RAIT Financial Trust Q1 2008 Earnings Call Transcript

May.15.08 | About: RAIT Financial (RAS)

RAIT Financial Trust (NYSE:RAS)

Q1 2008 Earnings Call

May 6, 2008 11:00 am ET

Executives

Andres Viroslav – Director, Corporate Communications

Daniel G. Cohen - Chief Executive Officer & Trustee

Betsy Z. Cohen - Chairman of the Board of Trustees

Scott F. Schaeffer – President & Chief Operating Officer

Jack E. Salmon - Chief Financial Officer & Treasurer

Analysts

David Fick – Stifel Nicolaus & Company, Inc.

Jason Arnold – RBC Capital Markets

David Chiaverini – BMO Capital Markets

Operator

Good day ladies and gentlemen and welcome to the 2008 Q1 RAIT Financial Trust earnings conference call. My name is Robin and I will be your coordinator for today. At this time all participants are in a listen only mode and we will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions) I would like to remind you this call is being recorded for replay purpose. I would now like to turn the call over to Andres Viroslav.

Andres Viroslav

Thank you for joining us today to review RAIT Financial Trust’s first quarter 2008 financial results. On the call with me today are Daniel Cohen, Chief Executive Officer; Betsy Cohen, Chairman of the Board; Scott Schaefer, President; and Jack, our Chief Financial Officer. This morning’s call is being webcast on our website at www.RAITFT.com. There will be a replay of the call available via webcast on our website and telephonically beginning at approximately 1:00 pm Eastern time today. The dial in for the replay is 888-286-8010 with a confirmation code of 35364292.

Before I turn the call over to Daniel, I would like to remind everyone that there may be forward-looking statements made in this call. These forward-looking statements reflect RAIT's current views with respect to future events and financial performance. Actual results could differ substantially and materially from what RAIT has projected. Such statements are made in good faith pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to RAIT's press release and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.

Participants may discuss non-GAAP financial measures in this call. A copy of RAIT's press release containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is attached to RAIT's most recent current report on form 8-K available at RAIT's website www.RAITFT.com under Investor Relations. RAIT's other SEC filings are also available through this link. RAIT does not undertake to update forward-looking statements in this call or with respect to matters described herein except as may be required by law.

Now, I’d like to turn the call over to RAIT CEO, Daniel Cohen.

Daniel

Thank all of you for being with us this morning. The first quarter of 2008 was a relatively stable quarter for RAIT in what continues to be a challenging market environment. We faced significant market headwinds during the second half of 2007 and they carried over into the first quarter of 2008. However, as we have reported the environment is challenging but stabilizing. We continue our origination of assets and continue repaying our short term debt. The general activity level for commercial real estate financing slowed quickly from the lack of liquidity in the marketplace in the first quarter. The CMBS market closed for all intents and purposes and removed an efficient form of senior long term financing for commercial real estate borrowers. On the positive side this created lending opportunities. On the negative side it slowed the pace of refinancings in our portfolio.

March was a particularly sticky month with financing activity down and things that had been scheduled for closing delayed but we’ve seen a pick up in activity that began in April and seems to continue. I think our management of our liquidity is one of the most important elements in this environment. During the quarter we reduced RAIT’s short term repurchase agreement balances by $71 million to $61 million outstanding at quarter end. It’s important to note that this significant de-leveraging in short term debt during the quarter was repaid entirely out of available cash and not through forced asset sales even while, as I was discuss below, we continue to have resources available to originate new assets.

Though I’m pleased by the progress we are making reducing our repurchase agreements we have foregone the opportunity to invest our cash at considerable yields in the current environment but we believe continuing to move towards the elimination of RAIT’s exposure to repurchase agreements benefits the company in this environment. We do continue to anticipate further pay downs and we expect to end coming quarters with substantially less repurchase debt outstanding. Although I will note that we have reduced this to be only a fraction of our portfolio. We do believe we will be able to continue our asset originations and see future profitability in coming quarters with available cash and continuing cash resources.

As to earnings you can see in the press release we reported adjusted earnings per share of $0.52, a metric that management believes is a good indicator of RAIT’s operating performance which represents a 10.6% increase over adjusted earnings of $0.47 per share for the quarter ended December 31st, 2007. RAIT’s economic book value, another indicator that management feels investors should focus attention to since it facilitates the valuation of us without the effect of unrealized gains or losses on investments in excess of RAIT’s retained investment, increased to $14.67 from $10.52 at December 31st, 2007. Much of the increase in economic book value and RAIT’s GAAP book value was due to the adoption of fair value accounting or FAS 159. Jack will cover FAS 159 and its impact on RAIT in his comments shortly.

