Arbor Realty Trust Inc (ABR) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2006 Arbor Realty Trust earnings conference call. My name is Fab, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Mr. Paul Elenio, CFO. Please proceed, sir.

Thank you, Fab. Good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we will discuss results for the quarter and six months ended June 30, 2006. With 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, our financial condition, liquidity, results of operations, plans, and objectives.

These statements are based on beliefs, assumptions, and expectations of future performances, 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.

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

Thank you, Paul, and thanks to all of you who are participating on today's call. We are pleased with the operating results for the second quarter which demonstrates the continued financial success we have had. Even more importantly are other strategies we have implemented which support our goal of increasing the long-term value of our company and franchise.

Paul will review the financial results in a moment, but first I'd like to comment on some of the strategies we've deployed and how we are fairing in today's market.

In line with our press release issued on July 25, we are very pleased with the Board's decision, authorizing the company to repurchase up to 1 million shares of our stock. We anticipate entering into a Rule 10b5-1 plan within the next few weeks. As the press release we issued this morning indicated, we added another equity kicker to our portfolio. This equity kicker is in the form of a 26% profit interest and was part of a $60-million bridge loan we originated during the quarter on approximately a 769-acre parcel of land on the West Shore of Lake Tahoe, California.

The property is presently improved with the Homewood Mountain Resort, a 59-run ski and snowboard facility, all in direct view of Lake Tahoe. The property is underdeveloped and has the potential for significant redevelopment opportunities. The borrower is an experienced real estate acquisition and development firm with strong ties to the local community, and very importantly, a repeat customer of Arbor.

The closing of this transaction demonstrates our unique and ongoing ability to identify structure and close complex real estate lending and equity opportunities, allowing us to share to the upside of real estate. As we have said before, these equity interests are an important part of our business model and we believe in the long-term value and positive impact they will have on earnings over time.

We continue to improve our capital structure in the right side of our balance sheet. We believe that common equity is the most valuable and financial resource and we'll not issue additional equity for the sole purpose of growing a portfolio.

During the quarter, we issued $65 million of full trust-preferred securities of which $50 million was issued at a rate of LIBOR plus 260 and $15 million was issued at LIBOR plus 252, which has swapped out to a fixed rate of 787 for five years.

In addition, in July, we swapped out another $25 million of trust-preferred securities at a fixed rate of 798. These securities provide us for the lower cost alternative to raising equity. We believe that we have a fair amount of off-balance sheet value associated with certain investments and issuing additional equity would dilute their value to current shareholders.

As we mentioned on last quarter's call, we did have an unusually high average balance of restricted cash outstanding related to our CDOs in the first and second quarters, which impacted short-term earnings. This was a result of the combination of the need to have sufficient collateral to fund our second CDO, which had a ramp-up feature, and increased loan pay-offs during the first quarter.

As of July 31, 2006, we had approximately $110 million of restricted cash outstanding, which we intend to deploy shortly. We believe the optimum level of restricted cash on average to be around $30 million a quarter. The company is very focused on managing the level of excess cash in our CDOs and we continue to originate and identify new and existing collateral to reduce the restricted cash balances to the appropriate levels. Even with higher anticipated payoffs in the third quarter as compared to the second quarter, we feel comfortable in our ability to maintain an average restricted cash balance close to our optimum level.

The market remains extremely competitive. Several months ago, we made a conscious decision to concentrate on deals more in the middle of the capital structure and improving the overall credit quality of our portfolio. Although this strategy has put some pressure on our margins, we believe that these assets create additional stability in our portfolio and provide superior risk adjustment returns since we have improved our debt facilities by reducing borrowed costs and increasing our leverage. While this is still our primary focus, we are always in the market, searching for opportunistic situations to enhance our returns.

During the quarter, we were successful in originating a few deals with higher yields, including an equity kicker on one of our investments that I mentioned earlier. In addition, we continue to focus on increasing the amount of longer term fixed rate loans in our portfolio. As of June 30, approximately 23% of our portfolio was fixed-rate product and our goal is to increase this percentage going forward. These loans are attractive to us because they generally include prepayment protection. We're able to lock in spreads by swapping out the rates in our CDOs and we believe they offer a more stable return and are far better situated for over the long term.

