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Apollo Commercial Real Estate Finance, Inc. (ARI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered GAAP diluted EPS of $0.27 and Distributable Earnings (DE) per share of $0.32, with total net revenue of $70.5M; dividend coverage was strong at 128% for the quarter, but management flagged $0.07 of nonrecurring DE and expects 2025 quarterly earnings to be lower than Q4 due to rate cuts and one-offs .
  • Portfolio ended at $7.1B carrying value with 8.1% weighted-average unlevered all-in yield, 95% first mortgages, 95% floating rate, and weighted-average risk rating of 3.0; repayments of $830M outpaced $782M of commitments in Q4, with >$1B origination pipeline targeted for 1H25 .
  • Management outlined catalysts: redeployment of equity tied to nonperforming loans/REO could add ~$0.40–$0.60 per share to annual earnings upon resolution and reinvestment; specific near-term resolution paths include 111 West 57th condominium unit sales and potential monetization of REO hotels (D.C. and Atlanta) .
  • No corporate debt maturities until May 2026; banks and warehouses remain active providers of back leverage, enabling ARI to grow senior loan portfolio as repayments are recycled into new originations .

What Went Well and What Went Wrong

What Went Well

  • Origination and deployment: $782M of Q4 new loan commitments ($330M funded at close), with attractive underwriting (e.g., UK prime retail refinance, student housing, full-service hotel) and widened spreads producing mid-teen levered ROEs per CIO commentary .
  • Dividend coverage and liquidity: Q4 DE per share of $0.32 covered the $0.25 dividend (128% coverage); total liquidity ended the year at ~$381M; debt-to-equity fell to 3.2x .
  • Defined pathways for nonperformers: Management emphasized recovery plans (e.g., 111 West 57th unit sales and retail leasing; Brooklyn multifamily nearing tenanting; Liberty Center leasing >90%); potential redeployment of recaptured equity could bolster earnings by $0.40–$0.60 per share .

What Went Wrong

  • GAAP profitability headwinds: Full-year 2024 GAAP net loss to common stockholders of ($132)M driven by realized losses on Honolulu hotel sale and Massachusetts hospitals extinguishment; Q3 also recorded a $128M realized loss from the MA portfolio resolution .
  • Earnings normalization ahead: Q4 DE included $0.07 of nonrecurring items; management expects quarterly earnings in 2025 to be lower vs Q4 2024 due to Fed cuts and one-time fees rolling off, though still sufficient to cover the dividend .
  • Portfolio runoff vs growth: Q4 repayments ($830M) exceeded new closings, reducing portfolio balance quarter-over-quarter; management aims to grow portfolio in 2025 via pipeline and back leverage, but timing remains dependent on deal closings .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Total Net Revenue ($USD Millions)$84.153 $71.573 $70.455
Net Income Available to Common ($USD Millions)$43.472 ($94.617) $37.584
Diluted EPS ($USD)$0.29 ($0.69) $0.27
Net Income Margin (%)51.7% (132.2%) 53.4%
MetricQ2 2024Q3 2024Q4 2024
Distributable Earnings per Diluted Share ($USD)$0.35 $0.31 $0.32
Dividend per Share ($USD)$0.35 $0.25 $0.25
Total Loan Portfolio ($USD Billions)$8.3 $7.8 $7.1
W/A Unlevered All-in Yield (%)8.9% 8.5% 8.1%
First Mortgages (%)95% 95% 95%
Floating Rate Loans (%)96% 96% 95%
W/A Risk Rating3.0 3.0 3.0
Debt-to-Equity (x)3.4x 3.5x 3.2x

Segment breakdown (loan portfolio by property type, Q4 2024):

Property TypeCarrying Value ($USD Millions)
Office$1,757
Hotel$1,575
Residential$1,557
Retail$946
Industrial$400
Mixed Use$363
Other$537
Total$7,135

KPIs and activity (Q4 2024):

