Q1 2020 Earnings Call
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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to stay bye. Thank you for your patience.
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I'd like to remind everyone that today's call and webcast are being recorded.
Please note that they are the property Paul commercial real estate finance incorporating 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.
Today's conference call and webcast may include forward looking statements and projections and we ask that you referred to our most recent filings with the FCC for important factors that could cause actual results could 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 the accessing the companys financial performance.
These measures are reconciled to GAAP figures in our earnings press release, which is available on the Investor Relations 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 Dot Apollo Riet Dot com.
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Bye bye.
Three 200.
At this time I'd like to turn the call over to the company's Chief Executive Officer Stuart Rothstein.
Good morning, and thank you for joining us on the Apollo commercial real estate Finance first quarter 2020 earnings call.
Hope that everyone dialing in is healthy and say as we continue to navigate the challenging environment created by the cobot 19 pandemic.
Joining me. This morning is our Chief Financial Officer, Jay I'll go Wall and Scott, we enter my partner in running <unk> since the beginning.
Before I begin my comments with respect to Eri I want to take a moment to update you on how Apollo is a third has been operating over the past few months <unk>.
Paul I moved quickly to protect employees and during the second week of March implemented a work from home plan.
As a firm we are extremely well equipped to work remotely and from the most senior levels on down I continue to be amazed by the incredible effort dedication and perseverance being put forth.
Over 50 people within Apollo, including the entire real estate credit team as well as members of the finance Investor Relations and legal teams support Eri on a daily basis, and we are communicating frequently and effectively work flow is organized and efficient and worked product is thoughtful and can.
Insistently being improved and enhance I recognize that this situation continues to evolve and there is much work ahead of us but the effort to date gives me great confidence in our team's ability to navigate both the opportunities and challenges that lie ahead.
I have often commented about the benefits of the broader Apollo platform to Eri over nearly 30 years in business Apollo has navigated many market cycles disruptions in periods of heightened volatility and has successfully managed through them and thrive in the current environment era.
Is benefiting from many of the collaborative efforts with in Apollo a few noteworthy examples include a highly coordinated effort across the firm in managing bank relationships, the aggregation and dissemination across investment teams of real time granular market data and information and the unified.
Cash in it which Apollo is providing thought leadership and feed back on the multiple government programs designed to assist companies and the markets.
Turning now to the specifics on Eri I would like to begin by addressing the rightside of their eyes balance sheet, including an overview of the current capital and liquidity position.
Eri has always focused on maintaining dry powder within the company's balance sheet and throughout our history. We have utilized disciplined with respect to leverage. This positioning has served us well as we manage through the current situation.
Hey, or I ended the quarter with $582 million of cash as well as $1.2 billion of unencumbered loan asset.
Net of post quarter payables, including the recently paid common stock dividend of 40 cents per share Eri has approximately $582 million of available liquidity comprised of 566 $567 million of cash on hand, and $15 million of available and.
Drawn credit capacity.
Hi has credit facilities with six Counterparties, which had $4.5 billion of total capacity and 3.6 billion outstanding at March 31st with a weighted average remaining term of just under three years.
As a reminder, all of a arise credit facilities are collateralized by loans and the weighted average advance rate was 67% at March 31st also to be clear Air eyes portfolio includes only $68 million of single asset single borrower CMBS, which are not.
Finance.
Since inception, we have always maintained and opened an ongoing dialogue with air ice Keith financing relationships and since that pandemic began we increased the dialogue with each of them.
To date, we have found that dialogue to be thoughtful and constructive as we collectively manage the economic impacts of the pandemic.
Over the past eight weeks in discussions with lenders Eri has agreed to de lever certain of its secured borrowings by a total of $144 million or less than 5% of secured credit facility borrowings as as of March 31st.
Consistent with the customary process established with our Counterparties during a arise more than 10. Your operating history request to de lever were met with a combination of increased advance rates against certain loans and the posting of additional loan or cash collateral.
