Apollo's Q3 2025: Contradictions Emerge on Monetization Timelines, Repayment Trends, and Office Portfolio Performance

Date of Call: None provided

Financials Results

• EPS: $0.34 per diluted share (GAAP net income $48M)

Guidance:

• On pace for a record year of loan originations; over $19 billion closed to date and $3 billion year-to-date.
• Committed $1.0B in Q3 and $388M subsequent to quarter end (approximately $324M funded).
• Expect 111 West 57th Street sales to conclude in the early part of next year (six contracts signed/underway).
• Plan to market The Brooke in late spring/early summer 2026 and target closing late Q3/early Q4 2026.
• Liberty Center outcome subject to bankruptcy process; timing likely late Q1/early Q2 2026.
• Recycling capital from focus-asset sales expected to meaningfully uplift earnings late 2026.
• Target running leverage in the mid‑threes and ~4x when fully deployed (back leverage ~65–75%).

Business Commentary:

• Strong Loan Origination and Portfolio Growth:
• 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 Q3.

• The growth was driven by ARI's ability to deploy capital in both the U.S. and Europe, benefiting from the strength and breadth of the Apollo Real Estate Credit Platform, and improved market conditions.

• Focus Asset Resolution and Capital Rotation:

• ARI achieved significant progress with its focus assets, such as 111 West 57th Street, generating approximately $55 million in proceeds and reducing its loan basis.

• Capital rotation from focus assets is anticipated to have a meaningful impact on ARI's earnings run rate going forward, as it becomes available for reinvestment into newly originated loans.

• Repayment and Capital Market Activity:

• ARI reported $1.3 billion in repayments and sales during Q3, with year-to-date repayments totaling $2.1 billion.

• The increase in repayments is attributed to a fully open capital market and improved operating performance across various asset classes, leading to better clarity and transaction activity.

• Liquidity and Leverage Management:

• ARI maintained strong liquidity with $312 million, and reduced leverage from 4.1 times at June 30 to 3.8 times at September 30.

• The company diversified and strengthened its banking relationships by adding new banks to its syndicate and upsizing its revolving credit facility by $115 million.

• European Market Opportunities:

• ARI's European loan originations continue to be a key differentiator, with the company being the most active alternative lender in the region.
• The fragmented lender universe and lower rate environment, enabling positive leverage transactions, have driven the acquisition market in Europe.

Sentiment Analysis:

Overall Tone: Positive

• Management: "on pace for a record year of commercial real estate loan originations, with over $19 billion closed to date." CFO: GAAP net income $48M ($0.34/s), distributable earnings $42M ($0.30/s), book value per share (ex. gen CECL & depreciation) $12.73. Portfolio carrying value $8.3B; weighted average unlevered yield 7.7%; liquidity $312M. Statements emphasize strong originations, liquidity and progressing focus-asset monetizations.

Q&A:

• Question from Doug Harter (UBS): As you think about the update on the focused assets, how do you think about the timeline to monetizing The Brooke, and how should we think about the pacing of future sales at 111 West 57th Street?
  Response: 111 West 57th Street: down to three units, expect to finish in early next year; The Brooke: target to market late spring/early summer 2026 with closing in late Q3/early Q4 2026.

• Question from Doug Harter (UBS): 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 new senior loans ~65–75%, implying overall leverage in the mid‑threes and around 4x when fully deployed (including corporate facilities).

• 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: parent of the movie theater filed bankruptcy; theater currently paying rent but operating suboptimally; process ongoing through bankruptcy court and timing to reassess expected late Q1/early Q2 next year.

• Question from Harsh Hemnani (Green Street): On the repayment side, this quarter was a big step up—anything particular driving the elevated level of repayments and will it continue into Q4/early next year?
  Response: Elevated repayments driven by open capital markets, improved operating performance and buyers returning; expect healthy but lumpy repayments to continue consistent with expectations.

• Question from Jason Sapshon for Jade Rahmani (KBW): On 111 West 57th Street, 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 — increase reflects capitalized costs including tenant improvements tied to the retail lease and is consistent with prior underwriting; recent contract closings will reduce the balance.

• Question from Jason Sapshon for Jade Rahmani (KBW): 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 accounting detail and follow up after the call.

• Question from Jason Sapshon for Jade Rahmani (KBW): Any update on the Mayflower and the Atlanta hotels?
  Response: Mayflower performing well with seasonal variations; management focusing on expense optimization and sees further NOI/net cash flow upside; hotels remain a strategic part of the portfolio.

• Question from John Nicodemus (BTIG): How do you envision the size of the loan portfolio trending into mid-2026 and end of next year?
  Response: Portfolio growth will come mainly from recycling unlevered capital from focus-asset sales into levered senior loans; expect portfolio pickup but not dramatic given some assets (e.g., The Brooke) are already levered.

• Question from John Nicodemus (BTIG): You originated two sizable loans on upscale hotels—anything idiosyncratic or are hotels more attractive now?
  Response: Hotels are a consistent part of the platform; these deals were attractive due to size, in-place cash flow and favorable structuring (low leverage/mezzanine partnership), so opportunistic additions rather than a sector pivot.

