Apollo Commercial Real Estate Finance, Inc

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 that differ materially from these statements and projections. In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to accessing the company's financial performance. These measures are reconciled to GAAP figures in our earnings press release, which is available on the investor relations section of our website. We do not undertake any obligation to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreet.com or call us at 212-505-3200. At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein.

Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance first quarter 2020 earnings call. I hope that everyone dialing in is healthy and safe as we continue to navigate the challenging environment created by the COVID-19 pandemic. Joining me this morning is our Chief Financial Officer, Jay Agarwal, and Scott Wiener, my partner in running ARI since the beginning. Before I begin my comments with respect to ARI, I want to take a moment to update you on how Apollo as a firm has been operating over the past few months. Apollo moved quickly to protect employees and during the second week of March implemented a work-from-home plan. As a firm, we are extremely well equipped to work remotely, and from the most senior levels on down, I continue to be amazed by the incredible effort, dedication, and perseverance being put forth. Over 50 people within Apollo, including the entire real estate credit team, as well as members of the finance, investor relations, and legal teams support ARI on a daily basis, and we are communicating frequently and effectively. Workflow is organized and efficient, and work product is thoughtful and consistently being improved and enhanced. I recognize that this situation continues to evolve, and there is much work ahead of us. but the effort to date gives me great confidence in our team's ability to navigate both the opportunities and challenges that lie ahead. I have often commented about the benefits of the broader Apollo platform to ARI. Over nearly 30 years in business, Apollo has navigated many market cycles, disruptions, and periods of heightened volatility, and has successfully managed through them and thrived. In the current environment, ARI is benefiting from many of the collaborative efforts within Apollo. A few noteworthy examples include a highly coordinated effort across the firm in managing bank relationships, the aggregation and dissemination across investment teams of real-time granular market data and information, and the unified fashion in which Apollo is providing thought leadership, and feedback on the multiple government programs designed to assist companies and the markets. Turning now to the specifics on ARI, I would like to begin by addressing the right side of ARI's balance sheet, including an overview of the current capital and liquidity position. ARI has always focused on maintaining dry powder within the company's balance sheet, and throughout our history, we have utilized discipline with respect to leverage. This positioning has served us well as we manage through the current situation. ARI ended the quarter with $582 million of cash as well as $1.2 billion of unencumbered loan assets. Net of post-quarter payables, including the recently paid common stock dividend of 40 cents per share, ARI has approximately $582 million of available liquidity comprised of 566 $567 million of cash on hand, and $15 million of available and undrawn credit capacity. ARI has credit facilities with six counterparties, which had $4.5 billion of total capacity and $3.6 billion outstanding at March 31st, with a weighted average remaining term of just under three years. As a reminder, all of ARI's credit facilities are collateralized by loans and the weighted average advance rate was 67% at March 31st. Also, to be clear, ARI's portfolio includes only $68 million of single asset, single borrower CMBS, which are not financed. Since inception, we have always maintained an open and ongoing dialogue with ARI's key financing relationships, and since the pandemic began, we have increased the dialogue with each of them. To date, we have found that dialogue to be thoughtful and constructive as we collectively manage the economic impacts of the pandemic. Over the past eight weeks, in discussions with lenders, ARI has agreed to delever certain of its secured borrowings by a total of $144 million, or less than 5% of secured credit facility borrowings as of March 31st. Consistent with the customary process established with our counterparties during ARI's more than 10-year operating history, requests to delever were met with a combination of increased advance rates against certain loans and the posting of additional loan or cash collateral. It is also worth noting that the secured credit facility market for commercial real estate loans has remained open and functioning throughout the pandemic. In the past eight weeks, ARI borrowed over $540 million from existing facilities and closed a new U.S. facility with Barclays, which we utilized to finance one of the loans we closed this quarter. In addition, the term on ARI's facility with Deutsche Bank was fully extended for two years. We believe ARI's ability to access capital and expand the company's facilities demonstrates the strong relationships we have with ARI's lenders, as well as their commitment to the business and their continued desire to work with ARI as we manage through this pandemic. As of today, we believe ARI is well positioned in terms of liquidity management and future capital needs. Turning now to ARI's assets, the company ended the quarter with a loan portfolio totaling $6.4 billion. During the first two months of the year, ARI completed $562 million of new floating rate first mortgage loan originations, $440 million of which have been funded. ARI also received full repayment of an $87 million first mortgage loan on a hotel property in Detroit, Michigan. Since the beginning of March, Our focus has been on our in-place portfolio, and ARI has not pursued or completed any new origination transactions. The entire real estate credit team, with significant involvement from Scott, Jay, and myself, is focused on asset management, and we are in regular constructive dialogue with ARI's borrowers. I also want to highlight Apollo's recent hire, Daniel Ho, who joined Apollo from Morgan Stanley at the beginning of March as the head of real estate credit asset management. This was a hire that was in the works prior to the pandemic, and Dan brings additional senior level talent and extensive experience to our efforts. For the month of April, ARI received 99% of the interest that was expected to be paid from outstanding loans. Beyond the receipt of interest, There are conversations taking place with borrowers and each situation is being handled in a bespoke manner. The underlying properties are predominantly located in major markets throughout the U.S. and Western Europe and our borrowers are sophisticated, well-capitalized institutional investors. Our conversations with borrowers have centered around working with them to determine the best possible situation for them to sustain a period of disruption. Some of the discussions include reallocating lender reserves, deferring interest with a true-up at the end of the loan term, or new sponsor contributions of equity with minimal debt service deferral. With respect to the hospitality and retail loans in our portfolio, which represent the two sectors that were immediately impacted by the dramatic economic shutdown, the situation is incredibly fluid. and each market, sponsor, and underlying asset has been impacted differently. After a thorough review of each loan and underlying asset, including detailed financial analysis, we reported $32 million of impairments against our hotel loans and an additional $20 million impairment against Liberty Center, the retail property in northern Cincinnati. I would also like to provide an update on two pre-development loans. the $183 million Miami Design District loan, and the $154 million Fulton Street loan, both of which have the same sponsor. On the last earnings call, we indicated that the borrower elected not to move forward with the planned development in Miami, and a sales effort with respect to the property was launched in February. The intent and expectation from the sale was to repay our loan as well as deferred interest and fees. Subsequent to the earnings call, a similar situation arose with the Fulton Street property, followed by a subsequent similar planned sales effort. As expected, the sales processes have been impacted by the pandemic, and as such, both loans were moved to non-accrual status, and we have recorded an aggregate $95 million of impairments against these two loans. Finally, with respect to ARI's construction loans and near-term future fundings, We highlighted in the supplemental package that we expect $180 million of net fundings for the remainder of 2020. In addition, at the beginning of May, ARI proactively sold interest in three unlevered first mortgage construction loans totaling approximately $261 million in commitments, $90 million of which had been funded at a weighted average price of 98.9% of par. The sales reduced ARI's construction exposure, generated $88 million of proceeds, and eliminated $173 million of future funding obligation. Before I turn the call over to Jay, I want to take a moment to thank the entire team focused on ARI who have worked tirelessly and have shown immense dedication and determination in unprecedented circumstances. We know the road ahead is going to be challenging and the commitment and fortitude I have seen from the ARI team has made me extremely proud. I, as well as the rest of the management team and our board of directors, remain fully committed to navigating ARI through this volatile environment and we take our responsibility as stewards of your capital extremely seriously and personally as we all stand beside you as stockholders. Due to our durable capital structure and our focus on downside protection in our assets, we believe ARI's business is well positioned to manage the ongoing market disruptions. In addition, ARI will continue to benefit from the tremendous breadth and resources it derives from the Apollo platform, and we will continue to communicate and provide updates as they are warranted. And with that, I will turn the call over to Jay to review our financial results.

