Arbor Realty Trust Inc (ABR) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Arbor Realty Trust Earnings Conference Call. My name is Lisa, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Paul Elenio, Chief Financial Officer. Please proceed, sir.

Thank you, Lisa, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning we will discuss the results for the quarter and the year ended December 31, 2007. 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 risk and uncertainty, including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our 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.

And now with the Safe Harbors behind us, I'd like to turn the call over to our President and CEO, Ivan Kaufman.

Thank you, Paul, and good morning to everyone, and thanks for joining our call today. By now, I hope everyone has had a chance to review the fourth quarter earnings release that was issued earlier this morning. We are very pleased with the solid results of the quarter. And in a few moments, Paul will review with you -- Paul will review them with you.

However, before we take a look at the results, I would like to touch on our overall achievements in 2007. We have had -- we have made some very notable accomplishments, despite the severe and ongoing dislocation that continues to face our industry.

And as we transition to a new year, I will also highlight our business approach in this environment, and our strategy to continue to position ourselves for the successful navigation of these current market conditions. 2007 started with an abundance of capital, in an extremely competitive commercial real estate lending market.

However, as we headed into the second half of the year, all of us are painfully aware of the significant crisis and dislocation, which has had a very severe and sudden impact on the financial markets. With over 25 years of experience in this industry, I have been through two cycles like this before. In fact, I have said on numerous calls over the last two years, this market change was not a surprise to us.

So, we set some very strategic and well-defined goals in anticipation of this market correction. We began by positioning our portfolio with some secure, lower-risk loans, at times sacrificing some yield for credit. We also focused on ways to preserve, secure and maximize liquidity and continue to improve our financing facilities, strengthening the right side of our balance sheet and capital structure.

So despite the major dislocation that occurred, 2007 was a year marked with many significant achievements for Arbor. We are very satisfied with our progress and with the current statement of our balance sheet. Yet, we remain cautious, as this is a very difficult environment. We are not immune to its effects and still have a lot of work to do.

Let me take a moment to elaborate on some of our 2007 accomplishments, which have positioned us well to continue to execute our strategy in 2008. First of all, we produced record earnings of $4.44 per share. We also significantly monetized our equity kickers, generating around $170 million in cash distribution, which increased our book value by about $5 per share, from $19 to around $24 per share.

Liquidity continues to be a focal point in our industry. In 2007, we improved our liquidity position and strengthen the right side of our balance sheet and capital structure. We added $52 million of trust preferred securities, and now have a total of $275 million outstanding.

We also raised $74 million of capital in an overnight deal. And throughout the year, we were able to add a $60 million working capital line, amend certain facilities, increase their total capacity, and replace two short-term repurchase agreements with renew facilities.

These new facilities include about $550 million of term debt, and a $200 million revolver for new product, which replaced short-term borrowings and have now locked up a substantial amount of our debt for the long term without mark-to-market risk.

As I mentioned, we also monetized several of our equity kickers, which have contributed greatly to our liquidity and capital base. In 2007, we also continued executing our goal of improving the credit quality of our portfolio by originating loans more in the middle of the capital structure.

We were very successful in accomplishing this goal, and as a result, I am pleased with the progress we have made in our portfolio. We believe that our hands-on approach in managing our portfolio will help us minimize any potential losses. This allows our management team to focus their energy on originating new opportunities in an environment where yields are extremely attractive, with the potential to create new equity kickers as well.

In 2007, we stayed true to our philosophy of practicing discipline and staying the course. We have spent a significant amount of time developing and executing our strategy, and are pleased with our overall accomplishments. We are extremely focused and will continue to work very hard in [the new year] to position ourselves appropriately for this difficult market, one we do not foresee recovering for some time.

I would like to spend some time focusing on how we close out 2007 by discussing our fourth quarter achievements before turning it over to Paul to take you through the financial results. As previously announced, we received around $40 million from our equity investment in the Toy properties in the fourth quarter, including the recapitalization of the 1107 Broadway property.

In a moment, Paul will explain the accounting treatment. But on this transactional loan, we received about $50 million in cash in 2007 and produced significant returns on our investment, including a tremendous yield on a debt we had outstanding. Overall, our equity kickers have generated around $200 million in cash proceeds, and have added almost $7 per share to our economic book value, which currently is around $24 a share.

