Apollo Commercial Real Estate Finance Inc (ARI) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the ARI third-quarter 2014 earnings conference call. (Operator Instructions). I would 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 would 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 would 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 declining 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.

US 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 close, 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 1.2 times 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, these 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 for yield oriented products will impact the trading in ARI's stock. But it is important to remember that the improving economy is generally beneficial for the collateral underlying ARI's mezzanine and forced 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.

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 nine 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 nine months ended September 30, 2014 was $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 in 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% at face. The notes are an additional issuance of and form a single series with the Company's convertible senior notes that were issued in March 2014.

In addition during the quarter and subsequent to quarter end, we expanded 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 which J.P. Morgan which expires early next year.

It is important to note that as we have extended 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 KDC 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.

With that we would like to open the line for questions. Operator?

(Operator Instructions). Jade Rahmani, KBW.

Thank you very much for taking the questions. Stuart, I was wondering if you could comment on the competitive outlook on the loans that you are looking to originate and whether you are seeing any spread widening or increasing loan yields in the last month or so and if you view this as an opportunity?

Scott has been working on a couple of deals so I will let Scott comment on that.

I would say and we talked about this in the past, I mean what ARI is focusing on is not the most liquid, tradable instruments where you are seeing CMBS spreads move in and out a few basis points. I mean what is going to impact the yield is what we are doing is I would say kind of a risk on or risk off herd mentality and also leverage being available in the system and that is really 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 in the market is really 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 the CMBS spreads widen. We have certainly seen mezzanine spreads for kind of more senior mezzanine lower yielding stuff widen. I would say the stuff for ARI that we are focusing on, us and others looking at it are still targeting the same general absolute returns whether that is on a levered or unlevered basis so it has been pretty consistent. And I would say we are 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.

And can you just tell us where yields on transitional first mortgages and also the junior mezzanine pieces that you are targeting are around right now?

Sure. I would say and like I think within the scope of what we call transitional there is a lot. There is everything from an office building that needs lease up where obviously some of our peers focus on that and I think that is kind of in a 350 to 450 over LIBOR range and you can use leverage or repo to get that up into double digits.

Then there are assets like we focused on in New York for instance where it is an existing building and maybe the highest and best use is not what it currently is, maybe it is an office building that down the road will get converted into something else, things like that. That is at least 100 basis points back of that, that might be 100, 200 basis points back. So that might be 500, 600 plus over LIBOR.

And then obviously there is the full on conversion where you are taking some element of construction risk where you are actually funding the changing of the existing building and that is obviously a higher yield.

With respect to mezzanine, we are still seeing mezzanine opportunities with double-digit yields, 1000, 1100 over LIBOR type investments.

Okay. And Stuart mentioned you are working on a couple of deals. What do you think is reasonable to expect for loan originations this quarter?

I mean it is always tough because it is lumpy quarter over quarter, Jade. I think what we've got -- the pipeline is pretty strong but we also know we are 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 there will be a little bit lower on a net basis but I think as we looked out Q4 and Q1 of next year, the pipeline feels pretty good.

Great. Lastly, can you comment on current investment capacity and how you would approach issuing capital?

Yes, look, I think first and foremost in sort of the standard disclaimer that we have 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 are certainly not going to sell likely below book value on a net basis and certainly we are treading right around book value today.

From a leverage perspective, I think there is the ability to lever the Company a little bit more than where it stands today. Our J.P. Morgan facility which has been our primary facility to lever our first mortgages and senior positions matures early next year and we are 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 five years ago, there is a lot more options in terms of what we could do to structure a facility that gives us more flexibility in terms of financing what we do.

So as we looked out over the next few quarters given what is coming back, given what is 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 of quarters.

Great. Thank you very much.

Steve DeLaney, JMP Securities.

Good morning everyone and congratulations on the record quarterly earnings. 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 mezzanine loan with that unlevered, that is $4 million a year, about $0.08 annually, $0.02 a quarter. These are number I know you guys already have -- 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 is an expectation for dividends coming in and once those cash dividends are received, I am assuming that is when we would have a revenue event for modeling purposes. Thanks.

