Apollo Commercial Real Estate Finance, Inc. Stock

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release.

I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to the GAAP figures in our earnings presentation, which is available in the Stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at (212) 515-3200.

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 Mironova, our Chief Financial Officer; and Scott Weiner, 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 24. 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 4 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 unwavering 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 4 remaining REO assets. As a reminder, 2 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 2 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 Courtland 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 2 remaining former hospital assets, which combined represent approximately $24 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 work through our first -- 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, outweighing 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 fundings 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 $0.07 of book value per share accretion year-to-date with $0.03 in Q1 and $0.04 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 $0.10 of the decrease attributable to the impact of vesting and delivery of restricted stock units, the trend typically observed during the first quarter of the year. Pro forma book value per share at the closing of the portfolio sale without giving effect to real estate owned quarter-to-date activity and certain quarterly accruals is $12.15, reflecting reversal of general CECL allowance in excess of discounts and closing costs for the portfolio sale as well as accretion from the share repurchases, as referenced earlier.

Turning now to the portfolio sales. I want to highlight a few key points from the transaction. In addition to repaying our secured borrowing facilities, we have fully repaid the outstanding balance of our Term Loan B and deposited funds to satisfy and discharge our senior secured notes, which will be redeemed at par on or about June 15. As Stuart 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 nonaccrual status. The loan has an amortized cost basis of $42 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?

[Operator Instructions] Our first question comes from Jade Rahmani with KBW.

Could you comment on the rationale to be buying back stock at this point in advance of the strategic review? It's reasonable to expect that capital could be needed to consummate an acquisition or some transaction. And so I'm just curious about your thoughts on that.

Yes. 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.

And then regarding the strategic review, just wondering if you could comment on asset classes or give any broad commentary as to how your thinking is evolving. I noticed that Blackstone is planning to IPO a data center REIT and wondering if that type of construction could be similar to something you might explore.

I'm not going to give any specific comments on asset types. 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 the current book value per share for shareholders.

Our next question comes from Rick Shane with JPMorgan.

Look, it sounds like we'll have additional clarity within the next 3 months. And for now, you guys are sitting on a lot of cash. You talked about sort of doing something in the near term to invest that cash. How should we think about that? Is this -- are you -- how much flexibility do you have? Does it have to be, for example, CMBS given the mandate of the company? Can you invest in agency mortgage-backed securities and mitigate credit risk, but take on some duration risk? Is this just going to be a treasury portfolio? How do we think about the asset class and potentially the leverage that you would take given some of the facets of those different asset classes or loan types?

Rick, this is Anastasia. So maybe to start with the first part of your question, CMBS, agency securities, all of these are typically good REIT assets, CRE CLOs, maybe not good REIT 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-yielding deposit accounts, which are providing us a pretty attractive yield. So that's an option as well.

And is the REIT test based upon the average over the quarter? Or is it actually based simply on 6/30. So can you -- do you have flexibility intra-quarter and then can be in compliance at the very end of the quarter to meet your obligations?

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

Got it. Okay. And what about leverage on any of those different classes?

No leverage as we envision to date.

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.

[Operator Instructions] Our next question comes from Jade Rahmani with KBW.

Just wanted to ask about the REO resolution paths and how that interacts with the strategic review because let's just say the strategic review did not come up with a definitive strategy in which you were confident that new company would trade above $12 a share and you decide to return the money. Would you look to bulk sale the REO portfolio or put that in a liquidating trust? Just wanted to get some color you might provide on that.

Yes, nothing set in stone today, Jade, 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.

And then if I could ask a follow-up just broadly about the macro picture with the 10-year today now at 4.4% and the mortgage REITs down 3% to 5% today, including ARI, which had an unsurprising quarter, in fact, a positive quarter. So what are your thoughts about the interest rate outlook and how that might complicate either the strategic review or equity return calculations in real estate?

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. Look, I think it's something -- historically, we've not been -- spent a ton of time trying to predict interest rate markets and try 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 the value of what we've created for people and at some point, deciding we're better served to let others decide what they want to do with their capital in the future.

Thank you. I would now like to turn the call back over to Stuart Rothstein for any closing remarks.

Thank you, operator. And as always, myself, Anastasia, Hilary are around if people have follow-up questions after the call. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release.

I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the Stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law.

To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at (212) 515-3200.

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 Fourth Quarter and Full Year 2025 Earnings Call. I am joined today by Anastasia Mironova, our Chief Financial Officer.

In light of our recent announcement to sell ARI's loan portfolio to Athene and the subsequent call we hosted on January 28, I will provide a brief update on the 4 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 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 Din Tai Fung with occupancy expected next year. Management remains 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 2 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 Courtland 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 the Massachusetts predevelopment portfolio consisting of 2 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, ARI 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.

GAAP net income available to common stockholders was $26 million or $0.18 per diluted share for the fourth quarter and $114 million or $0.81 per diluted share for the full year.

