Feb 10, 2008
Executives
Paul Elenio - CFO Ivan Kaufman - President and CEO
Analysts
Jim Shanahan - Wachovia David Fick - Stifel Nicolaus David Choksi - Lehman Brothers Jeremy Baker - Citi J.T. King - Cape Investments Don Fandetti Dan Fisher - Wachovia Securities Bill Osbourne - Vallenore
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Arbor Realty Trust Earnings Call. My name is Lisa and I’ll be your coordinator for today.
At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s conference.
(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s conference Mr.
Paul Elenio. Please proceed, sir.
Paul Elenio
Thank you, Lisa, and good morning, everyone. And welcome to the quarterly earnings call for Arbor Realty Trust.
This morning, we will discuss the results for the quarter and the year end December 31st, 2007. 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 conditions, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of future performances taking into account the information currently available to us.
Factors that could cause actual results to differ materially from Arbor’s expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today.
Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. And now with the Safe Harbor is behind us, I’d like to turn the call over to our President and CEO, Ivan Kaufman.
Ivan Kaufman
Thank you, Paul and good morning, to everyone, and thanks for joining our call today. By now, I hope everyone has had a chance to review the fourth quarter earnings release that was issued earlier this morning.
We are very pleased with the solid results for the quarter and in a few movements Paul will review them with you. However, before we take a look at the results, I would like to touch on our overall achievements, in 2007.
We have made some very notable accomplishments despite the severe and ongoing dislocation that continues to face our industry. And as we transition to a new year, I will also highlight our business approach in this environment and our strategy to continue to position ourselves for the successful navigation of these current market conditions.
2007 started with an abundance of capital in an extremely competitive commercial real estate lending market. However, as we headed into the second half of the year, all of us are painfully aware of the significant crisis and dislocation which has had a very severe and sudden impact on the financial markets.
With over 25 years of experience in this industry, I have been through two cycles like this before, in fact, I have said on numerous calls over the last two years, this market change was not a surprise to us. So, we set some very strategic and well-defined goals in anticipation of this market correction.
We began by positioning our portfolio with some secure, low risk loans at times sacrificing some yields to credit. We also focused on ways to preserve, secure and maximize liquidity and continue to improve our financing facilities strengthening the right side of our balance sheet and capital structure.
So, despite the major dislocation that occurred, 2007 was a year mobbed with many significant achievements for Arbor. We are very satisfied with our progress and with the current state of our balance sheet, yet we remain cautious, as this is a very difficult environment.
We are not immune to its effect and still have a lot of work to do. Let me take a moment to elaborate on some of our 2007 accomplishments, which have positioned us well to continue to execute our strategy in 2008.
First of all, we produced record earnings of $4.44 per share. We also significantly monetize our equity kickers generating around $170 million in cash distribution, which increased our book value by up about $5 per share from $19 to around $24 per share.
Liquidity continues to be a focal point in our industry. In 2007, we improved our liquidity position and strengthened the right side of our balance sheet and capital structure.
We added 52 million of trust preferred securities, and now have a total of 275 million outstanding. We also raised $74 million of capital in an overnight deal.
And throughout the year, we were able to add $60 million working capital line, amend certain facilities, increase the total capacity and replace two short-term repurchase agreements with three new facilities. These new facilities include about $550 million of term debt, and a $200 million revolver for new product which replace short-term borrowings and have now locked-up a substantial amount of our debt for the long-term without mark-to-market risk.
As I mentioned, we also monetized several of our equity kickers, which is contributing greatly to our liquidity and capital base. In 2007, we’ve also continued executing our goals of improving the credit quality of our portfolio by originating loans more in the middle of the capital structure.
We were very successful on accomplishing this goal, and as a result, I am pleased with the progress, we have made in our portfolio. We believe that our hands-on approach in managing our portfolio will help us minimize any potential losses.
This allows our management team to focus their energy on originating new opportunities in an environment where yields are extremely attractive with the potential to create new equity kickers, as well. In 2007, we stayed true to our philosophy of practicing discipline and stay in the course.
We have spent a significant amount of time developing and executing our strategy, and I am pleased with our overall accomplishments. We are extremely focused, and we will continue to work very hard in these two years to position ourselves appropriately up for the difficult market.
One, we do not receive recovering for some time. I would like to spend some time focusing on how we’ve closed out 2007 by discussing our fourth quarter achievements before turning it over to Paul to take you through the financial results.
As previously announced, we received around $40 million from our equity investments in the Toy properties in the fourth quarter, including the recapitalization of the 1107 Broadway property. In a moment, Paul will explain the accounting treatment and on this transaction alone, we received about 50 million in cash in 2007 and produced significant returns on our investments, including a tremendous yield on the debt we had outstanding.