Our equity kickers are a unique facet of our business approach, one that we believe significantly differentiates us from our peers. The equity kickers are an integral component of our business, and we now generated a positive impact from them in 12 of the 15 quarters since transitioning to a public company.

These kickers have also generated significant tax-deferred cash proceeds. This has substantially increased our liquidity and capital base, which has proved to be especially important in today's difficult market, and our focus will be to add new equity kickers in this environment.

One of our key strategies has been to continue to focus on preserving and maximizing liquidity, as well as improving our financial facilities and capital structure. As I mentioned on our last call, in a down market, you never have as much liquidity as you would like. So our primary focus has been, and continues to be, maximizing the liquidity of the firm.

We are pleased with our progress, and will continue to work extremely hard on this objective. We remain very selective in deploying our capital, and continue to examine alternative ways to access capital and improve our funding sources, including potential acquisitions and joint venture funds.

We also continue to strengthen the right side of our balance sheet during the quarter, focusing on replacing some of our short-term debt and longer-term non-market to market facilities. We entered into two new financing agreements, replacing short-term facilities with one of our [lead] banks.

This included around $550 million of three-year term debt, which effectively replaced a significant amount of short-term financing with longer-term debt, and eliminated mark-to-market risk as it relates to interest rate spread on these assets.

We also added a $200 million revolver to this term facility, specifically to fund new investments. We are very excited about entering into these facilities, and now combined with our CDOs and trust-preferred securities of over 75% of our committed debt non-market-to-market and secured for the long term.

Additionally, with the modernization of our Toy equity investments, we generated around $40 million in cash during the quarter, and around $200 million cumulatively from our equity kickers, which has contributed greatly to our liquidity and capital base.

So as a result, we currently have around $150 million in cash between cash on hand and cash available in our CDOs, and around $250 million of capacity in our financing facilities. In addition, we are expecting runoff over the next months of around $300 million to $500 million, and combined with our [cash and capacity outlines] we feel this puts in a good position to have adequate capital, to continue to operate our business effectively.

As I touched on earlier in the call, another critical objective has been to transition our portfolio to [higher quality] by originating loans more in the middle of the capital structure, and we have been very successful in achieving this goal.

This quarter, we added $116 million of new loans and investments, of which $75 million was funded. Runoff for the third quarter came in at $138 million. This resulted in net growth in our portfolio for 2007 of around 30%.

Some of the runoff we were expecting in the fourth quarter is now going to occur in the first quarter of 2008, which is estimated to be around $300 million to $500 million. So we do expect our portfolio to shrink here a little, as we are looking to preserve capital and be very selective and patient in deploying our capital.

We are very careful and conservative in this environment, and have started to see the market reach a different level on spreads and loan dollars for new products. We expect to continue seeing it for a while as market buys continues to be negative.

We think this will create significant opportunities to originate well-structured, lower-risk loans at wider spreads, with the ability to produce new equity kickers as well. But we do think the market will continue to struggle. And our strategy is to monitor the market and be very prudent, patient and selection in deploying our capital as we look to take advantage of wider spreads on investments, replacing our runoff with higher yields and longer-term product.

We are not interested in building a short-term portfolio, and therefore will be very careful in entertaining new transactions. We are more interested in originating longer-term, high-yield assets, creating a portfolio with reoccurring long-term value, rather than putting our capital out there for the short term.

We have always talked about how important our asset management function is to us and is clearly one of the keys to our firm's success. In these difficult times, it is more critical than ever to have the experience and ability to manage assets with difficulties.

I want to take a moment to stress the importance of having a strong management team. I truly believe that, in this environment, having a tenured, experienced management team, with the skill of evaluating and mitigating risk is critical.

As the current environment lends to a lack of liquidity, we have been very aggressive in proactively working with our borrowers to stay ahead of the curve and taking a hands-on approach to help them understand their options before issues arise.

This environment affects every lender as we do expect some degree of stress on transitional loans, as borrowers have difficulty in securing new financing. Clearly, the objective here is to be proactive and minimize any potential exposure in our portfolio.

