Arbor Realty Trust Inc (ABR) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q2 2005 Arbor Realty Trust earnings conference call. My name is Candace and I'll be your coordinator for today.

[Operator instructions]

I would now like to turn the presentation over to your host for today's conference, Mr. Rick Herbst, Chief Financial Officer. Please proceed, sir.

Thanks, Candace and good morning everyone. Welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we will be discussing the results for the quarter and six months ended June 30, 2005. Joining me on the call today is Ivan Kaufman, our President and Chief Executive Officer.

Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business and our financial condition, liquidity, results of operations, plans and objectives. These statements are based on beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports.

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events.

With that, I'll turn the call over to Arbor's President and CEO, Ivan Kaufman.

Thank you, Rick, and thanks to all of you who are joining us on the call today. As the press release we issued this morning indicates, the strong operating results for the second quarter reflect our unwavering commitment to building the long term value of our Company and our franchise.

Before Rick reviews the financial results, I'll spend a few minutes discussing our business in today's marketplace and some of the strategies we are employing. Clearly, the most significant event this quarter was the receipt of a $36 million distribution from our investment in the prime retail portfolio. In a moment, Rick will explain the accounting treatment. But beyond the impact in the quarterly results, distribution was significant in several ways.

First, this distribution is evidence that our focused strategy of making these investments when they are both appropriate and available is a successful one. The prime investment is a perfect example of how we conduct our business. Eighteen months ago, we provided debt and equity financing to an experienced owner and operator when he acquired this factory outlet shopping center portfolio. In return, we received a 24% profits interest. During that time, our borrow improved the operating performance of the portfolio while buys mistakes increased. Last year, we received 1.7 million of distributions from this investment, representing excess cash flows generated by this portfolio.

Taking advantage of today's capital market environment, a portion of the properties in the portfolio was refinanced and the excess proceeds were distributed - 36 million of which came to us. A significant return by anyone's standards.

And keep in mind, there is current additional value of these properties above the new debt amount. Our unique ability to participate in both the debt and equity portions of this transaction gave us the opportunity to receive this distribution at this time. As existing debt agreements mature, there will be additional opportunities within the prime portfolio to refinance or sell those properties and we'll participate in those economics as well.

We currently have eight of these investments in our portfolio of various sizes and values. Our goal over time is to continue to seed our portfolio with this type of investment. While they generally take some time to season, the prime portfolio investment is a perfect example of how such an investment can contribute to our bottom line, fuel long term growth and further enhance franchise value.

Many investors have inquired about the value of these equity interests, and this distribution validates our belief that they can generate significant value to shareholders. In addition to these equity interests being a critical part of our strategy, they also distinguish us from our peers. As a Company, we've given consideration to what information should be disclosed publicly regarding these equity investments.

Realizing that the prime distribution further heightens investor curiosity regarding these investments, we included certain data on these investments in this quarter's press release, such as our invested amount, profit participation percentage and data pertaining to the property. We will not comment on our estimate of their market value. However, we do wish to be as informative as possible regarding these investments.

Our top priority is preserving and enhancing long term shareholder value and we continue to work on a capital structure to help achieve this goal. As we've stated in the past, we regard common equity as our most precious financial resource. We will not issue additional common stock for the sole purpose of growing the portfolio.

Also, we are reluctant to dilute the value of our existing shareholders of the equity participation interest I mentioned earlier. As an alternative to issuing more stock, we have now issued approximately $100 million of 30 year junior subordinated notes as part of the issuance of full trust preferred securities.

We issued these securities at this time to take advantage of historically low spreads and believe that they will be accretive over time, as these funds are used to fund new loan volumes. Due to the timing and volume of originations this quarter, all of these funds were not immediately deployed, resulting in short term dilution.

With our first CDO in full swing, we are actively in the process of issuing a second CDO later this year. A second CDO will give us the ability to fund the vast majority of our business with CDO debt, trust preferred securities and our own equity. These are long term funding sources that provide us with a much more stable funding base than we had at the beginning of the year.