Thank you, Stuart. Good morning, everyone. I would like to echo Stuart's sentiment, and I hope that you're all safe and well. For the first quarter of 2020, our operating earnings were 62.7 million, or 40 cents per share. Gap net loss for the quarter was 131.2 million, or 86 cents per share. This net loss reflects 98 cents per share of loan-specific reserves as well as 22 cents per share in general reserves taken in accordance with CECL, which we adopted this quarter. In coming up with the general CECL reserve, we considered various factors, including the historical loss experience in the commercial real estate sector, the timing of expected repayments and future fundings, and our view of the macroeconomic environment. Given the significant uncertainty around this pandemic, which has resulted in a slowdown in new originations and extension of projected maturity dates, the actual reserve we recorded was higher than what we previously reported on our Q4 earnings column. I do want to highlight that none of our debt covenants are impacted by the general CECL reserve. Moving to book value. GAAP book value per share prior to the general CECL reserve was $14.94, as compared to $16.03 at the end of Q4. Since quarter end, we terminated our interest rate swap, which further reduced book value per share by $0.03. As of quarter end, our portfolio is comprised of 75 loans with an amortized cost of $6.4 billion, and the portfolio had a weighted average unlevered yield of 6.7% and a remaining fully extended term of just over three years. Approximately 82% of our U.S. loans have LIBOR floors that are in the money today. And lastly, with respect to our borrowings, we are in compliance with all our covenants and, as Stuart mentioned, continue to maintain strong liquidity. As of today, we have $567 million of cash on hand, $15 million of approved and undrawn credit capacity, and $1.1 billion in unencumbered loan assets. And with that, we'd like to open the line for questions. Please go ahead.

Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Doug Harford with Credit Suisse. Your line is now open.

Thanks. Can you just, Stuart, you talked about the agreement you'd reached with your lenders. Can you just talk about whether that is cash that's, or any cash you have to use there, whether that's reflected in your current liquidity number, if that's still to come?

No, the current liquidity number, which I gave as of May 6th, which was $582 million, consisting of $567 of cash and 15 of undrawn capacity. At this point, Doug, that represents fully providing any additional assets or tasks that we need to to all of the credit providers. So there's nothing expected this time. Obviously, conversations are ongoing, but that number is net of everything we've needed to do with respect to our credit providers up to and current through today.

Great. And just on that agreement, you know, I guess, is there some sort of standstill or what would be kind of the factors that might cause, you know, to need to post additional collateral or cash or pay down debt further?

Yeah, look, at this point, we've chosen not to effectively pay up or use excess cash or assets to buy short-term protection. Our discussions with credit providers are ongoing. It's effectively an asset-by-asset analysis. So while facilities are crossed across portfolios of loans, The determination as to whether there might be a need for any further delevering really is with respect to what may or may not take place at specific assets. So, we, you know, regular dialogue with our relationships, keeping them up to speed on what's going on with various assets and the loans. We're very much on our front foot in conversations with them. And clearly, as I tried to indicate in my comments, we found our relationships with our lenders to be remarkably thoughtful and constructive, and they seem very supportive in the way we're moving through the portfolio at this point in time.

Great. And then just last one from me. If you could just talk about what makes up the $1.1 billion of unencumbered assets that you have.

Yeah, so it's all loans. So just to be very clear, I mentioned the $68 million of securities, which is not financed, but beyond that, everything in unencumbered assets is a loan. The majority of it are mezzanine positions, which are not financed. There's also a few senior loans that to date we have not financed as well, but worth clarifying since you asked the question that everything we described as being unencumbered is a loan. There are not security positions. There are not CLO positions. It's all loan collateral that we believe could be financed if we needed to use it in the future. Thank you. You're welcome. Thanks, Doug.

Thank you. Our next question comes from Rick Shane with J.P. Morgan. Your line is now open.

Hi, guys. Two questions I'll ask. Good morning, and I hope everybody's well. I'm going to ask the first question, and it may take a second to reference, then I'll ask the second question as you guys are potentially looking this up. Footnote 2 on page 19 related to the unencumbered assets references a 1.25X minimum requirement. I'm trying to understand what that is, what this really means. I'm confused by the footnote. And then hopefully the less, you know, Less precise question is, please explain the decision to close out of the swap. What's the benefit of that, and what was the cash gain associated with it?

Sure. So, I'll take them in order. So, the 1.25, if you look at our balance sheet, we've got a term loan be outstanding. It's about $497 million of principal. One of the covenants within the term loan is that we need to cover the term loan at 1.25 times in terms of unencumbered assets, which can be comprised of a fairly broadly defined definition of unencumbered assets, whether they be loan assets, cash, or other assets. So that's what we're referring to when we talk about the 1.25 coverage. With respect to the decision to unwind the swap, obviously rates have moved significantly since we put the swap in place roughly a year ago. We've effectively taken the economic hit through our book value to date. So, from our perspective, sitting here today, It was easier to clean up the swap. It will make earnings cleaner going forward and actually be advantageous to earnings going forward because we'll be paying, you know, the real LIBOR spread as opposed to the swap LIBOR. And from a cash position, there's really no impact relative to the liquidity numbers we provided in my speech and comments. Got it.