And it's also worth noting that the secured credit facility market for commercial real estate loans has remained open and functioning throughout the pandemic in the past eight weeks eri borrowed over $540 million from existing facilities and closed new as new U.S. facility with Barclays.
We utilized to finance one of the loans. We closed this quarter. In addition, the term on air ice facility with Deutsche Bank was fully extended for two years.
We believe air eyes ability to access capital and expand the company's facilities demonstrates the strong relationships, we have with air eyes lenders as well as their commitment to the business and their continued desire to work with Eri as we manage through this pandemic ends up today, we believe eri as well because.
In addition in terms of liquidity management and future capital needs.
Turning now to air eyes asset the company ended the quarter with a loan portfolio totaling $6.4 billion. During the first two months of the year.
Right completed 562 million of new floating rate first mortgage loan originations 440 million of which have been funded.
They are also received full repayment of an 87 million dollar first mortgage loan on a hotel property in Detroit, Michigan.
Since the beginning of March our focus has been on our in place portfolio and Eri has not pursued or completed any new origination transaction.
The entire real estate credit team with significant involvement from Scott Jay and myself is focused on asset management and we are in regular constructive dialogue with air eyes borrowers I also want to highlight Apollo's recent higher Daniel Ho, who joins Apollo from Morgan Stanley at the beginning of March as.
Our head of real estate credit asset management.
This is <unk>. This was a higher that was in the works prior to the pandemic and Dan brings additional senior level talent and extensive experience to our efforts.
For the month of April Eri received 99% of the interest that was expected to be paid from outstanding loans beyond the receipt of interest there our conversations taking place with borrowers and each situation is being handled in a bespoke matter. The underlying properties are predominantly located in major markets through.
Route the U.S. in Western Europe, and our borrowers are sophisticated well capitalized institutional investors our conversations with borrowers have centered around working with them to determine the best possible situation for them to sustain a period of disruption.
Some of the discussions include reallocating lender reserves differing interest with a true up at the end of the load term or news sponsor contributions of equity with minimal debt service deferral.
With respect to the hospitality and retail loans in our portfolio, which represents a two sectors that were immediately impacted by the dramatic economic shutdown. The situation is incredibly fluid and each market sponsor and underlying asset has been impacted differently. After a thorough review of each.
Slowed and underlying assets, including detailed financial analysis, we recorded $32 million of impairments against our hotel lows.
An additional 20 million dollar impairment against Liberty Center, the retail property in northern Cincinnati.
I would also like to provide an update on to Predevelopment loans, the $183 million Miami design District alone and the hundred 54 million dollar Fulton Street Love both of which have the same sponsor.
On the last earnings call, we indicated that the borrower elected not to move forward with the planned development in Miami and the sales effort with respect to the property was launched in February.
The intent and expectation from this sale was to repay our alone as well as deferred interest and fees.
Subsequent to the earnings call, a similar situation or rose with the Fulton Street property, followed by a subsequent similar planned sales effort.
As expected the sales process fees have been impacted by the pandemic and as such both loans were moved to nonaccrual status and the we've recorded in aggregate $95 million of impairment against these two loans.
Finally, with respect to air rise construction loans and near term future findings, we highlighted in the supplemental package that we expect $180 million of net fundings for the remainder of 2020.
In addition at the beginning of May.
Alright proactively sold interest in three Unlevered first mortgage construction loans totaling approximately $261 million in commitments $90 million of which had been funded at a weighted average or at a weighted average price.
98.9% of par the sales reduced air rise construction exposure generated $88 million of proceeds and eliminated $173 million a future funding obligation.
Before I turn the call over to Jay I want to take a moment to thank the entire team focused on Eri, who have worked tirelessly and they've shown in mens dedication and determination in unprecedented circumstances.
We know the road ahead is going to be challenging and the commitment and fortitude I've seen from the Eri team has made me extremely proud I as well as the rest of the management team and our board of directors remain fully committed to navigating a arrive through this volatile environment and we take our responsibility.
