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Apollo Commercial Real Estate Finance, Inc. (ARI)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 beat consensus on both EPS and revenue: Distributable EPS of $0.26 vs $0.25* and revenue of $67.8M vs $48.4M*; GAAP diluted EPS was $0.12 and total net revenue per company reporting was $70.9M, down year over year on lower other income and FX hedge marks . Bold beat reflected strong origination ($1.4B commitments) and rapid redeployment with minimal cash drag, while GAAP remained pressured YoY by lower total net revenue and hedge mark-to-markets .
  • Portfolio scaled 12% sequentially to $8.6B across 53 loans with 98% first mortgages, 96% floating, 7.8% w/a unlevered all-in yield; w/a risk rating held at 3.0; no new asset-specific CECL allowances .
  • Balance sheet extended: refinanced 2026/2028 term loans with a new $750M Term Loan B due 2030 at SOFR + 3.25%; added ~$1.4B of incremental secured borrowing capacity; next corporate maturity now June 2029 .
  • Dividend intact and covered: $0.25 declared for the quarter; DE coverage ~104% this quarter vs ~96% in Q1; subsequent $18M legal settlement expected to lift next-quarter BVPS and provide additional redeployment fuel—both supportive of dividend trajectory and estimate revisions .

What Went Well and What Went Wrong

  • What Went Well
    • Capital deployment and scaling: $1.4B of Q2 commitments (100% first-lien, 8.0% w/a unlevered all-in yield) with $916M funded at close; YTD $2.0B commitments with $1.4B funded; portfolio up 12% QoQ to $8.6B .
    • Funding and liquidity: New $750M TLB due 2030 at SOFR + 3.25% extended maturities; three new/upsized secured facilities added ~$1.4B of capacity; $208M liquidity at quarter end .
    • Focus assets progress: 111 W. 57th saw nine closings ($170M proceeds; $141M basis reduction) with 11 units remaining; The Brook began leasing (target modest cash flow positive early next year), monetization targeted in 1H26; Liberty Center marketing commenced .
  • What Went Wrong
    • YoY GAAP contraction: Total net revenue fell to $70.9M from $81.1M and GAAP diluted EPS declined to $0.12 from $0.23 on YoY factors including hedging impacts; net income to common fell to $17.7M from $32.7M .
    • Margin compression: Net income margin % down YoY and sequentially (Q2’24: 50.5%, Q1’25: 42.1%, Q2’25: 30.6%) amid revenue mix/hedge effects, despite resilient net interest income .
    • Under-earning capital headwind persists near-term: ~$300M net equity tied in Brooklyn REO and remaining exposure at 111 W. 57th continue to earn below target until monetized (management still expects material uplift as redeployment continues) .

Financial Results

GAAP and non-GAAP overview

MetricQ2 2024Q1 2025Q2 2025
Total Net Revenue ($ USD Millions)$81.108 —$70.902
Net Income Available to Common ($ USD Millions)$32.717 $22.923 $17.671
Diluted EPS ($)$0.23 $0.16 $0.12
Distributable Earnings per Share ($)—$0.24 $0.26
Dividend per Share ($)$0.35 $0.25 $0.25
DE Coverage of Dividend (%)—~96% ~104%

Consensus vs. actual (S&P Global)

EPS vs. estimates

Q2 2024Q1 2025Q2 2025
Estimate ($)0.306*0.221*0.250*
Actual ($)0.35*0.24*0.26*
Surprise ($)+0.04*+0.02*+0.01*

Revenue vs. estimates

Q2 2024Q1 2025Q2 2025
Estimate ($ USD Millions)58.65*49.35*48.40*
Actual ($ USD Millions)70.85*61.81*67.79*
Surprise (%)+20.8%*+25.3%*+40.1%*

Note: * Values retrieved from S&P Global.

Selected portfolio and balance sheet KPIs

KPIQ2 2025
Loan Portfolio Size / Loans$8.6B / 53 loans
First Mortgage / Floating-Rate Mix98% / 96%
W/A Unlevered All-in Yield7.8%
W/A Portfolio Risk Rating3.0
W/A Portfolio LTV (origination)57%
W/A Remaining Term2.7 years
Q2 New Commitments (funded at close)$1.4B ($916M funded)
YTD New Commitments (funded at close)$2.0B ($1.4B funded)
Q2 Repayments/Sales$631M
Add-on Fundings$394M Q2; $467M YTD
Book Value per Share (ex-Gen. CECL & depreciation)$12.59
Liquidity (Cash/Avail. leverage)$208M ($182M cash; $26M leverage)
New Term Loan B$750M, SOFR + 3.25%, due Jun 2030
Incremental Borrowing Capacity Added in 2025~$1.4B
Dividend Yield on BVPS8.3%

KPIs on focus assets (Q2 updates)

  • 111 West 57th: 9 units closed; ~$170M proceeds; ~$141M basis reduction; 11 units remaining; ARI now senior in the capital stack .
  • The Brook (Brooklyn REO): Leasing underway; target modest cash flow positive early next year; monetization or partner considered 1H26; ~$300M of capital currently tied .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per common shareQ2 2025 distribution—$0.25 declared (payable Jul 15, 2025) Maintained
Dividend policyOngoing“Pay lion’s share of earnings as dividend” Reiterated Maintained
Earnings coverage outlookFY 2025 run-rateQ1: “DEPS to meet or exceed dividend for remaining quarters of 2025” Coverage improved to ~104% in Q2; forward tone constructive on redeployment Maintained/Improved execution
Book value outlook (subsequent event)Q3 2025—~$18M proceeds to ARI from MA settlement expected by Aug 20, 2025; “book value per share pickup” next quarter Increase
Corporate maturities2026/2028Prior TLB maturities 2026 & 2028 Refi into $750M TLB due 2030; next corporate maturity June 2029 Extended