Thank you very much. Appreciate it. And, again, I hope everybody's doing well.

Thank you. Thank you. Our next question comes from T. Romani with KBW. Your line is now open. Thanks very much.

I wanted to see if you could provide any color on the percentage of the portfolio that's in gateway cities, and if you're concerned that, in fact, these gateway cities, such as New York and London, may take longer to pack due to delayed openings and higher densities, thereby potentially resulting in higher loan losses in commercial real estate.

Yeah, I think it's a fair question, Jay. To be honest, I don't have an exact percentage for you, but obviously, you know, the percentage is clearly in gateway cities, and obviously, if you go through the supplemental, we do provide the city for every loan, so you can pretty quickly get a sense of where our exposures are. Look, I think it's, you know, I think it's pure conjecture to know what may happen on a go-forward basis in terms of various cities. We, like many others, are trying to figure out what the new work environment looks like. You know, I think it's too early to sort of draw any conclusions on what the longer-term impact might be, but I appreciate the point, appreciate the question, and... you know, happy to post call. We can get more specific on gateway cities. But I think at a high level, just if you look at the supplemental, you'd see roughly, you know, 35% in New York City, 21% in London. So you're already just shy of 60% there. And then, obviously, as you go around the states, there's, you know, there's exposure in Chicago. There's exposure in L.A. There's some exposure in Boston. So, you know, my guess is across the portfolio high level, you're probably – north of 75% in terms of gateway city exposure.

Thanks very much. Turning to hotel exposure, could you convey a sense of what the tone and types of conversations are between ARI and your borrowers? How are they thinking about the value that remains in those properties? How are they evaluating their equity position and their wherewithal as well as their willingness and ability to put equity into those properties, support those properties, and, you know, remain long-term committed to those properties?

Yeah, as I indicated in my comments, every conversation is slightly different, but to give you a general flavor, you know, across our portfolio, I would say that everybody we've spoken to is generally focused and engaged on the assets you know, their near-term focus is, you know, I would say less about what is spot value and more around sort of near-term cash management, debt service management. We've had conversations with borrowers, as I mentioned along the lines, using available reserves to meet near-term debt service payments. As you might imagine, a lot of hotels in conjunction with their brands are sort of delaying or postponing FF&E upgrades, so that provides an opportunity for people to use that cash or capital elsewhere. We've had conversations with folks around some sort of short-term debt service forbearance. Every one of those conversations that we've had have been in the context of both a combination of we as borrower committing to do something, but they as owner slash equity sponsor also willing to do something in the terms of committing additional capital to the asset. So we're clearly people are evidencing the notion that they need to be committed to the assets long term. And I think longer term, you know, we're all sort of hand in hand thinking through value over an extended period of time. I think we will see some activity on some of the hotels. We've had some conversations with folks incoming with respect to certain assets and what they might want to do. And then lastly, while it's not for us to sort of drive the process, certain of the hotel owners have also been exploring the PPP program, which is the government-sponsored program with respect to keeping employees on staff and using government-sponsored capital for payroll protection. We've also had constructive dialogue around that. But I would say generally speaking across the portfolio, you know, I would say the general But VUE has been strong sponsor support, really digging in on the assets, trying to figure out how to manage through this situation because they see value on the back end when we come out of this.

Thank you. Can you give the aggregate balance of loans that are on non-accrual?

Off the top of my head, no, but we can certainly, you know, give you that information after the call. Hillary or Jay can follow up.

And in terms of the 99% of interest payments received in April, or debt service, it says, received in April, how much of that was paid from existing reserves?

Off the top of my head, I would guess the number is 10 to 15%, but we'll have to double-check that.

Okay. Okay. And lastly, could you comment on how you're thinking about the common stock dividends going forward?

Yeah, look, I think, you know, and I know, you know, our competitors and peers have answered this question as well. Look, we certainly recognize the importance of the dividends to our shareholders, and obviously we just paid our first quarter dividend of 40 cents a share just a few weeks ago. I think if you think about our liquidity number, you know, We're certainly in a strong position from that perspective. The dividend policy to date has not changed, but as we've done consistently throughout our existence, you know, we'll review and discuss the Q2 dividend with the board at the beginning of June and make an announcement shortly thereafter. It's always been a quarter-by-quarter decision, but we very much recognize the importance of it to our shareholders, and we'll certainly take that into account when we talk with the board in six weeks or so.

