ARI-2013.6.30-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________ 
FORM 10-Q
__________________________________ 
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2013
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                    
Commission File Number: 001-34452
__________________________________ 
Apollo Commercial Real Estate Finance, Inc.
(Exact name of registrant as specified in its charter)
__________________________________ 
Maryland
 
27-0467113
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
Apollo Commercial Real Estate Finance, Inc.
c/o Apollo Global Management, LLC
9 West 57th Street, 43rd Floor,
New York, New York 10019
(Address of registrant’s principal executive offices)
(212) 515–3200
(Registrant’s telephone number, including area code)
__________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer 
 
¨
  
Accelerated filer
 
x
 
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller Reporting Company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
As of August 1, 2013, there were 36,883,467 shares, par value $0.01, of the registrant’s common stock issued and outstanding.
 

Table of Contents

Table of Contents
 
 
Page
 
 

2
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Part I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands—except share and per share data)
 
June 30, 2013
 
December 31, 2012
Assets:
 
 
 
Cash
$
156,797

 
$
108,619

Securities available-for-sale, at estimated fair value
52,909

 
67,079

Securities, at estimated fair value
184,208

 
211,809

Commercial mortgage loans, held for investment
143,492

 
142,921

Subordinate loans, held for investment
354,865

 
246,246

Repurchase agreements, held for investment
—

 
6,598

Interest receivable
4,830

 
4,277

Deferred financing costs, net
1,018

 
678

Other assets
—

 
203

Total Assets
$
898,119

 
$
788,430

Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Borrowings under repurchase agreements
$
191,312

 
$
225,158

Derivative instruments, net
25

 
155

Accounts payable and accrued expenses
1,367

 
1,265

Payable to related party
2,600

 
2,037

Dividends payable
16,821

 
12,891

Total Liabilities
212,125

 
241,506

Commitments and Contingencies (see Note 13)

 

Stockholders’ Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized and 3,450,000 shares issued and outstanding in 2013 and 2012
35

 
35

Common stock, $0.01 par value, 450,000,000 shares authorized, 36,880,410 and 28,044,106 shares issued and outstanding in 2013 and 2012, respectively
369

 
280

Additional paid-in-capital
695,572

 
546,065

Retained earnings (accumulated deficit)
(9,320
)
 
574

Accumulated other comprehensive loss
(662
)
 
(30
)
Total Stockholders’ Equity
685,994

 
546,924

Total Liabilities and Stockholders’ Equity
$
898,119

 
$
788,430


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands—except share and per share data)
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Net interest income:
 
 
 
 
 
 
 
Interest income from securities
$
3,014

 
$
3,230

 
$
6,101

 
$
8,552

Interest income from commercial mortgage loans
3,676

 
2,791

 
7,268

 
5,026

Interest income from subordinate loans
11,498

 
5,859

 
22,953

 
11,172

Interest income from repurchase agreements
—

 
2,000

 
2

 
3,559

Interest expense
(955
)
 
(1,929
)
 
(2,024
)
 
(5,171
)
Net interest income
17,233

 
11,951

 
34,300


23,138

Operating expenses:
 
 
 
 
 
 
 
General and administrative expenses (includes $428 and $1,311 of equity based compensation in 2013 and $886 and $1,969 in 2012, respectively)
(1,437
)
 
(2,762
)
 
(3,333
)
 
(4,798
)
Management fees to related party
(2,600
)
 
(1,292
)
 
(4,759
)
 
(2,581
)
Total operating expenses
(4,037
)
 
(4,054
)
 
(8,092
)

(7,379
)
Interest income from cash balances
16

 
—

 
16

 
1

Realized gain on sale of securities
—

 
—

 
—

 
262

Unrealized gain (loss) on securities
(1,421
)
 
2,078

 
(2,500
)
 
3,463

Loss on derivative instruments (includes $57 and $130 of unrealized gains in 2013 and $192 and $188 of unrealized gains in 2012, respectively)
(2
)
 
(65
)
 
(3
)
 
(482
)
Net income
11,789

 
9,910

 
23,721


19,003

Preferred dividends
(1,860
)
 
—

 
(3,720
)
 
—

Net income available to common stockholders
$
9,929

 
$
9,910

 
$
20,001

 
$
19,003

Basic and diluted net income per share of common stock
$
0.27

 
$
0.47

 
$
0.59

 
$
0.91

Basic and diluted weighted average shares of common stock outstanding
37,373,885

 
20,991,450

 
33,946,329

 
20,978,938

Dividend declared per share of common stock
$
0.40

 
$
0.40

 
$
0.80

 
$
0.80



See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
(in thousands)
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income available to common stockholders
$
9,929

 
$
9,910

 
$
20,001

 
$
19,003

Change in net unrealized gain (loss) on securities available-for-sale
(474
)
 
593

 
(632
)
 
412

Comprehensive income
$
9,455

 
$
10,503

 
$
19,369

 
$
19,415



See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)
(in thousands—except share data)
 
Preferred Stock
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
(Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Income
 
 
 
Shares
 
Par
 
Shares
 
Par
 
 
 
 
Total
Balance at January 1, 2013
3,450,000

 
$
35

 
28,044,106

 
$
280

  
$
546,065

 
$
574

 
$
(30
)
 
$
546,924

Capital increase related to Equity Incentive Plan
—

 
—

 
—

 
—

  
1,311

 
—

 
—

 
1,311

Issuance of restricted common stock
—

 
—

 
31,304

 
*

 
—

 
—

 
—

 
—

Issuance of common stock
—

 
—

 
8,805,000

 
89

  
148,715

 
—

 
—

 
148,804

Offering costs
—

 
—

 
—

 
—

  
(519
)
 
—

 
—

 
(519
)
Net income
—

 
—

 
—

 
—

  
—

 
23,721

 
—

 
23,721

Change in net unrealized gain on securities available-for-sale
—

 
—

 
—

 
—

  
—

 
—

 
(632
)
 
(632
)
Dividends on common stock
—

 
—

 
—

 
—

  
—

 
(29,895
)
 
—

 
(29,895
)
Dividends on preferred stock
—

 
—

 
—

 
—

  
—

 
(3,720
)
 
—

 
(3,720
)
Balance at June 30, 2013
3,450,000

 
$
35

 
36,880,410

 
$
369

  
$
695,572

 
$
(9,320
)
 
$
(662
)
 
$
685,994


*
Rounds to zero.


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
 
Six months ended June 30, 2013
 
Six months ended June 30, 2012
Cash flows provided by operating activities:
 
 
 
Net income
$
23,721

 
$
19,003

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Premium amortization and (discount accretion), net
(1,995
)
 
1,597

Amortization of deferred financing costs
415

 
1,132

Equity-based compensation
1,311

 
1,969

Unrealized (gain) loss on securities
2,500

 
(3,463
)
Unrealized gain on derivative instruments
(130
)
 
(188
)
Realized gain on sale of security
—

 
(262
)
Changes in operating assets and liabilities:
 
 
 
Accrued interest receivable, less purchased interest
(3,474
)
 
(4,220
)
Other assets
203

 
7

Accounts payable and accrued expenses
110

 
(148
)
Payable to related party
563

 
(4
)
Net cash provided by operating activities
23,224

 
15,423

Cash flows used in investing activities:
 
 
 
Proceeds from sale of securities available-for-sale
—

 
121,338

Proceeds from sale of securities at estimated fair value
—

 
16,918

Fees received from commercial mortgage loans
280

 
—

Funding of securities at estimated fair value
—

 
(70,676
)
Funding of commercial mortgage loans
—

 
(17,883
)
Funding of subordinate loans
(174,190
)
 
(29,833
)
Principal payments received on securities available-for-sale
13,267

 
55,905

Principal payments received on securities at estimated fair value
25,415

 
78,203

Principal payments received on commercial mortgage loans
813

 
24,363

Principal payments received on subordinate loans
68,779

 
18

Principal payments received on repurchase agreements
6,598

 
5,744

Net cash provided by (used in) investing activities
(59,038
)
 
