Apollo Commercial Real Estate Finance (ARI) Q1 2026 earnings call transcript

At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein. Thank you, Operator. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance, Inc. first quarter 2026 earnings call. I am joined today by Anastasia Maranova, our Chief Financial Officer, and Scott Wiener, Chief Investment Officer. This call comes at a pivotal moment for ARI. As previously announced, we completed the sale of the company's $9 billion loan portfolio to Athene on April 24th.

Following repayment of ARI's financing facilities, other indebtedness, and transaction expenses, ARI's total assets now consist of approximately $1.3 billion of cash, along with four REO assets representing approximately $900 million in gross value. The sale delivered ARI stockholders a compelling premium to where the stock has traded in recent years, and we believe this outcome demonstrates our unravering commitment to maximizing stockholder value. As previously indicated, ARI's management team, board of directors, and other senior investment professionals at Apollo are in process of evaluating a range of commercial real estate-related strategies for ARI with the goal to deliver attractive, go-forward returns for stockholders. We have spent a significant amount of time since the announcement at the end of January exploring different strategies and speaking with bankers and other industry experts.

We anticipate having an update on the strategy exploration in the coming months. Shifting now to a brief update on the four remaining REO assets. As a reminder, two assets, the Brook, a multifamily asset in Brooklyn, and the Mayflower Hotel in Washington, D. C. , represent approximately 80% of the REO net equity value. At the Brook, the market rate residential component is approximately 80% leased, and affordable units are approximately 70% leased, with 95% of units selected. Both components are expected to reach stabilization by this summer. We continue to monitor the market and think through the appropriate exit strategy, either pre- or post-stabilization, while continuing efforts to add value to the western parcel. With respect to the two hotels, the Mayflower had a strong first quarter with net cash flow well ahead of budget, driven by margin improvements and higher occupancy.

We see opportunity for continued improvement in year-over-year performance and subject to market conditions. We expect more clarity on exit strategy in the second half of the year. Turning to the Cortland Grand, first quarter performance was below budget due to broader market softness, though we expect business interruption insurance from the offline units and the benefit from the upcoming Soccer World Cup over the summer to bring full-year performance in line with our expectations. We are in active dialogue with several potential buyers regarding alternative uses as we think through potential exit strategies. Lastly for the two remaining former hospital assets which combined represent approximately million of book value we are actively engaged in rezoning efforts and in dialogue with local operating partners to determine optimal exit scenarios Before I turn the call over to Anastasia in anticipation of a question, I just want to provide an update on dividend policy going forward.

Consistent with past practice, declaration of any dividends will remain subject to the approval of the Board of Directors, and we will announce the second quarter dividend a few weeks prior to the end of the quarter as per the customary schedule. As we disclosed at the time of the original announcement of the loan sale, ARI intends to continue paying a quarterly dividend as we assess strategic opportunities. We also previously indicated a target dividend resulting in approximately an 8% annualized dividend yield on book value per share of common stock. The goal and target remain intact. It is worth noting that given the cash balance held at ARI and the desire to invest that cash conservatively while evaluating strategic options, any dividends declared for future quarters likely will contain a significant return of capital component.

With that, I will turn the call over to Anastasia to walk through our first quarter financial results.

Thank you, Stuart. Good morning, everyone. For the first quarter of 2026, ARI reported net income available to common stockholders of $23 million, or $0.16 per diluted share of common stock. Distributable earnings for the quarter were $31 million, or $0.22 per diluted share. Net interest income for Q1 2026 was $36 million compared to $39 million in Q1 2025.

Interest income from commercial mortgage loans increased modestly to $150 million from $144 million, due primarily to loan portfolio growth of about $1.2 billion on amortized cost basis compared to March 31, 2025, Outweigh the impact of lower average index rates. Interest expense increased to $114 million from $105 million, reflecting higher average secured debt balances associated with portfolio funding compared to last year. Throughout the quarter, we opportunistically repurchased approximately 2.9 million shares of common stock at a weighted average purchase price of $10.52 per share. Following the quarter end, we repurchased an additional 3.9 million shares at a weighted average price of $10.72, bringing total repurchases year-to-date to approximately 6.8 million shares.

