Kennedy-Wilson Holdings Inc (KW) 2011 Q1 法說會逐字稿

Good morning, everyone, and welcome to Kennedy-Wilson's first-quarter 2011 earnings conference call. I would like to remind you that this call is being webcast live and will be archived and available for replay. The replay may be accessed from the Investor Relations section of the Kennedy-Wilson website.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's prepared remarks. At that time, instructions will be provided to queue up for questions.

Today's presentation contains forward-looking statements. Actual results may differ from forward-looking information discussed on the call due to a number of risks, uncertainties and other factors indicated in reports and filings [with respect to] the Securities and Exchange Commission. I would now like to turn the conference over to Kennedy-Wilson's Chairman and CEO Bill McMorrow. Please proceed.

Good morning, everyone. I'm going to report here on the first quarter and then take you through a reconciliation of where we are at from a cash nd investment standpoint and then spend a little bit of time going through our multifamily portfolio including the recent sale that we just announced yesterday of the Mariposa property in Anaheim.

But to kick off here, our EBITDA for the first quarter was $15.1 million which is a 165% increase over the same period of 2010 for a total of $5.7 million. The breakdown of that was the $13.8 million came from our investment activities which is a 176% increase over the $5 million of the same period last year.

Our services business EBITDA was $1.8 million which is a 38% increase over the $1.3 million of the same period in 2010. Our investment account, that's the money that we have invested either in wholly-owned deals or our JV transactions, totaled $384.3 million at the end of the quarter but it currently stands at roughly $405 million as of today.

Our total assets for the first time in our history topped over the $500 million mark. The other thing I would like to point out that we will talk about a little bit later is we closed our -- we completed on April 5 our $250 million debt raise, and so our total assets after the debt raise were roughly $650 million.

And then to take a moment here and reconcile that for a second, we used roughly $70 million of the $250 million for corporate debt paydowns and then as I just mentioned, we've increased our investment account from $384 million to $405 million currently. So as we sit here today, we have roughly $140 million of corporate cash -- I'm sorry, $180 million of corporate cash plus we have roughly $40 million of cash in Japan where we own 41.5% of that entity.

I also mentioned on the roadshow that from where we are today that we will typically run the Company with roughly a minimum of $75 million of cash at any point in time. We have approximately $500 million worth of transactions that we are in the process of buying and closing which will happen over the next 60 to 90 days.

And of that, I expect that we are going to deploy about $80 million of the Kennedy-Wilson cash into those investments. The total equity that's going to go into that roughly $500 million worth of transactions is about $200 million.

And so obviously we're going to have almost $120 million of capital that comes from various partners including our funds business. I might also add that we're fully invested now in Fund III and as we always do, we're always in kind of a constant process of raising additional capital, and so we are -- although I can't be directly to what we're doing with Fund IV right now because it is a private placement, you can assume that we are in discussions on a variety of capital raises as it relates to that activity.

We closed $216 million of acquisitions in the first quarter. And as I just mentioned, we've got about another $500 million that will be closing over the next 60 to 90 days.

In our multifamily portfolio we have 12,906 units which excludes the 286 units we just closed last Friday, the sale of. We have another large project in Northern California we're buying right now that is closing the week after next which is roughly 1000 units. It's one of the larger multifamily properties here in the state of California.

That multifamily portfolio is now 96% occupied and on a trailing basis is generating $123 million of NOI. The debt associated with those properties is $1.5 billion and our ownership interest excluding promotes in that portfolio is 30%. And so just for ease of discussion here, you can comfortably assume that with the promotes that we own roughly 35% or a third of that portfolio.

So let me just kind of walk you through for a moment some of the metrics associated with this apartment business which I have gone through in previous calls. There are many -- and this is obviously not meant to be a forecast in any way, it's really just to help you gain an understanding of how we look at this business.

But if you assume 20% growth over the next three years, that NOI of $123 million will grow to approximately $160 million. If you use a 5% cap rate on that portfolio and as was outlined in the press release that we did yesterday, the cap rate that we sold the Mariposa Anaheim property at was 4.8%.

The resulting value in three years is $3.2 billion and then if you deduct the $1.5 billion worth of debt from that, that leaves equity of roughly $1.7 billion. Now if you multiply that by 35%, that drops out a KW value of $594 million.

