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Apollo Commercial Real Estate Finance (NYSE:ARI)

Q1 2014 Earnings Call

April 30, 2014 10:00 am ET

Executives

Stuart A. Rothstein - Chief Executive Officer, President and Director

Megan B. Gaul - Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Scott Weiner - Chief Investment Officer

Analysts

Daniel K. Altscher - FBR Capital Markets & Co., Research Division

Unidentified Analyst

Joel Jerome Houck - Wells Fargo Securities, LLC, Research Division

Richard B. Shane - JP Morgan Chase & Co, Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Apollo Commercial Real Estate Finance Inc. First 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, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake any obligation to update our forward-looking statements or projections, unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloreit.com or call us at (212) 515-3200.

At this time, I'd like to turn the call over to the company's Chief Executive Officer, Stuart Rothstein.

Stuart A. Rothstein

Thank you, operator. Good morning, and thank you for joining us on the Apollo Commercial Real Estate Finance First Quarter Earnings Call. 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.

Not surprisingly, given the modest, but continued recovery in the overall economy, and the continued low interest rate environment, the commercial real estate market has had a healthy start in 2014.

U.S. commercial real estate transaction volume reached $61 billion in the first quarter, which was a 61% increase over the same period a year ago, and on a global basis, transaction volume topped $130 billion, a 23% increase over Q1 2013.

Operating fundamentals have continued to improve with occupancies and rents continuing to rise. Further supporting the recovery in operating fundamentals is the relative lack of development across most property types and markets.

The derth of development is a trend that has been ongoing for approximately 10 years, and the lack of new supply combined with the strong fund flows into this sector continues to be a powerful factor supporting underlying asset values.

Given that ARI has now been public for approximately 5 years, it is worth commenting on where the CRE financing market stands today, versus when the company first came public.

Clearly, the market has recovered and in most respects there is a fully functioning commercial real estate finance market. While not at the peaks we saw in 2006, 2007, the CMBS market has continued to recover and most expect volume to top $100 billion this year.

In addition, insurance companies, money center banks, as well as newly created REITs and other private finance companies are all actively looking to grow their commercial real estate debt books of business. As a result, there is clearly more competition today than in 2009, and owners and acquirers of assets are benefiting from lower rates and more aggressive leverage levels.

From ARI's perspective, the fiercest competition witnessed is for conduit eligible loans, a market in which the company has never participated. There is also increased competition in the market for senior and junior mezzanine loans, which we fully expected would occur at this point in the recovery cycle, but, to date, we will generally describe the competition as rational.

It is also worth noting that, as of yet, we still have not seen a significant proliferation of commercial real estate CDOs in the mezzanine space. We monitor this closely, as these types of vehicles were very instrumental in the mispricing of risk and the over leveraging of assets that contributed to the 2006, 2007 bubbles in commercial real estate financing.

At ARI, the focus, first and foremost, is to compete based on the broad commercial real estate finance platform we have built at Apollo. That platform has created best-in-class relationships with brokers, senior lenders, and borrowers and has cemented a reputation for being a reliable counter party that is highly thoughtful around underwriting, pricing and structuring.

The success of the platform is evidenced by the over $7 billion of transactions Apollo has completed for ARI and other non-overlapping vehicles since 2009.

At present, ARI's global pipeline is robust and, in all cases, the investments being pursued remain consistent with the company's credit first philosophy. This approach is evidenced by the 3 transactions totaling $240 million that ARI has completed to date in 2014, which included $80 million whole loan for the construction of condominiums in Bethesda, Maryland, a $106 million first mortgage secured by a geographically diverse portfolio of 229 single-family and condominium vacation homes, and a $54 million mezzanine loan for the acquisition of an existing commercial building in London that is expected to be redeveloped into residential condominiums.

Each of these bespoke transactions was with strong sponsors and is expected to provide ARI with an attractive risk adjusted return.

As I just mentioned, one of ARI's initial transactions, this year, represented the company's first investment in Western Europe. Over the past year, Apollo has completed over $500 million of commercial real estate debt transactions in the United Kingdom, and this mezzanine loan was presented to the company through an existing Apollo client.

We are cautiously optimistic about our ability to find additional transactions for ARI in Europe. And to support that effort, we are adding commercial real estate debt focused investment professionals to Apollo's existing team of real estate equity investment professionals located in London.