In the quarter, we closed approximately $300 million - $311 million of new loans and investments of which $273 million was funded. We experienced $135 million of runoff, this quarter, all of which were either sold or refinanced outside of Arbor. This resulted in net growth in our portfolio of 11% for the quarter and 19% for the six months ended June 30. The overall targeted annual net growth rate in our portfolio, as stated before, is approximately 15% to 25%. Although originations and payoffs can be lumpy from quarter to quarter, we are still comfortable with this targeted annual net growth.

As you can see in the second quarter, we had higher net growth due to lower-than-anticipated payoffs. We expect payoffs in the third quarter being significantly larger than in the second quarter but we feel confident that even in the competitive market, we are well positioned for our diverse originations network to effectively maintain our original targeted growth rates. I wish to emphasize that our manager on the commercial mortgage has elected to take 100% of the incentive managed risk in stock. As we've consistently stated, the manageabilities in the long-term value of Arbor's common stock is extremely committed to keep its interest in line with its shareholders.

While we are not yet in the position to comment on specifics, management is continuing its analysis on the potential internalization of a management structure and is working with the Board of Directors on this effort.

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

Thank you, Ivan, and good morning, again, everybody. As noted in the press release, our earnings for the quarter were $0.57 per common share on both a basic and fully-diluted basis. The numbers in the press release are fairly self-explanatory but I'll highlight a few points I believe may benefit from some clarification.

First, and very significantly, our average balance in core investments grew about $165 million from last quarter. As a result, our core margin increased by $1.4 million, a 9% increase from the first quarter. In addition, the yield for the quarter on these core investments was around 10.60%.

Those of you who were on last quarter's earnings call may recall that our yield for the first quarter, which is around 10.63%, included income from the acceleration of fees and IRR look-backs, which happened frequently and are part of the normal course of our business. This held true again, this quarter. However, the impact of these items was not as large as in the first quarter. So, for comparative purposes, the yield on core investments before these items was approximately 10.35% for this quarter compared to around 10.05% for the first quarter, a 30 basis point increase.

This increase is predominantly due to increased interest rates on our floating rate portfolio due to the rise in LIBOR. Our average course of funds increased 17 basis points from 6.94% for the first quarter to 7.11% for the second quarter. This was due to the rise in LIBOR, partially offset by the full effect of reduced borrowing costs as a result of our second CDO, including lower negotiated rates on our warehouse facilities.

In addition, the average balance of our debt facilities grew by $145 million from last quarter. This means that our core assets grew $20 million more than our core debt facilities. This is primarily due to reducing the amount of cash balances within the CDO by investing such cash in interest earning core assets. The average leverage on core assets was 71% for the first and second quarters.

Including the trust preferred as debt, the average leverage was 84% for the first and second quarters. Our average restricted cash balance decreased $22 million from $112 million in the first quarter to $90 million in the second quarter. As mentioned, we did have an unusually high balance of restricted cash outstanding in the last two quarters, which had an impact on short-term earnings.

The effect of this increase on interest expense was partially offset by earnings on the restricted cash balances, which were included in interest income. Including restricted cash, our average leverage for the second quarter was 67% and 79%, including the trust preferreds as debt compared to 65% and 77% for the first quarter. Our overall leverage ratio was 1.821 at June 30 as compared to 2.021 at March 31. If you include the trust-preferred securities as debt, the overall leverage ratio was 3.521 at June 30 and 3.421 at March 31.

Operating expenses did increase from the previous quarter with the exception of the invested management fee. This reflects increased professional fees related to Sarbanes-Oxley requirements and the internalization project. The incentive management fee was significantly less than last quarter because the first quarter included a large provision due to the remaining gain from the Prime transaction. Stock-based compensation expense, which is a non-cash expense, increased $0.5 million, or nearly $0.02 per share, largely due to stock rents issued to key employees in April 2006.

Finally, I'd like to point out that we did include the schedule summarizing our equity participation interests and IRR look-backs, this quarter. As Ivan stated, we did originate another investment with an equity kicker during the quarter. This brings the total number of equity kickers in our portfolio to nine.

As we've said before, these equity interests may cause our earnings to be lumpy but these investments are a significant component of our business model and we believe in their long-term value and the positive contributions to earnings they may have over time. In addition, as the press release described, we did record income on one of our IRR look-backs to Point Lakeview, totaling approximately $335,000 net of taxes.

