Apollo Commercial Real Estate Finance, Inc. (ARI) Q3 2013 Earnings Report, Transcript and Summary

Good morning, everyone, and thank you for standing by. Welcome to the Apollo Commercial Real Estate Third Quarter 2013 Earnings Conference Call. [Operator Instructions] I'd like to remind everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance Incorporated, and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. 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.apolloreit.com or call us at (212) 515-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Mr. Stuart Rothstein.

Thank you, operator. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance Third Quarter 2013 Earnings Call. As usual, joining me this morning in New York are Scott Weiner, our Chief Investment Officer; and Megan Gaul, our Chief Financial Officer, who will review ARI's financial results after my remarks. During the third quarter, the economic backdrop continued to be favorable for ARI's business model. While many have been frustrated by the apparent slow pace of recovery in the United States economy, we believe the measured pace of economic growth has worked well for the ongoing recovery in the commercial real estate market. Transaction volume across all commercial real estate asset classes has continued to increase and although there continues to be a gap between the primary gateway cities and all other markets, we have witnessed price recovery across most major regions in the United States. Also, just as important, underlying real estate operating fundamentals have continued to improve as both job and income level growth have led to increased tenant demand, higher occupancies and expanding rent levels. Lastly, but for multifamily, the pace of development remains below the historic mean, which bodes well for continued improvement in operating metrics and the value of existing assets. In the capital markets, there was increased volatility during the third quarter due to concerns over rising interest rates tied to the end of fed tapering, the debate over the next fed chairperson and the ongoing political battles in Washington. However, to date that volatility has had minimal impact on commercial real estate in general and commercial real estate lending, specifically. While we have seen some fluctuations in loan pricing for first mortgages, interest rates in the mezzanine market has stayed relatively constant. CMBS pricing experienced a brief spike in the beginning of the quarter, but quickly normalized. Spreads on current new issue 10-year AAA-rated CMBS were swaps plus 101 last week, slightly higher than the trailing 52-week average of swaps plus 93, but still at very strong levels. As a result, CMBS transaction volume has continued at a strong pace. Year-to-date, CMBS issuance in the United States totaled $64.6 billion, and the general market consensus is that volume will total approximately $75 billion for the year, a 55% increase over 2012 issuance. Given the slow economic recovery, coupled with the news at the end of the third quarter regarding the Federal Reserve's decision to continue with asset purchases, and the appointment of Janet Yellen to succeed Ben Bernanke as fed chair, the fears over a pronounced near-term rise in long-term interest rates appear to have been muted for the time being. Turning our attention to ARI. The company completed 3 loan transactions totaling $99 million in the third quarter, including mezzanine loans for a downtown New York City office building and a mixed-use property in the central business district of Pittsburgh. In addition, ARI closed a whole loan to fund the conversion into luxury condominiums of an existing commercial building in the Greenwich Village section of New York City. In early 2012, we made a strategic decision to focus on the New York City residential market, as in our view it offered very compelling risk-adjusted returns. Over the past 12 months, the company committed $265 million to 5 transactions, in which ARI is financing residential assets throughout New York City. These transactions include ground-up development of for-sale condos, conversion of existing assets into for-sale condos and the conversion of commercial space to multifamily rentals. We have seen strong operating metrics across all of our transactions. For example, there has been robust demand for the units in both the downtown, high-end luxury condominium development we provided construction financing for in January, and the Tribeca condo conversion we provided financing for in December 2012. While construction at both buildings is ongoing, the pricing for the presale of units and the pace of sales thus far has well exceeded our underwritten expectations. Also, during the quarter the company deployed $20.6 million of equity to purchase $91.4 million of legacy CMBS formerly rated AAA. Apollo's Commercial Real Estate debt platform manages over $2.5 billion of CMBS for strategic accounts and is involved in the CMBS market on a daily basis. From time-to-time, our CMBS team finds opportunities to purchase bonds that meet the yield targets for ARI and during the recent pullback this summer, we identified a strategy that worked for the company. As we have done historically, we financed the CMBS with 5-year term debt in order to avoid a funding mismatch. We entered into a new master repurchase agreement with UBS, which has a 5-year term. The investment is expected to produce an underwritten IRR of 15% and further demonstrates the benefits to ARI of the integrated Apollo platform. Another transaction we announced during the third quarter also demonstrated the benefits to ARI of the integrated Apollo platform. In September, together with other affiliates of Apollo, we reached an agreement to make an investment in an entity that has agreed to acquire a minority participation in KBC Bank, Deutschland, the German subsidiary of Belgian KBC Group. ARI committed to invest up to approximately $50 million or roughly EUR 38 million, representing approximately 21% of the ownership. The acquisition is subject to antitrust and regulatory approval, which is expected to take approximately 9 months. As of December 31, 2012, KBCD had total assets of EUR 2.6 billion. KBCD specializes in corporate banking and financial services for medium-sized German companies, and also is active in real estate financing, acquisition finance and institutional asset management. The bank's existing real estate loan portfolio is focused on development and investment financing, primarily in Germany, across a number of property sectors. This is an exciting opportunity for ARI to invest alongside [ph] other Apollo affiliates in a well-structured transaction to acquire a scalable banking platform at an attractive price. We have explored various strategies to invest capital in Europe, and we found this transaction compelling for ARI because of the potential return as well as the prospective opportunities to jointly pursue real estate financings throughout Europe. We will provide an update on the expected closing of this transaction as the regulatory process proceeds. As I discussed on the call last quarter, we've also spent considerable time evaluating the net lease sector, as we believe a portfolio of net leased assets purchased at the right price can generate stable and attractive yields resembling pools of other real estate fixed income investments over an extended period of time. We continue to work with an operating partner gaining market knowledge and underwriting potential investments, but as of today, we have not completed any transactions. As we have structured this venture as a free option, we will continue to explore the possibility of investing net lease transactions and we'll determine whether or not we want to proceed with allocating capital to this strategy. Subsequent to quarter end, we closed 1 additional mezzanine transaction for $47 million, our first in the healthcare sector, and acquired additional CMBS bringing our year-to-date investment activity to $430 million. We have made significant progress deploying our available capital and ARI's pipeline remains healthy. We are very confident in our ability to identify, underwrite and complete investments that continue to generate returns consistent with prior investments and consistent with our previously stated return targets for ARI. In growing the company, we will continue to remain focused on protecting book value, the cost of raising growth capital relative to investment opportunities and the important balance between the need for dry powder with the expected timing and investment closings. As such, we are exploring several strategies to more effectively use leverage to grow the company. At this point, I would like to turn the call over to Megan to review our financial performance.