In addition, as many of our co-origination partners in the United States are active in Western Europe, we are aggressively pursuing those relationships to source transactions through their origination channels.

Finally, ARI's investment in KBC Bank Deutschland is on track for closing in the second half of 2014, pending final regulatory approval. And we expect this investment also will be beneficial in the efforts to expand ARI's European commercial real estate lending business.

Rounding out ARI's investment activity year-to-date, the company deployed approximately $25 million of equity into a $123 million of legacy CMBS formerly rated AAA. ARI financed the balance of it's purchase using a new $100 million term repurchase facility.

As we have demonstrated previously, from time to time we do identify CMBS strategies in which we believe the risk is not being adequately priced. Coupling the ability to identify these assets with our ability to source and structure matched term financing, we are able to execute on these strategies, which we believe will generate attractive risk-adjusted returns for ARI. The newly purchased CMBS have been underwritten to generate an IRR of approximately 17%.

In general, we are extremely pleased with ARI's progress year-to-date, and we continue to see ample opportunities in our core businesses.

At this point, I would like to turn the call over to Megan to review our financial performance.

Megan B. Gaul

Thank you, 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 first quarter of 2014, we announced operating earnings of $14 million or $0.37 per share as compared to $12 million or $0.39 per share for 2013. Net income available to common stockholders for the first quarter 2014 were $15.7 million or $0.42 per share as compared to $10.1 million or $0.33 per share for 2013.

A reconciliation of operating earnings and operating earnings per share to GAAP net income and GAAP net income per share can be found in our earnings release contained in the Investor Relations section of our website, www.apolloreit.com.

Turning our attention to our portfolio, as of March 31, the amortized cost of ARI's investments totaled $844 million. The portfolio has a levered weighted average underwritten IRR of 14.1%, and a weighted average duration of 3.2 years.

Importantly, due to proactive asset management, the credit quality of our loan portfolio remains stable.

GAAP book values per share at March 31, was $16.21, which was a slight increase from $16.18 at December 31. As a reminder, we do not mark our loans to market for financial statement purposes, and currently estimate that there is another $0.10 per share value when the loans are mark-to-market, and estimate our market value per share to be $16.31 at March 31.

With respect to repayments, in the first quarter we received a $15 million principal repayments from mezzanine loans secured in New York City. The company realized a 14% IRR on this investment. To fund our recent investment activity during the first quarter of 2014, the company completed a $144 million offering of 5.5% convertible senior notes, which have a 5-year term.

We were very pleased with the price finance -- attractively priced offering as we believe it demonstrated ARI's ability to access diverse capital sources. As we grow our business, we continue to explore several strategies to more effectively leverage to fund new investments, while maintaining relatively low overall leverage.

At March 31, our debt to common equity ratio was 0.5 to 1, and our fixed charge coverage was 5.1. During the quarter, we also amended our repurchases facility with Wells Fargo. For a term of 1 year, we extended it for a term of 1 year and lowered the pricing to LIBOR plus 80 from LIBOR plus 105.

We believe our business model remains favorable in this interest rate environment and are confident ARI is well-positioned if interest rates rise.

In addition to the minimal use of leverage, 54% of our loan portfolio had floating interest rates at March 31.

Finally, as indicated in our press release, the Board of Directors announced a common share dividend for the second quarter of $0.40 per share. This is the 16th consecutive quarter of $0.40 based on yesterday's closing price, ARI's stock offers an attractive 9.4% yield.

And with that, we'd like to open the lines for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our First question comes from Dan Altscher of FBR.

Daniel K. Altscher - FBR Capital Markets & Co., Research Division

I was wondering if we could talk a little bit about Europe. Can you talk to me a little bit -- if you can probably get with the sponsor you worked with on this deal or on your future transactions that you're looking at. Who do you think the sponsors are going to be? Because it certainly feels like there is an increased, I guess, private equity presence in the space or maybe some opportunistic hedge funds or like, but it doesn't seem like the sponsors on that side are really going to be the banks or maybe the insurance companies?

Stuart A. Rothstein

Sure. Well I think it depends on how you define sponsor, we generally define sponsor as the borrower, so on...

Daniel K. Altscher - FBR Capital Markets & Co., Research Division

I'm sorry, I said sponsor, I meant partner, I apologize.

