Apollo Commercial Real Estate Finance, Inc. (ARI) Q3 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the ARI Third Quarter 2014 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 Inc., and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections that 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 or 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 our company's Chief Executive Officer, Stuart Rothstein.

Thank you, operator. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance Third Quarter 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. Despite the recent volatility in the capital markets as well as increasing concerns over geopolitical events and the global economy, the commercial real estate market has continued to perform well. Specifically, operating fundamentals continue to improve as evidenced by a decline in vacancy rates and increasing rent levels across most property types and markets. The sector also continues to benefit from strong capital flows from both equity and debt sources and robust transaction volume. Also important to note is the fact that development activity across the commercial real estate spectrum, but for the recent increase in multifamily, remains below historic averages. This confluence of factors has pushed property prices to record or near-record levels in gateway city core assets, and we have now begun to see increasing values in secondary and tertiary markets. Given the increased level of transaction activity and the positive capital flows, the real estate finance markets remain extremely active and the opportunity set for ARI continues to broaden. U.S. CMBS issuance year-to-date is roughly $72 billion, roughly 10% greater for the same period in 2013, and it is expected that issuance will be between $90 billion and $100 billion by year-end. Steady growth, but still well below the peak years. There continues to be a strong bid from commercial banks, conduit lenders and insurance companies for first mortgages, which has been extremely beneficial to ARI's co-origination model for subordinated loans as it enables ARI to achieve the company's target returns on mezzanine loans, while the overall blended cost of financing to the borrower remains attractive. In addition, amidst the recent volatility, we have seen some of the less traditional non-real estate investors exit the subordinate loan market, which benefits ARI with respect to negotiating transaction terms. 2014 has been ARI's most active year to date. The breadth of transactions closed, the performance of the investment portfolio and the strength of the current investment pipeline demonstrate the depth and quality of Apollo's commercial real estate debt platform. At quarter-end, ARI's investment portfolio totaled $1.5 billion of performing commercial real estate debt investments, which had a weighted average levered IRR of approximately 13.7%. Investment activity year-to-date totaled $1 billion and evidences ARI's ability to invest across the company's target asset spectrum, including well-structured transactions in both senior and subordinate debt and opportunistic CMBS strategies. The strength of the current portfolio resulted in the company's most successful quarter to date, as ARI reported operating earnings for the third quarter of $0.44 per share, which was a 26% increase over the same quarter of last year. In addition, the growth in our earnings has enabled us to drive down our dividend payout ratio, which we believe demonstrates the stability and security of our consistent $0.40 per share quarterly dividend. And as we look ahead, we are optimistic about the continued earnings power of the platform. With respect to ARI's investment pipeline, we continue to see ample opportunity in both the transitional first mortgage and subordinate loan sectors across a diverse mix of underlying property types and geographies. It is also worth noting that most of ARI's current pipeline is comprised of floating-rate transactions. Before I turn the call over to Megan to discuss our financials in detail, I would like to take a minute to discuss ARI's exposure to rising interest rates and what movements in rates means to our company. ARI's leverage remains relatively low with a debt-to-equity ratio of 1.2x at quarter-end. With respect to our assets at September 30, 50% of our loan portfolio had floating interest rates. And as I mentioned previously, our pipeline today mostly consists of floating-rate opportunities. Therefore, we believe ARI is well positioned for an increase in short-term rates. And by example, if LIBOR would increase by 50 basis points, based on our quarter-end portfolio and capital structure, we would expect ARI's operating earnings would increase by about $400,000. I would also like to point out that for financial reporting purposes, the only assets within ARI's portfolio that are marked to market are the company's CMBS assets, and we have seen very little volatility in that portfolio. Therefore, unlike our peers in the residential mortgage space whose book values are greatly impacted by movements in long-term rates, ARI's book value is far less volatile. Book value per common share at quarter-end was $16.42, a 1% increase over ARI's previous quarter's book value per common share. We recognize that, from a technical trading perspective, rising rates and their impact on fund flows per yield-oriented products will impact the trading in ARI stock, but it is important to remember that the improving economy is generally beneficial for the lateral, underlying ARI's mezzanine and first mortgage loans. In addition, over an extended period of time, it should be beneficial for ARI to have the ability to invest in a rising rate environment. And with that, I will turn the call over to Megan.