We are very pleased with the progress we have made in this area and are more confident than ever in our ability to finance our growth. We continue to see an abundance of capital in the commercial real estate lending market, resulting in tighter spreads. In some cases, transactions are getting done at levels we are not comfortable with and we have had to step away.

We prefer to cut back on loan volumes or accept a bit less yield for higher quality loans, rather than pressure our credit standards merely for the sake of keeping up our yields. Despite changes in the real estate markets in which we do business, we will not change our basic credit philosophy. We will not make a loan unless we are prepared to own the asset if the need arises. It takes a lot of interest to make up for lost principal. We will not pursue deals that fail to satisfy all of our portfolio objectives and credit standards.

Despite the current environment, our pipeline, however, remains strong as evidenced by the prime distribution this marker creates a unique opportunity for our Company. Based on the equity side of certain transactions gives us the ability to take advantage of the interest rate in the current competitive environment.

Over time, we believe these long term opportunities mitigate any short term negative impact this market might have on our new loan originations. In this quarter, we closed approximately $171 million of new loans and investments, of which 152 million was funded. In addition, an additional $77 million loan was anticipated to be closed in the beginning of May.

The delay in the closing of this asset did have a negative impact on our earnings for the quarter. However, the loan did finally close in July and we'll get the benefit of that interest rate going forward. In total in July, we closed $149 million of new business at higher yields than our second quarter originations.

Today we announced a quarterly dividend at $0.57 per share of common stock, representing a 4% increase over last quarter's dividend. This is our fourth consecutive dividend increase. Management and the Board of Directors recognize a stable and growing dividend as important to our investors.

Rick will discuss the details of the Management fee in a moment, but I wish to emphasize that our manager, Arbor Commercial Mortgage LLC, has elected to take over $2.3 million of its incentive management fee in stock- more than twice the amount as in the previous quarter. This amount represents 35% of the incentive comp for the quarter. The Manager has elected to take a portion of this fee in cash because it must pay taxes on the entire amount of incentive compensation fee earned.

Historically, the manager has come out of pocket to pay taxes on this compensation versus taking it in stock. As we've stated many times in the past, the manager believes in the value of the stock and is extremely committed to keep its interest aligned with shareholders. Management has continued discussions with the Board on internalizing the Management structure and this analysis is ongoing.

Finally, I'm delighted to welcome two new independent directors to our Board - Karen Edwards and Kyle Permut. Both Karen and Kyle bring terrific industry experience to the Board and I look forward to their guidance and the contributions they will make in enhancing our Company and its franchise value.

I will now turn the call over to Rick to take you through some of the financial results.

Thanks, Ivan. Good morning again, everybody. As noted in the press release, our earnings for the quarter were $1.36 per common share on both a basic and fully diluted basis. Obviously, there is a tremendous impact on the prime distribution. This is now four quarters in a row for us we've had a positive impact from one of our equity participation interests.

As Ivan indicated, our goal is to have more and more of this type of investment in our portfolio. I know some of you may view this as a one time occurrence, but as we increase the number of these and if they perform as we hope they will, we should receive distributions more frequently. And as I said, we've had them four quarters in a row now. Although they may cause the earnings to be a little bit lumpy at times, which I know is frustrating for those of you who are generating your earnings models, we think the economics can be pretty compelling and certainly the prime distribution validates that.

The numbers in the press release are fairly self explanatory, but I'll highlight a few points I believe may be of interest or you may benefit from some clarification. Regarding our prime distribution, the press release laid out the accounting. We did have to defer income recognition on $9.2 million of the distribution.

This is because the equity owners had to provide a guarantee on a portion of the debt, and the 9.2 million represents our portion of the guarantee. The guarantee was put in place because certain closing conditions just couldn't met in time for the closing and so until these conditions are met - or when they are met - the guarantee will expire and the 9.2 million will be taken into income.