Stuart A. Rothstein

Okay, sure. I mean, I think the sponsorships on this one was a large international developer, Stuart mentioned, had recently done another large transaction in London which we financed. It was at really a new relationship that has developed with that previous financing. And I think, it will be borrowers and people like that, as well as, opportunity funds who we do a lot of business with here in the states and other folks, other institutional owners of real estate. I also think there is opportunities to buy existing portfolios and partnership with other parts of Apollo. For example, we have a very large business in Europe that buys sub- and nonperforming commercial real estate loans. But as far as those portfolios are generally more performing loans. And so we could buy those loans with leverage and get to our returns. As far as kind of partnering or co-origination, all the deals we've done to date in Europe, which are substantial, I mean we have, I think in excess of $500 million of mezz in the U.K. with some more deals in closing. All those deals we have partnered with large banks where we have a very good relationship here in states which expanded over to Europe. So I think that will be kind of -- if we talk about co-origination, it would be similar to model here we're working with banks, who are either looking at loans for their balance sheet or for their -- or for securitization. The deal that we just announced actually was with a European Bank, who -- the firm had a very good relationship with -- we have not transacted with them in the states, they are a European Bank. But it was -- we knew the sponsor and then we had a relationship with that bank. So it was a nice deal, and we think we can do a lot more with this European Bank now that we have done our first deal with them.

Daniel K. Altscher - FBR Capital Markets & Co., Research Division

Maybe just switching gears also to the CMBS drive. I understand this is maybe a little bit more opportunistic, or whenever the market feels like they are not recognizing value. So I guess, how do you define that in terms of IRR potential, I mean, obviously this is 17%, is that kind of the hurdle rate? Or is it just kind of a feel where spreads are wider, and it just feels like everyone does not want to be in another market. How do you quantitatively and qualitatively view the opportunity there?

Stuart A. Rothstein

I mean, like for ARI or other accounts, we are in the CMBS market everyday, we manage anywhere from $2 billion to $3 billion worth of bonds depending on how we are invested at any one point of time. Some on a un-levered basis, some on a fully levered basis. For ARI, broadly speaking, on a pure IRR basis, we're certainly looking for things that are in a -- call it low- to mid-teens return basis, but clearly that's not the only factor we consider. We do a fairly detailed loan by loan analysis when we're looking at bonds, and certainly factor in the perceived risk when we are considering making an investment. But I think, ARI gets the benefit of a dedicated CMBS team that's in the market everyday. And we have the ability when we see what appear to be bonds that meet the return hurdles from ARI's perspective, to do the deep underwriting that's required. I think the other thing that is -- maybe somewhat underappreciated, but every time we have done a leverage CMBS transaction for ARI, we've done it in such a way that we matched up term financing. So unlike those in the resi mortgage REIT space or others, we're not generating the leverage returns by using 30-day repo. We are being fairly thoughtful about the weighted average duration of the bonds, and then using our relationships with various bank lenders to structure term repo that approximates that weighted average duration of the bonds, which we think is very important in taking some of the volatility out of the trades that we make on behalf of ARI.

Scott Weiner

To Stuart's last point, it's not a trading strategy, we obviously, we actively manage and monitor the bonds, if there is an issue, we can sell them. When we show the IRR, I mean this is based on holding it through our expected repayment, which for these bonds is 3 to 4 years. And as Stuart said, we have financing to take us through that period, actually even with some cushion. So it's -- what we also like about it was a high IRR, but it's also a longer duration deal. And as Stuart mentioned, with the financing also comes hedging, so we're buying fixed rate bonds, and then normally repo is floating-rate, but we hedge that. And so we will also take out of the mark-to-market equation general interest rate movements. So it's really just the spread in the underlying bonds. And obviously as those get shorter that spread volatility continues to decrease.

Daniel K. Altscher - FBR Capital Markets & Co., Research Division

And are you looking at just the super seniors, or are you kind of looking at maybe the juniors or the mezz or the AAA stack?

Scott Weiner

We look at really all of them in different vintages. As Stuart said these were all formerly rated AAA. I mean, we look at those -- we have historically done AAs, those are very short, which were the most super senior, we have our levered AM strategy on, and then we also pursue the leverage AJ strategy. This one is the combination of AJs and AMs if we can find one that works for our yield.

Operator

Our next question comes from Jade Rahmani of KBW.

