Arbor Realty Trust Inc (ABR) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2008 Arbor Realty Trust Earnings Conference Call. My name is Marisol and I will be your conference coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of the conference.

(OPERATOR DIRECTIONS)

As a reminded, this conference is being recorded. I would now like to turn the presentation over to Mr. Paul Elenio, Chief Financial Officer. Please proceed, sir.

Okay. Thank you, Marisol, 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 ended March 31, 2008. 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 and subject to risks and uncertainties 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 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 caution not to play undue reliance on these forward-looking statements, which speak only as of today, and 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. Now that the Safe Harbor is behind us, I'd like to turn the call over to our President and Chief Executive Officer, Ivan Kaufman.

Thank you, Paul, and thanks to everybody for joining us on today's call. We're pleased with our results for the first quarter as highlighted in the press release we issued this morning. In a moment, Paul will walk you through the financial results for the quarter, but first I would like to spend some time talking about our view of the market and our long-term approach and strategy to position ourselves for the successful navigation of these difficult market conditions.

As we talked about on our last two calls, the market is severely dislocated and there are significant liquidity issues facing our industry and all throughout the financial sector. We've see no indications of sustained recovery, and we re-affirm our position that this environment will be negative for some time, and thus, continue to plan accordingly.

Though we are pleased with our progress, including some strong results for the first quarter, we remain cautious and focused as these are very difficult times in a challenging operating environment and we are not immune to its effect. So with this in mind, the main areas I will address today are the credit quality and asset management of our portfolio, new origination opportunities, and our liquidity and financing sources.

In terms of new originations, this quarter we added $122 million of loans and investments and experienced [$155 million] of runoff, resulting in a 1% reduction of our portfolio for the quarter. This runoff was clearly lower than our projection of $300 million to $500 million. This was mostly due to us re-originating $119 million of product, a majority of which was scheduled to pay off in the first quarter, and extending $155 million of loans during the quarter in accordance with their extension options.

We are expecting a considerable amount of runoff over the remainder of the year, and as we said, we're going to preserve and be very selective in deploying our capital, which will likely shrink our portfolio over the short-term. We believe that the market will continue to struggle, and our strategy is to monitor it closely, being careful and patient, investing in opportunistic transactions with the potential for equity [kickers] as well. The goal here is to take advantage of this environment, and selectively originate longer-term, higher-yielding, low-risk assets, creating a portfolio with recurring long-term value.

We have always stressed the importance of having a seasoned, experienced asset management team and this has never been more critical than in this current environment. In these difficult times, it is more important than ever to have the experience and ability to manage assets with difficulties. I truly believe that we have one of the best asset management teams in the industry with a tremendous amount of experience and skill in evaluating and mitigating risk. We continue to be relentless with our hands-on approach of working with our borrowers and aggressively managing our assets.

Lack of liquidity in the credit markets effect every lender, and as we said, we expect some degree of stress on our transitional loans as borrowers have difficulty sourcing new financing. We will continue to be proactive in assessing any potential risks in our portfolio and based on these market conditions, record reserves on assets where we feel it is appropriate.

As I mentioned on our last few calls, I personally review every loan in our portfolio as part of a special executive committee that meets at least once a week. We also perform a very detailed quarterly review of our assets, and as a result of this analysis, we did book $3 million of loan-loss reserves on three loans during the quarter. We feel that based on current market conditions, values and operating status of these three properties, it is prudent at this time to record these reserves.

In addition, as I said on our last call, we clearly have a different view in this enviornment when it comes to loss mitigation. Our philosophy will be to resolve any potential issues quickly, minimizing losses and more importantly, recovering our capital. This will build up our cash position, allowing us to take advantage of the accretive of opportunities we think this market will have to offer.

As disclosed in our press release, we are pleased to report that we have been able to successfully resolve one of the assets that we previously recorded a reserve on. We have also entered into agreement on the sale of the other asset, which we expect to close any day now, putting these two issues behind us without recording any significant additional reserves.

