Arbor Realty Trust Inc (ABR) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter and full-year 2014 Arbor Realty Trust earnings conference call. My name is Sheila and I'm the operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Paul Elenio, Chief Financial Officer. Please proceed, sir.

Okay, thank you, Sheila, 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 year ended December 31, 2014. 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 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 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 everyone for joining us on today's call. As you can see from this morning's press release, we finished the year with very strong results and have also achieved some extremely significant milestones in the first quarter of 2015.

Before Paul takes you through the financial results, I would like to reflect on how we closed out the year touching on some of our more significant accomplishments, and then turn my focus to our business strategy and outlook for 2015.

2014 was a tremendously successful year for us on many fronts and we are very excited about the opportunities we foresee for the future. As we laid out very clearly in the beginning of 2014, we were faced with several challenges and key objectives that we needed to resolve and achieve in order for us to maintain our earnings and dividends in 2014 and, more importantly, transition and position us for significant growth in 2015 and beyond.

We continued to make significant progress during the year in achieving these goals and completed 2014 with solid operating results and maintained our dividend. As we announced this morning, we successfully completed the deleveraging of CLO I in the fourth quarter and, more significantly, legacy CDO I and II in January resulting in the completion of substantially all the significant objectives we set out to achieve in order to grow our earnings and dividends going forward.

The recent unwind of a number of our securitization vehicles is a significant accomplishment which will result in substantially reduced debt cost, access to significant amounts of capital that were trapped in these vehicles to deploy into high-yielding investment opportunities and be a catalyst for substantial growth in our core earnings rate in 2015.

We are extremely pleased with our success in this area and believe we are now poised to grow our dividend as early as mid-2015. As we mentioned before, we were highly confident we could achieve our goals and therefore were very strategic and disciplined in our approach throughout 2014.

We experienced significant accelerated runoff during 2014, a substantial amount which was in our legacy CDO vehicles. This resulted in proceeds from the runoff not being available for reinvestment as the cash was temporarily trapped in these vehicles which continued to reduce our margins and delever these vehicles.

Therefore we worked exceedingly hard on raising the most cost-effective and accretive forms of capital in order to continue to fund our growing pipeline, allowing us to replace the majority of our runoff and maintain our margins.

We were very successful in this approach raising approximately $125 million of fresh capital in 2014 mainly by issuing senior unsecured debt instruments and preferred stock offerings as we are very sensitive to dilution given where our stock price was trading.

This allowed us to bridge the gap until we could successfully unwind the majority of our securitization vehicles which resulted in releasing a significant amount of cash equity that was invested in these vehicles which we will now use to fund future originations and grow our portfolio without an immediate need for additional capital.

As a result we now have approximately $80 million of cash on hand, roughly $90 million of cash available for reinvestment in our remaining CLO vehicles combined with approximately $120 million of additional unlevered assets from the securitization unwinds that we expect to monetize the majority of, and $75 million of capacity in our short-term credit facilities to fund our investment opportunities.

Additionally, we expect to unwind one of our remaining legacy CDO vehicles at some point in 2015, which should also generate additional cash and unlevered assets, adding further to our liquidity.

In 2014 we also continued to demonstrate tremendous success in growing our originations platform, allowing us to effectively replace most of our runoff with higher-yielding investments. We originated approximately $212 million of loans in the fourth quarter with an average yield of approximately 6% and generated levered returns of approximately 13.5% on those investments.

We closed out 2014 with total originations of approximately $900 million, which was an increase of approximately 50% compared to 2013 originations. Our 2014 originations had an average yield of approximately 7% and generated levered returns of approximately 14%.

We also have originated approximately $110 million of volume thus far for the first quarter of 2014 (sic) with an average yield of 8.5% and an estimated levered return of approximately 13%. And based on our active growing pipeline, we expect that we'll be able to maintain similar volume levels in 2015 as compared to 2014.

We remain extremely disciplined in our lending approach, continuing to focus mostly on multifamily whole loans, allowing us to invest in the appropriate part of the capital structure and generate strong risk-adjusted returns on our invested capital.