Overall, our equity kickers have generated around $200 million in cash proceeds and have added almost $7 per share on economic book value, which currently is around $24 a share. Our equity kickers are a unique facet of our business approach.
One that we believe since it significantly differentiates us from our peers. These equity kickers are an integral component of our business, and we now generated a positive impact from them in 12 of the 15 quarters since transitioning to a public company.
These kickers have also generated significant tax deferred cash proceeds. This has substantially increased our liquidity and capital base, which has proved to be of special importance in today’s difficult market and our focus will be to add new equity kickers in this environment.
One of our key strategies has been to continue to focus on preserving and maximizing liquidity, as well as improving our financial facilities and capital structure. As I mentioned on our last call, in a down market, you never have as much liquidity, as you would like.
So, our primary focus has been and continues to be maximizing liquidity of the firm. We are pleased with our progress and we’ll continue to look extremely hard on this objective.
We remained very selective in deploying our capital, and continue to examine alternative ways to access capital and improve our funding sources, including potential acquisitions and joint venture funds. We also continue to strengthen the right side of our balance sheet during the quarter focusing on replacing some of our short-term debt and longer term non mark-to-market facilities.
We entered into two new financing agreements replacing short-term facilities with one of our lead banks. This included around $550 million of three-year term debt, which effectively replace the significant amount of short-term financing with longer term debt and eliminated mark-to-market risk as it relate to interest rates spread on these assets.
We also added a $200 million revolver to this term facility, specifically to fund new investments. We are very excited about entering into these facilities and now combined with our CDOs and trust preferred securities of over 75% of our committed debt non mark-to-market and secured for the long-term.
Additionally, with the monetization of our Toy equity investments, we generated around 40 million in cash during the quarter and around 200 million cumulatively from our equity kickers, which has contributed greatly to our liquidity and capital base. So, as a result, we currently have around a 150 million in cash between cash on-hand and cash available on our CDOs, and around 250 million of capacity in our financing facility.
In addition, we are expecting run-off over the next few months of around 300 to $500 million and combined with our cash and capacity online, we feel this puts us in good position to have adequate capital to continue to operate our business effectively. As I touched on early in the call, another critical objective has been to transition our portfolio to higher credit quality by originating loans more in the middle of the capital structure, and we have been very successful in achieving this goal.
This quarter, we added $116 million of new loans and investments, of which, $75 million was funded. Run-off for the third quarter came in at $138 million.
This resulted in net growth in our portfolio for 2007 of around 30%. Some of the run-off we were expecting in the fourth quarter is now going to occur in the first quarter of 2008, which is estimated to be around 3 to $500 million.
So, we do expect our portfolio to shrink here a little, as we are looking to preserve capital, and be very selective and patient in deploying our capital. We are very careful and conservative in this environment, and have started to see the market reach at different level on spreads and loan dollars for new products.
We expect to continue seeing it for a while, as market buyers continues to be negative. We think this will create significant opportunities to originate well structured low risk loans at wider spreads what we believe will produce new equity kickers, as well.
But we do think the market will continue to struggle and our strategy is to monitor the market and be very prudent, patient and selective in deploying our capital, as we look to take advantage of wider spreads on investments replacing our run-off with higher yields and longer term product. We are not interested in building a short-term portfolio, and therefore, will be very careful on entertaining new transactions.
We are more interested in originating a longer term, high yield assets, creating a portfolio with reoccurring long-term value, rather than putting our capital out there for the short-term. We have always talked about how important our asset management function is to us, and is clearly one of the key to our firms’ success.
In these difficult times, it is more critical than ever to have the experience and ability to manage assets with difficulties. I want to take a moment to stress the importance of having a strong management team.
I fully believe that in this environment having a tenured experienced managing team with the skill of evaluating and mitigating risk is critical. As the current environment lends to a lack of liquidity, we have been very aggressive and proactively working with our borrowers to stay ahead of the curve and taking a hands-on approach to help them understand their options before issues arise.
This environment affect every lender, as we do expect some degree of stress on transitional loans as borrowers have difficulty in securing new financing. Clearly, the objective here is to be proactive and minimize any potential exposure in our portfolio.
We are also proactive in assessing any potential risk in our portfolio, at least once a week, as part of a special executive committee that was formed last summer, I personally review every loan in our portfolio. In addition, we perform a very detailed quarterly review of our portfolio, and as a result of this analysis, we did book a $2.5 million loan loss reserve, two multi-family loans during the quarter.
