Apollo Commercial Real Estate Finance (ARI) Q4 2025 earnings call transcript

Thank you, Operator. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance fourth quarter and full year 2025 earnings call. I am joined today by Anastasia Maranova, our Chief Financial Officer. In light of our recent announcement to sell ARI's loan portfolio to a scene, and the subsequent call we hosted on January 28th, I will provide a brief update on the four REO assets ARI will retain, and then we'll turn the call over to Anastasia to review our Q4 financial results. ARI continues to actively manage its real estate-owned portfolio with a clear focus on improving run rate, cash flow, and maximizing value at exit. With respect to the Brook, which as a reminder is a newly built Class A multifamily tower with 591 residential units and approximately 20,000 square feet of ground floor retail in Brooklyn, New York, The property is currently approximately 56% leased across market rate units and is experiencing strong leasing momentum.

The retail component is 88% leased to Dintai Fung with occupancy expected next year. Management and Marines focused on completing lease up and achieving stabilization, which is expected later this year, while also evaluating options to unlock additional value from an adjacent owned land parcel. With respect to the two hotels, starting with the Mayflower, management has implemented cost savings initiatives which should provide a notable pickup in net cash flow once completed.

In Atlanta, ARI is executing value-add upgrades to the rooms and common areas of the Cortland Grand aimed at driving group business in 2026. Following a fire in October 2025 that temporarily took some rooms offline, the company is receiving business interruption insurance proceeds and continues to evaluate restoration and insurance recovery paths to maximize value.

Finally, ARI has a minority interest in a Massachusetts pre-development portfolio consisting of two former hospital sites owned through a joint venture with other Apollo affiliated vehicles and is actively working through zoning changes to increase the value of each site.

With that, I'll turn the call over to Anastasia to walk through our financial results for the quarter and the full year.

Thank you, Stuart, and good morning, everyone. In the fourth quarter, AIRI reported distributable earnings of $37 million, or $0.26 per diluted share of common stock. For the full year, distributable earnings totaled $139 million, or $0.98 per diluted share. Gap net income available to common stockholders was $26 million, or $0.18 per diluted share for the fourth quarter, and $114 million, or $81,000, per diluted share for the full year.

During the fourth quarter, we recorded specific ceasefire allowance of $3 million associated with a 2019 vintage commercial mortgage loan secured by a hotel property in Chicago. The loan has an outstanding principal balance of $45.5 million and is expected to pay off over the course of the next few months. There were no other charges to specific CISL allowance during the quarter, and the overall credit portfolio, I'm sorry, overall credit profile of the portfolio remained stable.

The weighted average risk rating of the loan portfolio was at 3.0, unchanged from the previous quarter and prior year. The balance of loans on nonaccrual decreased by over $170 million year-over-year, driven primarily by net proceeds received from unit sales at $111 West 57, and partially offset with the addition of Chicago Hotel Loan to the population of loans on nonaccrual.

Our exposure to West 57 decreased by million year and million quarter with six contracts closed during the fourth quarter The general CISO allowance was flat compared to previous quarter end at approximately million Total CISO allowance stood at million at year end This equates to 418 basis points of the loan portfolio's total amortized costs, down from 507 basis points a year ago.

The decrease is attributable to sequential portfolio growth year over year. Turning to the portfolio, the fourth quarter and the full year 2025 was highlighted by strong loan origination activity. During the quarter, we committed $1.3 billion to new loans with $1.1 billion funded at close and completed approximately $200 million of gross add-on funding for previously closed loans. For the full year, ARI committed $4.4 billion to new loans with $3.3 billion funded at close and completed about $900 million of gross add-on funding. Loan repayments and sales totaled $852 million in the fourth quarter and $2.9 billion for the full year, reflecting continued borrow execution and portfolio rotation. Notably, over 60% of our loan portfolio is now represented with post-2022 origination.

This activity resulted in the overall growth of the loan portfolio, which increased by approximately $1.6 billion year-over-year on amortized cost basis. We ended the year with a total loan portfolio of approximately $8.8 billion by amortized costs, with a weighted average and levered all-in yield of 7.3%. The portfolio has 99% for its mortgages and 96% floating rate exposure. The weighted average loan-to-value ratio is approximately 59%.

Shifting to the right side of our balance sheet, ARI ended the year with $151 million of total liquidity. We also held over $430 million of unencumbered assets, primarily represented with first mortgage loans and cash-flowing REO assets.

During 2025, we added $1.8 billion of net financing capacity, including the closing of four new secured credit facilities, the expansion of our revolving credit facility, and the upsides of several other credit facilities.

Book value per share was $12.14 a year-end, relatively flat to the prior quarter-end. With that, we would ask the operator to open the line for questions.

Just quickly, look, overwhelmingly the feedback has been positive. I think people greatly appreciate the efforts to unlock value. So, obviously, as you might expect, there's also been a number of questions around what we envision doing with the capital.