During the fourth quarter, we recorded specific CECL allowance of $3 million associated with the 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 CECL allowance during the quarter and the overall credit portfolio -- I'm sorry, the 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 111 West 57 decreased by $215 million year-over-year and $105 million quarter-over-quarter, with 6 contracts closed during the fourth quarter. The general CECL allowance was flat compared to previous quarter end at approximately $45 million. Total CECL allowance stood at $383 million at year-end. This equates to 418 basis points of the loan portfolio's total amortized cost, 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 fundings 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 borrower execution and portfolio rotation. Notably, over 60% of our loan portfolio is now represented with post 2022 originations. 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 unlevered all-in yield of 7.3%. The portfolio has 99% first 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 flow in REO assets.

During 2025, we added $1.8 billion of net financing capacity, including the closing of 4 new secured credit facilities, the expansion of our revolving credit facility and the upsize of several other credit facilities. Book value per share was $12.14 at year-end, relatively flat to the prior quarter end.

With that, we would ask the operator to open the line for questions.

[Operator Instructions] Our first question comes from Rick Shane with JPMorgan.

Probably not a ton to ask here, but I am curious what sort of feedback you are getting from investors and given the gap between the implied value of the transaction and where the stock is trading right now, what do you think is driving that in investors' minds?

Rick, this is Anastasia, let us check, we have a technical difficulty. One second.

Can you guys hear me?

Rick, can you hear me. Rick?

I can hear you, Stuart.

Just quickly. Look, overwhelmingly, the feedback has been positive. I think people greatly appreciate the efforts to unlock value. 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 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 the announced book value of 12 plus and a stock which sort of has been bouncing between $10.70 and $10.80 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 are evaluating? And do you have 3 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 is 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, 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 2 at this point.

Our next question comes from Doug Harter with UBS.

Stuart, can you talk about kind of how you think about ultimately marketing the REO assets? I appreciate the update you gave. If we take the Brook, as you get to stabilization, how much longer after that do you look to monetize the asset? What are the -- what would be the key signs to think about there?

Yes. Look, I think with the Brook, let me respond a couple of ways. I think for the Brook itself, lease-up is going as expected and overall is pretty strong. We're leasing 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, dual 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 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 Courtland Grand, I think, 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 Courtland Grand. But I would say, given where we're currently carrying the Courtland Grand, we feel pretty good about the value there.

I appreciate that, Stuart. And then how do you think about making decisions to monetize? Will you wait to determine what the future of ARI is in case some of those assets might fit into that future? Or just how are you thinking about the sequencing in that construct?

I think right now, obviously, we're not making any decisions in a vacuum. But I think sitting here today, given my comments to Rick on strategies going forward, I'm not sure I envision any of the REO portfolio as critical to where we think we're 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 off decision as we think about just maximizing value.

[Operator Instructions]. Our next question comes from Jade Rahmani with KBW.

First one would be just a quick one is on the dividend. What will happen post the portfolio sale? Would there be a period in which there is no dividend? Because otherwise, it will be coming out of book value. So the $12.05 will presumably go down by the dividend.

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 $0.25 a share per quarter.

Beyond that, the remarks we made on the call, whatever it was, a week, 2 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 situation where any type of distribution would be a return of capital.

And then following up on Rick Shane's question about strategy and thinking about potential options if you do not choose the dissolution path. I wanted to see if you agree with these broader themes. I mean, to create an entity that would create -- trade above book value, I think you would need to create an earnings stream that offers a return that's higher than what the public market discount rate is for these kinds of stocks.

And so that higher return might look along the lines of what ARI actually originally started out doing mezzanine and construction lending because I think that's one of the only ways to generate very high returns today.

Otherwise, you could go the super safe return path and perhaps use leverage in a way that private players aren't able to access using Apollo's access to business to bank lines and other businesses like Atlas via securitization. Or third, invest in operating companies that have franchise value and perhaps retained earnings or potential for equity gains. So I just wanted to see if you agree with those things, if there's anything that jumps out that I didn't cover, just your overall thoughts.

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 is the notion of trying to come up with a strategy that we think will trade better 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 $1.5 billion worth of capital to work, right? Like there's plenty of places to put $1.5 billion.

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/platform value. I don't think we're just going to do a "print a ticket to say we printed a ticket."

Thank you. I would now like to turn the call back over to Stuart Rothstein for any final remarks.

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

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our transaction announcement press release.

I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections unless required by applicable law. To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at (212) 515-3200.

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 all for joining us on short notice this morning. We appreciate your time and your engagement as we discuss what we believe is a transformational transaction for ARI and its common stockholders.