We are carrying those apartment assets on our books for $240 million and the interesting kind of metric here is that represents if you use the 594 and the book value of 240, that is a 2.5 times multiple. Now if you look at the Mariposa transaction that we just closed, that was -- we generated a 2.4 multiple on our equity. On our equity, the equity that was on our books on Mariposa was $1.2 million and the net proceeds that we generated from that sale was $2.9 million which resulted in that 2.4 multiple.

The other thing that happens in our accounting too is that we are depreciating all those properties, which is why the EBITDA number is so important to understand. So we have a self-depreciating mechanism that is going on by the GAAP accounting standards where we are in effect kind of writing down these assets really every month. It does two things. One it creates a write-down on the property, but it also creates tax shelter for the income.

The service business continues to grow. Our management and leasing fees increased by 14% in the first quarter. Our commission income increased by 44% to $2.6 million from $1.8 million at the same period in 2010.

On the debt financing side, we closed $333 million of property level financings in the first quarter at an average interest rate of 2.71%. The largest financing that we did was in Japan where we've refinanced roughly 80% of our existing debt there.

The largest loan that we did in Japan in the first quarter was with Sumitomo Bank. That was roughly $162 million at an interest rate of 2.12% fixed for five years.

And as I've mentioned on previous calls on our multifamily portfolio, we are taking these maturities out as long as we can. Historically in Japan the long-term debt market in the bank sector was roughly three years. So this was a big accomplishment to get this out to five years.

The deal that we are closing here in Northern California here in a couple weeks we're doing a seven-year loan on. We've got two other multifamily refinances that we're doing here in the US right now. One we're doing a ten-year financing on and the other a seven-year financing.

If you look through our entire cost of capital right now including the interest rate we're paying on the debt that we completed in April, it's 5.77% for our entire cost of debt. I mentioned we closed the $250 million financing that was led by Merrill Lynch and Morgan Stanley in April. So in the first quarter including the first week of April, we closed $583 million of financing.

That's it as far as my comments. We had a good quarter, we completed a lot of debt financing, we've got great liquidity in the Company right now and we have got no shortage of opportunities to spend the money. So I'd like to turn this over now to any questions that people might have.

(Operator Instructions) Jason Ursaner, CJS Securities.

Congratulations on the quarter. With the market in such a strong recovery, what do you think is the greatest opportunity right now? Is it managing that multifamily portfolio to grow the NOI as you talked about a little bit?

Well, I think there's multiple opportunities for us right now. And as I have said, even though there's a lot of capital floating around in the market, because of how we source our transactions which is typically off-market transactions, and I think I said on the previous conference call that last year 85% of what we bought we bought directly from a financial institution in a transaction that wasn't widely marketed.

I have also mentioned and mentioned on the roadshow that for the debt offering that you have got $1.5 trillion of debt maturities on real estate secured assets that are on balance sheet in the banking system here in the US that happen over the next three years. And so if you overlay that with the almost $500 million worth of debts that are maturing that were generated out of the European banking system secured by US assets, then you've got a universal almost $2 trillion worth of debt maturities.

And so the acquisition opportunities that we have got are typically driven by these debt maturities where you have got a borrower who's got a loan maturing, so a reappraisal processes has happened and a debt paydown is required by that borrower. But typically these borrowers don't have enough cash to make that paydown. So on the acquisition side, that's where most of our opportunities are surfacing.

We clearly also have a focus on the asset management side of our multifamily business because we've got big upside in the existing assets that we currently own. And so you have got two parts to that exercise. One is growing the revenue side without increasing expenses. And so we keep a very, very tight rein on expenses at the property level. And so really the whole ballgame for us on the multifamily portfolio is to continue to grow the revenue side.

We are seeing generally speaking on the better assets, the higher quality infill assets like the one that we own in Seattle that's across the street from Microsoft's headquarters, that is running at a 97%, 98% occupancy and we are doing -- this year we will do 5 to 6% gross rent increases on those leases that are renewing. So, you have got that.

You've also got the direct debt purchases that we have been doing. And as you think all might remember, last year we bought face debt of about $650 million at a purchase price of $400 million.

And the realizations that we have been achieving on that from our initial underwriting have been exceeding our initial underwriting by roughly 10%. And so when you look at the debt maturities here over the next three years, the opportunities are not only going to be to buy the equity positions from the borrowers that can't make the paydowns, but it's also going to be to buy the debt directly from the financial institutions that for whatever reason want to sell the debt rather than going through a foreclosure process with the borrowers.

So when I look at that $215 million of acquisitions in the quarter, do you still anticipate achieving a yearly acquisition total of $2 billion? And should we look at the debt you took on at the corporate level and some of these other opportunities, should we look at that as an indication that the pipeline is still pretty strong out there?