We are also proactive in assessing any potential risk in our portfolio. At least once a week, as part of a special executive committee that was formed last summer, I personally review every loan in our portfolio. In addition, we perform a very detailed quarterly review of our portfolio, and as a result of this analysis, we did book a $2.5 million loan loss reserve on two multi-family loans during the quarter.

We feel that, based on market conditions, values and operating status on these two properties, it is prudent at this time to record these reserves. As active managers, we will work very closely with these borrowers and monitor these properties, as well as market conditions, to minimize any potential loss on these assets.

Although we are not immune to the effects of this market, we are pleased with the overall credit quality of our portfolio, given the current environment. We will continue to monitor our loan portfolio very carefully, and remain actively involved in educating and assisting our borrowers in this difficult market with an eye on minimizing losses.

Lastly, as we stated in our amended schedule 13D last week, we have nominated a slate of seven directors to run at the 2008 annual meeting of CBRE Realty Finance. CBF announced on Monday, February 4, that they have accepted our nomination as timely.

This was a minor issue concerning the appropriate time to nomination under CBF's bylaws and proxy disclosure. We are very pleased that this issue has been resolved, and that CBF recognizes the importance of its stockholders having a choice at this year's annual meeting.

We believe that the proposed slate of qualified directors is well-equipped to evaluate strategic alternatives to, first and foremost, protect our investment, and in turn, maximize shareholder value.

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

Thank you, Ivan. As noted in the press release, our earnings for the fourth quarter were $0.75 per share on a fully diluted basis. We had another very profitable quarter and closed out 2007 with record earnings of $4.44 per share.

The fourth quarter numbers did include $2.3 million in income from our equity interest in the Toy properties. This was mostly due to receiving a $39 million cash distribution from the recapitalization of the 1107 Broadway property in October. We've also retained a 10% interest in the property for around $5.7 million in invested capital, and the details of how this was reported for accounting purposes were laid out in the release.

Our equity kickers are a key component of our business model. And we now have 15 of them in the portfolio. Our goal in 2007 was to monetize these equity kickers where appropriate. And we were extremely pleased with the results. We generated around $170 million in cash and around $35 million in income in 2007.

Cumulatively, we have received around $200 million in cash and recorded about $67 million income from these investments since our inception. And we've now had a positive impact from one or more of our equity kickers in 12 of the 15 quarters since going public.

These kickers have added almost $7 per share to our economic book value, which now stands at around $24, if you add back the temporary change to the value of our interest rate swaps. We've also been extremely successful in structuring a significant amount of these distributions in a tax-efficient manner, which has allowed us to recycle a substantial amount of capital, creating significant additional liquidity.

In addition, the fourth quarter included a $1.2 million reduction in interest expense or almost $0.04 per share for a change in the market value of certain interest rate swaps, which GAAP requires us to flow through earnings. These swaps effectively swap out assets in our CDOs, which pay based on one-month LIBOR, and our CDO debt, which is based on three-month LIBOR.

The large increase in the market value of these swaps was due to a change in market outlook on interest rates and spreads as of December 31, 2007. All things being equal and considering no further changes in market outlook going forward, the value of these swaps will decline, returning to par by the maturity of the trades. If the market outlook for rates and spreads fluctuates, these trades could produce changes in value, which would increase or decrease our earnings going forward.

We also recorded a $2.5 million provision for loan loss on two multi-family bridge loans, with an unpaid aggregate principal balance of around $58.5 million during the quarter. As Ivan mentioned, we are taking a very proactive approach in assessing any potential risk in the portfolio, and based on market conditions for these assets, feel that it's prudent or record these reserves at this time. We will continue to actively manage our assets to minimize any potential losses.

And now, I'd like to take you through the rest of the results for the quarter. First, our average balance in core investments grew about $56 million from last quarter, due to our third quarter growth as well as our fourth quarter runoff occurring late. Our core interest margin increased about $1.4 million or 7% from last quarter.

The yield for the quarter on these core investments was around 8.95%, compared to 9.27% for the third quarter. We did have some acceleration of fees in both quarters, which happened frequently, when loans pay off prior to maturity, with more of these fees coming in the third quarter.