During the quarter we generated gross cash flow from RAIT’s net investment income and asset management activities of approximately $46 million and we produced $3.7 million in asset origination fees. We continue to focus RAIT’s asset origination efforts on domestic commercial real estate lending and we continue to lend in Europe. RAIT’s gross asset production for the quarter ended March 31st, 2007 totaled $331 million approximately $124 million in new commercial real estate loans financed primarily by the sale of senior participations to banking relationships in institutional investors. In addition we closed on approximately $207 million of assets in Europe during this quarter.

As of March 31st we had approximately $363.3 million available in capital to lend into European real estate related assets and we expect to continue to earn new origination fees and incremental asset management fees as these available funds are invested. We continue to manage RAIT’s pipeline of investing opportunities against expected repayments and the appetite of senior participants and institutional investors in the investments we originate.

I’d like to turn the call over to Scott Schaeffer who will provide some color on RAIT’s commercial real estate portfolio, our credit quality and what we were seeing in the commercial real estate market.

Scott F. Schaeffer

I wanted to take a moment to give investors a snapshot of our commercial real estate portfolio and describe the types of lending opportunities we are pursuing in this challenging market environment. As many of you know we are a cash flow lender that provides primarily short term, typically two to five year bridge for whole loan financing and to a lesser extent mezzanine financing to strong borrowers who are acquiring cash flow in commercial properties. We look to lend against [inaudible] locations in stable markets that depending on asset type we’ve screen for various parameters and characteristics such as population growth, employment growth and future development activity.

We have a granular portfolio consisting of loans secured by 313 properties that is well diversified by property type, structure and location. At March 31st 51% of the current portfolio is comprised of multi-family properties, 25% is office buildings and the remainder is primarily grocery-anchored neighborhood retail centers. The multi-family market from a financing point of view remains more vibrant than other markets. The agencies, Fannie Mae and Freddie Mac, continue to provide senior financing for multi-family properties. This source of liquidity has facilitated purchase and sale activity which may help us cycle through the multi-family loan assets in our portfolio. This potential increase in refinancing activity could lead to the reinvestment of capital at higher yields and create additional fee generating opportunities for RAIT.

From a credit perspective our CRE portfolio continues to perform as expected. During the first quarter no additional loans were added to non-performing status. Accordingly the balance of non-performing loans at March 31st is unchanged from the prior quarter and is less than 2% of our CRE loan portfolio. Approximately 85% of the non-performing loans are secured by first mortgage along with personal guarantees from the borrower. Our asset management team continues to monitor the performance of the properties on a monthly basis.

In the current environment our borrowers are facing less liquidity in the marketplace which has created opportunities to increase lending spreads thereby increasing our yields while taking less risk. A typical loan transaction today will require 25% to 30% equity investment from the borrower, significantly more than was required just nine months ago. This means we can originate lower loan to value transactions resulting in less risk at higher yields and finance them through the recycling of our capital, existing lines of credit whereby selling participations to regional banks and institutional investors. It’s important to note that we have closed participation sales with a number of our established regional banks and institutional investor relationships while we continue to expand that relationship network.

During the first quarter we originated $124 million of new loans at a 62% weighted average loan to value and a 342 basis point weighted average spread. We also funded $16.6 million of existing commitments and received $27.5 million in principal repayments from our existing loan portfolio.

Going forward our pipeline of new loan opportunities is approximately $385 million but keep in mind that this number fluctuates daily as potential transactions are constantly added and removed from our pipeline.

Daniel

I’d like to take a moment to comment on the dividend. Many RAIT investors are focused on RAIT’s dividend strategies and expectations for the remainder of 2008. We continue to focus on generating adjusted earnings and cash flow that will support future dividend levels. Management considers adjusted earnings as one of the key performance measures of RAIT’s operating performance as an indicator of its taxable income and its funds available for distribution. We declared a $0.46 quarterly dividend during the first quarter in which we generated $0.52 per share of adjusted earnings. Given the volatility of the market in which we operate we will be continuing to monitor developments during the quarter before recommending to RAIT’s Board the amounts of the dividends to consider for declaration. We remain focused on delivering long term returns and dividends to our investors and continue to monitor adjusted earnings as the key metric that we use for recommending dividends to our Board.

