Paul Elenio - Chief Financial Officer and Treasurer
Ivan Kaufman – Chairman, President and Chief Executive Officer
David Fick - Stifel Nicohalus & Co
Jim Shanahan -Wachovia Securities
Kathy Jansen - [inaudible]
Arbor Realty Trust, Inc. (ABR) Q1 2008 Earnings Call May 2, 2008 8:30 AM ET
Welcome to the first quarter 2008 Arbor Realty Trust earnings conference call. (Operator Instructions) I would now like to turn the presentation over to Paul Elenio, Chief Financial Officer.
Welcome to the quarterly earnings call for Arbor Realty Trust. This morning we’ll 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 that are 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 are cautioned not to place 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 would like to turn the call over to our President and Chief Executive Officer, Ivan Kaufman.
We are 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 few calls, the market is severely dislocated and there are significant liquidity issues facing our industry and all through out the financial sector. We see no indications of sustained recovery and we reaffirm 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 affect.
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 origination, this quarter we added $122 million of new loans and investments and experienced $165 million of run-off, resulting in a 1% reduction in our portfolio for the quarter. This run-off was clearly lower than our original projection of $3 to $500 million. This was mostly due to us re-originating $119 million of product, a majority of which was scheduled for payoff in the first quarter and extending $155 million of loans during the quarter in accordance with our extension options.
We are expecting a considerable amount of run-off for the remainder of the year and as we said we are going to preserve and be very selective in deploying our capital, which will likely shrink our portfolio over the short term.
We believe 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, high yielding, low-risk assets, creating a portfolio with reoccurring long-term value.
We have always stressed the importance of having a seasoned asset management team and this have 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 bars and aggressively managing our assets.
Lack of liquidity in the credit markets affects every lender, and as we said we expect some degree of stress on our transition 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 environment 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 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 reported 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 in the assets that we recorded reserves on during this quarter. As we look to continue executing our plan to 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 have 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 to a recessionary and volatile environment of this asset. Additionally, as disclosed in our press release, we have a $70 million first lean position on a development project in New York City, at 303 E 51st Street.
I’m sure many of you have heard by now about the tragic accident that took place in the middle of March related 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 have 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 cover our investment. We did stop accruing interest as of April 1 and income will only be recorded upon receipt. In fact, as of yesterday we did get most of the able payment in on and are working with the bar 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 continue 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 financing 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’re 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 and 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 a significant amount 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 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 high 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 CVRE that we will not initiate a proxy fight, that we will withdraw our slate of nominees and CVRE has agreed that if it runs a sale process, we will be able to participate. It was always our objective to bear with CVRE 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.
As noted in the press release, our earnings for the first quarter were $0.63 on a fully diluted basis. The first quarter numbers included a $3 million provision for loan loss or around $0.09 per share on three loans with an unpaid principle balance of $70.2 million. We now have $4.5 million of loan loss reserves on four loans totaling around $84 million at 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 investing 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 have 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 refinance 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; we’ve now had a positive impact from one or more of the kickers in 13 of 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 matters, which has provided us with a substantial, additional, source of capital.
I’d now like to take you to 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 during 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 receive when loans pay off prior to maturity, the yields in these core assets was around 8.33% for the first quarter and around 8.89% for the fourth quarter. This decrease was a result of the decline in the average LIBOR rates during the first quarter, partially offset by LIBOR scores on a portion of our portfolio.
In addition, the weight average, all in yields 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 E 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 is primarily due to the net run-off we saw in the first quarter, partially offset by additional cash posted as collateral from the decline in the value of our interest rate swaps.
Our average cost of 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 of funds was approximately 5.68% for the first quarter down from around 6.72% for the fourth quarter, primarily due to the decline in the average LIBOR rate during the quarter on around 65% of our debt that is floating.
In addition, we are estimating our weighted average, rolling debt costs 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 in our core assets, increased 2% 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 $2 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. While the LIBOR has come up slightly since March 31, 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 high yielding opportunities available in today’s market. We feel this will be very accretive to our earnings over 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 preferred’s as debt, for both the fourth and first quarters. Our overall leverage ratio on a spot basis was around 2.701 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 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 in restricted cash outstanding was pretty flat with $134 million for the fourth quarter compared to $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 use these investments to swap out floating rate debt that is financed with financing fixed rate assets and the decline in the 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 to mark-to-market those items, the increase in value would’ve substantially offset the decline 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 and preferred après 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 toy properties during the fourth quarter.
