Q2 2021 Apollo Commercial Real Estate Finance Inc Earnings Call
[music].
Good day, ladies and gentlemen, and thank you for standing by and welcome to the second quarter of 2021, Apollo commercial real estate estate Finance earnings conference call 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.
And incorporate it 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 and our press release regarding forward looking statements.
Today's conference call and webcast.
Cash 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.
In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing.
Finance companies financial performance. These measures, our rieke salt to GAAP figures and our earnings presentation, which is available and our stockholders.
Which are available on the stockholders section of our website, we do not undertake any obligation to update our forward looking statements or projections on.
Unless required by law to obtain copies of our latest SEC filings. Please visit our website at Www Dot Apollo.
REIT dot com or call us at 2125153200 at this time I'd like to turn the call over to the company's Chief Executive office.
And that Stuart Rothstein, Sir please begin.
Thank you operator, and good morning, and thank you to those joining us on the Apollo commercial real estate Finance second quarter 2021 earnings call. Joining me this morning as usual as Jay on the.
And while our CFO.
The second quarter was a busy and productive.
And 1 for Rick.
The resulting in strong earnings and our continued well covered dividend cut.
The company originated 5 first mortgage loans totaling $825 million, bringing year to date total originations to $1.4 billion.
More importantly, the commercial real estate transaction market remains.
Sure.
With real capital analytics reported 167% increase and second quarter volume versus last year.
We continue to see a high volume of interest and opportunities as our pipeline continues to build.
The diversity of their transactions closed to date once again demonstrate.
Road bumps the depth and talent of our origination team and highlights the benefits of Apollos platform brings to <unk> a.
Notably the transaction and secured by the German portfolio of properties and the U S portfolio of parking facilities were won due to our team's ability to speak.
For the entire alone and to be thoughtful flexible and efficient and underwriting and structuring our.
Our European lending platform continues to fire on all cylinders, winning many transaction otherwise historically have gone to banks here.
Year to date, approximately 70% of our transactions.
And as for needed where loans secured by properties throughout Europe.
As our platform in Europe grows and continues to expand its market presence, we have established a reputation as a reliable and innovative capital provider.
Our ability to provide borrowers with a 1 stop shop for large financings.
And as well as our responsiveness and creativity around structuring has allowed us to compete very effectively and Europe.
With respect to loan repayments.
Continue to benefit from improving real estate fundamentals and the robot robust level of liquidity and the real estate capital markets.
And some clothes totaling approximately $260 million repaid during the quarter, including 1 hospitality loan and 2 subordinate residential per sale loans, 1 of which was a large New York City project and the other was on.
And was for a condominium development and Los Angeles.
Sequent to the quarter and.
And additional $287 million of loans repaid as repayment activity in general is becoming more consistent with pre pandemic expectations.
Turning to the balance sheet.
<unk> completed an 8 year $500 million debut offering of senior secured notes price.
3.4 and 5 basis per cent.
There was significant investor interest and their transaction, which enabled <unk> to both upsize the deal and tightened pricing.
System with our prior commentary on corporate finance strategy. We felt it was prudent to continue to term out some of our financing access.
Price additional non asset specific leverage and increase our pool of unencumbered assets, which were north of $2 billion at quarter end.
Shifting to our portfolio.
Quality generally remained stable and we continue to make progress with our focus loans demolition is moving forward.
And property on Fulton Street in Brooklyn, which will be developed into and approximately 50 story 600 unit multifamily tower.
Given the pace of development and the strength of the Brooklyn, Submarket, we reduced the original reserve against this asset by $20 million.
We also continue to see Paul.
Forward of activity at our asset and the Miami Design District, as I mentioned on our last earnings call. We signed a large lease with restoration hardware for a significant portion of the existing property with the positive momentum and the sub market, we believe the appropriate path towards maximum economic recovery.
Positive will be through additional short term leases, while we focus on working through zoning and planning to ready the property for redevelopment as expeditiously as possible.
Lastly, and Europe, the sales process on the assets underlying our Oxford, Oxford Street loan is fully underway.
And the second round of bidding there were multiple credible offers and excess of Ari's loan basis, and we anticipate a sale of the asset and a full repayment to <unk> before the end of the year.
I also wanted to provide and update on 111 West 57th Street.
Property is moving towards completion.
And despite construction delays, we continue to see interest from potential buyers as evidenced by recent increases and foot traffic.
As I as I have previously stated getting the project built to spec is the first order of business from <unk> and we are confident that building is on track to be completed.
And 1 still the price level and pace of sales will be the next area of focus, but the increasing level of interest and this property along with the recent activity and the broader New York Ultra Ultra luxury market is encouraging.
As we disclosed and the 10-K filed yesterday subsequent to quarter.
And there were some changes to the property's capital structure.
Vehicles managed by an affiliate of Apollo transferred their junior mezzanine position to IRI and in.
Connection with this transfer 1 of the properties subordinate capital providers paid the affiliate of price representing.
And the original principal balance and agreed to forgo the accrued interest on the loan.
In conjunction with this transaction.
And the subordinate capital provider and have agreed to a waterfall sharing arrangement per.
<unk> rather than the company receiving interest it would otherwise have been entitled to.
After July 1.2021 on the junior mezzanine loan proceeds received from the sale or refinance of the underlying collateral kidney after repayment to priority lenders under the waterfall will be share between <unk> and the subordinate capital provider head and neck.
Great upon allocation.
We will continue to provide updates on the project as construction complete and sales progress and with that I will turn the call over to Jay to review our financial results.
Thank you Stuart.
For the second quarter, we reported strong financial results with distributable earnings relative to realized loss.
And impairments 15.9 million weighted.
<unk> per share.
GAAP net income available to common stockholders was $64 million 42 per share.
As of June 30 is our agenda.
And relatively unchanged quarter over quarter.
With respect to the specifics.
The reserve, we reversed $20 million against on frequencies loan.
We continue to make progress and growth.
On the site for multifamily tower development as well as improvements and the Brooklyn multifamily market.
We also foreclosed on and hotel asset and Washington, DC and recorded an additional $10 million loss.
Loss.
Bringing our total loss against that asset to $20 million.
This is now reflected as a realized loss and our financial statements.
GAAP book value per share price depreciation and general seasonal reserve increased to $15.48.
And as compared to $15.35.
At the end of the first quarter.