As stewards of your capital extremely seriously and personally as we all stand beside you as stockholders.
Due to our durable capital structure and our focus on downside protection in our assets. We believe a arise business is well positioned to manage the ongoing market disruptions. In addition, a or I will continue to benefit from the tremendous breath and resources. It derives from the Apollo platform and we will continue to.
Communicate and provide updates as they are warranted.
With that I will turn to turn the call over to Jay to review our financial results.
Thank you soon.
Good morning, everyone.
We'd like to consumer sentiment and I hope that you are on safe and well.
For the first quarter of 2020 or operating earnings were 62.7 million 40 cents per share.
GAAP net loss for the quarter was 131.2 million or 86 cents per share.
Net loss reflects 98 cents per share non specific reserves as well as 22 cents per share gentle reserves taken in accordance with seasonal.
Which we adopted this quarter.
Yeah.
And coming up as a general season.
You considered various factors, including the historical loss experience in the commercial just in center.
I didn't know if expected repayments in future fundings 10, or do you have the macroeconomic environment.
Given the significant uncertainty around this pandemic.
Since it's not the diminished slow down in new originations an extension of projected maturity date.
He actually there's no recorded was higher than what we previously reported Q4 earnings call.
I do want to highlight that metaphor debt covenants are impacted by the gendron seasons or.
Moving to book value.
GAAP book value per share prior to the Gen. Two seasons reserve was $14 in 94 cents.
As compared to 16 doesn't present at the end of Q4.
Since quarter end, we terminated our interest rate swap, which was introduced book value per share, but he said.
As of quarter end portfolio is comprised of 75 zones within amortized costs 6.4 billion.
The portfolio had a weighted average unlevered yield of 6.7%.
And the remaining fully extended term of just over two years.
Approximately 82% for U.S. loans have libel floors that are in their money today.
No [laughter] borrowings and compliance with all our covenant and as Stuart mentioned continued to maintain strong liquidity.
As of today, we have 567 million cash on hand [laughter].
15 million of approved and Undrawn credit capacity and 1.1 billion in unencumbered loan assets.
And is that we'd like to open the lines for questions. Operator. Please go ahead.
Ladies and gentlemen to answer the question you will need a press star one on your telephone to withdraw your question press the pound key.
Please standby and while we compile the Q and a roster.
Our first question comes from Doug Harper with Credit Suisse. Your line is no.
Thanks.
This is Stuart you talked about the.
Payment you'd roots with your worker lenders you just talk about whether that is cash that that's or any cash after two to use their whether that's reflected in your current liquidity number that's still to come.
No. The current liquidity number which I gave as of May six which was 582 million consisting of 567 up cash in.
15 of Undrawn capacity at this point, Doug that that represents.
Fully providing any additional assets or cash that we need to to all of the.
Credit providers. So there's nothing nothing expected. This time, obviously conversations are ongoing but.
That number is net of everything we've needed to do with respect to our credit providers to encourage through today.
Great and just on that agreement you know I guess.
Is there some sort of standstill, what would be kind of the factors that that might cause.
You know to meet the post additional collateral or cash or paradigm that that further.
Yeah look at this point, we've chosen not to effectively to pay up or or use excess cash or or assets to two by short term protection our discussions with re credit providers are ongoing.
That's effectively an asset by asset analysis, so wall facilities are crossed across portfolios of loans.
The determination as to whether there might be a need for any further de levering really is with respect to what may or may not take place in at specific assets. So we you know regular dialogue with our relationships keeping them.
Up to speed on what's going on.
With various assets and the loans, we're very much on our front foot in conversations with them and clearly as I tried to indicate in my comments, we found our relationships with.
Lenders to be remarkably thoughtful and constructive and they seem very supportive and in the way we're moving through the portfolio at this point in time.