Finally, as you may have seen in our proxy filing, we did issue additional restrictive stock ramps for approximately 230,000 shares on April 2, 2008. 217,000 shares were issued to certain of our employees and employees of our manager, of which 1/5 vest immediately and the remaining 4/5 vest ratably over the ensuing four years.
The other 14,000 shares were issued to our non-management directors as well. These stock ramps will result in a non-cash expense of approximately $1.4 million or around $0.04 per share to our second quarter earnings.
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 Instructions) Your first question comes from David Fick - Stifel Nicohalus.
David Fick - Stifel Nicohalus & Co
The [large stones] bond the center stage transaction, your basic terms are 12% return over preferred equity redeemable any time, is that correct? The extended stay investments, the basic terms are a 12% return on your preferred position, redeemable any time.
It’s 10% pay, 12% returns and we have an equity interest with in the deal of exactly 116%.
David Fick - Stifel Nicohalus & Co
Can you review where we are in terms of coverage numbers there right now?
The challenge that we were able to overcome was given the structure of the loan, all the excess cash trapped, which was a significant amount, was being captured by the lender. We’ve reached an agreement with the lender to allow the excess cash flow to be used for additional items such as CapEx, our marketing re-initiatives, and buying interest rate caps.
The dollars that we were able to release from the cash trap were approximately $40 to $50 million. Even after that we’re running excess of around, after all debt and everything, in the current environment, around of approximately $36 million excess cash flow.
David Fick - Stifel Nicohalus & Co
And what are the occupancy trends for that portfolio?
We’re running the occupancy trends right now at RevPAR of -2% the first four months and that’s how we’re budgeting the year. If we stress the portfolio and we run RevPAR at -3/5% then there would be excess cash flow of around $30 million, if we drop RevPAR by 5% there’s still excess cash flow of around $16 million.
David Fick - Stifel Nicohalus & Co
You’re receiving your 10% current pay?
Yes, 10% current pay. We have an interest reserve that’s set up with replenishment out of the waterfall and there’s about $20 million set aside that’s continually replenished.
David Fick - Stifel Nicohalus & Co
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 fees were involved and what the LTVs look like on those extended and re-originated loans?
I’m not going to give you specific deal by deal, but I’ll give you our philosophy. Basically, we treat any borrow we have that is up for an extension or needs an extension with some market timing issues and a lack of liquidity basically what the attitude is to seek what the market is and market terms. The object is to treat that as a new loan in terms of origination fees and market terms and that’s a process.
It’s also our attitude that we’d rather re-originate a loan that we know and a borrow we know, than actually a new loan and often that requires a pay down interest reserves on the collateral or a restructuring if the markets changed.
We’re in a very favorable position in the sense that the bar 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. In most cases if it’s low term we look to extract the right fees, otherwise we’d like to turn it into a long-term asset, which is really the goal of the company in this environment is to lock in longer term views.
Overall of the say $120 million in loans we 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 there’s about $155 million. They’re extended in the accordance with their extension options and they pay extension fees if required and on the bulk of those loans we did get extension fees.
Overall, I think what it did for us is the loans we originated during the quarter did have slightly lower yields than the ones 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 yield came in about par for the quarter and we didn’t really have any compression.
David Fick - Stifel Nicohalus & Co
My last question, Mid-Town train accident, what are your options there and obviously you don’t want this loan back, so any sense of when it becomes a performing loan again?
Well it’s a complex situation. There were seven people killed so there are a lot of insurance issues to work out. The city’s had a lot of turn over in their department and went to work for a stop order. The loan was actually due to be paid off through a construction loan in the take out, so that’s getting re-looked at. It’s a matter of being patient, work 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.
Your next question comes from Jim Shanahan - Wachovia.
Jim Shanahan-Wachovia Securities
Last quarter you had given guidance for pre and repayments of $300 to $500 million and obviously you came in a lot lower than that due to all of the items and issues that you’ve discussed here. Are you comfortable estimating what the ultimate contraction in the portfolio is likely to be, or what your more recent estimates are for pre and 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 pay off there. It’s tough to be real comfortable obviously, given the environment, but the $200 to $300 that I guided you to today is really $200 to $225 is scheduled to repay.
We did see about $75 million in run off already in April; so we’re pretty comfortable that that $200 on the bottom number looks about right, but it’s a different environment and you may see some extensions and some re-work deals, but I think that number is a pretty decent number.
