Apollo Commercial Real Estate Finance(US:ARI)2025-07-29 20:16markdown [PART I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Apollo Commercial Real Estate Finance, Inc. and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, fair value disclosures, loan portfolio specifics, debt arrangements, and other financial details [Condensed Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Condensed Consolidated Balance Sheets (Unaudited) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | **Assets:** | | | | Cash and cash equivalents | $177,623 | $317,396 | | Commercial mortgage loans, net | $8,479,438 | $6,715,347 | | Subordinate loans, net | $145,472 | $388,809 | | Real estate owned, held for investment, net | $805,653 | $752,643 | | Total Assets | $9,816,957 | $8,411,591 | | **Liabilities:** | | | | Secured debt arrangements, net | $6,213,188 | $4,814,973 | | Senior secured term loans, net | $729,416 | $754,210 | | Senior secured notes, net | $496,826 | $496,433 | | Total Liabilities | $7,970,571 | $6,537,110 | | **Stockholders' Equity:** | | | | Total Stockholders' Equity | $1,846,386 | $1,874,481 | | Total Liabilities and Stockholders' Equity | $9,816,957 | $8,411,591 | - Total Assets increased by **$1.4 billion** from December 31, 2024, to June 30, 2025, primarily driven by a significant increase in commercial mortgage loans, net[8](index=8&type=chunk) - Total Liabilities increased by **$1.4 billion**, largely due to an increase in secured debt arrangements, net[8](index=8&type=chunk) [Condensed Consolidated Statement of Operations (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statement%20of%20Operations%20(Unaudited)) Condensed Consolidated Statement of Operations (Unaudited) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $43,070 | $51,758 | $82,555 | $108,436 | | Total net revenue | $70,902 | $81,108 | $136,718 | $161,643 | | Total operating expenses | $(38,561) | $(40,715) | $(77,000) | $(82,058) | | Net income (loss) before taxes | $20,855 | $35,885 | $46,962 | $(68,525) | | Net income (loss) | $20,739 | $35,785 | $46,730 | $(68,739) | | Net income (loss) available to common stockholders | $17,671 | $32,717 | $40,594 | $(74,875) | | Basic EPS | $0.12 | $0.23 | $0.28 | $(0.54) | | Diluted EPS | $0.12 | $0.23 | $0.28 | $(0.54) | | Dividend declared per share of common stock | $0.25 | $0.35 | $0.50 | $0.70 | - Net income available to common stockholders decreased by **46%** for the three months ended June 30, 2025, compared to the same period in 2024, from **$32.7 million** to **$17.7 million**[13](index=13&type=chunk) - For the six months ended June 30, 2025, the company reported a net income of **$46.7 million**, a significant improvement from a net loss of **$68.7 million** in the prior year period[13](index=13&type=chunk) [Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)) Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) | Metric (in thousands) | Balance at January 1, 2025 | Balance at June 30, 2025 | | :------------------------------------ | :------------------------- | :----------------------- | | Preferred Stock Par | $68 | $68 | | Common Stock Par | $1,382 | $1,389 | | Additional Paid-In-Capital | $2,695,701 | $2,697,576 | | Accumulated Deficit | $(822,670) | $(852,647) | | Total Stockholders' Equity | $1,874,481 | $1,846,386 | - Total Stockholders' Equity decreased from **$1,874.5 million** at January 1, 2025, to **$1,846.4 million** at June 30, 2025, primarily due to dividends declared on common and preferred stock, partially offset by net income[15](index=15&type=chunk) - Common stock shares issued and outstanding increased from **138,174,636** at January 1, 2025, to **138,943,831** at June 30, 2025, mainly due to the Equity Incentive Plan[15](index=15&type=chunk) [Condensed Consolidated Statement of Cash Flows (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Cash%20Flows%20(Unaudited)) Condensed Consolidated Statement of Cash Flows (Unaudited) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $102,542 | $103,089 | | Net cash used in investing activities | $(1,255,405) | $(215,535) | | Net cash provided by financing activities | $1,010,812 | $59,312 | | Net decrease in cash and cash equivalents | $(142,051) | $(52,557) | | Cash and cash equivalents end of period | $177,623 | $174,703 | - Net cash used in investing activities significantly increased to **$1.26 billion** in the first six months of 2025, compared to **$215.5 million** in the same period of 2024, primarily due to higher new and add-on funding of commercial mortgage loans[17](index=17&type=chunk) - Net cash provided by financing activities increased substantially to **$1.01 billion** in the first six months of 2025, up from **$59.3 million** in 2024, driven by higher proceeds from secured debt arrangements[17](index=17&type=chunk) [Note 1 – Organization](index=8&type=section&id=Note%201%20%E2%80%93%20Organization) - Apollo Commercial Real Estate Finance, Inc. (ARI) is a Maryland corporation that has elected to be taxed as a REIT, primarily investing in and managing performing commercial first mortgage loans, subordinate financings, and other commercial real estate debt investments[22](index=22&type=chunk) - ARI is externally managed and advised by ACREFI Management, LLC, an indirect subsidiary of Apollo Global Management, Inc[23](index=23&type=chunk) - To maintain REIT status, ARI must distribute at least **90%** of its taxable income (excluding net capital gains) to stockholders annually and meet other asset, income, and ownership tests[24](index=24&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=8&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) - The financial statements are prepared in accordance with GAAP, requiring