I also want to highlight that we have made a presentation available on our website today, which provides additional details on the transaction. This morning, we announced that ARI has entered into a definitive agreement with Athene to sell ARI's loan portfolio for a purchase price of 99.7% based on total loan commitments, net of asset-specific CECL reserves and excluding two loans with a principal balance of $146 million that are expected to be repaid prior to closing.

After repayment of substantially all financing facilities, other indebtedness and estimated transaction expenses, we expect ARI to have a common equity book value per share of approximately $12.05. The transaction was approved by ARI Board of Directors following the unanimous recommendation of the Special Committee comprised of three independent directors.

The special committee was advised by independent legal and financial advisers, completion of the transaction is subject to stockholder approval. The loan portfolio is being sold to Athene, which is a high conviction buyer given its deep familiarity with the portfolio and its aligned position in the capital structure alongside ARI across nearly 50% of the loans. We expect the transaction to provide ARI with approximately $1.4 billion of net cash. ARI will also retain all of the net equity interest in real estate properties held by the company, which totaled approximately $466 million as of September 30, 2025.

Let me start with the obvious questions, why do this transaction and why now? For a number of years, ARI's common stock along with most of the commercial mortgage REIT peers has traded at an average of 0.76% of net book value, despite the improving underlying credit quality and cash-generating nature of the portfolio. The intrinsic value of ARI's investment portfolio has not been reflected in the public market stock price.

At the same time, attractive yield-generating assets such as ARIs are highly valued in short supply and continue to attract strong demand in the private institutional market. For Athene, which has an ongoing need to access high-grade assets with excess return. This transaction represents a unique capital deployment opportunity paired with our desire to close the valuation gap for ARI, making it attractive for both parties.

By monetizing the portfolio in a single sale, this proposed transaction validates book value. The transaction includes no financing contingency, delivering certainty of execution. From a stockholder perspective, we believe this transaction offers several compelling benefits. First, the purchase price represents a meaningful 23% premium to ARI's recent trading levels and multiyear average price-to-book ratio. For context, over the past 4 years, ARI shares have traded at an average of approximately 0.77x book value.

Second, liquidity and balance sheet strength. Post closing, ARI is expected to hold approximately $1.4 billion of cash. We fully intend for ARI to continue to qualify as a REIT for tax purposes. And as such, we expect ARI will pay a first quarter dividend of $0.25 per share, consistent with the recent quarterly dividend level subject to Board approval. In addition, ARI intends to continue paying a quarterly dividend subject to Board approval targeting an approximately 8% annualized yield based on post transaction book value per share.

Finally, strategic flexibility. ARI's management team in consultation with ARI's Board of Directors, will spend the remainder of the year evaluating a range of commercial real estate related strategies, designed to reposition the company and unlock additional value for stockholders. In assessing potential new asset strategies, ARI will leverage Apollo's broader investment platform and origination capabilities. The company will also consider strategic M&A opportunities, which would be subject to approval by ARI stockholders as required. The goal of any new asset strategy or strategic transaction would be to deliver attractive current yields and position ARI shares to trade at or above book value on a go-forward basis.

With the new asset strategy or strategic transaction is not identified by year-end, Apollo intends to recommend that ARI's Board explore all strategic alternatives, including dissolution. Let me also address why Apollo remains the right manager for ARI as we move in to this next phase. Apollo brings a scaled global platform and decades of experience across credit and equity strategies. Apollo has cycle-tested credit expertise and has navigated multiple real estate and credit market environments, including periods of dislocation. Since the launch of ARI in 2009, Apollo's real estate platform has grown into a global, fully integrated credit and equity business overseeing more than $120 billion in assets under management.

The platform brings deep experience across a wide range of real estate-related investment approaches, property types and geographies. As we evaluate the next strategic chapter for ARI we will draw not only on the insight and perspective of Apollo's dedicated real estate team, but also on the full breadth of Apollo's firm-wide resources and talent.

Importantly, this transaction also reflects meaningful alignment between Apollo and ARI stockholders. During the post-transaction evaluation period, Apollo has agreed to a 50% reduction in ARI's annual management fee rate, which will be paid in shares of ARI common stock to further align Apollo and ARI stockholders. Apollo has also agreed to reimburse up to $10 million of ARI's transaction expenses.

Turning briefly to process and timing. The transaction includes a 25-day go-shop period during which the special committee will actively solicit additional interest in the portfolio. This will be followed by the filing of a proxy statement and a stockholder vote. Assuming stockholder approval and satisfaction customary closing conditions, we expect the transaction to close in the second quarter.

In closing, we believe this transaction represents a decisive step to unlock value that has not been reflected in ARI's public market valuation. It provides immediate validation of book value, strengthens the balance sheet, supports continued dividends and positions ARI for a new chapter with flexibility, liquidity and a clear mandate to explore new asset strategies or strategic transactions designed to deliver attractive current yield and position ARI shares to trade at or above book value on a go-forward basis.

