Aug 8, 2008
Executives
Paul Elenio – CFO Ivan Kaufman – Chairman, President and CEO
Analysts
James Shanahan – Wachovia Securities Joshua Barber – Stifel Nicolaus Daniel Fisher – Wachovia Securities
Operator
Good day, ladies and gentlemen, and welcome to the Arbor Realty Trust second quarter 2008 earning conference call. My name is Jihaida and will be your coordinator for today.
At this time, all participants are in listen-only mode and we will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.
I will now like to turn the presentation over to your host for today’s call, Mr. Paul Elenio, Chief Financial Officer.
Please proceed.
Paul Elenio
Okay. Thank you, Jihaida.
Good morning everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning we’ll discuss the results for the quarter and the six months ended June 30, 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. 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 that the Safe Harbor is behind us, I’d like to turn the call over to Arbor’s President and Chief Executive Officer, Ivan Kaufman.
Ivan Kaufman
Thank you, Paul. Good morning everybody and thanks for joining us on today’s call.
As highlighted in this morning’s press release, we had a good second quarter and are pleased with our overall results. Paul will walk you through the financial results a little later, but first I would like to start as we have on our last few calls talking about our view of the market, and the strategy and approach we are taking during these very difficult times.
As we are all aware from numerous press releases and news report regarding struggling banks, financial institutions and large government agencies, the market remained severely dislocated with significant liquidity issues related to our industry and throughout the financial sector. There has also been no real indication of a sustained recovery in our immediate future.
This is consistent with what we have said for a while now on previous earnings calls and at public presentations, and we feel we are just coming in through the eye of the storm related to this financial crisis. And while we are pleased with our progress including strong results, no one is completely immune to the effects of this market.
We will continue to remain very cautious and focused, operating our business assuming that this is a difficult environment which will continue for some time. So with that being said, my main area of focus today will be on liquidity and financing sources and the credit quality and asset management of our portfolio.
Clearly, liquidity continues to be a primary concern for our sector and you never seem to have enough in a down cycle. So we continue to work very hard to preserve and maximize our liquidity and improve our funding sources.
We are truly proud to announce that we monetized other equity kicker during the second quarter by disposing of a portion of our interest in prime. We received $33 million in cash from this transaction and were successful in structuring this deal in a tax-deferred manner which allowed us to retain a substantial amount of this capital, improving our liquidity position in a very difficult market.
This capital infusion was also very cost-efficient and upon closing, will actually yield a positive spread on a portion of the consideration that is due to us on the backend. Additionally, we are able to maintain 7.5% of the 24% equity interest we had in the prime investment.
Our portfolio of equity kickers has always been a key component of our business model and we now have generated around $250 million in cash from these unique investments, contributing greatly to our liquidity and capital base. They have also added around $8.00 per share to our book value, which now stands at about $22.40 on an adjusted basis.
So currently, we have around $150 million in cash between cash on hand and cash available on our CDOs, and around $240 million of capacity in our financing facilities. And as we have said before, we will remain very selective in deploying our capital looking to preserve a majority of the cash in our portfolio run-off, enhancing our liquidity position.
We also continue to make progress with our funding sources and feel the right side of our balance sheet is in good shape. We have significantly reduced our exposure to short-term funding sources by converting a substantial amount of our repo debt to non mark-to-market term debt facilities, which was critical in this environment.
We have also been very proactive in making sure we meet all of the pay down requirements in these facilities and are actually ahead of schedule at this time. Additionally, in July, we were successful in completing a one-year extension on our working capital line with Wachovia.
This now leaves us with one short-term facility with around $60 million outstanding due before the end of the year which we believe we will be able to extend, and one other facility with $120 million outstanding due at the end of 2009. So we feel very little exposure to short-term debt, and with $275 million of trust preferred securities, 1.2 billion in CDO debt and our term debt facilities, we now have around 85% of our committed debt non mark-to-market and secured for the long term.
Now, I will spend some time updating you on credit and our approach to managing our portfolio in this market. As I have said before, the importance of an experienced asset management team with the ability to manage assets with difficulties and evaluate and mitigate risk is vital in these very difficult times.
We have always prided ourselves on having experienced asset managers and I can't say enough about their efforts and the efforts of our senior management team in their relentless hands-on approach of aggressively managing our portfolios and our borrowers. The lack of liquidity in the market clearly affects every lender and as we've said, we expect to continue to see some degree of stress on transitional loans as borrowers have difficulty securing new financing.