184,097

Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
148,804

 
—

Payment of offering costs
(776
)
 
(281
)
Repayments of TALF borrowings
—

 
(251,327
)
Proceeds from repurchase agreement borrowings
—

 
313,860

Repayments of repurchase agreement borrowings
(33,846
)
 
(253,864
)
Deferred financing costs
(505
)
 
(751
)
Dividends on common stock
(25,965
)
 
(16,766
)
Dividends on preferred stock
(3,720
)
 
—

Net cash provided by (used in) financing activities
83,992

 
(209,129
)
Net increase (decrease) in cash and cash equivalents
48,178

 
(9,609
)
Cash and cash equivalents, beginning of period
108,619

 
21,568

Cash and cash equivalents, end of period
$
156,797

 
$
11,959

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
916

 
$
4,409

Supplemental disclosure of non-cash financing activities:
 
 
 
Dividend declared, not yet paid
$
16,821

 
$
8,726

Deferred financing costs, not yet paid
$
250

 
$
—

Offering costs payable
$
47

 
$
—


See notes to unaudited condensed consolidated financial statements.
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Apollo Commercial Real Estate Finance Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands—except share and per share data)
Note 1 – Organization
Apollo Commercial Real Estate Finance, Inc. (together with its consolidated subsidiaries, is referred to throughout this report as the “Company,” “ARI,” “we,” “us” and “our”) is a real estate investment trust (“REIT”) that primarily originates, acquires, invests in and manages performing commercial first mortgage loans, commercial mortgage-backed securities (“CMBS”), subordinate financings and other commercial real estate-related debt investments in the United States. These asset classes are referred to as the Company’s target assets.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany amounts have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s most significant estimates include the fair value of financial instruments and loan loss reserve. Actual results could differ from those estimates.
These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been included.
The Company currently operates in one business segment.
Recent Accounting Pronouncements
In January 2013, the Financial Accounting Standards Board (the “FASB”) issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (Topic 210), Balance Sheet. The update addresses implementation issues about ASU 2011-11 and applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. The guidance is effective January 1, 2013 and is to be applied retrospectively. This guidance does not amend when the Company currently offsets its derivative positions. As a result, the update did not have a material impact on the Company’s consolidated financial statements.
In February 2013, the FASB issued an update which includes amendments that require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income ("OCI") on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other required disclosures that provide additional detail about those amounts. The new requirement presents information on amounts reclassified out of accumulated OCI and their corresponding effect on net income in one place or in some cases, provides for cross-references to related footnote disclosures. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. As the amendments are limited to disclosure only, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In June 2013, the FASB issued guidance to change the assessment of whether an entity is an investment company by developing a new two-tiered approach that requires an entity to possess certain fundamental characteristics while allowing judgment in assessing certain typical characteristics. The fundamental characteristics that an investment company is required to have include the following: (1) it obtains funds from one or more investors and provides the investor(s) with investment management services; (2) it commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income or both; and (3) it does not obtain returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests. The typical characteristics of an investment company that an entity should consider before concluding whether it is an investment company include the following: (1) it has

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more than one investment; (2) it has more than one investor; (3) it has investors that are not related parties of the parent or the investment manager; (4) it has ownership interests in the form of equity or partnership interests; and (5) it manages substantially all of its investments on a fair value basis. The new approach requires an entity to assess all of the characteristics of an investment company and consider its purpose and design to determine whether it is an investment company. The guidance includes disclosure requirements about an entity's status as an investment company and financial support provided or contractually required to be provided by an investment company to its investees. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. Earlier application is prohibited. The ASU prohibits REITs from qualifying for investment company accounting under ASC 946, as such, we have determined that we will not meet the definition of an investment company under this ASU when adopted.
Note 3 – Fair Value Disclosure
GAAP establishes a hierarchy of valuation techniques based on observable inputs utilized in measuring financial instruments at fair values. Market based or observable inputs are the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level I — Quoted prices in active markets for identical assets or liabilities.
Level II — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used.
While the Company anticipates that its valuation methods will be appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The Company will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.
The estimated fair value of the CMBS portfolio is determined by reference to market prices provided by certain dealers who make a market in these financial instruments. Broker quotes are only indicative of fair value and may not necessarily represent what the Company would receive in an actual trade for the applicable instrument. Management performs additional analysis on prices received based on broker quotes to validate the prices and adjustments are made as deemed necessary by management to capture current market information. The estimated fair values of the Company’s securities are based on observable market parameters and are classified as Level II in the fair value hierarchy.
The estimated fair values of the Company’s derivative instruments are determined using a discounted cash flow analysis on the expected cash flows of each derivative. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected cash flows are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The Company’s derivative instruments are classified as Level II in the fair value hierarchy.
The following table summarizes the levels in the fair value hierarchy into which the Company’s financial instruments were categorized as of June 30, 2013:
 
 
Fair Value as of June 30, 2013
 
Level I
 
Level II
 
Level III
 
Total
AAA-rated CMBS (Available-for-Sale)
$
—

 
$
52,909

 
$
—

 
$
52,909

AAA-rated CMBS (Fair Value Option)
—

 
112,264

 
—

 
112,264

CMBS – Hilton (Fair Value Option)
—

 
71,944

 
—

 
71,944

Interest rate swaps
—

 
(25
)
 
—

 
(25
)
Interest rate caps
—

 
—

 
—

 
—

Total
$
—

 
$
237,092

 
$
—

 
$
237,092


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The following table summarizes the levels in the fair value hierarchy into which the Company’s financial instruments were categorized as of December 31, 2012:
 
 
Fair Value as of December 31, 2012
 
Level I
 
Level II
 
Level III
 
Total
AAA-rated CMBS (Available-for-Sale)
$
—

 
$
67,079

 
$
—

 
$
67,079

AAA-rated CMBS (Fair Value Option)
—

 
138,248

 
—

 
138,248

CMBS – Hilton (Fair Value Option)
—

 
73,561

 
—

 
73,561

Interest rate swaps
—

 
(156
)
 
—

 
(156
)
Interest rate caps
—

 
1

 
—

 
1

Total
$
—

 
$
278,733

 
$
—

 
$
278,733

Note 4 – Debt Securities
At June 30, 2013, the Company had CMBS with an aggregate face value of $234,660, which were pledged to secure borrowings under the Company’s master repurchase agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) (the “Wells Facility”). This was comprised of AAA-rated CMBS with an aggregate face value of $163,162 and CMBS with a face amount of $71,498, for which the obligors are certain special purpose entities formed in 2010 to hold substantially all of the assets of Hilton Worldwide, Inc. (the “Hilton CMBS”). The Hilton CMBS has a current interest rate of one-month London InterBank Offered Rate (“LIBOR”)+2.30%, which increases to LIBOR+3.30% on November 12, 2013 and LIBOR+3.80% on November 12, 2014. The Hilton CMBS receives principal repayments according to a schedule that is approximately equivalent to a 16-year amortization schedule and has a yield of 5.6%.
The amortized cost and estimated fair value of the Company’s debt securities at June 30, 2013 are summarized as follows:
 
Security Description
Face
Amount
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Estimated
Fair
Value
CMBS – AAA-rated (Available-for-Sale)
$
52,142

 
$
53,571

 
$
16

 
$
(678
)
 
$
52,909

CMBS – AAA-rated (Fair Value Option)
111,020

 
111,982

 
672

 
(390
)
 
112,264

CMBS – Hilton (Fair Value Option)
71,498

 
69,521

 
2,423

 
—

 
71,944

Total
$
234,660

 
$
235,074

 
$
3,111

 
$
(1,068
)
 
$
237,117

The gross unrealized loss related to the available-for-sale securities results from the fair value of the securities falling below the amortized cost basis. These unrealized losses are primarily the result of market factors other than credit impairment and the Company believes the carrying value of the securities are fully recoverable over their expected holding period. Management does not intend to sell or expect to be forced to sell the securities prior to the Company recovering the amortized cost. Additionally, all unrealized losses on securities available-for-sale at June 30, 2013 have existed for less than twelve months. As such, management does not believe any of the securities are other than temporarily impaired.
The amortized cost and estimated fair value of the Company’s debt securities at December 31, 2012 are summarized as follows:
 