We appreciate the support of our Board and the work of the independent special committee, and we look forward to engaging with stockholders about this transformational transaction. With that, we are happy to take your questions.

[Operator Instructions]. And our first question comes from Doug Harter with UBS.

Thanks. I guess if you could just a little bit about the process as to why now? Kind of what made this transaction -- what led to the timing of the transaction now, when much of the factors that led to it probably have been in existence for a while.

Yes, I think -- and you've probably gotten a sense from some of our prior earnings calls. We've been, I guess frustrating would be the best way to describe where ARI has been trading on a book value basis, particularly as we've made progress on a number of focus assets and continue to fill the portfolio with newly originated transactions that we think are good credit and good value. There's been an ongoing discussion inside the walls of Apollo as we try and think about a path forward for ARI. We've debated certain other ideas. We've explored certain other ideas in a perfect world, we probably would have loved to have an asset sale and an announcement of a new strategy line up perfectly.

But at this point, given the demand for the assets, which we know exists for what Scott and the team are originating these days. We felt like it was the appropriate time to get the asset sale done to validate book value to the market. And then we were very specific in what we announced in terms of the time we're allowing ourselves to come up with a transformational strategy for ARI. And if we are unable to figure that out, we will move, as outlined in the comments I made.

Our next question comes from Jade Rahmani with KBW.

ARI has gotten more active in the multifamily space. And I believe there are agency licenses available in the market, and one peer trading at distressed value. This transaction could position ARI well from a price-to-book standpoint, which would allow it to do M&A and have a currency advantage over peers, and acquiring something in the multifamily Space might be one possibility. Do you have any thoughts on that?

Without being specific about a company or an asset type, Jade. I would just -- I would say we were very intentional by highlighting that are very open to strategic M&A transactions as part of how we think about repositioning ARI. I would imagine given what we will be creating in terms of available cash and cleanliness of the balance sheet. There will be opportunities for us on our side to explore things that we think are interesting. I would also expect a fair number of inbound calls as well as people are trying to think through strategy. So I don't want to be overly specific, but some type of strategic M&A is very much top of mind.

With respect to the REO portfolio, it's interesting that ARI is retaining those interests. Could you provide a broader comment regarding that? And do you see upside in value within the REO portfolio overall and in The Brook in particular?

Yes. Let me answer in reverse. I think as you think about the four REO assets, I would say, from our perspective, there is still both work and opportunity in terms of value creation with respect to both The Brook, The Mayflower and to some extent, Courtland Grand as well. There's also work to be done on a couple of remaining assets that we retained as part of the Stewart settlement.

So there's work to be done. I think we're confident about our ability to execute on the work that needs to be done. And then I would say the other factor as part of that is, as you think about the buyer of the loans, I would say, REO is not a particularly capital efficient asset for the buyer of the loans.

Our next question comes from Harsh Hemnani with Green Street.

I guess the first one is, as you went through this process, will other buyers consider was there a general sense of interest in these yielding assets given just the high level of interest in asset-backed finance these days?

Yes. I think I'm going to leave it to our filing of the proxy to ultimately outline the process that we went through that led us to where we are today. And that proxy more importantly, will be filed after the completion of a 25-day go-shop period. So there is still work to be done by the special committee and its advisers to consider any competing offers that may arise in the next 25 days from individual entities that now know that the portfolio is for sale.

Got it. That's helpful. And then maybe on a go-forward basis, what's prompting -- I guess, a strategic overhaul of the company versus -- you've been, of course, able to originate new loans at a fairly at a fairly quick pace, especially over the last year or so given over 40% of the portfolio was already in new vintage loans. So what was the puts and takes between exploring a new strategic versus originating it internally?

Yes. Look, I think, as I said in my opening comments, our view at this point is that there seems to be much greater value placed on what we do from an origination perspective in the institutional market than in the public market right now. It's not to say that doing something related to real estate credit would not be part of what we decide as a go-forward strategy, but certainly part of the motivation for the transaction today was a view that when we've got a team that is originating, I think last year, close to $24 billion of transactions the reception we're getting in the institutional market versus where ARI was trading at a price-to-book basis, certainly reflected more support for what we're doing in the institutional market.

Got it. Okay. That's helpful. Maybe one last follow-up. Of course, this was a hugely beneficial transaction for shareholders and alliance interest of maybe on a go-forward basis, again, what prompted the introduction, excuse me, of the incentive fee within this new strategy and structure.

I think our view if we ultimately succeed and move the company in a new direction behind a strategy that we have conviction around. There was no logical reason as to why our management agreement should be consistent with our peers in the space.

[Operator Instructions]. Our next question comes from Tom Catherwood with BTIG.

Kind of 2-parter for me here. The first part is kind of how broad is this strategic review? Does this include non-commercial real estate opportunities when it comes to the asset base side?