We feel that based on market conditions, values and operating status of these two properties it is prudent at this time, to record these reserves. As active mangers we worked very closely with these borrowers and monitor these properties, as well as, market conditions to minimize any potential loss on these assets.
Although we are not immune to the affect of this market, we are pleased with the overall credit quality of our portfolio given the current environment. We will continue to monitor our loan portfolio very carefully, and remain actively involved in educating and assisting our borrowers in this difficult market with an eye on minimizing losses.
Lastly, as we stated in our Amended Schedule 13D last week, we have nominated a slate of seven Directors to run at the 2008 Annual Meeting of CBRE Realty Finance. CBF announced on Monday, February 4th, that they have accepted our nomination as timely.
This was a minor issue concerning the appropriate time for nomination under CBFs by-laws and proxy disclosure. We are very pleased that this issue has been resolved and that CBF recognizes the importance of its stockholders having a choice at this year’s Annual Meeting.
We believe that the proposed slate of qualified directors is well equipped to evaluate strategic alternatives to first and foremost tack down our investments and in turn maximize shareholder value. I will now turn the call over to Paul who will take you through some of the financial results.
Paul Elenio
Thank you, Ivan. As noted in the press release, our earnings for the fourth quarter were $0.75 per share on a fully diluted basis.
We had another very profitable quarter and closed out 2007 with record earnings of $4.44 per share. The fourth quarter numbers did include $2.3 million in income from our equity interest in the Toy Properties.
This was mostly due to receiving a $39 million cash distribution from the recapitalization of the 1107 Broadway property in October. We’ve also retained a 10% interest in the property for around 5.7 million in invested capital, and the details of how this was reported for accounting purposes were laid out in the release.
Our equity kickers are a key component of our business model, and we now have 15 of them in the portfolio. Our goal in 2007 was to monetize these equity kickers where appropriate, and we were extremely pleased with the results.
We generated around $170 million in cash and around $35 million in income in 2007. Cumulatively, we have received around $200 million in cash and recorded about $67 million in income from these investments since our inception.
And we’ve now had a positive impact from one or more of our equity kickers in 12 of the 15 quarters since going public. These kickers have added almost $7 per share to our economic book value, which now stands at around $24 if you add back the temporary change to the value of our interest rate swaps.
We’ve also been extremely successful in structuring a significant amount of these distributions in a tax efficient manner, which has allowed us to recycle a substantial amount of capital, creating significant additional liquidity. In addition, the fourth quarter included a $1.2 million reduction in interest expense or almost $0.04 per share for a change in the market value of certain interest rate swaps, which GAAP requires us to flow through earnings.
These swaps effectively swap out assets in our CDOs, which pay based on one month LIBOR, and our CDO debt, which is based on three month LIBOR. The large increase in the market value of these swaps was due to a change in market outlook on interest rates and spreads as of December 31st, 2007.
All things being equal and considering no further changes in market outlook going forward, the value of these swaps will decline returning to par by the maturity of the trade. If the market outlook for recent spreads fluctuates, these trades could produce changes in value which could increase or decrease our earnings going forward.
We also recorded that $2.5 million provision for loan loss on two multi-family bridge loans with an aggregate unpaid principal balance of around 58.5 million during the quarter. As Ivan mentioned, we are taking a very proactive approach in assessing any potential risk in the portfolio, and based on market conditions for these assets, we feel it is prudent to record these reserves at this time.
We’ll continue to actively manage our assets to minimize any potential losses. And now I would like to take you through the rest of the results of the quarter.
First, our average balance in core investments grew about $56 million from last quarter, due to our third quarter growth, as well as our fourth quarter run-off occurring late. Our core interest margin increased about $1.4 million or 7% from last quarter.
The yield for the quarter on these core investments was around 8.95%, compared to 9.27% for the third quarter. We did add some acceleration of fees in both quarters, which happened frequently when loans pay off prior to maturity with more of these fees coming in the third quarter.
So, the yield on these core assets excluding these fees was around 8.89% for the fourth quarter, compared to around 9.16% for the third quarter. The decrease in yield on our core investments is a result of the decline in the average LIBOR rate during the fourth quarter, partially offset by LIBOR floors on a certain portion of our portfolio.
In addition, the weighted average all-in yield on our portfolio was 8.56% at December 31st, 2007, down from around 8.81% at September 30th, 2007. This decrease is primarily due to a 52 basis point reduction in LIBOR, partially offset by the fixed rate loans in LIBOR floors in our portfolio.
And since December 31st, LIBOR has declined about 140 basis points, applying this decrease to our December 31st portfolio; the weighted average all-in yield would be around 8.15% at February 1st, 2008. This is down only around 40 basis points from December 31st due to approximately 32% of our portfolio being fixed-rate along at around 60% of our variable rate loans having LIBOR floors above the February 1st rate.