Thanks, Stuart. I want to remind everyone that we have 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 third quarter of 2014, the company announced operating earnings of $20.8 million or $0.44 per share, representing a per share increase of 26% compared to operating earnings of $13.3 million or $0.35 per share for the third quarter of 2013. Net income available to common stockholders for the same period was $17.3 million in 2014 or $0.37 per share as compared to $11 million or $0.29 per share for 2013. The company reported operating earnings of $52.8 million or $1.24 per share for the 9 months ended September 30, 2014, representing an 18% per share increase as compared to operating earnings of $37 million or $1.05 per share for 2013. Net income available to common stockholders for the 9 months ended September 30, 2014, were $55.1 million or $1.30 per share as compared to net income available to common stockholders of $31 million or $0.88 per share for 2013. A reconciliation of operating earnings to GAAP net income can be found in our earnings release contained on the Investor Relations section of our website, www.apolloreit.com. As Stuart mentioned, GAAP book value per share at September 30, was $16.42, which is a 1% increase from $16.30 at June 30. As a reminder, we do not mark our loans to market for financial statement purposes. We currently estimate that the fair value of our loan portfolio at September 30 was approximately $7 million greater than the carrying value as of the same date. With respect to repayments. During the third quarter, we received a $50 million principal repayment from a mezzanine loan secured by a portfolio of office properties in Florida. The company realized a 13% IRR on this investment. To fund our recent investment activity, the company completed a public offering of $111 million of 5.5% convertible senior notes, which were priced at 102% of face. The notes are an additional issuance of and form a single series with company's convertible senior notes that were issued in March 2014. In addition, during the quarter and subsequent to quarter-end, we extended our master repurchase facility with Deutsche Bank to $300 million from $200 million in order to fund our CMBS investment strategy. We are also currently working on amending our corporate facility with JPMorgan, which expires early next year. It is important to note that as we have expanded our capital base, our G&A expense has essentially remained constant, creating better leverage for our operating platform. Annualized G&A as a percentage of common book value was 58 basis points at the end of the third quarter, which is one of the lowest percentages among the ARI peer group. With respect to our equity investment in KBC Bank Deutschland, which closed on September 30, you will note that we have a new line item on the balance sheet called Investment in Unconsolidated Joint Venture. We will account for this investment using the equity method. Each quarter, any adjustment to the value of our investment will be reflected on the income statement in the income from equity investment line. However, until we receive a cash distribution from the investment, it will not generate any taxable income. Finally, as indicated in our press release, the Board of Directors announced a common stock dividend for the fourth quarter of $0.40 per share. This is the 18th consecutive quarter of a $0.40 per share common dividend. And as Stuart previously stated, we are confident ARI will earn the dividend in 2014. Based on Monday's closing price, ARI's stock offers a 9.8% dividend yield. And with that, we'd like to open the line for questions. Operator?

[Operator Instructions] Our first question comes from the line of Jade Rahmani of KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Stuart, I was wondering if you could comment on the competitive outlook on the loans that you are looking to originate, and whether you've seen any spread widening or increase in loan yields in the last month or so, and if you view this as an opportunity?

I'll let -- Scott's been working on a couple deals, so I'll let Scott comment on that.

Yes. Look, I mean, I would say -- and we've talked about this in past meetings. What ARI is focusing on is not the most liquid tradable instruments, where you're seeing CMBS spreads move in and out a few basis points. I mean, what's going to impact the yields, what we're doing is I would say kind of a risk-on or risk-off herd mentality and also leverage being available in the system, but naturally more for like the first mortgage loans. Although, I guess, we obviously have some CMBS that we use leverage on. So I would say, overall, I would say the tone of the market is certainly not a risk-on, where you see things tightening as they were kind of I would say over the summer and stuff like that. Across our platform, we do have different strategies. So I would say, we certainly have seen CMBS spreads widen, we've certainly seen mezzanine spreads for kind of more senior mezz lower yielding stuff widen. I would say the stuff for ARI that we're focusing on, us and others looking at it, are still targeting the same general absolute returns, whether that's on a levered or unlevered basis, so it's been pretty consistent. And I would say we're continuing to see opportunities in our target area, for instance, first mortgages that don't lend themselves to CMBS or necessarily a bank balance sheet where we can still get very attractive floating-rate yields. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And can you just tell us where yields on transitional first mortgages and also the junior mezz pieces that you're targeting are around right now?

