Apollo Commercial Real Estate Finance (ARI) risk factors, FY2025 10-K

RISKS RELATED TO OUR BUSINESS AND STRUCTURE

1. 01We operate in a competitive market for investment opportunities and future competition may limit our ability to acquire desirable target assets or dispose of our target assets and could also affect the pricing of these securities
2. 02Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, a misappropriation of funds, and/or damage to our business relationships, all of which could negatively impact our financial results
3. 03We cannot assure our stockholders of our ability to pay dividends in the future
4. 04We cannot predict the unintended consequences and market distortions that may stem from far-ranging governmental intervention in the economic and financial system or from regulatory reform of the oversight of financial markets
5. 05The Manager may be unable to operate us within the parameters that allow the Manager to be exempt from regulation as a commodity pool operator, which would subject us to additional regulation and compliance requirements, and could materially adversely affect our business and financial condition
6. 06The long term impact from major public health events and related disruptions in the U.S. and global economy and financial markets could adversely impact or disrupt our financial condition and results of operations
7. 07The effects of future pandemics or other major public health issues could adversely impact the value of our assets, business, financial condition, results of operations and cash flows, and our ability to operate successfully
8. 08Climate change-related risks and regulatory and other efforts to address potential climate change impacts could adversely affect our business
9. 09Evolving investor-related sentiment to environmental, social, and/or governance issues could adversely affect our business51% rewritten
10. 10Certain provisions of Maryland law could inhibit changes in control
11. 11"unsolicited takeover" provisions of the MGCL that permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses, some of which (for example, a classified board) we do not yet have
12. 12Loss of our exclusion from registration under the 1940 Act would adversely affect us
13. 13unless the issuer is issuing only commercial paper, the issuer appoints an independent trustee, takes reasonable steps to transfer to the trustee an ownership or perfected security interest in the eligible assets, and meets rating agency requirements for commingling of cash flows
14. 14Any amendments to Rule 3a-7 could provide additional flexibility or could inhibit the ability of our subsidiaries to rely on this rule or to pursue certain strategies we have identified for such subsidiaries
15. 15If we failed to maintain our excluded status under the 1940 Act and became regulated as an investment company, our ability to, among other things, use leverage would be substantially reduced and, as a result, we would be unable to conduct our business as described in this annual report on Form 10-K
16. 16Securities eligible for future sale may have adverse effects on the market price of our common stock
17. 17Our authorized but unissued shares of common or preferred stock may prevent a change in control
18. 18Certain provisions in the indentures governing the 2029 Notes could delay or prevent an otherwise beneficial takeover or takeover attempt of us
19. 19Our charter limits the liability of our present and former directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law
20. 20Our charter contains provisions that make removal of our directors difficult, which could make it difficult for stockholders to effect changes to our management
21. 21Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares
22. 22Future litigation or administrative proceedings could have a material and adverse effect on our business, financial condition and results of operations

RISKS RELATED TO OUR FINANCING AND HEDGING

1. 23Our access to sources of financing may be limited and thus our ability to potentially enhance our returns may be adversely affected
2. 24the market price of the shares of our common stock
3. 25We leverage certain of our target assets, which may adversely affect our return on our assets and may reduce cash available for distribution
4. 26Our charter and bylaws do not limit the amount of indebtedness we can incur; although we are limited by certain financial covenants under our secured debt arrangements and the 2029 Notes
5. 27Credit facilities and secured debt arrangements that we may use to finance our assets may require us to provide additional collateral or pay down debt
6. 28Our existing secured debt arrangements impose restrictive covenants
7. 29Should we choose to employ non-recourse long-term securitizations in the future, such structures may expose us to risks which could result in losses to us
8. 30An increase in our borrowing costs relative to the interest we receive on our leveraged assets may adversely affect our profitability and our cash available for distribution to our stockholders
9. 31Interest rate fluctuations could reduce the income on our assets and could increase our financing costs, which may adversely affect our earnings and our cash available for distribution to our stockholders
10. 32Our rights under our secured debt arrangements may be subject to the effects of the bankruptcy laws in the event of the bankruptcy or insolvency of us or our lenders under the secured debt arrangements, which may allow our lenders to repudiate our secured debt arrangements
11. 33We may enter into hedging transactions that could expose us to contingent liabilities in the future and adversely impact our financial condition
12. 34In addition, subject to maintaining our qualification as a REIT, we pursue various hedging strategies to seek to reduce our exposure to adverse changes in currencies and interest rates. We may fail to recalculate, readjust and execute hedges in an efficient manner