Thank you very much.

Thanks, Dave.

Thank you. Our next question comes from Stephen Walls with Raymond James. Your line is now open.

Good morning. Morning, Stephen. Order worked out well. I want to follow up on Jade's last question. Jade, can you maybe talk a little bit about, you know, these are clearly uncertain times, and there's a lot of nuance even in normal times between GAAP and core and taxable re-income accounting, certainly around loan loss provisions, impairments versus realized loan losses. There's some stuff on securities as well that I don't really think is applicable to your company, but Are there any other issues that you're aware of that we need to consider as we start to think about dividend distribution requirements relative to re-taxable income and how that may or may not differ more from a core earnings metric that we've kind of used as a baseline in the past during a turbulent environment like this?

From our perspective, Stephen – I'll answer, Jay. I think from our perspective, Stephen, and we've said this in the past, look, we've always thought about the dividend in the context of operating earnings. I think I've mentioned this on previous calls, but from a tax position, we're actually – given the transaction we did – with AMTG four years ago now, we still actually have tax protection vis-à-vis taxable income. So everything we've done to date on the dividend has really been driven by operating earnings and not what we are forced to do vis-à-vis tax. And that will continue to be the approach going forward or said differently. operating earnings tends to drive the dividend decision, and we're very well protected vis-a-vis anything we need to do from a tax position. Jay, I'm sorry to cut you off, but if there's anything you want to add to what I just said, feel free. No, that's it.

Well, that's great, Stuart. I appreciate the comments there because, you know, trying to figure out all the moving parts going into these numbers and Switching to the interest. Good luck. I appreciate that. It's a never-ending quest. Switching to the interest you sold, and I apologize if I missed this. It was a little late to the call this morning. But are you looking to do any more of that as a way to reduce these unfunded commitments? If so, how much more of the portfolio would you look at as being possible for something like this? And, you know, are there other people – third parties that would look at that, or is it something you think would continue with Paula?

Yes. Sitting here today, we're not looking to do any more of it. Steven, the near-term focus was really on sort of managing liquidity through the end of 2020, and this is a situation that arose for us. That being said, even though we're not looking to do any of it, I actually think there is a a market for much of what we have, and I do think if needed to or if desirous of doing it at some point in the future, I think we have options in terms of what we choose to do with it. I think, again, what we were able to accomplish with this sale was, again, in some respects speaks to the power of the Apollo platform and the ability for us to take a very broad view of where assets may best fit at a moment in time. But we'll, you know, we'll start thinking more about some of the other future fundings as we move through this year and get a better sense of sort of what the pacing is going to be right now with respect to construction projects, depending on geography. You know, timing is a little uncertain as things are either continuing to move forward or some things are shut down. So we'll think about it more at the end of the year. But no plans right now to sell anything additional.

Great. And lastly, as Paul, and you may have covered this again, apologies if you have, but, you know, coming out of this in a world where it's the leverage that's been the concern, you know, and we'll get through credit, but coming out of this, do you think it's going to be more attractive when you move back to Mez where you get your returns through the investment position as opposed to utilizing balance sheet leverage?

Arguably too early to tell. Look, we've always been somewhat indifferent, as you've heard me say many times before. Ultimately, it's about, you know, where do you want to be in the capital structure and are you getting paid for the underwritten risk that you're taking? I think, look, we're still in the market every day. We're talking to people about things. We have, obviously, a lot of liquidity in capital. There hasn't been much to do. to date. But, you know, I think our general approach at a high level will continue to be somewhat agnostic between seniors or MES, and it really will be very transaction-by-transaction dependent.

Great. Thanks for the comments, Jay and Stuart. Appreciate your time this morning. Take care.

Thanks. Thank you. Our next question comes from Steve Delaney with JMP Securities. Your line is now open.

Good morning, everyone. Great to be on with you this morning. Stuart, it certainly appears it was a timely move to bring Dan Ho on board to add to the team. Could you just give us a little more color on Dan's background and exactly how his role will compare and contrast with that of Scott's? Thanks.