In addition, we are estimating run-off for the first quarter to be around $300 million to $500 million at higher rates, the bulk of which have LIBOR floors in the money, so the decline in LIBOR combined with our estimated first quarter run-off will result in a reduction in our first quarter asset yields. We believe some of this reduction will be offset by opportunities for higher yields in new originations.
Our average cost of fund this quarter was approximately 6.51%, compared to 6.84% from the prior quarter. Excluding some unusual items, including the reduction in interest expense from our swaps that I just mentioned, our average cost of funds was approximately 6.72% for the quarter, compared to around 6.92% for the third quarter.
This reduction was primarily due to a decline in average LIBOR, partially offset by increased cost of funds from the term debt facilities we entered into during the quarter. The decline in LIBOR since December 31st will reduce our borrowing costs on the portion of our liabilities that are floating, which will be slightly offset by the full effect of increased rates in our term facilities in the first quarter.
Next, the average balance on our debt facilities decreased by around $50 million from last quarter. This was primarily due to funding new investments with cash received from our equity kickers, and some of our restricted cash, as well as moving some of our assets into our CDOs.
So, as we look ahead at first quarter margin, the significant decline we have seen in LIBOR from December 31st will increase our net interest spread due to the amount of fixed rate loans and LIBOR floors in our portfolio. However, estimated first quarter run-off combined with our strategy to be very selective in deploying our capital will likely reduce our portfolio resulting in an overall decrease to our core net interest income in the first quarter.
Now looking at leverage, the average was around 75% on core assets for the fourth quarter, down from around 78% for the third quarter, including the trust preferreds as debt, the average leverage was 86% for the fourth quarter, as compared to 88% for the third quarter. Our overall leverage ratio on a spot basis was around 2.6:1 at both December 31st and September 30th 2007.
If you include the trust preferred securities as debt, the overall leverage ratio is 4.8:1 at December 31st and 4.7:1 at September 30th.. There were no significant changes on the balance sheet since last quarter, but I would like to provide some clarification on a couple of line items.
The restricted cash balance related to our CDOs did go up by about $12 million on a spot basis from September 30th to December 31st but the average balance of restricted cash outstanding for the two quarters actually decreased to $55 million from $189 million on average for the third quarter to around 134 million for the fourth quarter. As I mentioned before, this is primarily due to deploying some of our restricted cash to fund new investments and transferring some of our loans into our CDOs.
In addition, other comprehensive losses increased by about $26 million for the quarter. As you know, our strategy is to match upon our business as best as possible, and so to the extent we have floating rate debt that is financing fixed rate assets, we will generally swap them out to eliminate any interest rate and mismatch risk.
As interest rates have continued to decline, the market value of these swaps is going down considerably and GAAP requires us to flow that change to our equity section which is primarily the reason for the change in other comprehensive losses. GAAP does not permit us to mark-to-market the associated liability while the assets that are match funded with those liabilities and we feel that if you are able to mark-to-market those items, the increase in value will substantially offset the decline in the value of our swaps.
Turning quickly to some portfolio statistics, as of December 31st, we had about 68% variable rate loans and 32% fixed. By product type about 63% was bridge, 13% junior participation, and 24% mezz and preferred equity, and our portfolio had an average duration of around 35 months.
The loan-to-value of our portfolio was around 71%. Our weighted average median dollars outstanding was 48%, and our debt service coverage ratio was 123 at December 31st all of which is relatively unchanged from the prior quarter.
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 due to a larger gain from our equity kickers during the third quarter. And finally, as you know, we’ve recently announced a quarterly dividend of $0.62 per share of common stock.
Our earnings of $4.44 per share for the year significantly exceeded our dividend largely due to the substantial profits we generated from our equity kickers. We’ve done an excellent job creating tax deferrals and a good portion of them allowing us to retain and recycle a substantial amount of this capital.
Our preliminary analysis indicate that we will be required to issue a special dividend of around $0.15 to $0.20 a share based on the current shares outstanding. But because we did distributed substantial amount of our required dividend in 2007, we are not required to distribute this excess amount until the due date of our 2007 tax return which is September 15, 2008.
Once we finalize the analysis, we will report the amount of the special dividend and the timing of the distribution to our shareholders. With that, I’ll turn it back to the operator and we will be happy to answer any questions you may have at this time.
Operator
(Operator Instructions). Your first question comes from the line of Jim Shanahan with Wachovia.
Please proceed.
Jim Shanahan - Wachovia
Thank you. Good morning.
Paul Elenio
Good morning, Jim.
