Apollo Comml Real Est reports $3 billion in year-to-date loan originations, strong repayments, and positive outlook for capital redeployment in Q4 and 2026.

OPERATOR - (00:01:00)

I'd like to remind everyone that today's call and webcasts 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 in our press release regarding forward looking statements. Today's conference call and webcast may include forward looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. In addition, we will be discussing certain non GAAP measures on this call which management believes are relevant to assessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the Stockholders section of our website. We do not undertake any obligation to update our forward looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.Apollocref.com or call us at 212515. At this time I'd like to turn the call over to the Company's Chief Executive Officer, Stuart Rothstein.

Stuart Rothstein - Chief Executive Officer - (00:02:20)

Thank you. Good morning and thank you for joining us on the Apollo Commercial real estate finance third quarter 2025 earnings call. As usual, I am joined today by Scott Wiener, our Chief Investment Officer, and Anastasia Maranova, our Chief Financial Officer. ARI's third quarter was highlighted by continued strong origination activity and progress with our focus assets as transaction activity and operating performance in the broader real estate market continues to improve. Importantly as capital from focus assets is freed up and made available for redeployment into newly originated loans and ARI continues to benefit from the strength and breadth of the Apollo real estate credit platform. Overall, Apollo is on pace for a record year of commercial real estate loan originations with over $19 billion closed to date. This provides ARI with an incredibly robust pipeline of transactions and enables us to effectively deploy capital and construct a diversified loan portfolio on behalf of ARI. During the quarter, ARI committed to an additional $1 billion of new loans, bringing year to date originations to $3 billion. Consistent with recent activity, this quarter's originations were divided between the US And Europe. ARI's ability to deploy capital in Europe continues to be a differentiating factor. Apollo is the most active alternative lender in Europe, which has a fragmented lender universe. Given the less developed securitization market fundamentals in Europe remain healthy across property types and with the lower rate environment enabling transactions to have positive leverage again, the acquisition market has picked up significantly. The third quarter loans closed included residential and industrial transactions and as of the end of the third quarter, residential loans encompassing multifamily for sale. Residential, senior housing and student housing represent ARI's largest underlying property type in the portfolio at 31%. Repayments continued to track expectations with $1.3 billion of repayments and sales during the quarter, bringing year to date repayments to $2.1 billion. Turning now to the loan portfolio and an update on ARI's Focus assets at quarter end, the carrying value of the portfolio totaled $8.3 billion. 54% of ARI's loan portfolio now represents loans originated post the 2022 rate hikes. The headline for ARI's focused assets is Continued sales momentum at 111 W. 57th St. With six new contracts signed since the last earnings call, three of which closed post quarter end, generating approximately $55 million in proceeds and further reducing ARI's loan basis at the Brook ARI's multifamily development in Brooklyn. We have seen strong leasing velocity to date and are still on target to exit that investment in the second half of 2026. Anastasia will discuss in her comments, but we expect this capital rotation out of focus assets will have a meaningful impact on ARI's earnings run rate going forward. Shifting to the right side of our balance sheet, ARI continues to maintain robust liquidity and has access to additional capital from the company's various secured financing facilities. ARI's lenders remain actively engaged in the sector with ongoing dialogue around in place or potential new financings. ARI continues to diversify the company's lender base and expand sources of capital. Having entered into new secured entered into a new secured borrowing facility during the quarter in Europe. In addition, we upsized the borrowing capacity on our revolving credit facility by $115 million and extended the maturity to August of 2028. With that, I will turn the call over to anastasia to review ARI's financial results for the quarter.

