Apollo Commercial Real Estate Finance's Q3 2025 Earnings Call: Contradictions Emerge on Brook Monetization, Capital Recycling, and Leverage Strategies

Date of Call: October 31, 2025

Financials Results

• EPS: GAAP net income $48.0M, $0.34 per diluted share; distributable earnings $42.0M, $0.30 per share; run-rate distributable earnings $32.0M, $0.23 per share.

Guidance:

• Expect 111 West 57th to be substantially monetized in early 2026.
• Plan to market the Brook in late spring/early summer 2026 and target closing late Q3/early Q4 2026.
• Liberty Center outcome depends on a theater bankruptcy process; clarity anticipated late Q1/early Q2 2026.
• Target running the business around ~4x leverage when fully deployed; back-leverage loans ~65%–75%.
• Reinvestment of focus-asset proceeds is expected to meaningfully uplift earnings; robust origination pipeline into year-end.

Business Commentary:

• Strong Origination Activity and Diversification:
• Apollo Commercial Real Estate Finance (ARI) originated over $19 billion in commercial real estate loans year-to-date, with $3 billion in new commitments in the first three quarters of 2025.
• ARI continues to diversify its loan portfolio, with a significant portion of originations in Europe, leveraging its status as the most active alternative lender in the region.

• The strong origination activity is attributed to the company's robust pipeline of transactions and the ability to deploy capital efficiently across diverse markets.

• Focus Asset Sales and Capital Rotation:

• ARI achieved significant sales momentum at 111 West 57th Street, with 6 new contracts signed since the last earnings call, generating approximately $55 million in proceeds.
• The Brook multifamily development in Brooklyn is on track for completion in the second half of 2026, with strong leasing velocity.

• The sales of focus assets will provide capital rotation, which is expected to have a meaningful impact on ARI's earnings run rate in the future.

• Repayment and Portfolio Dynamics:

• ARI reported $1.3 billion in repayments during Q3, bringing year-to-date repayments to $2.1 billion.
• The company's loan portfolio ended the quarter with a carrying value of $8.3 billion, with 54% of the portfolio representing loans originated post-2022 rate hikes.

• The elevated level of repayments is driven by open capital markets, improved operating performance in various asset classes, and improved clarity in the market, leading to better transacting conditions.

• Liquidity and Leverage Management:

• ARI maintained robust liquidity with $312 million in cash and committed undrawn capacity at the end of Q3.
• The company's leverage decreased from 4.1x to 3.8x quarter-over-quarter, with plans to run the business around 4 turns of leverage when fully deployed.
• ARI's ability to manage liquidity and leverage is strengthened by diversifying its banking relationships, upsizing borrowing capacity, and maintaining access to additional capital through secured financing facilities.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'continued strong origination activity' and Apollo on pace for a record year with >$19B closed; GAAP net income $48M and distributable earnings $42M; liquidity $312M and leverage reduced to 3.8x; $17.4M litigation gain and $55M proceeds from recent 111 West 57th closings; guidance emphasizes capital redeployment to drive future earnings.

Q&A:

• Question from Douglas Harter (UBS Investment Bank, Research Division): How do you think about the time line to monetizing the Brook? And how should we think about the pacing of future sales at 111 West 57th.
  Response: 111 West 57th: expect finish line in early 2026; the Brook: plan to market late spring/early summer 2026 and target closing late Q3/early Q4 2026.

• Question from Douglas Harter (UBS Investment Bank, Research Division): 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 that you can do as you free up capital?
  Response: Target to back-lever loans ~65%–75% and run the company around ~4x leverage when fully deployed, inclusive of corporate debt.

• Question from Harsh Hemnani (Green Street): Do you have any thoughts or update on the Liberty Center asset and how that's progressing?
  Response: Liberty Center is tied to the theater parent's bankruptcy; theater is still paying rent but process must play out—expect better timing clarity late Q1/early Q2 2026.

• Question from Harsh Hemnani (Green Street): On the repayment side, this quarter was a big step-up in repayments. Is there anything particular driving the elevated level of repayments? And do you think that will continue into early next year?
  Response: Repayments reflect open capital markets, improved operating performance and valuation resets; management expects healthy but lumpy repayments consistent with expectations.

• Question from Jason Sabshon (Keefe, Bruyette, & Woods, Inc., Research Division): On 111 West 57th, total exposure was up slightly this quarter to $279 million. I'm assuming that was due to increased capitalized cost on development spend, maybe TIs on the retail lease. Is that accurate?
  Response: Yes—balance rose due to capitalized costs/TI related to the retail lease; subsequent contract closings will reduce the balance.

• Question from Jason Sabshon (Keefe, Bruyette, & Woods, Inc., Research Division): 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 10-Q at $393 million?
  Response: CFO will review the math and follow up after the call.

• Question from Jason Sabshon (Keefe, Bruyette, & Woods, Inc., Research Division): Any update on the Mayflower and the Atlanta hotels?
  Response: Mayflower is performing well on NOI with seasonality noted; focus now on optimizing expenses to further stabilize cash flow.

• Question from John Nickodemus (BTIG, LLC, Research Division): How do you envision the size of the loan portfolio trending into mid-2026 and beyond?
  Response: Portfolio growth will come from redeploying unlevered capital from focus-asset monetizations into senior loans with full leverage, producing moderate pickup rather than dramatic expansion.