Because this distribution was funded from excess proceeds of the (inaudible) of the property, it is not a taxable event at this time. Therefore, we are not required to distribute these funds to shareholders immediately. At the same time, though, we understand that a steady increasing dividend is of great importance to our investors.

Our intention is to retain a significant portion of these funds and reinvest them over time to create a steady earnings stream. This is consistent with our philosophy of creating long term shareholder and franchise value.

Our end (ph) balances in core investments grew about 45 million from last quarter. Those of you who were on last quarter's earnings call may recall that our yield for the quarter, excluding certain kind of unusual items that happened last quarter, was in the low 10% range. This quarter the yield was 9.85%. And this little bit of a decrease was caused because of they yield on the loans that paid off was higher than the yield on the new loans that we put on.

The impact of this was partially offset by an increase in LIBOR, which is the index that we use for our variable rate loans. I should point out that at this point, 17% of our loan portfolio is fixed rate loans and carries a rate of about 9.7% and has an average maturity close to five years. And it is our goal to expand our fixed rate production. Now that we have the CDO and we can lock in the spreads, we're trying to put on a bit more fixed rate production at longer term maturities and we've been successful so far in doing that.

The average balances on our debt facilities grew about 60 million from last quarter. This is primarily due to the issuance of the trust preferred securities during the quarter. We include the trust preferred securities in our debt numbers because that is how they are classified on the balance sheet. I realize that there are those who consider these securities more like equity, which would change our debt ratio significantly.

From a business standpoint, we do view these more as equity given that they're 30 year term and because they are totally unsecured, no covenants and no call provisions. However, we will refer to them as debt in our financial reporting. Our average cost of funds, including that debt, did move up by about 25 basis and that's primarily due to the rise in LIBOR, which most of our debt financing is based off of.

Operating expenses were down slightly from the previous quarter with the exception of some stock based compensation expenses. And obviously, the incentive management fee. And as Ivan mentioned, our Manager has opted to take 2.3 million of this fee in stock, which is twice the amount that it took in the previous quarter.

On the balance sheet a couple of things I'd like to point out since the last quarter. There was 103 million of cash on hand as of June 30th. This is a real short term anomaly. It was a result of needing that cash on hand in order to close loans expected to close by quarter end. Unfortunately, they did not. We had the cash on hand and so we had to hold that cash. The next day the cash was immediately used to pay down debt until those loans were funded.

Restricted cash remains about 73 million on the balance sheet. It was the same as last quarter, but it's different cash. It's merely a coincidence that it's the same amount. This amount consists of funds received when loans from the CDO pay off, which has not yet been redeployed as of June 30th and much of this amount has since been redeployed.

Due to the issuance of the trust preferred, the overall leverage ratio increased from 2.1 to 1 to 2.4 to 1 as of June 30th, assuming that the trust preferreds are treated as debt in the calculation. And if one were to consider those trust preferreds as equity, the ratio would be 1.6 to 1. So, it's really up to the investor to make his own choice there.

We do anticipate this leverage will creep up a little bit in the coming quarters. And I think we've indicated we're comfortable going from 2.5 to 2.7 - that type of a leverage range. Finally, I'd like to comment a bit on the two new schedules we included in this quarter's press release. Many investors ask various questions about the equity participation interest in our portfolio, with an eye towards trying to assess their value.

And while we cannot and - will not comment specifically on our perception of their value, we have attempted to provide you with relevant information to assist investors in their own evaluation of these assets. I should point out that to the extent there was activity in July, such activity is reflected in the current investment and current debt columns. The current debt column includes all the debt of the properties, to the best of our knowledge some of which may have been provided by us, but much of it is not.

To clarify, our profit interest is not always in direct proportion to our ownership percentage based on the invested equity. And should there be any future economic benefit from these investments, the benefit will be based on the profit percentage we are entitled to, and that's why we show that on the schedule.