Thanks, Stuart. I want to remind everyone that we've posted our supplemental financial information package on our website, which contains detailed information about the portfolio as well as ARI's financial performance. For the quarter ended September 30, 2013, we announced operating earnings of $13.3 million or $0.35 per share as compared to operating earnings of $9.2 million or $0.44 per share for the 3 months ended September 30, 2012. Net income available to common stockholders for the quarter ended September 30, 2013 was $11 million or $0.29 per share as compared to the net income available to the common stockholders of $11 million or $0.52 per share for the quarter ended September 30, 2012. For the 9 months ended September 30, 2013, the company reported operating earnings of $37 million or $1.05 per share as compared to $26.5 million or $1.27 per share for the 9 months ended September 30, 2012. Net income available to common stockholders for the 9 months ended September 30, 2013 was $31 million or $0.88 per share as compared to net income available to common stockholders of $30 million or $1.43 per share for the 9 months ended September 30, 2012. A reconciliation of operating earnings to GAAP net income available to common stockholders can be found in our earnings release contained in the Investor Relations section of our website www.apolloreit.com. GAAP book value per share at September 30 was $16.18. We do not mark our loans to market for financial statement purposes and currently estimate that there's another $0.26 per share value when our loans are mark-to-market. And as such, estimate our market value per share to be $16.44 at September 30, 2013. Our investment portfolio, as of September 30, had an amortized cost basis of $843 million with a levered weighted average underwritten IRR of 13.9%. The weighted average duration of our investments was 3 years. Additionally, the credit quality of our loan portfolio remains stable, and the company has determined that an allowance for loan loss was not necessary at September 30. Before I open the call for questions, I would like to reiterate Stuart's comment regarding capital deployment. We expect by the end of the fourth quarter, ARI will be close to fully investing the capital raised at the beginning of the year and the capital received in loan repayments. As we have stated previously, we believe once this capital is fully invested, the portfolio will produce operating earnings to support our current common dividend. As a result, the board announced a common dividend for the quarter ended December 31, 2013 of $0.40 per share. Based upon yesterday's closing price, ARI's stock yield is 9.9%. And with that, we'd like to open the line for questions. Operator?