For the rest of the year, it’s going to range that we probably see, for the third quarter and somewhere in that range again, and maybe in the fourth quarter some of that range again; so it will be tough to time it, but I think the $200 to $300 number is a pretty solid number from what we see.
Jim Shanahan-Wachovia Securities
So, would you anticipate the portfolio to contract for the next three consecutive quarters or do you think that that runoff will be replaced and in fact you may even deliver net portfolio growth in any or all of those three quarters?
It’s very hard to say and a lot has to do with the opportunities we see and how patient we want to be. Clearly if we see great long-term opportunities with our three kickers we’ll put our money out a little bit quicker. There are a lot of opportunities, but we have to take our time. When you’re working on these opportunities, some can com 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, it is our best guess. The market is a difficult market and people’s options are changing by the day, so it’s hard to forecast with a great deal of certainty. In many cases we do look at extending a loan or a re-origination as a new loan.
Jim Shanahan-Wachovia Securities
With regards to liquidity, I have a copy of your liquidity schedule here, as reported for the December quarter. I’m curious, can you comment on any upcoming maturities of repurchase agreements, bridge loan warehouses etc…, and how you would anticipate those to be resolved?
Okay Jim, it’s Paul, I think just looking at our balance sheet now at 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 to $60 million unfunded commitments in loans through out the rest of the year.
The rest we have to pay down our term debt facility to $300 and we’re well on our way to doing that, we’re at probably about $360 now and that gets done usually through scheduled maturities, 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 we have to renew those facilities and we’re not projecting 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.
Jim Shanahan-Wachovia Securities
The loan that was characterized as non-performing, I think it was small; can you discuss what your outlook is for that particular asset?
What 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 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 enough cash flow to cover the debt and there’s also excess cash flow to service our investment. It’s a high quality asset and we have [Borra], who had financial problems, who was not running the asset properly and the asset was deteriorating and he was not paying on his terms, so we stepped in and took over control of the asset and we’re very comfortable with the quality as well as our realization on that asset.
Your next question comes from Kathy Jansen - [inaudible].
Kathy Jansen - [inaudible]
Can you discuss your investment in CDRE? Do you intend to retain it and what was your rational for backing away from the board?
It was always our intention to sit down with the management for CDRE and try and do a transaction. We thought that given that current environment that it’d be very good synergies between companies and we could not get that audience. 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 closer to proxy fight your management teams had spoken and we got what we wanted and that was to be included in the sale process. We’re fairly confident, given the market, that there’s a good probability that they’ll sell. If they sell we’d rather be on friendly terms and have a seat at the table, rather than be adversarial; so we’re very comfortable with the result.
Your next question comes from Theo Oster.
Could we just go over the numbers you just mentioned and what needs to be repaid over the next 12 months? It sounded like there was fully five on WaMu, you said you had committed new loans, $60 on a term loan and then another $150 on top of that for the two facilities that you expect to expand, is that right?
Yes, there’s $150 in the repurchase facilities, warehouse facilities that has maturities before year-end, but again we fully expect to extend them. 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 in our loans, and the term debt facility needs to come from the, about $440 that you see at the end of the quarter, down by about $80 to $90 million; however we’ve paid down about $30 million already through April, so we only have about $50 million to go: that just doesn’t come out of cash flow, that comes from natural maturities of the loans as we project them forward.
When we look at it our cash needs for the next 12 months is really about $100 million, which is WaMu $45 and unfunded commitments of about $50.
We have ample capacity even 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 of there’s a box, those commitments can fit into whatever box.
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 deducted seems interesting.
We’re being very, very conservative on that. The bar has a lot of complexities, a lot of issues, there are a lot of insurance claims here; so we’re working with the bar 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 will be a better result. On this environment I’ve got to be very conservative.
Then Paul, 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. Excluding any capital you put to work, can you quantify what the interest income is?
No, we can’t quantify it, but we’re guiding $2 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 the weight average spot yield as of March 31, 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 the originations would be and then take the runoff of the rate, you can get to the result.
What’s been the pricing on the extended facility in terms of you said you had an option to extend the $150. Is there a pricing change there if you do extend?
No, I don’t believe so, but you need to go through to negotiations. That’s not something that I believe is in the documents, it’s just pretty much an extension. They go through, look at the underwriting and they just extend it out for the year based on the same terms.
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 impairment on the extended stay investment?
Well actually we’ve improved our position on the extended stay through these negotiations and we’re quite comfortable with where we stand.
There are no further questions at this time.
Thank you, everybody for your time and we look forward to being in contact with you.