Security Description
Face
Amount
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Estimated
Fair
Value
CMBS – AAA-rated (Available-for-Sale)
$
65,410

 
$
67,109

 
$
249

 
$
(279
)
 
$
67,079

CMBS – AAA-rated (Fair Value Option)
134,694

 
136,354

 
2,061

 
(167
)
 
138,248

CMBS – Hilton (Fair Value Option)
73,239

 
70,250

 
3,311

 
—

 
73,561

Total
$
273,343

 
$
273,713

 
$
5,621

 
$
(446
)
 
$
278,888

The overall statistics for the Company’s AAA-rated CMBS investments calculated on a weighted average basis assuming no early prepayments or defaults as of June 30, 2013 and December 31, 2012 are as follows:
 

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June 30, 2013
 
December 31, 2012
Credit Ratings *
AAA

 
AAA

Coupon
5.6
%
 
5.6
%
Yield
4.6
%
 
4.1
%
Weighted Average Life
1.8 years

 
1.8 years

 
*
Ratings per Fitch Ratings, Moody’s Investors Service or Standard & Poor’s.
The percentage vintage, property type and location of the collateral securing the Company’s AAA-rated CMBS investments calculated on a weighted average basis as of June 30, 2013 and December 31, 2012 are as follows:
 
Vintage
June 30, 2013
 
December 31, 2012
2006
—
%
 
1
%
2007
100

 
99

Total
100
%
 
100
%
 
Property Type
June 30, 2013
 
December 31, 2012
Office
41.0
%
 
40.5
%
Retail
22.7

 
23.2

Multifamily
12.2

 
12.9

Hotel
10.8

 
10.5

Other *
13.3

 
12.9

Total
100
%
 
100
%
 *    No other individual category comprises more than 10% of the total.
 
Location
June 30, 2013
 
December 31, 2012
Middle Atlantic
22.8
%
 
21.4
%
South Atlantic
22.2

 
21.8

Pacific
22.0

 
23.8

Other *
33.0

 
33.0

Total
100
%
 
100
%
 *    No other individual category comprises more than 10% of the total.
Note 5 – Commercial Mortgage Loans
The Company’s commercial mortgage loan portfolio was comprised of the following at June 30, 2013:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
 
Property Size
Hotel - NY, NY
Jan-10
 
Feb-15
 
$
32,000

 
$
31,443

 
$
31,443

 
Fixed

 
151 rooms
Office Condo (Headquarters) - NY, NY
Feb-10
 
Feb-15
 
28,000

 
27,293

 
27,293

 
Fixed

 
73,419 sq. ft.
Hotel - Silver Spring, MD
Mar-10
 
Apr-15
 
26,000

 
25,111

 
24,888

 
Fixed

 
263 rooms
Mixed Use – South Boston, MA (1)
Apr-12
 
Dec-13
 
23,844

 
16,890

 
15,215

 
Floating

 
20 acres
Condo Conversion – NY, NY (2)
Dec-12
 
Jan-15
 
45,000

 
45,000

 
44,653

 
Floating

 
119,000 sq. ft.
Total/Weighted Average
 
 
 
 
$
154,844

 
$
145,737

 
$
143,492

 
7.84
%
 
 
 
(1)
This loan is a senior sub-participation interest in a $120,000 first mortgage. In December 2012, the borrower exercised a one-year extension option subject upon repayment of $33,000 of the entire first mortgage (of which the Company received its pro rata portion) and the payment of a fee on the outstanding balance of the entire first mortgage.
(2)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee for each extension.

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During March 2013, the Company consented to the transfer of the controlling ownership of the borrower under the Silver Spring, Maryland loan. In conjunction with its consent, the Company received a $280 fee, which will be recognized over the remaining life of the loan.
The Company’s commercial mortgage loan portfolio was comprised of the following at December 31, 2012:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
 
Property Size
Hotel - NY, NY
Jan-10
 
Feb-15
 
$
32,000

 
$
31,571

 
$
31,571

 
Fixed

 
151 rooms
Office Condo (Headquarters) - NY, NY
Feb-10
 
Feb-15
 
28,000

 
27,419

 
27,419

 
Fixed

 
73,419 sq. ft.
Hotel - Silver Spring, MD
Mar-10
 
Apr-15
 
26,000

 
25,273

 
25,273

 
Fixed

 
263 rooms
Mixed Use – South Boston, MA (1)
Apr-12
 
Dec-13
 
23,844

 
17,287

 
14,105

 
Floating

 
20 acres
Condo Conversion – NY, NY (2)
Dec-12
 
Jan-15
 
45,000

 
45,000

 
44,553

 
Fixed

 
119,000 sq. ft.
Total/Weighted Average
 
 
 
 
$
154,844

 
$
146,550

 
$
142,921

 
7.82
%
 
 
 
(1)
This loan is a senior sub-participation interest in a $120,000 first mortgage. In December 2012, the borrower exercised a one-year extension option subject upon repayment of $33,000 of the entire first mortgage (of which the Company received its pro rata portion) and the payment of a fee on the outstanding balance of the entire first mortgage
(2)
This loan includes two one-year extension options subject to certain conditions and the payment of a fee for each extension.
The Company evaluates its loans for possible impairment on a quarterly basis. The Company regularly evaluates the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan by loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations are sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of any loan guarantors as well as the borrower’s competency in managing and operating the properties. In addition, the Company considers the overall economic environment, real estate sector and geographic sub-market in which the borrower operates. Such loan loss analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, and capitalization and discount rates, (ii) site inspections and (iii) current credit spreads and discussions with market participants. An allowance for loan loss is established when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. The Company has determined that an allowance for loan losses was not necessary at June 30, 2013 and December 31, 2012.

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Note 6 – Subordinate Loans
The Company’s subordinate loan portfolio was comprised of the following at June 30, 2013:
 
Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
Office - Michigan
May-10
 
Jun-20
 
$
9,000

 
$
8,888

 
$
8,888

 
Fixed

Ski Resort - California
Apr-11
 
May-17
 
40,000

 
40,000

 
39,843

 
Fixed

Hotel Portfolio – New York (1)
Aug-11
 
July-13
 
25,000

 
25,000

 
25,000

 
Floating

Retail Center – Virginia (2)
Oct-11
 
Oct-14
 
25,000

 
23,606

 
23,606

 
Fixed

Hotel– New York (3)
Jan-12
 
Feb-14
 
15,000

 
15,000

 
15,106

 
Fixed

Mixed Use – North Carolina
Jul-12
 
Jul-22
 
6,525

 
6,525

 
6,525

 
Fixed

Office Complex - Missouri
Sept-12
 
Oct-22
 
10,000

 
9,914

 
9,914

 
Fixed

Hotel Portfolio – Various (4)
Nov-12
 
Nov-15
 
50,000

 
49,516

 
49,377

 
Floating

Condo Conversion – NY, NY (5)
Dec-12
 
Jan-15
 
350

 
350

 
—

 
Floating

Condo Construction – NY, NY (6)
Jan-13
 
Jul-17
 
56,099

 
58,699

 
58,132

 
Fixed

Multifamily Conversion – NY, NY (7)
Jan-13
 
Dec-14
 
18,000

 
18,000

 
17,864

 
Floating

Hotel Portfolio – Rochester, MN
Jan-13
 
Feb-18
 
25,000

 
24,904

 
24,904

 
Fixed

Warehouse Portfolio - Various
May-13
 
May-23
 
32,000

 
32,000

 
32,000

 
Fixed

Multifamily Conversion – NY, NY (8)
May-13
 
Jun-14
 
44,000

 
44,000

 
43,706

 
Floating

Total/Weighted Average
 
 
 