In addition, we also made significant strides on the assets that we recorded reserves on during this quarter as we look to continue executing our plan and resolve these potential issues quickly. I also want to give you an update on the significant progress we've made on our investment in the extended-stay hospitality transaction. Over the last couple of months, we've accomplished a lot, including the retirement of outstanding bonds and the approval of the Company's budget with our lenders.

The budget approval was critical, given the level of excess cash flow that was captured by the cash trap in accordance with the loan documents, and now gives us the ability to access this cash to fund capital expenditures and purchase additional LIBOR caps.

Given these recent developments, we feel very comfortable with our investment, as well as the ability to manage through a recessionary and volatile environment for this asset. Additionally, as disclosed in our press release, we have a $70 million first [lien] position on a development project in New York City at 303 East 51st Street.

I'm sure many of you have heard by now about the tragic accident that took place in the middle of March relating to the development of this property. I'd first like to say that, on behalf of the Arbor family, we express our deepest sympathy to the victims and their families. Clearly, this unfortunate event is not something anyone could've expected or planned for.

As it relates to our business, we are working extremely hard and will continue to monitor the situation very closely, and will look to resolve this issue as quickly as possible. We feel, at this point, that our loan is not impaired and we should be able to recover our investment. We did stop accruing interest as of April 1st, and income will only be recorded upon receipt. In fact, as of yesterday, we did get most of the April payment in and are working with the borrower to work out an acceptable resolution for the rest.

Again, we are not immune to the effects of this market, but overall, are pleased with the credit quality of our portfolio, given the current environment. As active managers, we will continue to aggressively monitor our portfolio as well as market conditions very carefully with the goal of minimizing losses and resolving issues quickly.

Liquidity continues to be a primary concern for our industry and so one of our key strategies is to continue to preserve and maximize liquidity as well as improve our financial facilities and capital structure. Currently we have around $150 million in cash between cash on hand and cash available in our CDOs and around $225 million of capacity in our financing facilities.

And as mentioned, we are expecting a lot of runoff for the remainder of the year, which should enhance our liquidity position as well. As I said before, in a down market you never have as much liquidity as you would like and therefore, we will continue to work extremely hard at maximizing liquidity of the firm. We will remain very selective in deploying our capital and continue to examine alternative ways to access liquidity and improve our funding sources.

Looking at the right side of the balance sheet, we feel we have made significant progress in improving our funding sources and are in good shape. Our ability to replace significant amounts of our short-term debt with two non mark to market, three year term debt facilities was critical, including adding a $200 million revolver to fund new product. In addition, having $275 million of trust-preferred securities on the balance sheet is extremely valuable, and combined with our CDOs, we now have around 85% of our committed debt non mark to market and secured for the long-term.

Additionally, as we said time and time again, we've significantly monetized our equity kickers, generating around $200 million in cash distributions. This has increased our adjusted book value by around $7 per share to around $24 per share, and has contributed greatly to our liquidity and capital base. In summary, we've worked very hard at executing our strategy and we are pleased with our overall accomplishments. Clearly, these are difficult times and we'll remain very focused on actively managing our portfolio and looking to increase and preserve our liquidity position and capital structure.

Again, this will allow us to invest opportunistically, with the goal of creating a higher-yielding, low-risk, long-term book which will be very accretive to earnings over the long haul. Lastly, as stated in our amended 13-D last week, we did come to an agreement with CBRE that we will not initiate a proxy fight and we will withdraw our slate of nominees, and CBRE has agreed that if it runs a sale process, we will be able to participate.

It was always our objective to sit down with CBRE and try to work out a deal, and we're pleased this puts us in a good position to do that and avoid a lengthy, adversarial and expensive process of a proxy contest that would also be very distracting to our management. I will now turn the call over to Paul to take you through some of the financial results.