The loan portfolio at quarter end was $7.5 billion.
And 16% increase since the end of 2020.
The portfolio had a weighted average unlevered yield of 5.5% and and remaining fully extended term of just under 3 years.
Approximately 89% of our floating rate U S loans, and LIBOR floors that are and the money today.
With a weighted average floor of 132%.
In addition to the 5 loans originated this quarter, we made $246 million of add on funding. So previously closed loans.
And with respect and our borrowings.
We are in compliance with all covenants and continue to maintain strong liquidity.
We ended the quarter with $227 million of total liquidity.
Our debt to equity ratio at quarter and increased 2.3 times and our portfolio migrated towards first mortgages.
And lastly, as noted in our and the 8-K, we filed last week subsequent to quarter and we.
We exchanged our 169 million, 8% series B preferred stock.
700, a quarter percent series B, 1 preferred stock and the same amount.
This reduces our cost by 75 basis points per annum.
And the preferred and.
Preferred stock continues to be held by a single institutional investor.
And on that we'd like to open the line for questions. Operator. Please go ahead.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then 1 on your telephone keypad if.
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Our first question or comment comes from the line of Doug Harter from Credit Suisse. Your line is open.
Thanks.
And you showed on your slide deck that the yield on new loans was just under 6% could you compare that to what the yield on the senior loans that are that are real.
Hang on.
Yeah, Doug.
Look I think I think.
At a high.
High level.
And you're probably for.
And for Tom as you think about.
Risk and asset type or whatever a year probably.
60 to 100 basis points tighter on.
The new loans versus the old loans.
Obviously, there are some differences of course, and LIBOR floors as well, but as we look at.
Sort of what's in the portfolio now and what we expect to repay.
And that's that's the rough range.
Yeah.
Great.
And then I guess shifting to.
The capital structure and I guess.
How are you thinking about you know kind of unsecured.
Going forward and then with 2 billion unencumbered today.
What is your outlook for.
Or for leaving athletes unencumbered could you what level you know how much of that $2 billion would be kind of eligible to use to support future loan growth.
Yes, it's a great question. So if you look at the unencumbered assets in general.
It's roughly.
On about.
About 60% mortgages that are potentially financeable and about 40% to 45% Mezz loans, which as you know, we've historically had no interest and putting asset specific financing on though I think.
In.
In tough times I think the so the full 2 billion.
And plus is available to use for leverage if we need to but as we look at the capital structure going forward I think.
I think we've now accessed the convertible notes market the term loan market and the traditional bond market. So I think we're quite happy to have a presence and <unk>.
All of the.
On a call.
Yes.
Non asset specific leverage markets available.
To us.
I would say, there's no plans to do anything further and those markets.
And the near term I think we will use both.
Both are available liquidity as well and.
Selective leverage against some of the unencumbered pool, and then anticipated repayments as well.
And to continue to stay active.
On the investing side and then as we look further out.
Into the future I think we will continue to attempt to be a strategic.
Carl and opportunistic user.
Unencumbered leverage where we can find it on.
On non asset specific leverage excuse me, where we can find it.
And I think the capital structure will continue to be a mix of both.
Corporate type of law.
Leverage, but we will also continue to use some measure of leverage against a number of our first mortgage.
Investments, but I think we like where we are today in terms of the.
The flexibility that maintaining a large pool of unencumbered assets offers us as we think about.
Uh huh.
Both defensive measures as well as offensive measures looking into the future.
Thank you Stuart.
Sure.
Thank you. Our next question or comment comes from the line of Stephen laws from Raymond James Your line is open.
Hi, good morning.
Yes.
Good day I Hope you guys are well Stuart and say can you talk about the you know as.
And I think about the RVO, if ive got the numbers right. Its 1.4 of revenue 2 million of expenses half a million of DNA.
How many quarters, how many days was that in the quarter and how do we think about that.
And we can think about the full quarter impact of.
1 on items going forward.
Yeah, Jay why don't you give the technical answer and then I'll give sort of more of some perspective on the longer term view of the area.
And so that's that's probably thus far about 6 to 7 weeks of operations.
And then Stuart and gives a longer term view.
Yeah, I think I think Steve and if you can think about the asset that we took ownership of which is a whole hotel and D. C that we've talked about before I think D C.
Was slow to open up.
Clearly starting to open up.
Just anecdotally.
This past weekend, the hotel was well north.
60 per cent in terms of occupancy so it's moving and the right direction and I think as you start to think about forecasting out and the future I think we're probably continuing to.
And then run sort of slightly negative for Q3, but as we move towards the end of the year and we expect as long as.
And you know D C stays open which I know is a big ask in light of the World, We live and right now, but we're definitely moving towards cash flow positive.
There's a mix of both.
Better revenue performance due to occupancy and people coming back but also.
Semi and take appropriate changes made on managing the cost side as well.
Great and then on what I wanted to touch on unfunded.
And what Youre looking at your.
Your deck on page 11, and it looks like about 70% of your unfunded commitments or loans and 52 mixed use London a construction loan.
Originated.
Just before Covid can you maybe talk about that and small small outstanding loan today.
Day, but it's a big unfunded commitment number.
Can you maybe talk about that loan and the drawdown expectations on from that on.
So on and commitment.
Yeah, I'll look at a high level, the loan and sort of performing exactly as we expected it to perform at this point and we knew it was going to be a long oh.
A lot.
Needed to happen both in terms of.
Work at the asset as well as funding of additional.
Equity and subordinate capital before our <unk>.
Funding of commitment was really going to sort of ramp I think you will start to see.
Our ramp of our fundings somewhat later on this year, but in reality much more pronounced.
Through next year as construction starts in earnest.
It is a mixed use project both.
And.
[noise] store sales.
Residential some retail and.
And as well and the response to the asset itself has been quite positive and I think we've mentioned before and if not I'll say, it's the first time I think it is.
Our commitment where there is.
Clearly.
A strong bids from those and the market to take a piece of our commitment if we decided to offer up a piece of their commitment and I think that will be a.
A future decision for us based on both our thoughts on our liquidity.
Obviously thoughts on <unk>.
Max exposure that we wanted to any 1 transaction and our portfolio.
And then also performance of the asset as it moves through construction and people start to indicate early interest in.
And what will be available either on a lease.
And for sale.
In terms of what's being built.
Great I appreciate the color there and thanks for taking my questions. This morning.