 
$
355,974

 
$
356,402

 
$
354,865

 
12.23
%
 
(1)
Includes three one-year extension options subject to certain conditions and the payment of a fee for the fourth and fifth year extensions.
(2)
Includes two one-year extension options subject to certain conditions.
(3)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(4)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(5)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension. As of June 30, 2013, the Company had $34,650 of unfunded loan commitments related to this loan.
(6)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee. As of June 30, 2013, the Company had $3,901 of unfunded loan commitments related to this loan.
(7)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(8)
Includes a three-month extension option subject to certain conditions and the payment of an extension fee.
In February 2013, the Company received principal repayment on two mezzanine loans totaling $50,000 secured by a portfolio of retail shopping centers located throughout the United States. In connection with the repayment, the Company received a yield maintenance payment totaling $2,500. With the yield maintenance payment, the Company realized a 15% internal rate of return (“IRR”) on its mezzanine loan investment. For a description of how the IRR is calculated, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition and Results of Operations – Investments”.
In June 2013, the Company received the repayment of a $15,000 mezzanine loan secured by a hotel in New York City. In connection with the repayment, the Company received a yield maintenance payment totaling $1,233. With the yield maintenance payment, the Company realized a 19% internal rate of return (“IRR”) on its mezzanine loan investment. For a description of how the IRR is calculated, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition and Results of Operations – Investments”.
The Company’s subordinate loan portfolio was comprised of the following at December 31, 2012:
 

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Table of Contents

Description
Date of
Investment
 
Maturity
Date
 
Original
Face
Amount
 
Current
Face
Amount
 
Carrying
Value
 
Coupon
Senior Mezz - Retail - Various
Dec-09
 
Dec-19
 
$
30,000

 
$
30,000

 
$
30,000

 
Fixed

Junior Mezz - Retail - Various
Dec-09
 
Dec-19
 
20,000

 
20,000

 
20,000

 
Fixed

Office - Michigan
May-10
 
Jun-20
 
9,000

 
8,912

 
8,912

 
Fixed

Ski Resort - California
Apr-11
 
May-17
 
40,000

 
40,000

 
39,831

 
Fixed

Hotel Portfolio – New York (1)
Aug-11
 
July-13
 
25,000

 
25,000

 
25,000

 
Floating

Retail Center – Virginia (2)
Oct-11
 
Oct-14
 
25,000

 
26,243

 
26,243

 
Fixed

Hotel– New York (3)
Jan-12
 
Feb-14
 
15,000

 
15,000

 
15,013

 
Fixed

Hotel– New York (4)
Mar-12
 
Mar-14
 
15,000

 
15,000

 
15,000

 
Floating

Mixed Use – North Carolina
Jul-12
 
Jul-22
 
6,525

 
6,525

 
6,525

 
Fixed

Office Complex - Missouri
Sept-12
 
Oct-22
 
10,000

 
9,979

 
9,979

 
Fixed

Hotel Portfolio - Various (5)
Nov-12
 
Nov-15
 
50,000

 
49,950

 
49,743

 
Floating

Condo Conversion – NY, NY (6)
Dec-12
 
Jan-15
 
350

 
350

 
—

 
Floating

Total/Weighted Average
 
 
 
 
$
245,875

 
$
246,959

 
$
246,246

 
12.46
%
(1)
Includes three one-year extension options subject to certain conditions and the payment of a fee for the fourth and fifth year extensions.
(2)
Includes two one-year extension options subject to certain conditions.
(3)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(4)
Includes two one-year extension options subject to certain conditions and the payment of a fee for the second extension.
(5)
Includes a one-year extension option subject to certain conditions and the payment of an extension fee.
(6)
Includes two one-year extension options subject to certain conditions and the payment of a fee for each extension. As of December 31, 2012, the Company had $34,650 of unfunded loan commitments related to this loan.
The Company evaluates its loans for possible impairment on a quarterly basis. See “Note 5 – Commercial Mortgage Loans” for a summary of the metrics reviewed. The Company has determined that an allowance for loan loss was not necessary at June 30, 2013 and December 31, 2012.
Note 7 – Repurchase Agreement
During 2011, the Company funded a $47,439 investment structured in the form of a repurchase facility secured by a Class A-2 collateralized debt obligation (“CDO”) bond. The $47,439 of borrowings provided under the facility financed the purchase of a CDO bond with an aggregate face amount of $68,726, representing an advance rate of 69% on the CDO bond’s face amount. The CDO was comprised of 58 senior and subordinate commercial real estate debt positions and commercial real estate securities with the majority of the debt and securities underlying the CDO being first mortgages.
The repurchase facility had an interest rate of 13.0% (10.0% current pay with a 3.0% accrual) on amounts outstanding and had an initial term of 18 months with three six-month extensions options available to the borrower. Any principal repayments that occurred prior to the 21st month were subject to a make-whole provision at the full 13.0% interest rate.
In January 2013, the repurchase agreement was repaid in full. Upon the repayment, the Company realized a 17% IRR on its investment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Conditions and Results of Operations—Investments” for a discussion of IRR.
Note 8 – Borrowings
At June 30, 2013 and December 31, 2012, the Company had borrowings outstanding under the Company’s master repurchase agreement entered into with JPMorgan Chase Bank, N.A. (“JPMorgan”) (the “JPMorgan Facility”) and the Wells Facility. At June 30, 2013 and December 31, 2012, the Company’s borrowings had the following debt balances, weighted average maturities and interest rates:
 

14
Table of Contents

 
June 30, 2013
 
December 31, 2012
 
 
 
Debt
Balance
 
Weighted
Average
Remaining
Maturity
 
Weighted
Average
Rate
 
Debt
Balance
 
Weighted
Average
Remaining
Maturity
 
Weighted
Average
Rate
 
 
Wells Facility borrowings
$
191,309

 
1.1 years
* 
1.4
%
 
$
225,155

 
1.1 years
* 
1.8
%
 
** 
JPMorgan Facility borrowings
3

 
1.6 years
* 
2.7
%
 
3

 
0.0 years
  
2.7
%
 
L+250
Total borrowings
$
191,312

 
1.1 years
  
1.4
%
 
$
225,158

 
1.1 years
  
1.8
%
 
 
 
*
Assumes extension options on the Wells Facility and JPMorgan Facility are exercised.
**
At December 31, 2012, borrowings outstanding under the Wells Facility bore interest at LIBOR plus 125 basis points, 150 basis points or 235 basis points depending on the collateral pledged. At June 30, 2013, borrowings outstanding under the Wells Facility bore interest at LIBOR plus 105 basis points or 175 basis points depending on the collateral pledged.

At June 30, 2013, the Company’s borrowings had the following remaining maturities:
 
 
Less than
1 year
 
1 to 3
years
 
3 to 5
years
 
More than
5 years
 
Total
Wells Facility borrowings*
$
146,401

 
$
44,908

 
$
—

 
$
—

 
$
191,309

JPMorgan Facility borrowings
—

 
3

 
—

 
—

 
3

Total
$
146,401

 
$
44,911

 
$
—

 
$
—

 
$
191,312

 
*
Assumes extension options on the Wells Facility with respect to the Hilton CMBS are exercised.
At June 30, 2013, the Company’s collateralized financings were comprised of borrowings outstanding under the JPMorgan Facility and the Wells Facility. The table below summarizes the outstanding balances at June 30, 2013, as well as the maximum and average balances for the six months ended June 30, 2013.
 