Sure. I mean I would say I think within the scope of what we call transitional, there's a lot, right? There's everything from an office building that needs lease-up, where obviously some of our peers focus on that. And I think that's kind of in the 350 to 450 over LIBOR range, and you can use leverage repo to get that up into double-digits. Then there are assets like we focus on in New York, for instance, where it's an existing building and maybe the highest and best use is not what it currently is. Maybe it's an office building that, down the road, will get converted to something else, things like that. That's at least 100 basis points back of that. With fees, that might be 100, 200 basis points back so that might be 500-, 600-plus over LIBOR. And then, obviously, there's the full on conversion where you're taking some element of construction which we're actually funding, the changing of the existing building and that's obviously a higher yield. With respect to mezzanine, we are still seeing mezzanine opportunities with double-digit yields, kind of 1,000, 1,100 over LIBOR type investments. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And on the -- Stuart mentioned, you're working on a couple of deals. What do you think is reasonable to expect for loan originations this quarter?

I mean, it's always tough because it's lumpy quarter-over-quarter, Jade. I mean I think, look, we've got, the pipeline's pretty strong, but we also know we're getting some capital back. I think we would expect to be able to do, call it, $100 million to $200 million for the quarter, sort of on a gross basis. We might get a little bit back, so it'll be a little bit lower on a net basis. But I think as we look out Q4 and Q1 of next year, the pipeline feels pretty good. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Great. And lastly, can you comment on current investment capacity and how you would approach issuing capital?

Yes. Look, I think, first and foremost, and sort of the standard disclaimer that we've given multiple times now in terms of raising equity capital, unless we could do it on an accretive basis from a book value perspective, we're certainly not going to sell equity below book value on a net basis. And certainly, we're trading right around book value today. From a leverage perspective, I think there's the ability to lever the company a little bit more than where it stands today. Our JPMorgan facility, which has been our primary facility to lever our first mortgages in senior positions matures next -- early next year, and we're currently working on replacing that facility. And I would say relative to when we put that facility in place at the time we went public 5 years ago, there's a lot more options in terms of what we could do to structure the facility that gives us more flexibility in terms of financing what we do. So as we look out over the next few quarters, given what's coming back, given what's in the pipeline, given how we can finance things, we feel pretty good about our ability to fund the business, certainly, looking out over the next couple quarters.

Our next question comes from the line of Steve Delaney of JMP Securities.

I wanted to touch on the BKB Bank. Megan, thanks for the comments on the accounting as far as the equity method. So $39.5 million, about 4% of your $1.1 billion in investable capital. I'm thinking about this and I'm saying, okay, so you guys make a mezz loan with that unlevered, that's $4 million a year, about $0.08 annually, $0.02 a quarter. And these are numbers, I know you guys already have in mind, I'm just trying to restate the obvious there. How do you think about return on this investment long term from some sort of an IRR standpoint? And I guess, more importantly, how should we think about modeling this, understanding the equity method? But I assume that somewhere in the structure, there's an expectation for dividends coming in. And once those cash dividends are received, I'm assuming that's when we would have a revenue event for modeling purposes.

Yes, Steve. So look, from a return expectation perspective, right, this was the REIT participating in a -- call it, a group that bought the bank expecting private equity-like returns. And you can draw your own conclusions about what private equity returns would be, but certainly in excess of what we would expect to earn on our traditional lending business. I think the way that gets realized over time is really 2 ways. We would expect there to be book value increases in the investment over time as we improve the operations at the bank, improve the earnings stream at the bank, and, ultimately, change the profitability of the bank. And then in turn -- and those book value increases will be recognized as the value of the investment increases or the value of the vehicle that we invested through increases. And then in terms of distribution, distributions really are sort of the balance between reinvesting in the bank and growing the bank's business versus repatriating capital back to the investors. I think the expectation should be, in the early years, there -- more of that capital will go towards investing in the bank versus being repatriated back to the investors. But I think those investments in the bank should drive some of the value increase that I was talking about. And then the other thing I would say is in addition to the pure financial analysis, keep in mind that from our perspective, part of the rationale behind this was thinking there's opportunity in Europe over time and making this investment gives both Scott and I a seat at the table in terms of strategy around what we're going to do at the bank as well as sort of realtime information on what's going on across the continent in general.

That's very helpful. Can I just -- can you clarify one thing?

Yes.

Has this bank gone from being a public entity to now a private entity? And is -- down the road, is there any possibility or though, is one of the options in the plan that this -- that it may be taken out public again? And what I've got, I'm thinking about, Stuart, is kind of this -- the trade that Colony Capital made in the First Republic deal, kind of a proxy.