Jim Shanahan - Wachovia
I have a question about Extended Stay. Our lodging analyst here at Wachovia was suggesting to us recently that Extended Stay has experienced a modest drop in revenue per room in December and January.
This would be the first decline that he has observed throughout his lodging segment. And he had some ideas of what this might be attributable to, but I would like to hear your thoughts and perhaps just an update on the strategy there at Extended Stay?
Ivan Kaufman
Yeah. First off, I think just on an overall basis, the RevPAR from ‘06 to ‘07 was up about 3.6%.
December of ‘07, compared to ‘06 was off about 4% and January is off about 1%. Clearly, those two months being generally the worst of the months.
It’s hard to draw a conclusion in terms of the overall performance of what that – what’s taking place there. On the other hand, we are fairly active in managing that investment and actually meet weekly and I actually have access to Wachovia’s information in terms of that research.
So, we’ve actually stressed out different scenarios. One of the benefits, we have to absorb some softness in the sector is the fact that 5 billion of the 7 billion of the financing is floating-rate financing and they’ve dropped basically 250 basis points on that $5 billion in the last 90 days.
So, we have added cushion of additional cash flow of over $100 million on an annualized basis to absorb some softness. If we take the most severe forecast by Wachovia’s people in terms of the most severe circumstance, on the lodging side, and even have a 5% reduction in the RevPAR with a drop in LIBOR, we still have a positive plain cash flow scenario.
But until we have at least three to four months under out belt in the first quarter, it’s going to be hard to show whether there is any level of trends here.
Jim Shanahan - Wachovia
Thank you very much for that, Ivan, and then one brief follow up. Related to the multi-family loans that were – for which there was a provision this quarter, are any of those multi-family loans also among the multi-family loans that have equity kickers?
Paul Elenio
Yes, Jim. Hey, it’s Paul.
One of the loans that we did provide a reserve for does – we do have an equity kicker on. The other one does not.
Jim Shanahan - Wachovia
Okay. Thank you.
Operator
Your next question comes from the line of David Fick with Stifel Nicolaus. Please proceed.
David Fick - Stifel Nicolaus
Good morning. On those two multi-family loans, can you give us a little more on location and what your options are going to be there?
Ivan Kaufman
I think we are a little hesitant to talk about location only because it may affect our negotiations with our borrowers. But we are evaluating all the alternatives.
It’s not a significant impairment on those assets relative to the overall value. But I think with that question, I think it leads into a little bit of our philosophy at this point in time and why we were so aggressive.
I think as times change, your approach to loss mitigation changes and I think our attitude at this point in time is a quicker disposition, is probably better because our focus is more on liquidity and alternative uses for that capital. So, when you can redeploy that capital at a 20-plus return and when you have more sense of liquidity, I think we are looking for a quicker disposition of some of these assets.
And don’t mind, if we have to incur a little bit of the loss, thus, we can recoup that extremely quickly and perhaps, where we can be a little bit more aggressive, we were more aggressive in posting loan loss reserves on those assets with that kind of change in attitude. On a historical basis, over the last several years, you had time to work those out.
You weren’t as sensitive to (inaudible) liquidity and your return profiles were less. Our returns were in the low teens.
Now, our returns are in the high – in the 20s. So, I think that affects our attitude overall in terms of how we are approaching our loss mitigation provision and we are taking an extremely aggressive approach.
David Fick - Stifel Nicolaus
Okay. Sure.
Thanks. This is I think, if I am correct, your first ever loss reserve.
You’ve got about 2.5 billion of assets. How do you look at your sort of top-down view of loan-to-value given that you’ve only got about 2.5 million of that 2.5 billion reserve today?
Ivan Kaufman
It is our first loss provisions as a public company since, I guess, 2003.
Paul Elenio
That’s right.
Ivan Kaufman
We’ve always tried to be as aggressive as we can to post loss reserves as we’ve stated in the previous calls, especially in light of the many opportunities we have when we do these equity kickers and don’t get any value for them, and we’ve been unsuccessful in convincing our auditors to do that. So, to the extent, we feel there’s a level of impairment.
We will post loss reserves and to the current loss reserves, we feel are appropriate. There is nothing else in our vision right now which would cause us to do that.
But we should pay attention to the environment. You have declining real estate values.
You have borrow liquidity issues, and in that kind of environment, things change on a day-to-day, month-to-month basis. And as we see them come up, we will deal with them and post them accordingly.
David Fick - Stifel Nicolaus
Okay. The CBF transaction, I know it’s hard for you to talk about publicly, but what kind of diligence have you been able to do there?