As we mentioned in last quarter's call, we did accrue an IRR look-back for March 31, 2006 on the James Hotel investment. In May, we received payment in full of our loan and our IRR look-back. The realization of these IRR look-backs continue to demonstrate our ability to consistently generate additional value from our investments.

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

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Don Fandetti with Citigroup. Please proceed.

Hi. Good morning. I just wanted to catch up. Good job on the origination front. I wondered if you could talk a little bit, Ivan, about your condo portfolio. Is that a risk or an opportunity, going forward, for [inaudible]?

I think, certainly, it's a risk for whatever you have in your portfolio if it's not properly managed and we're extremely comfortable with what's in our portfolio, but given the changing dynamics of the market, we're spending a lot of time and attention to make sure that our portfolio is being managed well.

On a go-forward basis, I think there - for new originations, there could be some strategic opportunities as there is a lot of concern in the market. So, if you can properly structure deals, you can probably get some premium yielding situations with additional collateral. So, I think our posture is to stay very focused to make sure that our condos are hitting our targets, which they are, put a lot of time and attention into the management of our existing portfolio, and be extremely selective and cautious and make sure that on the new opportunities, they're extremely - that they're structured appropriately.

And how many - were there any condo deals in the Q2 volume?

Yes. There were three condo deals we did in Q2, Don. Our condo concentration, now, as of June 30, is at 24%.

Okay. Were those three deals replacing runoff on other condo deals? Or were they incremental?

We do anticipate a good level of payoffs, this quarter, on condo deals. So, in our opinion, we have some room to take some reasonable opportunities. But we're anticipating, I think, three of our deals to pay off this quarter.

Okay. And, Ivan, how does the market feel to you outside of that particular sector - the lending market? Does it feel better, today, than it did a few quarters ago in terms of new investment activity?

I think it's still extremely competitive. I think with the move in interest rate down over the last 30 days, I think we're seeing a little breathing room. I think there was a lot of concern with rates holding up and we're just putting a lot of stress on some of the new deals. And there's been a turnaround on the tenure, for example, from - going from trading range of 5.25 to 5.50, now, to sub 5. That 50 basis points makes a huge difference in coverage in a lot of loans that were very tight.

So, we're starting to see some of the deals that maybe 30 or 60 days ago that were extremely tight on a debt-service coverage ratio, now having a lot more room. So, I think if rates trip down a little bit, I think you'll see some attractive alternatives, more so on the longer-term fixed rate basis, which is a market that we like to spend our time in.

Okay. Thank you.

Your next question comes from the line of Jim Shanahan with Wachovia Securities.

I just wanted a clarification, please, on Don Fandetti's question. Where were the new condo deals located?

One of them was in Philadelphia, the other one was in San Jose, California, and there was another one done in Florida.

And where in Florida?

Clearwater.

Clearwater, Florida. Thank you. And the payoffs - we've actually been talking with you for a couple months now about the potential for these payoffs. Is this - are these the three - are all three of these deals in Florida?

One of them for sure is in Florida. I have to check the other two.

One of them was in New York.

One was in New York, that's right.

A sizeable deal.

And then the third? One Florida, one New York -

Yes, I have to check that.

It was in New York, as well.

I have just a general question and I don't - I haven't done a lot of skiing in the Tahoe/[inaudible] area, but is this Homewood? Can you talk about what the plan is here for the development of this Homewood Mountain Resort area. Is this considered to be sort of a premier destination for West Coast skiers?

Sure. First of all, Lake Tahoe is a premier destination for summer and for winter. This is probably, in my opinion, one of the best pieces of land available. It's broken up into three components on a redevelopment opportunity and it's pretty far along. The top of the mountain is going to be sold to the U.S. Government.

Those negotiations are deep along and very confident that that has a high probability. The middle of the mountain is going to be broken up into 10 to 15 residential lots, most probably, and the value of just those lots is pretty close to just a dime of the loan amount. And the bottom of the mountain is going to be redeveloped into condominium full-scale ski resort.

Okay. Do you --

And that goes all the way down to the water, by the way.

Oh really? Okay. So, do you-- what do you expect the timing is for completion of this project?