Anastasia Maranova - Chief Financial Officer - (00:06:58)

Thank you Stuart and good morning everyone. For the third quarter of 2025, ARI reported GAAP net income of 48 million or $0.34 per diluted share of common stock. Distributable earnings were 42 million or $0.30 per share. Distributable earnings before realized loss on investments and realized gain on litigation settlement, or the measure we refer to as run rate distributable earnings was 32 million or $0.23 per share of common stock. Run rate Distributable earnings during the quarter was slightly below the dividend level. Given the timing of redeployment of capital within the quarter, it is worth noting that we often do not have control over the timing of new loan transactions closing and its correlation to the timing of repayments in the portfolio. Reinvestment of proceeds from unit sales at 111 West 57 will provide upside to earnings in Q4 and further in 2026. We continue to address other focused assets in our portfolio and foresee resolutions on a number of them towards the second part of the year in 2026. Recycling of capital from those top performing assets will provide further uplift to earnings at the end of 2026. During the quarter we received discounted payoff proceeds associated with our Michigan office loan which was previously fully reserved. As a result, we recorded a partial reversal of the specific CECL allowance in the amount of 1.3 million and the charge off of 6.2 million. We also realized a 1.2 million loss on sale of the promissory note which was previously reflected as note receivable held for sale on our balance sheet. This realized loss was in line with the previously recorded valuation allowance for this asset. Additionally, during the quarter we recognized a 17.4 million gain in connection with the settlement of the litigation related to one of the assets in the Massachusetts health care portfolio. The aggregate impact of these events was $0.14 increase in book value per share. As a result, our book value per share, excluding general CECL allowance and depreciation was $12.73 as of the end of the quarter. Our loan portfolio ended the quarter with a carrying value of 8.3 billion and the weighted average unlevered yield of 7.7%. As Stuart mentioned, we had a strong quarter of loan origination totaling 1 billion and completing an additional $234 million in add on funding for previously closed loans year to date. Through Q3. Quarter end we originated over 3 billion of new commitments and completed a total of 702 million of add on funding for previously closed loans. Subsequent to quarter end we committed an additional 388 million towards new loans, 324 million of which have already been funded. In addition to those closings we have a robust pipeline of loans which are expected to close before the end of the year. With respect to risk ratings, the weighted average risk rating of the portfolio at quarter end was 3.0, unchanged from the previous quarter end. There were no new asset specific CECL allowances recorded during the quarter and no other movements in ratings across the portfolio, our specific CECL Reserve decreased by 7.5 million due to partial reversal and the associated charge off on the Michigan Office loan. As mentioned earlier, our general CECL allowance increased this quarter by 1 million due to origination activity in the portfolio. Total fee still allowance in percentage points of the loan portfolio amortized cost basis is up slightly quarter over quarter from 429 basis points to 438 basis points driven by a slightly lower loan portfolio balance at the end of the quarter compared to the previous quarter end. We ended the quarter with strong liquidity of 312 million comprising of cash on hand, committed undrawn capacity on existing facilities and loan proceeds held by the servicer. Our leverage is down quarter over quarter from 4.1 times at June 30 to 3.8 times at September 30. We continue to diversify and strengthen our banking relationship with two new banks joining the syndicate to our revolving credit facility which was upsized by 115 million during the quarter and extended by three years. Liquidity in the secured borrowing market remains plentiful and with continued spread tightening, we have been able to generate returns consistent with our historical and target levels. With that, we would like to ask the operator to open the line for questions.

OPERATOR - (00:12:39)

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Doug Harter with ubs. You may proceed.

Doug Harter - Equity Analyst - (00:13:00)

Thanks. As you think. Thanks for the update on the focused assets. How do you think about the timeline to monetizing the brook?

UNKNOWN - (00:13:13)

And.

Stuart Rothstein - Chief Executive Officer - (00:13:15)

How should we think about the pacing of Future sales at 111 57th? Yeah, thanks, Doug. Look, let me take those in reverse because at 1:11 with West 57th, we're effectively down to three units at this point. You know, including what the market knows of as a, as a quadplex and then another penthouse. So there's actually foot traffic and interest continues to be good at 111 West 57th Street I would say, you know, given the size of the units we're talking about moving, it's tough to know exactly from a timing perspective, but certainly, you know, our expectation in dialogue with the team working on it is that, you know, certainly the early part of next year, you know, sometime in the first part of next year we would hope to be at the finish line on 111 West 57th Street I think with respect to the brook, if things keep a long pacing from a lease up perspective and there's nothing else unforeseen in the marketplace. You know, today we would think about bringing the asset to market.