Okay. Thank you, Ivan. As noted in the press release, our earnings for the quarter were $0.62 per share on a fully diluted basis. The first quarter numbers included a $3 million provision for loan loss, or around $0.09 a share, on three loans with an unpaid principal balance of $70.2 million.

We now have $4.5 million of loan-loss reserves on four loans totaling around $84 million as of March 31, 2008. We will continue to take a proactive approach in evaluating our portfolio, recording reserves where we think it's appropriate, and resolve any issues quickly, looking to recover and recycle our capital. In addition, we realized a $1.2 million loss on our investment in the Lake in the Woods property, $1 million of which was reserved for in the fourth quarter, and $200,000 was expensed in the first quarter. As Ivan mentioned, we've maintained our aggressive stance towards asset management and made significant progress on loans with potential issues, and will look to resolve them quickly.

We also recorded a $300,000 gain during the quarter from our 25% equity kicker interest in the Richland Terrace deal. This distribution was the result of a re-finance of the debt on the property and we've still retained our 25% upside. Our equity kickers have always been a key component of our business model and we've now have had a positive impact from one or more of the kickers in 13 of the 16 quarters since going public.

As Ivan mentioned, we've generated around $200 million in cash, and also recorded about $67 million of income from these investments to date. These kickers have added almost $7 per share to our adjusted book value, and we've also been extremely successful in structuring a significant amount of these distributions in tax-efficient manners, which has provided us with a substantial additional source of capital.

And now, I'd like to take you through the rest of the results for the quarter. First, our average balance in core investments declined about $87 million from last quarter. This was due to the runoff in our portfolio from the last two quarters, and being selective in deploying our capital. The yield for the quarter on these core investments was around 8.35%, compared to 8.95% for the prior quarter. Without the acceleration of fees that loans pay off prior to maturity, the yield in these core assets was around 8.33% for the first quarter, and around 8.89% for the fourth quarter.

This decrease was the result of a decline in the average LIBOR rate during the first quarter, partially offset by LIBOR floors on a portion of our portfolio. In addition, the weighted average all-in yield on our portfolio was around 7.70% at March 31, 2008, on a pro-forma basis, compared to 8.56% at December 31, 2007. This decrease was primarily due to around a 190 basis-point reduction in LIBOR and some of our non-accrual and restructured loans, including the 303 East 51st Street asset. This reduction was largely offset by approximately 70% of our portfolio that is protected from a decrease in LIBOR through fixed-rate loans and LIBOR floors.

The average balance on our debt facilities decreased around $56 million from last quarter, and this was primarily due to the net runoff we saw in the first quarter, partially offset by additional cash posted as collateral and the decline in the value of our interest-rate swaps. Our average cost-to-funds for the first quarter on these debt facilities was approximately 5.64%, compared to 6.51% from the prior quarter. Excluding some unusual items, our average cost-to-funds was approximately 5.68% for the first quarter, down from around 6.72% for the fourth quarter, primarily due to a decline in the average LIBOR rate during the quarter on around 65% of our debt that is floating.

In addition, we are estimating our average all-in-debt cost to be approximately 5.35% at March 31, 2008, excluding any changes in the value of certain interest-rate swaps which flow through interest expense. So overall, the first quarter normalized net interest spreads on our core assets increased to 2.7% from 2.2%, and our core net interest income increased about $1 million, or 5%, from last quarter. This substantial increase was largely due to the positive effect on our portfolio that the significant decline in LIBOR had because, again, around 70% of our assets are protected through fixed-rate loans and LIBOR floors, while about 65% of our debt is floating.

These first quarter numbers did come in better than we anticipated due to less runoff than expected, mainly due to re-originating and modifying some of our projected payoffs. Looking ahead at our second quarter, we are expecting around $200 million to $300 million of runoff at higher rates, a portion of which have LIBOR floors. And this combined with the strategy of being very selective in deploying our capital, as well as some non-accrual and restructured loans, will decrease our portfolio and reduce our net interest spreads and core net-interest income for the quarter.