Sure.
Thank you our next question or comment comes from the line of Jade.
Romani from K B W. Your line is open.
Thank you very much.
Excluding credit items do you view attributable EPS currently is elevated and should we be thinking about modeling.
And some modest diminution and coming quarters or do you believe based on the increased yield on new originations and the pipeline that are it's likely to remain.
At similar levels.
Going forward.
Yeah, I think it's a great question, Jay I think its if.
If you look at what.
And as big repaid recently, which within the portfolio I would say has been a couple of the.
Higher yielding mezzanine.
Opportunities that to be fair or probably not replaceable.
And the market today, and then if you look at or you know read through my comments on at least a portion of the 111 West 57th Street.
Capital structure.
And sort of having some sense of what we've earned on that historically and I think you'd have to look at Q.
Q2 as somewhat.
Elevated relative to what I think potential is.
On a go forward basis, I think that being said.
Given where we're originating things.
Given what we think the levered.
Levered ROE is our on those new investments and also you know.
Sort of some other things within the portfolio sort of positive and negative.
Worked through and extending loans release structuring deals.
Today, I would say the high level commentary would be and.
And you know we still remain fair.
Fairly confident and continuing to.
Earn and cover the dividend at a healthy level on a go forward basis.
And based on where things stand today.
And I guess year to date as REIT taxable income run out and ahead of the dividend or in line with Devon and perhaps below the dividend.
I'll, let Jay answer that question.
Yeah.
Net income is.
We look and taxable income.
And stay on it and new business, because there and often tend to be Oh.
Masonic and lump sum items and look at that on an annual basis, and we have plenty of cushion from a tax versus GAAP.
And do you want to do it outside of the dividend but.
Taxable income we talk about that more in January.
For the whole year.
Said differently Jade I would say the dividend level that we said that and sort of based on what we think operating earnings and covering that dividend will be at call. It 35 cents per quarter and.
Don't expect sort of the tax situation to impact them.
That 1 way or the other.
Okay, and you don't expect I assume I ask him wrap something similar you don't expect to be required to make a special dividend payment.
No.
Alright.
Turning to credit we've seen the trend of a lot of reserve releases.
<unk> do you anticipate that to continue or has there been any developments, whether it be portfolio specific or macro related such as delayed reopening.
Cause that trend to slow or perhaps.
Be on pause per.
I'd say the next 2 quarters.
Hum.
Look I think what we did on Fulton Street. This quarter was probably the 1 that was you know.
On <unk>.
Most ready for that sort of you know what.
What you referred to as sort of a reserve release and I think we were we were intentionally maybe a little slow and getting that done, but I think given the strength of the market and.
And the progress we're making.
And readying the sites for development and it felt like the right thing.
Do you know.
I would say as I look at our.
Hi focused assets at this point and time.
Wouldn't be expecting any.
Additional from us on that front going forward.
Thanks, and just lastly.
On Liberty Center could you could you give an update on what's going on there.
Yeah look I think you know as Ive mentioned previously I think the challenge or the asset management challenge on Liberty Center.
Is really you know sort of multi pronged Inc.
Yeah.
1 is to increase retail occupancy with more of a focus on local and regional tenants as opposed to national tenants and I would say we're making.
Good progress on that front and I think if things that we expect.
To come to fruition.
And is into fruition and will allow us sort of continue to.
You know hang in and call it the low 80% occupancy and low 80% occupancy level I think the you know the.
2 other initiatives, which are more about really getting this thing to a.
And Congress line that makes sense is.
Over time, continuing to convert some of the existing retail square footage to alternative use which in our mind today is more of an office type use.
And we've.
And we've signed some.
Office.
<unk> 4.
Discrete spaces that lend themselves to that type of use but the bigger project for us is really.
A little bit slightly larger reconfiguration of the way the asset lays out to allow us to meaningfully ships and shipped some square footage.
Office to office use but have it blends such with the office and the retail work well together as opposed to just.
Sort of creating a jigsaw puzzle that makes doesn't make a lot of sense, but I would say we've had.
Good conversations with productive with prospective tenants also good conversations.
And.
With the local.
Planning commissions and boards, so making progress, but still a lot of work to do and then the third leg of sort of the move forward is to continue to create.
More density around the site and general.
There is a new multifamily.
<unk> project that will be built around the site, which is great news and then we are actually.
Working with the same you know call it planning commissions and boards that I, just referenced to think about ways to potentially use some of our excess <unk>.
Parking.
King or surface area.
And.
To convert those into potential multifamily development sites as well, which we think would be positive in terms of creating more.
And more density for the site so.
I think the partners we've got working with on this site are doing a great job in terms of.
And creating the environment, where traffic is back up again, which is great.
But still a fair bit of asset manager from work to be done on our side.
Yeah.
And I appreciate the update.
Sure.
Thank you our next question or comment comes from the line of Rick Shane.
And from J P. Morgan your line is open.
Hey, guys. Thanks for taking my questions. This morning.
Stuart you made an interesting observation related to dividend policy and and the 35.
Obviously, the world has changed a great deal since you set the 35 cent.
Dividend policy last year.
And I realized credit environments likely better, but the interest rate environment and.
Is arguably more challenging with how long rates have been at such low levels.
Curious, how you think about the dividend policy now and with Watson.
In front of you.
How challenging that good day.
And so it's a great question as you know because I think I've said it to this group collectively many times before we try and take a.
A modestly long term view on the dividend because I know from and investors.
Perspective, yeah much.
Much easier to value what appears to be a somewhat stabilized quarterly dividend as opposed to something that is bouncing around from time to time and it's very similar to the dialogue we have with the board.
<unk>, who is ultimately responsible for setting.
The dividend, but I think we've always tried to manage through any quarterly.
Sort of either ups or downs relative to the dividend level and I think when we set the dividend level.
Go down last year, which was really right at the sort of.
Startup dependent.
And I make peak disruption and the market most in most uncertainty.
We're trying to set a level.
And we looked out you know over.
You know 4 to 8 quarters, you know carrying excess liquidity expecting there would be some downside and cash flow.
And other sort of unforeseen externalities and did we think it was a level that we could continue.
Continue to cover based on sort of you know various scenarios on the portfolio and Thats clearly proving to be the case and I think we've you know we've comfortably cover the dividend for the last 4.
<unk>.
Quarters, and obviously given what we've achieved the early part of this year and we certainly have set ourselves up.