UNKNOWN - (00:14:36)

You know.

Stuart Rothstein - Chief Executive Officer - (00:14:36)

Call it sometime in the late spring, early summer next year with the hope of closing a transaction sometime late third quarter, early fourth quarter.

Doug Harter - Equity Analyst - (00:14:54)

Great. And then as you think about leverage, what do you think is the right leverage level for this business to be run, as you think about the level of redeployment you can achieve as

UNKNOWN - (00:15:11)

You free up capital?

Stuart Rothstein - Chief Executive Officer - (00:15:13)

Let me look. I think for us it hasn't changed much. The leverage has moved up in the company over time only because we've pivoted out of your mezzanine loans and more into all senior loans where you end up, you know, roughly same attachment points and generating your ROE that way. I think, you know, for us, we will continue originate senior loans at, you know, let's say, and then back lever somewhere in the, you know, 65 to 75% range. From a back leverage perspective, that would imply ultimately a leverage level, you know, let's say in the mid threes, but then you've got some corporate leverage as well through the term loan B and the senior secured notes. So we're going to run the business around four terms of leverage when we are fully deployed and capital efficient, including return of capital from Focus assets.

Doug Harter - Equity Analyst - (00:16:27)

Great. Thank you, Stuart.

Stuart Rothstein - Chief Executive Officer - (00:16:29)

Sure.

OPERATOR - (00:16:31)

Thank you. Our next question comes from Harshim Nani with Green Street. You may proceed.

Harshim Nani - Equity Analyst - (00:16:37)

Thank you. And thanks for the update on the Brook and 111West 57th, both of which seem like 1H26, 2H26. Excuse me, and part of it in 2H26. Do you have any thoughts or update on the Liberty Center asset and how that's progressing? Yeah, the, you know, the news on Liberty Center, which was actually not a surprise when it happened, I guess we knew it was ultimately going to happen, but we thought, you know, we thought the market would accept a sale through that which was the parent of the movie theater at Liberty Center filed bankruptcy. I think the feedback through the sales process that we were early stages on earlier in this year was that we'll get a better response from the marketplace on the sales side as that gets resolved. At this point, the movie theater is continuing to pay rent, but is, I would say, operating the theater suboptimally. We will let the process play out through the bankruptcy court. We are very much involved in the process and will determine whether they are going to accept or reject the lease. It is clear from incoming inquiries that there are other operators interested in the movie theater space if it becomes available. But at this point, we need to let that process play out and I think we will be in a better position to assess timing of an exit, probably late Q1, early Q2 of next year. Got it. That's helpful. And then maybe on the repayment side, it's been a little lumpy this year, but this quarter was specifically, you know, a big step up in repayments. Is there anything particular to point to that that's driving the elevated level of repayments? And do you think that will continue, perhaps fourth quarter and moving into early next year? Yeah, look, we're never, you know, we're never going to predict the exact timing and we tend not to spend a lot of time losing sleep over quarterly variations. I do think to your question, at a broad level, repayments are occurring because the capital markets are fully open. There is the ability for people to access repayment capital. But you're also seeing improved operating performance in a lot of asset classes and the market has accepted a reset from a valuation perspective. So I think a lot of the sort of stasis that we saw in the market in 2022, early 2023, as people were trying to digest elevated interest rates and not really sure where the economy was headed, I would say both in the US and Europe, relevant to our portfolio, there's just better clarity in the market. I think a lot of the capital that was sitting on the sidelines, particularly on the equity side, is biased towards transacting these days. So I think we will continue to see a healthy pace of repayments across the portfolio. And I would say, you know, it'll be lumpy quarter to quarter just because you're never quite sure when deals will close. But as we look out in terms of projected repayments, you know, the big headline was that repayments are consistent with what we would have expected and we don't see that changing going forward. Great, thank you.