So the yield on these core assets, excluding these fees, was around 8.89% for the fourth quarter, compared to around 9.16% for the third quarter; the decrease in yield on our core investments is a result of the decline in the average LIBOR rate during the fourth quarter, partially offset by LIBOR floors on a certain portion of our portfolio.

In addition, the weighted average all in yield in our portfolio was 8.56% at December 31, 2007, down from around 8.81% at September 30, 2007. This decrease is primarily due to a 52 basis-point reduction in LIBOR, partially offset by the fixed-rate loans and LIBOR floors in our portfolio.

And since December 31st, LIBOR has declined about 140 basis points. Applying this decrease to our December 31st portfolio, the weighted average all in yield would be around 8.15% at February 1, 2008. This is down only around 40 basis points from December 31st, due to approximately 32% of our portfolio being fixed-rate, along with around 60% of our variable-rate loans having LIBOR floors above the February 1st rate.

In addition, we are estimating runoff for the first quarter to be around $300 million to $500 million at higher rates, the bulk of which have LIBOR floors in the money, so the decline in LIBOR combined with our estimated first quarter runoff will result in a reduction of our first quarter asset yields. We believe some of this reduction will be offset by opportunities for higher yields and new originations.

Our average cost of funds this quarter was approximately 6.51%, compared to 6.84% from the prior quarter, excluding some unusual items, including the reduction in interest expense from our swaps that I just mentioned. Our average cost of funds was approximately 6.72% for the quarter, compared to around 6.92% for the third quarter.

This reduction was primarily due to a decline in average LIBOR, partially offset by increased cost of funds from the term debt facilities we entered into during the quarter. The decline in LIBOR since December 31st will reduce our borrowing cost on the portion of our liabilities that are floating, which will be slightly offset by the full effect of increased rates in our term facilities in the first quarter.

Next, the average balance on our debt facilities decreased by around $15 million from last quarter. This is primarily due to funding new investments with cash received from our equity kickers and some of our restricted cash, as well as moving some of our assets into our CDOs.

So as we look ahead at first quarter margins, the significant decline we have seen in LIBOR from December 31 will increase our net interest spread due to the amount of fixed-rate loans and LIBOR floors in our portfolio.

However, estimated first quarter runoff, combined with our strategy to be very selective in deploying our capital, will likely reduce our portfolio, resulting in an overall decrease to our core net interest income in the first quarter.

Now looking at leverage, the average was around 75% on core assets for the fourth quarter, down from around 78% for the third quarter, including the trust preferreds as debt, the average leverage was 86% for the fourth quarter, as compared to 88% for the third quarter.

Our overall leverage ratio on a spot basis was around 2.6 to1 at both December 31st and September 30, 2007. If you include the trust-preferred securities as debt, the overall leverage ratio was 4.8 to1 at the December 31 and 4.7 to1 at September 30th.

There were no significant changes on the balance sheet since last quarter, but I'd like to provide some clarification on a couple of line items. The restricted cash balance related to our CDOs did go up by about $12 million on a spot basis from September 30th to December 31st.

But the average balance of restricted cash outstanding for the two quarters actually decreased $55 million, from $189 million on average for the third quarter, to around $134 million for the fourth quarter. As I mentioned before, this is primarily due to deploying some of our restricted cash to fund new investments and transferring some of our loans into our CDOs.

In addition, other comprehensive losses increased by about $26 million for the quarter. As you know, our strategy is to match fund out business as best as possible, and so to the extent we have floating-rate debt that is financing fixed-rate assets, we will generally swap them out to eliminate any interest rate and mismatch risk.

As interest rates have continued to climb, the market value of these swaps has gone down considerably. And GAAP requires us to flow that change to our equity section, which is primarily the reason for the change in other comprehensive losses.

GAAP does not permit us to market-to-market the associated liabilities or the assets that are match-funded with those liabilities. And we feel that if you were able to market-to-market those items, the increase in value would substantially offset the decline in the value of our swaps.

Turning quickly to some portfolio statistics, as of December 31st, we had about 68% variable rate loans and 32% fixed. By product type, about 63% was bridge, 13% junior participation and 24% mezz and preferred equity. And our portfolio had an average duration of around 35 months.

The loan-to-value of our portfolio was around 71%. Our weighted average median dollars outstanding was 48%. And, our debt service coverage ratio was 123 at December 31st, all of which is relatively unchanged from the prior quarter.