On that note I would like to turn the call over to Jack to go through the financial results.

Jack E. Salmon

I will review our first quarter financial results, provide additional insights to changes in our investment portfolio that Scott described and the resulting effect on adjusted earnings and economic book value which Daniel mentioned. First of all from a financial results standpoint during the first quarter total revenue increased to $53.2 million compared to $52.2 million March of 2007. This is a result of reductions in interest rates really nominal interest rates, the lower deferred financing costs in our portfolio and reduced debt levels resulting in lower interest expense. This was sufficient to report higher net invested income overall.

On the revenue side investment interest income reflects ongoing payment default from our divested trust portfolio, the non-accrual of interest on non-performing loans primarily in the commercial portfolio and a $6.6 million increase in our loan loss reserves on our commercial and residential portfolio compared to the quarter ended March 31st of 07. Additionally during the first quarter our total compensation expense and G&A expenses are running approximately $1.5 million lower than a year ago a saving of over 10%. As it relates to adjusted earnings as Daniel mentioned this is a supplemental earnings measure that management uses in evaluating our operating performance. The $31.7 million of adjusted earnings or $0.52 per share is reconciled to the GAAP earnings of $130 million and the adjusted earnings reconciliation shown in Schedule I to the press release.

I want to cover a couple of the key reconciling differences that occurred during this quarter in adjusted earnings. There are three significant items, first we’ve adopted 159 and this is the result of the principal adjustments in net income being the change in fair value of those items we identified as financial instruments under this standard. We adjusted the carrying values of certain trust securities and other assets in a related debt and hedging instrument used to finance those assets to reflect changes in fair value during the quarter totaling approximately $256 million of which approximately $100 million was allocated to the minority interest. The second major adjustment is asset impairments. During the first quarter of 2008 we foreclosed on a $31 million commercial loan and incurred an approximately $5 million impairment charge to dispose of this asset within 30 days. Including in this charge is approximately $3 million in principal, about $700,000 of accrued interest and the remaining cost related to advances and estimated closing costs to dispose of this asset.

We also recorded approximately $5.5 million of asset impairment charges related to certain individual unsecuritized residential mortgage loans and other debt securities which we disposed of during the quarter. The third item in adjusted earnings reconciliation is our derivatives. During the quarter we recorded a $32.1 million charge to terminate certain free standing derivatives associated with former warehouse facilities which have all now been concluded.

Turning to our investment portfolio I want to cover each of the sub-portfolios briefly in terms of the results and impact on cash flow this quarter. First of all our commercial real estate portfolio, it has investments of over $2.2 million at March 31st, 2008, the CRE investments include $41.9 million relating to three non-accrual loans representing approximately 1.9% of the portfolio which are the same non-performing loans and the same balances as of 12/31/07. The largest loan in this group is approximately $36.3 million of a first mortgage where the borrower recently filed for bankruptcy during the quarter. Overall we’ve increased our CRE loan loss reserves to $20.9 million at March 31st, 08 up from $14.6 million at December 31st, 07. The CRE portfolios are generating investment returns and cash flows excluding new origination fees of approximately $24.3 million during the first quarter of 08.

Our second portfolio is our residential mortgage loans, we have approximately $4 billion of assets in this portfolio down by approximately $100 million at December 31st based on normal repayment of the underlying mortgages. This portfolio represents high grade ARMs which continue to demonstrate good credit performance in delinquency over 60 days equal to approximately 3.1% of the portfolio as of March 31st, 2008. As a result or reserve for residential loan losses is $14.7 million at quarter end up from approximately $11.8 million at 12/31/07. During the quarter we generated $5.1 million of new cash flow from these assets.

Our third portfolio is our domestic TruPS portfolio, this portfolio has over $6 billion of assets under management which are consolidated investments reported under the Fair Value Standard was a total of $3.3 billion as of March 31st, 2008. During the quarter we adopted the Fair Value Standard for the related debt and hedging obligations for this portfolio which had a fair value of $1.9 billion as reported now under the Fair Value Accounting Standards. All of our available for sale securities are mark-to-market on a quarterly basis from a credit perspective and for interest rates. This results in an estimated fair value at the end of each quarter with the resulting changes in fair value during the quarter being reported in earnings.