Some of this will be slightly offset by the full effect of the decrease in LIBOR we saw during the first quarter, as a greater portion of our assets are locked in than our liabilities due to the fixed-rate loans and LIBOR floors in our portfolio. However, LIBOR has come up slightly since March 31st, and any further increases in LIBOR would reduce some of the benefit of these floors. In addition, as we mentioned, we will be very selective in deploying our capital, looking to take advantage of the higher-yielding opportunities available in today's market. We feel this will be very accretive to our earnings in the long-term, but due to our patient approach, there will be a bit of a lag from the accretive effect of these new investments on earnings.

Next, our leverage ratios came in around 75% on our core assets, and around 86%, including the trust preferreds as debt, for both the fourth and first quarters. Our overall leverage ratio on a spot basis was around 2.7 to 1 at both March 31, 2008, and December 31, 2007, and around 2.5 to 1 at March 31, compared to 2.6 to 1 at December 31, adding back the decline in the value of our interest-rate swaps to both periods. Looking at the balance sheet compared to last quarter, there are a couple items worth noting.

Restricted cash related to our CDOs did go down about $63 million on a spot basis, mainly due to us funding new investments with CDO cash and transferring some of our assets into our CDOs. But the average balance on restricted cash outstanding was pretty flat, with $134 million for the fourth quarter, compared with $136 million for the first quarter. In addition, other comprehensive losses increased by about $35 million for the quarter. This was primarily due to a significant decline in the market value of our interest-rate swaps, which GAAP requires us to flow through our equity section.

We generally have used these investments to swap out floating-rate debt that is financed with fixed-rate assets, and the decline in value is due to the sharp drop in interest rates. We do not mark-to-market the associated liabilities and assets that are being swapped. However, we feel that if we were mark-to-market those items, the increase in value would have substantially offset the decline in the value of our swaps, and therefore, adding back these unrealized losses, our adjusted book value stands at around $24 per share at March 31, 2008.

Turning quickly to some portfolio statistics, as of March 31 you will see things overall really did not change all that much during the quarter. About 67% of the portfolio was variable rate, 33% was fixed. By product type, about 63% was bridged, 12% junior participation, and 25% was [mezzanine] or preferred equity. And our portfolio had an average duration of around 33 months.

The loan-to-value of our portfolio was around 72% and our weighted average median dollars outstanding was 49%. Our debt service coverage ratio did improve to around [135] this quarter, from [123] last quarter, mainly due to the significant decline in LIBOR. 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, mostly due to the gain from our equity investment in the toy properties during the fourth quarter.

Finally, as you may have seen in our proxy filing, we did issue additional restricted stock grants for approximately 230,000 shares on April 2, 2008. 217,000 of the shares were issued to certain of our employees and employees of our manager, of which one-fifth [vest] immediately and the remaining four-fifths vest ratably over the ensuing four years. The other 14,000 shares were issued to our non-management directors as well. These stock grants will result in non-cash expense of approximately $1.1 million, or around $0.04 per share to our second quarter earnings. And with that, I'll turn it back to the operator and we'll be happy to answer any questions you have at this time.

(OPERATOR DIRECTIONS)

Please stand by for your first question. Your first question comes from the line of David Fick from Stifel Nicolaus. Please proceed.

Morning, gentlemen.

Hey, David.

The (inaudible) extended-stay transaction, you -- your basic terms are 12% return on preferred equity redeemable any time. Is that correct?

Could you re-ask that question? I'm not sure I understood it.

The extended stay investment, the basic terms are 12% return on your preferred position, redeemable at any time?

That's correct. It's a 10% pay, 12% return, and we have an equity interest in the deal of exactly 16%.

Can you review where we are in terms of the coverage numbers there right now?