Yes, as I mentioned earlier in the call, Jason, we've got a little over $500 million pro forma transactions that are closing in the next 60 days, some might slide another 30 days, but say the next 60 to 90 days. So that's going to put us right at roughly $725 million for the first half of the year. And I would expect that we're going to be at or very close to that $2 billion number for the entire year.

Have you seen any acquisition opportunities in Japan and have you seen any impact on cap rates there after the earthquake for your own portfolio?

Well, it's surprising. I mean we have the person, [Kevin Tang], who runs our Japanese business was in here yesterday and you would've expected that cap rates would have widened out somewhat in Japan given what went on there. But going through his pipeline yesterday, it's actually -- cap rates have not really moved at all in a favorable way on the buy side.

The debt costs in Japan are still very low as witnessed by the fact that we disclosed this [SMBC] financing here at 2.12% fixed for five years. And so the high quality high quality multifamily assets in Japan -- really while we are looking to see if there's opportunities right now, there really hasn't been much cap rate compression at all.

The capital markets in Japan have really settled down and the banks particularly that were absent the debt market really for all of 2009 and the better part of 2010 are actively back in the market with quality sponsors. And I think the thing that I'd also mention from time to time is that we have had kind of an unblemished track record over 22 years on the debt financing side.

And so we've always been able to attract debt financing in Japan, but the leverage points there today are much lower than they were at kind of the height of the market in 07 and 06. So most of the debt financing that's getting done in Japan today is down in the I'd say 50 to 55% loan to value versus at the height of the market, you could finance on a nonrecourse basis up to 85% LTV in Japan that was getting securitized then by two of the best banking firms that are no longer around. So, we are looking and while I don't think it's going to be a large focus of our capital usage, there might be one or two acquisitions that we do in Japan throughout the balance of the year.

And as I think about the multifamily potential valuation on that portfolio that you walked through a little bit, as I think about that assumption of a 5% cap rate and I look at the property you just sold, was there anything unique about that property that we shouldn't be extrapolating that? Was it an A+ property in the portfolio as opposed to some other properties that maybe wouldn't command that type of cap rate?

Good question. This was really more what I would call a B- property, and I would say that even though it's Anaheim, it wasn't Ground Zero Anaheim. It was more in a B location.

The real metric that has now changed in the apartment market has been the influence of what I'm calling the entrepreneurial buyer. And so if you look at the buyer that bought our Anaheim property, it wasn't an institutional buyer.

You've got these money market rates now, some banks running close to 0, 10 basis points. So you've got -- I heard about a deal in Northern California the other day that sold at a 4 cap but it sold to an individual buyer that bought a $50 million property and put $25 million of cash down and financed it at 50%.

So for the first time you've got people sitting on the sidelines with a lot of capital. They're getting let's say worn out to a certain extent with getting these low yields from the bank.

They're looking at the rental growth rates that are happening here in California and in the Pacific Northwest and they're saying hey, look, I can buy a 4.5%, a 4%, a 5% cap rate but that's all fully sheltered.

So if you do the math on that, I'm buying a pretax return of somewhere between 7 and 8%; pretax because it is sheltered, and we've got the upside of rent growth over the next three years. And so in addition to the REIT buyers and not so much the private equity firms, you've got the influence now of meaningful amounts of equity coming into the multifamily market from what I call entrepreneurial buyers.

But to answer your question directly, that was I would say a very middle of the road asset that we sold qualitywise compared to the other things we own.

Will Marks, JMP Securities.

I appreciate all the color on where the opportunity is I guess or just the ability to grow. I'm wondering on the $500 million of deals in the pipeline or I guess in the works that you'd close, where are these specifically? I know you can't get too specific. But where is it coming from? Are the sellers -- are you going directly to financial institutions or are they through brokers?

I'm just going to collect my thoughts here a second. I'm looking at the transaction list right now, Will.

But I would say that about half of the opportunity that is on this list that we're closing right now is coming through a debt maturity that a borrower has where the financial institution is leaning on them for debt paydowns. And so it's an opportunity that that offers particular opportunities in an off-market transaction where we're dealing directly with the owner of the property.

We have got a debt purchase in here that we're doing directly from a financial institution secured by a very high-quality piece of real estate here in the Western United States. The apartment deal really came to -- it's a very sizable deal, it's $145 million.

