions. In an environment with high or rising interest rates, a REIT's ability to attain this spread may be
diminished.
Access to the capital markets is crucial to the growth prospects of any company and REITs are no exception. If the ability to execute
deals involving the issuance of debt or equity securities becomes impaired, the end result could be minimal or no growth for the
companies. The loss of capital market access could be caused by a level of financial leverage through mortgage financing of
properties that is too high, an increased tenant credit risk, or any other factor that might be seen to significantly impede REIT
operations.
Regulatory Risk
The real estate industry is subject to extensive and complex regulations. Although most REITs have fairly limited exposure to
Medicaid and Medicare reimbursement, a material change in reimbursement rates from Medicaid or Medicare could adversely
affect the operators/lessees of healthcare-related REITs and perhaps their ability to pay lease obligations to the REIT. In addition,
the industry is subject to the extensive and changing federal, state, and local regulations governing the protection of the
environment. There is a risk that unforeseen future regulations may adversely affect a company's development schedule, net
income, or competitive position. REITs also enjoy the benefit of tax exemption at the corporate level on certain parts of income; any
regulatory change to this status may make REIT shares relatively less attractive and impact demand for shares.
Tenant Concentration
Any REIT may have significant tenant concentration risk, sometimes deriving material amounts of revenue from a particular tenant.
Any negative change to a high contributor tenant may negatively affect a REIT's revenue, profits, and subsequently, the stock price.
Company-Specific Risks for Apollo Commercial Real Estate Finance, Inc.
Competition
Apollo may face diminishing returns as banks and other financial institutions re-enter the market over the next several years. The
disarray in the financial industry over the past couple of years has trimmed the field of lenders in the commercial real estate sector.
Apollo plans to capitalize on the lack of debt financing availability by originating whole loans and investing in commercial real estate
debt investments. However, Apollo faces competition from well-capitalized institutions such as insurance companies, pension
funds, and other opportunity funds. One factor that may work to Apollo’s advantage is the size of the loans the company plans to
originate, which should be in the $25-50 million range. Insurance companies and pension funds typically deal in larger loans
(typically $75 million or higher), placing Apollo’s target loans below the investment threshold for most of these institutions.
Apollo also faces competition from other mortgage REITs, as three new commercial mortgage REITs have gone public in recent
months – Starwood Property Trust (STWD), Colony Financial (CLNY), and CreXus Investment Corp. (CXS). Each new mortgage REIT
employs a different investment strategy (with varying risk tolerances), and in aggregate the companies raised ~$1.5 billion ($3 billion
with 50% leverage). There will naturally be a certain amount of overlap in the assets these companies target, but the total ~$1.5
billion is a minimal amount of capital given $1.4 trillion of commercial real estate debt maturities over the next five years. It also
appears the wave of mortgage REIT IPOs has ended for the time being, but if the opportunity in the sector persists we may see new
competitors emerge.
The banking sector is in the process of deleveraging, limiting the supply of capital from what has been a traditional source of debt
financing for commercial real estate. A large number of commercial real estate loans are held by banks – roughly $800 billion
maturing through 2014 according to research firm Foresight Analytics – with two-thirds estimated to be underwater. However,
many of these properties still generate sufficient cash flow to cover the debt payments, and some banks have decided to extend
these maturing loans. This practice may reduce the opportunity set for Apollo, though given the magnitude of the commercial real
estate capital requirements over the next few years, we believe Apollo will still have ample opportunities. As the economic recovery
unfolds and the banking sector recapitalizes, we expect increased competition will lead to a contraction in spreads. Nevertheless,
we believe the window for Apollo to reap above-average risk-adjusted returns will persist for at least the next 12-24 months.
Compressing Investment Spreads; Interest Rate Risk