estimates and assumptions, with current expected credit loss (CECL) allowances being the most significant estimate[25](index=25&type=chunk) - The company operates in one reporting segment[27](index=27&type=chunk) - The company is evaluating the impact of new FASB ASUs 2024-03 (Expense Disaggregation Disclosures) and 2023-09 (Improvements to Income Tax Disclosures), but does not expect a material impact on its consolidated financial statements[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 3 – Fair Value Disclosure](index=9&type=section&id=Note%203%20%E2%80%93%20Fair%20Value%20Disclosure) - Fair value measurements are categorized into a three-level hierarchy based on input observability: **Level I** (quoted prices in active markets), **Level II** (significant observable inputs), and **Level III** (significant unobservable inputs)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) - Foreign currency forwards and interest rate caps are classified as **Level II**, while loans and other lending assets held for sale, and real estate owned, are classified as **Level III** due to the use of unobservable inputs[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk)[43](index=43&type=chunk) Fair Value of Financial Instruments | Financial Instrument (in thousands) | Fair Value as of June 30, 2025 | Fair Value as of December 31, 2024 | | :---------------------------------- | :----------------------------- | :------------------------------- | | Foreign currency forwards, net | $(57,758) | $57,753 | | Interest rate cap assets | $171 | $416 | | Note receivable, held for sale | $39,964 | $41,200 | | Total financial instruments | $(17,623) | $99,369 | [Note 4 – Commercial Mortgage Loans, Subordinate Loans and Other Lending Assets, Net](index=11&type=section&id=Note%204%20%E2%80%93%20Commercial%20Mortgage%20Loans,%20Subordinate%20Loans%20and%20Other%20Lending%20Assets,%20Net) Loan Portfolio Summary | Loan Type (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------- | :------------ | :---------------- | | Commercial mortgage loans, net | $8,479,438 | $6,715,347 | | Subordinate loans, net | $145,472 | $388,809 | | Total loans, net | $8,624,910 | $7,104,156 | | Note receivable, held for sale | $39,964 | $41,200 | | Carrying value, net | $8,664,874 | $7,145,356 | - The loan portfolio grew significantly, with commercial mortgage loans increasing by **$1.76 billion** from December 31, 2024, to June 30, 2025, while subordinate loans decreased by **$243.3 million**[47](index=47&type=chunk) Loan Portfolio Statistics | Loan Portfolio Statistics | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Number of loans | 54 | 46 | | Principal balance | $9,095,527 | $7,550,410 | | Unfunded loan commitments | $1,018,901 | $840,627 | | Weighted-average cash coupon | 7.2% | 7.5% | | Weighted-average remaining fully-extended term | 2.7 years | 2.5 years | | Weighted-average expected term | 2.0 years | 1.9 years | - The loan portfolio is **96%** floating rate loans as of June 30, 2025[48](index=48&type=chunk) Loan Portfolio by Property Type | Property Type (Carrying Value, in thousands) | June 30, 2025 | % of Portfolio | December 31, 2024 | % of Portfolio | | :------------------------------------------- | :------------ | :------------- | :---------------- | :------------- | | Residential | $2,126,799 | 24.6% | $1,556,819 | 21.8% | | Office | $2,027,872 | 23.5% | $1,756,965 | 24.6% | | Hotel | $1,371,199 | 15.8% | $1,575,270 | 22.1% | | Retail | $1,190,400 | 13.7% | $946,017 | 13.3% | | Industrial | $1,057,883 | 12.2% | $399,546 | 5.6% | | Mixed Use | $313,526 | 3.6% | $363,211 | 5.1% | | Other | $576,079 | 6.6% | $537,164 | 7.5% | | Total Carrying Value, net | $8,624,910 | | $7,104,156 | | Loan Portfolio by Geographic Location | Geographic Location (Carrying Value, in thousands) | June 30, 2025 | % of Portfolio | December 31, 2024 | % of Portfolio | | :------------------------------------------------- | :------------ | :------------- | :---------------- | :------------- | | United Kingdom | $3,140,487 | 36.2% | $2,423,856 | 33.9% | | New York City | $1,497,147 | 17.3% | $1,539,995 | 21.6% | | Other Europe | $1,157,797 | 13.3% | $1,265,344 | 17.7% | | West | $899,484 | 10.4% | $489,008 | 6.9% | | Southeast | $804,340 | 9.3% | $511,742 | 7.2% | | Midwest | $559,857 | 6.5% | $560,436 | 7.9% | | Other | $604,646 | 7.0% | $344,611 | 4.8% | | Total Carrying Value, net | $8,624,910 | | $7,104,156 | | Loan Portfolio Risk Rating | Risk Rating (Amortized Cost, in thousands) | June 30, 2025 | % of Portfolio | December 31, 2024 | % of Portfolio | | :----------------------------------------- | :------------ | :------------- | :---------------- | :------------- | | 1 (Very low risk) | $0 | 0% | $0 | 0% | | 2 (Low risk) | $734,766 | 8.5% | $560,180 | 7.9% | | 3 (Moderate/average risk) | $7,731,635 | 89.3% | $6,169,860 | 86.4% | | 4 (High risk/potential for loss) | $73,112 | 0.8% | $279,732 | 3.9% | | 5 (Impaired/loss likely) | $124,245 | 1.4% | $125,220 | 1.8% | | Weighted-Average Risk Rating | 3.0 | | 3.0 | | CECL Allowances | CECL Allowances (in thousands) | December 31, 2024 | June 30, 2025 | | :----------------------------- | :---------------- | :------------ | | Specific CECL Allowance | $342,500 | $342,500 | | General CECL Allowance (Funded) | $30,836 | $38,848 | | General CECL Allowance (Unfunded) | $5,948 | $5,057 | | Total CECL Allowance | $379,284 | $386,405 | - The General CECL Allowance increased by **$3.1 million** during Q2 2025, primarily due to loan originations and extended repayment dates, partially offset by portfolio seasoning[66](index=66&type=chunk) - Risk-rated 5 loans, analyzed for Specific CECL Allowances, totaled **$124.2 million** (net of allowance) as