And then the second part of the question is when you were looking at ARI, before announcing this transaction, when you were going through your strategic reviews, what were some of the asset strategies that ARI was not involved in that this might speed up the process of getting involved in? Like you were touching so much already. And at the end of the day, real estate is just debt and equity. What else really is top of mind out there?

Yes. Let me take them in the order you asked them. Look, I think from ARI's perspective -- and maybe I'll do the latter over the former. Look, we've all been aware of what our peer group has done with respect to more hybrid strategies. And we've talked about a number of them on various calls over the last 15 years probably in things that combine not just credit, but call it, credit adjacent equity strategies or hybrid strategies if you prefer that terminology, but I think we've always thought about ways to expand the ARI playbook and also create ways to create some upside beyond just being a lender who's upside cases to make a loan and get paid back its principal plus its interest.

I think we've always struggled with, how to do something in size and scale, so it's meaningful at a moment in time, when sort of the primary mandate has always been keep capital efficiently deployed as quickly as possible as loans mature, et cetera. I think with respect to your first question, yes. I think other than the desire to keep this as a real estate vehicle and a REIT for tax purposes. I would say we will take as broader view with respect to strategy as possible. So that means a full open perspective with respect to equity strategies, credit strategies.

Obviously, anything we would decide to pursue, we would need to think about competitive positioning as it pertains to both private and public competitors and also be cognizant of our ability to compete in a externally advised vehicle where there may be certain strategies where the market has embraced internally managed vehicles, et cetera. But I think our goal has already begun. You're not waiting for the transaction to close. It's been ongoing sort of in parallel with the transaction.

This is to really take a fresh look at real estate, think about what's going on in the economy more broadly as you think about some of the major capital-intensive things going on, and think if there is a way where we can create a differentiated position that would lead to compelling value for our shareholders.

And ultimately, if we can figure it out we will articulate it and explain it. And if we can't figure it out, as I indicated in my remarks, we will sit down and do a summary of where we are with the Board earlier in the new year and also consider this solution as a possibility at that point in time.

Appreciate that, Stuart. And just one last, one as a follow-up for me. This obviously takes the loan portfolio and kind of shift it to another arm underneath the Apollo umbrella. As part of the strategic review, will you be looking at kind of other either entities or portfolios or platforms within the Apollo umbrella as well as possible opportunities for ARI to invest in or to be part of or will this be primarily external?

No, I think it will be both. I think let me say it this way. I think there are many individuals inside Apollo, who touch real estate, either primarily or secondarily. And I think those individuals will be part of a process where we think through creating organic strategies and/or those individuals will be remarkably helpful in having us think through M&A opportunities that are presented to us.

Thank you. I would now like to turn the call back over to Mr. Rothstein for any closing remarks.

Appreciate everybody jumping on quickly this morning. Hilary and I certainly expect there'll be more questions coming in the coming days and we are both available, as well as Anastasia as well, as people have questions, please reach out, and we're happy to jump on the phone with people. Thank you, operator.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking statements. .

Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the stockholders section of our website.

We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at (212) 515-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein.

Thank you. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance Third Quarter 2025 Earnings Call. As usual, I am joined today by Scott Weiner, our Chief Investment Officer; and Anastasia Mironova, our Chief Financial Officer. ARI's third quarter was highlighted by continued strong origination activity and progress with our focus assets, as transaction activity and operating performance in the broader real estate market continues to improve.

Importantly, as capital from focused assets is freed up and made available for redeployment into newly originated loans, ARI continues to benefit from the strength and breadth of the Apollo real estate credit platform. Overall, Apollo is on pace for a record year of commercial real estate loan originations with over $19 billion closed to date. This provides ARI with an incredibly robust pipeline of transactions and enables us to effectively deploy capital and construct a diversified loan portfolio on behalf of ARI.

During the quarter, ARI committed to an additional $1 billion of new loans bringing year-to-date originations to $3 billion. Consistent with recent activity, this quarter's originations were divided between the U.S. and Europe. ARI's ability to deploy capital in Europe continues to be a differentiating factor. Apollo is the most active alternative lender in Europe, which has a fragmented lender universe given the less developed securitization market.

Fundamentals in Europe remain healthy across property types and with the lower rate environment, enabling transactions to have positive leverage again, the acquisition market has picked up significantly. The third quarter loans closed included residential and industrial transactions. And as of the end of the third quarter, residential loans encompassing multifamily for sale residential senior housing and student housing represent ARI's largest underlying property type in the portfolio at 31%.

Repayments continued to track expectations with $1.3 billion of repayments and sales during the quarter, bringing year-to-date repayments to $2.1 billion. Turning now to the loan portfolio and an update on ARI's focused assets. At quarter end, the carrying value of the portfolio totaled $8.3 billion. 54% of ARI's loan portfolio now represents loans originated post the 2022 rate hikes. The headline for ARI's focused assets is continued sales momentum at 111 West 57th Street with 6 new contracts signed since the last earnings call, 3 of which closed post quarter end generating approximately $55 million in proceeds and further reducing ARI's loan basis.