Two specific items have affected the valuation during first quarter of 08. First of all from a credit standpoint and credit default as of April 30th, 2008 we’ve experienced payment defaults by 11 issuers. The consolidated basis associated with our defaults is $292 million at March 31st, 2008. We received $11.9 million of cash flow in the first quarter reflecting the effects of redirection of cash flows to higher rated bonds on the Taberna 2 to Taberna 8 transactions. Secondly our fair value changes, under current market conditions during the quarter we have caused incremental changes in the mark-to-market values of assets, a downgrade of $441 million, the related debt obligations and the hedging costs associated with this portfolio, an decrease of $841 million in the liabilities and an increase of $144 million in the related hedge liabilities resulting in a net adjustment to fair value overall of $256 million which was recorded in earnings.

Our fourth portfolio is our European portfolio which is not consolidated in the financial statements and recorded under the equity method. At the quarter end March 31st 2008 we had approximately $2 billion of assets in this portfolio generating $3.5 million of cash flow and $2.3 million in origination fees during the first quarter.

I want to just echo some of the comments that Daniel made in addition to the $70 million we repaid during the quarter on our repo balances we have further reduced our repo balances to approximately $58 million also as of April 30th, 2008. The repo debt finances are residual interest in our residential mortgage portfolio and certain debt securities in our CDOs. We continue to maintain adequate liquidity through existing capital resources together with new capital expected from anticipated senior bank participations on the CRE portfolio, institutional capital and equity sources.

The last thing I’d like to comment on is the economic book value per share. Given the nature of the fair value adjustments I just described and other non-cash charges we have incurred all the differences that arise under GAAP we present economic book value as a non-GAAP alternative measure. The economic book value reflects the adjustment to book value of adding back losses and changes of these fair value adjustments for example that we’ve recorded in excess of our maximum loss we could record in the disposition of assets. Beginning in 2008 we adopted the provisions of FAS 139 and recorded the fair value of CDO debt and hedges associated with the Taberna program. Upon adoption of the FAS 159 we determined the changes in fair value may result in recovery of our investment capital in this trust portfolio given the relative changes in underlying assets compared to the changes in the liabilities since adoption. The extent these changes in fair value would result in an unrealized gain on the capital we’ve invested or have capital at risk currently estimate at approximately $620 million. We have reduced the economic book value by such amount. As a result at March 31st, 2008 our economic book value was $14.57 per share as described in the attached Schedule III to the press release.

This and other financial information will be provided in our press release and our quarterly Form 10-Q which will be filed later this week and this concludes the financial report.

I’d like to turn the program back over Daniel.

Daniel G. Cohen

I would just like to emphasize that while the current market environment does remain challenging, RAIT’s existing portfolio continues to generate adjusted earnings and cash flow and we expect to continue to do so. We have further addressed risks to our balance sheet by repaying a large sum of RAIT’s short term debt, recording appropriate reserves through March 31st and though we remain cautious we are taking the appropriate steps to position RAIT in the near term for long term growth. For the remainder of 2008 we will continue to focus on generating cash flows from our investment portfolios, increasing the margins on our investment portfolios, originating new risk adjusted good returning assets and earning fees while further reducing our exposure to purchase agreements and generating adjusted earnings for our investors. I thank RAIT investors who have continued to support us through their ownership of RAIT stock.

Operator, please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of David Fick – Stifel Nicolaus & Company, Inc.

David Fick – Stifel Nicolaus & Company, Inc.

Is there any impact when you, either of fees or cash flow due to the downgrade of the Europe CDO One?

Daniel G. Cohen

Let me just talk a little bit about that. First of all, Fitch while S&P and Moody’s both reaffirmed their ratings on our First Europe CDO, Fitch downgraded certain of the classes. Primarily that’s not because of a strong credit deterioration because if you look through the portfolio there are more upgrades to the portfolio than there have been downgrades overall and there hasn’t been any downgrades to any levels that would be alarming. But, at the same time we chose a portfolio in a time of changing ratings criteria for Fitch whereby the portfolio average life was relatively short meaning that we have contractual rights to be paid back in a very long time but in a relatively short time. So, the downgrade really was primarily driven by a shorter life of the assets which seems to a certain extent to us looking at simply credit and continued dividends and continued payments not to make sense but as Fitch outlines it’s driven primarily by later periods not having excess cash flows on some highly stressed models. To directly address the question, the answer is no, there’s no impact on either our fees or our concerns about the credit or about the earnings that we will have from the Europe CDO One.