And so while the entrepreneurial buyers can take down $25 million, $50 million deals, there aren't a lot of people that can take down $150 million transactions. So that deal is in Northern California where we already own approximately 3000 units.

It's within a 2 or 3 mile radius of another 500 unit property that we own. All of these acquisitions are either in California or Hawaii and there are like I said about half of the opportunities just exactly what I said, it's driven by debt maturities and the other are recaps or just direct debt that we're buying from a financial institution.

And I would assume the apartment deal probably has a cap rate -- you said some of the deals -- are they distressed situations where there's nothing covering expenses or there's perhaps unlimited upside or (multiple speakers)

The other opportunities are not situations where the debt service is not covering the loan amount. It's where you've got -- to take you through -- and this is a little bit of a tedious example.

But last year -- this is really typical of what we're doing. Last year we bought a multifamily asset in Northern California where it had an $82 million loan on it with a bank. The owner of that property had a $60 million equity account in the deal.

The loan matured, a new appraisal came in and the bank asked for a $10 million paydown. The borrower at that point in time didn't have or didn't want to give the bank the $10 million to make that paydown.

So we bought the $60 million equity account for $4 million and that we made the $10 million paydown. And then subsequent to that, the loan obviously then was at $72 million. We put a 10 year loan on that with Fannie Mae.

So that's very typical of these debt maturities that are coming in where there's this whole notion that banks are just kicking the can down the road is only partially true. If there is a debt maturity, a reappraisal is taking place.

And if a reappraisal is taking place, it's generally at a price at reappraisal that's lower than what the borrower paid for the property. So out of that is creating a number of that these borrowers have to pay down and in a lot of cases, they just don't have the capital to do that. So I would say that half of the transactions that we're going to do this year are like the one I just described.

Okay, and then I know (multiple speakers)

I just want to reemphasize one more point. These properties are cash flowing. There's cash flow on these recaps covering the debt service and there's generally nothing wrong with the real estate, it just can't -- a borrower can't handle the debt paydown.

On the large deal, were there multiple bidders, what was the process like?

Well, it is an out-of-state owner that has owned this property for a number of years. What I was trying to allude to was because we own so many properties in that geographic area, people know that we are if you will we're a reliable buyer.

And particularly whether it's a bank transaction or whether it's somebody like this who is a seller, they want to know that they've got certainty that whoever they're going to sell the property to has got the wherewithal to close which is why having cash on hand is so important in these markets we operate in. It wasn't what I would call a super competitive kind of situation and we're buying this at a very attractive price per unit.

Were paying -- and you can do the math -- 1000 units, we're paying $141 million for the property. So it's roughly $140,000 per unit.

We own properties in the same geographic area that at market value are worth well north of the $140,000 a door. The other metric that we underwrite with these apartment units and really anything that we buy but particularly with these apartment units is you've got to look at the cost of replacement.

And on this particular asset which is 53 acres of titled land, and as I always say, one of the things that we love about California and the Pacific Northwest is their very, very high barriers to entry; it's almost impossible in an infill location in the state of California to find a 53-acre entitled site. If we bought that land today and pick a number, pay $20 million, million and then tried to go through the entitlement process, it could take you five to 10 years before you've ever got a piece of dirt that you're actually ready to build on.

So as long as you're continuing to buy these things at well below replacement cost and you buy into the argument that rents are going to grow over this period of time, and you have got very little construction happening, although there's more discussion now, there's very little construction happening anywhere. And then you overlay that with the fact that you have got a decline in home ownership combined with a whole group of people that are moving out of college into the rental universe, if you can buy these things well below replacement cost with all those metrics in line, that will drive rents over the next three to five years.

Jamie Meltzer, Bank of America.

A couple of questions. First of all thanks for all of your commentary, it's been extremely helpful.

So first, the roughly $21 million of additional investments you've made subsequent to quarter-end, what is the gross amount of those investments including the debt and third-party equity on those?

I'm not sure I have that number exactly handy. At the end of the quarter, it was 384. That included the 216.

I'm doing this on the back of a napkin, Jamie, so you will have to follow up with us post this call to get the exact numbers. But roughly it was about -- it's something less than $100 million.

Less than $100 million?

Yes.

Okay and then is that number included in the $500 million of transactions that are getting ready to close?

No, that is excluding that. So our current investment account right now is $405 million.

And so -- and I'm rounding a little bit here. But the way to look at that is that say the $500 million that we're closing -- just to keep the math simple -- we used $75 million of our own cash to close those deals. At the end of the second quarter, the end of July, our investment account is going to be roughly $475 million.