Unknown Analyst

This is actually Brine Comisol [ph] on for Jade. Talking about deal flow, seems like a lot of the recent originations have been first mortgages, and I know you were talking about seeing a pick up in competition on the mezz side. So is that -- is that what has been driving these increased originations in the first mortgages side? And do you think you will continue to look towards these types of first mortgages or do you plan to remain on the mezz space?

Scott Weiner

I think, this is Scott. I mean, I think, we're going to continue with what we have been doing. So where we can find interesting transactions with good risk-adjusted deals we will do them. So back in '09, we did a whole bunch of first mortgages, that makes 8%, 9%. Then we have done mezz and CMBS. And I think, if we looked at the pipeline, quite honestly, it's a combination. When we have a hotel that's an acquisition and when we're doing a first mortgage, we have a hotel, well we're doing a V-note, both are cash flowing. We have another for sale project that we're working that will be a whole loan. So it's just really varies. Some of the first mortgages work on a levered deal basis. Generally the ones you're changing use, whether joining the for sale area, and we have other first mortgages, where we would use one of our leverage facilities to get the yield up.

Stuart A. Rothstein

Again, we closed 3 loans year-to-date, the pipeline's fairly robust, but I wouldn't draw any conclusions about any shift in strategy or shift in available deals just based on the small sample size in the first couple of months of the year.

Unidentified Analyst

And then on the yield side, where have you seen loan yields trending year-to-date, particularly post quarter end? Are you seeing spread compression on the first mortgage side?

Scott Weiner

Yes. I'm not sure its quarter end or daily, and I think and the journal had an article about it this morning, you can read about it on Bloomberg, commercial real estate is certainly a favored asset class. And I think there is multiple types of deals. So I think if you're -- and Stuart alluded to it, I think if you're looking at "stabilized cash-linked properties", you can do launch and fixed rate with any of 40 condo lenders that are out there right now. If you want to maximize leverage, and call that the mid 4s. If you want to be an insurance company and maybe take a little of that leverage following a low 4s or even sub-4. And there is a huge floating-rate market. You can do banks that LIBOR 150. The larger banks are all growing, or you can do CMBS, if it's a little more leverage or maybe hospitality. And then when you go more to transitional loans, you ask for rates to advertise from other mortgage REIT debt bonds. We have spent some time in that space, I won't say we are certainly not the most active in that space, empty office buildings and things like that, on a drilling area that we focused on. And then obviously, there is more kind of redevelopment construction stuff. So overall, as Stuart said, fully functioning market. Leverage is certainly back, which allows, I would say, the yields on the empty office building loans to come down, as people can put leverage on those. Overall, people are finding commercial real estate to be an attractive asset class and good relative value versus other classes, such as high yields and bank loans.

Unidentified Analyst

And then shifting gears, last thing on one last thing. On the German bank deal, how should we think about the economic impacts of that on the income statement? Will you be using the equity method to book earnings, and will that trigger re-taxable income or will it end up depending on the type of revenue that you ultimately recognize?

Megan B. Gaul

Yes, we will be using the equity method, but it will be based on a fair value of the bank each quarter. So we're picking our percentage of that fair value. And the taxable income, there will be taxable income to the extent we receive distributions. So not related to that fair value adjustment.

Unidentified Analyst

And so with the fair value, you will be booking gains on the income statement?

Megan B. Gaul

Yes. Unrealized gains and losses, as the fair value...

Stuart A. Rothstein

As the fair value in the investment changes, and then to the extent that we receive distribution. If it is distributions from earnings that will drive taxable income. But you're receiving cash, commensurate with what you receive. To the extent you are receiving distributions that are not earnings, it's treated as a return to capital for tax purposes.

Unidentified Analyst

And do you expect at least initially operating losses?

Stuart A. Rothstein

No.

Operator

Our next question comes from Joel Houck of Wells Fargo.

Joel Jerome Houck - Wells Fargo Securities, LLC, Research Division

Just wanted to focus a bit on ARI's liquidity position given you put out -- or funded $160 million after the quarter, obviously had a lot of cash at the end of March from the convert. Can you maybe just walk us through the pro forma liquidity position given the subsequent investments, and how you think capital deployment plays out the balance of this year?