We experienced a significant amount of accelerated runoff in our portfolio in 2014, a fair amount of which was in our legacy CDO vehicles. We had approximately $280 million of runoff in the fourth quarter, $142 million of which was in our legacy CDOs, and had a total of approximately $972 million run off in 2014, $411 million of which occurred in our legacy CDO vehicles.

And while it continues to be very difficult to accurately predict what our runoff will be due to the continuing improving market conditions, the successful unwind of several of our securitization vehicles will allow us to reinvest proceeds from future runoff directly into new investment opportunities.

Additionally, we experienced approximately $85 million of runoff in the first quarter to date, the proceeds of which can also be redeployed immediately as the majority of this runoff was in our replenishable CLO vehicles.

We also continue to focus heavily on improving our liability structures which is a critical component of our business strategy. We successfully increased the capacity in our short-term lending facilities by $70 million in 2014 while reducing our borrowing costs in these facilities as well.

Additionally, in January 2015 we added a $150 million financing facility that was mainly used to redeem two of our legacy CDO vehicles. This facility has a term of two years with a one-year extension option and an all-in rate of 2.75%. We also redeemed CLO I in the fourth quarter by financing these assets in our existing credit facilities, reducing our debt cost going forward by 150 basis points.

As I mentioned earlier, these are significant accomplishments which will reduce our debt cost substantially going forward and allow us to redeploy the equity capital from our legacy securitization vehicles into high-yielding investments resulting in substantial growth in our core earnings run rate in 2015 and beyond.

We have also had tremendous success in adding to and improving our nonrecourse financing facilities. The depth and experience of our securitization team and our strong reputation in the market has contributed greatly to our success in this area and continues to allow us to be a leader in the commercial mortgage REIT securitization market.

We issued a third CLO in 2014 and will continue to pull collateral for future securitizations when available. This will allow us to continue to finance a substantial amount of our investments with nonrecourse, non-mark-to-market match-funded debt and deliver mid-teens returns on our capital while insulating us from market volatility.

Another significant accomplishment in 2014 was our ability to recognize the $58 million gain related to our interest in the 450 West 33rd Street property. This gain was deferred on our books for many years and was a significant component of our reported adjusted book value per share.

The resolution of this item resulted in us recording this significant gain and increasing our book value per share by $1.15, which accounted for the bulk of the increase in book value per share of $1.31 to $8.84 per share as of December 31, 2014.

We continue to look for ways to diversify our revenue sources and gain access to additional markets through new business opportunities. In January, 2015 we purchased 50% of our manager's indirect interest in a joint venture with a prominent private equity firm which operates a residential mortgage banking company for approximately $9.6 million.

This results in us owning approximately 22.5% of this residential platform. The primary operating business of this joint venture is the origination and sale of qualified residential agency mortgage loans on a non-qualifying mortgage loan platform.

We believe that at this point in the cycle an investment in residential mortgage banking lending business will generate strong returns on our capital while diversifying our income stream and growing our business platform. And while this venture is a new opportunity for the REIT, I personally, as well as a significant portion of my senior management team, have a tremendous amount of experience and expertise in the residential mortgage lending arena.

Now I would like to update you on our view of the commercial real estate market. Overall the commercial real estate market continues to improve, especially in the multifamily sector. Significant amounts of capital are constantly being invested in the space which has continued to increase the competitive landscape and compress yields.

We expect this trend to continue and therefore we remain disciplined and patient in our approach focusing mainly on multifamily bridge loans. We believe we are well-positioned and have a competitive advantage in the market by levering off of our manager who provides us with a consistent pipeline of multifamily bridge loan opportunities from a significant agency platform.

Therefore, despite the increasing competitive market, we feel confident that we will be able to continue to generate significant quality investment opportunities and strong levered returns through the utilization of our financing vehicles, increasing our core earnings over time.

In summary, we are extremely pleased to have substantially completed all of the key objectives we set out to achieve in order for us to significantly grow our earnings run rate for 2015 while producing at the same time very strong results in 2014 and maintaining our dividend.