Regarding the schedule of investments with IRR look backs, we have several more of these in our portfolio. They are not on the schedule, because those properties have progressed sufficiently to allow us to accrue those additional returns, which are deemed to the collectible. IRR's are often structured on deals involving properties that requires some value enhancement activity, be it a conversion, property rehab, re-tenanting, or some other similar activity.

The investments appearing on this schedule are fairly new, as you can see, and the underlying properties must demonstrate more progress before we will start to accrue the additional yield. Over time, if the borrowers and the properties perform according to plan, we will start to accrue this additional yield, and our earnings will be positively impacted accordingly.

With that, I'll turn it back over to Candice and we will be happy to answer any questions any of you may have at this time.

[Operator Instructions]

Our first question comes from Steve Delaney, of Ryan Beck. Please proceed.

Good morning gentlemen, thanks for taking the question.

Hey Steve.

Rick, you mentioned -- we're talking about the relative yield, the change in the asset yield between 1Q and 2Q. You know, the pay rate -- I read the comments in there and heard Ivan say, you know, that competitive forces, you know, were driving yields down in terms of new additions. The pay rate looks like it only went down about five basis points from quarter end to quarter end, but obviously we had, you know, a much bigger drop in the effective asset yield from a little over $11.00 to $9.85.

Now, you mentioned that there were a couple of items in that first-quarter yield, that if we really normalized it, it was low, maybe in the low 10's, which is a lot closer to the $9.85. Can you refresh me and maybe others on what those items were? I don't recall that detail.

Last quarter?

Yes, in the first quarter. I mean how did we get up to the $11.07 effective yield?

We had a couple of events happen on loans, and primarily, there were two loans that had fairly large exit fees. And we deferred the -- we accrue exit fees, but we accrue them over the life of the loan. When the known pays off early, you have to pay that full exit fee, so there's a significant pop to the earnings in that quarter. That happens all the time actually. This quarter, it didn't happen, but generally we always have a loan that pays off early and there may be an exit fee, and we take in the full amount. So any unamortized fee gets recorded into earnings. So those were a significant amount last quarter.

That's similar to what we call prepaid fee on the residential side?

Yes.

Yes, OK. OK. And so you think that's really the -- those couple of loans -- those are obviously going to be difficult to project going forward, so ...

Yes, lumpy for us, and you know I know it's lumpy for you guys.

OK.

When you talk about -- I think, Steve, you asked the question last quarter on the difference between kind of the pay rate and what the yield was, and I told you it was generally about a point, and certainly that held true this quarter. We will really have to look at the yield. The pay rates didn't move that much, but interest rates went up about 50 basis points, so had the yields stayed the same, that would have gone up 50 basis points. There was a little bit of compression on the margin on some of the new guidance, but that seems to have not reversed itself, but it's been mitigated may be July (inaudible) ...

So Rick, you feel the 100 basis points, you know, yield boost is still a pretty good guesstimate as far as going forward?

It's certainly held up this quarter. I have no reason to think it isn't, but certain events, some of these things, the way the payoffs run, difficult to project. The other thing is we put on some more fixed rate products because we wanted to extend the maturities of the loans. Sometimes those have a little bit of a less of a rate than some of, you know, the variable rate loans we put on.

Gotcha. OK. And one other question, I noticed going through the summary of equity participation interest, and that's by the way very helpful information to have quarterly, thank you. I noticed that a couple of these condo conversions, you are holding your interest in TRS, and I assume that has something to do with REIT tax rules. Should we assume for that there, when you recognize gains that those gains are then therefore going to be subject to income tax, which you haven't had to deal with before?

That is true because, you know, REITs are not set up for equity investment in condo conversions; it's not considered normal real estate income. So we have to put those in a TRS. So any gain you have will be subject to taxation at that corporate level and then the net amount gets passed up to the REIT.

OK. All right, very good, thank you very much.

Sure.