Stuart A. Rothstein

The balance of this year is sort of a question in terms of pipeline, and how much we ultimately find that we want to do. Putting that aside for a minute in light of what we have just done. We do have the ability to finance some of what has just closed, which probably gives us $50 million to $60 million of capacity. So to speak to the extent we finance what we have just done. And there is the potential that we will get some partial repayments back on a couple of things that we have done, which would be another call it $10 million to $15 million. So let's say they are somewhere between $60 million to $70 million of liquidity available just sitting here today. And obviously, how long that lasts, or what the plan is for that liquidity ultimately is dependent on what we see in the pipeline, and what we think we can close, as I commented earlier, the pipeline feels pretty robust right now. We're obviously somewhat sensitive to wanting to time the need for capital with the deployment of capital. And what we may do beyond the liquidity I just described is really somewhat dependent on mix of assets, and some other things we're working on that might allow us to add a little bit more leverage to the company.

Operator

Our next question comes from Charles Carlson [ph] of Barclays.

Unknown Analyst

I'm filling in for Ross, today. Just a couple of quick ones, since mine mostly were already asked. Just piggybacking on the last one, you have already done well over $200 million that you had marked in the pipeline for May. Can you kind of tease out a little bit more on what's in the pipeline now in terms of what sort of financing you're looking for that? Whether it's another convert or possibly during a corporate level revolver, just trying to see -- to get some more details on those?

Stuart A. Rothstein

I think from the debt side of our balance sheet, we continue to think in terms of, when we did first mortgages, there is ample asset level financing available either through our existing JPMorgan facility or an expansion of that facility or similar type facility. In terms of -- to the extent our pipeline is more focused on, call it mezz or the pref-equity or V note type of transactions, we have not used asset specific leverage against those deals. We've done obviously one perpetual preferred, we've done the convertible preferred. We've had discussions around corporate revolver, sort of using the borrowing base of everything that's not financed on an asset specific basis. And I would say, to date, the execution in the convertible preferred market, such as we did earlier this year was more attractive. That being said, we're still having some fairly active discussions on opening up some additional leverage opportunities for the company.

Unknown Analyst

Okay, that's helpful. And then just one last quick here on the competition side. I know you said that there is more coming into the mezz side. What does that look like you would say over the next 3 years or so as banks and other financial institutions become a little bit more spread out and such in lending? Where does that go for you in terms of, how you end out? Essentially what I'm asking is that -- what does the competition look like in 3 years I should say?

Stuart A. Rothstein

I'm not sure if any of us have a perfect crystal ball. I think in my earlier comments, clearly, we expected competition, even before we went public. There were a number of private vehicles, mostly in fund format that were active players in the mezzanine space, and we certainly expect that to continue, and obviously now we have got more public vehicles in the space. To me, I think, when I make the comment that competition, right now, is rational. I think it's rational in the sense that by and large the capital that we're competing with is still trying to earn nominal returns similar to what we're trying to earn for ARI. And nobody, in a meaningful way, is overusing leverage to generate the returns we're trying to get. My comment earlier on the proliferation of commercial real estate CDOs in 2006, 2007 being a major part of the problem. It's something we monitor closely, because if you look at what happened in that timeframe, people got very comfortable with the notion of taking risk that used to earn 10%, 11%, 12%, 13% nominally, and all of a sudden pricing it at L plus 300 and 400 because they could generate returns using 3 or 4 terms of leverage through a commercial real estate CDO. I know there's been a few right now that have been done. They have been more on transitional loans, they have been more on bridges to dust to [ph] Sandy or Freddy takeouts, and I would be very happy not to see those type of vehicles come back in a meaningful way. I'm not sure I'm smart enough to know what it's going look like 3, 4, 5 years from now. But I think, to date there is clearly competition on any given deal. There might be someone who is willing to go a little wider on proceeds, or a little tighter on spread, or move a little bit more in terms of deal terms. But we never entered the business expecting there wouldn't be competition. So at least, right now, I think it's a fully functioning market, I think there is capital available. But given the relationships we have got, and given our ability to move quickly, we feel pretty confident about our ability to compete in this environment.

Operator

Our next question comes from Richard Shane of JPMorgan.

Richard B. Shane - JP Morgan Chase & Co, Research Division

I have had my name changed this morning. Any ways my questions were related to the residential deal you guys did this quarter. Just like to get a little bit of sense of, I'm assuming this is working with some of the players out there that are buying equity in homes, in distressed situations or in turnover situations. And you're providing financing there. If you could just sort of verify that? The second is that you talked about syndicating a portion of this, which is basically half of this transaction. Is there any income that we should anticipate related to the syndication as we're thinking about second quarter numbers?