We will work exceedingly hard on delevering and replacing our remaining legacy securitization vehicles and further enhance our liability structures through the continued access to the nonrecourse securitization market when available.

We are also very confident in our ability to continue to grow our originations platform and replace our runoff with higher-yielding investments which will result in future growth in both our earnings and dividends and allow us to ultimately achieve the long-term goal of increasing shareholder value.

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

Okay, thank you, Ivan. As noted in the press release, net income for the fourth quarter was $5 million, or $0.10 per share, and AFFO was $7 million, or $0.14 per share, adding back depreciation expense and noncash stock compensation expense.

Net income for 2014 was $27.7 million, or $0.55 per share, and AFFO was $37.3 million, or $0.74 per share, both of which exclude the large noncash gain on the 450 West 33rd Street transaction during the third quarter.

We ended 2014 with an AFFO return on average common equity of approximately 9% and produced a total shareholder return of approximately 9.5%. We recorded $1.2 million in loan loss reserves and had $3.9 million in recoveries of previously recorded reserves and gains from the sale of REO assets for net recoveries of $2.7 million during the fourth quarter.

We finished 2014 with $9.3 million of loan loss reserves and impairment charges and generated $10.9 million of gains from the sale of REO assets and recoveries of previous reserves during the year.

And at December 31, 2014 we had approximately $115 million loan loss reserves representing approximately 7% of the UPB of our loan portfolio. Additionally, we did sell the remaining piece of our equity investment in the 450 West 33rd Street property recording a gain of approximately $800,000 in the fourth quarter.

Looking at the rest of the results for the quarter, the average balance in core investments decreased slightly to approximately $1.64 billion for the fourth quarter from approximately $1.68 billion for the third quarter due to the fourth-quarter runoff outpacing or fourth-quarter originations.

The yield on these core investments decreased to 6.43% for the fourth quarter from 6.99% for the third quarter largely due to significantly more accelerated fees from early runoff during the third quarter than in the fourth quarter. And the weighted average all-in yield on our portfolio increased slightly to around 6.16% at December 31, 2014 compared to around 6.14% at September 30, 2014.

The average balance on our debt facilities also decreased to approximately $1.20 billion for the fourth quarter from approximately $1.23 billion for the third quarter.

The average cost of funds in our debt facilities increased to approximately 4.56% for the fourth quarter compare to 3.97% for the third quarter largely due to $1 million of deferred fees related to CLO I which were accelerated into interest expense when we unwound this vehicle in the fourth quarter, combined with accelerated runoff in our legacy CDO vehicles the proceeds of which were used to pay down lower cost debt.

And our estimated all-in debt cost was relatively flat at approximately 4.07% at December 31, 2014 compared to around 4.06% at September 30, 2014. If you were to include the dividends associated with our perpetual preferred offerings as interest expense, our average cost of funds for the fourth quarter would be approximately 4.83% compared to 4.27% for the third quarter and our estimated all-in debt cost would be 4.36% at December 31, 2014 compared to 4.35% at September 30, 2014.

Our overall debt cost did increase in 2014 largely due to the issuance of our senior unsecured notes and perpetual preferred stock offerings which carry higher interest rates that our overall debt facilities.

As we mentioned earlier, we were very confident we would be able to delever and redeem most of our legacy securitization vehicles, generating significant liquidity to fund our future investments. And therefore we strategically decided to raise capital in the form of debt as an attractive alternative to raising dilutive common equity while we were delevering these vehicles to fund our loan and investments.

This increase in overall debt cost is temporary as we have the ability to call both the senior notes and preferred stock instruments over the next several years.

Additionally, with the successful redemption of CLO I in December, and legacy CDOs I and II in January, our overall debt cost will come down substantially in 2015 due to the termination of certain interest rate swaps associated with our legacy CDOs which were inflating our debt cost and from 150 basis points savings due to a significantly lower interest rate associated with our existing warehouse facilities which were used to replace CLO I debt.