And how can you proceed given the number of portfolio issues that they have without having some visibility inside both the company and its potential off-balance sheet liabilities?
Ivan Kaufman
I guess, your question is, would we pursue without an appropriate level of due diligence.
David Fick - Stifel Nicolaus
Yeah.
Ivan Kaufman
Okay. So, the rest of the answer is, we would not.
As we proceed in the transaction, as we plan from day one, evaluating their assets is a critical component and of acquiring any company and we would act appropriately.
David Fick - Stifel Nicolaus
Okay, great. Thank you.
Operator
Your next question comes from the line of Dean Choksi with Lehman Brothers. Please proceed.
David Choksi - Lehman Brothers
Hi. Good morning, gentlemen.
You anticipated prepayments, I guess got pushed out into first quarter ‘08 and seemed to increase as well? Is that more kind of scheduled maturities or is that borrowers prepaying loans?
What’s the dynamic going on there?
Ivan Kaufman
It’s both, Dean. There are some scheduled maturities that are coming due in the first quarter.
We were expecting some early run-off in the fourth quarter on some of those and they got pushed out with liquidity issues. But we are seeing some prepayments as well.
I guess, there is some capital still to access and we are seeing some prepayments in the loans as well. So, it’s kind of a mixed bag at this point.
David Choksi - Lehman Brothers
And then, Ivan in your comments, you sounded somewhat of a cautious tone, given the prepayments you have upcoming, you are just seeing liquidity. What’s kind of the timing to redeploy those proceeds?
Or kind of what are you waiting or looking for to see in the marketplace before redeploying those?
Ivan Kaufman
I guess we would err on the side of having excess liquidity and we do have a significant number of opportunities. We will pick and chose those opportunities as appropriate.
And a lot has to do with the replenishment periods and our CDOs, making sure we have the proper mix of assets that go into our CDOs so they’re long term, and we get the best result out of our CDOs. So, a lot of it is timing and opportunity, but we are not in a rush.
There are plenty of opportunities and we can be extremely selective. In this environment, you don’t know whether your pay-offs occur or not.
So, you want to wait until you have that cash and ability before you redeploy and not be ahead of yourselves. And we do have a luxury of seeing a lot of opportunities and being patient on that redeployment.
David Choksi - Lehman Brothers
And then, one final question. Ivan, you mentioned that you were looking at JV opportunities.
Can you elaborate on some of the things that you are looking at?
Ivan Kaufman
I think what would be good guidance, I think Wachovia put out a report on some site called, “Funds that are possible”. And we’ve been evaluating and talking to a lot of people who want to invest in this sector.
And clearly, our platform is one to do that, and given our broad reach and view of different products in terms of originating and/or purchasing on the market, we have a lot of access. And clearly, if we could utilize other people’s capital and just a little bit of our capital and enhance our returns through promotes, that would be an attractive structure for us and we’ve been evaluating those options.
David Choksi - Lehman Brothers
Thank you.
Operator
Your next question comes from the line of Jeremy Baker with Citi. Please proceed.
Jeremy Baker - Citi
Hi. Actually, all of my questions have been asked and answered.
Thanks very much.
Paul Elenio
No problem, Jeremy.
Operator
Your next question comes from the line of J.T. King with Cape Investments.
Please proceed.
J.T. King - Cape Investments
Good morning. There is a lot of talk in the market about banks being very aggressive on margin calls on warehouse liens.
Are you seeing that? And when you say that your new facilities are not subject to mark-to-market risk, are they still subject to mark-to-market risk with respect to collateral, and just if you could comment about that?
Ivan Kaufman
Yeah. There are two ways to be – to have a margin call.
One is on the spread and the other one is on credit. So, our first level of concern was on the spread issue, and that’s why we renegotiated our facilities, because, a, that’s subjective, and b, it’s clearly our view that spreads would widen quite a bit.
So, we for the most part, on a majority of our portfolio addressed this spread issue. In terms of credit and deterioration of credit, we still are subject to margin call on credit issues.
That has not affected us. Our portfolio is in good shape and we’re pretty comfortable with where we stand on that.
However, that are some of the reasons why we want to have adequate liquidity, because if you do have some credit deterioration, you have to have liquidity to deal with those potential issues.
Paul Elenio
And as Ivan mentioned, we did alleviate a significant amount of the subjective mark-to-market risk on interest spreads when we converted a large amount of our short-term facilities to a term debt. We don’t really have much else in the way of warehouse that’s subject to that.
So, it’s definitely reduced exposure in that area.
J.T. King - Cape Investments
Okay. Thanks a lot.
Operator
Your next question is a follow-up from the line of Jim Shanahan with Wachovia. Please proceed.