 
 
 
Six months ended June 30, 2013
 
June 30, 2013
 
Maximum Month-End
Balance
 
Average Month-End
Balance
Wells Facility borrowings
$
191,309

 
$
225,156

 
$
210,288

JPMorgan Facility borrowings
3

 
3

 
3

Total
$
191,312

 
 
 
 
In February 2013, the Company, through two of the Company’s subsidiaries, entered into a Second Amended and Restated Master Repurchase Agreement (the “Amended JPMorgan Master Repurchase Agreement”) with JPMorgan. The Amended JPMorgan Master Repurchase Agreement extended the maturity date of the JPMorgan Facility to January 31, 2014, with an option to further extend the maturity date for 364 days, subject to the Company’s satisfaction of certain customary conditions. The interest rate on the JPMorgan Facility is LIBOR+2.5%. The Company paid JPMorgan an upfront structuring fee of 0.50% of the facility amount for the first year of the term and, if the 364-day extension option is exercised, it will be required to pay an extension fee of 0.25% of the facility amount. The Company has agreed to provide a guarantee of the obligations of its borrower subsidiaries under the Amended JPMorgan Master Repurchase Agreement.
In February 2013, the Company amended the Wells Facility to reduce the interest rate as follows: (i) with respect to the outstanding borrowings used to provide financing for the AAA-rated CMBS, the interest rate was reduced to LIBOR+1.05% from LIBOR+1.25%-1.50% (depending on the collateral pledged); and (ii) with respect to the outstanding borrowings used to provide financing for the Hilton CMBS, the interest rate was reduced to LIBOR+1.75% from LIBOR+2.35%. In addition, the maturity date of the Wells Facility with respect to the outstanding borrowings used to provide financing for the AAA-rated CMBS was extended to March 2014 and the Maximum Amount (as defined in the Wells Facility) was reduced to the outstanding balance of $212,343. The portion available to finance the Hilton CMBS matures in November 2014 and may be extended for an additional year upon the payment of an extension fee equal to 0.50% on the then aggregate outstanding repurchase price for all such assets.
The Company’s repurchase agreements are subject to certain financial covenants and the Company was in compliance with these covenants at June 30, 2013 and December 31, 2012.


15
Table of Contents

Note 9 – Derivative Instruments
The Company uses interest rate swaps and caps to manage exposure to variable cash flows on portions of its borrowings under repurchase agreements. The Company’s repurchase agreements bear interest at a LIBOR-based variable rate and increases in LIBOR could negatively impact earnings. Interest rate swap and cap agreements allow the Company to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure.
The Company entered into interest rate swaps and forward-starting caps in an effort to economically hedge a portion of its floating-rate interest payments due under the Wells Facility as well as potential extensions of the collateral securing the Wells Facility borrowings. The Company’s derivative instruments consist of the following at June 30, 2013 and December 31, 2012:
 
 
 
 
June 30, 2013
 
December 31, 2012
 
Balance Sheet Location
 
Notional
Value
 
Estimated
Fair Value
 
Notional
Value
 
Estimated
Fair Value
Interest rate swaps
Derivative instruments
 
$
63,365

  
$
(25
)
 
$
80,881

  
$
(156
)
Interest rate caps
Derivative instruments
 
105,635

* 
—

 
203,248

* 
1

Total derivative instruments
 
 
 
 
$
(25
)
 
 
 
$
(155
)
 
*
Represents the notional values at June 30, 2013 and December 31, 2012, but does not include forward-starting notionals.
The Company has an agreement with its derivative counterparty that contains a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
The following table summarizes the amounts recognized on the consolidated statements of operations related to the Company’s derivatives for the three and six months ended June 30, 2013 and 2012.
 
 
 
 
Three months ended June 30,
 
Six months ended June 30,
 
Location of Loss Recognized in Income
 
2013
 
2012
 
2013
 
2012
Interest rate swaps
Loss on derivative instruments – realized *
 
$
(59
)
 
$
(257
)
 
$
(133
)
 
$
(669
)
Interest rate swaps
Gain on derivative instruments – unrealized
 
58

 
217

 
131

 
364

Interest rate caps
Loss on derivative instruments - unrealized
 
(1
)
 
(25
)
 
(1
)
 
(177
)
Total
 
 
$
(2
)
 
$
(65
)
 
$
(3
)
 
$
(482
)
 
*
Realized losses represent net amounts accrued for the Company’s derivative instruments during the period.
The following table summarizes the gross asset and liability amounts related to the Company’s derivatives at June 30, 2013 and December 31, 2012.
 
 
June 30, 2013
 
December 31, 2012
 
Gross
Amount of
Assets
Recognized
as
Liabilities
 
Gross
Amounts
Offset in the
Statement
of Financial
Position
 
Net Amounts
of Liabilities
Presented in
the Statement
of Financial
Position
 
Gross
Amount of
Assets
Recognized
as
Liabilities
 
Gross
Amounts
Offset in the
Statement
of Financial
Position
 
Net Amounts
of Liabilities
Presented in
the Statement
of Financial
Position
Interest rate swaps
$
—

 
$
(25
)
 
$
(25
)
 
$
—

 
$
(156
)
 
$
(156
)
Interest rate caps
—

 
—

 
—

 
1

 
—

 
1

Total derivative instruments
$
—

 
$
(25
)
 
$
(25
)
 
$
1

 
$
(156
)
 
$
(155
)
Note 10 – Related Party Transactions
Management Agreement
In connection with the Company’s initial public offering (“IPO”) in September 2009, the Company entered into a management agreement (the “Management Agreement”) with ACREFI Management, LLC (the “Manager”), which describes

16
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the services to be provided by the Manager and its compensation for those services. The Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors.
Pursuant to the terms of the Management Agreement, the Manager is paid a base management fee equal to 1.5% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement), calculated and payable (in cash) quarterly in arrears.
The current term of the Management Agreement expires on September 29, 2013 and shall be automatically renewed for successive one-year terms on each anniversary thereafter. The Management Agreement may be terminated upon expiration of the one-year terms only upon the affirmative vote of at least two-thirds of the Company’s independent directors, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of the Company’s independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term and will be paid a termination fee equal to three times the sum of the average annual base management fee during the 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. Following a meeting by the Company’s independent directors on March 12, 2013 with respect to the Management Agreement, which included a discussion of the Manager’s performance and the level of the management fees thereunder, the Company determined not to terminate the Management Agreement.
For the three and six months ended June 30, 2013, respectively, the Company incurred approximately $2,600 and $4,579 in base management fees. For the three and six months ended June 30, 2012, respectively, the Company incurred approximately $1,292 and $2,581 in base management fees. In addition to the base management fee, the Company is also responsible for reimbursing the Manager for certain expenses paid by the Manager on behalf of the Company or for certain services provided by the Manager to the Company. For the three and six months ended June 30, 2013, respectively, the Company recorded expenses totaling $108 and $334 related to reimbursements for certain expenses paid by the Manager on behalf of the Company. For the three and six months ended June 30, 2012, respectively, the Company recorded expenses totaling $281 and $514 related to reimbursements for certain expenses paid by the Manager on behalf of the Company. Expenses incurred by the Manager and reimbursed by the Company are reflected in the respective consolidated statement of operations expense category or the consolidated balance sheet based on the nature of the item.
Included in payable to related party on the consolidated balance sheet at June 30, 2013 and December 31, 2012, respectively, is approximately $2,600 and $2,037 for base management fees incurred but not yet paid.
Note 11 – Share-Based Payments
On September 23, 2009, the Company’s board of directors approved the Apollo Commercial Real Estate Finance, Inc., 2009 Equity Incentive Plan (the “LTIP”). The LTIP provides for grants of restricted common stock, restricted stock units (“RSUs”) and other equity-based awards up to an aggregate of 7.5% of the issued and outstanding shares of the Company’s common stock (on a fully diluted basis). The LTIP is administered by the compensation committee of the Company’s board of directors (the “Compensation Committee”) and all grants under the LTIP must be approved by the Compensation Committee.
The Company recognized stock-based compensation expense of $428 and $1,311 for the three and six months ended June 30, 2013, respectively, related to restricted stock and RSU vesting. The Company recognized stock-based compensation expense of $886 and $1,969 for the three and six months ended June 30, 2012, respectively, related to restricted stock and RSU vesting. The following table summarizes the grants of RSUs during the six months ended June 30, 2013:
Type
Date
 
Shares
 
RSUs
 
Estimate Fair Value
on Grant Date
 
Initial Vesting
 
Final Vesting
Grant
February 2013
 
20,000

 
—

 
$
352

 
December 2013
 
December 2015
Grant
February 2013
 
—

 
180,000

 
3,166

 
December 2013
 
December 2015
Grant
April 2013
 
11,304

 
—

 
200

 
July 2013
 
April 2016
Grant
May 2013
 
—

 
15,000

 
261

 
December 2013
 
December 2015
Total
 
 
31,304

 
195,000

 
 
 
 
 
 

 

17
Table of Contents

Below is a summary of expected restricted common stock and RSU vesting dates as of June 30, 2013.