Sure. I'll just give you overall. The challenge that we were able to overcome was, given the structure of the loan, all the excess cash trap, which was a significant amount, was being captured by the lender. We reached an agreement with the lender to allow the excess cash flow to be used for additional items such as CapEx, marketing re-initiatives and interest -- and buying interest-rate caps. The dollars that we were able to release from the cash trap were approximately $40 million to $50 million. Even after that, we're running in excess of around -- after all debt and everything -- in the current environment of around, of approximately $36 million excess cash flow.

And what are the occupancy trends for that portfolio?

We're running the occupancy trends right now at RevPar of minus 2% the first four months, and that's how we're budgeting the year. If we stretch the portfolio and we run RevPar at minus 3.5%, then there'd be excess cash flow of around $30 million. If we drop RevPar by around 5%, there's still excess cash flow around $16 million.

And you're receiving your 10% current pay?

Yes, 10% current pay, and we have an interest reserve that's set up with a replenishment add and a waterfall. And there's about $20 million set aside that's continually replenished.

Okay. This quarter you obviously were surprised by the amount of extension and re-origination that you were able to do. Can you give us a basic idea of what added equity you were able to extract, what the spreads were, what kind of fees were involved and what the LTVs look like on those, both extended and re-originated loans?

We don't - I'm not going to give you specific deal by deal, but I'll give you our philosophy. Basically, we treat any borrower we have who is up for an extension or needs an extension, [because]of market timing issues and a lack of liquidity, basically what the attitude is to seek what the market is and market terms.

And if our objective is to treat that as a new loan in terms of origination fees and market terms. And that's a process. And it's also our attitude that we'd rather re-originate a loan that we know and a borrower we know, than actually a new loan. And often that requires a pay down, interest reserves, other collateral, or restructuring if the market's changed.

And we're in a very favorable position in the sense that the borrower doesn't have additional closing costs, so in each particular transaction, the economics differ as the term differs. I will tell you that some of the loans that we extended six months ago -- are in fact, we extracted fees, higher rates, and are actually paying off now. So in most cases, if it's short-term we look to extract the right fees. Otherwise, we'd like to turn it into a longer-term asset which is really the goal of the Company in this environment is to lock in longer-term deals.

And, David, it's Paul. Overall of the, say, $120 million in loans we've re-originated or re-captured, $75 million of that we got some juiced up yields. They were modified for about a year term. The other $45 million was the Lake in the Woods deal, which the interest rate did drop on that deal from 7.75% to 6.25%. On the extended loans, it was about $155 million. They were extended in accordance with their extension options and they paid extension fees as required. And on the bulk of those loans, we did get extension fees.

Overall, what I think it did for us is the loans we originated during the quarter did have slightly lower yields than the loans that ran off, but by modifying some of the new loans and extending some of the loans that had extension options, it washed in that our yields came in about par for the quarter and we didn't really have any compression.

Great. My last question, the midtown crane accident, what are your options there? And obviously you don't want the loan back, so any sense of when it becomes a performing loan again?

Well it's a complex situation. As you know, there were seven people killed so there are a lot of insurance issues to work out. The city's had a lot of turnover in that department and we have to work through a stop order. The loan was actually due to be paid off through a construction loan on the takeout, so that's getting re-looked at. So it's a matter of being patient, working with the borrowers through a very difficult situation. However, we're extremely comfortable with our value there and it's just a matter of being strategic and getting the right result, which we've been very effective with.

Thank you.

(OPERATOR DIRECTIONS)

And the next question comes from the line of James Shanahan from Wachovia. Please proceed.

Good morning, gentlemen.

Good morning, Jim.

Last quarter you'd given guidance for [pre-end] repayments of $300 million to $500 million. It obviously came in a lot lower than that due to all of these items and issues that you've discussed here. Are you comfortable estimating the, you know, what the ultimate contraction in the portfolio is likely to be or what your more recent estimates are for pre-end repayments in, say, the second and third quarter?