Great and then just last one for me if you could just talk about what makes up the one point.
1 billion unencumbered assets like your huh.
Yeah. So it's all loan so just to be very clear I mentioned, the $68 million of securities, which is not finance, but beyond that everything in unencumbered assets is alone or the majority of it or mezzanines mezzanine positions, which are not finance. There's also a few.
Senior loans that today, we have not financed as well, but worth clarifying since you asked the question that everything we described as.
As being unencumbered is alone there are not they're not security position, they're not CLL positions us all loan collateral that we believe could be financed if we needed to use it in the future.
Thank you.
You're welcome to kind of stuff.
Thank you. Our next question comes from Rick Shane, but the chain P. Morgan Your line is no.
Hi, guys two questions I'll ask the good morning, and I hope everybody as well.
I'm going ask the first question and it may take a second to reference mental off. The second question. As you guys are potentially look into south footnote to on page 19 related to the unencumbered assets references a 1.25 acts.
A minimum requirement I'm trying to understand what that is what this really means I'm confused by the footnote and then hopefully be less.
Less precise question is please explain the decision to to close out of the swap what's the benefit of that and what was the cash gain associated with it.
Sure So I'll take them in order. So the 1.25, if you look at our.
The balance sheet, we've got a term loan b outstanding it's about $497 million of principal one of the covenants within the term loan is that we need to cover the term loan at 1.25 times into her in terms of unencumbered assets, which can be comprised of.
Up up fairly broadly defined definition of unencumbered assets, whether they be loan assets cash or other assets. So that's what we're referring to when we talk about.
The 1.25.
Coverage with respect to the decision to.
Unwind the swap obviously rates have moved significantly since we put the swap in place or roughly a year ago, we've effectively taken.
The economic hit through our book value.
To date, so from our perspective sitting here today.
It was easier to clean up the swap.
It will make earnings cleaner going forward and actually be advantageous to earnings going forward, because we'll be paying.
Yeah, the rely bore spread as opposed to the swap why bore.
And from a cash position Theres really no impact relative to the liquidity numbers, we provided in my speech in common.
Got it. Thank you very much appreciate it and again I hope that's doing well.
Thank you.
Thank you. Our next question comes from Jade Rahmani with KBW. Your line is now open.
Thanks very much.
Wanted to see if you could provide any color on the percentage of the portfolio. That's in gateway cities and if you're concerned that in fact these gateway cities such as New York in London May take longer to act due to delayed openings densities, thereby potentially resulting in higher loan losses and commercial real estate.
Yeah, I think it's a fair question Jay to be honest I don't have an exact percentage for you, but obviously you know it's the percentage is clearly in gateway cities and obviously if you go through the supplemental we do provide.
The city for every loan so you can pretty pretty quickly get a sense of where our exposures are.
Look I think it you know I think it's pure conjecture to know what may happen on a go forward basis in terms of various cities. We like many others are trying to figure out what the new.
Work environment.
Looks like.
You know I think it's Ah I think it's too early to sort of draw any conclusions on what the longer term impact might be but I. Appreciate the point appreciate the question and.
I'm happy to post call, we can get more specific on gateway cities, but I think at a high level. Just if you look at the supplemental you'd see roughly.
35% in New York City, 21% in London, So youre ready.
Just shy of 60% there and then obviously and as you go around the state's there's you know there's exposure in Chicago, there's exposure in L.A.. There's some exposure in Boston. So my guess is across the portfolio high level, you're probably.
North of 75% in terms of Gateway city exposure.
Thanks very much.
Turning to hotel exposure can you convey a sense of what the tone and types of conversations are between Eri and your borrowers how are they thinking about the value that remains in those properties how are they evaluating their equity position and there were resolved.
As well as.
You know their willingness and ability to put equity into those properties support those properties.
And you know remain long term committed to those properties.
Yeah as I indicated in my comments every every conversation is slightly different but but to give you a general flavor across our portfolio I would say that everybody. We've spoken to is generally focused engaged on the asset.