Pretty nicely.
To continue at that level on a go forward basis absent any unforeseen circumstances I think the net.
The challenge and the exercise.
And I find that we're going through right now, which I think is sort of implied in your question is.
Now that we.
We think there's probably a more.
And so call it steady state experience on the repayment side.
And obviously, we know where we've been originating.
Side in terms of call. It Levered ROE, which you know I think we sort of know where we can continue to put capital out you know some stuff rolls off as you give yourself some room what does the model look like on a go forward basis.
And I would say sitting here today.
<unk>.
I don't anticipate any changes to where we settled in from a quarterly perspective, we'll continue to have those conversations with the board on a quarterly basis.
And we'll continue to refine our model.
And as we move through this year and head into next year, but I would say sitting here today.
<unk>.
Yes, it's getting more challenging, but there's you know a little bit more challenging on the origination side, a little bit more beneficial in terms of the way, we think about levering and financing our business. So.
So net net.
And still feel okay in terms of where we are though.
And at a personal level.
And <unk>.
Don't love paying a 8.5% to 9% dividend, which as you know 800 basis points north of a 10 year or 750 basis points north of the tenure of it it seems like a fair bit of excess return but.
It really feels like we can earn it right now given.
Given what's available to us.
Terrific and I appreciate the thoughtfulness of that answer and and obviously you know there and it does highlight the resilience of the model.
If you think back where we were 15 months ago and how differently. The world has evolved since whatever framework.
You were using was it was created.
And the fact that the dividend is sustainable covered et cetera.
And really does demonstrate the resilience.
Thanks, Luke and I look I think and a little bit over the last 4 months and I don't think this is unique to us I think we all yeah, we were on.
Framework and throughout this space and a fair bit of excess liquidity, which is obviously.
Unproductive capital and at the end of the day, so when you.
Start running and get a at a more realistic corporate finance strategy, even with some somewhat tighter returns I think everybody's models proved to be.
At least today fairly fairly resilient, we'll see we'll see where things go and the future given sort of the incredible.
Incredible amount of capital searching for any type of yield which continues to make the market highly competitive.
Got it okay. Thank you very much.
Sure.
Thank you.
Our next question or comment comes from the line of Tim Hayes from B T. I G. Your line is open.
Hey, good morning, Stuart Thanks for all the insight this morning on the book.
For troubled assets and are the focus assets, rather, but 1 more on just the credit side were there any notable upgrades or downward.
Downgrade this quarter I was looking at the Q and I think maybe I saw 1 loan might've been downgraded to a 4 this quarter I don't know if thats correct, but if you can maybe just touch on that or maybe a question for Jay.
No. It was only the 1 that we moved we moved a piece of alone and 2 of 4 which I referenced in the script and then.
It's and the subsequent events noted the 10-Q as well as a portion of the 111 west 57th Okay.
Okay loan, which is obviously experienced.
It's self inflicted as well as COVID-19 inflicted as well as whether inflicted construction delays.
And.
And.
And you know I like Oh.
I think it's on it it is clearly on track to be completed we're excited to get it done.
I'm very focused on getting it done and what appears to be a fairly attractive sales market right now, but you need to make more progress on the asset in order to encourage people.
And I would make.
Complete sales, but that's the only change for the quarter.
Okay got it I guess I thought that asset or that loan and already been a force. So thanks for clarifying.
And then just on the pipeline and I know you gave some stats about quarter to date investment activity and repayment.
Payments, but can you maybe size the pipeline for us and put that into context with repayments, which I know that that can be difficult for you to predict but it sounds like youre seeing and normalization repayment activity. So just trying to get a feel for for how you see portfolio growth and the back half of the year as and repayment activity.
And he picks up a bit.
Yeah look I think there's a couple aspects to that so first of all you know as I think we've been talking about for.
For quarters now Theres not a lot for us to do these days in the you know call it discrete mezzanine loan sort of.
Opportunity set so.
Unencumbered mezzanine loans pay off and we convert that capital into Levered senior loans, there's a natural increase and the portfolio overall.
We will continue to benefit from in terms of just share portfolio size.
I think beyond that.
Yeah, we're starting to get back to a normalized repayment pace, which for US historically has been.
And.
You know typically we originate to roughly 3 years' average duration, but by the time you factor in.
US offensive Lee extending certain loans, because we want to keep the loans outstanding or.
Borrowers coming to us and requesting extensions we ended up getting paid off about 20 to 25 per cent of the portfolio a year. So I think it's realistic to expect that will happen I would say.
And we feel very confident.
In terms of our ability to redeploy that capital through the rest of the year and if anything.
And would probably envisions slightly taking down.
The liquidity numbers that Jay referenced as well so I think the net of all of that.
As you will probably see.
No.
Some slight increase and the portfolio, but nothing material I think we're sort of.
7.5% to $8 billion portfolio, which for us means we're being very efficient and keeping our equity capital deployed.
Yeah.
Got it that's very helpful. And then just touching on what's in the pipeline right now.
Is it pretty consistent with where you've seen or what's been coming in over the past couple of quarters I know youre doing more in Europe. So you expect to kind of those levered returns to be a little bit higher there given that markets are.
Kind of trailing the U S and a bit and how did the structures look on those types of assets versus what youre seeing here I know, it's kind of a broad general question, but just trying to get a feel for where we see structures and yields trending on on new loans versus the portfolio today.
And then.
And I think it was does that asked the question early on and look I think spreads are a little tighter today than what's on the existing portfolio, but I think that and you know.
Somewhat reflective.
And that's sort of the overall interest rate environment, but I think it's more balancing sideways.
And then anything quickly.
Quickly on the pipeline today, if you look at what we've closed year to date.
I think what we've closed year to day.
And is a pretty good proxy for what you know.
Is truly on the interest and our pipeline today.
Yeah.
Okay, great. Thanks for taking my questions.
Sure.
Thank you.
And this time I would like to turn the conference back over to Mr. Ross for any closing remarks.
I'll set out day, there thanks as always to all.
All that participated in our call. This morning, we'll we'll talk.
And the other.
A few months.
Ladies and gentlemen, thank you for participating on today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
Ah.
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Good day, ladies and gentlemen, and thank you for standing by welcome to the second quarter of 2021, Apollo commercial real.