As I said on the roadshow, that I would expect our investment account at the end of the year including what we're selling because there's some other things we're selling, it's going to be somewhere between 525 and could be as high as $600 million at the end of the year.

Okay, great. Then I guess the $50 million add-on that you guys did with the notes, should we look at that as pre-funding for the 2012 investments or would you consider taking some of that and basically increasing your equity investments in the $2 billion of planned investments for this year?

Well if you back into the -- if you take $75 million off of the cash number that I had mentioned earlier in the call -- and so at corporate level we've got $180 million of cash right now, our investment account is $405 million and then if you add roughly $60 million to that which is what we think we're going to realize from asset sales in the second half of the year primarily, you're at $240 million.

And so if you kind of back into that $75 million number, then that differential between that $75 million and the $240 million is $165 million and that's what we have available to spend before we get it down to that magic number of $75 million. So I expect that the cash we have right now including what we're doing on the fundraising side is going to carry us -- my expectation is that it carries us kind of through end of this year and into the first quarter of next year.

But you never know. You just never know what's going to come around the corner here in terms of opportunities.

And so a good example of that was the loan portfolio we bought early in the year last year. That was a $350 million deal that wasn't even in our pipeline to speak. And that came to us in February of 2010 and it was a $200 million deal we had to close in three weeks.

So there's going to be things that aren't even in our pipeline right now that surface in the third and fourth quarter. But my expectation is this cash takes us through the end of the year and into the first quarter absent one or two larger transactions that come along.

But we also have plenty of third-party capital that we can add to our cash position to supplement these deals. And so we'll play that all by ear.

It might mean that we take some smaller pieces of these bigger deals. But right now where we can to the extent that it makes sense, we're taking bigger pieces of these transactions than we historically took. If we like a deal, we're taking bigger pieces of it today than we did three or four or five years ago.

So I guess at the time you did the deal, I think that the assumed equity component on that roughly $2 billion of acquisitions this year was somewhere around 140. Now if you do exactly $2 billion which could change obviously, that number hasn't changed, the 140 is still roughly in line with what you (multiple speakers)

Yes, exactly.

(multiple speakers) and then a couple things (multiple speakers)

I'm repeating myself a little bit, but if you look at what we did in 2010, the $2 billion of acquisitions, you'd need roughly $700 million worth of equity because we're not high leveraged players at the property level. Our financings typically tend to be in the 55 to 65% range normally.

And so a combination of that $700 million or if you use the same $700 million or $800 million this year is going to come partly from our cash and then partly from the cash of third-party providers including our own fund business as well as people like Fairfax Financial which has been a big partner of ours.

That makes sense. Couple of other things. Following up on the $123 million of the multifamily NOI, is that a run rate number from what you own today kind of --?

That's correct. That's a looking back (multiple speakers) annualizing it.

Do you know offhand what the actual 2010 multifamily NOI was, just to get some sense of what the step up so far is?

I don't have that number in my hand but we can get it for you.

Okay, then I guess one other thing. You were saying the rent increases you're expecting to see this year, like 5% to 6%. Of your multifamily properties, what's the average turnover? What percentage are you going to be able to push through those 5% to 6% rent increases on an annual basis?

The turnover at any apartment property typically ranges in the 40 to sometimes as high as 50%. And then the other thing of course too you've got on the renewals to the extent you -- the leases are normally one-year leases. And so you're far better off keeping that tenant that you've already got there than trying to clean up the apartment and re-rent it. But normally you've got 40% to 50% turnover at the property level and then you've got your renewals that you are doing.

On the renewals, can you typically get through some sort of price increase?

Sure, absolutely.

One last thing and I'll let others ask questions. When we were doing the deal, I think the total kind of pipeline of opportunities that you guys were looking at was somewhere around $1.6 billion.

Is that something that you've continued to add to? I know it hasn't been that long since we did the deal but can you tell us where that stands now?

It's about the same. And like I said on the roadshow, you are going to have things fall in and out of that pipeline. Part of obviously what we're closing over the next 60 to 90 days is stuff that was in that pipeline at the time we did the roadshow.

Randy Raithman, Chatham Assets.

A few questions. Number one, just the cash balance, how you get to 180. If you were at 35.5, I know you raised 250 and there were some things you paid down. Just walk me through that exact math.

And then second question just as we're going through our kind of valuation work, just want to confirm on kind of what the right fully diluted number of shares we should be using because of the Series A and Series B preferreds. And then lastly if you could give us -- you've given some great color on the multifamily assets.