You know there near term focus is.
I would say less about what is spot value and more around sort of near term cash management debt service management.
We've had conversations with borrowers as I mentioned along the lines.
Using available reserves to meet near term debt service payments as you might imagine a lot of.
Hotels in conjunction with their brands are sort of delaying or postponing.
FF any upgrades so that provides an opportunity for people to use that.
Cash or capital elsewhere.
We've had conversations with <unk> with folks around some short of short term.
Debt service Forbearance every one of those conversations that we've had have been in the context.
Of both the combination of we as borrower committing to do something but they as.
Owners slash equity sponsor also willing to be or do something in the terms of committing additional capital to the asset. So were clearly people are evidencing the notion that they need to be committed to the assets long term.
And I think longer term you know, we're all sort of hand in hand thinking through value over an extended period of time.
I think we will see some activity on some of the hotels.
We've had some conversations.
With folks incoming with respect to certain assets and what they might want to do and then lastly, while it's not for us to sort of drive the process certain of the hotel owners have also been exploring the P.P.P. program, which is the government sponsored program with remain.
With respect to.
Keeping employees on staff and using using government sponsored capital for payroll protection. We've also had construct constructive dialogue around that but I would say generally speaking across the portfolio.
You know I would say the general view has been strong sponsor support really digging in on the assets trying to figure out how to manage through this situation because they see value on the backend when we come out of this.
[noise]. Thank you can you give the aggregate balance of loans that are on nonaccrual [noise].
[noise].
Off the top of my head no, but we can certainly you don't give you that information after the call Hillary or Jay could follow.
And in terms of the 99% of interest payments received in April.
Debt service It says received in April.
How much of that was paid.
From a existing reserves.
Off the top of my head I would guess the number is 10% to 15% for lots of double check that.
[noise], Okay [noise].
And lastly could you comment on how you're thinking about the common stock dividend going forward.
Yeah look I know you know what and I know you know our competitors and tiers of answer. This question as well look we certainly recognize the importance of the dividends to our shareholders and obviously, we just paid our first quarter dividend of 40 cents a share just a few weeks ago I think if you think about our liquidity.
The number.
We're certainly in a strong position from that perspective.
The dividend policy to date has not changed but as we've done consistently throughout our existence, you know will review and discuss the Q2 dividend with the board at the beginning of June and make an announcement. Shortly thereafter, it's always been a quarter by quarter does.
Vision, but we very much recognize the importance of it to our shareholders and we'll certainly take that into account when we talk with the board in six weeks or so.
Thank you very much.
Thanks Jay.
Thank you. Our next question comes from Stephen Waltz with Raymond James Your line is no.
Hi, good morning.
Good morning for even order worked out mobile ordering a morning order worked out well when a follow up on Jades last question. The Jay can you can you maybe talk a little bit about you know these are clearly uncertain times.
And there's a lot of nuance, even in normal times between GAAP and core and taxable read income accounting.
Certainly around loan loss provisions impairments versus realize loan losses Theres some stuff on securities as well, but I don't really thinks applicable to.
To your company, but are there any other issues that that you're aware of that we need to consider as we as we start to think about dividend distribution requirements relative.
To re taxable income.
And how that may or may not defer more from from a core earnings metric that we kind of used as a base a baseline in the past your during during a turbulent turbulent environment like this.
Okay.
Perspective, Stephen I'll answer Jay I think from our perspective, Stephen and we've said this in the past.
Look we've always thought about the dividend in the context of operating earnings I think I've mentioned this on previous calls, but from a tax position, we're actually given the transaction we did.
With a MTG four years ago now, we still actually have tax protection visa be taxable income. So everything we've done on that to date on the dividend has really been driven by operating earnings and not what is what we are forced to do these to be tax and that will continue b to b the approach.
Going forward or said differently.