Yes. I think, Jim, certainly with the crane issue we would have seen what we thought was more payoff there. It's tough to be real comfortable, obviously, given the environment but the $200 million to $300 million that I guided you to today is really $200 million to $225 million as scheduled to repay. We did see about $75 million of runoff already in April, so we're pretty comfortable that that $200 million on the bottom number looks about right. But it's a different environment you may see some extensions and some re-worked deals, but I think that number is a pretty decent number.

For the rest of the year, it's going to range. We'd probably see for the third quarter somewhere in that range again and maybe in the fourth quarter, somewhere in that range again. You know, it'll be tough to time it, but I think the $200 million to $300 million number is a pretty solid number right now, from what we see.

I apologize. I must have missed that. So -- but would you anticipate the portfolio to contract towards the next three consecutive quarters or do you think that the runoff will be replaced and, in fact, you may even deliver net portfolio growth in any or all of those three quarters?

You know, it's very hard to say, Jim. A lot has to do with the opportunities that we see and how patient we want to be. You know, clearly if we see great long-term opportunities with equity kickers we'll put our money out a little bit quicker. There are a lot of opportunities but, you know, we have to take our time and they also, when you're working on those opportunities, some can come on in a week or two, some take a month or two to structure, so there could be a little bit of a lag.

In terms of repayments, you know, it is our best guess. The market is a difficult market. And people's options are changing by the day, so you know, it's hard to forecast with a great deal of certainty. And in many cases, we do look at extending a loan or re-origination as a new loan.

Right. Okay. And with regards to liquidity, I have a copy of your [new] Liquidity schedule here for, as reported for the December quarter. I'm curious, can you comment on any upcoming maturities, of repurchase agreements, bridge loan warehouses, et cetera, and how you would anticipate those to be resolved?

Okay, Jim, it's Paul, I think just looking at our balance sheet now in the end of March, let's look at what contractual commitments we have coming in the next 12 months. Clearly the WAMU facility, as we've disclosed, needs to be paid by the end of the year. That's about $45 million. We probably have $50 million to $60 million in unfunded commitments and loans throughout the rest of the year. The rest, we have to pay down our term-debt facility, as you know, to $300 million and we're well on our way to doing that. We're at probably $360 million now, and that gets done usually through scheduled maturities, so that's not a cash need.

As far as the stuff that's coming due, we have two particular facilities coming due before the end of the year. While we can make no assurances, we do anticipate that we'll be able to renew those facilities. We have very good relationships with those banks, we do anticipate being able to renew those facilities, and we're not rejecting that those deals were going to have to be repaid by the end of the year. Having said that, there are only about $150 million worth that comes due by the end of the year.

Okay. Thank you. And one quick question, the loan that was on, that was characterized as non-performing, I think it was small. Can you discuss what your outlook is for that particular asset? Thanks.

Well, we did just recently as you may have seen in the press release, via UCC foreclosure, we did take control of the asset and now have the -- own the equity in the asset and we assume the first. So I don't know if you want to give an outlook --

We're very comfortable with the asset. We'll take control over it. There's excess, there's enough cash flow to cover the debt and there's also excess cash flow, you know, to service our investment and it's a high-quality asset. And we have a borrower who had financial problems who was not running the asset properly and the asset was deteriorating. He was not paying on his terms, so we stepped in and took control of the asset. We're very comfortable with the quality as well as a realization on that asset.

Thanks again.

And our next question comes from the line of Kathy Jassem from Sturdivant. Please proceed.

Can you discuss your investment in CBRE? Do you intend to keep -- to retain it, and what was your rationale for backing away from the board?

Well it was always our intention to sit down with the management of CBRE and try and do a transaction. We thought that given the current environment there'd be a very, there would be very good synergies between the companies and we could not get that audience. And I guess we acquired a position because we felt it was something that we wanted to pursue. We're very comfortable with our position and we were prepared to go for a proxy fight and move this thing forward.