Estate estate Finance earnings conference call I'd like to remind everyone that today's call and webcast on being recorded. Please note that they are the property of Apollo commercial real estate finance incorporated and.
Any unauthorized broadcast in any form is strictly prohibited information about the audio replay of this call is available.
And our earnings press release on.
I'd also like to call your attention to the customary safe Harbor disclosure and our press release regarding forward looking statements.
Today's conference call and webcast may include forward looking statements and projections and.
And we ask that you refer to our most recent filings with the SEC for important factors that could cause.
Cause actual results to differ materially from these statements and projections and.
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 our rieke style to GAAP figures and our earnings presentation, which is available and our stockholders.
[laughter].
Which are available on 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 Dot Apollo.
REIT dot com or call us at 2125153200 at this time I'd like to turn the call over to the company's Chief Executive Officer Stuart Rothstein, Sir please begin.
Thank you operator, and good morning, and thank you to those joining us on the Apollo commercial real.
And then second quarter, 2020, 1 and earnings call. Joining me. This morning as usual is Jai Agarwal, our CFO.
Second quarter was a busy and productive 1 for <unk>, resulting in strong earnings and our continued well covered dividend income.
Company originated by first mortgage loans totaling 8.
$25 million, bringing year to date total originations to $1.4 billion more importantly, the commercial real estate transaction market remains robust with real capital analytics reporting, 167% increase and second quarter volume versus last year.
For <unk>.
And we continue to see a high volume of interest and opportunities as our pipeline continues to build.
The diversity of their transactions closed to date once again demonstrates the depth and talents of our origination team and highlights the benefits of Apollos platform brings to <unk>.
Notably the.
Hundreds of action and secured by the German portfolio of properties.
And the U S portfolio of parking facilities, where 1 due to our team's ability to speak for the entire alone and to be thoughtful flexible and efficient and underwriting and structuring.
Our European lending platform continues.
And I are on all cylinders, winning many transaction and other.
<unk> historically have gone to banks.
Year to date, approximately 70% of our transactions completed where loans secured by properties throughout Europe.
As our platform in Europe grows and continues to expand its market presence.
And we have established a reputation as a reliable and innovative capital providers.
Our ability to provide borrowers with a 1 stop shop for large financings as well as our responsiveness and creativity around structuring has allowed us to compete very effectively and Europe.
With respect to.
Our loan repayments and I continue to benefit from improving real estate fundamentals and the robot robust level of liquidity and the real estate and capital markets.
3 loans totaling approximately $260 million repaid during the quarter, including 1 hospitality alone and 2 subordinate residential per.
Per sale loans, 1 of which was a large New York City project and the other was it was it was for a condominium development and Los Angeles.
Subsequent to the quarter and additional $287 million of loans repaid as repayment activity in general is becoming more consistent with pre pandemic.
And that make expectations.
Turning to the balance sheet.
And we completed an 8 year $500 million debut offering of senior secured notes priced at 4 and 5.8%.
And with significant investor interest and their transaction, which enabled <unk> to both upsize the deal and.
And heightened pricing and.
System with our prior commentary on corporate finance strategy. We felt it was prudent to continue to term out some of our financing access additional non asset specific leverage and increase our pool of unencumbered assets, which were north of $2 billion at quarter end.
Shifting to our portfolio.
Credit quality generally remained stable and we continue to make progress with our focus on loans demolition is moving forward at the property on Fulton Street in Brooklyn, which will be developed into and approximately 50 story 600 unit multifamily tower, given the pace of development.
And and the strength of the Brooklyn, Submarket, we reduced the original reserve against this asset by $20 million.
We also continue to see positive activity at our asset and the Miami design District as I mentioned on our last earnings call, we signed a large lease with restoration hardware.
A significant portion of the existing property with the positive momentum and the Submarket, we believe the appropriate path towards maximum economic recovery will be through additional short term leases, while we focus on working through zoning and planning to ready the property for redevelopment as expeditiously as possible.
Possible.
Lastly, and Europe, the sales process on the assets underlying our Oxford, Oxford Street and loan is fully underway.
And the second round of bidding there were multiple credible authors and excess of Ari's loan basis, and we anticipate a sale of the asset and a full.
Payment to <unk> before the end of the year.
I also wanted to provide and update on 111 West 57th Street the per.
<unk> is moving towards completion. Despite construction delays, we continue to see interest from potential buyers as evidenced by recent increases and foot traffic.
And as.
As I have previously stated getting the project built to spec is the first order of business for <unk> and we are confident the building is on track to be completed 1 still the <unk>.
This level and pacing and sales will be the next area of focus, but the increasing level of interest and this property along.
And with the recent activity and the broader New York Ultra Ultra luxury market is encouraging.
As we disclosed and the 10-K filed yesterday subsequent to quarter end and there were some changes to the property's capital structure.
Vehicles managed by an affiliate of Apollo transferred their junior mezzanine positioned.
And to <unk> and in connection.
Connection with this transfer 1 of the properties subordinate capital providers paid the affiliate of price representing.
And the original principal balance and agreed to forgo the accrued interest on the loan.
In conjunction with this transaction.
And the subordinate capital provider have agreed to a waterfall sharing arrangement pursuant to which rather than the company receiving interest it would otherwise have been entitled to after July 1.2021 on the junior mezzanine loan.
Proceeds received from the sale or refinance of the underlying collateral.
<unk> kidney after repayment to priority lenders under the waterfall will be share between <unk> and the subordinate capital provider and the.
Agreed upon allocation, we will continue to provide updates on the project as construction complete and sales progress and with that I will turn the call over to.
And to review our financial results.
Thank you Stuart.
For the second quarter, we reported strong financial results.
Distributable earnings relative to realized losses and impairments on $59 million.
41 cents per share.
GAAP net income available to common stockholders was 64 million.
<unk> 42 per share.
Okay.
As of June 30 is our agenda and see if it has remained relatively unchanged quarter over quarter.
With respect to the specific need who deserve and universe 20 million against on food and she's known as it continued to make progress and readying the site and multifamily tower.
Jed.
And as improvements and the Brooklyn multifamily market.
We also closed on a hotel asset and Washington D C and the <unk>.
And an additional $10 million loss.
Bringing our total loss against that asset to $20 million.
This is now reflected as a realized loss and our financial statements.
And develop GAAP book value per share right, and depreciation and general symptoms and increased to $15.48.