Overall, net interest spreads in our core assets on a GAAP basis decreased from 3.02% last quarter to 1.87% this quarter. Including the trust preferred stock dividends as debt cost, our average net interest spread also decreased from approximately 2.72% last quarter to approximately 1.60% this quarter, largely due to significantly more fees from accelerated runoff during the third quarter combined with accelerated expenses associated with the early redemption of CLO I in the fourth quarter.

And our overall spot net interest spread, including the preferred stock dividends as debt cost, was up slightly to 1.80% at December 31 compared to 1.79% at September 30. And again, we expect these spreads to improve going forward from substantially reduced debt cost associated with redeeming certain securitization vehicles.

NOI related to our REO assets decreased approximately $1.4 million compared to last quarter due to the seasonal nature of income related to a portfolio of hotels that we own. We did produce NOI before depreciation of approximately $4.8 million from our REO assets in 2014 which was slightly higher than the $4.5 million we projected for the year.

As I discussed earlier, we sold two of our REO assets in the fourth quarter generating gains of approximately $1.8 million and we sold two additional assets in the first quarter of 2015 with estimated gains of approximately $4 million. Therefore the NOI we expect to produce in 2015 on our remaining REO assets is approximately $3 million to $3.5 million.

The projected NOI in our REO assets combined with the net interest spread on our loan and investment portfolio gives us approximately $44 million of annual estimated core earnings before potential loss reserves and operating expenses at December 31, 2014 compared to $48 million at September 30.

This reduction is mainly due to the temporary reduction in our net interest margin from the accelerated runoff we experienced in our legacy CDO vehicles during the fourth quarter combined with the reduction in projected NOI on our REO portfolio from the sale of certain assets.

As we discussed before, we were very successful in delevering and redeeming some of our securitization vehicles late in the fourth quarter and early in the first quarter which will substantially increase this core earnings run rate in 2015 from reduced debt cost and from deploying the trapped capital that was released from those vehicles into new investments with higher yields.

Additionally, we have a higher than usual amount of restricted cash in our replenishable CLO vehicles from accelerated runoff which, once it is redeployed in 2015, will also contribute to an increase in our core earnings run rate going forward.

Next, our average leverage ratios on our core lending assets remain relatively flat at approximately 63% including the trust preferreds and perpetual preferred stock as equity for both the third and fourth quarter and our overall leverage ratio on a spot basis, including the trust preferreds and preferred stock as equity, was also flat at 1.6 to 1 at both December 31 and September 30.

We did have some changes to the right side of our balance sheet this quarter including CDO debt declining by approximately $40 million mainly due to our third-quarter CDO runoff that was used to repay CDO debt in the fourth quarter and an increase of approximately $109 million in our short-term credit facilities and a decrease of approximately $88 million in our CLO vehicles largely due to the redemption of CLO I in the fourth quarter, the assets of which were transferred into our existing warehouse facilities.

Lastly, our loan portfolio statistics as of December 31 show that about 70% of the portfolio were variable-rate loans and 30% were fixed. By product type about 80% were bridge loans, 7% junior participations and 13% mezzanine and preferred equity. By asset class 73% of our portfolio is multifamily, 15% is office, 8% land and 4% hotel. Our loan-to-value is around 76% and geographically we have around 28% of our portfolio concentrated in New York City.

That completes our prepared remarks for this morning and I'll now turn it back to the operator to take any questions you may have at this time. Sheila?

(Operator Instructions). Steve DeLaney, JMP Securities.

Thank you. Congratulations, guys, on a very active and successful year. I guess I'd like to start with CLO I. When you referenced -- when you talked about that transaction you talked about the cost of funds benefit of 150 basis points.

It looked like there was about $38 million of equity in the structure and I'm just curious when you move that $125 million of collateral to the new financing facilities, did that -- roughly that amount of equity have to stay in underneath supporting the loans or was there any free up there?

Hey, Steve, it's Paul. It was pretty close. We did pick up a little bit but not a ton. the leverage points were pretty similar. But as we mentioned, that CLO was the first CLO we came to market with after the credit crisis and that CLO definitely had a much higher interest rate associated with it than the ones we've done since then.