[Operator Instructions] Our first question comes from the line of Steve Delaney of JMP Securities.

Stuart, I would like to start by asking about the legacy CMBS. It kind of gave me a flashback to the days of the TALF program, that I'm sure your recall kind of a private market version. Could you give us a little feel for sort of the vintage of the CMBS, the range of the vintage and what the current ratings might be, I know they were born AAAs, but your press release implied that they were carrying lower ratings currently?

Yes, Steve, I will let Scott respond to that.

Yes, TALF is what we're trying to replicate exactly, and that's what we had done in the past, previously with Wells Fargo, where for us an important component of the transaction is the ability to put on term financing because not only does that -- I mean, we don’t have to worry about 1 month repo going away, but because we're buying fixed rate loans that allows us to put a hedge in place. So, we eventually are taking out that interest rate risk from what we are buying. With respect to what we're buying, these are the legacy AM securities, so these were the 20% credit support AAAs. And so that's what we are buying. Previously, we've brought the shorter duration A2's, which we still have as those have continued to extend and are doing great, and then this program is the AM program. In our supplemental, we actually list out the actual CUSIPs that are there, and as Stuart mentioned on the call, we are a very active CMBS program. We are not traders, if you will. It's really hold-to-maturity type things or constantly analyzing different bonds, and we saw an opportunity in the market to both get the financing but also to find bonds that we could really underwrite unlike the credit.

And the remaining like -- it looks like it’s 3.5 to 4 years; that's kind of telling us we are probably looking at what, '06 or '07 types of issues?

Yes, these are '07, they are '07, I guess, they are in the settlements. So these are '07, so they were supposed to be 10-year AAAs in '07, so 10 years of 2017. So, obviously, the deal has evolved with both taking losses and extensions. So we're about 3.5 years left, but I guess we put on a 5-year financing to give ourselves some cushion as we feel [indiscernible] ride a little longer, which is a good thing -- going out longer is actually good for us in terms of how these field work.

And you're about -- looks like with the post 9/30 addition of $18 million, looks like you're about $110 million with UBS now. Is there -- are you at liberty to say what your maximum availability is on that line?

It's disclosed -- it's actually about $130 million.

We've a few million more of equity, if you will, to put out to the extent we can find more bonds that we like in the return makes sense. We can't grow it. We just wanted to size the facility to an appropriate size based on where we thought saw the market opportunity.

And then I will get up -- hop off and get in back in the queue. But Stuart, we've talked over the years about this capital time to deploy issue and I know it's something that you're sensitive to, and I was intrigued by your comments about considering other structures or strategies with respect to leverage that might help you bridge -- have a little longer bridge to the next required race? And I'll just ask this and then drop off, I'm just curious if part of that might be given that your portfolio is heavily weighted to mezz, are you considering trying to structure some sort of a senior slice off the top of your mezz book?

Yes, I mean, look where we were trying to take the company and we're getting to a size where it could make sense is to put more of a, call it a corporate revolver in place with a borrowing base that would allow us to stay in business, close deals and then as needed clean up the revolver with some sort of permanent capital raise, and in any event sort of minimize dissolution you take when you put unused capital on the balance sheet. We're in early stage discussions with a couple of different financial institutions, no guarantees in terms of success, but I would say the discussions have been pretty productive so far, and if we could figure something out along that vein, that's the path we're likely to go down as I think it is the most advantageous-type of transitional capital for the company.