RISKS RELATED TO OUR ASSETS

1. 35We cannot assure stockholders that we will be successful in consummating additional opportunities we identify which would likely materially affect our business, financial condition, liquidity and results of operations
2. 36We may not achieve our weighted-average all-in yield on our assets, which may lead to future returns that may be significantly lower than anticipated
3. 37We may be subject to lender liability claims
4. 38Any credit ratings assigned to our assets will be subject to ongoing evaluations and revisions and we cannot assure stockholders that those ratings will not be downgraded
5. 39Acquisitions of preferred equity involve a greater risk of loss than traditional debt transactions
6. 40The lack of liquidity of our assets may adversely affect our business, including our ability to value and sell our assets
7. 41Allowances for loan losses are difficult to estimate
8. 42Our assets may be concentrated and are subject to risk of default
9. 43The commercial mortgage loans and other commercial real estate-related loans we acquire are subject to delinquency, foreclosure and loss, any or all of which could result in losses to us
10. 44Foreclosure of a commercial mortgage loan can be an expensive and lengthy process which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan92% rewritten
11. 45B Notes and mezzanine loans we acquire may be subject to losses. The B Notes we acquire may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us
12. 46risks specific to the type and use of a particular property
13. 47A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair our assets and harm our operations
14. 48Recent macroeconomic trends, including inflation and higher interest rates, may adversely affect our business, financial condition and results of operations
15. 49Our real estate assets are subject to risks particular to real property. These risks may have resulted and may continue to result in a reduction or elimination of return from a loan secured by a particular property
16. 50Certain of our loans are denominated in currencies other than USD or are secured by assets located outside of the United States which subject us to the uncertainty of foreign laws and markets, geopolitical issues, and foreign currency risks
17. 51We maintain cash balances in our bank accounts that exceed the Federal Deposit Insurance Corporation insurance limitation
18. 52Assets that we acquire with co-investors could be materially and adversely affected by our lack of sole decision-making authority, our reliance on our co-investors' financial condition and disputes between us and our co-investors

RISKS RELATED TO OUR RELATIONSHIP WITH THE MANAGER

1. 53There are various conflicts of interest in our relationship with Apollo which could result in decisions that are not in the best interests of our stockholders
2. 54The Manager's and Apollo's liability is limited under the Management Agreement, and we have agreed to indemnify the Manager against certain liabilities. As a result, we could experience poor performance or losses for which the Manager would not be liable
3. 55The termination of the Management Agreement may be difficult and costly, which may adversely affect our inclination to end our relationship with the Manager
4. 56We do not own the Apollo name but may use it pursuant to a license agreement with Apollo. Use of the name by other parties or the termination of our license agreement may harm our business
5. 57The manner of determining the base management fee may not provide sufficient incentive to the Manager to maximize risk-adjusted returns on our investment portfolio since it is based on our stockholders' equity (as defined in the Management Agreement) and not on other measures of performance
6. 58The Manager manages our portfolio pursuant to very broad investment guidelines and our board of directors does not approve each decision made by the Manager, which may result in us undertaking riskier transactions
7. 59Possession of material, non-public information could prevent us from undertaking advantageous transactions; Apollo could decide to establish information barriers36% rewritten
8. 60Our business may be adversely affected if our reputation, the reputation of the Manager or Apollo, or the reputation of counterparties with whom we associate is harmed

RISKS RELATED TO OUR TAXATION AS A REIT

1. 61Complying with REIT requirements may force us to liquidate or forego otherwise attractive investments, to incur debt, or could otherwise adversely affect our ability to execute our business plan74% rewritten
2. 62the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequencesNew
3. 63Even if we qualify as a REIT, we may face tax liabilities that reduce our cash flow
4. 64The failure of mortgage loans subject to a secured debt arrangement to qualify as a real estate asset would adversely affect our ability to qualify as a REIT
5. 65The failure of a loan, including a mezzanine loan or modified loan, to qualify as a real estate asset, or the failure of certain arrangements relating to our hotels to satisfy the REIT requirements, could adversely affect our ability to qualify as a REIT34% rewritten
6. 66We may fail to qualify as a REIT or become subject to a penalty tax if the IRS successfully challenges our treatment of our mezzanine loans and certain preferred equity investments as debt for U.S. federal income tax purposes
7. 67We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them
8. 68The "taxable mortgage pool" rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations
9. 69Complying with REIT requirements may limit our ability to hedge effectively
10. 70The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes
11. 71We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of shares of our common stock53% rewritten
12. 72inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level taxNew

RISKS RELATED TO THE ASSET SALE

1. 73While the Asset Sale is pending, we are subject to uncertainty and contractual restrictions that could disrupt our businessNew
2. 74The Purchase Agreement contains a termination fee and may discourage competing offersNew
3. 75The Purchase Agreement contains provisions that, after expiration of the go-shop period, could discourage a potential competing acquiror or could result in any competing proposal being at a lower price than it might otherwise beNew
4. 76Our management agreement with our Manager is difficult to terminate, which may discourage competing proposals from other biddersNew
5. 77subject, in the case of clause (ii), to the right of the Manager to propose to reduce its fee to a level that two-thirds of such independent directors deem fairNew
6. 78The conditions under the Purchase Agreement to our consummation of the Asset Sale may not be satisfied in the anticipated timeframe or at allNew
7. 79In the event that the Asset Sale is not consummated, the trading price of our common stock and our future business and results of operations may be negatively affectedNew
8. 80We may face litigation filed against us over the Purchase AgreementNew
9. 81Our ability to adjourn the Special Meeting is limited, which could prevent us from obtaining the required stockholder approval of the Asset SaleNew

RISKS RELATED TO OUR FUTURE OPERATIONS

1. 82The uncertainty regarding the use of proceeds from the Asset Sale and our future operations may negatively impact the value and liquidity of our common stockNew