This activity resulted in 7 cents of book value per share creation year-to-date, with 3 cents in Q1 and 4 cents in Q2 to date. In April, our Board of Directors has authorized a new share repurchase program, and we now have up to a total of $150 million available for the repurchase of common stock.

Common equity book value per share was $12.01 at March 31, compared to $12.14 at the end of Q4 2025. With 10 cents of the decrease attributable to the impact of investment delivery for restricted stock units, the trend typically observed during the first quarter of the year. Proforma book value per share at the closing of the portfolio sale without giving effect to real estate-owned quarter-to-date activities and certain quarterly accruals is $12.15, reflecting reversal of general fee-sail allowance in excess of discount and closing costs for the portfolio sale, as well as secretion from the share repurchases, as referenced earlier. Turning now to the portfolio sale, I want to highlight a few key points from the transaction. In addition to repaying our secured board and facilities, we have fully repaid the outstanding balance of our term loan fee and deposited funds to satisfy and discharge our senior secured notes, which will be redeemed at par on or about June 15th.

As Stewart indicated, our balance sheet is now predominantly represented with cash and net equity in our real estate owned assets. The only commercial mortgage loan currently remaining on our balance sheet is the loan secured by a hotel property in Chicago which remains on non status The loan has an amortized cost basis of million and an upcoming maturity in May at which point we expect it to be repaid through the sale of the underlying property the purchase agreement for which was executed during Q1, with hard-money deposits received by the sponsor.

With that, I will open the call for questions. Operator?

Yeah, I think from our perspective, Jade, look, we obviously, in light of the sale and what's left in the portfolio, have significant confidence in where the book value per share is today. And as we think about using some amount of capital to buy back stock, I would say the amount that we're using to buy back stock is not material as we think about having any impact on our options to do something strategically with the remaining capital in the vehicle.

I'm not going to give any specific comments on asset type say. I guess what I would say is a few clarifying comments. While the agreement we announced several months ago indicated we had until the end of this year to decide the strategic path we were headed in, I think it's safe to say I don't envision a scenario where we are sitting here until the end of the year and making a grand announcement. I think there will be meaningful progress made in the next few months and significant clarity provided the next time we are speaking to all of you, if not sooner. The other thing I would say is as we think about strategic alternatives, our view fundamentally is we have created $12 a share of value in the ARI box, and anything we would think about doing strategically needs to be done with us having full confidence that what we are considering pursuing will create more than that.

and the current book value per share for shareholders.

Sure.

Hey Rick this is Anastasia So maybe to start with the first part of your question CNBS agency securities all of these are typically good read assets CRE CLOs maybe not good read assets but there are structures which could allow us to invest in those if we wanted to And other than that, we have a number, more than a handful at this point, of high-yielded deposit accounts, which are provided as a pretty attractive view, so that's an option as well.

Technically, the asset test is as of the quarter end. There is also an income test, which is on an annual basis.

No leverage as we envision today. I mean, to be simple, like, it's not about return, Rick. It's about making sure the cash is there if we go down any of the strategic paths we're considering. We don't want to put any of the capital at risk today for market movements that sometimes occur.

Yeah, nothing is set in stone today, Jay, but I think more likely the latter, which would be we'd want to give ourselves the time to make sure we maximize the value of each of the four REO assets, and that is probably more likely some form of liquidating trust as opposed to just a bulk sale, which might have some sort of discount attached to it.

Well, first of all, I think you just validated your own initial question on share repurchase for ARI, given what's going on in the market today. Anyway, look, I think it's something, you know, historically we've not been spent a ton of time trying to predict interest rate markets and trying to think about value through cycles vis-a-vis interest rates. But I do think given the uncertainty in the market today when we've created effectively a capital box that is mostly cash right now, I would say it just has implications as higher rates, inflation, potential impacts on employment all factor into thinking about future strategies versus I'm going to turn the call over to Stuart Rothstein for any closing remarks.