At the Brook, ARI's multifamily development in Brooklyn, we have seen strong leasing velocity to date and are still on target to exit that investment in the second half of 2026. Anastasia will discuss in her comments, but we expect this capital rotation out of focus assets will have a meaningful impact on ARI's earnings run rate going forward.

Shifting to the right side of our balance sheet. ARI continues to maintain robust liquidity and has access to additional capital from the company's various secured financing facilities. ARI's lenders remain actively engaged in the sector with ongoing dialogue around in-place or potential new financings. ARI continues to diversify the company's lender base and expand sources of capital, having entered into new secured -- entered into a new secured borrowing facility during the quarter in Europe.

In addition, we upsized the borrowing capacity on our revolving credit facility by $115 million and extended the maturity to August of 2028. With that, I will turn the call over to Anastasia to review ARI's financial results for the quarter.

Thank you, Stuart, and good morning, everyone. For the third quarter of 2025, ARI reported GAAP net income of $48 million or $0.34 per diluted share of common stock. Distributable earnings were $42 million or $0.30 per share. Distributable earnings drive the [ realized loss ] on investments and the realized gain on litigation settlement or the measure we'll refer to its run rate distributable earnings was $32 million or $0.23 per share of common stock. .

Run rate distributable earnings during the quarter was slightly below the dividend level given the timing of redeployment of capital within the quarter. It is worth noting that we often do not have control over the timing of new loan transactions closing and its correlation to the timing of repayments in the portfolio. Reinvestment of proceeds from unit sales at 111 West 57 will provide upside to earnings in Q4 and further in 2026.

We continue to address other focused assets in our portfolio and foresee resolutions on a number of them towards the second part of the year in 2026. Recycling of capital from those top-performing assets will provide further uplift to earnings at the end of 2026. During the quarter, we received discounted payoff proceeds associated with our Michigan office loan, which was previously fully reserved. As a result, we recorded a partial reversal of the specific CECL allowance in the amount of $1.3 million and the charge-off of $6.2 million.

We also realized a $1.2 million loss on sale of the promissory note, which was previously reflected as note receivable held for sale on our balance sheet. This realized loss was in line with the previously recorded valuation allowance for this asset. Additionally, during the quarter, we recognized a $17.4 million gain in connection with the settlement of the litigation related to one of the assets in the Massachusetts health care portfolio. The aggregate impact of these events was $0.14 increase in book value per share.

As a result, our book value per share, excluding general CECL allowance and depreciation was $12.73 as of the end of the quarter. Our loan portfolio ended the quarter with a carrying value of $8.3 billion and the weighted average unlevered yield of 7.7%. As Stuart mentioned, we had a strong quarter of loan originations, totaling $1 billion and completing an additional $234 million in add-on funding for previously closed loans.

Year-to-date through Q3 quarter end, we originated over $3 billion of new commitments and completed a total of $702 million of add-on funding for previously closed loans. Subsequent to quarter end, we committed an additional $388 million towards new loans, $324 million of which have already been funded. In addition to those closings, we have a robust pipeline of loans, which are expected to close before the end of the year.

With respect to risk ratings, the weighted average risk rating of the portfolio at quarter end was 3.0, unchanged from the previous quarter end. There were no new asset-specific CECL allowances recorded during the quarter and no other movements in ratings across the portfolio. Our specific CECL reserve decreased by $7.5 million, due to partial reversal and the associated charge-off on the Michigan office loan, as mentioned earlier.

Our general CECL allowance increased this quarter by $1 million due to origination activity in the portfolio. Total CECL allowance in percentage points of the loan portfolio amortized cost basis is up slightly quarter-over-quarter from 429 basis points to 438 basis points, driven by a slightly lower [ loan ] balance at the end of the quarter compared to the previous quarter end.

We ended the quarter with strong liquidity of $312 million, comprising of cash on hand, committed undrawn capacity on existing facilities and loan proceeds held by the servicer. Our leverage is down quarter-over-quarter from 4.1x at June 30 to 3.8x at September 30.

We continue to diversify and strengthen our banking relationships with 2 new banks joining the syndicate to our revolving credit facility, which was upsized by $115 million during the quarter and extended by 3 years. Liquidity in the secured borrowing market remains plentiful and with continued spread tightening, we have been able to generate returns consistent with our historical and target levels.

With that, we would like to ask the operator to open the line for questions.

[Operator Instructions] Our first question comes from Doug Harter with UBS.

Thanks for the update on the focused assets, how do you think about the time line to monetizing the Brook? And how should we think about the pacing of future sales at 111 57th.