Operating expenses were fairly flat as compared to the previous quarter, with the exception of the incentive management fee, which was lower than last quarter, due to a large gain from our equity kickers during the third quarter.

And finally, as you know, we've recently announced a quarterly dividend of $0.62 per share of common stock. Our earnings of $4.44 per share for the year significantly exceeded our dividends, largely due to the substantial profits we generated from our equity kickers.

We've done an excellent job creating tax deferrals on a good portion of them, allowing us to retain and recycle a substantial amount of this capital. Our preliminary analysis indicates that we will be required to issue a special dividend of around $0.15 to $0.20 a share based on the current shares outstanding.

But because we did distribute a substantial amount of our required dividend in 2007, we are not required to distribute this excess amount until the due date of our 2007 tax return, which is September 15, 2008. Once we finalize the analysis, we will report the amount of the special dividend and the timing of the distribution to our shareholders.

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.

(OPERATOR INSTRUCTIONS)

Your first question comes from the lines of James Shanahan with Wachovia. Please proceed.

Thank you. Good morning.

Good morning, Jim.

I have a question about extended stay. Our lodging analyst here at Wachovia was suggesting to us recently that extended stay has experienced a modest drop in revenue per room in December and January. This would be the first decline that he's observed throughout his lodging segment.

And he had some ideas of what this might be attributable to, but I'd like to hear your thoughts, and perhaps just an update on the strategy there at extended stay.

Yes. First off I think, just on an overall basis, the RevPAR from '06 to '07 was up about 3.6%. December of '07 compared to '06 was off about 4%, and January is off about 1%. You know, clearly, two months -- and those two months being generally the worst of the months, it's hard to draw a conclusion in terms of the overall performance of what that -- what's taking place there.

On the other hand, we're fairly active in managing that investment and actually meet weekly. And I actually have access to Wachovia's information in terms of their research. So, we've actually stretched out -- different scenarios.

One of the benefits we have to absorb some softness in the sector is the fact that $5 billion of the $7 billion of the financing is [float-away] financing. And they've dropped basically 250 basis points on that $5 billion in the last 90 days. So we have an added cushion of additional cash flow of over $100 million on an annualized basis to absorb some softness.

If we take the most severe forecast by Wachovia's people in terms of the most severe circumstance on the lodging side, and even have a 5% reduction in RevPAR with the drop in LIBOR, we still have a positive cash flow scenario. But until we have at least three to four months under our belt in the first quarter, it's going to be hard to show whether there's any level of trend here.

Thank you very much for that, Ivan. And one brief follow-up -- related to the multi-family loans that were just -- for which there was a provision this quarter, are any of those multi-family loans also among the multi-family loans that have the equity kickers?

Yes, Jim. Hi, it's Paul. One of the loans that we did provide a reserve for does -- we do have an equity kicker on. The other one does not.

Okay. Thank you.

Your next question comes from the line of David Fick of Stifel Nicolaus. Please proceed.

Good morning. On those two multi-family loans, can you give us a little more on location and what your options are going to be there?

I think we're a little hesitant to talk about location, only because, it may affect our negotiations with our borrowers. But, we're evaluating all the alternatives. It's not a significant impairment on those assets relative to the overall value.

But I think with that question, I think it leads into a little bit of our philosophy at this point in time and why we're so aggressive. I think as times change, you're approach to loss mitigation changes. And, I think our attitude at this point in time is a quicker disposition is probably better; because our focus is more on liquidity and alternative uses for that capital.

So when you can redeploy that capital at a 20-plus return, and when you have more sense of liquidity, I think we're looking for a quicker disposition of some of these assets and don't mind if we have to incur a little bit of a loss, because we can recoup that extremely quickly. And, perhaps we're going to be a little bit more aggressive. We're a little more aggressive in posting loan loss reserves on those assets with that kind of change in attitude.

On a historical basis over the last several years, you had time to work those out. You weren't as sensitive to your liquidity. And your return profiles were less. You know, our returns were in the low teens. Now our returns are in the high 20 -- in the 20s. So I think that affects our attitude overall in terms of how we're approaching our loss mitigation provisions. And we're taking an extremely aggressive approach.