Our next question comes from the line of Jade Rahmani from KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: I was wondering, can you quantify the amount of accelerated accretion income in the quarter as a result of the loan repayments received? And just generally where do you think loan yields are headed given the mix of deals you are pursuing?

There is about a $0.01 of acceleration related to the Hilton timing and then all of the remaining discount on the Boston property -- Boston loan. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And was that in the third quarter or was that -- what you just said, is that in the third quarter or is that expected in the fourth quarter?

Those are both in the third quarter and then there's some additional accretion left for the Hilton in the fourth quarter.

Given the pricing of the Hilton capital structure and the planning what we hadn't enclosed yet, we were able to obviously adjust our assumption for when it would get -- when it gets repaid, but with it getting repaid later this month, then we'll be able to take the remainder of the non-accreted discount. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: What's the remainder of the non-accreted discount?

For Hilton? Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Yes, I mean, should we expect essentially a similar benefit in the next quarter?

You can actually see it in the supplemental on Page 16, the cost basis for the Hilton bond is in there versus the face amount. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And just generally where do you think loan yields are headed based on the mix of deals you are currently pursuing?

This is Scott. I mean, I'd say that we're still seeing opportunities consistent what we've been doing in the past, whether it's a type of whole loans we're doing, based on what we have in closing, I mean, again it's consistent whether it would be the mezzanine loans that we've done in the past on the floating rate side or also floating rates whole loans and we're also still seeing long-term 10-year fixed-rate mezz, again consistent what we're doing. So, I would say, yes, the markets are robust. As Stuart referenced, the CMBS market had a little bit of hiccup, but this is fully back up and running, the banks and what not. But again as we talked about in the past, that also presents opportunities for us. For example, we're working on a deal now where we are working with 2 balance sheet lenders who would do the senior loan at very, very attractive financing pricing, and then we will be doing a mezzanine loan at pricing consistent what we've done in the past, and to the borrower whose cost of funds is outstanding. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Secondly, a peer of yours just announced a CMBS securitization that had, I think, an 80% advance rate and 2% cost of funds. Do you view that kind of structure as attractive? It's the collaterals based on a static pool of participation interests in first mortgages.

Yes, look I think for someone doing kind of first mortgages, that is attractive, obviously, there is the arrogation and the cost of actually doing a deal, I think, as we've said in the past, I mean, there is no shortage of people willing to finance mortgage loans. We have our facility in place where depending on the deal, we can actually even get higher advance rates than that. So I think, that's just another -- another tool in the shed, if you will, on financing that. For us, given where -- given the availability of that financing, we've seen yields continue to come down on those assets. And so for us even with that leverage, the yield that you get on a levered basis, they are still not that attractive to us, given the, I would say, the risk involved in those kind of transitional lease up loans and things like that. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: So we shouldn't expect you to want to do something like that on your existing first mortgage portfolio?

No, I mean, look, it's -- most of our first mortgages were put in place in 2009, early 2010. There is not a lot of duration left there in order to go out, and complete a securitization, and really the focus on what we're originating now or doing now is more on -- on the mezz side or what I'd call more transitional first mortgages. Certainly I think the financing achieved in the securitization market today is attractive. But to date, we've found other ways to put our capital to work productively without taking the risk of warehousing deals and sort of having some uncertainty about whether or not you could actually get to a securitization market.

Right and I think -- and the type of transitional loans that obviously -- that's a broad term -- is the type of loans we're focused on are not the ones that actually work for CMBS, which is why we can get the more attractive pricing. So, obviously, as capital markets come into any space and, obviously, we've all been reading about the single-family for rent deal, that drives down pricing. So we purposely are locked in focus on assets that don’t work well in the capital markets. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, and then just lastly, the portfolio mix of floating rate loans increased quarter-over-quarter. Is that a trend you expect to continue the mix of incremental originations being more floating rate based?

I mean, as we look at both, our fixed-rate, if we can spread out a 10-year call protected piece of paper with a teen rate of return, and I think that's great in the assets fixed, but when you look at the weighted average coupon on our fixed rates, a move on the 10-year from 2% to 3% is not affecting us. I mean, all-in rates is very attractive. As I look at our pipeline, yes, the vast majority today is floating rates. So I would expect -- I would expect that the ratio is to continue to move towards floating rates. But we still like fixed-rate deals when we can find them.