of June 30, 2025, including retail, residential, and office properties[79](index=79&type=chunk) - A commercial mortgage loan secured by an office property in Berlin, Germany, was modified, extending its maturity to June **2030** and upgrading its risk rating from **4** to **3**[84](index=84&type=chunk) - Loans on nonaccrual status decreased from **$486.8 million** at December 31, 2024, to **$366.9 million** at June 30, 2025[87](index=87&type=chunk) - A promissory note classified as held for sale, with a fair value of **$39.96 million** as of June 30, 2025, was subsequently sold in July 2025 at **97.0%** of its value, resulting in a realized loss[96](index=96&type=chunk) [Note 5 – Real Estate Owned](index=18&type=section&id=Note%205%20%E2%80%93%20Real%20Estate%20Owned) - Real estate owned, held for investment, includes three properties: the D.C. Hotel, the Brooklyn Multifamily Development, and the Atlanta Hotel[98](index=98&type=chunk) - The D.C. Hotel generated net profit of **$3.6 million** and **$6.2 million** for the three and six months ended June 30, 2025, respectively[105](index=105&type=chunk) - The Brooklyn Multifamily Development had a cost basis of **$593.9 million** as of June 30, 2025, with **$53.0 million** in capitalized construction and financing costs during the six months ended June 30, 2025[111](index=111&type=chunk) - The Atlanta Hotel recorded net profit of **$0.6 million** and **$1.1 million** for the three and six months ended June 30, 2025, respectively, improving from a net loss in the prior year period[116](index=116&type=chunk) [Note 6 – Other Assets](index=19&type=section&id=Note%206%20%E2%80%93%20Other%20Assets) Other Assets Breakdown | Other Assets (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Interest receivable | $74,886 | $58,470 | | Collateral deposited under derivative agreements | $56,140 | $0 | | Loan proceeds held by servicer | $4,530 | $50,843 | | Other | $33,080 | $28,714 | | Total | $168,636 | $138,027 | - Collateral deposited under derivative agreements increased significantly to **$56.1 million** at June 30, 2025, from zero at December 31, 2024, indicating a net liability position with derivative counterparties[118](index=118&type=chunk) - The company's equity method investment in the Massachusetts Healthcare JV was **$23.2 million** as of June 30, 2025, following the acquisition of two unsold hospitals[122](index=122&type=chunk) [Note 7 – Secured Debt Arrangements, Net](index=20&type=section&id=Note%207%20%E2%80%93%20Secured%20Debt%20Arrangements,%20Net) - During the first six months of 2025, the company secured **$1.1 billion** in new credit facilities and upsized existing facilities by **$776.6 million**, while terminating two facilities[124](index=124&type=chunk) Secured Debt Arrangements | Secured Debt Arrangement (in thousands) | Borrowings Outstanding (June 30, 2025) | Borrowings Outstanding (December 31, 2024) | | :-------------------------------------- | :------------------------------------- | :--------------------------------------- | | JPMorgan Facility | $1,771,528 | $1,033,504 | | Morgan Stanley Facility - GBP | $165,324 | $0 | | Morgan Stanley Facility - USD | $266,694 | $0 | | Atlas Facility | $530,518 | $462,886 | | HSBC Facility | $698,940 | $627,646 | | Barclays Facility - USD | $321,546 | $321,546 | | Barclays Facility - GBP | $126,925 | $0 | | Goldman Sachs Facility - GBP | $438,039 | $373,706 | | Deutsche Bank Facility | $27,300 | $123,434 | | Barclays Private Securitization | $1,837,360 | $1,587,780 | | Revolving Credit Facility | $37,500 | $0 | | Total Secured Debt Arrangements, net | $6,213,188 | $4,814,973 | - Weighted-average borrowing costs as of June 30, 2025, were applicable benchmark rates plus spreads of USD: **+2.30%**, GBP: **+2.08%**, EUR: **+2.07%**, SEK: **+1.50%**[131](index=131&type=chunk) - Approximately **41%** of outstanding secured borrowings were recourse to the company as of June 30, 2025[132](index=132&type=chunk) - The company amended its financial covenants effective June 30, 2025, changing the maximum ratio of total indebtedness to tangible net worth to a ratio of total indebtedness to total assets not to exceed **83.33%** (**81.82%** for Revolving Credit Facility) The company was in compliance with all covenants[154](index=154&type=chunk) [Note 8 – Senior Secured Term Loans, Net](index=25&type=section&id=Note%208%20%E2%80%93%20Senior%20Secured%20Term%20Loans,%20Net) - In June 2025, the company refinanced its existing 2026 and 2028 Term Loans with a new **$750.0 million** 2030 Term Loan, maturing in June **2030** and bearing interest at **SOFR + 3.25%**[156](index=156&type=chunk) Senior Secured Term Loans | Term Loan (in thousands) | Principal Amount | Carrying Value (June 30, 2025) | Rate | Maturity Date | | :----------------------- | :--------------- | :----------------------------- | :--- | :------------ | | 2030 Term Loan | $750,000 | $729,416 | SOFR + 3.25% | 6/13/2030 | - The 2030 Term Loan was issued at **99.3%** and has an all-in cost of **SOFR+3.92%** as of June 30, 2025[156](index=156&type=chunk) [Note 9 – Senior Secured Notes, Net](index=26&type=section&id=Note%209%20%E2%80%93%20Senior%20Secured%20Notes,%20Net) - The company has **$500.0 million** of **4.625%** Senior Secured Notes due **2029**, with a carrying value of **$496.8 million** as of June 30, 2025[162](index=162&type=chunk) - The **2029** Notes are secured by a first-priority lien and rank pari-passu with other first lien obligations[162](index=162&type=chunk) - The company was in compliance with all covenants related to the **2029** Notes as of June 30, 2025, and December 31, 2024[163](index=163&type=chunk) [Note 10 – Derivatives](index=26&type=section&id=Note%2010%20%E2%80%93%20Derivatives) - The