Therefore, we will continue to be proactive in our approach in assessing potential risks in our portfolio and record reserves on assets where it is appropriate. So through our frequent special executive committee meetings that I participate in, and a detailed quarterly review that we perform on our portfolio, we booked a $2 million loan reserve on one of our loans during the quarter with an outstanding balance of approximately $10 million.
We feel that based on current market conditions, the value of the operating status on this property, it is prudent to reserve and record this at this time. We also continue to execute our strategy in the difficult market of resolving potential loan losses issues quickly, looking to minimize our losses, recover our capital and put these issues behind us.
I disclosed in our press release during the second quarter, we successfully resolved another loan that we'd previously recorded reserve on, without recording any significant additional loss. We also took over a property related to a loan that was non-performing, and I recorded a loan loss reserve on last quarter, putting us in a position to operate this property effectively with the goal of recovering our capital quickly and mitigating any potential loss.
And we now have as of June 30, $3.5 million in loan loss reserves related to three assets with an outstanding balance totaling approximately $75 million. I also want to give you a quick update on our investments in extended stay in the 303 East 51st Street in New York, City.
First, on the extended-stay portfolio, we have started to see a trend of modest reductions in RevPAR over the last few quarters and we are projecting about a 4.1% cumulative decrease in RevPAR for 2008. Our investment is performing and assuming LIBOR stays in the 250 range going forward, we believe there will be more than sufficient cash flow to service our debt and cover the anticipated a reduction in RevPAR.
However, given the current market conditions, we will continue to closely monitor and actually [ph] manage this asset and be proactive in assessing the value and any potential risk. On the 303 East 51st Street project, as previously disclosed, we are in tremendous crisis with the crane collapse, which created many difficulties with this transaction.
We had been into a standstill arraignment which expired on July 1 with our borrower to give them an opportunity to recapitalize the project. The borrower was unsuccessful in arranging additional capital and bringing our loan current and providing interest on an ongoing basis.
So, on July 25th, we commence the foreclosure process and we are aggressively pursuing obtaining a fee interest in this property. We have the expertise in-house and have also hired outside parties to ensure and protect the integrity and value of this asset.
At this point in time, we are comfortable that we are not impaired on this investment and will proceed to aggressively get this project in our hands and look to monetize the value as quickly as possible. Overall, we are quite pleased with the credit quality of our portfolio given the current environment.
Again, we are not immune to the effects of this market and therefore we will we continue to aggressively monitor our portfolio as well as market conditions very carefully with the goal of minimizing losses and resolving issues quickly. Turning to our portfolio activity for the quarter, we added $89 million of new loans and investments, of which $83 million were CDO bonds that we purchased at significant discounts.
We feel these are good quality investments that we are also able to get some leverage on, generating strong leverage returns on our investment. We did experience a $152 million runoff which resulted in a 3% reduction in our portfolio for the quarter.
This runoff was a little bit lower than our guidance due to the timing on certain projected payoffs we had (inaudible) $23 million of product and extended $95 million of loans in accordance with their expansion options. Although, it has been tough to predict in this market, we think we will see around $150 million to $200 million of runoff in each of the next two quarters.
And as we have said, we are going to preserve and be very selective in deploying our capital which would likely continue to shrink our portfolio a bit over the short-term. In summary, these are very difficult times in a very challenging operating environment.
And as we enter the eye of the storm, we are beginning to see clarity. We are pleased with our overall accomplishments and believe we have managed our portfolio well in this market and will continue to have a keen eye on liquidity during this downtime.
And although we have selectively invested in a few new opportunities to date, we believe that in the eye of the storm, accompanied with strong management and experience, that have positioned themselves properly while handling their legacy issues, we’ll be well-situated to take advantage of the enormous opportunities that will exist going forward. Lastly, as you know, we recently announced a dividend of $0.62 again this quarter.
The company is still in the process of finalizing taxable income for 2007 and we are still waiting for final tax information from some of our equity investments that we do not control. This calculation will be completed over the next few weeks, but our latest projection shows that we will not have to issue a special dividend for 2007 due to additional estimated tax losses from our equity investments.
Certainly, given the value of our stock price and a 20% plus dividend yield, we feel there is little value in issuing a special dividend, and are pleased that we would be able to retain this capital. I will now turn the call over to Paul to take you through some of the financial results.