Our next question comes from Don Zandidi (ph), at Citigroup. Please proceed.

Good morning. Rick or Ivan, can you comment on your portfolio, how it would perform if LIBOR goes up you know north of 4% in the debt service coverage?

I can. The debt service coverage this quarter was -- or as of June 30th, is 125. You may recall last quarter it was about 128, so the interest rates went up about 50 basis points. So it actually had a more negative impact on the debt service cover, however, that was offset by increased performance in the loans, so as the components stayed the same debt service coverage might have gone a little bit lower, but each 100 basis points that rates go up impact the debt service cover by about 12 basis points. So in other words, from 125, if rates went up 100 basis points, the 125 would turn into 113, everything else being a cool.

OK, great. And also, in terms of your potential buy in of the external manager, do you consider the economics of these equity kickers when you are doing that accretion analysis? And secondly, how would -- if you did buy it in, how would the equity kicker in this quarter impact that buy in?

Well, that buy in is based on -- by contract in the prospectus and all the documents. It's based on one time fee, whatever has been paid out in the last 12 months, so if it gets internalized in the last 12 months, this would be included in that buy out. I'm not sure I understand the first question when we talk about the accretion.

Well, I mean let's say you have visibility on some equity kickers over the next quarter or two, which you know may be better economics for shareholders to keep in the REIT rather than pay it out to the manager through the incentive fee, do you sort of think about that when you are looking at whether you should buy in the external manager or not?

I think just to comment on that, Don, is that if the Board is taking aggressive steps to hire third party evaluators to proceed to internalize the management contract there'd be a little technical issue setup take place and they are on a fast track to do that. It's you know our point of view that you know the sooner the better, in the sense that, you know, we want a stand-alone franchise and that's, you know, really preferred in the investor community. In terms of the timing of the difference, you know, equity kickers, they are what they are and, you know, the buyout contract is a one time, whatever the 12-month fee is, so whatever they receive they receive. Nobody can time when they receive and nobody is going to be able to exactly time which quarter the management contract is going to get done in. But it's only a window of a twelve-month -- whatever the twelve-month fee is.

OK, appreciate that color. Can you comment on any potential -- I mean how are you in terms of staffing, from a senior and mid-level perspective?

Let me comment on that. We are in pretty good shape staff wise. We have lost a couple of asset managers, which we are working very aggressively to fill back in, but we are very comfortable with the woman who is running that area and her capability of stepping in and filling the gaps, number one, and number two, where also recruiting some very qualified staff, in terms of the rest of the staff company wide; underwriters and administrative people. Everything is very solid.

OK, great, appreciate it, thank you.

How next question comes from Don Destino, from JMP Securities. Please proceed.

Hey guys. A couple questions. First, your repayments went down a little -- abated a little bit, at least relative to the last couple quarters. Is it safe to assume, given your comments, Ivan, that -- of how much capital is out there, that that may be a temporary abatement?

No, we think that a good majority of the prepay that have taken place have been done already. We do anticipate one other short-term loan being prepaid, and that's the Madison Avenue property. That's probably the only lumpy prepayment that we should experience -- I think it's 260 Madison Avenue.

269 ...

Yes, that's the only loan that we anticipate in terms of any size to the prepaid. Otherwise, we are pretty comfortable. As you can see, we put on longer-term loans were just thought about strategy and our goal is to increase the long-term prepay of the loans as a more significant part of our portfolio.

Got it. And then you mentioned that you have some excess capital around during the second quarter that affected margins. Is there anything you can give us to kind of figure out what the impact? Was that an average uninvested capital number or something like that that I might be able to run some numbers on?