Okay, sure, thanks. This is, I think, if I'm correct, your first ever loss reserve. You've got about $2.5 billion of assets. How do you look at your, sort of, top-down view of loan-to-value, given that you've only got about $2.5 million of that $2.5 billion reserved today?

It is our first loss provision as a public company since, I guess, 2003.

That's right.

We've always tried to be as aggressive as we can to post loss reserves, as we've stated in previous calls, especially in light of the many opportunities we have when we do these equity kickers and don't get any value for them. And we've been unsuccessful in convincing our auditors to do that.

So to the extent we feel there's a level of impairment, we will post loss reserves. And these are the current loss reserves that we feel are appropriate. There's nothing else in our vision right now which would cause us to do that. But we should pay attention to the environment, you know, declining real estate values.

We have borrower liquidity issues. And, you know, in that kind of environment -- things change on a day-to-day, month-to-month basis. And, as we see them come up, we will deal with them and post them accordingly.

Okay. The CBF transaction I know it's hard for you to talk about publicly. But what kind of diligence have you been able to do there? And how can you proceed, given the number of portfolio issues that they have, without having some visibility inside both the company and its potential off balance-sheet liabilities?

I guess your question is would we proceed without an appropriate level of due diligence.

Yes, yes.

Okay. So the rest of the answer is we would not. As we proceed in the transaction, as we planned from day one, evaluating their assets is a critical component of acquiring any company, and we would act appropriately.

Okay, great. Thank you.

Your next question comes from the line of Dean Choksi with Lehman Brothers. Please proceed.

Hi, good morning, gentlemen. The anticipated prepayments I guess got pushed out into first quarter '08 and seemed to increase as well. Is that more, kind of, scheduled maturities? Or, is that borrowers prepaying loans? What's the dynamic going on there?

It's both, Dean. There are some scheduled maturities that are coming due in the first quarter. We were expecting some early runoff in the fourth quarter on some of those, and they got pushed out with liquidity issues. But we are seeing some prepayments as well. I guess there is some capital still to access. And we are seeing some prepayments on the loans as well. So it's kind of a mixed bag at this point.

And then, Ivan, in your comments, you sounded somewhat of a cautious tone. Given the prepayments that you have upcoming, your existing liquidity, what's kind of the timing to redeploy those proceeds? Or, kind of what are you waiting or looking for to see in the marketplace before redeploying those?

Yes. I mean I guess we would err on the side of having excess liquidity. And we do have a significant number of opportunities. And we'll pick and choose those opportunities that are appropriate.

And a lot has to do with, you know, the replenishment periods in our CDOs, making sure we have the proper mix of assets going through our CDOs, so they're long-term and we get the best results out of our CDOs. So a lot of it's timing and opportunity. But we are not in a rush. There are plenty of opportunities. And we can be extremely selective.

You know, we'll -- in this environment, you don't know whether you're payoffs occur or not. So you want to wait until you have that cash in the door before you redeploy and not be ahead of yourselves. And we do have the luxury of seeing a lot of opportunities and being patient on that redeployment.

And then one final question. Ivan, you mentioned that you were looking at JV opportunities. Can you elaborate on some of the things that you're looking at?

Yes. I think what would be a good guide, because I think Wachovia put out a report on some side (inaudible) funds that are possible. And you know, we've been evaluating, talking to a lot of people who want to invest in this sector. And clearly our platform is one to do that.

And given our broad reach and view of different product in terms of originating and/or purchasing on the market, we have a lot of access. And, clearly if we can utilize other people's capital and just a little bit of our capital and enhance our returns through promotes, that would be an attractive structure for us. And we've been evaluating those options.

Thank you.

Your next question comes from the line of Jeremy Banker with Citi. Please proceed.

Hi, actually all my questions have been asked and answered. Thanks very much.

No problem, Jim.

Your next question comes from the line of J.T. King with Cape Investments. Please proceed.

Good morning. You know, there's a lot of talk on the market about things being very aggressive on margin calls on warehouse lines. Are you seeing that? And when you say that your new facilities are not subject to mark-to-market risk, are they still subject to mark-to-market risk with respect to collateral? Just if you'd comment about that.