company uses forward currency contracts to economically hedge interest and principal payments on foreign currency denominated loans and interest rate caps to manage variable cash flow exposure on borrowings[164](index=164&type=chunk)[165](index=165&type=chunk) - As of June 30, 2025, the company was in a net liability position with derivative counterparties, posting **$56.1 million** in collateral, compared to a net asset position with no collateral posted at December 31, 2024[166](index=166&type=chunk) Derivative Contracts | Derivative Type | Aggregate Number of Contracts (June 30, 2025) | Notional Amount (in thousands) | Weighted Average Years to Maturity | | :---------------- | :-------------------------------------------- | :----------------------------- | :------------------------------- | | Fx contracts - GBP | **110** | 673,578 | **1.35** | | Fx contracts - EUR | **29** | 272,678 | **0.68** | | Fx contracts - SEK | **12** | 603,079 | **0.87** | | Interest rate caps | **2** | 238,535 | **0.18** | Derivative Gain (Loss) | Derivative Gain (Loss) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Forward currency contracts | $(82,139) | $6,377 | $(121,111) | $29,775 | | Interest rate caps | $65 | $94 | $23 | $450 | [Note 11 – Accounts Payable, Accrued Expenses and Other Liabilities](index=29&type=section&id=Note%2011%20%E2%80%93%20Accounts%20Payable,%20Accrued%20Expenses%20and%20Other%20Liabilities) Other Liabilities | Liability (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Collateral held under derivative agreements | $0 | $54,420 | | Accrued dividends payable | $37,852 | $37,976 | | Accrued interest payable | $35,003 | $28,261 | | Accounts payable and other liabilities | $10,607 | $11,574 | | General CECL Allowance on unfunded commitments | $5,057 | $5,948 | | Total | $88,519 | $138,179 | - Total accounts payable, accrued expenses, and other liabilities decreased by **$49.7 million**, primarily due to the absence of collateral held under derivative agreements at June 30, 2025, compared to **$54.4 million** at December 31, 2024[171](index=171&type=chunk) [Note 12 – Income Taxes](index=29&type=section&id=Note%2012%20%E2%80%93%20Income%20Taxes) - As a REIT, the company is generally required to distribute at least **90%** of its taxable income annually and is subject to U.S. federal, state, and local income taxes on its domestic taxable REIT subsidiaries (TRS)[173](index=173&type=chunk) - Income tax provision for both the three and six months ended June 30, 2025, and 2024, was **$0.1 million** and **$0.2 million**, respectively, related to TRS activities[174](index=174&type=chunk) - As of June 30, 2025, the company had net operating losses of **$8.5 million** and capital losses of **$25.2 million** available for carryforward[175](index=175&type=chunk) [Note 13 – Related Party Transactions](index=29&type=section&id=Note%2013%20%E2%80%93%20Related%20Party%20Transactions) - The company incurred **$8.4 million** and **$16.9 million** in base management fees to its Manager for the three and six months ended June 30, 2025, respectively, a decrease from the prior year[180](index=180&type=chunk) - The Management Agreement was automatically renewed in September 2024 and can be terminated by independent directors based on unsatisfactory performance or unfair fees, with a termination fee of three times the average annual base management fee[178](index=178&type=chunk)[179](index=179&type=chunk) - Apollo Global Funding, LLC, an affiliate of the Manager, received **$1.0 million** in arrangement fees for the 2025 refinancing of the 2030 Term Loan[183](index=183&type=chunk) - The company's **41.2%** equity interest in the Massachusetts Healthcare JV, formed with Apollo Co-Lenders, was deemed an equity method investment with a balance of **$23.2 million** as of June 30, 2025[188](index=188&type=chunk) [Note 14 – Share-Based Payments](index=31&type=section&id=Note%2014%20%E2%80%93%20Share-Based%20Payments) - The 2024 Equity Incentive Plan (2024 LTIP) was adopted, providing for grants of restricted common stock, RSUs, and other equity-based awards up to **7,500,000** shares[189](index=189&type=chunk)[190](index=190&type=chunk) - Stock-based compensation expense related to restricted stock and RSU vesting was **$3.4 million** and **$6.8 million** for the three and six months ended June 30, 2025, respectively, a decrease from the prior year[191](index=191&type=chunk) - As of June 30, 2025, unrecognized compensation expense for restricted stock and RSUs totaled approximately **$17.4 million**, expected to be recognized over a weighted-average period of **1.3 years**[191](index=191&type=chunk)[192](index=192&type=chunk) [Note 15 – Stockholders' Equity](index=32&type=section&id=Note%2015%20%E2%80%93%20Stockholders'%20Equity) - As of June 30, 2025, there were **138,943,831** shares of common stock and **6,770,393** shares of **7.25%** Series B-1 Cumulative Redeemable Perpetual Preferred Stock outstanding[195](index=195&type=chunk) Dividends Declared Per Share | Dividends Declared Per Share | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Common Stock | $0.25 | $0.35 | $0.50 | $0.70 | | Series B-1 Preferred Stock | $0.45 | $0.45 | $0.90 | $0.90 | - No common stock repurchase activity occurred during the three and six months ended June 30, 2025 As of June 30, 2025, **$131.6 million** remained available under the stock repurchase program[196](index=196&type=chunk) [Note 16 – Commitments and Contingencies](index=32&type=section&id=Note%2016%20%E2%80%93%20Commitments%20and%20Contingencies) - The company is involved in ongoing legal proceedings, including the AmBase Corporation lawsuit, with an appeal granted by the Court of Appeals