Yes, I'll talk generally about it and then Rick will be more specific. Basically, we put on -- you know, we added 100 million of cash through our trust preferred, which we didn't deploy or took a long time to deploy. That was number one. Number two, and this is something I was personally involved in, we sought to fund $77 million of mezzanine loans on a toy building I believe on May 1st, and because it was a new relationship and we have to work out complicated -- creditor agreements that took an additional 60 days, so within our plan of how much we wanted to fund, we set aside that amount, so I think those two factors were, you know, very significant to us and we did subsequently fund those loans in July, and you know, that was unfortunate, but there were just so many complicated issues working with a new investment bank, and dealing with the inter creditor agreements that we had to delay. Rick, do you want to comment on that at all?

Yes, I can't. The lawyers have told us we get in trouble talking about pro forma financial results, but I like what Ivan said. I mean it was -- the three impacts in the quarter, and I would just mentioned on the timing of the toy building (ph) that it impacted the 100 million of cash from the trust preferred that, you know, typically, that would be used to fund 2 or $300 million of loans and will be used to fund 2 or $300 million of loans over the time. Obviously, it takes a little bit of time to deploy that capital. And then thirdly, and perhaps lastly, there was a little bit of margin compression on the new loans coming in.

Got it. And then you may have headed off my next question, because there was a little bit of a pro forma question as well, which is, you know, although I think we publish an account for your gains as operating earnings, but they'll be asked a number of times today to come up with a solid gain estimate of what you guys made. If you take out the gains, and we take out what we assume the incentive fee was relative to the gains, is there any other parts of the income statement that need to be adjusted if we want to come up with you know a spread lending estimate of earnings estimate?

There are no other, you know, significant events this quarter. We didn't have any other big prepayments. What would have happened though, and we not gotten the fund distribution, we would have -- there was one of those IRR looked asked that we were prepared to accrue, because the property has improved, and that would have been a pretty significant -- not a significant -not a significant but a distribution, but it would have been comparable to amounts that we'd recorded in previous quarters on prime, and we may have recorded a portion of their operating earnings.

When you have these equity interests, the accounting guidance dictates that you need to accrue that when you can, and when it's up and steady, and we've gotten to that point, so that's how it would have been accrued as well. I can't really quantify it for you, but if you're looking at kind of just the core earnings absent everything and keep in mind the last three quarters we've had events that happened above the core earnings, so those are in those numbers as well, but if you strip that out, strip out the gains for this quarter, you get close to that core stuff, but every quarter we've had something above that.

Yes, just one comment on prime, there was no distribution on prime, I believe, this quarter or last quarter, and that's primarily was used to fund this transaction. I mean it's very expensive to do this kind of refinance and do the hedging, so the election of the partnership to the distribution and keep the monies within the enterprise, and use it to hedge rate lock, and pay the appropriate fees relative to this refinancing. So had there been no distribution, I think it highly likely there would have been you know quarterly distributions because the cash would have been available.

OK, just a point of clarification. Rick, when you mentioned that but for prime you would have had IRR look back. Were you referring to prime or another investment?

The prime loan had an IRR look back.

OK, that's what I thought. All right, I appreciate it, thank you very much, and really appreciate the detail of the equity position.

Sure, your welcome.

Again ladies and gentlemen, that's star one to ask a question. Our next question comes from James Shanahan, of Wachovia Securities. Please proceed.

Thank you and good morning. The new investment activity in July, and may correct here in my notes, that you said you'd closed 149 million in July?

Yes, including the 77 million that was scheduled to close the previous quarter.

All right, and what was the repayment volume since the beginning of the quarter?

And we really didn't -- I don't think there's been any. If there is, it's been minimal. There is, as Ivan mentioned, though we do anticipate one fairly large loan coming in this month actually.

How large is that?

About 90 million.

90 million; it's two different loans. It's the 260 Madison one. We have two pieces on it.

OK, and regarding the new investment activity in July, can you comment on what the yields are on those loans, you know, quarter today?

I think this call is public -- are we allowed to talk about that? It is 9.85% of the 149, 55 million was fixed, but 100 million was variable. Current coupon at 985.

Thank you. And one final question please ...

Coupon excluding fees and things.