Scott Weiner

Sure. This is Scott. To answer your question, this is not the single-family for rent business. This is actually a luxury destination club company that has been around. So these are single-family home and condos at prime, resort and CDD destinations around the world. Multimillion dollar properties, where you pay a corporate membership, kind of initiation fee if you will, and then you pay a per diem when you go and stay at these properties. They are somewhat clustered at different resorts or other type of destinations whether it would be down in Sea Island, Georgia or Hawaii, or other kind of vacation destinations, as well as kind of major cities, where people would vacation.

Richard B. Shane - JP Morgan Chase & Co, Research Division

That explains some of the geography that is throwing us off in terms of...

Stuart A. Rothstein

So from our perspective, Apollo's perspective, it was somewhat of an idiosyncratic loan, it was a large loan, it didn't necessarily fit nicely into one kind of particular bucket, whether it be CMBS, didn't really work for the bank loan market. We looked at it as a very attractive risk rewards, given first mortgages. We also have a corporate guarantee from the parent who has other assets. And then it was from a size perspective it was too big for ARI, while we will lever it, we do look at the total exposure. And so we felt that $100 million plus or minus was the right size. And so there is other kind of entities of Apollo that also, given what the return was on the asset, like it. So we just did, a power to the pursuer participations. Everyone is equal, so there is no scraping if you will or other income. We own our piece, we can finance our piece, et cetera.

Operator

Our next question comes from Jade Rahmani of KBW.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

I just wanted to ask on the dividend. If you could discuss your current thinking. I think in the past you have said, when fully levered you would achieve core earnings of $0.40. I wanted to see if you could provide any thoughts on when you think that takes place? Also, do you think the dividend was spent at a time where yields in the market were generally higher? And then, currently and so could one adjustment and I would note that since book value has modestly declined due to the payment of the dividend. The ROE hurdle that you need to achieve on incremental investments has modestly increased actually. I wanted to get your thoughts on that.

Stuart A. Rothstein

So, I think, let me see if I can cover all that. I think in terms of the dividend when we sit down with the board and review the quarterly dividend and get approval for the quarterly dividend, ultimately, while the analysis is a quarterly analysis, it's also an annual analysis. So you can infer from our keeping the dividend at $0.40 for this quarter that expectation on a full year basis for this year, given the numbers we are looking at right now, given what we expect to do from an investment perspective, both in terms of volumes and the returns we expect to achieve. We are feeling comfortable at $0.40 a quarter, but more importantly feeling comfortable $1.60 on an annual basis. So that really was what drove the dividend. In terms of returns that are achievable and what that means for the dividend level is something we talk about on a fairly regular basis. I think if you look at the capital we put out both last year as well as the early part of this year, the returns we're achieving are as good if not better than what we have done previously. So despite the returns on, again, conduit-eligible first mortgages coming in pretty noticeably. We have still been able in the asset classes that we focus on to generate the returns that we think are necessary to pay the dividend or earn the dividend that we're currently paying and still feel positive about that. Obviously, it's something we will continue to look at as the market evolves. I think the real challenge on the dividend over the last few quarters hasn't been one of achievable return, it's really been one of capital efficiency and just some drag in between identifying deals, getting deals closed and managing the risk of never being in a situation where we've signed up a deal and then not being able to close that day, which would be far more damaging to our business long-term. And it's a risk we can't have happen. So I would say right now, Jade, I think we still see a lot of interesting things to do at expected returns that would support the business and financial model as it exists today. And as -- my guess is you and I might have this conversation again in future quarters. But I look to the dividend of $0.40 that we this quarter and that is in many respects predicated on what we believe is achievable for the full year, this year, which is called a $1.60 if not a little better.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

On the originations quarter to date, I apologize if you already said this. But did you say, how much was actually closed versus funded so far in the quarter? The number you gave funded?

Stuart A. Rothstein

Both of the 2 deals we announced were fully funded at close.

Scott Weiner

As were the CMBS that we invested.

Operator

Thank you, and at this time I'm not showing any further questions. I would like to turn the call back to management for any closing comments.

Stuart A. Rothstein

Thanks, everybody, for participating this quarter, and we will talk to you again next quarter. Thanks, operator.

Operator

Thank you, sir. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a wonderful day.

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