Yes. There are two ways to be -- to have a margin call. One is on spread, and the other one is on credit. So, our first level of concern was on the spread issue. And that's why we renegotiate our facilities, because A, that's the objective; and B, it's clearly our view that spreads would widen quite a bit. So for the most part, the majority of our portfolio addressed the spread issue.

In terms of credit and deterioration of credit, we still are subject to, margin call on credit issues. That has not affected us. Our portfolio is in good shape, and we're pretty comfortable with where we stand on that. However, that is some of the reasons why you want to have adequate liquidity, because if you do have some credit deterioration, you have to have the liquidity to deal with those potential issues.

And as Ivan mentioned, we did alleviate a significant amount of the subjective mark-to-market risk on interest spreads when we converted a large amount of our short-term facilities to a term debt. We don't really have much else in the way of warehouse debt that's subject to that. So it's definitely reduced exposure in that area.

Okay. Thanks a lot.

Your next question is a follow-up from the line of James Shanahan with Wachovia. Please proceed.

Thank you. A point of clarification please -- when you refer to the multi-family loans, the $58 million, just to be clear, I was looking through some of our disclosures here regarding your equity kickers. And it doesn't appear to me for investments such as Richland Terrace, Ashley Court, Nottingham Village, Lake in the Woods, that there was actually any dollars of equity that were invested in those kickers. Is that accurate?

Yes, that is accurate, Jim. Those equity kickers were obtained either by putting in a loan or from restructuring the loan. But that's correct. It wasn't really any equity dollars put into those equity kickers. That's correct.

Okay, got it. And so and then a follow-up -- when you talk about the $300 million to $500 million in runoff expected in the first quarter, are any of those loans also -- are they the multi-family loans that we're talking about in your projection?

[Hopefully] --

No, they are not.

Understood. Thanks very much.

Do we have any further questions?

Yes.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of Don Fandetti. Please proceed.

Hi, Ivan. How are you doing?

Okay, Don. How are you?

Good. One of the -- it feels like we might be in sort of a binary situation here with the CRE market. Are you incrementally more bearish here? And, you know, how much time do you think we have before things get really ugly in the market? Or are there things that give you comfort that liquidity is coming back in?

I have no comfort at the moment that liquidity is coming back in. I am very bearish. I've been bearish for a while. I think that '08's going to be just -- a negative environment for liquidity and securitization. So, that's on one side.

On the other side, if you have liquidity, if you have, you know, CDOs and the ability to build an asset base, you can do extremely well, because you'll be able to pick and choose and put on high-quality loans. So, we are extremely bearish here in terms of liquidity and securitization.

Okay. Thank you.

Your next question comes from the line of Dan Fischer with Wachovia Securities. Please proceed.

Hi, guys.

Hey, Dan.

Your ability to grow book value in this environment is incredible. And I just was curious, I mean, I can't believe you're too happy with your stock price based upon what you guys have done. And it sticks out, as a kind of a rarity among your peer group. Is there anything --

I mean --

-- price-wise that you think you can do it? I mean, obviously, to be above book value would give you a lot more flexibility.

Yes. I mean look, clearly anytime you're trading at a discount the book, and (inaudible) your book value. You're not happy about it. But that's a short-term phenomenon.

You know, we believe that, you know, this is an environment where there'll be a huge differentiation and perhaps a lot of the weaker companies will disappear. And when we come out of this cycle, we'll trade once again for a premium to book. And we just have to stick to building our business and utilizing these opportunities.

And, clearly the modernization of our equity kickers and the creation of additional, you know, book value without raising capital is a unique feature. And we do think that, in the next 12 to 24 months, we can once again regenerate some of those equity kickers that we did, two, three and four years ago.

These are those kind of environments where, with liquidity, and with expertise, and with having a solid core and foundation, you can create that kind of value. But those kind of values take time to surface. So if you put them on in the next 12 months or 24 months, you won't see the benefit of those until two, three or four years down the road.

Right. And I guess taking advantage of the low price-to-book ratios you're looking at buying things like CRE. So I guess --

Yes. I mean, there are different ways to do it. And, we've done them before. So we'll be extremely patient and figure out the best ways to navigate through this environment.

Can you -- I just heard the end there, there might be a special -- there's a special distribution that you talked about.

Yes.