OK, right. And one more question please. Last quarter management commented that you'd considered selling the RMDS portfolio, and I think we observed some additional yields compression there this quarter. What -- can you give us an update there?

The mark actually went away from us a little bit. We looked at it. The mark is now about...

Eight.

Sorry, 800,000 on the end, or as of June 30th the mark was about 800,000, and we talked about many times these 3-1 ARMS, so they will graduate back to par as they get towards the three-year anniversary. We've been in them now for about 15 months. If the market comes back, we will look to dispose of them. We don't need them anymore for the regulatory purposes we bought them for. They were a little bit of a negative drag on earnings this quarter, so it's something we look at based on the market values.

Thank you gentlemen.

Our next question comes from Mark DeVries (ph) of Lehman Brothers. Please proceed.

Good morning. Are you still expecting the margin compression to continue in the second half of the year?

Hard to say. You know, we've seen it -- it's improved a little bit, but the market is competitive, and depending on as we do more fixed rate products, those are generally or can be a little bit lower rate than the variable rate product we've done in the past. On the other had it will be -- you know, will be a little bit more leveraged, which we think will offset that as we put on our second CDO. Certainly, the cost of funds will we hope more than make up for that compression, but it is a competitive market.

Do you still have a large number of loans out there, where there is a floating rate, and there's an incentive for them to swap into fixed?

You mean in our existing portfolio?

Yes.

I mean my believe at this time all of the loan that's paying off the 260 Madison the runoff should be somewhat normalized. Any loans that could have been refinanced by the CMBS market at fixed rate have already been attacked so to speak, and I think this is probably the last one that I'm aware of in the portfolio that is going to have a premature pay off. Everything else should be more normalized at this point in time. You know, keep in mind that a fixed rate portion of our portfolio continues to grow, and our goal is to get it up to 30 to 40%. So what are we now, Rick? 15?

Seventeen.

17%, so that will continue to grow, which will create a lot of our stability but most of what's in our portfolio, in my opinion, has already gone through the evaluation as to whether it can hit the mark this time. Keep in mind, that the ten-year moved up 60 basis points, 55 basis point of the last two weeks, so those who had the opportunity when the five and the ten-year were lower, those opportunities are no longer available. That protected proceeds quite a bit, so there was a very short window of opportunity that people were able to take advantage of. I think that's slipped away.

However, what we should pay attention to is if, you know, the 10-year and the 5-year dropped down another 75 basis points, which we don't believe to be likely, but then again, that opportunity will be reevaluated. The runoff on the portfolio is a product of where interest rates are, in terms of long-term interest rates, where the yield curve is, and how aggressive the CMBS market is to execute, you know, in terms of giving people there proceeds. But I think with the move up, on the five and the ten-year, I do believe that you know the opportunities that people are evaluating have changed significantly.

OK, thanks. Do you have any properties right now with equity kickers that could be poised for distribution in any of the next couple quarters?

I don't think we can comment on that moment.

OK, and finally, have you have any conversations with the rating agencies to get a sense of how they are going to treat the trust preferred, if whether they are going to give you equity credit for that?

I have not, when you talk about the rating agencies, from the CDO?

Yes.

I thought the (inaudible) had low impact on the CDO. That has no impact on our CDO at all.

OK, thanks.

All right.

Ladies and gentlemen, this concludes the question-and-answer portion of today's call, and we'll turn it back to management for closing remarks.

OK. I guess, you know, this has been a fairly comprehensive call, and we've had the opportunity to bring to light you know some of our core strategies. It is a very competitive environment, and we continue to navigate quite comfortably through what we consider to be a very, very complicated and competitive environment. You know, we've had a lot of very good questions, we understand your sensitivity, some of the modeling issues, and we remain as corporate it as possible. We've made a commitment to provide information relative to our equity kickers and our look back. I hope that's helpful in rediscovering the overall value of our franchise, and just want to thank you for your commitment to the company.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.