So if you remember, the blended rate on that facility was about 4.35% with cost and we moved it into the lines which were about 2.70%, 2.80%. So we picked up a significant savings. But the leverage points were relatively similar. We did pick up a little additional leverage but not material.

So given that these are like floating-rate bridge loans I assume, do you tend to just leave them on your lines or would those loans be eligible to go into your next CLO -- new CLO (multiple speakers).

Yes, Steve it's Ivan. And thanks for your comments. So each asset is different. It depends on the duration and it depends on our judgment and how it fits. But the majority of them are eligible, it's just up to us what we want to do with them.

Okay, very good. Thanks. Moving to the CDO III, which is the last of the legacies, can you estimate for us how much equity you have in that structure at this time?

Yes, we can. Right now we've had some runoff, Steve, subsequent to year-end so it continues to delever that vehicle. And right now there's about -- I think about $135 million of assets in that vehicle and we have around $80 million of debt right now.

So there is significant equity there. It's about 55% to 58% levered and obviously our intention is if we can continue to get some or runoff -- we'll time that when we can, but our intention is to delever that vehicle as well as soon as we can.

Got it. Okay. And Paul you had -- you mentioned in your prepared remarks -- I didn't see it in the press release, but you mentioned that in the first quarter you've had further gains on the sale of two additional REOs. I think at year-end there was a remaining balance of real estate held for sale of $14 million. Due these sales pretty much wipe that out at this point?

Yes, that's correct, we did reclassify some assets to held for sale and those assets that were reclassified to held for sale get wiped out with the sales in the first quarter. Things have improved nicely in our REO book and we've certainly seen some activity on some very attractive prices and we've taken advantage of that and liquidated certain parts of our portfolio at what we think are really good values. But yes, it wipes out that held for sale component that's on the balance sheet.

And your decision to hold these after you took them back from borrowers, was that an intentional strategy to try to just manage to optimize the stability of the cash flow and then wait for a better day to liquidate? It seems (multiple speakers).

Yes, let me comment on that. Clearly these assets were suffering in the crisis and many of the sponsors didn't have the capital and liquidity to keep them up to the level and keep occupancies and CapEx. So we thought that by managing them and improving them and waiting for the market to improve while maintaining the quality of the asset would get us an optimal result and that was our strategy.

Okay. And just one final thing, because clearly the combination of REO sales and your equity investments or equity interest, if you will, have helped in 2014 deal with the challenges you had from the legacy CDOs.

Ivan, I'm just wondering, the new market, I know it's a competitive market, you're getting your share of loans. But back in the day you -- in many cases you were able to find transactions where you could extract an equity kicker. Do you see that type of opportunity in the marketplace today or are we really back to just a straight senior financing type of market?

I think those opportunities come up from time to time. It's really a matter of our focus really being on originating senior debt for the most part and levering it. And by originating senior debt and getting mid-teens returns we're pretty comfortable and it's a pretty conservative strategy.

We feel chasing equity kickers by a higher lever lending right now may not be the best time in the cycle. And those opportunities might not be as lucrative as they were if it was two or three years ago. But we're really pleased with our ability to take multifamily assets on a senior basis and lever them and probably get one of the best risk-adjusted returns in the market of any lender.

And also building the percentage of floating-rate assets for the inevitability of the Fed tightening. Listen, thanks. That's all I have, guys. Thanks for the comments.

Jade Rahmani, KBW.

Good morning and thanks for taking the questions. Can you give some color on the types of loans you're originating, particularly given the 8.5% yield you cited? What enables you to achieve that level of yield for example is it due to the average loan balance at around $10 million or existing relationships with the external manager?

Jade, you're talking about the guidance we gave on what we originated in the first quarter to date? The $110 million?

Yes.

There were a couple loans, and Ivan can comment further, but we did -- of the $110 million there are a couple of loans that were -- one was a preferred equity instrument which drives up the gross yield, but on a levered return basis it's pretty much the same because it's unlevered. And another one was a deal that was unlevered as well with a higher rate.