Paul Elenio
Okay. Thank you, Ivan.
As noted in the press release, our earnings for the second quarter was $0.56 per share on a fully diluted basis. The second quarter numbers did include a $2 million provision for loan loss of around $0.06 a share on one loan with an unpaid principal balance of $9.9 million.
We also, as Ivan mentioned, foreclosed on an asset that we have recorded a $1.5 million loan loss reserve on last quarter which has been re-classed against real estate loan. In addition, during the quarter, we realized a $1.7 million loss on a loan, $1.5 million of which was reserved for in the first quarter and $200,000 was expensed in the second quarter.
And after these items, we now have $3.5 million of loan loss reserves on three loans totaling around $75 million at June 30, 2008. We will continue to take a proactive approach in evaluating our portfolio, recording reserves where we think it is appropriate.
We are pleased with the progress we have made in resolving issues on certain loans and we will maintain our aggressive stance towards asset management with the goal of resolving any other potential issues quickly. One of our biggest accomplishments during the quarter was the ability to create additional liquidity through the monetization of a portion of our equity interest in prime outlets.
The detail and the accounting were laid out in our press releases but I would like to highlight some of the key components. First and foremost, we received $33 million in cash and were able to retain a 7.5% interest in this investment going forward, while creating a tax-deferred structure that allowed us to retain a substantial amount of this capital in a very difficult liquidity market.
We also managed to structure this transaction in a very advantageous and efficient manner. The loan we took against our prime interest is at a very low 4% rate and the interest is deferred until the deal closes next year, at which time we expect to record a gain of at least $25 million.
At that time, we will exchange our prime interest to $37 million of preferred and common operating partnership units in the Lightstone REIT, with the preferred units paying a return of 4.63%. This will result in a positive spread of around 9% on the $4 million in consideration that is due to us 5 years from now.
Clearly, our equity kickers have been a key component of our business model and we’ve now had a positive impact from one or more of them in 14 of the 17 quarters since going public. As Ivan mentioned, we have generated approximately $250 million cash from these investments to date and have added almost $8 per share to our adjusted book value.
We’ve also been extremely successful in structuring a significant amount of these distributions in a tax efficient manner, providing us with a substantial additional source of capital. We also recorded a $562,000 loss during the quarter from one of our equity interest in an unconsolidated joint venture.
The joint venture interest is a ski resort in Lake Tahoe, California called Alpine Meadows and the $562,000 represents our portion of the losses from this operation including depreciation expense. These losses are non-cash losses and are reported below the line as they are not part of our core business.
This resort was purchased by our borrower as part of a potential development project in conjunction with their Homewood Mountain parcel, and is not expected to be run long term as an independent ski operation. However, the accounting requirements audit [ph] that we pick up our share of these operations at this time.
The ski business is seasonal and unfortunately, there is no accounting pronouncement that allows us to smooth the operations over a full year, even though clearly, we are not in a seasonal business and this is not part of our core business. Therefore, we will see some fluctuations in our EPS numbers each quarter as there are usually losses in the summer months and income in the winter months.
We are estimating that our share of these operations for a full year going forward will be in the range of $500,000 to $1 million in losses, a significant amount of which is depreciation expense. As I’ve mentioned, we do expect more losses in the summer months which could be in the range of $1 million to $2 million for our third quarter.
Again, these numbers are non-cash and not part of our core business and adding back [ph] depreciation nets to a relatively small amount on an annual basis. We will also likely introduce FFO as an additional financial measure next quarter due to this investment and any non-cash adjustments related to our real estate-owned assets.
I’d now like to take you through the rest of the results for the quarter. First, our average balance in core investments declined about $5 million from last quarter which was less than a decrease in our portfolio during the quarter due to the timing of the runoff from our first quarter loans.
The yield for the quarter on these core investments was around 7.91% compared to 8.35% for the prior quarter. Without the acceleration of fees from early payoffs, the yield in these core assets was around 7.86% for the second quarter and around 8.33% for the first quarter.
This decrease was primarily due to a decline in the average LIBOR rate during the quarter, as well as from placing the 303 East 51st Street asset on non-accrual during the second quarter. This decline was partially offset by LIBOR floors on a portion of our portfolio.