Mortgage REITs earn the spread between the yield of their investment portfolio and the cost of capital, and to the extent lending
spreads compress, the company’s earnings growth may be affected. In the current environment, Apollo believes it can generate an
unleveraged, blended 11-12% return on its debt investments. However, we expect these yields to decline as the credit markets
improve over time, placing future earnings growth at risk. In the past, compressing spreads have led some mortgage REITs to take
on higher leverage or take on riskier, higher yield loans in order to boost returns, increasing their risk profile. In real estate
downcycles, when cash flows diminish and property values plunge, this has proven disastrous for the mortgage REIT sector. Falling
into this “yield trap” or employing higher leverage to amplify returns remains our largest concern in regards to the long-term
viability of mortgage REITs in general. In Apollo’s case, we believe the company’s stringent, credit-oriented approach and highly
experienced management team should help mitigate this risk.
Additionally, we believe Apollo's share price is susceptible to interest rate swings as investors compare mortgage REIT dividend
yields to alternative fixed income or yield-related investments. Much like a bond, a rising interest rate environment may place
downward pressure on the stock price (and vice versa). Interest rate movement will also cause fluctuations in Apollo’s earnings
stream, as the company is expected to finance some of its debt investments with a floating rate credit facility. This introduces
refinancing risk as the company uses short-term financing for longer-term debt investments.
Blind Pool
Apollo does not own any assets at the moment. Although Apollo has outlined its target assets and allocations, the company has yet
to announce any investments to date. We also cannot analyze the credit risk of the company’s loans/debt investments until the
portfolio has been established. In the meantime, investors are essentially placing their faith in the management team to identify
opportunities that provide a favorable risk/reward profile and their ability to invest the cash proceeds from the IPO in a relatively
short period of time. If the company is slow to invest the IPO proceeds or falls short of its target return on investments (expected at
11-12%), our estimates may be at risk.
Conflicts of Interest
Apollo Commercial Real Estate Finance (ARI) may engage in transactions with sponsor Apollo Global Management or its affiliates
that may conflict with the best interests of shareholders. Apollo Global Management beneficially owns roughly 4.6% of Apollo
Commercial Real Estate Finance’s outstanding common stock. Additionally, the company is externally managed by members of the
Apollo Global Management organization. Any transactions between Apollo Commercial Real Estate Finance and Apollo Global
Management may result in less favorable terms for the company than if the agreement had been negotiated at arm’s length. In
order to mitigate this risk, all transactions with Apollo Global Management require approval by a majority of the company’s
independent directors.
As an asset manager, Apollo Global Management controls multiple investment funds, potentially creating a conflict of interest if
Apollo Commercial Real Estate Finance’s target assets overlap with the suitability for another Apollo Global Management-sponsored
vehicle. Currently, no other Apollo Global Management vehicle focuses on Apollo Commercial Real Estate Finance’s target assets as
part of its core investment strategy and Apollo Global Management has agreed it will not sponsor or manage any U.S. publicly traded
REIT that invests primarily in Apollo Commercial Real Estate Finance’s target asset classes. However, Apollo Global Management
may sponsor another U.S. publicly traded REIT that invests generally in real estate assets but not primarily in Apollo Commercial Real
Estate Finance’s target assets, while other Apollo Global Management sponsored entities may also invest in Apollo Commercial Real
Estate Finance’s target asset classes from time to time as part of their larger business strategies.

Mortgage REITs, such as Apollo, are dependent on access to the capital markets for growth. If the ability to execute deals involving
the issuance of debt or equity securities becomes impaired, the end result could be minimal or no growth for the company. The loss
of capital market access could be caused by a level of financial leverage that is too high, increased loan loss risk, or any other factor
that might be seen to significantly impede REIT operations.
Government Restrictions
Apollo’s yield and investment timeline may be affected by the company’s inability to participate in the TALF program. Starwood
Property Trust Inc. (STWD), a commercial mortgage REIT and a peer to Apollo Commercial Real Estate, was asked by the New York
Fed to not participate in the most recent CMBS offering (Developers Diversified Realty – DDR) due to fears that international
shareholders (of any public company) may benefit from TALF financing. On Starwood Property Trust’s 3Q09 conference call, CEO
Barry Sternlicht told investors the company was working with other “compatriots in the space” to address the issue with the Fed and
believes the Fed will publish updated regulations in the next 30 days (from 11/16/09). While TALF-financed CMBS issues are not a
main focus of Apollo, the inability to participate in the programs could negatively affect the company’s yield projection or
investment timeline.
Dividend Risk
Apollo intends to pay out ~100% of taxable income. After the company invests all of its cash proceeds and then invests its borrowed
proceeds, we expect the company to raise additional equity if it continues to see investment opportunities. Additional equity raises
could result in a temporary dividend cut as the company intends to pay out 100% of its taxable income (more shares means a lower
dividend). We would expect the company to increase the dividend as it invests the proceeds of any additional equity raises.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available at rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research or Raymond James’
summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates
or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling 727-567-1000,
toll free 800-237-5643 or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower
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The Raymond James