Operating <unk> operating earnings tends to drive the dividend decision and we're very well protected vis-a-vis anything we need to do from a tax position jazz sorry to cut you off at if there's anything you want to add to what I just said they'll correct.
No that's it.
Well it that's breakthrough and appreciate the comments there because you know trying to figure out all the moving parts going into these numbers and.
Switching to the good luck the interest [laughter] appreciate that it's a never ending a request.
Switching to the interest you sold or and I apologize if I missed this was it was a little late the call this morning, but.
Are you looking to do any more of that as low as a way to reduce these unfunded commitment if so how how much more of the portfolio would you look at as being long possible for something like this and you know there other people a third parties that would look at that are just something you think you.
Continue with the.
Paul.
Yes, sitting here today, we're not looking to do anymore that given that the near term focus was really on sort of managing liquidity through the end of 2020 and this was this with the situation that arose from that being said, even though we're not looking to do any of it I actually think there is a.
A market for much of what we have and I do think if if needed to or if desired desirous of doing it at some point in the future I think we have options in terms of what we choose to do with it.
I think again, what we're able to accomplish with this sale was again in some respects speaks to the power of the Apollo platform and the ability for us to take a very broad view.
Where assets May best fit at a moment in time.
But will you know will start thinking more about somebody other future fundings as we move through this year and get a better sense of sort of what the pacing is going to be right now with respect to.
Construction projects, depending on geography.
Timing is a little uncertain as things are either continuing to move forward or some things are shut down.
So we'll think about it more at the end of year, but no no plans right now to sell anything additional.
Great and lastly, as Fabio he may have covered this again apologies if you have but you know coming out of this than in a world where it's the leverage that's been the concern.
You know and we'll get through credit the coming out of this do you think it's going be more attractively move back to Mezz, where you get your your returns through through the the investment position as opposed to utilize and balance sheet leverage.
Arguably too early too early to tell a look we've always been somewhat indifferent as you've heard me say many times before ultimately it's about you know where do you want to be in the capital structure and are you getting paid for the the underwritten risk that you're taking.
I think look we're still in the market every day, we're talking to people about things, we have obviously a lot of liquidity and capital there hasn't been much to do.
To date, but yeah, I think our general approach at a high level will continue to be somewhat agnostic between seniors or mezz and it really will be very transaction by transaction dependent.
Great. Thanks for the comments, Jay and Stuart appreciate your time swing take care.
Thanks.
[noise]. Thank you. Our next question comes from Steve Delaney with JMP Securities. Your line is open.
Good morning, everyone great to be on with you. This morning.
Sure. It certainly appears it was a time, we move to bring Dan her on board to add to the team could you just give us a little more color on dan's background and exactly how his role will compare contrast with that of Scott. Thanks.
Yeah look we were working on bringing someone of dan's capabilities onboard.
Before this all occurred which is why he started when he did because obviously to recruit someone that his capability and talent takes some time as I mentioned in my comments. He comes out of Morgan Stanley. If you look at his background.
Dan has experience both on the credit side and on the equity side, so he's really been.
In his career very much while spending a lot of time on asset management. He thinks like an investor which is very much consistent with the Apollo approach or here is really brought in for two reasons one is to.
You know at the most micro level be able take the lead on various.
No deal specific situations that require someone of his.
Experience and capabilities to work through a situation and figure out where we want to be I'm on the other side of it and then also given his experience at Morgan Stanley. We've got talented people on the asset management team and we've had a and we continue to add to.
To that talent, but at least part of Dan's role is really taking us to the next level in terms of organization communication I think we do it well, we always want to do things better.
And I like he's just thought and in part of a big organizations that I think will be helpful to us going forward and then ultimately.
The more he can achieve on the asset management side.
The more it frees up Scott and some of the other senior members of the team.
The focus on the offensive side of what we're doing its not to say that myself or Scott.
Well continue to be deeply involved in asset management issues. The way other members of our team are as well.