Jim Shanahan - Wachovia
Thank you. A point of clarification, please.
When you refer to the multi-family loans, the 58 million, just to be clear, I was looking through some of your disclosures here regarding your equity kickers and it doesn’t appear to me for investments such as Richland Terrace, Ashley Court and Nottingham Village, Lake in the Woods, that there was actually any dollars of equity that were invested in those kickers? Is that accurate?
Paul Elenio
Yes. That is accurate, Jim.
Those equity kickers were obtained either by putting in a loan or from restructuring the loan, but that’s correct. There wasn’t really any equity dollars put in for those equity kickers.
That’s correct.
Jim Shanahan - Wachovia
Okay, got it. And so, when – a follow-up, when you talk about the 3 to $500 million in run-off expected in the first quarter, are any of those loans also – are they the multi-family loans that we are talking about in your projections?
Ivan Kaufman
Hopefully.
Paul Elenio
No, they are not.
Jim Shanahan - Wachovia
Understood. Thank you so much.
Ivan Kaufman
Do we have any further questions?
Operator
Yes. (Operator Instructions) Your next question comes from the line of Don Fandetti.
Please proceed.
Don Fandetti
Hi, Ivan. How are you doing?
Ivan Kaufman
Okay, Don. How are you?
Don Fandetti
Good. I wanted to – it feels like we might be in sort of a binary situation here with the CRE market.
Are you incrementally more bearish here and how much time do you think we have before things get really ugly in the market? Or things – are there things that give you comfort that liquidity is coming back in?
Ivan Kaufman
I have no comfort at the moment that liquidity is coming back in. I am very bearish.
I have been bearish for a while. I think that is always going to be just a negative environment for liquidity and securitization.
So, I got some on that side. On the other side, if you have liquidity and if you have CDOs and the ability to build an asset base, you can do extremely well, but we should be able to pick and choose and put on high quality loans.
So, we are extremely bearish here in terms of liquidity and securitization.
Don Fandetti
Okay. Thank you.
Operator
Your next question comes from the line of Dan Fisher with Wachovia Securities. Please proceed.
Dan Fisher - Wachovia Securities
Hi, guys.
Ivan Kaufman
Hey, Dan.
Dan Fisher - Wachovia Securities
Your ability to grow book value in this environment is incredible and I just was sure, I mean – I can’t believe you are too happy with your stock price based upon what you guys have done, and it sticks out as a kind of a rarity among your peer group? Is there anything -
Ivan Kaufman
Yeah. I mean -
Dan Fisher - Wachovia Securities
– price wise that you think you can do to, I mean, obviously, to be above book value would give you a lot more flexibility?
Ivan Kaufman
Yeah. I mean, look, clearly anytime you are trading at a discount to booking your comp – your book value, you are not happy about it.
But that’s a short-term phenomenon. We believe that this is an environment where there’ll be a huge differentiation and perhaps a lot of the weaker companies will disappear and when we come out of this cycle, we will trade once again for a premium to book.
And we just have to stick to building our business and utilizing these opportunities. And clearly, the monetization of our equity kickers and the creation of additional book value without raising capital is a unique feature.
And we do think that in the next 12 to 24 months, we can once again regenerate some of those equity kickers that we did two, three or four years ago. These are those kind of environments where with liquidity and with expertise and with having a solid core and foundation, you can create that kind of value.
But those kind of values take time to surface. So, if you put them on in the next 12 months or 24 months, you won’t see the benefit of those until two, three or four years down the road.
Dan Fisher - Wachovia Securities
Right. And I guess taking advantage of the low price-to-book ratios, you are looking at buying things like CRE, so I guess -
Ivan Kaufman
Yeah. I mean, there are different ways to do it and we have done them before.
So, we’ll be extremely patient and figure out the best ways to navigate through this environment.
Dan Fisher - Wachovia Securities
Can you – I just heard the end, there may be a special – there is a special distribution that you talked about?
Ivan Kaufman
Yes.
Dan Fisher - Wachovia Securities
What was the – can you just repeat what you said, I wasn’t -
Paul Elenio
Sure. We generated earnings of about $4.44 for the year.
Our dividend run rate was about 2.48 for the year. We did have a significant amount of those earnings come from equity kickers, which we were able to generate tax deferrals on, but we weren’t able to generate tax deferrals on all of them.
So, our dividend was a little shy of the requirement that REITs distribute a certain amount of their taxable dividend. But because we distributed most of it in ‘07, we didn’t have to distribute it by the end of the year.
So, we are thinking it’s $0.15 to $0.20. We’ve got to get some more visibility from some of our equity investments we have getting the K-1 information, tax information, but we think preliminarily it will come in $0.15 to $0.20.
