Apollo Commercial Real Estate Finance, Inc. Q2 FY2025 earnings call

• Strong loan originations: $1.4 billion in commitments during Q2, with year-to-date $2 billion in new commitments and $467 million in add-on fundings for previously closed loans.
• Portfolio growth: Carrying value of ARI's portfolio increased 12% from prior quarter to $8.6 billion, comprised of 53 loans.
• Focus assets progress: 111 West 57th Street had 9 units closed in Q2 generating $170 million in proceeds; The Brook's leasing office opened in June with tenant move-ins beginning; marketing process for Liberty Center in Cincinnati commenced.
• Refinancing: Completed a new 5-year floating rate $750 million Term Loan B, repaying existing Term Loan Bs, with next corporate debt maturity not until June 2029.
• Liquidity optimization: Closed 3 new secured credit facilities and upsized an existing credit facility, providing $1.4 billion of additional borrowing capacity.

ARI delivered strong Q2 2025 performance. Loan originations totaled $1.4 billion in commitments during the quarter, with year-to-date commitments of $2 billion. The loan portfolio ended the quarter with a carrying value of $8.6 billion, up from $7.7 billion at Q1 end. Residential properties now comprise approximately 25% of ARI's portfolio, the largest property type concentration, with ~2/3 of residential loans originated over past 24 months. Europe represents ~50% of ARI's portfolio and 18% of YTD originations. Weighted average unlevered yield of the portfolio was 7.8%. Repayments and sales totaled $631 million during the quarter, with 41% of the loan portfolio originated post-2022 interest rate rise and valuation reset.

• Expect capital rotation from focus assets to have positive impact on ARI's earnings in latter half of 2025 and throughout 2026.
• Confident in redeploying capital from repayments into newly originated loans and identifying attractive opportunities in US and Western Europe.
• Continued belief in international diversification as a strategic advantage.

• Monitoring market conditions and credit/return considerations for new strategies, as any expansion into new areas like extending portfolio duration needs to make sense from a credit and return perspective.
• General CECL allowance increased due to portfolio growth, but no asset-specific CECL allowances recorded and no downgrades in risk ratings across portfolio.

Q: Doug Harter asked about progress on The Brook and timeline for cash flow and monetization.

A: Stuart Rothstein said The Brook is ~500+ units, ~15% leased on market rate side, expected to turn modestly cash flow positive early next year, with plan to monetize (sell or bring in partner) between first and second quarter of next year.

Q: Jade Rahmani followed up on The Brook's land parcels and potential upside.

A: Stuart Rothstein mentioned discussion on Western parcel and nearby buildings, with ongoing talks but too early to predict likelihood of increased density and upside for shareholders.

Q: Jade Rahmani asked about basis amortized cost for 111 West 57th.

A: Stuart Rothstein said net basis is ~$270 million, with activity ongoing on remaining 11 units but no specific year-end or early next year number given.

Q: Harsh Hemnani asked about portfolio size growth.

A: Stuart Rothstein said portfolio size will continue to grow as capital is redeployed from focus assets and reinvested at 3-4 turns of leverage.

Q: John Nickodemus asked about CRE transaction market expectations and ARI's plans.

A: Stuart Rothstein said CRE transaction market expected to be robust through end of year, with ARI confident in finding attractive opportunities; monitoring but no meaningful shift in strategy to extend portfolio duration yet.

Q: Rick Shane asked about provision expense and macro assumptions.

A: Anastasia Mironova said general CECL growth is largely driven by portfolio growth, and no changes to macro assumptions.

Q: Jade Rahmani asked about dividend and dividend policy.

A: Stuart Rothstein said no material NOL impact on dividends, and expectation is to pay out lion's share of earnings as dividend, with quarterly review of policy.

Q: Jade Rahmani asked about seniors housing thesis.

A: Scott Weiner said seniors housing has supply-demand imbalance due to demographic trends, focused on private pay in newer developed properties for independent living, etc.