So we did have a few assets in that $110 million that had higher gross yields on them. But again, overall whether it's levered or unlevered, our target is the 13% to 14% range and that's why what we guided was that although that $110 million has an 8.5% gross yield, it's probably going to come in about 13%, 14% on a levered basis. It's just the mix of the product that we had so far through the first quarter.

Okay then you usually (multiple speakers).

But in general -- let me just comment a little bit more on that because in general we do mostly business with only our repeat customers. And on these smaller loans we tend to have a little more flexibility on yield.

On the one loan Paul was speaking about we did a highly structured transaction with a repeat customer that we've done several hundred million dollars worth of business over the last couple years and we were able to draw on our very significant yield to boost the overall upfront yield. And that's just a matter of having the relationships in the marketplace.

At this point, based on what you're seeing and your comments on the competitive environment, do you expect to use more structural leverage through preferred equity, mezzanine loans, subordinate type positions? Or do you think that you'll be still mainly doing whole loans?

We think we're going to continue to do similar to what we did last year. The manager produces a tremendous amount of opportunities for the REIT. The manager has a growing originations capability and we're just forecasting flat to next year from last year.

So we think we'll continue to do a significant amount of our production in multifamily senior debt and leverage that. And of course sprinkle in some of the other asset classes as well as some preferred equity and mezzanine and other types of assets. But primarily it will be multifamily senior debt.

Okay. Broadly speaking do you think the -- are you expecting the portfolio to be roughly flat for the year or do you think it has the potential to grow?

Yes, sure. As we guided in our prepared remarks, we expect to be able to produce similar volume in even a more competitive market this year than we did last year. I think last year we said we did about $900 million. We're expecting to come in at that range.

Very hard to guide on the runoff because we've seen so much accelerated runoff. We think our portfolio will grow. We think the runoff will be less, but it's very hard and very difficult for us to predict that.

However, having said that, the real difference in 2015 over 2014, Jade, is that if the runoff is more excessive than we think, and we're -- hopefully it won't be, it's a different dynamic for us this year. Because last year a lot of that runoff was trapped in these legacy vehicles and we couldn't access the capital. So we weren't able to take that capital, redeploy it and we went out and had to get debt or equity capital to do that.

This year, if there is accelerated runoff, all of those vehicles are pretty much unwound accept one. So we will have immediate access to that capital to put to work hopefully at higher yields. But right now very hard for us to tell you how much the portfolio would grow, but we do anticipate it will grow.

Okay. Just on the interest expense side, what do you think a reasonable blended cost of funds is factoring in the CLO unwinds?

I think the way I look at it, and it's difficult, right, to talk about the fourth quarter when you have so much positive stuff happen subsequent that really does pro forma-ly affect those numbers. So I think the guidance I gave on the call was that at the end of the year, if you count the preferred stock dividends as debt cost, and we do sometimes, our all-in blended rate was 4.36% at 12/31.

I will tell you pro forma after CDOs I and II were delevered in the first quarter, that blended rate dropped to about 4.07% so we saved about 30 basis points right there on our cost of funds.

Additionally, we do expect that we'll be able to continue to reduce those cost of funds with maybe some reductions in both our warehouse lines and hopefully be able to get, if the market permits, another securitization vehicle off down the road that will hopefully reduce those rates. But right now the pro forma rate is about 407 and we do expect that that can come down.

Okay. Do you think there will be accelerated financing fees in the first quarter like you experienced in the fourth quarter?

That will depend on whether we delever one or two more of the vehicles. If CDO III is delevered, and I don't know when it will be delevered, there really isn't much left in fees that we haven't brought into interest expense so I don't see that being a material acceleration at all.

I don't know what will happen with whether it's CLO II or not. It could have some accelerations in the first and second quarter depending on if we're able to delever one of the other CLOs. But it's tough to tell at this point because we're still working through that.

Okay. Just on the real estate operating property side, the owned real estate, are any of those assets going to be looked at to potentially be sold or give you those as core assets? And can you also remind us what drives the seasonality and if you expect for the full-year the real estate operating properties segment to be profitable?

Sure. Ivan, do you want to take the first part of the question on whether we're going to retain those assets or look to sell them and I will take the second part?