We will be able to pin that down before our tax return due date which is September, and we will be distributing it at that point. I mean, we felt it was prudent to hold on to the capital as long as possible and give as little of a special dividend as you can.
And we were very pleased with the results of being able to create a lot of tax deferrals on those equity kickers.
Dan Fisher - Wachovia Securities
Great. All right, thank you, guys.
Operator
Our next question comes from the line of [Bill Osbourne with Vallenore]. Please proceed.
Bill Osbourne - Vallenore
Good morning, guys. I actually had a series of questions, I’ll fire them off, if you want me to repeat them, let me know.
I was wondering what the explanation for the – I may have missed this, I apologize, but the explanation for the $26 million decrease in OCI in the quarter was?
Ivan Kaufman
Sure.
Bill Osbourne - Vallenore
Sorry, why don’t we go one-by-one, go ahead -
Paul Elenio
Sure. We do look to match off our interest rate risk if we have fixed rate loans on our books and we are financing them with variable rate debt, we will swap them out.
The significant decline in the interest rates in this environment has considerably dropped the value of those swaps, and the accounting requirement is that you mark-to-market those swaps and flow the change, although viewed as temporary, through your equity section and that’s the reason for the decline in other comprehensive loss.
Bill Osbourne - Vallenore
Okay. So, it’s just the swaps that’s causing that movement?
Paul Elenio
Yeah. It’s primarily the swaps.
Correct.
Bill Osbourne - Vallenore
Okay. Is there anything else besides that?
Paul Elenio
At December 31st, there was a little bit of mark-to-market on the stock we owned in CBRE, but that value has since come back.
Bill Osbourne - Vallenore
Okay. And how much do you guys generate in revenue from prepayment fees per quarter?
Ivan Kaufman
I mean, that varies from quarter-to-quarter.
Paul Elenio
Yeah. That varies from quarter-to-quarter.
I mean, it’s tough to put a -
Bill Osbourne - Vallenore
Is there a range you can point me to or – ?
Paul Elenio
There’s really not. I mean, in past – let’s just not say prepayment fees, we have some prepayment fees, some extension fees, some acceleration of fees when loans pay off early.
Those types of fees have ranged from 500 to 1 million historically a quarter. It has been a little bit less as of late.
But it’s in a range, depending on what pays off.
Bill Osbourne - Vallenore
Okay. And then how many loans were extended or restructured in Q4?
Paul Elenio
We did extend I think about 4 or 5 loans in Q4 with some of our repeat borrowers. But some of those I believe, Ivan, were extensions that were available in the agreements already.
They just emphasized their -
Ivan Kaufman
Is your question is how many were extended pursuant to the loan agreements or how many were extended pursuant to request for borrowers for an extension?
Bill Osbourne - Vallenore
Both.
Ivan Kaufman
Okay. We can – well, we don’t have that data readily available, but we can get that for you.
Paul Elenio
Yeah. I don’t have it right in front of me.
Bill Osbourne - Vallenore
Okay, and were any restructured?
Paul Elenio
I think one or two were restructured. When I mean restructured, getting some higher interest rate, taking the term out a little longer.
I think there may have been one or two. But I don’t have that data in front of me.
Ivan Kaufman
We’ll get you the information, because we have to be exact on that. We’re still working on some clearly in the first quarter -
Paul Elenio
Right.
Ivan Kaufman
– some in the fourth quarter. So, I don’t want to state, what that has been.
It’s not many.
Bill Osbourne - Vallenore
Okay. And then finally, are you guys confident about the dividend at the $0.62 level, sort of, for the rest of the year?
Paul Elenio
I think we don’t give dividend guidance, but clearly in this market, we view obviously liquidity as a premium. So, we are going to look to maximize the amount of liquidity and probably look to keep our dividend in the range that it has been historically on a run rate, and then evaluate whether there’s a need for special dividend at the end of the year.
Bill Osbourne - Vallenore
Okay. That’s very helpful.
Thank a lot guys. I appreciate it.
Ivan Kaufman
Okay.
Operator
(Operator Instructions) There are no additional questions at this time. I would now like to turn the presentation back over to Mr.
Ivan Kaufman for closing remarks.
Ivan Kaufman
Okay. First, I’d just like to thank everybody for their participation.
Clearly, these are difficult times in my view, going to be more difficult and the company remains available to answer any questions in terms of their view on the environment, as well as any technical questions you may have on how we are doing. So, once again, thanks for your participation and I’ll speak to you shortly.
Operator
Thank you for your participation in today’s conference. This concludes the presentation.
You may now disconnect. Good day.