Of the whole project? Probably a five- to seven-year project but of course in different phases. The sale of the top of the mountain could happen within the next 3 to 12 months, the subdivision of the residential lots is probably at 12 to 36 months, and the redevelopment and creation of multi-family and condominium use on the bottom is probably a two- to seven-year ordeal.

Okay. Thank you. Thank you for that color. And can you also just provide an update on the status of the Toy project and with that, I'll drop off and just listen, thanks.

Sure. The Toy project, as we've spoken before, has made significant progress in many ways ahead of schedule and other ways behind schedule. But the most important part for us was the rezoning of the building. As of now, it's rezoned 100% for residential. In order to get it zone residential, we slowed down on some of the other items in terms of the relocation of the tenants and some of our plans and specs and kept things a little quiet as the city requested we did. Once we got the rezoning, we put a very significant effort into relocating the tenants.

We had tenants of around 600,000 square feet. We're now below 100,000 square feet in tenants and down to around, I believe, 30 tenants and we're working now to reduce that significantly. We feel very comfortable. Even with the existing tenants, 80 - I think 70% of them, we could relocate them into other parts of the building if we have to but we're very comfortable in solving the tenant issue. It does not appear to be a significant obstacle at this point. We've made the progress we've needed to.

The plans and specs are probably around 30 to 45 days away. We bought out around 30% of the contracts so far and we should have, in the next 45 days, around 80% to 90% of the contracts bought out and we are in line with the original budgets that we put forth about 9 to 12 months ago. So, in every respect now, we're geared and ready to go.

And this, I guess, is a follow up. Can you comment, please, on the timing for marketing the units and maybe some color on how other condo conversion projects in the neighborhood are progressing? Thanks.

Sure. I think that, based on time, we'll probably be able to get to market in the next four months or so, somewhere in that range, given the three- to six-month region. That specific market is still an extremely strong market. The location of that project is an amazing location and it continues to improve. The market of condominiums in that specific area is still extremely strong.

I personally, as I mentioned on prior calls, spent a lot of time in that area because I was looking for an apartment for my daughter, which by the way, I was unable to find because you have a 0% vacancy. I mean, you just cannot get an apartment in that area. So, I believe that that specific market is extremely strong, prices are firm, and even if the price levels we're talking with - probably 20% below where the existing market is-- and I'm very confident with being able to sell, even into a [softer] market for that specific project in that specific location.

What is the price per square foot that you're targeting for those units?

I think in our budget, the price per square foot that we're using was an average of around somewhere between 11 and 12--

That's right. Around 11 and 12--

The market's around 1,500, today. And that's for standard buildings. This is a unique building with high ceilings, big windows, a lot of amenities, and just an A1 location. So, that's what we're using and that gives us quite a substantial profit even if [inaudible].

Thank you very much.

The retail's a great question because we didn't put a lot of value on it. Retail, when we did the value and we estimated it - it's about 100,000 square foot of retail. The average rents are in the 30s. The market, today, is around $300, okay? So, there's a tremendous amount of hidden value in the retail and we believe that the retail is just going to be a homerun for us as the area continues to develop and as we develop capital.

Your next question comes from the line of Don Destino with JMP.

Hey guys. Thanks for all that color. That was really helpful. A couple of housekeeping questions. Paul, can I assume-- or can you either give me the average restricted cash balance for the quarter or can I assume that a good proxy is just kind of a 2-point average of where you ended the first and the second quarters?

The first quarter was 112.

112.

And the second quarter was 90 million.

Average, 90 million.

An average of 90 million.

Okay, I'm sorry. You said that. I didn't catch that that was the average. And then, Ivan, on the equity kicker portfolio, can you remind us, if you've disclosed this in the past, which of the transactions you have no, or at least no material principle exposure to? Are there any that you've effectively been paid off but you continue to own the equity kicker with the potential for upside?

Don, this is Paul. You're referring to equity investments we've made that we've covered the principle and still have an equity kicker?

Exactly. Exactly.

Yes, there's several.