• Question from John Nickodemus (BTIG, LLC, Research Division): Why originate two sizable hotel loans—is hospitality more attractive now or were these unique opportunities?
  Response: Hotels remain a consistent part of the strategy; these deals were attractive due to size, in‑place cash flow and favorable low-leverage structuring, aided by prior repayments in the sector.

• Question from A.J. Denham (JPMorgan Chase & Co, Research Division): Can you give us an update on what you're seeing in your office portfolio right now?
  Response: Office performance is city- and asset-specific; strong leasing and positive momentum in New York and London, mixed in other markets, with financing and transaction activity returning.

• Question from A.J. Denham (JPMorgan Chase & Co, Research Division): Now that rates are starting to come down, could you see a tick up in repayment rates, especially for earlier COVID-era vintages?
  Response: Repayments are driven by sales and refinancings as markets reopen; loans often have multi-year protection—management views current activity as normal refinancing/sales rather than a COVID-era wave.

Contradiction Point 1

The Brook's Monetization Timeline and Cash Flow

This contradiction involves the expected timeline for monetizing The Brook and its impact on cash flow, which is crucial for financial planning and investor expectations.

What is the timeline for monetizing the Brook? How should we view the pacing of future sales at 111 57th? - Douglas Harter(UBS Investment Bank)

2025Q3: We will probably be marketing in late spring to early summer of next year and then expect to close the transaction in the late third to early fourth quarter. - Stuart Rothstein(CEO)

Can you explain the recycling capital strategy and discuss the progress and potential cash flow of The Brook? - Douglas Harter(UBS)

2025Q2: We will monetize the asset between Q1 and Q2 next year, either by selling it outright or bringing in a partner. - Stuart Rothstein(CEO)

Contradiction Point 2

Capital Recycling and Portfolio Growth

This contradiction involves the company's strategy for recycling capital and growing its portfolio, which directly affects its financial strategy and investor expectations.

What do you consider the appropriate leverage level for the business when redeploying capital that is freed up? - Douglas Harter(UBS Investment Bank)

2025Q3: We will be targeting the full deployment of the 3 and 4 turns of leverage of that capital during the course of 2026. - Stuart Rothstein(CEO)

What are the expectations for portfolio growth and how will it be funded? - Harsh Hemnani(Green Street)

2025Q2: The company anticipates continued growth in the portfolio by recycling equity from focus assets and redeploying it at 3 to 4 turns of leverage. - Stuart Rothstein(CEO)

Contradiction Point 3

Repayment Activity and Market Conditions

It involves differing perspectives on the factors driving repayment activity and market conditions, which are crucial for understanding the company's financial performance and future outlook.

What's driving the elevated repayment levels? Do you expect this trend to continue into Q4 and early next year? - Harsh Hemnani

2025Q3: Repayments are driven by a fully open capital market, improved operating performance, and market clarity, leading to higher transacting activity. The pace is expected to remain healthy and consistent. - Stuart Rothstein(CEO)

Have you observed delays in loan repayments or new lending due to market conditions, and how are you assessing market impacts? - Douglas Harter

2025Q1: The market is still functioning robustly, with limited volatility in credit markets. Volatility in equities hasn't affected the credit market. Concern is about potential recession impacts, but need for capital deployment outweighs any changed behavior. - Stuart Rothstein(CEO)

Contradiction Point 4

Leverage and Capital Deployment Strategy

It shows differing perspectives on the optimal leverage level for the business and the strategy for deploying capital, which are critical for financial management and growth.

What’s the optimal leverage level for the business considering capital redeployment opportunities? - Douglas Harter

2025Q3: ARI will continue to originate senior loans, back leveraged at 65%-75%, which would imply a leverage level in the mid-3s. This includes corporate leverage from the Term Loan B and senior secured notes, resulting in a total leverage level of 4 turns when fully deployed. - Stuart Rothstein(CEO)

How has ARI expanded into the U.K. and Europe, and what is its strategy there? - Steven Delaney

2025Q1: Funding will come from repayments and resolution of focused assets. There is an increased inbound in the U.S. due to disruptions in the securitized market, offering balance sheet certainty. - Scott Weiner(CIO)

Contradiction Point 5

Portfolio Growth and Capital Deployment

It involves differing expectations regarding the timing and manner of portfolio growth and capital deployment, which are crucial for understanding the company's financial strategy and performance.

How do you expect the loan portfolio size to trend through mid-2026 and into next year’s end? - John Nickodemus (BTIG, LLC, Research Division)

2025Q3: Portfolio growth will come from deploying unlevered focus asset capital into senior loans, leveraging them, and using 'full leverage.' The Brook's sale will not have the same impact as it's already levered. - Stuart Rothstein(CEO)

Can the ARI portfolio grow over the next 6 to 12 months? - Steve Delaney (Citizens JMP Securities)

2024Q4: It's a matter of timing. ARI has a large pipeline of deals that are in closing, and the capital will be used to leverage senior mortgages, which could easily result in portfolio growth by $0.5 billion, $1 billion. - Scott Weiner(CIO)