Yes, Steve, so from a return expectation perspective, this was the REIT participating in a call it a group that bought the bank expecting private equity like returns and you could 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 two 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 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 distributions, 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, more of that capital will go toward 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 is 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 are going to do at the bank as well as sort of real-time information on what is going on across the continent in general.

That is very helpful. Can I just -- can you clarify one thing, has this bank gone from being a public entity to now a private entity and is down the road is there any possibility or thought, is one of the options in the plan that it may be taken out public again? What I've got I'm thinking about, Stuart, is kind of this trade that Colony Capital made in the first Republic deal is kind of a proxy.

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

Okay, thanks. 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 is 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 give you some backup funding beyond Deutsche Bank for the CMBS? Thanks.

The Deutsche -- that is already funded so we already have the money so to the extent there is distress at Deutsche, that doesn't impact us. I mean it is match funded as we have always done with our CMBS, we don't borrow one month, reborrow one day -- repo. This is longer-term. We have a great relationship with Deutsche Bank and they gave us very attractive terms. There were others that are wanting to do that.

Right now we are happy with the investment that we made and to the extent we find additional opportunities we can talk to Deutsche about increasing the facilities or there are others that are willing to do it. And going back what you were talking about before with Stuart on the repo, I would actually expect us to have more than just J.P. Morgan to finance our first mortgages. J.P. Morgan has been great but again, there are plenty of guys out there and everyone has a little bit of a different bias or focus on what they like financing. But for now the availability of financing is there and we are having multiple conversations. As Megan mentioned, we are in discussions with J.P. Morgan about redoing the facility but we receive multiple other term sheets from others and so.

Steve, one also important point to note, when we are doing the CMBS we are buying bonds with three, four, five years of duration and putting in repo with similar duration. So I think it is 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. This is sort of I will call it a pared trade where the bonds have been bought, the financing is in place and now we are just holding the investment and at no point over the next four years do we need to find a replacement repo provider. So it is a little different than what takes place in the residential space.

I really appreciate that color because I was not focused on the extent to which you had this as committed term non-callable type of funds. Thank you both for the comments and again good quarter.

Joel Houck, Wells Fargo.

Thanks and good morning. A question more philosophical I guess in terms of your exposure to CMBS. A couple of weeks ago we saw some dislocation in the market which 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 spread widening, is there a -- how much threshold or 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 will live with the intraquarter volatility? I am not suggesting we are going to see that but I am just more interested in how you guys think about it?

Look, I would say overall we certainly look at relative value and where we can get attractive returns and for us -- and also duration. 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 the match funding we just talked about and generating teen returns where we view as very manageable risk. I think what we saw over the past few months of the volatility is that what we are buying held in very well because it is short and very high yielding. I think you saw a lot of spread movement in the longer dated 10-year type paper. When you are buying two-, three-year paper, that has kind of high face coupons. We certainly didn't see as much and also remember we are 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 of accounting works is that there is impact on the GAAP book value as the CMBS moves but overall just given the return of the duration we find it very attractive and if the market is there for continued CMBS investments, we will certainly look at it.

Just to put things in perspective, Joel, obviously when we went public in 2009, I think TALF was a sort of unique opportunity to 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 of the cents in the world. I think over the last couple of years we have 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 are 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 tactical and opportunistic when it comes to CMBS.

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

That is good color, guys. And then just one last one and it's the second quarter in a row where your operating EPS has exceeded the dividend. 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. How much should we read into potential increase in the dividend or not?

It has only taken two quarters to people to worry about whether we are 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 is nothing from a taxable income perspective that is forcing us to need to do anything with respect to the dividend right now. 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.

All right. Thank you very much.

(Operator Instructions). Dan Altscher, FBR Capital Markets.

Thanks. Good morning, everyone. I appreciate you taking my call. Stuart, I am going to maybe push you back in a box a little bit more on the amendment to the J.P. Morgan facility when you mentioned that maybe some increasing options or flexibility. Are you referring to more ability to increase the facility in size or opening up to maybe more of a borrowing base or maybe even to the sub level as opposed to the first mortgages? Can you just give us a little bit more color in there on what you mean of expanding options?

Yes, I think to go back five 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 are around -- the facility in 2009 contemplated first mortgages with 60% LTVs and call it 11-+% debt yield so very secure loans, modest leverage and attractive spread but certainly nothing that was earth shattering.