But I think we've just added someone who overall provides a lot of but depth and credibility to the team [laughter] great. That's that's very helpful and welcome Dan. So switching my follow up question is on CMBS, that's pretty much a four letter word for the month to March in early April but the asset.
Class has made a comeback various reasons and given your your focus on kind of liquidity now, but that that asset classes, a little bit to de risk is it possible that is sort of a place holder as you're working through loans and not making new loans could we see a securities book.
Oh grow as a way to keep your capital deployed and are in the months in quarter. It.
I mean I you know at a high level you know the quick answer is probably not see just give look we're in the market every day, we see what's going on I never want to say never 'cause because we look at a lot of things I'm just being perfectly candidate in what we've seen to date.
You know I would say not a lot has popped up on the radar screen that is particularly appealing necessarily as we think about eri sort of return hurdles and what we're trying to do in terms of risk and reward that being said what we we continue to look at the CMBS market because there's.
Many places within Apollo, where it where things may fit.
Look I think you know I know you've asked this question previously look we continue to think in terms of often we obviously have a lot of capital on the balance sheet, where in the market every day I would say as of right now not a lot has popped up there that is all that interesting but.
Ultimately a part of our job is to find things that make sense in order to put our capital to work. So we'll we'll continue to look and see what might appear but I wouldn't expect a significant shift to two CMBS on behalf on the part of their.
Got it thanks to the comments and everyone up stay safe and be will.
Thank you Steve.
Thank you. Our next question comes from George Hondas with Deutsche Bank. Your line is no them.
Hi, Good morning, everyone. Thank you for taking my question is good morning stores or you know so just to follow up questions you're welcome to $95 million of impairments on the Miami property that on the Fulton Street loans by the same sponsor. He just help me understand how you guys arrived that at that 95 billion dollar number I'm just kind of thought process.
That kind of went into to getting to that I, if I'm going to our impairment.
Yeah, I mean, I think I think the best thing I could do at this point George If you go through the 10-Q, we sort of explain I'm in the details of the 10-Q, what the key inputs were from an analysis.
Perspective, obviously and in any sort of predevelopment situation you need to make.
Assumptions or what is likely to be.
Constructed what the various rent levels will be for various part of parts of what is the constructed in there. What you say you know terminal value or cap rate value will be on the back end and I think we've done the best we could in the 10-Q time trying to outline what the what the key inputs.
As we thought through that analysis.
Great. That's helpful make sure to take a look at that I'm sure and second follow up question.
Jay I had a question around you percentage of.
Right that was collected the reserves, you say, 10% to 15%.
Is that reflective of and maybe the amount of borrowers who have reached out I'm asking for some form of relief or loan modifications wanted to get a sense for.
For maybe the percentage of portfolio a number of borrowers that have reached out you know since cobot has.
Arrived you know asking for some foreigner Lee for engaging in a conversation around the loan modification potentially.
No I need to be fair when I when I was answering jades question, you're right Yeah part right a lot of what we do whether it be a predevelopment situation or a construction situation.
Right, you've got interest payments built into.
Sort of the capital structure as well so that was part of my answer to Jade as well, maybe maybe he and I were talking past each other but I was not just referring to sort of situations that have arisen recently with people asking for.
For call it relief to be able to use reserves I was sort of thinking more broadly in terms of the structure around a lot of our transactions to begin with if that makes sense.
Right I think you know as it as it pertains to people, reaching out again tough to give a percentage per se, but obviously yeah.
What I tried to indicate in my.
Each comments was that most of the activity to date, I mean, I'm, not saying well, what low ebb and flow as we go forward that most of the activity to date.
Has been risk with respect to the hotel.
Or retail parts of the portfolio to give you a sense of sort of as you look at our portfolio what are the activity taking place.
Sure.
Makes sense great. Appreciate the additional color. This morning, Stuart I'm take care you got it. Thanks.
Thank you and our next question as a follow up from Jade Rahmani with KBW. Your line is no.