As you saw, they did hire Goldman and as it was getting close to the proxy fight, our management teams had spoken and we got what we wanted, and that was to be included in the sales process. And we're fairly confident, given the market, that there's a good probability that they'll sell, and if they sell, we'd rather be on friendly terms and have a seat at the table than be adversarial. So we're very comfortable with the result.

Thank you.

And the next question comes from the line of [Piel Austern]. Please proceed.

Hey, guys. I'm sorry, could we just go over the numbers you just mentioned on what needs to be repaid over the next 12 months? It sounded like there was $45 million on WAMU, you have $50 million to $60 million committed on new loans, $60 million on a term loan, and then another $150 million on top of that for two facilities that you guys expect to extend, is that right?

Yeah. There's $150 million in the re-purchased warehouse facilities that has [charities] before year-end. But again, we fully expect to extend, and they have extension options. We've had good discussions with those banks and we have no indications now that they won't be extended.

As far as what needs to be funded before the end of the year, $45 million in WAMU, about $50 million in further commitments on our loans, and the term debt facility needs to come from the, from about $440 million that you see at the end of the quarter, down by about $80 million to $90 million. However, we've paid down $30 million already through April, so we only have about $50 million to go. And that doesn't come out of cash flow. That comes from natural maturities of the loans as we project them forward. So the way we look at it, our cash need for the next 12 months is really about $100 million, which is WAMU of $45 million and unfunded commitments of about $50 million.

And, you know, we have ample capacity either now or over time in our CDOs in the event that loans do not pay off or we're not successful in those extensions to be able to accommodate that situation.

So all those commitments, they fall within whatever restrictions you have on the CDO? In terms if there's a box, those commitments can fit in whatever box --

You mean the loan? Yes.

Okay. And then, I was just trying to quantify your commentary. I understand that the 51st Street loan will not accrue Q2 through Q4, I suppose. So that's sort of a deduct, it seems, from interest income. And then --

Well let me comment on that. We're being very, very conservative on that. I mean, the borrower has a lot of complexities, a lot of issues. There are a lot of insurance claims here, so we're working with the borrower day by day. And as I just mentioned to you yesterday, we got most of the payment for this month in. They do have access, after certain windows, to certain insurance proceeds, but I would guide, to be very conservative, and if we're successful, it'll be a better result. But in this environment, I'd rather be conservative.

Okay. And then Paul, it seemed like you were trying to -- I'm trying to quantify your statement in terms of what happens to interest income on your expectations for the runoff this quarter and going forward. So excluding any capital you put to work, can you quantify, sort of, what the hit to interest income is?

No, we can't quantify it but we're guiding $200 million to $300 million in runoff at higher rates. As I said, we had $75 million burn off already at about 10.25%, where we're looking to be selective in deploying the capital. I did give you weighted average kind of spot yield as of March 31st, assuming that we don't receive any additional interest income on the 51st Street deal, the conservative approach. So I think if you just take the portfolio and project out that rate, add in something for whatever you think originations would be, and then take the runoff at a rate, you can get to the result.

Okay. And then, what's been the pricing on the extended facility? In terms of, you said you had an option to extend the $150 million. Is there a pricing change there if you do extend?

No, I don't believe so. But you need to go through the negotiations. That's not something, I believe, is in the documents. It's just a -- pretty much extension. They go through, look at the underwriting and then just extend it out for the year based on the same terms.

Okay. And then just one last question. I guess, based on the change in valuations of comps -- I'm not really, frankly, quite sure what auditors look at, but is there any risk of an impairment on the extended-stay investment?

No. I mean, actually, we've improved our position on the extended stay through these negotiations and we're quite comfortable with where we stand.

Okay. Thanks, guys.

You're welcome.

No further questions at this time. We would like to turn the presentation over to management for any closing remarks.

Okay. Thank you, everybody, for your time and we look forward to being in contact with you.

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