Yeah, look, we were working on bringing someone of Dan's capabilities on board and before this all occurred, which is why he started when he did, because obviously to recruit someone of his capability and talent, um, takes some time. Um, as I mentioned in my comments, he comes out of Morgan Stanley. Um, if you look at his background, um, Dan has experience both on the credit side and on the equity side. Um, so he's really been, you know, in his career very much, um, While spending a lot of time on asset management, he thinks like an investor, which is very much consistent with the Apollo approach. And he was really brought in for two reasons. One is to, you know, at the most micro level, be able to take the lead on various, you know, deal-specific situations that require someone of his, experience and capabilities to work through a situation and figure out where we want to be on the other side of it. And then also given his experience at Morgan Stanley, we've got talented people on the asset management team and we've had and we continue to add to that talent. But I think part of Dan's role is really taking us to the next level in terms of Organization, communication, I think we do it well. We always want to do things better. And I think he's just thought and been part of a big organization that I think will be helpful to us going forward. And then ultimately, the more he can achieve on the asset management side, the more it frees up Scott and some of the other senior members of the team to focus on the offensive side. of what we're doing. It's not to say that myself or Scott won't continue to be deeply involved in asset management issues the way other members of our team are as well. But I think we've just added someone who overall provides a lot of depth and credibility to the team.

Great. That's very helpful. And welcome, Dan. So switching, my follow-up question is on CMBS. That's pretty much a four-letter word for the month of March and early April. But the asset class has made a comeback for various reasons. And given your focus on kind of liquidity, now that that asset class is a little bit de-risked, is it possible that as sort of a placeholder, as you're working through loans and not making new loans, could we see a securities book grow as a way to keep your capital deployed in the months and quarter ahead?

I mean, at a high level, you know, the quick answer is probably not, Steve. We're in the market every day. We see what's going on. I never want to say never because we look at a lot of things. Just being perfectly candid in what we've seen to date, you know, I would say not a lot has popped up on the radar screen that is particularly appealing today. necessarily as we think about ARIs sort of return hurdles and what we're trying to do in terms of risk and reward. That being said, we continue to look at the CMBS market because there's many places within Apollo where things may fit. Look, I think, you know, and I know you've asked this question previously. Look, we continue to think in terms of offense. We obviously have a lot of capital on the balance sheet. We're in the market every day. I would say as of right now, not a lot has popped up that is all that interesting. But ultimately, you know, part of our job is to find things that make sense in order to put our capital to work. So we'll continue to look and see what might appear. But I wouldn't expect a significant shift to CNBS on behalf – on the part of ARI. Got it.

Thanks for the comments, and everyone stay safe and be well.

Thank you, Steve. Thank you. Our next question comes from George Harmonis with Deutsche Bank. Your line is now open.

Hi, good morning, everyone. Thank you for taking my question. Good morning. Hey, Stuart. Sure. So just two follow-up questions. You referenced $95 million of impairments on the Miami properties and on the Fulton Street loans by the same sponsor. Can you just help me understand how you guys arrived at that $95 million number, just kind of thought process that kind of went into getting to the $95 million impairment?

Yeah, I mean, I think the best thing I could do at this point, George, is if you go through the 10Q, we sort of explain in the details of the 10Q what the key inputs were from an analysis perspective, obviously. In any sort of pre-development situation, you need to make assumptions on what is likely to be constructed, what the various rent levels will be for various parts of what is being constructed, and then what you think, you know, terminal value or cap rate value will be on the back end. And I think we've done – the best we could in the 10Q, trying to outline what the key inputs were as we thought through that analysis.

Great. That's helpful. Make sure to take a look at that. Sure. And second follow-up question, Jay had a question around the percentage of rent that was collected via reserves. You said 10% to 15%. Is that reflective of maybe the amount of borrowers who have reached out to asking for some form of relief or loan modifications. Wanted to get a sense for maybe a percentage of the portfolio, a number of borrowers that have reached out since COVID has arrived, asking for some form of relief or engaging in a conversation around the loan modification potentially.