Thanks, very much and I'm in response to the last question. Thanks for the classification, because I do realize that you are.
Funding the structure of heavily transitional loans included reserves as part of the.
Initial fundings.
In terms of margin calls.
On the facilities believe you don't have spread marks could you confirm that and also provide some insight as to what triggers margin calls on hotel loans is it on a trailing 12 months EBITDA basis debt yield.
And then or are there other factors into a market indicators of credit impairment that would trigger margin calls.
Yeah. So so confirming your first comment Jade, which is we don't have spread marks their credit based discussions to be fair. Most of the agreements are all of the agreements are fairly.
Oh pay with respect to what constitutes a credit event or a credit discussions to give you a flavor.
Sort of how those discussions work, whether it be a hotel or any other asset I would say the discussions are far more than just stay static.
Backwards looking analysis and the situation like that we're faced with today I would say the conversations encompass forward looking views of what an asset may or may not be worse, given various assumptions on how people think the economy might recover I would say ultimately be.
Borrow behavior factors into it as well and what is the equity sponsors you're doing are not doing in a particular situation.
So it would be.
Disingenuous of me for to tell you that there is a specific metric that is focused on they are really and not to Dodge the question, but to be very candid depending on the bank depending on the asset they're very much sort of individual customize discussions on every situation.
[noise] and out of the banks acting similar across similarly across the board are there a couple of outliers.
I think RBC there were some headlines about the way they were behaving I'm.
Not sure if they're all kind of taken the same posture or if it's highly married.
No look my you know the comments in my speech about our lenders being you know constructive and thoughts filling our dialogue was meant to encompass you know the six counterparties that we deal with I think they've all been I'm working with us as partners and very much from a relationship perspective, we don't have any.
Exposure to RBC at I'm, not going to I won't pick on RBC, but I think I think you and most on this call I think recognizes that was due more to a security situation in the loan situation and that's why we've been very specific in clarifying that what we borrow against our loans not securities.
Okay.
Thanks for that in terms of repayments you know is there some minimal level that is reasonable to project.
Obviously, it's taking on a great amount of significance at this point and are you in talks with borrowers about discounted pay offs.
[noise] [noise].
I'll work backwards.
A few situations we've had some conversations.
Less about discounted payoffs, but but sort of new equity coming in and asking I says lender to sort of.
Do some things to incentive that new equity to come in too early to know whether or not any of those will get to the finish line today, but we have not had anybody we have not had any discussions that we've taken seriously with someone calling us up and offering to buy their loan from us at a discount.
Just to be clear.
To clear on that side of things what was the first part of your question.
[noise], some kind of minimal baseline of repaying debt repayments, yes look.
To be very clear from a.
As we think about the world right now, we sort of our assuming.
Nothing in terms of repayments other than.
Repayments that will come from the.
Sale up for sale residential units that are already under contract as at least today our experience has been.
Across the board.
That buyers are continuing to close on their contracts and we have not experience any situations to date, where people have attempted to walk away from a contract or leave their deposit behind so we've been assuming those will continue to close at a high level between now and they ended the year that.
Presents.
Now.
Somewhere between 75, and 100 million Bucks.
Okay.
In terms of the three alone sales to affiliates are the three construction loans could you provide and that's I think you're so loan interest.
Well what were those three loans would you be able to provide any color on that.
Yeah, we sold we sold two loans in their entirety and then we sold a portion of one loan of the loans sold.
We sold a.
For sale residential development in San Francisco, we sold our piece in its entirety and then the other two loans were office construction loans I'm in the UK one we sold in its entirety in one we sold the portion that.
Thanks for taking the questions and nice speaking with you.
Thanks Jay.
Thank you ladies and gentlemen, this concludes our question and answer session I.
Ill now turn the call operating income or Stuart Rothstein for any closing remarks.
We were offset operator, thank you and thank you for those you that participated this morning.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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