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Apollo Commercial Real Estate Finance (NYSE:ARI) Q3 2025 Earnings Call October 31, 2025 10:00 AM ET Speaker3I'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 Inc. 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 ...

Financial Performance - Net income available to common stockholders was $48 million, or $0.34 per diluted share[12] - Distributable Earnings were $42 million, or $0.30 per diluted share[12] - Declared common stock dividends of $0.25 per share, implying a dividend yield of 9.9%[12] Loan Portfolio - Total loan portfolio was $8.3 billion with a weighted-average unlevered all-in yield of 7.7%[12] - 98% of the portfolio consists of first mortgages and 98% is floating rate[12] - $1.0 billion in new loan commitments were closed in Q3, with $807 million funded at close, part of $3.0 billion committed year-to-date with $2.2 billion funded at close[12] - Loan repayments and sales totaled $1.3 billion in Q3, contributing to $2.1 billion year-to-date[12] Capitalization and Liquidity - Total common equity book value ended the quarter at $1.8 billion[12] - Total liquidity at the end of the quarter was $312 million, including $259 million in cash[12] - A new secured credit facility was closed, providing an additional $280 million of borrowing capacity[12] - Borrowing capacity under the revolving credit facility increased by $115 million to $275 million, extending the maturity date to August 2028[12] REO Overview - Total REO (Real Estate Owned) held for investment is valued at $846 million, with $403 million in debt, resulting in $443 million in equity[20]

Core Viewpoint - Apollo Commercial Finance (ARI) reported quarterly earnings of $0.30 per share, significantly exceeding the Zacks Consensus Estimate of $0.05 per share, representing an earnings surprise of +500.00% [1][2] Financial Performance - The company posted revenues of $40.04 million for the quarter ended September 2025, which was 7.24% below the Zacks Consensus Estimate and a decrease from $47.04 million in the same quarter last year [2] - Over the last four quarters, the company has surpassed consensus EPS estimates two times but has not beaten consensus revenue estimates [2] Stock Performance - Apollo Commercial Finance shares have increased by approximately 16.6% since the beginning of the year, compared to a 17.2% gain for the S&P 500 [3] - The stock currently holds a Zacks Rank of 4 (Sell), indicating expectations of underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.05 on revenues of $44.05 million, while for the current fiscal year, the estimate is $0.80 on revenues of $169.76 million [7] - The outlook for the industry, specifically the REIT and Equity Trust sector, is currently in the top 39% of Zacks industries, suggesting potential for better performance compared to lower-ranked industries [8]