on February 18, 2025 No reasonable estimate of possible loss can be made[199](index=199&type=chunk)[200](index=200&type=chunk) - A settlement agreement was reached on July 22, 2025, with the Commonwealth of Massachusetts regarding the Massachusetts Healthcare lawsuit, where the Commonwealth agreed to pay an additional **$44.0 million** (**$18.1 million** attributable to ARI)[201](index=201&type=chunk)[210](index=210&type=chunk) - As of June 30, 2025, the company had **$1.0 billion** in unfunded loan commitments, with approximately **$666.7 million** expected to be funded in the short term[202](index=202&type=chunk)[275](index=275&type=chunk) [Note 17 – Fair Value of Financial Instruments](index=33&type=section&id=Note%2017%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) Fair Value of Financial Instruments | Financial Instrument (in thousands) | Carrying Value (June 30, 2025) | Estimated Fair Value (June 30, 2025) | Carrying Value (December 31, 2024) | Estimated Fair Value (December 31, 2024) | | :---------------------------------- | :----------------------------- | :----------------------------------- | :--------------------------------- | :----------------------------------- | | Cash and cash equivalents | $177,623 | $177,623 | $317,396 | $317,396 | | Commercial mortgage loans, net | $8,479,438 | $8,346,330 | $6,715,347 | $6,616,694 | | Subordinate loans, net | $145,472 | $145,472 | $388,809 | $388,780 | | Secured debt arrangements, net | $(6,213,188) | $(6,213,188) | $(4,814,973) | $(4,814,973) | | Senior secured term loans, net | $(729,416) | $(750,938) | $(754,210) | $(757,772) | | Senior secured notes, net | $(496,826) | $(473,750) | $(496,433) | $(432,500) | | Debt related to real estate owned, held for investment, net | $(376,504) | $(376,504) | $(324,587) | $(324,587) | - Estimated fair values for cash, cash equivalents, Senior Secured Notes, and Term Loans are measured using observable **Level I** inputs, while other financial instruments use significant estimates or unobservable **Level III** inputs[203](index=203&type=chunk) [Note 18 – Net Income (Loss) per Share](index=34&type=section&id=Note%2018%20%E2%80%93%20Net%20Income%20(Loss)%20per%20Share) - Unvested Restricted Stock Units (RSUs) are considered participating securities and are included in the calculation of basic earnings per share[204](index=204&type=chunk) EPS Metrics | EPS Metric (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders, basic and diluted | $17,115 | $31,837 | $39,477 | $(76,641) | | Basic weighted-average shares of common stock outstanding | 138,943,566 | 140,438,676 | 138,792,126 | 141,154,140 | | Diluted weighted-average shares of common stock outstanding | 139,208,860 | 140,611,532 | 139,103,947 | 141,154,140 | | Basic EPS | $0.12 | $0.23 | $0.28 | $(0.54) | | Diluted EPS | $0.12 | $0.23 | $0.28 | $(0.54) | - Diluted EPS for the six months ended June 30, 2025, was **$0.28**, a significant improvement from a diluted loss per share of **$(0.54)** in the prior year period[206](index=206&type=chunk) [Note 19 – Segment Reporting](index=34&type=section&id=Note%2019%20%E2%80%93%20Segment%20Reporting) - The company operates as a single reportable segment, with its chief operating decision maker (CODM) being the senior management team[207](index=207&type=chunk) - The CODM evaluates performance and allocates resources based on consolidated net income (loss), which is primarily derived from the difference between interest income on loans and financing costs[208](index=208&type=chunk) [Note 20 – Subsequent Events](index=35&type=section&id=Note%2020%20%E2%80%93%20Subsequent%20Events) - Subsequent to June 30, 2025, the company funded approximately **$54.7 million** for previously closed loans and received **$327.3 million** from loan repayments, including a full repayment of a **$250.4 million** first mortgage[209](index=209&type=chunk) - A settlement agreement was reached on July 22, 2025, with the Commonwealth of Massachusetts regarding the Massachusetts Healthcare lawsuit, resulting in an additional **$44.0 million** payment (**$18.1 million** attributable to ARI) by August 20, 2025[210](index=210&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance drivers, market conditions, and financial metrics [Overview](index=36&type=section&id=Overview) - Apollo Commercial Real Estate Finance, Inc. (ARI) operates as a REIT, focusing on originating, acquiring, investing in, and managing commercial first mortgage loans, subordinate financings, and other commercial real estate-related debt investments[214](index=214&type=chunk) - ARI is externally managed by ACREFI Management, LLC, an indirect subsidiary of Apollo Global Management, Inc., benefiting from Apollo's global infrastructure and expertise[215](index=215&type=chunk)[216](index=216&type=chunk) - The company is monitoring developments regarding the SEC's climate disclosure rules, which were stayed in April 2024 and whose defense was ended by the SEC in March 2025[217](index=217&type=chunk) [Current Market Conditions](index=37&type=section&id=Current%20Market%20Conditions) - External events, including public health issues, natural disasters, political/economic instability, and geopolitical issues, have adversely impacted the global economy and contributed to financial market volatility[218](index=218&type=chunk) - Recent macroeconomic trends, such as inflation and higher interest rates, continue to pose business risks[218](index=218&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) Net Income and EPS Summary | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common stockholders | $17,700 | $32,700 | $40,600 | $(74,900) | | Diluted EPS | $0.12 | $0.23 | $0.28 | $(0.54) | - Net income available