Additionally, the weighted average all in yield on our portfolio was around 7.56% at June 30, 2008 compared to 7.70% at March 31, 2008. This decrease was primarily due to around a 22 basis point reduction in LIBOR, high yield in the loans that paid off in the second quarter than the yield in the new loans we put on, and some of our non-accrual and restructured loans.
This reduction was partially 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 by around $19 million from last quarter, primarily due to recovering some of the cash posted as collateral against our interest rates swaps and the net runoff we saw in the second quarter.
The average cost of funds in our debt facility was approximately 5.06% for the second quarter compared to 5.64% for the first quarter. Excluding some unusual items, our average cost of funds were approximately 5.10% for the second quarter, down from around 5.68% for the first quarter primarily due to 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 all in debt cost to also be around 5.10% at June 30, 2008 due to the June 30 LIBOR rate being slightly lower than the average during the second quarter, offset by around 300 basis point increase in the interest rate on our working capital line. So overall, the second quarter normalized net interest spreads on our core assets was up slightly to about 2.75% from around 2.65% due to the positive effect on our portfolio that the declining LIBOR had because again around 77% of our assets are protected through fixed-rate loans and LIBOR floors while about 65% of our debt is floating.
These second quarter numbers did come in a little better than we anticipated mainly due to the decrease in LIBOR and less runoff than expected. As Ivan mentioned, payoffs have been tough to predict in this market but we are expecting around $150 million to $200 million runoff in both third and fourth quarters at higher rates than the average yields in our portfolio and we will continue to be very selective in deploying our capital into new investments.
This combined with some non-performing in the structured loans will decrease our portfolio and reduce our net interest spreads and core net interest income for the third and fourth quarters assuming LIBOR stays pretty flat. Again the strategy is to be patient and selective in deploying our capital into higher yielding opportunities that are available in this market.
We feel these investments will be very accretive to our earnings over the long term but there will be a bit of a lag before we realize the accretive effect of these new investments. Next, our average leverage ratios were around 75% on core assets and around 86% including the trust preferreds as debt for both the first and second quarters.
Our overall leverage ratio on a spot basis were also relatively unchanged, at around 2.7 to 1 for both periods and around 2.5 to 1, adding back the decline in the value of our interest rate swaps. Operating expenses did come in higher than the previous quarter mostly due to around $1 million or $0.03 per share of non-cash expenses related to stock grants issued to key employees in the second quarter and increased selling and administrative expenses related to the Prime transaction and general corporate legal expenses.
There are some new items and changes in the balance sheet compared to last quarter that are worth noting. Cash and cash equivalents increased $33 million from last quarter largely due to the cash received from the monetization of the Prime investment.
Notes payable went up $36 million from recording the full amount of the $50 million debt on Prime, partially offset by pay-downs related to our runoff and moving assets into our CDOs during the second quarter. Restricted cash related to our CDOs did go up by about $68 million on a spot basis mainly due to the runoff during the second quarter, but the average balance of our restricted cash outstanding was flat at around $136 million for both the first and second quarters.
Some of the new lines in the balance sheet include $59 million of securities held to maturity which represents the $83 million of CDO bonds repurchased during the quarter at a discount, $47 million on real estate loan and $41 million in mortgage payables which are related to the assets we took back in foreclosure during the quarter. In addition, other comprehensive losses decreased by about $33 million for the quarter primarily due to a significant change in the market value of our interest rates swaps from a change in the outlook on interest rates.
GAAP does require that we flow these changes through our equity section. Turning quickly to some of our portfolio statistics as of June 30, about 67% of our portfolio is variable and 33% was fixed.
Our product type about 62% was bridged, 13% junior participation and 25% mezzanine and preferred equity, 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 51%.
Our debt service coverage ratio was around 133 this quarter, and geographically, we have around 41% of our portfolio concentrated in New York City. On an unrelated note, you may have seen our filings showing that all the commercial mortgage to the company’s external manager was issued shares of common stock.
This was a result of the manager choosing to exchange its operative partnership units in the REIT for shares of common stocks for tax planning purposes. These had no effect on the REIT except for simplifying our reporting structure by eliminating the minority interests and preferred stock components on the balance sheet and eliminating the minority interest expense line in the P&L in future periods.
With that, I’ll turn it back to the operator and we’ll be happy to take any questions you have at this time.
Operator
(Operator instructions) Your first question comes from the line of James Shanahan with Wachovia. Please proceed.
James Shanahan – Wachovia Securities
Thank you. Good morning.