And as compared to 15 and 35 to the end of the first quarter.
The loan portfolio at quarter end was 7 and a half billion dollars and 16% increase since the end of 2020.
The portfolio had a weighted average unlevered yield of 5.5% and as many fully extended term of just under 3 years.
Approximately 89% of our floating rate U S loans, and LIBOR floors that are and the money today.
With a weighted average floor of 1.32%.
In addition to the 5 loans originated this quarter.
$246 million of add on Sunday, So previously closed loans.
With respect and our borrowings.
We are in compliance with on covenants and continue to maintain strong liquidity.
We ended the quarter with $227 million of total liquidity.
Our debt to equity ratio at quarter and increased 2 to 3 times and our portfolio and migrated towards first mortgages.
And lastly, as noted in our and the 8-K, we filed last week subsequent to quarter and we exchanged our 169 million, 8% series B preferred stock.
7 and a quarter per cent series B, 1 preferred stock and the same amount.
This reduces our cost by 75 basis points per annum and the preferred and the preferred stock continues to be held by a single institutional investor.
And with that we'd like to open the line for questions. Operator. Please go ahead.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then 1 on your telephone keypad.
Thank you. Your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question or comment at this time. Please press Star then 1 on your telephone keypad.
Our first.
Comment comes from the line of Doug Harter from Credit Suisse. Your line is open.
Thanks.
You showed in your slide deck that the yield on new loans was just under 6%.
You compare that to what the yield on the senior loans that are on a replay.
Question on <unk>.
Yeah, Doug.
Look I think you know I think.
At a high level.
You're probably.
For Tom as you think about.
Risk and asset type or whatever a year probably.
The 60 to 100 basis points tighter on.
The new loans versus the old loans.
Obviously, there are some differences of course, and LIBOR floors as well, but as we look at sort of what's in the portfolio now and what we expect to repay.
PE.
That's that's the rough range.
Great and then I guess shifting to.
Net capital structure.
Yes.
How are you thinking about you know kind of unsecured.
Going forward.
And you know with 2 billion unencumbered today.
What is your outlook for for leaving athletes unencumbered could you what level you know how much of that $2 billion would be kind of eligible to use to support future loan growth.
Yes, it's a great question.
And they look at the unencumbered assets in general.
Roughly.
About 60% mortgages that are potentially finance are all on about 40% to 45% Mezz loans, which as you know, we've historically had no interest and putting asset specific financing.
And so if you're on though I think.
And I think in.
And in tough times and they clip so the full $2 billion plus is available to use for leverage if we need to but as we look at the capital structure going forward I think.
We've now accessed the convertible notes market the term loan market and the traditional.
And sitting on a bond market. So I think we're quite happy to have a presence.
All of the.
Call it.
Non asset specific leverage markets available.
To us.
I would say there is no plans to do anything further and those markets.
And.
Traditional term I think we will use.
Both are available liquidity as well and selective leverage against some of the unencumbered pool, and then anticipated repayments as well.
To continue to stay active on.
On the investing side and then as we look further.
And the nearest into.
Into the future I think we will continue to attempt to be a strategic and opportunistic user.
On encumbered.
Leverage where we can find it on.
On a non asset specific leverage excuse me, where we can find it.
Uh huh.
And I think the capital structure will continue to be a mix of both.
Corporate type of leverage, but we will also continue to use.
Some measure of leverage against a number of our first mortgage.
Investments, but I think we like where we are today in terms of the.
Flexibility that maintain.
And a large pool of unencumbered assets offers us as we think about.
Uh huh.
Both defensive measures as well as offensive measures looking from the future.
Thank you Stuart.
Sure.
Thank you our next question or comment comes from the line.
And even laws from Raymond James Your line is open.
Hi, good morning.
Hum.
Good day I Hope you guys are well.
Stuart and day can you talk about the.
And I think about the Oreo if ive got the numbers right. Its 1.4 revenue 2 million of expenses $5 million of DNA.
How.
And how many days was that in the quarter and how do we think about think.
And think about the full quarter impact of those line items going forward.
Yeah, Jay why don't you give a technical answer and then I'll give sort of more of some perspective on the longer term view of the area.
And so that's that's probably.
He called out 6 to 7 weeks of operations.
And then skewers and.
And the longer term view.
Yes, I think I think Steve and if you think about the asset that we took ownership of which is a whole hotel and D. C that we've talked about before I think D C.
Was slow to open up.
Thus far from it is clearly starting to open up.
And just anecdotally.
This past weekend.
<unk> was well north.
60% in terms of occupancy so it's moving and the right direction as I think as you start to think about forecast.
Casting out and.
And the future I think we're probably continuing to.
Run sort of slightly negative for Q3, but as we move towards the end of the year and we expect as long as.
And you know D C stays open which I know is a big <expletive> and light.
The World, we live and right now, but we're definitely moving towards.
Cash flow positive, which is a mix of both.
Better revenue performance due to occupancy and people coming back but also.
Some I think appropriate changes made on.
And managing the cost side as well.
Great and then on what I wanted to touch on unfunded commitments looking at your <unk>.
Originated.
Just before Covid and can you maybe talk about that and small small outstanding loan today, but it's a big unfunded commitment number.
Can you maybe talk about that loan and the drawdown expectations of that unfunded commitment.
Yeah, I'll look at a high level, the loan and sort of performing exactly as.
It did it to perform at this point, we knew it was going to be a long.
A lot needed to happen both in terms of.
Work at the asset as well as funding of additional.
Equity and subordinate capital before our <unk>.
Funding.
And of commitment was really going to sort of ramp I think you will start to see.
Our ramp of our fundings.
Somewhat later on this year, but in reality.
Much more pronounced through next year as construction starts in earnest.
It is a mixed use project both.
And for sale residential from retail.
As well and the response to the asset itself has been quite positive and I think we've mentioned before and if not I'll say, it's the first time I think it is.
Is.
Our commitment where there is.
Hum.
Clearly.
On a strong data from those and the market to take a piece of our commitment if we decided to offer up a piece of their commitment and I think that will be a <unk>.
A few.
<unk> decision for us based on both our thoughts on our liquidity, obviously thoughts on <unk>.
Max exposure that we wanted to any 1 transaction and our portfolio.
And then also.
And the performance of the asset as it moves through.
Okay, and and people start to indicate early interest in.
What will be available either on a lease or a for sale basis in terms of what's being built.