And our next question comes from the line of Dan Altscher from FBR. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: On the net lease, I guess, option now, Stuart, I'm not sure if I'm reading too much into your wording. I think maybe the last earnings call or 2 earnings call ago, might sound like it was a certainty of going into the business and now maybe sounds like it's maybe more of an option, if the opportunity, I guess, comes around. Can you maybe just help me clarify the wording there or help provide the direction there?

Yes, look, the relationship is the same as it was last quarter when we discussed it, and the business or the relationship is always established to give us an opportunity to see deal flow, to have a ready partner who can execute on the deal flow to the extent it was attractive. But like anything else we do, the desire to invest capital in the net lease space needs to be weighed against other alternatives we have in which to deploy capital. And I would say, in general, right now what we're seeing on the mezz side or on the senior side is a more compelling risk-adjusted return than what we've seen in the net lease space so far, and we've spent a fair bit of time looking at deals, we've done deep dives underwriting on a number of deals, looked like we're about to complete a few transactions and for whatever reasons, diligence didn't pan out. So we're still actively looking in this space. But I think what I was trying to highlight is, it really does -- I think the relationship was appropriately set up such that we as a company get to see deal flow and get smarter on the market, but to the extent I've got $50 million of deals away from net lease, I'm going to put my capital where I think it's the most attractive risk-adjusted return. I don't have to be in net lease, I just think at some point, and I don't know when that some point will be, there might be an opportunity when it's interesting, and we just wanted to setup a structure whereby we were looking at the market on a more regular basis and we're getting more educated on the market. But any capital allocation decision comes down to a moment of time and what looks more interesting in a moment of time. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Just also on the German bank acquisition, can you just -- beyond the timing, which I guess is probably about 9 months from now. Can you go through a little bit of the story there, how that came about, what's the rationale, what's the opportunity, what's the return set they're expecting there beyond just pure potential loan origination platform at some point?

Sure, it's Scott. I'll answer. As we talked in the past, I mean, Apollo, obviously, has a very broad platform and the financial services is a space that we spend a tremendous amount of time on. It's been, obviously, reported in the press we started a reinsurance company called Athene that has grown into a very successful reinsurer of annuities, and our private equity side, we've purchased a U.K. insurance company and we spent a lot of time in the bank -- in the bank space, in particular, German banking given our view of the deposit base there and just what that affords you in terms of kind of cost of funds and what not. And so, given that real estate is always a very large component of a bank's asset space, we spent an extensive period of time with our colleagues looking at these deals and this is a deal that they've been working on for many years, it's a forced sale due to some regulatory and other things that happened with, obviously, everything in Europe. And so for us, we just view it as a very attractive opportunity to get into the German banking business, we're able to underwrite the assets of the bank and management, and we think there's some real opportunities to grow the bank, both in real estate and other classes, and it's a private equity type deal with a kind of commensurate returns that one would expect for buying a bank.

I mean, I think, then the way we've thought about it is if you do nothing but buy the bank, I think from our perspective and, obviously, we have the benefit of working side-by-side with the big guys here at Apollo. You are buying the bank really well, and it should be an attractive return just for making a good buy. I think to the extent things go beyond expectations, I think there will be opportunities for us to hopefully work with the real estate folks at the bank to perhaps create mezzanine opportunities for the REIT in Europe. And it seems as a market that we've looked at pretty extensively like others, this seemed to be the most efficient way and the most productive way for us to leverage the broader Apollo infrastructure if thinking about opportunities in Europe. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: And just maybe a quick follow-up on Steve's question on the CMBS portfolio they just acquired. For those of us that aren't seeing out of Bloomberg terminal, can you just give us the flavor as to what, I guess, you purchased them on, as a percentage of power, percentage of face or having cents on the dollar?

Sure and to be clear we went out and bought individual bonds, so it wasn't like we bought a portfolio from -- and I think, in this supplemental, we actually show the face and the costs, I mean, it was right around par. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Okay, so the legacy AAAs we're trading right around the par?