Kind of the other big buckets, just the general real estate of like 88.3 -- loan pool participation is at 27.1 and then notes receivable of $21 million, just a little more granularity on those would help us understand this a little better.

What's the last part, Randy?

There is a line item for notes receivable of $21 million. We just want to understand away from the investments in multifamily, just a little more granularity on the real estate notes receivable and loan pool participations.

Okay (multiple speakers) do the notes first.

So the notes receivable -- this is Matt Windisch -- the notes receivable are mostly comprised of a portfolio we bought in 2010 from a regional bank here in Los Angeles. And if you look at the 10-K, we actually have a breakdown in pretty good detail along the lines of what that note pool consists of.

One thing you'll notice this quarter is there are a few assets we took into REO that came out of that note pool and went into real estate on our balance sheet. And so the details of how much accretion we've taken and what assets came out of that pool are all detailed in both the K and the Q.

So, Randy, I'm doing this on the back of a napkin on the cash, so don't hold me exactly to it. But you've obviously got closing costs and so on and so forth related to the 250. So you've got to take off 8 for that.

$8 million?

Yes, well including the discount and the lawyers and the bankers fees and all that stuff. And then we had roughly $82 million worth of that money that was used to pay down debt or pay off debt.

So also remember on our balance sheet today at cost. In addition to the cash, we've got roughly $65 million worth of assets that we own free and clear now.

The first time in our history we've really had real estate or any other assets on our balance sheet that we own free and clear. So say that's 82.

Yes.

We made investments of roughly $21 million. So I've got to add that all up -- I'm doing it here on the back of a napkin. That's 103 --

111 roughly.

111. So if you deduct that out from that cash position, that should get you roughly to where we're at right now. I don't know if it did or not.

I will doublecheck, that's okay.

It's very close.

What about the number -- what's the right number of shares to be using if you're kind of trying to kind of back into what the equity is ultimately worth?

So you got issued and outstanding approximately 40 million shares and then you've got the what I call the Fairfax convertible preferreds which total $132.5 million and that's roughly 11 million shares. And then so that's that.

And then you've got the warrants that we have been in a buyback program on which total roughly $9.8 million. Those warrants originally $31 million and we have reduced that over the last year and half down from the 31 to the 9.8.

Is there a strike price or anything on those warrants or they're penny warrants?

$12.50.

$12.50?

Yes and they have an expiration date of 2014.

Got it, okay, perfect. Lastly back to that note receivable portfolio, the one question we have though -- so the roughly the $21 million you have on the books, what does that represent as a kind of percentage of the original principal balance outstanding on those notes?

We bought -- this is the (multiple speakers) we bought $41 million of face for $25 million.

So $0.40 -- so like $0.60 or so.

Yes, I mean most of the note acquisitions that we did were roughly in the $0.55 to $0.60 range. But the other thing you also need to take into account is the borrowers typically add another 10 to 20% cash equity that they put into these deals.

And so when you really kind of filter it all through, we paid $0.45 to $0.50 to original cost. The other thing I mentioned on prior calls too is that generally speaking compared to the debt purchases that we were doing in the 90s, the quality of the collateral and the quality of the borrowers is really superior to what it was in the last cycle.

The average size loans that we purchased over the last 18 months have been in the $5.5 million to $6 million range. That would compare to average loans that were available to purchase really in the 90s that were in the $500,000 range.

So they are better quality assets that these loans have liens on you're saying in general?

Exactly. That's why our recoveries are running ahead of what we had originally forecasted. And then the other piece of this is in I would say at least 60% of the cases, you had meaningful guarantees on the things that we bought.

So when those guarantees exist, that's also another source of cash to pay down the debt other than just looking at the property. We got -- I mean this is a wild example but we got paid off last week on a -- we bought a loan for $4.2 million. It was part of a portfolio.

We had underwritten this first [supply] we bought it for $3.5 million. There was a second of $2 million behind that $4 million too that we paid $1 for. And we didn't put full value on that second, but last week we got paid off the whole $2 million -- we paid $1, we got paid off $2 million on that second.

Wow, that's great.

That concludes today's question-and-answer session. I would now like to turn the conference back over to Bill McMorrow for closing remarks.

So thanks, everybody, for your time and support. And I will look forward to -- we have our annual meeting on June 23 and I look forward to seeing anybody that can make it to the meeting on the 23rd. Thanks very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.