Yes. The bank was owned. The bank was not a distressed bank. Its parent was a distressed bank, and the bank was owned inside the parent, so we've taken it outside the parent. How we ultimately create or not -- how we ultimately monetize the value over time, I would say is probably a discussion for a later day after we've succeeded in executing the business plan, but there are certainly various options for achieving that.

Okay. And then, Scott, just changing course, so you continue to find good opportunities in CMBS and Deutsche is willing to expand the facility. It does seem to me there's a little bit of a concentration, maybe of funding with Deutsche. And just curious how you view that. And if we were to have any type of disruption in funding markets or credit markets, what is in place to kind of give you some backup funding beyond Deutsche Bank for the CMBS?

Well, let me -- the Deutsche -- I mean, that's already funded. So I mean we already have the money. So to the extent there's distress with Deutsche, I mean, that doesn't impact us. I mean it's match funded. As we've always done with our CMBS, we don't borrow 1 month repo or 1 day repo. This was longer term. We have a great relationship with Deutsche Bank and they gave us very attractive terms. There were others that don't want to do that. Right now, we're happy with the investments that we made. I mean, to the extent we find additional opportunities, we can talk to Deutsche about increasing the facility or there are others that are willing to do. And I said -- going back to what, Stu, you were talking about before with Stuart on the repo, I mean I would actually expect us to have more than just JPMorgan to finance our first mortgages. JPMorgan has been great. But again, there are plenty of guys out there. And everyone has a little bit of different bias or focus on what they like financing. But for now, the availability of financing is there and we're having multiple conversations. As Megan mentioned, we are in discussions with JPMorgan about redoing the facility, but we received multiple other term sheets from others. And so...

Steve, one also important point to note, when we're doing the CMBS, right, we're buying bonds with call it, 3, 4, 5 years of duration and putting in repo with similar duration. So I think it's very important to draw a distinction between the residential space where guys are buying long-duration bonds and funding it with 30-day repo. And if someone decides to pull a repo line at the end of the year, you need to go scurrying about trying to find a replacement repo provider. So this is sort of a, I'll call it, a paired trade where the bonds have been bought, the financing's in place and now we're just holding the investment. And at no point, over the next 4 years, do we need to find a replacement repo provider. So it's a little different than what takes place in the residential space.

And I really appreciate that color because I was not focused on the extent to which you had this as committed term, noncallable type of funds.

Yes.

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

Question, more philosophical, I guess, in terms of your exposure to CMBS. A couple weeks ago, we saw some dislocation in the market, which has seemed to have subsided. But with the end of QE this week, how sensitive are you to adding continued CMBS exposure? As you mentioned, it hasn't really impacted book value recently. But if we get into a more volatile environment and perhaps even a spread widening, is there a tolerance threshold to how much CMBS you want to own? Or are you simply looking at it in terms of we want to just put capital to work at the most attractive spreads and, hence, we'll live with the inter-quarter volatility? I'm not suggesting we're going to see that, but I'm just more interested in how you guys think about it.

Well, look, I would say, overall, we certainly look at relative value and where we can get attractive returns. And for us -- and also duration, right. So for us, the CMBS trades that we have done over the years have always met that criteria, out multiple years, we do it with a match funding, we just talked about it, and generating teen returns for what we view as very manageable risk. I think what we saw over the past few months of the volatility is that what we were buying held in very well because it's short and very high-yielding. I think you saw a lot of spread movement in the longer-dated, 10-year type paper. But when you're buying 2-, 3-year paper, that have kind of high-face coupons, we certainly didn't see as much. And also remember, we're also hedging interest rates, so we are exposed a little bit to, obviously, the spread movement. But to the extent treasuries move up, we have that hedge. So clearly, we recognize, and the way the accounting works is that there is impact on the GAAP book value as the CMBS moves. But overall, just given the return and the duration, we find it very attractive. And if the market is there for CMBS investments, we'll certainly look at it.

And just to put things in perspective, Joel, obviously, when we went public in '09, I think TALF was the sort of unique opportunity to just get very, very attractive financing. And I think we came out of the gate, at one point, we probably had 30% to 35% of the equity in the CMBS trade. And I think that was probably, a, higher than people expected; but, b, in retrospect, given the attractiveness of TALF, it made all the sense of the world. I think over the last couple years, we've tended to be more somewhere in the, call it, 5% to 10%, maybe 12% range on CMBS. And I think on a go-forward basis, call it that 5% to 10%, 12% is much more likely the exposure to CMBS, and you're not going to see much more of the book in CMBS just given what the opportunity is and sort of the desire to be very sort of tactical and opportunistic when it comes to CMBS.