Yes, maybe like one-on-one or so, but I mean, it's in the numbers, it wasn’t like -- it wasn’t -- these weren't -- I think, these bonds certainly by us are viewed as money good, no impairment and so they're going to trade more, based on the coupon of the bonds and kind of, obviously, people's expectations on remaining weight average life and spreads. These are not bonds where we're making a bet that a loan does good, and someone else is making the bet the loan doesn't do good. As I mentioned, these are 20% credit support bonds, I think, the latest predictions from the Street and others are that most of these vintage will kind of have a loss in kind of a 10% area, obviously, fluctuates by deals. But these are bonds that we underwrote ourselves with our team and using our own underwriting model and we're comfortable that they are not going to suffer any principal loss. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Right, so these are really income or yield plays and not credit reflation plays, I guess?

Complete yield play where we locked in our cost of funds, so we've hedged the borrowing and locked it in. Now we're just clipping coupons. And as I mentioned, to the extent, they go out longer than we want because we paid a slight premium and that's even better for us.

And our next question comes from the line of Rick Shane from JP Morgan. Richard B. Shane - JP Morgan Chase & Co, Research Division: I've got a couple. First on the KBC deal, can -- Stuart, you made an interesting comment sort of looking at this as a private equity-type transaction. Is there an expectation that this will generate current income or should we think of this really as a long-term capital gain potential?

It has the potential to generate both current income as well as long-term appreciation, just because there is an existing book of assets. To be perfectly clear, the bank that we'd be buying was in no way distressed. The bank is being sold because it is one of the more valuable assets of a parent that was in distress and needed to monetize some capital. So there is an existing book of assets that given the price at which we are buying them would potentially generate a good, call it, current cash-on-cash return, I think the biggest fluctuation potentially on that current cash-on-cash return will be based on how we as part of the ownership group sort of collectively decide that we want to reinvest in the business and grow the business, and it's too early right now to know what impact that might have on, call it, current cash income. Richard B. Shane - JP Morgan Chase & Co, Research Division: And this also may end up being a question that's a little premature given the uncertainty of the structure. But what do you think the tax characterization of the potential income would be, would it be taxable or would it be REIT income?

The way we've structured it and it's still a little bit in flux, but we're pretty confident that we'll be able to structure it such that REIT income and cash received are for the most part in sync. Richard B. Shane - JP Morgan Chase & Co, Research Division: One more sort of background question. On the UBS facility, is there a mark-to-market requirement or is that just permanent financing without mark-to-market?

There is mark-to-market, but again we've taken out the interest rate movements from that. Given the hedge, they kind of offset, so it really would be wide moves in spread that would be the reason for a margin goal. We have some cushing and stuff built in, but a huge gap out in spreads would cause the margin goal. Richard B. Shane - JP Morgan Chase & Co, Research Division: And then finally, Megan had talked about a fully deployed run rate of approaching that or exceeding that $0.40 quarterly dividend. One of the challenges as you guys know with running a mortgage rate is that these are businesses that are huge consumers of capital, and that you typically need to be in front of that capital cycle, you can never sort of get to that full deployment. Stuart, do you think in the context of what you're describing in terms of alternative forms of capital that there is the potential that you will get there without needing to raise additional pure equity, and so that really sets you in the position to fully cover that dividend going forward?

I think, we're hopeful we can figure some things out on the, call it, corporate finance side of things. I mean, we are running a company today call it at about a half return of leverage, which seems a little bit on the conservative side from my perspective, and I think there are -- there is a solid borrowing base of assets that should support some sort of corporate revolver that would allow us to lever up and put additional assets on the books in advancing -- in advance of raising that permanent capital. No guarantees that we get to the finish line, but I think there have been some productive discussions along those lines so far.

And our next question comes from the line of Joel Houck from Wells Fargo.

This is Chuck Nabhan from Joel Houck's team. In terms of your pipeline, how should we think of the opportunities in terms of what you are underwriting internally versus what you are sourcing through your relationships going forward?