Broadly speaking, what type of strategies are in mandate, not in mandate. We've revealed, you know, as expected, not a lot at this point and are more focused on getting through the go shop period. And then obviously getting to a proxy filing, which will provide more information to people. Not for me to say exactly what is driving the disconnect between, you know, the announced book value of 12 plus and a stock which sort of has been bouncing between 1070 and 1080, other than I would say people still looking for further clarity on what, The strategy may or may not be going forward versus our further comments on dissolution also being a potential strategy. But I think as we provide more clarity on what we're thinking about and where we're headed with the vehicle, I would expect the gap to narrow over time.

Got it And as you think about alternatives I guess the question and I realize you have to be pretty circumspect about how you answer this but at this point are there clear options on the table for you that you were evaluating And you know do you have three plans and pros and cons Or is it still, hey, we don't know what we're going to do and we are seeking a solution in the abstract?

I would say we're exactly where we thought we would be, which, as I would say, There are some specific ideas that have germinated organically internally that we are evaluating, but I would say too early to conclude whether one of those ideas will ultimately be what we decide to pursue or not, and then not surprisingly post the announcement, And a lot of incoming phone calls around ideas that people would like to propose to us, which was very much expected. And we will very much engage in a number of dialogues just to hear people out on what other thoughts they may have. So a mix of two at this point.

Sure. Thank you.

Yeah, look, I think with the brook, let me respond a couple ways. I think for the brook itself, lease-up is going... As expected, and overall, it's pretty strong. We're leasing, you know, depending on the month, 20 to 40 units a month. Rents are where we expected them to be, and as I indicated in my comments, I think we'll hit stabilization the latter part of this year. At that point, it really becomes sort of an assessment of what does the market look like in terms of the transaction environment, the interest rate environment, et cetera, as we think about maximizing value. On the brook, the one caveat I would add is, as I think those of you that follow the company closely are aware, there is a parcel adjacent to the brook that the expectation was always that that would be a, call it, jewel box retail site adjacent to the brook.

We are exploring some other strategies to create more value on that vacant site. And if we thought we could meaningfully increase value of that vacant site, we might factor that into our decision around timing of when we'd look to exit the Brook. I think with respect to the hotels, I think the Mayflower has been performing quite well as a hotel in general since we've taken it over. We think there's a real opportunity to move net cash flow significantly over the next 12 months or so with some strategies around efficiency and cost savings that we want to implement. As soon as those are implemented and a higher run rate net cash flow is achieved, I would say we're ready to bring that to market.

And then I think with respect to the Cortland Grand, I think, you know, unfortunately, the fire on a portion of the hotel has given us an opportunity to sort of rethink through the best way to achieve value at the Cortland Grand. But I would say, given where we're currently carrying the Cortland Grand, we feel pretty good about the value there.

I think right now obviously we not making any decisions in a vacuum but I think sitting here today given my comments to Rick on strategies going forward I not sure I envision any of the REO portfolio as critical to where we think we taking We may take ARI in the future So in some respects I think exit strategy and maximizing value for the REO assets is very much sort of a walled decision as we think about just maximizing value Great.

Thank you.

I think all we've disclosed at this point, Jade, is we do envision paying a Q1 dividend of this year, still subject to board approval, but envision paying a Q1 dividend consistent with the run rate for the past number of quarters, which is 25 cents a share per quarter. I'm sure. Beyond that, the remarks we made on the call, whatever it was, a week, two weeks ago, indicated a desire to keep paying a dividend, but also subject to board approval and fully appreciate your comment on return of capital. And I would say we will have further discussions with our board as we move towards any type of Q2 decision, which is in the latter part of the second quarter, vis-a-vis the interplay between dividend thoughts on ongoing strategy versus dissolution and the right way to provide capital back to shareholders if, in fact, we end up in a I'm going to turn the call over to management for a situation where any type of distribution would be a return of capital.

Look, I think at a high level what I'd say is, and you got to it with your last point, is I think we are spending a lot of time these days debating the public markets and the value of being in a, call it, price-to-book model versus a multiple-of-earnings model, And which affords the better opportunity for future growth, better trading opportunities, ability to continue to capitalize opportunities to the extent you see them in the market. I would say both are within purview today. And I guess the last thing I would say, you know, is the notion of trying to come up with a strategy that we think will trade better. I'm sure it is to indicate that what we're trying to spend time on is an opportunity for something that has more legs than just being a one-off trade to put a billion and a half dollars worth of capital to work.

Right? Like there's plenty of places to put a billion and a half dollars, but if long term, if we don't view it as an opportunity to invest in something that we think has continued growth trajectory and an ability to, as you put it, either generate outsized returns or create some sort of operating company slash platform value, you know, I don't think we're just going to do it. I quote-unquote print a ticket to say we printed a ticket.

Sure.

Thank you, Operator. Obviously, always appreciate people getting on a call to discuss. We are always available, myself, Hillary, Anastasia, to the extent people have follow-up calls. Thanks all.