And that's on an equity basis.

Right.

We look at it on the amount of equity invested, not the total CMBS that we own.

Okay. No, that's good color, guys. And then just one last one. This is the second quarter in a row where your operating EPS has exceeded the dividends. And in fact, this quarter, I think as you guys mentioned, it was the strongest quarter. You mentioned in your prepared remarks that you have confidence that the operating EPS will remain strong. Should we -- how much should we read into a potential increase in the dividend or not?

So it's only taken 2 quarters to people worry about whether we're going to pay the dividend as opposed to now increase the dividend. What I would say is, look, I think just from a pure technical perspective, there's nothing from a taxable income perspective that's forcing us to need to do anything with respect to the dividend right now. And if we assume we can satisfy our REIT-taxable requirements, I think our view from a dividend perspective and, certainly, as quarters jump around is to pay a dividend that we have a very high level of confidence in that we can continue to cover. And I think the stock would benefit from driving the payout ratio down and giving people more confidence in the sustainability of that dividend.

[Operator Instructions] Our next question comes from the line of Dan Altscher of FBR Capital Markets. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Stuart, I'm going to maybe push it back in the box a little bit more on the amendment to the JPMorgan facility when you mentioned that maybe some increasing options or flexibility. Are you referring to more of the ability to increase the facility in size or opening up to maybe more of a borrowing base or maybe other -- maybe into the -- even to the sublevel as opposed to the first mortgage. Can you just give us a little bit more color in there what you mean of expanding options?

Yes. Look, I think there's -- to go back 5 years ago, at the time we put the original facility in place, it was not easy to get a facility in 2009. The facility was very specific around -- the facility in 2009 contemplated first mortgages with 60% LTVs and, call it, 11-plus percent debt yields. So very secure loans, modest leverage and attractive spread, but certainly nothing that was earthshattering. I think where the market's come in the last 5 years, as we think about our business and as Scott and I talk about it, and I'll let him comment in a minute, we're really thinking about flexibility around what can go in the box in terms of what sort of assets can support the borrowing. I think we think in terms of flexibility, to the extent we're going to do things in Europe, would be nice to have some GBP borrowings as opposed to all USD. Look, I think we'll get, just based on the relationship with JPMorgan or whoever else we choose to borrow from, call it, best-in-class spread. But what we're really spending most of our time working on right now is flexibility in terms of what we can borrow against, how we can borrow against it in terms of advance rates and then flexibility in terms of the ability to do maybe multiple currencies. I don't know, Scott, if you want to chime in too.

Yes. And I would say I think increases in size is definitely on the table. And as I mentioned earlier, I also think there are certain assets that are more suited on our books -- first mortgage assets kind of a longer-dated match term funding, or maybe we'll do like an asset-specific repo financing on some of our other first mortgages. So like I said, I would expect us in the future to have more than -- just like we have multiple facilities for CMBS, I would also expect us to have multiple facilities for our first mortgages. But we are not planning on financing our subordinate debt, which I think was one of your questions. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Yes. No, okay. That's very consistent, I think, with journaling, the style of not financing the subs. So that's fine, that's good. And then, Stuart, you also mentioned in this discussion, the idea of, I guess, a pound line. Nothing was done, it seems like, in Europe this quarter, which not to say you have to. But I still get the sense that Europe is still a pretty big opportunity whether it's through the bank or through the core balance sheet business. How much interest is there still in the region? How much maybe of the pipeline that you kind of referenced earlier might be focused towards Europe?

Yes. Look, I think look, first of all, the interest is there. In addition to doing the bank deal, we moved one of our senior folks from New York over to London and have hired underneath him. So there's clearly a desire to be more active in the region. I think a general comment about Europe is the economy is broadly in the varied market. There's certainly a little bit more volatile and a little bit more uncertainty than what we see here in the U.S. right now. So I think our approach will be thoughtful. And I don't want to say it will be cautious, but we're certainly going to be thoughtful about our underwriting, and I think we -- by moving folks over there and put ourselves in a position to be active over there. But there's no preconceived notion that we need to do x amount in the U.S. and y amount in Europe. We sort of are opportunistic as things come in, look at things on a risk-adjusted return basis and are agnostic when it comes to geography. But certainly, there's a view that, over the next few years, we will be more active in Europe, but I think it'll be lumpy on a quarter-to-quarter basis. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Okay. No, that's helpful color. And then just one other one. On the Aruba loan, the $65 million junior participation, that looks like you sold now into the CMBS market. I'm just wondering why did you look to go that route as opposed to holding it at a whole loan participation? And was there any changes of yield or terms with the CMBS versus the whole loan?