This is Scott, I'm not sure if I am following the question, but it’s -- we are continuing to see deals directly from borrowers and intermediaries, and we're also continuing to work, as I mentioned with other lenders who are providing the senior part of the capital structure and originations, where we do a subordinate debt, and then like I said before, there are deals where we'll provide the whole loan. So the mix continues, and I would say, with what we have in closing and then what we're working on, I mean, it's very consistent with the deals that we've announced this year, whether it be mezzanine -- floating rate mezzanine loans on cash flowing properties, whether it be whole loans in the residential space that could convert or construct properties, long-term fixed-rate mezz behind CMBS loans. It's kind of more of the same.

I mean, I think one subtlety I'd point out, and I think, at times there's a little confusion about this, I mean, even to the extent, on a new deal, we are the mezz behind someone senior. Typically, those situations are arising, we are aware of the deal in the market, we are doing the work ahead of time, we are reaching out to borrower or broker, and either reaching out to relationships on the Street to see if we can jointly pursue a piece of business or reaching out to relationships and see if there is a way to be paired up with someone. But, the large majority of what we do is predicated on something where we've been involved in the origination early on, we've been involved in the transaction early on. And I would say the -- the scenarios whereby someone calls us up and says, "Hey, I've got this piece of paper sitting around, do you want to buy it?" are more of the exception than the rule in terms of how we originate business around here. And I think we -- I think sometimes we sort of talk about co-origination or mezz behind someone senior, but even when we're mezz behind someone senior, we're involved in the transaction upfront, we're not waiting for someone else to close the deal and then say, "Hey, I got to sell a piece of paper and give us a call." We're very upfront and early in the process on most of what we put in the book.

Our next question comes from the line of Jim Young from West Family Investments.

A couple of questions. First, with respect to the mezzanine loan that was issued at post the quarter. What's the cash-in point this was issued at and what was the underwritten IRR for this deal?

You are referring to the healthcare deal?

Yes, $3.7 million mezzanine...?

Yes, our ending LTV was 58, and I think our beginning LTV was also kind of in the low 50s. And then we underwrote it to a 12 IRR; it has 9 months remaining. This is a deal that we're actually actively working on the refinancing, with some other parts of Apollo, which is why we got involved and we've already been doing a lot of work and underwritten it. So even though, the remaining term is only 9 months, while not done, we do expect in some forms be part of the other refinancing, which could take the form of a mezzanine loan like this or it could take the form of [indiscernible] senior loan, which we would then use our facility to lever. But that's how -- but that's how it came about. So we view it as a very safe piece of paper with additional capital behind us in the form of junior mezzanine loan from a very large financial institution, and really got the opportunity to buy this due to our relationship with the sponsor and the sponsor wanting to get another lender out of their capital structure, who is, I guess, being difficult.

The second question is the capital allocation question. And during the quarter, your stock traded at a notable discount to book, but it doesn’t appear that you bought back any stock during the quarter. I'm just kind of curious why? But then secondly, it looks like you instituted dividend reinvestment plan, so you'll be issuing stock below book, and I'm just wondering why you'd want to be issuing stock below book at this time?

Just to be clear, Jim, the dividend reinvestment plan has been in place for about 3 years and I'd say, given that most folks holding street name as opposed to individual name, I would say, what we've seen over the last 3 years, at best a dribble of stock and pretty inconsequential. And I think, in terms of the discussion on using the share repurchase plan, at the end of the day, any decision on that front is sort of based on what's in our pipeline, what do we have a capital need for versus the benefits of potentially buying stock back, and I would say, given what's in the pipeline, there is a need for every dollar of capital we have and potentially more. And right now we sort of like the returns we can generate, and think it fits with the long-term story of the company. But there is certainly -- we're certainly not sneaking out equity through a drip plan, the plan has been in existence for the better part of 3 years now.

Well, I apologize for that and, I guess, the new part, it looks like you instituted with the direct stock purchase plan. Is that correct?

No, it's always been there. So unless I am missing something, I don't think there's been any changes other than maybe just refreshing the filings that need be to keep the plan going.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back to Apollo for any concluding remarks.

Thank you, operator, and thank you, everyone for participating.