Yes. I mean, we really-- the only material investment we have is on the Toy building where we have, I believe, $11 million currently invested. The rest of them, we basically got all our cash back. We have $2.7 million remaining of 450 West 33rd but it's not a lot considering the size and value it has. And then, on the Ave, we have a $2-million -

But that's a preferred equity loan, actually-- that $2 million. So, you have several on Prime,80 Evergreen, 930 Flushing. You have several investments in York Avenue where we do not have any principle at risk and we're still entitled to the upside in that real estate.

Yes. The Toy would be the only real significant one, in my opinion.

Gotcha. And then, the IRR lookback that kicked in, this quarter, is that something that has some leaks to it? Or is that one that you expect to run out pretty quickly?

Well, we didn't expect it to run out this quickly. It was-- the property was refinanced and we were paid off. We didn't think it was further enough along to start accruing it. But, again, this happens frequently. We got taken out early and we got paid off our IRR look-backs. So, we weren't expecting it this early but it came in anyway.

Got it. And then there were no NOI participations or kind of recurring NOI contributions to the yield number, this quarter?

You mean besides the IRR lookback?

Right.

There was an additional $450,000 of fees related to loans that paid off early when you get the additional yield because you've accelerated the fees. So, all in, it was about $900,000 for the quarter of dues to the yield from the IRR lookback on the Point and other loans that we paid early that you had accelerated fees.

Gotcha. Alright. Thank you very much.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of Chris Faems with Flagstone Securities.

Hi. Good morning. Paul, could you elaborate a little bit more on the expected repayment in the third quarter? Are any of those subject to IRR lookback?

Right now, we're seeing-- I don't think there's any expected payoffs in the third quarter with IRR look-backs but that can change from time to time. We have a decent handle of what we think is going to repay, but there are several loans that may or may not repay and may fall into the fourth quarter. So, it's hard to answer that question, but right now what I'm seeing, I don't believe.

Okay, okay. Thanks. And then, another housekeeping item-- what was the LTV on the originations in the quarter?

The LTV and the originations in the quarter was around 75% but the overall LTV in our portfolio remained at 70% from quarter to quarter and that has to do with the increases in value of the properties in our portfolio.

Sure. Okay. Alright. And then, Ivan, can you talk a little bit more about the relationship that Arbor had? You mentioned that it was a repeat customer in the Homewood Mountain transaction - what you guys have done together in the past?

We did a deal down in San Francisco-- a converge. And I think it was our third deal with that borrower. I'll have to check. But we did-- these borrowers found a hotel for conversion for residential in a very significant part of San Francisco, and it moved that agenda along very well in a financing opportunity.

Great. And I'm assuming that since you guys have done something together that you guys have been pretty happy with each other?

Yes, very. They're very, very seasoned. It's a father-son [inaudible], just outstanding developers, and very good in dealing with zoning issues and execution. They're a great operating partner.

Okay. Thanks.

Your next question comes from the line of [inaudible] with [inaudible] Trust.

Good morning. Could you talk about - I guess I had two questions - one, the capital structure and how the stock buyback relates to that? Maybe just an overall picture of what you think the proper debt-to-equity ratio is over time.

I think that we, right now, are running a debt-to-equity ratio in the 70s. And if you include the trust-preferred debt, we're in the 80s. There is a little bit of liquidity available because we have some cash tied up in the CDOs, which we've mentioned, which we plan on deploying quickly. So, that's probably $70 million, $75 million liquidity there. So, that should bring the leverage number down a little bit but we are looking at loans more in the middle of the capital structure. We are increasing the leverage, so I think the leverage will stay in that range, probably over the next couple of quarters.

Yes. As we move, in which we've done towards the middle of the capital structure, in addition, as we continue to do more whole loans, you'll see our leverage go up. And that happens to be a better risk adjust return. But the more whole loans you do, the higher leverage you'll be operating at but the lower risk profile you'll actually have.

Okay. I mean, so do worry a little bit that you could start migrating back down the capital structure? I mean, if you saw the opportunities you want, start migrating back down the capital structure, I assume. Is that right?

We might, but clearly, that's a part of the capital structure that's very mis-priced, today. Extremely mis-priced. There's been a lot of margin compression there, and more significantly, in our view, a lot of loans are being done with a significant risk to principle loss. So, that's just an area in the capital structure that's more and more difficult to play in. It's not just a return issue. It's a risk issue.

Right.

So that - we've been talking about that, now, for about four quarters.