Financial Performance - Net income available to common stockholders was $48 million, or $0.34 per diluted share[7] - Distributable Earnings prior to realized loss on investments were $32 million, or $0.23 per diluted share; total Distributable Earnings were $42 million, or $0.30 per diluted share[7] - The company reported a net income available to common stockholders of $47,723,000 for Q3 2025, compared to a net loss of $94,617,000 in Q3 2024[42] - The diluted earnings per share for Q3 2025 was $0.34, recovering from a loss of $0.69 in Q3 2024[42] - The total operating expenses for the nine months ended September 30, 2025, were $114,522,000, down from $120,627,000 in the same period of 2024[42] Dividends and Shareholder Returns - Declared common stock dividends of $0.25 per share, resulting in a dividend yield of 9.9%[7] - Q3 Dividend Yield on Book Value Per Share was 8.2%[11] Loan Portfolio and Commitments - Total loan portfolio reached $8.3 billion with a weighted-average unlevered all-in yield of 7.7%, consisting of 98% first mortgages and 98% floating rate[7] - Committed $3.0 billion to new loans year-to-date, with $1.0 billion in Q3; loan repayments and sales totaled $2.1 billion year-to-date, including $1.3 billion in Q3[7] - The total senior loan portfolio amounts to $8,189 million, with $1,035 million in unfunded commitments[28] - The residential loan segment totals $2,391 million, with $103 million in unfunded commitments[26] - The office loan segment totals $1,925 million, with $221 million in unfunded commitments[27] - The hotel loan segment totals $1,461 million, with $42 million in unfunded commitments[27] - The industrial loan segment totals $777 million, with $90 million in unfunded commitments[28] - The data centers loan segment totals $445 million, with $407 million in unfunded commitments[28] - The retail loan segment totals $331 million, with $142 million in unfunded commitments[28] - The mixed-use loan segment totals $304 million, with $17 million in unfunded commitments[28] - Committed $388 million to two floating-rate first mortgages subsequent to the quarter[7] Liquidity and Financial Position - Ended the quarter with total liquidity of $312 million, including $259 million in cash and $53 million available leverage on secured debt[7] - Closed a new secured credit facility providing an additional $280 million of borrowing capacity and increased the revolving credit facility borrowing capacity by $115 million[7] - The total assets increased to $9,519,082,000 as of September 30, 2025, from $8,410,000,000 at the end of 2024[41] - The company’s liabilities rose to $7,656,907,000 as of September 30, 2025, compared to $6,530,000,000 at the end of 2024[41] Realized Gains and Losses - The company reported a realized gain of $3.6 million on forward currency contracts in Q3 2025[34] - The net realized loss on investments for Q3 2025 was $7,436,000, compared to a significant loss of $127,512,000 in Q3 2024[42] - The company reported a $41 million held-for-sale corporate note, which was sold during Q3 2025[44] Financial Metrics and Analysis - Distributable Earnings is a key financial measure, with a reconciliation of GAAP net income provided on page 21[44] - Book value per share (BVPS) is calculated as common stockholders' equity divided by shares of common stock outstanding[44] - The company has a weighted average advance rate of approximately 73% across secured debt arrangements[31] - The gross amount of General CECL Allowance is $39 million, impacting the financial results[44] - The analysis incorporates movements in USD, GBP, and EUR benchmark rates, reflecting the company's exposure to currency fluctuations[44] - The company emphasizes the importance of evaluating performance against peers using Distributable Earnings metrics[44] - Amounts and percentages in the report may not foot due to rounding, highlighting the need for precise financial reporting[44] - Other financial changes include adjustments in General CFCL Allowance and realized losses on investments[44] - The analysis assumes the exercise of all extension options, although there is no assurance that these options will be exercised[44]