No, I mean, to be fair, when I was answering Jade's question, a lot of what we do, whether it be a pre-development situation or a construction situation, right, you've got interest payments built into sort of the capital structure as well. So that was part of my answer to Jade as well. Maybe he and I were talking past each other, but I was not just referring to, sort of situations that have arisen recently with people asking for, we call it relief to be able to use reserves. I was sort of thinking more broadly in terms of the structure around a lot of our transactions to begin with, if that makes sense. I think, you know, as it pertains to people reaching out, again, tough to give a percentage per se, but obviously, you know, what I tried to indicate in my speech comments was that most of the activity to date, and I'm not saying it won't ebb and flow as we go forward, but most of the activity to date has been with respect to the hotel or retail parts of the portfolio, to give you a sense of sort of as you look at our portfolio, where's the activity taking place.

Sure. That makes sense. Great. Appreciate the additional color this morning, Stuart. Take care.

You got it. Thanks. Thank you. And our next question is a follow-up from Jade Romani with KBW. Your line is now open.

Thanks very much. And in response to the last question, thanks for the clarification, because I do realize that you are funding the structure of heavily transitional loans, including reserves, as part of the initial fundings. In terms of margin calls... The facilities believe you don't have spread marks. Could you confirm that and also provide some insight as to what triggers margin calls? On hotel loans, is it on a trailing 12-month EBITDA basis, debt yield, maintenance, or are there other factors, market indicators of credit impairment that would trigger margin calls?

Yeah, so confirming your first comment, Jade, which is we don't have spread marks. They're credit-based discussions. To be fair, most of the agreements or all of the agreements are fairly opaque with respect to what constitutes a credit event or a credit discussions. To give you a flavor of sort of how those discussions work whether it be a hotel or any other asset. I would say the discussions are far more than just a static backwards looking analysis and a situation like that we're faced with today. I would say the conversations encompass forward looking views of what an asset may or may not be worth given various assumptions on how people think the economy might recover. I would say ultimately borrow behavior factors into it as well and what is the equity sponsor doing or not doing in a particular situation. So it would be disingenuous of me to tell you that there is a specific metric that is focused on. They are really, and not to dodge the question, but to be very candid, depending on the bank, depending on the assets, They are very much sort of individual, customized discussions on every situation.

And are the banks acting similarly across the board, or are there a couple of outliers? I mean, I think RBC, there were some headlines about the way they were behaving. I'm not sure if they're all kind of taking the same posture or if it's highly varied.

No, look, my, you know, the comments in my speech about our lenders being, you know, constructive and thoughtful in our dialogue was meant to encompass, you know, the six counterparties that we deal with. I think they've all been working with us as partners and very much from a relationship perspective. We don't have any exposure to RBC, and I'm not going to, I won't pick on RBC, but I think you and most on this call, I think, recognize that that was do more to a security situation than a loan situation, and that's why we've been very specific in clarifying that what we borrow against are loans, not securities.

Okay. Thanks for that. In terms of repayments, you know, is there some minimal level that is reasonable to project? Obviously, it's taken on a great amount of significance at this point. And are you in talks with borrowers about discounted payoffs?

I'll work backwards. In a few situations, we've had some conversations, less about discounted payoffs, but sort of new equity coming in and asking us as lender to sort of do some things to incent that new equity to come in. Too early to know whether or not any of those will get to the finish line. To date, we have not had anybody, we have not had any discussions that we've taken seriously with someone calling us up and offering to buy their loan from us at a discount. Just to be clear on that side of things. What was the first part of your question, Jay?

Some kind of minimal baseline of repayments.

Repayments, yes. Look, to be very clear from a – as we think about the world right now, we sort of are assuming – Nothing in terms of repayments other than repayments that will come from the sale of for-sale residential units that are already under contract, as at least to date our experience has been across the board that buyers are continuing to close on their contracts, and we have not experienced any situations to date where people have attempted to walk away from a contract or leave their deposit behind. So we've been assuming those will continue to close at a high level between now and the end of the year. That represents, you know, somewhere between $75 and $100 million.

Okay. In terms of the three loan sales to affiliates, the three construction loans, could you provide any – I think you said loan interest. What were those three loans? Would you be able to provide any comment on that?

Yeah, we sold two loans in their entirety, and then we sold a portion of one loan. Of the loans sold, we sold a – For sale residential development in San Francisco, we sold our piece in its entirety. And then the other two loans were office construction loans in the U.K., one we sold in its entirety and one we sold a portion of.

Thanks for taking the questions, and nice speaking with you.

Thanks, Dave. Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll now like to turn the call back over to Stuart Rothstein for any closing remarks.

We are all set, Operator. Thank you, and thank you for those of you that participated this morning.