Great I appreciate the color there and thanks for taking my questions. This morning.
Sure.
Thank you our next question or comment comes from them on.
Line of Jade Rahmani.
<unk> from <unk> Your line is open.
Thank you very much.
Excluding credit items do you view attributable EPS currently is elevated and should we be thinking about modeling.
Some modest diminution and coming quarters or do you believe.
And based on the increased yields on new originations and the pipeline that are it's likely to remain.
And at similar levels.
Going forward.
Yeah, I think it's a great question, Jay I think it's.
If you look at what.
And as big repaid recently, which within the portfolio.
I would say has been a couple of the <unk>.
Higher yielding mezzanine opportunities that to be fair or probably not replaceable.
And the market today, and then if you look at the or read through my comments on at least a portion.
Please and of the 111 West 57th Street.
Capital structure and sort of having some sense of what we've earned on that historically and I think you'd have to look at.
Q2 as somewhat.
<unk> relative to what I think potential is.
On a go forward basis, I think that being said.
And given where we're originating things today, given what we think the levered.
Levered ROE is our on those new investments and also yeah.
Sort of some other things within the portfolio sort of positive.
Porsche and negatives as we sort of worked through.
Extending loans are restructuring deals I would say the high level commentary would be.
And you know we still remain.
Fairly confident and continuing to.
Earn and cover the dividend.
Positive healthy level on a go forward basis.
And based on where things stand today, and I guess yeah.
Year to date as REIT taxable income run out and ahead of the dividend or in line with the dividend or perhaps below the dividend.
I'll, let Jay answer that question.
[laughter] taxable income and.
No.
We looked and taxable income, mostly on AR and new business, there and often tend to be.
And it was not it and lump sum items and look at that on an annual basis and.
We have plenty of cushion.
And from a tax per se.
And.
And I wanted to do it outside of the dividend but.
Taxable income and we talk about that more in January.
The whole year.
Said differently Jade I would say the dividend level that we sent that and sort of based on what we think.
Operating earnings and covering that dividend will be at call.
Call It 35 cents per quarter and.
And don't expect sort of the tax situation to impact that 1 way or the other.
Okay, and you don't expect I assume asking something similar you don't expect to be required to make a special dividend payment.
No.
Alright.
Turning to credit we've seen the trend of a lot of reserve releases do you anticipate that to continue or has there been any developments, whether it be portfolio specific or macro related such as delayed reopening too.
To cause that trend to slow.
Or perhaps.
Beyond Pas per.
Let's say the next 2 quarters.
And look I think what we did on.
And the street this quarter was probably the 1 that was.
You know me.
Most ready for that sort of you know.
What you referred to as sort of a reserve.
The release and I think we were you know we were intentionally maybe a little slow and getting that done, but I think given the strength of the market and the progress we're making on.
On readying the sites for development and it felt like the right thing to do I would say as I look at our.
Hi focused assets at this point and time.
Slow.
I wouldn't be expecting any.
Additional from us on that front going forward.
Thanks, and just lastly.
On Liberty Center could do could you give an update on what's going on there.
Yeah look I think you know as Ive mentioned previously I think that yeah.
On challenge or the asset management challenge on Liberty Center.
And is really you know.
Sort of multi pronged it is you know.
1 is to increase retail occupancy with more of a focus on local and regional tenants as opposed to national tenants.
Let's say, we're making.
Good progress on that front and I think things that we expect.
To come to fruition come to fruition and will allow us to continue to.
Yeah hang in and call it the low 80% occupancy and low 80 per cent.
And I would you can see level I think the you know the.
2 other initiatives, which are more about really getting this thing to a fit.
Finish line that makes sense is.
Over time, continuing to convert some of the existing retail square footage to alternative use which in our.
Our minds today is more of an office type use and.
And we've signed some.
Office tenants 4 discrete.
Discrete spaces that lend themselves to that type of use but the bigger project for us is really.
A little.
A little bit slightly larger reconfiguration of the way the asset lays out to allow us to meaningfully ships and shift some square footage to.
Office use bad habit blends such with the office and the retail work well together as opposed to just sort of creating a jigsaw puzzle that makes doesn't makes a lot.
But I would say we've had.
Good conversations with productive with prospective tenants also good conversations.
With the local.
Planning commissions and boards, so making progress, but still a lot of work to do and then the third leg of sort of the move forward.
Is to continue to create.
More density around the site in general.
And there is a new multifamily project that will be built around the site, which is great news and then we are actually.
Working with the same you know call it planning.
Commissions and boards that I, just referenced to think about ways to potentially use some of our excess cash.
Parking or surface area.
To convert those into potential multifamily development sites as well, which we think would be positive in terms of creating more.
More density for the site so.
I think the partners we've got working with on this site are doing a great job in terms of.
On creating the environment. So traffic is back up again, which is great.
But still a fair bit of asset manager and work to be done on our side.
Yeah.
And I appreciate the update.
Sure.
Thank you. Our next question or comment comes from a lot of Rick Shane from J P. Morgan Your line is open.
Hey, guys. Thanks for taking my questions. This morning.
And you made an interesting observation related to dividend policy.
And the 35.
Obviously, the world's changed a great deal since you said 35 cent dividend policy last year.
And I realized credit environments likely better, but the interest rate environment and.
Is arguably more challenging with how long.
Long rates have been at such low levels.
And I'm curious, how you think about the dividend policy now and with what's in front of you.
How challenging that could day.
And so it's a great question as you know because I think I've said it to this group collectively many times before.
And we try and take a.
You know a modestly long term view on.
On the dividend because I know from an investor's perspective.
Yeah.
Much easier to value what appears to be somewhat stabilized quarterly dividend as opposed to something that is bouncing around.
Time to time.
And it's very similar to the dialogue, we have with the board.
Who is ultimately responsible for setting the dividend, but I think we've always tried to manage through any quarterly.
Sort of either ups or downs relative to the dividend level and I think when we set the dividend.
And level.
You know down last year, which was really right at the sort of <unk>.
Start of the pandemic peak disruption and the market most in most uncertainty and we were trying to set a level, where we looked out.
And over.
You know 4 to 8 quarters, you know cash.
Sorry, excess liquidity and expecting there would be some downside and cash flows other sort of unforeseen.
Externalities and did we think it was a level that we could continue.
Continue to cover based on sort of various.