to common stockholders for the three months ended June 30, 2025, decreased to **$17.7 million** (**$0.12** diluted EPS) from **$32.7 million** (**$0.23** diluted EPS) in the prior year[219](index=219&type=chunk) - For the six months ended June 30, 2025, net income available to common stockholders was **$40.6 million** (**$0.28** diluted EPS), a significant improvement from a net loss of **$(74.9) million** (**$(0.54)** diluted EPS) in the prior year[220](index=220&type=chunk) Quarter-over-Quarter Operating Metrics | Operating Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | Change (QoQ) | | :------------------------------------------ | :------------------------------- | :-------------------------------- | :----------- | | Net interest income | $43,070 | $39,485 | $3,585 | | Net income related to real estate owned | $4,188 | $3,108 | $1,080 | | Total operating expenses | $(14,917) | $(15,216) | $299 | | Increase in General CECL Allowance, net | $(3,113) | $(4,008) | $895 | | Valuation allowance, loans and other lending assets held for sale | $(1,236) | $0 | $(1,236) | | Net income before taxes | $20,855 | $26,107 | $(5,252) | - Net interest income increased by **$3.6 million** quarter-over-quarter due to loan portfolio growth, partially offset by higher debt balances[223](index=223&type=chunk) - Net income from real estate owned operations increased by **$1.1 million** quarter-over-quarter, primarily due to the seasonality of the D.C. Hotel's operations[224](index=224&type=chunk) - General CECL Allowance increased by **$3.1 million** in Q2 2025, driven by loan originations and extended repayment dates, partially offset by portfolio seasoning[225](index=225&type=chunk) - A **$1.2 million** fair value adjustment was recorded for a promissory note held for sale in Q2 2025[229](index=229&type=chunk) - Foreign currency translation and derivative gains/losses resulted in a net loss of **$8.4 million** in Q2 2025, compared to a net gain of **$1.6 million** in Q1 2025, mainly due to higher forward point estimates[230](index=230&type=chunk) Year-over-Year Operating Metrics | Operating Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Net interest income | $82,555 | $108,436 | $(25,881) | | Net income related to real estate owned | $7,296 | $4,604 | $2,692 | | Management fees to related party | $(16,920) | $(18,594) | $1,674 | | Net realized loss on investments | $0 | $(679) | $679 | | Increase in Specific CECL Allowance | $0 | $(149,500) | $149,500 | | Increase in General CECL Allowance, net | $(7,121) | $(8,442) | $1,321 | | Gain (loss) on foreign currency forward contracts | $(121,111) | $29,775 | $(150,886) | | Foreign currency translation gain (loss) | $114,263 | $(20,925) | $135,188 | | Net income (loss) before taxes | $46,962 | $(68,525) | $115,487 | - Net interest income decreased by **$25.9 million** year-over-year, primarily due to lower average index rates and loan balances, and the conversion of two commercial mortgage loans from floating to fixed rates[232](index=232&type=chunk)[233](index=233&type=chunk) - Net income from real estate owned increased by **$2.7 million** year-over-year, mainly due to higher net income from the Atlanta Hotel, which was impacted by catch-up depreciation in the prior year[234](index=234&type=chunk) - Management fees decreased by **$1.7 million** year-over-year due to lower Stockholders' Equity[236](index=236&type=chunk) - No change in Specific CECL Allowance in H1 2025, compared to a **$149.5 million** increase in H1 2024 related to two subordinate loans[239](index=239&type=chunk) - Foreign currency translation and derivative activities resulted in a net loss of **$6.8 million** in H1 2025, a significant shift from a net gain of **$8.9 million** in H1 2024[244](index=244&type=chunk) [Subsequent Events](index=41&type=section&id=Subsequent%20Events) - Subsequent to June 30, 2025, the company funded **$54.7 million** for existing loans and received **$327.3 million** from loan repayments, including a **$250.4 million** first mortgage[209](index=209&type=chunk)[245](index=245&type=chunk) - A settlement was reached in the Massachusetts Healthcare lawsuit, resulting in an additional **$44.0 million** payment (**$18.1 million** attributable to ARI) by August 20, 2025[210](index=210&type=chunk)[245](index=245&type=chunk) [Non-GAAP Financial Measures](index=41&type=section&id=Non-GAAP%20Financial%20Measures) - Distributable Earnings, a non-GAAP measure, adjusts GAAP net income for non-cash items like equity-based compensation, unrealized gains/losses, and CECL allowances, serving as a key factor for dividend setting[246](index=246&type=chunk)[250](index=250&type=chunk) Distributable Earnings | Distributable Earnings (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended March 31, 2025 | | :--------------------------------------------------------- | :------------------------------- | :-------------------------------- | | Distributable Earnings | $36,416 | $33,235 | | Diluted Distributable Earnings per share of common stock | $0.26 | $0.24 | | Weighted-average diluted shares - Distributable Earnings | 141,178,754 | 141,297,044 | - Book value per share decreased from **$12.34** at December 31, 2024, to **$12.07** at June 30, 2025[253](index=253&type=chunk) [Investment Guidelines](index=42&type=section&id=Investment%20Guidelines) - Investment guidelines include maintaining REIT qualification, avoiding investment company registration, predominantly investing in target assets, and limiting single investment exposure to **20%** of net equity[254](index=254&type=chunk)[255](index=255&type=chunk) - Any changes or waivers to these guidelines require board of directors' approval[255](index=255&type=chunk) [Investment