  • New loan commitments: $782M ($330M funded at close); repayments: $830M; add-on fundings: $97M .
  • Liquidity: $381M; no corporate debt maturities until May 2026 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2024$0.35 (Q2) $0.25 Lowered
Dividend per ShareQ4 2024$0.25 (Q3) $0.25 Maintained
Quarterly Earnings Trajectory2025 vs Q4 2024Not previously quantified; Q3 commentary noted dividend set amid declining floating benchmarks Expect 2025 quarterly earnings lower than Q4 2024; Q4 DE included $0.07 one-offs Lowered
Origination Pipeline1H 2025Not previously quantified>$1B targeted; portfolio expected to grow in 2025 New disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q2 2024)Previous Mentions (Q-1: Q3 2024)Current Period (Q4 2024)Trend
Macro/rates and transaction activitySigns of life; rising volumes; floating-rate portfolio covers dividend Renewal with Fed cut; spreads tightened; increased repayments and originations Liquidity returning; 2025 deployment expected; modest Fed cuts drove pickup Improving activity
Dividend policy16 straight quarters at $0.35; coverage expected for 2024 Reset to $0.25 based on operating earnings and forward curve $0.25 maintained; 128% coverage in Q4 Reset and sustained
Nonperformers/REO resolutionSpecific CECL on 111 W57; refinance reduced exposure; Brooklyn build progressing; hotels cash flow MA hospitals resolution; realized loss; defined pathways; Brooklyn topped out 111 W57 units under contract; REO hotels updates; redeploy equity uplift $0.40–$0.60/share Progressing toward monetization
Back leverage and financingNew Goldman/Atlas facilities; banks prefer warehouse to direct lending Upsized Goldman facility; ample warehouse liquidity Abundant supply of back leverage; banks active behind the scenes Supportive
Europe/UK exposureActive pipeline; pubs, care homes, industrial; presence in UK/Europe UK-originated loans; retail/logistics; strong European warehouse financing >50% originations in UK; diversified across property types; attractive spreads Strategic differentiator
CRE CLO usageNot discussedCLO market re-emerged; ARI not using; prefers warehouse flexibility No plans to issue; borrowers prefer privacy; similar cost with more flexibility Unchanged stance
Office riskTroy, MI specific allowance increase Berlin office moved to risk rating 4 (lease-up slower); still current Office under selective focus; no new asset-specific CECL in Q4 Stabilizing selective risks

Management Commentary

  • “ARI finished 2024 originating $782 million worth of new loans in the fourth quarter...As of year-end, approximately 30% of the loans in ARI's portfolio were originated in the past 24 months...underwritten to generate very attractive risk-adjusted returns” .
  • “Across ARI, we estimate that if we were able to reinvest 100% of the equity tied to nonperforming loans and ROE into newly originated loans, we believe there is an additional approximately $0.40 to $0.60 per share of annual earnings uplift” .
  • “ARI reported distributable earnings of $45 million or $0.32 per share...our fourth quarter distributable earnings included $0.07 of nonrecurring items...we expect that our quarterly earnings in '25 would be lower when compared to Q4 '24, while still providing sufficient coverage for our dividend” .
  • Press release: “A resurgence in real estate transaction activity...led to $2.5bn of repayments in ARI’s portfolio and we successfully redeployed that capital into new vintage, attractively priced loans” .

Q&A Highlights

  • Reserve cadence and redeployment: Management expects capital tied up in 111 W57 (~$375M net outstanding) to begin returning in 2025; Liberty Center >90% leased could be monetized later in the year; Brooklyn REO may be sold/refi early next year after tenanting .
  • Portfolio growth and leverage: With repayments and pipeline, portfolio can grow by $0.5–$1.0B; banks are active providers of warehouse/back leverage .
  • REO hotels: D.C. hotel exceeding pre-COVID levels with asset-level financing; potential to test market later this year; Atlanta cash flowing but below target returns; exits considered if pricing is right .
  • Spreads and asset mix: Loan spreads have tightened but financing spreads tightened more; mid-teen returns achievable on both stabilized and transitional loans; stabilized assets get better advance/tighter financing .
  • CRE CLO view: No plans to issue; warehouse financing provides similar cost with greater flexibility and borrower privacy .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was unavailable due to API limit; therefore estimate comparisons cannot be provided at this time. Values would typically be retrieved from S&P Global; however, they were not accessible during this session.

Key Takeaways for Investors

  • Dividend coverage remains solid (128% in Q4), but management expects lower quarterly earnings in 2025 versus Q4 2024 as nonrecurring fees fade and rates decline; watch for any dividend policy updates if macro softens further .
  • Earnings uplift catalysts: Resolution and redeployment of underperforming/REO equity (111 W57, D.C./Atlanta hotels, Brooklyn multifamily) could add ~$0.40–$0.60/share annually over time—progress on these assets is a key stock driver .
  • Pipeline and deployment: >$1B origination pipeline for 1H25 plus ample back leverage should enable portfolio growth despite repayments; monitor closing cadence and financing costs .
  • Risk monitoring: Office exposures remain under close management (Berlin lease-up risk previously moved to rating 4); no new asset-specific CECL in Q4—weighted-average risk rating held at 3.0 .
  • FX risk mitigation: Foreign-denominated loans funded in local currency and economically hedged; forward points contributed realized gains; reduces equity FX sensitivity .
  • Near-term trading angle: Evidence of unit closings at 111 W57 and any REO monetization announcements could catalyze sentiment; origination announcements (especially UK/Europe) and warehouse capacity expansions support growth narrative .
  • Medium-term thesis: ARI’s alignment with Apollo’s broad origination platform, diversified property/geography mix, and ability to source back leverage positions the company to convert recovered capital into higher ROE loans as the transaction market improves .

Citations:

  • Q4 2024 8-K press release and exhibits:
  • Q4 2024 earnings call transcript:
  • Q4 2024 press release:
  • Q3 2024 8-K press release/presentation:
  • Q3 2024 earnings call:
  • Q2 2024 8-K press release/presentation:
  • Other Q4 press releases: dividend declaration ; 2024 originations summary .