Sure. I think what we'd like to do on the real estate owned is once we get them up to a reasonable level, especially in today's market, we will look to exit them given the nature of some of them and the CapEx needed in the management. We've been executing them as we've moved along and the markets improved and the assets have hit the performance level we expect.

So I would think you will see periodically us to continue to liquidate those assets one by one. It's not part of our core operating strategy right now at this present time to hold those for the income that we derive off of those. So once we get them to an effective level or get an attractive enough price, you'll see consistent exiting of those assets.

And Jade, in my prepared remarks -- and I know that this is important for your model. In my prepared remarks, after the sale of the assets in the first quarter I guided you to $3 million, $3.5 million of NOI for the year. That's if none of the other assets are sold.

Obviously if they are sold then you will have maybe some gains, maybe not from the sales and that NOI will drop-off, but we'll get the capital to redeploy into our regular lending business.

As far as why there's seasonality, we do have a portfolio of resort hotels in Daytona Beach and that is an area where it's highly seasonal. They have several key events would be the Daytona 500 and Bike Week and things like that. But generally their first and second quarters are their strongest quarters and their third and fourth quarters are their weakest quarters and that's just the way that business runs.

Okay, great. And then just (multiple speakers).

Just one comment on that. Generally what we'll do is when we will sell an REO that means we feel that the earnings on the proceeds will replace the loss of the net operating income from those assets and probably even put us in a better position.

Okay. And just last question your comments around potentially being able to issue another CLO, what's your view of the securitization market right now and if the current terms would be attractive at this point?

I think our ability to execute into the securitization market has been very good, we have a good track record, a good reputation and we feel that the market is open for us. We just have to have the right collateral in order to get into the market.

So we feel relatively comfortable that if we were to enter the market that we would have successful execution and the execution would be significantly better than the last execution we had because the market has improved as well.

Great, thank you very much for taking the questions.

Richard Eckert, MLV & Co.

Hey, good morning, thanks for taking my questions. I'm sorry if I jumped in a little late, but I wanted to know if you still plan on unwinding the last of the legacy securitizations by say sometime in the middle of this year.

I think the timing of that unwind would probably be in the second half of the year. It has to do with some of the liquidation and payoffs and the ability to releverage those assets and redeploy it. So we do intend to do it this year and as soon as we're able to do it we will get it done.

Okay, thank you very much.

Lee Cooperman, Omega Advisors.

Thank you. Good morning. A couple of times in the call you mentioned about increasing shareholder value. The best way to increase shareholder value is basically to increase your return on equity, your earnings and your dividend.

I'm just curious, what do you think a reasonable target return on equity is for your business as you're running it and do you have a timetable to get there? And secondly, if you could update us on the status of the consolidation with the private company since the private company has a lot of interesting businesses that might be helpful to the public company.

Paul, why don't you take a stab at that?

Sure. Hey, Lee. Yes I mean I think that what we put out today was we had a return on our average common equity of about 9% for the year in AFFO. I think it came in at about 8% if you did it on adjusted book value which is I know where some people focus.

We think reasonable return obviously is anywhere from 8% to 10% and we're getting there. Certainly the things we did in the first quarter will help greatly our run rate in 2015. We'll still deal with the runoff we had in 2014 affecting 2015 in the beginning, but we certainly expect, as Ivan said in his prepared remarks, to be able to be poised to increase our dividend as early as maybe mid-2015. And that's really looking at a run rate.

We expect the run rate for 2015 really to grow towards the middle and latter half of 2015, really setting up 2016's earnings to be very strong, but also for our run rate to be very strong to be able to increase our dividend and get those returns up to shareholders.

As far as the transaction that you asked about. we don't unfortunately have any updates for you at this point. What we've disclosed in our 10-K is what we have. There have been discussions but no updates.

We have no questions at this time. So now I'd like to turn the call back to Mr. Ivan Kaufman, Chairman, President and CEO, for closing remarks.

Well, thanks, everybody, for participating on the call. We had a very, very good 2014 and we're really poised for positive momentum in all respects and particularly our dividend in 2015. Have a nice day.

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