David Fick – Stifel Nicolaus & Company, Inc.

You made a decision to adjust your trust and securities portfolio under 159 but I don’t think you’ve done that for the commercial loan portfolio, is that correct?

Jack E. Salmon

That is correct David. We, as you know, under the Standard you identify specific assets and liabilities which will be designated financial instruments for fair value accounting and we had previously filed fair value accounting on the assets that were treated as [inaudible] securities under the old accounting rules and we thought it was prudent to match that with the liabilities that are in the trust CDOs and then have them valued at fair value as well.

David Fick – Stifel Nicolaus & Company, Inc.

Do you have any estimates of what those assets would sell for that aren’t marked?

Jack E. Salmon

Well, in our Q and K disclosures we always show the fair value disclosures of the various portfolios so there will be more information when you get the Q this week. But, the commercial portfolio is trading very close to what the recorded value is.

David Fick – Stifel Nicolaus & Company, Inc.

The $32.1 million write off in warehouse deposits, I assume that was the Bear off balance sheet line. You still have one with Merrill, is that correct?

Jack E. Salmon

We actually terminated all of our warehousing facilities for the total cost of $32 million and that wraps up all that financing.

David Fick – Stifel Nicolaus & Company, Inc.

And those assets are still on the balance sheet?

Jack E. Salmon

They were at March 31st if they were in the process of liquidation but we our reserve is for the entire exposure we would have going forward.

David Fick – Stifel Nicolaus & Company, Inc.

So you can’t have any more cash loss here that would impact the dividend?

Jack E. Salmon

That is correct.

Operator

Your next question comes from the line of Jason Arnold – RBC Capital Markets.

Jason Arnold – RBC Capital Markets

I was just wondering can you tell us how you guys go from an economic book value of $10.52 in the fourth quarter to the $14.67 now? I know you mentioned the FAS 159 and adjustments but I thought the notion of economic book value was to offer clarity beyond the clarity of the mark-to-market noise?

Jack E. Salmon

As you know the Standard evolved evaluating various asset liabilities on a fair value basis that had previously not been on a fair value basis. Some of the nuances under that standard were that you would look at things such as deferred financing costs for example associated with the debt and if you’re going to revalue the debt the historical refinancing costs were part of the day one adjustment to readjust fair value of your debt. So, there are certain elements of the adoption that we believe had a direct effect on the overall economic book value. Secondly, as we looked at the way previous write downs had been reflected in our economic book value it primarily had us restoring losses below zero for our basis in our investments and we believe given the relative value of the assets and liabilities in the portfolio today our capital investment has been recovered, if you will from a fair value standpoint subject to future positions and the ultimate [inaudible] from selling off those assets. So, it had a positive effect obviously not as significant of a positive effect as the overall book value adjustment which was close to $20 per share.

Jason Arnold – RBC Capital Markets

I guess I’m just having a little difficulty with the economic environment is eroded and assumingly therefore performance would erode on those assets so to mark it up 50% it’s just a little difficult to kind of grasp exactly how that adds value to the equation.

Daniel G. Cohen

Jason, we’re not simply taking a, we’ve made a mathematical calculation that primarily revolves around some of the previous assets that had temporary impairments. The calculation where we’ve eliminated previously those investments where we had charged off for assets purposes beyond our book value just resulted in the adjustment. And, I think as Jack said, it didn’t result in any adjustment for GAAP book value, we still believe it’s a good guide for valuing the company overall.

Jason Arnold – RBC Capital Markets

I guess then on that same note can you outline for us what’s categorized as level one, two or three for FAS 159 purposes?

Jack E. Salmon

Generally that debt that we revalued is a level two approach given that we have market prices from trading debts that we use and there’s virtually no judgment applied in that pricing therefore. Then on the asset side it’s more of a level three type of approach because there is not a ready trading business and although from time-to-time we see specific trades change we basically are refusing estimates and just kind of cash flow models which are level three types of adjustments for the asset side. We’ll provide more detail on this in our 10Q and MD&A disclosures.

Jason Arnold – RBC Capital Markets

So you guys then are effectively saying that really the market price on your debt is correct and then you’re coming up with your own kind of mixed model for what your assets should be valued?