Financial Performance - For the three months ended September 30, 2025, net income available to common stockholders was $47.7 million, or $0.34 per diluted share, compared to a net loss of $94.6 million, or ($0.69) per diluted share for the same period in 2024[228]. - The company reported a net income before taxes of $51.0 million for the three months ended September 30, 2025, an increase of $30.2 million from the previous quarter[230]. - Distributable Earnings for the three months ended September 30, 2025, were $41.8 million, or $0.30 per share, compared to $36.4 million, or $0.26 per share, for the previous quarter[263]. - Net income available to common stockholders for the three months ended September 30, 2025, was $47,723,000, compared to $17,671,000 for June 30, 2025[268]. - Diluted Distributable Earnings per share increased to $0.30 for September 30, 2025, compared to $0.26 for June 30, 2025[268]. Revenue and Income Sources - Net interest income decreased by $3.0 million to $40.0 million for the three months ended September 30, 2025, primarily due to a lower average loan balance and lower average index rates[231]. - Income from equity method investment increased to $17.1 million for the three months ended September 30, 2025, compared to a net loss of $0.7 million in the previous quarter, driven by a $17.4 million gain on litigation settlement[233][234]. - Revenue from real estate owned operations declined by $1.99 million to $75.7 million for the nine months ended September 30, 2025, compared to $77.7 million in 2024[242]. - Net income from equity method investment was $15.7 million for the nine months ended September 30, 2025, attributed to a $17.4 million gain on litigation settlement[248]. Expenses and Allowances - Total operating expenses for the three months ended September 30, 2025, were $15.3 million, a slight increase from $14.9 million in the previous quarter[230]. - General and administrative expenses decreased by $2.5 million to $19.9 million for the nine months ended September 30, 2025, compared to $22.4 million in 2024[245]. - Management fees to related parties decreased by $1.8 million to $25.6 million for the nine months ended September 30, 2025, compared to $27.4 million in 2024[246]. - The Specific CECL Allowance decreased by $7.5 million during the three months ended September 30, 2025, due to a $1.3 million reversal and a $6.2 million write-off related to the Michigan Office Loan[235]. - The General CECL Allowance increased by $1.1 million during the three months ended September 30, 2025, driven by loan originations and extending expected repayment dates[236]. Asset and Loan Management - The company committed $3.1 billion of capital to new loans during the nine months ended September 30, 2025, with $2.2 billion funded at closing[271]. - The loan portfolio's carrying value as of September 30, 2025, was $8,303,645,000, with a weighted-average coupon of 6.9% and an all-in yield of 7.7%[272]. - The average month-end balance for commercial mortgage loans was $7.9 billion, with related debt of $5.8 billion for the nine months ended September 30, 2025[277]. - The company had $1.0 billion in unfunded loan commitments as of September 30, 2025, with an expectation to fund approximately $779.4 million in the short term[288]. - The portfolio's weighted-average origination loan-to-value (LTV) ratio was 57% as of September 30, 2025, indicating significant equity value[278]. Financial Position and Ratios - Book value per share decreased to $12.18 as of September 30, 2025, from $12.34 as of December 31, 2024[269]. - The debt-to-equity ratio increased to 3.8 as of September 30, 2025, compared to 3.2 at December 31, 2024[285]. - Total borrowings amounted to $7.6 billion as of September 30, 2025, up from $6.4 billion at December 31, 2024[293]. - The company maintained $245.9 million in cash on hand and $53.3 million in available borrowings under financing arrangements as of September 30, 2025[289]. Risk Management - The company seeks to manage interest rate risk by structuring financing agreements with varying maturities and using hedging instruments when appropriate[331]. - The company is subject to credit risk and aims to acquire high-quality assets to keep credit losses and financing costs low[327]. - Prepayment risk is managed by including prepayment penalties in loan agreements to mitigate the impact of principal repayment rates differing from expectations[332]. - Some loans and secured debt are denominated in foreign currencies, exposing the company to currency risk[335]. - The company uses foreign currency forward contracts to mitigate exposure related to fluctuations in currency rates[335]. Regulatory and Compliance - The company is obligated to distribute at least 90% of its REIT taxable income to stockholders annually to maintain REIT qualification[334]. - The OBBB legislation, effective January 1, 2026, relaxed the REIT asset test requirement for taxable REIT subsidiaries from 20% to 25% of the gross value of a REIT's assets[323].

Core Viewpoint - Apollo Commercial Real Estate Finance, Inc. reported its financial results for the third quarter and nine months ended September 30, 2025, highlighting strong loan originations and expectations for improved earnings in the upcoming quarter [1][3]. Financial Performance - Net income attributable to common stockholders per diluted share was $0.34 for the quarter ended September 30, 2025 [2]. - Distributable Earnings per diluted share was $0.30, while Distributable Earnings prior to realized loss on investments and realized gain on litigation settlement was $0.23 for the same quarter [2]. Loan Originations and Capital Management - The company achieved $1.0 billion in new loan originations during the third quarter, benefiting from the Apollo real estate credit platform [3]. - There was progress in freeing up non-performing capital for redeployment, with expected benefits to earnings starting in the fourth quarter [3]. Distributable Earnings Definition - Distributable Earnings is defined as net income available to common stockholders adjusted for various non-cash items and unrealized gains or losses [5][7]. - The company believes Distributable Earnings is a useful measure for investors to evaluate performance and is a key factor in determining dividends [6][7]. Realized Gains and Losses - During the nine months ended September 30, 2025, the company recorded realized losses related to a subordinate loan and a promissory note, alongside a realized gain from a litigation settlement [8]. Company Overview - Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust that focuses on originating, acquiring, and managing commercial mortgage loans and related debt investments [11]. - The company is externally managed by ACREFI Management, LLC, a subsidiary of Apollo Global Management, which manages approximately $840 billion in assets [11].