OPERATOR - (00:20:47)

Thank you. Our next question comes from Jade Rahmani with kbw. You may proceed.

Jason Sapshawn - (00:20:53)

Hi, this is Jason Sapshawn for Jade. Thanks for taking my question. So on 111 West 57, total exposure was up slightly this quarter to 279 million. I'm assuming that was due to increased capitalized cost on development spend. Maybe Tenant Improvements (TIs) on the retail lease. Is that accurate?

Stuart Rothstein - Chief Executive Officer - (00:21:13)

Yes, yes, Jason, it's accurate. Yeah. We had some in connection with the Bonham's lease. We had to pay for some, you know, ongoing Tenant Improvements (TIs). Got it. I would also say. I'm sorry, Scott. Jason, the other thing, I'd say it's consistent with the underwriting we did at the time, we took the Reserve on 111 West 57. So I would say it's consistent with expectations. I'm sorry, Scott, go ahead.

Scott Wiener - Chief Investment Officer - (00:21:42)

Yeah, I was just gonna say we didn't have any of the. Any of the contracts closed in the quarter. So I think you saw in our release that we had already have three. Three contracts closed, so that'll reduce the balance. And then, you know, Stuart was saying that there's three unsold units, but there also are three more units that are under contract that we expect to close the remainder of the quarter. So there should be six units at least, closing this quarter, paying down our balance.

Jason Sapshawn - (00:22:06)

Oh, wow. Okay, that's great. And then on Brooklyn multifamily, what's the difference between the debt listed in the slide deck at 330 million and capitalized financing and construction costs in the 10Q at 393. Sorry, 330 in the slide deck and 393 in the 10Q. Anastasia, you want to handle that now or just get back after the call?

Anastasia Maranova - Chief Financial Officer - (00:22:35)

Yeah, this is Anastasia. I will take a look at the math here. I'll get back to you after the call.

Jason Sapshawn - (00:22:41)

All right, thank you. And then just on the two hotels, the Mayflower and the Atlanta hotels, any update there would be helpful. I mean, I think on the Mayflower, the hotel continues to perform well. Obviously there's some seasonality in the numbers which sort of always impacts what occurs in Q3. But overall, from an NOI perspective, particularly relative to basis, the hotel is performing quite well. And we are now stepping into a focus on optimizing the expense side at the hotel. But we continue to feel quite positive on performance of the hotel. And just think there's some more net cash flow uplift that we can.

UNKNOWN - (00:23:42)

Thank you.

Stuart Rothstein - Chief Executive Officer - (00:23:43)

To a more stabilized level. All right, thank you.

OPERATOR - (00:23:54)

Thank you. Our next question comes from John Nicodemus with btig. You may proceed. Hello.

John Nicodemus - Equity Analyst - (00:24:02)

Good morning everyone and thanks for taking my question. As Harsh mentioned, it was definitely a high repayment quarter, but it sounds like originations are a full go into the end of the year, which is exciting. Obviously this is all can fluctuate on a quarter by quarter basis, but how do you envision the size of the loan portfolio trending not just in the next quarter, but kind of as we get further into middle of 20, 26 and maybe even end of next year? If you have any insight on that. Thanks. I mean, where the growth in the loan portfolio is going to come from. John is right to the extent we are able to take unlevered capital, Right. If you think about repayments on 111 W. 57th Street Or ultimately selling Liberty Center, right, you're going to take unlevered capital and then deploy it and lever it into assets. So you'll see some portfolio growth. As we bring back what we would call the focus asset capital, you'll see less impact if and when we ultimately sell the Brook because that is levered as a, as a construction deal already. We'll be able to use more leverage against a senior first mortgage than you can against a, a construction deal. So you'll see some pickup in asset level, but it won't be as dramatic as just assuming all of the capital is coming back to us. But that's what's really going to drive portfolio growth going forward is taking focus assets, which for the most part are unlevered or under levered, and deploying them into senior loans where we'll use, quote, unquote, full leverage, per my response to Doug's question earlier in the conference call. Great. Really helpful, Stuart. Thank you. Then other one for me saw the team originate two sizable loans on upscale hotels during the quarter. We're just curious if there's something about the hospitality sector that you're finding more attractive at this time or were these more just unique opportunities in New York and San Diego? Thanks, Scott. Do you want to comment?