No formal quantitative revenue/expense/margin guidance provided.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q4’24; Q-1: Q1’25)Current Period (Q2’25)Trend
Capital deployment & pipelineExpect 2025 portfolio growth; >$1B H1 pipeline $1.4B Q2 commitments; $2.0B YTD; strong US/EU pipeline Improving
Focus assets monetizationPlan to recycle capital; 111W57th sales progressing; Liberty Center sale later 2025; Brooklyn REO to 2026 111W57th 9 closings; 11 remaining; Brook leasing begun; Liberty Center marketing Advancing
Europe exposure & ratesCompetitive edge; deep London team; >50% exposure EU originations benefit from rate cuts; ~50% portfolio in Europe Supportive
Office exposure stanceAvoid new ARI office exposure despite activity; do office elsewhere on platform Continue to avoid office in ARI; focus on housing, hotels, data centers Unchanged (defensive)
Financing markets/liquidityAmple back leverage; lower warehouse spreads $750M TLB due 2030; +$1.4B capacity; liquidity $208M Strong
CECL/reservesTotal CECL flat QoQ at YE’24; specific reserves concentrated No new asset-specific CECL; general CECL up $3.1M on growth; reserve rate down to 4.29% Stable/resilient
Dividend policyTarget paying lion’s share of earnings Reiterated; coverage 104% this quarter Supportive
Data centers & senior housingStrategy: pre-let, investment-grade tenants; constructive on housing Continue selective hyperscale DC; focus on senior housing private-pay Continuing

Management Commentary

  • “We are confident in our ability to redeploy this capital into newly originated loans… across both the United States and Western Europe.”
  • “In June, we completed a new five-year floating rate $750 million term loan B… at SOFR plus 3.25%... ARI’s next corporate debt maturity is now not until June of 2029.”
  • “ARI reported distributable earnings of $36 million or $0.26 per share… represent an 8% increase over the first quarter and provide dividend coverage of about 104%.”
  • “There were no asset-specific CECL allowances recorded during the quarter and no downgrades in risk ratings across the portfolio.”
  • “Subsequent… settlement… The Commonwealth agreed to pay… an additional $44 million ($18 million attributable to ARI)… These proceeds will result in book value per share pickup for ARI in the following quarter.”

Q&A Highlights

  • Focus assets timeline: The Brook ~15% market-rate pre-leased after first month; modest cash flow positive early next year; monetize or bring in partner in 1H26; 111 W.57th ~11 units remaining; basis ~$270M, expect steady reduction into year-end .
  • Leverage/portfolio growth: Target leverage “in the ballpark” of current; conversion of under-earning capital into levered loans could drive 30–40% earnings uplift if fully redeployed .
  • Market opportunity set: Activity rising across U.S./Europe; will prioritize housing (incl. senior housing) and select hotels, avoid new office in ARI; data centers via hyperscale, pre-let, investment-grade tenants .
  • CECL dynamics: QoQ provision increase entirely growth-driven; no macro assumption changes .
  • Dividend stance: No NOL shield; intent remains to pay lion’s share of earnings; aim to avoid specials and keep quarterly stability .

Estimates Context

  • ARI beat EPS by ~$0.01 and revenue by ~40% in Q2; Q1 also saw beats vs consensus. Strong origination, rapid redeployment, and financing tailwinds (extended maturities, added capacity) support upward estimate revisions, particularly for DE coverage in H2 2025 as focus assets monetize and the $18M settlement is recycled .
  • YoY GAAP revenue decline and lower net income/NI margin underscore sensitivity to hedge marks and REO/non-earning capital, factors that should abate with continued capital rotation .
    Note: Consensus and “actual” in this section use S&P Global’s standardized definitions; see tables above for details. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Positive inflection: Distributable EPS covered the dividend with a beat; sequential earnings momentum returned as origination scaled and cash drag was minimized .
  • Capital rotation is the core catalyst: 111 W.57th unit sales and Brook leasing/monetization are key to unlocking ~$300M+ of under-earning equity and lifting earnings power; legal settlement provides near-term BVPS uplift and redeployment capital .
  • Funding risk reduced: New $750M TLB pushes corporate maturities out to 2029/2030 and, alongside +$1.4B facility capacity, supports sustained deployment without equity issuance .
  • Portfolio quality/mix: 98% first-lien, 96% floating, 7.8% w/a yield, risk rating steady at 3.0; post-2022 vintage now a large share, reflecting valuation reset and improved credit .
  • Strategy focus areas: Housing (incl. senior housing) and select hotels remain favored; avoid new office risk in ARI; pursue pre-leased, IG-tenant data centers .
  • Estimate implications: Continued redeployment and de-risked funding path argue for upward bias to DEPS estimates; watch execution on focus assets and pace of repayments to gauge the slope of earnings .
  • Trading setup: Near-term narrative likely driven by unit sales at 111 W.57th, leasing metrics at The Brook, and evidence of additional capital recycling—each a potential stock catalyst given their direct linkage to distributable earnings coverage and growth .

Citations

  • Q2 2025 8-K and Exhibits (press release/presentation): .
  • Q2 2025 earnings call transcript: .
  • Q2 2025 dividend declaration: .
  • Q1 2025 press release and call: .
  • Q4 2024 press release and call: .