Core Viewpoint - The Zacks REIT and Equity Trust industry is experiencing volatility in mortgage rates due to macroeconomic uncertainty, leading to earnings pressure in the near term [1] Industry Overview - The Zacks REIT and Equity Trust industry consists of mortgage REITs (mREITs) that invest in and originate mortgages and mortgage-backed securities (MBS), providing mortgage credit for homeowners and businesses [3] - mREITs typically focus on either residential or commercial mortgage markets, with some investing in both through asset-backed securities [3] - Agency securities, backed by the federal government, are considered safer investments, limiting credit risks [3] - Key revenue metrics for mREITs include net interest margin, which is the spread between interest income on mortgage assets and funding costs [3] Current Challenges - The industry is facing dividend cuts as book values erode due to tightened mortgage spreads and expected higher interest rates, leading to earnings pressure for highly leveraged mREITs [4] - A conservative investment approach is likely to impede returns, as mREITs prioritize risk and liquidity management over growth [5] - Despite a recent Federal Reserve rate cut, mortgage rates remain below the 52-week average of 6.71%, which is driving renewed interest in purchase applications and refinancing activities [6] Industry Performance - The Zacks REIT and Equity Trust industry ranks 185, placing it in the bottom 24% of 243 Zacks industries, indicating underperformance in the near term [7] - The industry's current-year earnings estimate has decreased by 8.1% over the last year, reflecting a negative earnings outlook [8] - Over the past year, the industry has declined by 6.2%, while the broader Zacks Finance sector rose by 17.1% and the S&P 500 grew by 18.2% [10] Valuation Metrics - The industry is currently trading at a trailing 12-month price-to-book (P/BV) ratio of 1.00X, compared to the S&P 500's 8.8X [13] - The Zacks Finance sector's trailing 12-month P/BV is 4.32X, indicating that the REIT and Equity Trust industry is trading at a significant discount [15] Company Highlights - **Annaly Capital Management (NLY)**: Focuses on prudent asset selection and effective capital allocation, with a diversified investment strategy that includes Agency MBSs and non-agency assets [17][18]. The company's 2025 earnings are estimated at $2.89 per share, reflecting a 7% year-over-year increase [19] - **Apollo Commercial Real Estate Finance (ARI)**: Engages in originating and managing commercial mortgage loans, benefiting from a robust origination pipeline and disciplined capital recycling strategy [22][23]. The company's 2025 earnings estimates are $1.04 per share, indicating a 141.9% year-over-year increase [24] - **Ellington Financial (EFC)**: Invests in a diverse array of financial assets, including residential and commercial mortgage loans, and employs dynamic hedging strategies to manage risks [27][29]. The company's 2025 earnings estimates are $1.74 per share, reflecting a 19.2% year-over-year growth [30]

Core Points - Apollo Commercial Real Estate Finance, Inc. (ARI) will hold a conference call to discuss its third quarter 2025 financial results on October 31, 2025, at 10:00 a.m. Eastern Time [1] - The financial results will be released after market close on October 30, 2025, and the call will include a review of performance, recent events, and a Q&A session [1] Company Overview - Apollo Commercial Real Estate Finance, Inc. is a real estate investment trust that focuses on originating, acquiring, investing in, and managing performing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments [3] - The company is externally managed and advised by ACREFI Management, LLC, which is an indirect subsidiary of Apollo Global Management, Inc., a global alternative asset manager with approximately $840 billion in assets under management as of June 30, 2025 [3]