Vesting Date
Shares Vesting
 
RSU Vesting
 
Total Awards
July 2013
3,417

 
834

 
4,251

October 2013
2,925

 
416

 
3,341

December 2013
6,664

 
63,327

 
69,991

January 2014
2,504

 
93,335

 
95,839

March 2014
—

 
6,667

 
6,667

April 2014
2,508

 
417

 
2,925

July 2014
2,240

 
—

 
2,240

October 2014
1,736

 
—

 
1,736

December 2014
6,668

 
63,332

 
70,000

January 2015
1,744

 
—

 
1,744

March 2015
—

 
6,667

 
6,667

April 2015
1,744

 
—

 
1,744

July 2015
1,444

 
—

 
1,444

October 2015
944

 
—

 
944

December 2015
6,668

 
63,341

 
70,009

January 2016
944

 
—

 
944

April 2016
944

 
—

 
944

 
43,094

 
298,336

 
341,430


 
Note 12 – Stockholders’ Equity
Dividends. For 2013, the Company declared the following dividends on its common stock:
 
Declaration Date
Record Date
Payment Date
Amount
February 27, 2013
March 28, 2013
April 12, 2013
$0.40
May 7, 2013
June 28, 2013
July 12, 2013
$0.40
For 2013, the Company declared the following dividends on its 8.625% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”):
 
 
 
 
 
Declaration Date
Record Date
Payment Date
Amount
March 15, 2013
March 28, 2013
April 15, 2013
$
0.5391

June 12, 2013
June 28, 2013
July 15, 2013
$
0.5391

Common Offering. During March 2013, the Company completed a follow-on public offering of 8,805,000 shares of its common stock, including the partial exercise of the underwriters’ option to purchase additional shares, at a price of $16.90 per share. The aggregate net proceeds from the offering, including proceeds from the sale of the additional shares, were approximately $148,318 after deducting estimated offering expenses payable by the Company.
ATM Program.  In May 2013, the Company entered into an ATM Equity OfferingSM Sales Agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated and JMP Securities LLC, or the agents, relating to shares of the Company's common stock.  In accordance with the terms of the agreement, the Company may offer and sell shares of common stock having an aggregate offering price of up to $100,000 from time to time through the agents. Sales of the shares, if any, will be made by means of ordinary brokers' transactions or otherwise at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices, or as otherwise agreed with the applicable agent.  To date, the Company has not directed the agents to sell any shares.

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Note 13 – Commitments and Contingencies
Loan Commitments. As described in Note 6, at June 30, 2013 and December 31, 2012, the Company had $34,650 of unfunded loan commitments related to the condominium conversion loan that closed in December 2012. At June 30, 2013, the Company had $3,901 of unfunded loan commitments related to the condominium construction loan that closed in January 2013.
Note 14 – Fair Value of Financial Instruments
The following table presents the carrying value and estimated fair value of the Company’s financial instruments not carried at fair value on the consolidated balance sheet at June 30, 2013 and December 31, 2012:
 
 
June 30, 2013
 
December 31, 2012
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Cash and cash equivalents
$
156,797

 
$
156,797

 
$
108,619

 
$
108,619

Commercial first mortgage loans
143,492

 
149,281

 
142,921

 
150,144

Subordinate loans
354,865

 
359,670

 
246,246

 
250,520

Repurchase agreements
—

 
—

 
6,598

 
6,598

Borrowings under repurchase agreements
(191,312
)
 
(191,312
)
 
(225,158
)
 
(225,158
)
To determine estimated fair values of the financial instruments listed above, market rates of interest, which include credit assumptions, are used to discount contractual cash flows. The estimated fair values are not necessarily indicative of the amount the Company could realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The Company’s commercial first mortgage loans, subordinate loans and repurchase agreements are carried at amortized cost on the condensed consolidated financial statements and are classified as Level III in the fair value hierarchy.
Note 15 – Net Income per Share
GAAP requires use of the two-class method of computing earnings per share for all periods presented for each class of common stock and participating security as if all earnings for the period had been distributed. Under the two-class method, during periods of net income, the net income is first reduced for dividends declared on all classes of securities to arrive at undistributed earnings. During periods of net losses, the net loss is reduced for dividends declared on participating securities only if the security has the right to participate in the earnings of the entity and an objectively determinable contractual obligation to share in net losses of the entity.
The remaining earnings are allocated to common stockholders and participating securities to the extent that each security shares in earnings as if all of the earnings for the period had been distributed. Each total is then divided by the applicable number of shares to arrive at basic earnings per share. For the diluted earnings, the denominator includes all outstanding shares of common stock and all potential shares of common stock assumed issued if they are dilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of these potential shares of common stock.
The table below presents basic and diluted net (loss) income per share of common stock using the two-class method for the three and six months ended June 30, 2013 and 2012:


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Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Net income
$
11,789

 
$
9,910

 
$
23,721

 
$
19,003

Preferred dividends
(1,860
)
 
—

 
(3,720
)
 
—

Net income available to common stockholders
9,929

 
9,910

 
20,001

 
19,003

Dividends declared on common stock
(14,752
)
 
(8,228
)
 
(29,500
)
 
(16,453
)
Dividends on participating securities
(200
)
 
(168
)
 
(395
)
 
(337
)
Net income (loss) attributable to common stockholders
$
(5,023
)
 
$
1,514

 
$
(9,894
)
 
$
2,213

Denominator:
 
 
 
 
 
 
 
Weighted average shares of common stock outstanding
37,373,885

 
20,991,450

 
33,946,329

 
20,978,938

Basic and diluted net income (loss) per weighted average share of common stock
 
 
 
 
 
 
 
Distributable Earnings
$
0.40

 
$
0.40

 
$
0.88

 
$
0.80

Undistributed income (loss)
$
(0.13
)
 
$
0.07

 
$
(0.29
)
 
$
0.11

Basic and diluted net income per share of common stock
$
0.27

 
$
0.47

 
$
0.59

 
$
0.91


Note 16 – Subsequent Events
Dividends. On July 31, 2013, the Company declared a dividend of $0.40 per share of common stock, which is payable on October 11, 2013 to common stockholders of record on September 30, 2013.
Investment Activity. In July 2013, the maturity of the Company's $25,000 junior mezzanine loan secured by the pledge of the equity interests in a borrower that owns three hotels in New York City was extended for one year through July 2014.
In July 2013, the Company provided a $14,000 mezzanine loan (purchased for $13,551 or approximately 97% of face value) secured by a pledge of the equity interest in a borrower that owns the office component of a 432,717 square foot building located in downtown New York City. The mezzanine loan is part of a $105,000, 10-year fixed rate loan comprised of a $91,000 first mortgage loan and the Company's $14,000 mezzanine loan. The mezzanine loan has an underwritten loan-to-value ("LTV") of 70% and has been underwritten to generate an IRR of approximately 13%. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition and Results of Operations-Investments” below for a discussion of IRR.
In August 2013, the Company provided a $22,500 mezzanine loan secured by a pledge of the equity interest in a borrower that owns a mixed use property located in the central business district of Pittsburgh, PA and consists of (i) a 27-story multi-tenant office building, (ii) an adjoining 616-key convention center hotel, and (iii) a 479-space underground parking garage. The mezzanine loan is part of a $105,000, five-year floating rate loan comprised of an $82,500 first mortgage loan and the Company's $22,500 mezzanine loan. The mezzanine loan has an underwritten LTV of 73% and has been underwritten to generate an IRR of approximately 12%. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition and Results of Operations-Investments” below for a discussion of IRR.
Stockholders' Equity. In July 2013, the Company's board of directors approved a stock repurchase program to authorize the Company to repurchase up to an aggregate of $50,000 of its shares of common stock. To date, the Company has not repurchased any shares pursuant to the stock repurchase program.