Activity](index=43&type=section&id=Investment%20Activity) - During the first six months of 2025, the company committed **$2.0 billion** to new loans (**$1.4 billion** funded at closing) and provided **$467.2 million** in add-on fundings[256](index=256&type=chunk) - Loan repayments and sales totaled **$724.0 million** during the same period[256](index=256&type=chunk) [Loan Portfolio Overview](index=43&type=section&id=Loan%20Portfolio%20Overview) Loan Portfolio Summary | Loan Portfolio (in thousands) | Carrying Value | Weighted-Average Coupon | Weighted-Average All-in Yield | Secured Debt Arrangements | Cost of Funds | Equity at Cost | | :---------------------------- | :------------- | :---------------------- | :---------------------------- | :------------------------ | :------------ | :------------- | | Commercial mortgage loans, net | $8,479,438 | 7.3% | 7.9% | $6,221,675 | 6.2% | $2,257,763 | | Subordinate loans, net | $145,472 | 0.0% | 0.0% | $0 | 0% | $145,472 | | Total Loans/Weighted-Average | $8,624,910 | 7.2% | 7.8% | $6,221,675 | 6.2% | $2,403,235 | - The portfolio's weighted-average origination LTV ratio was **57%** (excluding risk-rated '5' loans) as of June 30, 2025, indicating significant equity value[264](index=264&type=chunk) - The weighted-average risk rating of the loan portfolio was **3.0** as of June 30, 2025, based on a quarterly review assessing factors like LTV, property type, and market dynamics[267](index=267&type=chunk) Loan Portfolio Risk Rating Distribution | Risk Rating (in thousands) | Number of Loans | Total (Net of Specific CECL Allowance) | % of Portfolio | | :------------------------- | :-------------- | :------------------------------------- | :------------- | | 2 (Low risk) | 2 | $734,766 | 8.5% | | 3 (Moderate/average risk) | 47 | $7,731,635 | 89.3% | | 4 (High risk/potential for loss) | 1 | $73,112 | 0.8% | | 5 (Impaired/loss likely) | 3 | $124,245 | 1.4% | | Total | 53 | $8,663,758 | 100.0% | [Leverage Policies](index=46&type=section&id=Leverage%20Policies) - The company uses leverage solely for financing its portfolio, not for speculating on interest rate changes, and monitors limits set by credit providers and rating agencies[270](index=270&type=chunk) - The debt-to-equity ratio was **4.1** at June 30, 2025, up from **3.2** at December 31, 2024[272](index=272&type=chunk) - The company generally finances mortgage loans with **2.0 to 3.0 turns** of leverage and typically does not finance its subordinate loan portfolio due to inherent structural leverage[271](index=271&type=chunk) [Contractual Obligations, Liquidity, and Capital Resources](index=46&type=section&id=Contractual%20Obligations,%20Liquidity,%20and%20Capital%20Resources) - Current debt obligations include **$1.3 billion** in corporate debt, **$6.2 billion** in secured debt arrangements, and **$378.6 million** in debt related to real estate owned[274](index=274&type=chunk) - The company anticipates **$1.9 billion** in repayments of secured debt arrangements in the short term[274](index=274&type=chunk) - As of June 30, 2025, liquidity included **$177.6 million** cash, **$4.5 million** loan proceeds held by servicer, **$25.7 million** available borrowings, **$310.5 million** unencumbered assets, and **$83.6 million** additional capacity on construction financing[276](index=276&type=chunk) Borrowings Overview | Borrowings (in thousands) | Outstanding (June 30, 2025) | Weighted-Average Maturity (June 30, 2025) | Outstanding (December 31, 2024) | Weighted-Average Maturity (December 31, 2024) | | :------------------------ | :-------------------------- | :---------------------------------------- | :-------------------------------- | :------------------------------------------ | | Secured Credit Facilities | $4,346,815 | December 2028 | $3,235,982 | November 2026 | | Barclays Private Securitization | $1,837,360 | September 2027 | $1,587,780 | May 2027 | | Revolving Credit Facility | $37,500 | March 2026 | $0 | March 2026 | | Debt Related to Real Estate Owned | $378,589 | July 2027 | $327,662 | July 2027 | | Senior Secured Term Loans | $750,000 | June 2030 | $761,250 | January 2027 | | Senior Secured Notes | $500,000 | June 2029 | $500,000 | June 2029 | | Total Borrowings | $7,850,264 | | $6,412,674 | | - Common stock dividends decreased from **$0.35** per share in Q2 2024 to **$0.25** per share in Q2 2025, while preferred stock dividends remained constant at **$0.45** per share[286](index=286&type=chunk) [Critical Accounting Policies and Use of Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) - The most critical accounting policies involve significant judgment and assumptions, particularly for Real Estate Owned (REO) and Current Expected Credit Losses (CECL)[287](index=287&type=chunk) - Fair value of REO is determined using income, market, or cost approaches, requiring assumptions on cash flows, comparable sales, and replacement costs, which are inherently uncertain[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - The General CECL Allowance uses the WARM method, relying on historical loss rates from CMBS data, adjusted for macroeconomic forecasts (e.g., unemployment, real estate prices, market liquidity), and expected loan repayment timing[297](index=297&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk) - Specific CECL Allowance for collateral-dependent loans is based on the fair value of the underlying collateral, adjusted for selling costs, when a borrower is experiencing financial difficulty, involving significant judgment in valuation methodology and inputs[302](index=302&type=chunk)[303](index=303&type=chunk) [Supplemental U.S. Federal Income Tax Considerations](index=50&type=section&id=Supplemental%20U.S.