Jack E. Salmon

Let me be clear, we continue to follow the methods we’ve used on the asset side historically which are modeling now described as level three type approach. On the debt side it is a traded quote from a broker price so whether that’s correct or not that’s the quoted price and we use the same approach to value the initial adoption effected 1/1/08 as we did at the end of the quarter for March 31, 08. So, we continue to go to the market and seek and identify trading prices that could be used to quantify specific debt trounces in each of those transactions.

Jason Arnold – RBC Capital Markets

It just seems like there’s so much volatility that could play in here and we could see book value either rise or fall dramatically again on an economic basis and I guess that’s kind of what I was hoping was that the economic number would tend to eliminate because I guess if you assume that the debt is trading at relatively low levels and say we get a recovery in the fixed income and credit markets, wouldn’t that cause a pretty dramatic compression of your book value if that were to be the case?

Daniel G. Cohen

We expect that going forward that the adoption of this methodology should result in smoothing out of changes in economic book value and properly this is more along the lines of a one-time adjustment. Would you agree with that Jack?

Jack E. Salmon

Yes. And, there will be more disclosure in the 10Q which will help understand it.

Jason Arnold – RBC Capital Markets

Then I guess could you offer us what exactly the pay downs were on your portfolio in the first quarter?

Jack E. Salmon

We had approximately $48 million of pay downs during the first quarter. About half of that was in the CRE portfolio and half of it was in our other portfolios.

Operator

Your next question comes from the line of David Fick – Stifel Nicolaus & Company, Inc.

David Fick – Stifel Nicolaus & Company, Inc.

Can you also give us some details on any extensions or re-originations that you did this quarter?

Scott F. Schaeffer

David, I don’t have that information handy exactly but there were a number of commercial loan transactions where the borrowers were facing maturities and due to the current lending environment came back to us asked us to extend the loans. On each one of those situations we re-underwrote the loans and determined where we granted extensions it was a prudent course to take. Why cause a difficulty in a loan transaction that’s performing because of a maturity at this time of the market. There were a number of them but I don’t have the exact figures handy with me.

Operator

Your next question comes from the line of David Chiaverini – BMO Capital Markets.

David Chiaverini – BMO Capital Markets

Following up on the economic book value discussion, did you do the calculation as to what economic book value would have been under the prior method you were using in the fourth quarter?

Jack E. Salmon

No, we’ve left the prior methods under the new standards. We are basically looking at current information. We did adopt FAS 159 on January 1st so there was about a billion effect at the day one adoption. Again, it’s more of a moving calculation and the cumulative effects are disclosed.

David Chiaverini – BMO Capital Markets

So would it be fair to say that if the old methods were used that economic book value would have stayed about the same? Or, do you think it would have increased $1 or $2?

Jack E. Salmon

It probably would have been larger by two times as large I would think in terms of just using the old method, but we didn’t calculate it precisely so I don’t have a number to give you.

David Chiaverini – BMO Capital Markets

The increase was twice as large as it would have been, is that what you mean?

Jack E. Salmon

It would have been. I think we estimated back when we disclosed the earnings results in the $20 range would be our calculation if we followed the old standards so it would have been significantly bigger than the $4 increase we’re reflecting.

David Chiaverini – BMO Capital Markets

What, so you’re saying the economic book value would have gone up more than $4 if you used the old methods?

Jack E. Salmon

Yes, and as we described we have eliminated if you will from the calculation approximately $600 million of potential gains in the fair value calculation from both the assets and liability net and those gains are not being reflected in the economic book value today, only upon realization.

Daniel G. Cohen

I think we’re going to provide full information upon this in the Q.

David Chiaverini – BMO Capital Markets

Then on a separate subject, it’s just the sequential decline in the G&A expense, is that from the layoffs that occurred in the TruPS origination side? Could you give some color around that?

Jack E. Salmon

Well, I think we had announced previously that we were looking to reduce overhead and G&A and we started to have the effect of that. There was about $1 million G&A item that was sort of a one-time item we described previously and that’s not in our G&A cost going forward obviously.

David Chiaverini – BMO Capital Markets

Okay so where you’re at now is a good run rate?

Daniel G. Cohen

We think we’re going to continue to make progress in terms of G&A going forward.

Operator

Ladies and gentlemen at this time I would now like to turn the call back over to Daniel Cohen.

Daniel G. Cohen

Well thank you very much everyone for your interest. We appreciate your coming and joining us on this call and we hope to have you on our next call in a quarter’s time.

Operator

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

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