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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING INFORMATION
The Company makes forward-looking statements herein and will make forward-looking statements in future filings with the SEC, press releases or other written or oral communications within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in such Section. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond the Company’s control. These forward-looking statements include information about possible or assumed future results of the Company’s business, financial condition, liquidity, results of operations, plans and objectives. When the Company uses the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, it intends to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: market trends in the Company’s industry, interest rates, real estate values, the debt securities markets or the general economy or the demand for commercial real estate loans; the Company’s business and investment strategy; operating results and potential asset performance; actions and initiatives of the U.S. government and changes to U.S. government policies and the execution and impact of these actions, initiatives and policies; the state of the U.S. economy generally or in specific geographic regions; economic trends and economic recoveries; the Company’s ability to obtain and maintain financing arrangements, including securitizations; the anticipated shortfall of debt financing from traditional lenders; the volume of short-term loan extensions; the demand for new capital to replace maturing loans; expected leverage; general volatility of the securities markets in which the Company participates; changes in the value of the Company’s assets; the scope of the Company’s target assets; interest rate mismatches between the Company’s target assets and any borrowings used to fund such assets; changes in interest rates and the market value of the Company’s target assets; changes in prepayment rates on the Company’s target assets; effects of hedging instruments on the Company’s target assets; rates of default or decreased recovery rates on the Company’s target assets; the degree to which hedging strategies may or may not protect the Company from interest rate volatility; impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended; the availability of opportunities to acquire commercial mortgage-related, real estate-related and other securities; the availability of qualified personnel; estimates relating to the Company’s ability to make distributions to its stockholders in the future; and the Company’s understanding of its competition.
The forward-looking statements are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to it. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company. See “Item 1A - Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that the Company files with the SEC, could cause its actual results to differ materially from those included in any forward-looking statements the Company makes. All forward-looking statements speak only as of the date they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect us. Except as required by law, the Company is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
The Company is a REIT that primarily originates, acquires, invests in and manages performing commercial first mortgage loans, CMBS, subordinate financings and other commercial real estate-related debt investments in the United States. These asset classes are referred to as the Company’s target assets.
The Company is externally managed and advised by the Manager, an indirect subsidiary of Apollo Global Management, LLC, (together with its subsidiaries, “Apollo”), a leading global alternative investment manager with a contrarian and value oriented investment approach in private equity, credit and real estate with assets under management of approximately $114.3 billion as of March 31, 2013.
The Manager is led by an experienced team of senior real estate professionals who have significant experience in commercial property investing, financing and ownership. The Manager benefits from the investment, finance and managerial expertise of Apollo’s private equity, credit and real estate investment professionals. The Company believes its relationship with Apollo provides the Company with significant advantages in sourcing, evaluating, underwriting and managing investments in the Company’s target assets.

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Market Overview
During 2012 and the first half of 2013, bolstered by the continuing low interest rate environment, the commercial real estate lending market continued to recover from the downturn experienced as part of the correction in the global financial markets which began in mid-2007. The Company estimates that from 2013 to 2017, there is in excess of $1 trillion of commercial real estate debt that is scheduled to mature and this presents a compelling opportunity for the Company to invest capital in its target assets at attractive risk adjusted returns.
While the volume of impending maturities and the need for refinancing is significant, the demand for new capital to refinance maturing commercial mortgage debt continues to be somewhat tapered by the granting of extensions by lenders across the commercial mortgage loan industry. The Company believes that the significant long-term opportunity still remains for lenders to capitalize on the impending maturity wall despite the fact that the volume of loan modifications has had a meaningful impact on the timing of the maturities and the related opportunity.
Recent commentary by the Federal Reserve has caused increased volatility across credit products, including CMBS. As a result, many market participants are now expecting the pace of issuance to slow from the post-crisis high experienced during the first half of 2013. Despite the potential slowdown in CMBS issuance, it is expected that the low interest rate environment will remain attractive to borrowers and will continue to drive significant refinancing across all property types during the remainder of 2013.
In 2012, approximately $48 billion of CMBS was issued in the United States, an increase of approximately 48% over 2011. In the first half of 2013, approximately $43.9 billion of CMBS was issued in the United States, approximately 2.4 times more than was issued during the first half of 2012. Since early 2010, approximately $137 billion of CMBS has been issued in the United States. While this is significantly less than the $229 billion that was issued in 2007, we believe the continued growth and recovery of the CMBS market is evidence that the lending market for commercial real estate has largely stabilized since the financial crisis.
Despite the recent strength of the CMBS market, the pace of CMBS issuance is still moderate relative to the peak of the market, and lenders still appear to be more focused on stabilized cash flowing assets with lower loan-to-value ratios. Combined with the recent volatility in the CMBS market, this should continue to provide the Company with increased opportunities to originate mezzanine and first mortgage financings with respect to those parts of the financing capital structure which are unsuitable to be sold as part of a CMBS offering.
Critical Accounting Policies
A summary of the Company’s accounting policies is set forth in its Annual Report on Form 10-K for the year ended December 31, 2012 under “Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations – Critical accounting policies and use of estimates.”
Financial Condition and Results of Operations
(in thousands—except share and per share data)
Investment Activity
Investment activity. In January 2013, the Company provided a $60,000 mezzanine loan commitment ($56,099 of which has been funded to date) secured by a pledge of preferred equity interests in the owner of a to-be-developed 352,624 net saleable square foot, 57-story, 146-unit condominium tower located in the TriBeCa neighborhood of New York City. The Company has funded $56,099 of financing to date and expects to provide an additional $3,901 within six months following the initial loan closing. When fully funded and based upon current presales of units, the Company’s loan basis is expected to represent an underwritten loan-to-net sellout of approximately 48%. The mezzanine loan has a term of 54 months with one extension option of 12-months and has been underwritten to generate an IRR of approximately 16%. See “—Investments” below for a discussion of IRR.
In February 2013, the Company provided an $18,000 mezzanine loan secured by a pledge of the equity interests in the owner of two buildings in midtown Manhattan. The buildings contain a total of 181,637 rentable square feet that is being converted into 215 multifamily rental units. The mezzanine loan is part of a $90,000, three-year (two-year initial term with one one-year extension option) interest-only, floating rate financing comprised of the mezzanine loan and a $72,000 first mortgage loan. When the first mortgage loan is fully funded, the Company expects that the mezzanine loan will have a loan-to-value (“LTV”) of approximately 60% and the mezzanine loan has been underwritten to generate an IRR of approximately 13%. See “—Investments” below for a discussion of IRR.

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In February 2013, the Company provided a $25,000 mezzanine loan secured by a pledge of the equity interests in the owner of a portfolio of four hotels totaling 1,231 keys located in Rochester, Minnesota. The hotels are within walking distance of the Mayo Clinic, an internationally renowned health care facility that treats over one million patients annually from around the world. The mezzanine loan is part of a $145,000 five-year, fixed rate loan, comprised of a $120,000 first mortgage loan and the mezzanine loan, which was provided in connection with the acquisition of the portfolio. The mezzanine loan has an appraised LTV of approximately 69% and has been underwritten to generate an IRR of approximately 12%. See “—Investments” below for a discussion of IRR.
In May 2013, the Company provided a $32,000 mezzanine loan secured by a pledge of the equity interests in a borrower that owns a portfolio of 15 warehouse facilities, totaling 2.8 million square feet, spanning nine states. The mezzanine loan is part of a $322,000, 10-year fixed rate loan comprised of a $220,000 first mortgage loan (with a 25-year amortization schedule), a $70,000 senior mezzanine loan and the Company's $32,000 junior mezzanine loan. The mezzanine loan has an appraised LTV of 75% and has been underwritten to generate an IRR of approximately 12%. See “—Investments” below for a discussion of IRR.
In May 2013, the Company provided a $44,000 mezzanine loan secured by the pledge of the equity interests in a borrower that acquired five adjacent commercial buildings totaling approximately 411,000 gross square feet that are expected to be converted into multifamily rental apartments in the Gramercy Park neighborhood of New York City. The mezzanine loan is part of a $128,000, fifteen-month (one-year initial term with one three-month extension option) floating rate loan comprised of a $84,000 first mortgage and the Company's $44,000 mezzanine loan. The mezzanine loan has an appraised LTV of 78% and has been underwritten to generate an IRR of approximately 14%. See “—Investments” below for a discussion of IRR.
Investments
The following table sets forth certain information regarding the Company’s investments at June 30, 2013:
 