I think where the market has come in the last five years as we think about our business and as Scott and I talk about and I will let him comment in a minute, we are 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 are going to do things in Europe, it would be nice to have some GDP borrowings as opposed to all USD.

Look, I think we will get just based on the relationship with J.P. Morgan or whoever else we choose to borrow from call it best in class spreads but what we are 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 advanced rates and then flexibility in terms of the ability to do maybe multiple currencies.

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 book first mortgage assets kind of a longer dated match term funding or maybe we will 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.

Yes. No, that is very consistent I think with generally the style is not financing the subs so that is fine, that is good.

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 is not to say that you have to but I still get the sense that Europe is still a pretty big opportunity whether it is 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 referenced earlier might be focused towards Europe?

I think first of all, the interest is there. In addition to doing the bank deal we have moved one of our senior folks from New York over to London and then have hired underneath him so there is clearly a desire to be more active in the region. I think a general comment about Europe is the economies broadly in the various countries and markets are certainly a little bit more volatile and a little bit more uncertainty than what we see here in the US right now. So I think our approach will be thoughtful and I don't want to say it will be cautious but we are certainly going to be thoughtful about our underwriting and I think by moving folks over there have put ourselves in a position to be active over there. But there is no preconceived notion that we need to do X amount in the US 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 is a view that over the next few years we will be more active in Europe but I think it will be lumpy on a quarter-to-quarter basis.

Okay, no, that is 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 were there any changes of yield or terms with the CMBS versus the whole loan?

Effectively it is like match term funding. So we sold it in order just to own the junior piece to increase our yield.

There is Aruba structuring REIT is why the junior and senior had to be in the same CMBS transaction but the terms of the loan did not change at all.

Okay, but okay, so there was an issue though that required them both to be in kind up the same structure?

Yes.

Yes, but in terms of our rationale for doing that, the rationale was always how many dollars you need in Aruba and what is the yield and just like how we look at all of 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 in the deal that we wanted was to work with a bank that we are 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 of a rate bond. But again, all our rights and controls and security are the same. It just worked out that way. It is easier than putting it on a J.P. Morgan repo and in this way, it was match funding effectively.

And then that little slug of the junior participation, that is part of a bigger CMBS deal, it wasn't like a single borrower or single asset deal, it is just a tranche within a bigger transaction?

No, what it was, the bank contributed that loan along with other loans to a multi-borrower 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 and our security so we are not impacted by that. But it was not done as a single asset single borrower deal.

Okay. That is great. That is really helpful. Thanks so much.

Jade Rahmani, KBW.

Thanks for taking the questions. Just a couple of short follow-ups. One is your LTV, which I think is the weighted average of 58%. Given the composition of the loan portfolio, can you discuss what is in the LTV calculation if it is based on pro forma sellout values in the case of condos for example or some other metric?

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 our view of net sellout value.

Or by the appraisal (multiple speakers) and brokerages.

So 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 of our loans or the future fundings, your loan is going to be going up and so that cost goes up and so the way we look at it is like as Stuart mentioned, loans in that (inaudible) obviously updated ad 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.

Okay. Then just two quick modeling ones. Just if you could say what you think prepayments could be in the next quarter or two if there is any specific loans you are expecting to come back? And also if there is 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 first mortgage space. So I think you could surmise that the five-year first mortgages that we did that are coming due in the next few months that our 8%, 9% that those borrowers are very excited to be repaying us.

And then I would say away from that, there were loans that we did that have near-term maturities which are going to get paid off and then lastly as you mentioned, some of our earlier condo deals are starting to close.

And then can you quantify the magnitude?

In terms of repayments? I mean it is a little bit lumpy because some of what we are 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 will go back to my earlier sort of commentary that I think in terms -- from an investment basis, I think we will put out $150 million to $200 million short of on a net basis for the quarter.

I was going to say those earlier deals we were able to very attractively lever them so the actual equity that we are 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 it.

Okay. And just lastly on the stock compensation, is there a 4Q pickup?

There is not a pickup. I'm not sure I follow the question specifically.

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 is going to happen on the fourth quarter that is going to impact profit.

Okay. Great. Thanks.

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

Thank you operator and thanks for everybody for participating.

Thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.