Yes. Thanks, Doug. Look, let me take those in reverse because at 111 West 57th, we're effectively down to 3 units at this point, including what the market knows of as a quad plex and then another penthouse. So there's actually foot traffic and interest continues to be good at 111 West 57th Street. I would say, given the size of the units we're talking about moving, it's tough to know exactly from a timing perspective.

But certainly, our expectation in dialogue with the team working on it is that certainly, the early part of next -- sometime in the first part of next year, we would hope to be at the finish line on 111 West 57th Street. I think with respect to the Brook, if things keep along pacing from a lease-up perspective, and there's nothing else unforeseen in the marketplace, today, we would think about bringing the asset to market, call it, sometime in the late spring, early summer next year with the hope of closing a transaction sometime late third quarter, early fourth quarter.

Great. And then as you think about leverage, what do you think is the right leverage level for this business to be run as you think about the level of redeployment that you can do as you free up capital?

I mean look, I think for us, it hasn't changed much, but the leverage has moved up in the company over time only because we've pivoted out of to our mezz loans and more into all senior loans where you end up roughly same attachment points, and generating your ROE that way. I think, for us, we will continue to originate senior loans at, call it, and then back lever somewhere in the 65% to 75% range from a back leverage perspective that would imply ultimately a leverage level, call it, in the mid-3s, but then you've got some corporate leverage as well through the Term Loan B and the senior secured notes.

So we're going to run the business around 4 turns of leverage when we are fully deployed and capital efficient, including return of capital from focus assets.

Our next question comes from Harsh Hemnani with Green Street.

And thanks for the update on the Brook and 111 West 57th. Both of it seem like first half of '26, and part of it in the second half of '26, do you have any thoughts or update on the Liberty Central asset and how that's progressing?

Yes. The news on Liberty Center, which was actually not a surprise when it happened. I guess we knew it was ultimately going to happen, but we thought the market would accept a sale through that, which was the parent of the movie theater at Liberty Center filed bankruptcy. I think the feedback through the sales process that we were early stages on earlier in this year was that we'll get a better response from the marketplace on the sale side as that gets resolved.

At this point, the movie theater is continuing to pay rent, but is, I would say, operating the theater suboptimally. We will let the process play out through the bankruptcy court. We are very much involved in the process, and we'll determine whether they are going to accept or reject the lease. It is clear from incoming inquiries that there are other operators interested in the movie theater space if it becomes available. But at this point, we need to let that process play out. And I think we will be in a better position to assess timing of an exit probably late Q1, early Q2 of next year.

Got it. That's helpful. And then maybe on the repayment side, it's been a little lumpy this year, but this quarter was specifically a big step-up in repayments. Is there anything particular to point to that that's driving the elevated level of repayments? And do you think that will continue perhaps fourth quarter and moving into early next year?

Yes. Look, we're never going to predict the exact timing, and we tend not to spend a lot of time losing sleep over quarterly variations. I do think, to your question, at a broad level, repayments are occurring because the capital markets are fully open. There is the ability for people to access repayment capital, but you're also seeing improved operating performance in a lot of asset classes and the market has accepted a reset from a valuation perspective.

So I think a lot of the sort of stasis that we saw in the market in 2022, early 2023 as people are trying to digest elevated interest rates and not really sure where the economy was headed, I would say, both in the U.S. and Europe relevant to our portfolio. There's just better clarity in the market. I think a lot of the capital that was sitting on the sidelines, particularly on the equity side is biased towards transacting these days.

So I think we will continue to see a healthy pace of repayments across the portfolio. And I would say, it will be lumpy quarter-to-quarter just because you're never quite sure when deals will close. But as we look out in terms of projected repayments, the big headline was that repayments are consistent with what we would have expected, and we don't see that changing going forward.

Our next question comes from Jade Rahmani with KBW. .

This is Jason [indiscernible] on for Jade. So on 111 West 57, total exposure was up slightly this quarter to $279 million. I'm assuming that was due to increased capitalized cost on development spend, maybe TIs on the retail lease. Is that accurate?

Yes. Yes. Jason, it's accurate. Yes, we had some -- in connection with the bottoms lease we had to pay for some ongoing TI.

I would also say -- I'm sorry, Scott, Jason, the other thing I'd say it's consistent with the underwriting we did at the time we took the reserve on 111 West 57th. So I would say it's consistent with expectations. I'm sorry, Scott, go ahead.

Yes, I was just going to say we didn't have any of the contracts closed in the quarter. So I think you saw in the release that we had already 3 contracts closed that will reduce the balance. And then Stuart was saying that there's 3 unsold units, but there also are 3 more units that are under contract that we expect to close the remainder of the quarter. So there should be 6 units at least closing this quarter, paying down our balance.

That's great. And then on Brook and multifamily, what's the difference between the debt listed in the slide deck at $330 million and capitalized financing and construction costs in the 10-Q at 393 -- sorry, $330 million in the slide deck and $393 million in the 10-Q.