Description
Face
Amount
 
Amortized
Cost
 
Weighted
Average
Yield
 
Remaining
Weighted
Average
Life
(years)
 
Debt
 
Cost of
Funds
 
Remaining
Debt Term
(years)*
 
Equity at
cost
 
Current
Weighted
Average
IRR **
 
Levered
Weighted
Average
IRR ***
First mortgages
$
145,737

 
$
143,492

 
10.7
%
 
2.1

 
$
3

 
2.7
%
 
1.6

 
$
143,489

 
11.0
%
 
15.8
%
Subordinate loans
356,402

 
354,865

 
12.9

 
4.2

 
—

 
—

 
—

 
354,865

 
13.8

 
13.8

CMBS – AAA
163,162

 
165,553

 
4.6

 
1.4

 
144,200

 
1.4

 
0.7

 
21,353

 
15.8

 
15.8

CMBS - Hilton
71,498

 
69,521

 
5.6

 
2.4

 
47,109

 
2.0

 
2.4

 
22,412

 
12.6

 
12.6

Total
$
736,799

 
$
733,431

 
9.9
%
 
3.0

 
$
191,312

 
1.5
%
 
1.1

 
$
542,119

 
13.1
%
 
14.2
%
 
*
Assumes extension options on the Wells Facility with respect to the Hilton CMBS are exercised. See “—Liquidity and Capital Resources - Borrowings Under Various Financing Arrangements” below for a discussion of the Wells Facility.
**
The internal rates of return (“IRR”) for the investments shown in the above table reflect the returns underwritten by the Manager, calculated on a weighted average basis assuming no dispositions, early prepayments or defaults but assuming that extension options are exercised and that the cost of borrowings and derivative instruments under the Wells Facility remains constant over the remaining terms and extension terms under this facility. With respect to the mezzanine loan for the New York City multifamily condominium conversion that closed in December 2012 and the mezzanine loan for the New York City condominium construction that closed in January 2013, the IRR calculation assumes certain estimates with respect to the timing and magnitude of future fundings for the remaining commitments and associated loan repayments, and assumes no defaults. IRR is the annualized effective compounded return rate that accounts for the time-value of money and represents the rate of return on an investment over a holding period expressed as a percentage of the investment. It is the discount rate that makes the net present value of all cash outflows (the costs of investment) equal to the net present value of cash inflows (returns on investment). It is derived from the negative and positive cash flows resulting from or produced by each transaction (or for a transaction involving more than one investment, cash flows resulting from or produced by each of the investments), whether positive, such as investment returns, or negative, such as transaction expenses or other costs of investment, taking into account the dates on which such cash flows occurred or are expected to occur, and compounding interest accordingly. There can be no assurance that the actual IRRs will equal the underwritten IRRs shown in the table. See “Item 1A—Risk Factors—The Company may not achieve its underwritten internal rate of return on its investments which may lead to future returns that may be significantly lower than anticipated” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for a discussion of some of the factors that could adversely impact the returns received by the Company from the investments shown in the table over time.

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***
Substantially all of the Company’s borrowings under the JPMorgan Facility were repaid upon the closing of the Company’s Series A Preferred Stock offering in August 2012. The Company’s ability to achieve its underwritten leveraged weighted average IRR with regard to its portfolio of first mortgage loans is additionally dependent upon the Company reborrowing approximately $53,000 under the JPMorgan Facility or any replacement facility. Without such reborrowing, the leveraged weighted average IRRs will be as indicated in the current weighted average IRR column above.

Net Income Available to Common Stockholders
For the three and six months ended June 30, 2013, respectively, the Company’s net income available to common stockholders was $9,929, or $0.27 per share, and $20,001, or $0.59 per share. For the three and six months ended June 30, 2012, respectively, the Company’s net income available to common stockholders was $9,910, or $0.47 per share, and $19,003, or $0.91 per share.

Net Interest Income
The following table sets forth certain information regarding the Company’s net investment income for the three and six months ended June 30, 2013 and 2012:
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
Change
(amount)
 
Change
(%)
 
2013
 
2012
 
Change
(amount)
 
Change
(%)
Interest income from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities
$
3,014

 
$
3,230

 
$
(216
)
 
(6.7
)%
 
$
6,101

 
$
8,552

 
$
(2,451
)
 
(28.7
)%
Commercial mortgage loans
3,676

 
2,791

 
885

 
31.7
 %
 
7,268

 
5,026

 
2,242

 
44.6
 %
Subordinate loans
11,498

 
5,859

 
5,639

 
96.2
 %
 
22,953

 
11,172

 
11,781

 
105.5
 %
Repurchase agreements
—

 
2,000

 
(2,000
)
 
(100.0
)%
 
2

 
3,559

 
(3,557
)
 
(99.9
)%
Interest expense
(955
)
 
(1,929
)
 
974

 
(50.5
)%
 
(2,024
)
 
(5,171
)
 
3,147

 
(60.9
)%
Net interest income
$
17,233

 
$
11,951

 
$
5,282

 
44.2
 %
 
$
34,300

 
$
23,138

 
$
11,162

 
48.2
 %
Net interest income for the three and six months ended June 30, 2013 increased $5,282, or 44.2%, and $11,162, or 48.2%, from the same periods in 2012. The increase is primarily the result of additional interest income from commercial mortgage loans and subordinate loans offset by a decline in interest income from repurchase agreements.
The decline in interest income related to securities for the three and six months ended June 30, 2013 of $216, or 6.7%, and $2,451, or 28.7%, from the same periods in 2012 is attributable to the repayment of these securities as they near maturity, as well as the sale of the portion of the Company’s securities during March 2012.
The increase in interest income related to commercial mortgage loans for the three and six months ended June 30, 2013 of $885, or 31.7%, and $2,242, or 44.6%, from the same periods in 2012 is primarily attributable to the funding of $62,490 of commercial mortgage loans net of repayments of $31,300 during 2012.
The increase in interest income related to subordinate loans for the three and six months ended June 30, 2013 of $5,639, or 96.2%, and $11,781, or 105.5%, from the same periods in 2012 is primarily attributable to the funding of $174,190 and $96,023 of subordinate loans during 2013 and 2012, respectively, net of repayments of $68,779 during 2013. The increase is also attributable to a $3,733 of prepayment penalties received during 2013.
The decrease in interest related to repurchase agreements for the three and six months ended June 30, 2013 of $2,000, or 100.0%, and $3,557, or 99.9%, from the same periods in 2012 is attributable to the final repayment of the repurchase agreement in January 2013.
Interest expense for the three and six months ended June 30, 2013 decreased $974, or 50.5%, and $3,147, or 60.9%, from the same periods in 2012. The decrease is primarily the result of the decline in the average balance of the Company’s borrowings from $414,536 for the six months ended June 30, 2012 to $210,291 for the six months ended June 30, 2013. In addition to the repayment of debt outstanding under the Wells Facility as the related CMBS have been repaid or sold, the Company repaid substantially all of the borrowings outstanding under the JPMorgan Facility upon the close of the Company’s Series A Preferred Stock offering in August 2012. The Company also amended the JPMorgan Facility and the Wells Facility

24
Table of Contents

during 2012 and 2013 to reduce the cost of borrowings. See “– Liquidity and Capital Resources – Borrowings Under Various Financing Arrangements” for a discussion of those amendments.
Operating Expenses
The following table sets forth the Company’s operating expenses for the three and six months ended June 30, 2013 and 2012:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
2013
 
2012
 
Change
(amount)
 
Change
(%)
 
2013
 
2012
 
Change
(amount)
 
Change
(%)
General and administrative expense
$
1,009

 
$
1,876