Real Estate Research Team
Paul Puryear, Director of Real Estate Research
William Crow, Lodging/REITs
Buck Horne, CFA, Housing/REITs
RJ Milligan, REITs
Dan Amer, Sr. Research Associate
Alexander Sierra, Sr. Research Associate
Jeff Koche, CFA, Research Associate
Collin Mings, Research Associate
Ryan Zaborske, Research Associate

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U.S.

GAAP Q1 Q2 Q3 Q4 Full Total

Company Overview ..................................................................................1

Investment Attributes ..............................................................................2

Investment Risks ......................................................................................3

Investment Overview ...............................................................................6

Industry Overview ....................................................................................7

Management Structure and Overview.....................................................10

Outlook: 2009, 2010, and 2011................................................................13

Balance Sheet and Capital Structure........................................................14

Investment Type Projected Allocation Return on Equity

Experienced Management Team

Apollo Sponsorship/Sourcing Capabilities

Compressing Investment Spreads; Interest Rate Risk

Capital Markets Risk

Commercial Mortgage-Backed Securities (CMBS)

Commercial Real Estate Corporate Debt

Investment Type Projected Allocation Return on Equity

Source: Urban Land Institute’s Emerging Trends in Real Estate,

Source: Urban Land Institute’s Emerging Trends in Real Estate,

Commercial Real Estate Debt Maturities ($ in billions)

CMBS - Fixed Rate CMBS - Floating Rate Insurance Company Bank/Thrift

Source: Mortgage Bankers Association, Federal Reserve, Raymond James.

CMBS Spreads over 10 Yr Treasury

Note: AAA Super Senior Tranche depicted above.

CMBS Spreads over 10 Yr Treasury

Source: Bloomberg and Raymond James (through December 4, 2009).

Management Structure and Overview

Company Management Fee (% of equity) Incentive Fee Overhead/G&A

Apollo Commercial Real Estate Finance, Inc. 1.5% None 1% of equity

Colony Financial, Inc. 1.5% 20% above an 8% hurdle

0.5% in the first year, 1.0% in the

Corporate Governance, Board of Directors

Outlook: 2009, 2010, and 2011

Balance Sheet and Capital Structure

Consolidated Balance Sheet

Cash and cash equivalents 210,001

Liabilities and Stockholders' Equity

Accounts payable and accrued expenses 75

Common stock 107

Total Liabilities & Stockholders' Equity 210,002

Source: Company 10-Q filing.

Commercial Mortgage REIT Comparable Company Analysis

Price Market Book Price/

New Commercial Mortgage REITs

Median $ 283 1.0x

Residential Mortgage REITs

Mean $ 3,138 1.2x

Median $ 1,124 1.2x

Commercial Mortgage REIT Comparable Company Analysis

New Commercial Mortgage REITs

Mean $ 87 10.1% 9.6x 8.8x

Median $ 283 9.5x 9.0x

Residential Mortgage REITs

Mean $ 3,138 -7.8% 6.4x 6.3x

Median $ 1,124 6.2x 6.1x

Public companies mentioned in this Document.

Div/share $ - $ - $ - $ 0.42 $ 0.42 $ 0.42 $ 0.42 $ 1.66 $ 1.80

Important Investor Disclosures

Ratings and Definitions

Raymond James Ltd. (Canada) definitions

Raymond James Latin American rating definitions

Raymond James European Equities rating definitions