Scenarios on the portfolio that has clearly proven to be the.
The case and I think we've you know we've comfortably cover the dividend for the last 4 or 5.
Quarters and.
Obviously, given what we've achieved the early part of this year, we certainly have set ourselves up.
Pretty nicely.
<unk> continue at that level on a go forward basis absent any unforeseen circumstances I think Lee.
The challenge and the exercise that we're going through right now, which I think is sort of implied in your question is.
And now that you know.
We think there's probably a more.
You know call it steady state experience on the repayment side.
And obviously, we know where we've been originating in terms of call. It levered.
ROE, which you know I think we sorted and know where we can continue to put capital out you know some stuff rolls off as you give yourself some room.
And you know what does the model look like on a go forward basis.
And I would say sitting here today I.
And I don't anticipate any changes to where we've settled in from a quarterly perspective, we'll continue to have those conversations with the board on a quarterly basis.
And.
And we'll continue to refine our model.
As we move through this year and head into next year, but I would say sitting here today.
Yes, it's getting more challenging, but there's you know a little bit more challenging on the origination side, a little bit more beneficial in terms of the way, we think about levering and financing.
And our business.
So net net and still feel okay in terms of where we are though at a personal level.
Don't love paying.
8.5% to 9% dividend, which as you know 800 basis points north of a 10 year or 700.
And 50 basis points north of the tenure of it it seems like a fair bit of excess return but.
It certainly feels like we can earn it right now given what's available to us.
Terrific and I appreciate the thoughtfulness of that answer and and obviously.
You know there and it does highlight the resilience of the model.
If you think back where we were 15 months ago and how differently. The world has evolved since whatever framework you were using was it was created.
And the fact that the dividend is sustainable covered et cetera.
It really does demonstrate the resilience.
Yeah, Thanks, Luke and I look I think and a little bit over the last 4 months and I don't think this is unique to us I think we all.
And we were all running throughout this space and a fair bit of excess liquidity, which is obviously on <unk>.
Productive capital at the end of the day, so when you.
And you start running and get a at a more realistic.
Corporate finance strategy, even with some somewhat tighter returns I think everybody's models proved to be the lead.
And today fairly fairly resilient, we'll see we'll see where things go and the future given sort of day.
Incredible amount of capital searching for for any type of yield which continues to make the market.
And that highly competitive.
Got it okay. Thank you very much.
Sure.
Thank you.
Our next question or comment comes from the line of Tim Hayes from B T. I G. Your line is open.
Hey, good morning, Stuart Thanks for all the insight this morning on the troubled assets and.
And are the focus assets, rather, but 1 more on just the credit side were there any notable upgrades or downgrades. This quarter I was looking at the Q and I think maybe I saw 1 loan might've been downgraded to a 4 this quarter I don't know if that's correct, but if you can maybe just touch on that or maybe a question for Jay.
No it was only the.
The 1 that we moved we moved a piece of a loan to a 4 which I referenced in the script and then its and the subsequent events noted the 10-Q as well as a portion of the 111 was 57 and nicely Okay loan, which is obviously experienced.
So it's self inflicted.
As well as COVID-19 inflicted as well as whether inflicted construction delays.
And.
And you know I like Oh.
I think it's on it it is clearly on track to be completed we're excited to get it done.
I'm very focused on getting it done.
And what appears to be a fairly attractive sales market right now, but you need to make more progress on the asset in order to encourage people to make.
Complete sales, but that's the only change for the quarter.
Okay got it and I guess I thought that asset or that loan had already been a force and thanks for clarifying.
And then just on the pipeline I know you gave some stats about quarter to date and investment activity and repayments, but can.
Can you maybe size the pipeline for us and put that into context with repayments, which I know that that can be difficult for you to predict but it sounds like youre seeing and normalization repayment activity.
Just trying to get a feel for for how you see portfolio growth and the back half of the year as as repayment activity picks up a bit.
Yeah look I think there's a couple aspects to that so first of all.
I think we've been talking about for.
For quarters now there is.
Not a lot for us to do these days and the call it discrete mezzanine loan sort of.
Opportunity set so.
And unencumbered mezzanine loans payoff.
And we convert that capital into Levered senior loans, there's a natural increase and.
And the portfolio overall, which we will continue to benefit from in terms of just share portfolio size.
Beyond that.
And we're starting to get back to a normalized repayment pace, which for US historically has been.
You know.
Typically we originate to roughly 3 years' average duration, but by the time you factor in.
Offensive Lee extending certain loans, because we want to keep the loans outstanding or.
Borrowers coming to us and requesting extensions we ended up getting paid off about.
20% to 25% of the portfolio a year. So I think it's realistic to expect that will happen I would say, we feel very confident.
In terms of our ability to redeploy that capital through the rest of the year and if anything.
And would probably envisioned.
Slightly taking.
12.
The liquidity numbers that Jay referenced as well so I think the net of all of that.
As you will probably see.
No.
Some slight increase and the portfolio, but nothing material I think we're sort of.
7.5% to $8 billion portable.
And <unk>, which for US means we're being very efficient and keeping our equity capital deployed.
Got it that's very helpful. And then just touching on what's in the pipeline right now.
Is it pretty consistent with where you've seen or what's been coming in over the past couple of quarters.
<unk> do and more in Europe. So you expect kind of levered returns to be a little bit higher there given that markets.
Trailing the U S and.
And a bit and how did the structures look on those types of assets versus what youre seeing here I know, it's kind of a broad general question, but just trying to get a feel for where we see.
And the structures and yields trending on new loans versus the portfolio today.
And again I think and.
I think it was does that asked the question early on and look I think spreads are a little tighter today than what from the existing portfolio, but I think that is.
Somewhat.
And I know you are reflective of sort of the overall interest rate environment, but I think it's more balancing sideways.
And then anything really.
And I think what's in the pipeline today, if you look at what we've closed year to day.
And I think what we closed year to date.
What is a pretty good proxy for what.
<unk> is truly a interest and our pipeline today.
Yeah.
Okay, great. Thanks for taking my questions.
Sure.
Thank you.
At this time I would like to turn the conference back over to Mr. Ross for any closing remarks.
I'll set out day, those thanks as always to all.
All that participated in our call. This morning will talk to you.
And then another few months.
Ladies and gentlemen, thank you for participating on today's conference. This concludes the program you may now disconnect everyone have a wonderful day.