• Question from Rick Shane / AJ (JPMorgan): Can you give us an update on what you’re seeing in your office portfolio right now and whether repayments may pick up as rates fall?
  Response: Office is improving city-by-city—NYC and London showing strong leasing momentum; financing activity has returned for stabilized and lease-up office deals; repayments are driven by sales/refinancing in an open market rather than a single COVID-era refinance wave.

Contradiction Point 1

Monetization Timeline for The Brooke

It pertains to the timeline for monetizing a key property, influencing investor expectations on future cash flows and capital allocation.

What is the timeline for monetizing The Brooke and the expected sales pace at 111 West 57th Street? - Doug Harter(UBS)

2025Q3: Regarding 111 West 57th Street, three units remain, and the process is expected to conclude in early 2026. As for The Brooke, it may be marketed in late spring/early summer 2026. The seller's market is anticipated to close in late Q3 or early Q4. - Stuart Rothstein(CEO)

Can you explain capital recycling, especially regarding Brook, and its potential impact on future cash flows and asset monetization? - Douglas Harter(UBS)

2025Q2: The Brook is a multifamily development with 500+ units, focusing on leasing market-rate units first. Progress on leasing is expected by the end of the year, with the asset turning cash flow positive in early 2026. The plan is to either sell the asset or bring in a partner between Q1 and Q2 of 2027, aiming to monetize the asset. - Stuart Rothstein(CEO)

Contradiction Point 2

Repayment Trends and Drivers

It involves the explanation of repayment trends, which can significantly impact cash flow and capital allocation strategies.

What is driving the elevated repayment levels? Do you expect this trend to continue into early next year? - Harsh Hemnani(Green Street)

2025Q3: Repayments are occurring due to open capital markets and improved operating performance. There's better clarity in the market regarding debt capital access. We expect a healthy pace of repayments moving forward. - Stuart Rothstein(CEO)

What are your expectations for the commercial real estate transaction market for the remainder of the year, and how will this impact ARI's plans? - John Nickodemus(BTIG)

2025Q2: With respect to the high levels of repayments we saw this quarter, those are driven primarily by a very strong market for debt capital. We see that across all of our major portfolios. And as we look forward, we expect that to continue. - Stuart Rothstein(CEO)

Contradiction Point 3

Office Portfolio Performance

It reveals differing perspectives on the performance and outlook of the office portfolio, which is crucial for understanding the health of the company's real estate investments.

Can you provide an update on your office portfolio performance? - AJ (on behalf of Rick Shane, JPMorgan)

2025Q3: Office trends are improving in New York and London with high occupancy rates. There is positive leasing momentum. Chicago's performance varies by asset. - Stuart Rothstein(CEO)

Can you comment on the performance of Berlin and Chicago offices, Manhattan offices, and Cleveland multifamily properties? - Jade Rahmani (KBW)

2025Q1: Regarding office performance, it's been quite good in New York and London. The office performance in Chicago is a bit less predictable from asset to asset. - Stuart Rothstein(CEO)

Contradiction Point 4

Property Monetization Timeline

It involves differing timelines for the monetization of specific properties, which could impact capital recovery and investor expectations.

What is the timeline for monetizing The Brooke, and how should we view the pacing of future sales at 111 West 57th Street? - Doug Harter(UBS)

2025Q3: Regarding 111 West 57th Street, three units remain, and the process is expected to conclude in early 2026. As for The Brooke, it may be marketed in late spring/early summer 2026. The seller's market is anticipated to close in late Q3 or early Q4. - Stuart Rothstein(CEO)

Can you explain how the specific reserve translates into realized losses or transactions this year and the next year or two, to help us dial in our distributable earnings estimates? - Rick Shane(JPMorgan)

2024Q4: We expect to claw back capital tied up in the 111 West 57th project this year. The Cincinnati asset, Liberty Center, may also be monetized later this year. The Brooklyn REO will start taking tenants later this year, potentially leading to sales or refinancings and capital recovery in early 2026. - Stuart Rothstein(CEO)

Contradiction Point 5

Repayments and Capital Deployment

It highlights differing expectations and explanations for the pace of repayments and capital deployment, which are critical for understanding the company's financial strategy and future growth.

What specific factors are driving the elevated repayment levels, and do you expect this trend to continue into Q4 and early next year? - Harsh Hemnani(Green Street)

2025Q3: Repayments are occurring due to open capital markets and improved operating performance. There's better clarity in the market regarding debt capital access. We expect a healthy pace of repayments moving forward. - Stuart Rothstein(CEO)

Are there discussions about potential delays in loan repayments or new funding due to market changes, and how does the company view the market impacts? - Richard Shane(JPMorgan)

2025Q1: We do not see a clear path to deploying more capital until we have more clarity from the market on the size of the recession, whether it is 1 quarter, 2 quarters, 3 quarters or permanent. - Stuart Rothstein(CEO)