Anastasia, you want to handle that now or just get back after the call.

Yes, this is Anastasia. I will take a look at the math here. I'll get back to you after the call.

All right. And then just on the 2 hotels, the Mayflower and the Atlanta hotels. Any update there would be helpful.

I mean I think on the Mayflower, the hotel continues to perform well. Obviously, there is some seasonality in the numbers, which sort of always impacts what occurs in Q3. But overall, from an NOI perspective, particularly relative to basis, the hotel is performing quite well. And we are now stepping into a focus on optimizing the expense side at the hotel, but we continue to feel quite positive on performance of the hotel and just think there's some more net cash flow uplift that we can [indiscernible] a more stabilized level.

Our next question comes from John Nickodemus with BTIG.

as Harsh mentioned, it was definitely a higher repayment quarter, but it sounds like originations are a full go into the end of the year, which is exciting. Obviously, this is all can fluctuate on a quarter-by-quarter basis. But how do you envision the size of the loan portfolio trending, not just in the next quarter, but kind of as we get further into middle of 2026 and maybe even the end of next year, if you have any insight on that?

I mean where the growth in the loan portfolio is going to come from John is right, to the extent we are able to take unlevered capital, right? If you think about repayments on 111 West 57th Street or ultimately selling Liberty Center, right, you're going to take unlevered capital and then deploy it and lever it into assets. So you'll see some portfolio growth as we bring back what we would call the focused asset capital, you'll see less impact if and when we ultimately sell the Brook because that is levered as a as a construction deal already, we'll be able to use more leverage against a senior first mortgage than you can against construction deal.

So you'll see some pickup in asset level, but it won't be as dramatic as just assuming all of the capital is coming back to us. But that's what's really going to drive portfolio growth going forward is taking focus assets, which for the most part are unlevered or under levered and deploying them into senior loans, where we'll use full "leverage" [indiscernible] response to Doug's question earlier in the conference call.

Great. Really helpful, Stuart. And then other one for me. I saw the team originate 2 sizable loans on upscale hotels during the quarter. I was just curious if there's something about the hospitality sector that you're finding more attractive at this time? Or are these more just unique opportunities in New York and San Diego

Scott, do you want to comment?.

Yes. I mean, I would say, look, we've always been active in the hotel front, both in the U.S. and Europe and happen to like these deals just given size and in-place cash flow. One of the deals, we partnered with someone and there's a mezz behind us, we were able to structure a very low-leverage deal and then one in the New York City, it was an asset we were familiar with in the sponsorship group was acquisition financing. So nothing special. I think hotels will always have a part of the portfolio and I think it's -- we've gotten a bunch of repayments in the hotels. So we thought it made sense to add these 2 deals. .

[Operator Instructions] Our next question comes from Rick Shane with JPMorgan. .

This is A.J. on for Rick. So it seems like office trends are continuing to improve. I was just wondering if you can give us an update on what you're seeing in your office portfolio right now.

Yes. Scott, do you want me to go? You want to go...

Yes. Look, I mean, I think, look, it's still very much city by city with offices. I mean I think we're fortunate where our exposure generally is. But I would say certainly, in the stats that we're getting from the landlords, people are back in the office more, and that's really across the board. Clearly, in New York, I think they may be even higher than pre-COVID. Lots of positive leasing momentum, again, New York and London in particular. Chicago, where we do have some exposure. It's -- I would say it's again, asset by asset. We happen to have a loan on one of the newest buildings in Chicago, and that's doing great, we have a loan on an older building that is seeing some positive leasing, not as much as the newer build, which I think, again, is consistent in other markets. So I think we're pleased. And I think overall, so we're seeing more capital market activity. You're seeing certainly the financing of office deals is back across the board, both stabilized deals as well as lease-up and then you are starting to see more transaction activity.

Super helpful. And then just 1 more -- another 1 on repayments. So now that rates are finally starting to come down, could you see a bit of a tick-up in repayment rates, especially for some of those earlier COVID era advantages and waiting for lower rates for so long.

Yes. I mean I think as we look at our portfolio, consistent with our real estate, right? .

Yes. Go ahead, Scott.

I was just going to say there's -- a bunch of our stuff is actually being sold. So people have achieved their business plan and they're selling it, and we're getting repaid. Other deals are being refinanced and whether pulling out money or just again, the loans coming due. So I don't really see it as a trend where someone had really high expensive debt from COVID or pre-COVID. I think it's just normal. These are floating rate loans with a few years of call protection. When we do a loan, we kind of expect it to be out 2, 3 years. And I just think people are -- the markets are open and where they want to refinance or sell they're doing that now.

Thank you. I would now like to turn the call back over to Stuart Rothstein for any closing remarks.

No closing remarks, as I always appreciate everybody's participation. And if you have questions after the fact, myself, Hilary, Anastasia, we are always reachable and available. Thank you all. .

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.