%20Federal%20Income%20Tax%20Considerations) - The One Big Beautiful Bill Act (OBBB), enacted July 4, 2025, relaxed the REIT asset test for taxable REIT subsidiaries to **25%** (from **20%**) for taxable years beginning after January 1, 2026[307](index=307&type=chunk) - The OBBB permanently extended the **20%** pass-through qualified business income deduction for ordinary REIT dividends and the maximum U.S. federal income tax rate of **37%** for individuals, both effective for tax years beginning after January 1, 2026[307](index=307&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to various market risks, including credit, interest rate, prepayment, market, inflation, and currency risks, and describes the strategies employed to manage these risks [Credit Risk](index=52&type=section&id=Credit%20Risk) - The company focuses on acquiring high credit quality assets to mitigate credit risk, employing a value-driven underwriting approach with emphasis on sponsor/borrower due diligence and cash flow assessment[309](index=309&type=chunk) [Interest Rate Risk](index=52&type=section&id=Interest%20Rate%20Risk) - The company is exposed to interest rate risk from its target assets and financing obligations, which are sensitive to fiscal/monetary policies and economic conditions[310](index=310&type=chunk) - Strategies to manage interest rate risk include structuring financing with diverse maturities, using hedging instruments (e.g., interest rate swaps), and employing securitization financing to match asset duration[313](index=313&type=chunk) Interest Rate Sensitivity Analysis | Currency | Net floating rate assets subject to interest rate sensitivity (in thousands) | 50 basis point increase: Increase to net interest income (in thousands) | 50 basis point increase: Increase to net interest income (per share) | 50 basis point decrease: Decrease to net interest income (in thousands) | 50 basis point decrease: Decrease to net interest income (per share) | | :------- | :--------------------------------------------------------- | :-------------------------------------------------------------------- | :--------------------------------------------------- | :-------------------------------------------------------------------- | :--------------------------------------------------- | | USD | $110,264 | $1,312 | $0.01 | $(367) | $0.00 | | GBP | $745,231 | $3,726 | $0.03 | $(3,726) | $(0.03) | | EUR | $285,257 | $437 | $0.00 | $190 | $0.00 | | SEK | $52,437 | $262 | $0.00 | $(262) | $0.00 | | Total | $1,193,189 | $5,737 | $0.04 | $(4,165) | $(0.03) | [Prepayment Risk](index=53&type=section&id=Prepayment%20Risk) - Prepayment risk, where principal is repaid faster than anticipated, is managed by including prepayment penalties in loan agreements[314](index=314&type=chunk) [Market Risk](index=53&type=section&id=Market%20Risk) - Commercial mortgage assets are subject to volatility from national/local economic conditions, real estate market dynamics, and other factors, which could reduce collateral value and lead to losses[315](index=315&type=chunk) [Inflation](index=53&type=section&id=Inflation) - The company's performance is primarily influenced by interest rates rather than inflation, as most assets and liabilities are interest rate sensitive[316](index=316&type=chunk) [Currency Risk](index=53&type=section&id=Currency%20Risk) - Exposure to foreign currency fluctuations from non-USD denominated loans and debt is mitigated through foreign currency forward contracts[317](index=317&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes to internal control over financial reporting during the period - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely information collection, evaluation, and disclosure[318](index=318&type=chunk) - No material changes to internal control over financial reporting occurred during the period ended June 30, 2025[319](index=319&type=chunk) [PART II - OTHER INFORMATION](index=54&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed disclosures regarding legal proceedings, which are further elaborated in the notes to the financial statements - The company is involved in various claims and legal actions arising in the ordinary course of business, with further details provided in Note 16 – Commitments and Contingencies[323](index=323&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the comprehensive discussion of risk factors that could impact the company's operations, financial condition, and liquidity, as detailed in its most recent Annual Report on Form 10-K - Information regarding factors that could affect the company's results of operations, financial condition, and liquidity is discussed in 'Item 1A. Risk Factors' in the most recent Annual Report on Form 10-K[324](index=324&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there are no unregistered sales of equity securities or use of proceeds to report for the period [Item 3. Defaults Upon Senior Securities](index=54&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period [Item 4. Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company's operations [Item 5. Other Information](index=54&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report for the period [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, indentures, certifications, and XBRL-related documents - The exhibits include Articles of Amendment and Restatement, Amended and Restated Bylaws, Articles Supplementary for Preferred Stock, Specimen Stock Certificate, various Indentures, and certifications (**302** and **906**) as required by the Sarbanes-Oxley Act of **2002**[330](index=330&type=chunk) - XBRL Instance Document, Taxonomy Extension Schema, and Cover Page Interactive Data File are also filed as exhibits[330](index=330&type=chunk)