Well, I mean, effectively, it's like match term funding. I mean so we sold it in order just to own the junior piece and increase our yield.

There's Aruba structuring reasons why the junior and senior had to be in the same CMBS transaction, but the terms of the loan does not change at all. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Okay. So but -- okay, so there was an issue though that required them both to be in kind of the same structure?

Yes.

Yes. But in terms of our rationale for doing that, I mean the rationale was always how many dollars you need in Aruba and what's the yield and where -- just like how we look at all the deals, we were comfortable owning that bottom risk. And when we looked at our different financing options, the most efficient way for us to just own the bottom piece and get the deal that we wanted was to work with a bank that we're very close with. They contributed to the CMBS, and it made the most sense for us to take back that junior participation in the form a rate bond. But again, all our rights and controls and security are the same. It just worked out that way. It's easier than like putting it like on a JPMorgan repo. And this way, it was match funding effectively. Daniel K. Altscher - FBR Capital Markets & Co., Research Division: Okay. And then that little slug of the junior participation, that's part of a bigger CMBS deal? It wasn't like a single borrower or a single asset deal, it's just a tranche within a bigger transaction?

No. What it was, was the bank contributed that loan along with other loans to a multi-VaR floating-rate transaction, so there were certificates that were pooled, where the Aruba loan was pooled with other loans. And then we have an asset-specific rates off of that where we have control rights in our security. So we're not impacted by that. But it not done as a single-asset, single-borrower deal.

Our next question comes from the line of Jade Rahmani of KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Just a couple of short follow-ups. One is your LTV, which I think is a weighted average of 40% -- of 58%. Given the composition of the loan portfolio, can you discuss what's in the LTV calculation, if it's based on pro forma sellout values in the case of condos, for example, or some other metric?

Yes. I mean the way -- in terms of the LTV calculation, the way we think about it is we use appraised value at loan closing or to the extent we receive an updated appraisal, we use the updated appraisal. And for condo deals, obviously, we use sort of our view of net sellout value.

Or by the appraisal [indiscernible].

Or appraisal [indiscernible]

Appraisal on brokerage, yes. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And so is the -- in the case of a conversion or some type of development, is the appraised value based on the future value rather than the current cost basis to the borrower of the property?

Yes. Because otherwise -- especially if you think about our loans with the future fundings, right, your loan is going to be going up, and so that cost goes up. And so the way we look at it is a -- like Stuart mentioned, loans in that sellout, obviously, updated at sales are happening, so we have quite a few projects that are very far along, if not completely sold out. So we would clearly update the value based on actual sales contracts. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then just 2 quick modeling ones. Just if you could say what you think prepayments could be in the next quarter or 2, if there's any specific loans you're expecting to come back. And also if there's any 4Q stock comp increase we should expect?

I would say on the prepayments, we mentioned earlier, clearly, we took advantage of the market when we first went public in 2009 in the illiquidity in the first mortgage space. So I think you could surmise that the 5-year first mortgages that we did that are coming due the next few months that are 8%, 9%, those borrowers are very excited to be repaying us. And then I would say, away from that, there were loans that we did that are -- have near-term maturities which we're going to get paid off. And then lastly, as you mentioned, some of our earlier condo deals are starting to close. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Can you quantify the -- like the magnitude?

In terms of repayment? Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Yes.

I mean, look, it's a little bit lumpy because some of what we're going to get repaid back is on some of the early-stage condo projects we did, which are lumpy given closings and timing of that. I'll go back to my earlier sort of commentary that I think in terms of -- from an investment basis, I think we'll put out $150 million to $200 million sort of on a net basis for the quarter.

I would also say that those earlier deals, we were able to very attractively lever them. So the actual equity that we're getting back is smaller than it might look versus the gross loan getting paid back because we were able to put so much leverage on them. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And just lastly on the stock comp. Is there a 4Q pickup?

There's not a pickup. There's-- I'm not sure I follow the question specifically. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Should we model it on a straight-line basis? Or is there anything that you think could happen in the fourth quarter?

I don't think there's anything that's going to happen on the fourth quarter that's going to impact modeling.

Thank you. I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Stuart Rothstein for your closing remarks.

Thank you, operator, and thanks for everybody for participating.