What was the -- can you just repeat what you said? I wasn't --

Sure . We generated earnings of about $4.44 for the year. Our dividend run rate was about [248] for the year. We did have a significant amount of those earnings come from equity kickers, which we were able to generate tax deferrals on. But we weren't able to generate tax deferrals on all of them.

So our dividend was a little shy of the requirement that REITs distribute a certain amount of their taxable dividend, but because we distributed most of it in '07, we didn't have to distribute it by the end of the year.

So we're thinking it's $0.15 to $0.20. We've got get some more visibility from some of our equity investments we have, getting the K-1 information and tax information. But we think preliminarily, it'll come in $0.15, $0.20. We'll be able to pin that down before our tax return due date, which is September and we'll be distributing it at that point.

I mean we felt it was prudent to hold on to the capital as long as possible and get as little of the, you know, special dividend as you can. And we were very pleased with the results of being able to create a lot of tax deferrals on those equity

Great. All right. Thank you, guys.

The next question comes from the line of [Bill Orstern] with [Vallenor]. Please proceed.

Good morning, guys. Actually I have a series of questions. I'll fire them off. If some are repeated, let me know. I was wondering what the explanation for the -- I may have missed this. I apologize -- but the explanation for the $26 million decrease in OCI in the quarter was.

Sure.

Sorry. Why you just go one by one. Go ahead.

Sure. We do look to match off our interest rate risk. If we have fixed-rate loans on our books and we're financing them with variable rate debt, we will swap them out. The significant decline in the interest rates in this environment has considerably dropped the value of those swaps.

And the accounting requirement is that you mark-to-market those swaps and flow the change, although viewed as temporary, through your equity section. And that's the reason for the decline in other comprehensive loss.

Okay. So it's just the swaps that's causing that movement.

It's primarily the swaps, correct.

Okay. Is there anything else besides that?

There's a little bit of -- at December 31st, there was a little bit of mark-to-market on the stock we own in CBRE, but that value has since come back.

Okay. And how much do you guys generate in revenue from prepayment fees per quarter?

Well, that varies from quarter to quarter.

Yes. That varies from quarter to quarter. I mean, it's tough to put a --

Is there a range you can point me to, or --?

There's really not. I mean in past -- let's just not say prepayment fees. We have some prepayment fees, some extension fees, some acceleration of fees when loans pay off early, those types of fees, you know, have ranged from [500] to $1 million historically a quarter. It's been a little bit less as of late. But, it's in a range depending on what pays off.

Okay. And then how many loans were extended or restructured in Q4?

We did extend, I think about four or five loans in Q4 with some of our repeat borrowers. But some of those, I believe, Ivan, were extensions that were available in the agreements already. They just exercised their options --

Your question is how many were extended pursuant to loan agreements? Or, how many were extended pursuant to request from borrowers for an extension?

Both.

Okay. Well, we don't have that data currently available.

Yes.

But we can get that.

Yes. I don't have it right in front of me.

Okay. And were any restructured?

I think one or two were restructured -- when I mean restructured -- getting some higher interest rate, taking the term out a little longer. I think there may have been one or two. But I don't have that data in front of me.

Yes. We'll get you the information, because we have to be exact on that, because we're working on some clearly in the first quarter --

Right.

-- some in the fourth quarter. So, I don't want to misstate what that is. But it's not many.

Okay. And then finally, are you guys confident about the dividend at the $0.62 level, sort of, for the reset of the year?

I think we don't give dividend guidance. But clearly, in this market, we view obviously liquidity as a premium. So we are going to look to maximize the amount of liquidity and probably look to keep our dividend in the range that it has been historically on a run rate; and then evaluate whether there's a need for a special dividend at the end of the year.

Okay. That's very helpful. Thanks a lot, guys. Appreciate it.

(OPERATOR INSTRUCTIONS)

There are no additional questions at this time. I would now like to send the presentation back over to Mr. Ivan Kaufman for closing remarks.

First, I'd just like to thank everybody for their participation. Clearly these are, you know, difficult times. And in my view are going to be more difficult. And, the Company remains available to answer any questions in terms of their view on the environment, as well as any technical questions you may have on how we're doing. So once again, thanks for your participation. And speak to you shortly.

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