So, you don't-- I guess I'm trying to get to if you buy back some stock here and you get down the road and wanted to go back down the capital structure, would you need to raise some equity, potentially?

I think we're pretty comfortable with what we have in our portfolio between anticipating repayments, with the potential of modernization of additional equity kickers, and I think we've been pretty fairly intact in managing our business.

Okay. And then, a different question. Is there any discussion or any update on possibly internalizing the management contract?

That's just something we continue to talk about. The Board has hired outside advisors to look at it. That's just moving along. There's no real view on that yet. We'll see how their analysis comes back.

Okay. And the stock buyback, you talked about doing kind of an automatic plan or would you try and execute the full 1 million shares or are you going to announce those terms when you actually implement the program?

I don't think we're going to announce the terms. I think we're going to implement the plan so it will be self-administrating. I guess it's our concern with the lumpiness of our business and the different things in our environment. We just wanted to have a self-administered plan that makes sense.

Okay. Alright. Thank you.

Your next question comes is from [Rob Nathan] with [Flatter Capital].

Good morning.

Good morning, Rob.

I was just wondering if you could talk a little about the Prime portfolio. I saw from the release there, it looks like the total debt balance on the property went up quite a bit from the end of the year. I don't remember if you talked about that in the first quarter call or not. Just talk about the status of kind of the redevelopment and expansion and whether you expect to start getting any cash flow distributions out of that any time soon.

Sure. First of all, the portfolio continues to perform extremely well. That sector is a very, very strong sector in the retail environment. We have just tremendously strong centers with a lot of expansion opportunity. If you go back to some of the prior calls we had, one of the hidden values in a lot of these factory outlet centers is the additional land income. 20 years ago, when they started these centers, land was trading.

These are all rural areas or outside of major areas and now they're kind of right in the middle of everything, some of these centers. So, we had a lot of excess land and we did a lot of redevelopment in some of these areas and the lease up of those redevelopment areas is growing very, very strong.

So, you're seeing an increase in debt to finance these expansions and we believe that the NOI on these properties will increase significantly over the next 12 to 36 months to reflect those investments that were made. I don't know if you saw-- in one of the magazines, they talk about I think the top ten tourist destinations in the world. I think [Dubuy] being one and I think one of our centers, St. Marcus, was number three. So, clearly, we've done an extremely good job with the existing tenants, reducing costs and also taking advantage of expansion opportunities. So, we're pretty comfortable with nice growth in those portfolios.

In terms of additional cash that we'll get from our operating cash, I think until the expansions are a little further along, it's hard to really say because we're using the cash to continue to expand those centers, as well as additional debt. And I would say it's going to take at least another quarter or two for me to properly answer that to see how things move along.

Okay. Thank you.

Thanks, Rob.

Your next question is a follow up from Jim Shanahan.

Thanks for taking my follow-up question. This is an easy one. Can you tell me what you estimate the debt-service coverage ratio to be on the portfolio at June 30 and how it compares to three and six months ago?

Sure. Jim, it's Paul. The debt service cover at June 30 was 124. It was 125 as of March 31 and that's significant. LIBOR went up about 50 basis points but the debt cover really didn't move much and that has to do with two factors. One, more and more of our portfolio was fixed-rate and also we have LIBOR - we're requiring our borrowers to purchase LIBOR caps on certain deals.

So, more of a percentage of our portfolio either has LIBOR cap protection or a fixed-rate loan, so as LIBOR moves up, the debt cover really doesn't move as much because a significant amount of that portfolio is protected. If we shock the portfolio of 100 basis points as of June 30, you would see the debt cover go from 124 to 120 and I think as of March 31, if you shocked it 100 basis points, it would have went from 125 to 121. So, they're moving in unison even though the LIBOR has gone up, and that's again, for the factors I explained.

Terrific. Thank you very much.

There are no further questions at this time. I would now like to turn the call back over to Mr. Kaufman for closing statements.

Okay. Well, it's been an interesting quarter for us but I think that we've communicated a lot of our strategies, clearly, adjusting our dividend, looking to buy back some stock, a significant change in what our philosophy's been over the last couple quarters, and we appreciate everybody working with us to understand what our objectives are and we look forward to the next couple of quarters. Thank you very much.

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