Scott Wiener - Chief Investment Officer - (00:26:17)

Yeah, I mean, I would say, look, we've always been active in the hotel front both in the US and Europe, you know, happen to like these deals just given size and in place cash flow. You know, one of the deals we partner with someone and there's a mez behind us. We were able to structure a very low leverage deal. And then one in the New York City was an asset we were familiar with in a sponsorship group was acquisition financing. So nothing special. You know, I think hotels will always have a part of the portfolio and think it's, you know, we've gotten a bunch of repayments in hotels, so we thought it made sense to add these two deals.

John Nicodemus - Equity Analyst - (00:26:56)

Awesome. Thanks so much, Scott, and appreciate the time.

OPERATOR - (00:27:01)

Thank you. And as a reminder to ask a question, please press star one one on your telephone. Our next question comes from Rick Shane with JPMorgan. You may proceed. Hey, this is A.J.

A.J - (00:27:12)

On for Ric. So it seems like office trends are continuing to improve. I was just wondering if you can give us an update on what you're seeing in your office portfolio right now. Yeah, Scott, you want me to go? You want to go?

Scott Wiener - Chief Investment Officer - (00:27:25)

Yeah, look, I mean, I Think, look, it's still a very much city by city with offices. I mean, I think we're fortunate, you know, where our exposure generally is. But I would say certainly, you know, in the stats that we're getting from the landlords, you know, people are back in the office more and that's really across the board. Clearly New York, I think they're maybe even higher than pre Covid. Lots of positive leasing momentum. Again, New York and London in particular, Chicago, where we do have some exposure. I would say it's again, asset by asset. We happen to have a loan on one of the newest buildings in Chicago and that's doing great. We have a loan on an older building that is seeing some positive leasing, not as much as the newer build, which I think again is consistent in other markets. So I think we're pleased and I think overall, so we're seeing more capital market activity. You're seeing certainly the financing of office deals is back across the board. Both stabilized deals as well as lease up. And then you are starting to see more transaction activity. Super helpful.

A.J - (00:28:36)

Thank you. And just another one on repayments. So now that rates are finally starting to come down, could you see a bit of a tick up in repayment rates, especially for some of those earlier Covid era vintages that have been waiting for lower rates for so long?

Scott Wiener - Chief Investment Officer - (00:28:55)

Yeah, I mean, I think as we look at our portfolio, you know, consistent with all real estate. Right.

Stuart Rothstein - Chief Executive Officer - (00:29:02)

Yeah, go ahead, Scott.

Scott Wiener - Chief Investment Officer - (00:29:04)

I was just gonna say there's a bunch of our stuff is actually being sold. So people have achieved their business plan and they're selling it and we're getting repaid. You know, other deals are being refinanced and whether, you know, pulling out money or just again the loan, the loans coming due. So I don't really see it as a trend where someone had really high expensive debt from COVID or pre Covid. I think it's just normal. You know, these are floating rate loans with, you know, a few years of call protection. When we do a loan, we kind of expect it to be out two, three years. And I just think people are, you know, the markets are open and where they want to, you know, refinance or sell. They're doing that now.

A.J - (00:29:44)

Yep. Thank you very much. That's all for me.

OPERATOR - (00:29:48)

Thank you. I would now like to turn the call back over to Stuart Rothstein for any closing remarks.

Stuart Rothstein - Chief Executive Officer - (00:29:54)

No closing remarks. As always, appreciate everybody's participation and if you have questions after the fact, myself, Hilary Anastasia, we are always reachable and available. Thank you all.

OPERATOR - (00:30:07)

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.