Paul Elenio
Good morning, Jim.
James Shanahan – Wachovia Securities
Paul, I have a couple of housekeeping questions for you here. I missed a couple of these notes – these comments.
The yield for the quarter on core investments, can you tell me what that was? It’s in your scripts, probably.
Paul Elenio
Sure. The yield on core investments for the quarter, on average, was 7.86% and that was compared to 8.33% from the prior quarter.
James Shanahan – Wachovia Securities
Okay. And the weighted average on your portfolio relative to the 770 at March 31?
Paul Elenio
It’s 756 at the end of June 30.
James Shanahan – Wachovia Securities
756. Okay.
That’s helpful. And I’m curious, I’m not sure if you saw the CBRE results, but that Realty Finance, that company continues to have a tough time it appears, especially from a credit standpoint, and I'm sensing that from the strength of your origination platform, seemingly your ability to generate better performing and higher margin loans and also to service and manage bad credits more effectively, there’s a lot of – it seems to me like a lot of value in a business combination here, especially given the attractiveness of their financing.
Is there anything that you can say about their results, the status or progress towards a potential business combination? And I assume this is probably a very sensitive subject, but I think that there’s probably some momentum building here for CBRE Finance to do something.
Paul Elenio
Jim, yes. As you mentioned, it's a sensitive issue.
Unfortunately, we’re not able to comment on market opportunities as it relates to publicly trading companies.
James Shanahan – Wachovia Securities
Okay. One final question.
Is my math correct if I were to back into where your reserves were at the end of the quarter that's a total -- a lot of disclosure, the total charge-offs for the quarter, was it around $3 million?
Paul Elenio
We did a – that’s close. We did a $2 million loan loss reserve on an asset this quarter and we charged off $1.7 million that we realized in losses, of which $1.5 million was previously reserved for.
So through the P&L, all we booked was $2.2 million in losses for the quarter, $2 million in loan loss reserve and a $200,000 additional expense to G&A related to that asset that we had resolved.
James Shanahan – Wachovia Securities
And if I asked it this way, what was the beginning of period loss reserve?
Paul Elenio
Okay. The beginning of period loss reserve was – we started with $5 million in loss reserves.
After you book the $2 million in this quarter, we re-class $1.5 million out of loan loss reserves against the real estate owned asset and then we charged off a $1.5 million against a prior reserve that we had recorded from resolving that loan.
Jim Shanahan – Wachovia
Got it. It’s the reclass.
That makes sense. Okay, I appreciate it.
Thank you.
Operator
Your next question comes from the line of Joshua Barber with Stifel Nicolaus. Please proceed.
Joshua Barber – Stifel Nicolaus
Hi, good morning guys. Could you remind us how much capacity you guys still have remaining on your lines?
Paul Elenio
Sure. As we talked in Ivan's session, we have about $240 million to $250 million of capacity right now in our warehouse lines.
And then as far as the CDO, we have right now about $100 million in restricted cash including the revolver as availability in the CDO.
Joshua Barber – Stifel Nicolaus
Okay. Has there been any margin calls to-date?
Paul Elenio
No.
Joshua Barber – Stifel Nicolaus
Okay. Regarding the loan, you guys have mentioned in the release this morning that you had extended or modified one of your loans about $64 million on which you had a prior reserve.
Could you give us a little bit more detail on the modification of that? Are you guys now junior in the capital stack and how come that did not necessitate any additional reserves?
Paul Elenio
Okay, yes. We’ll be sensitive here as we can’t disclose certain information when we negotiate with our borrowers, but this was a loan that we booked a loan loss reserve on in the past.
It’s a senior position. We haven’t changed our position, we’ve just improved it.
What we did modify though was for a period of time reducing the interest rate on the loan with some concessions for us on the back end in order to get the loan in line where the cash flow is and where the debt service is on the property today. But right now, we feel the value is still around the same as we felt it was last quarter and in fact the property has actually improved a little bit on lease-up and we’re comfortable with the reserve we have currently.
Joshua Barber – Stifel Nicolaus
Okay. Thanks.
Operator
(Operator instructions) You have a follow-up question from the line of James Shanahan with Wachovia. Please proceed.
James Shanahan – Wachovia Securities
Thank you. I wanted to ask about the dividend too, and you've made a lot of comments, Ivan, about your interest in retaining capital and liquidity where possible and even mentioned specifically the special dividend that you’re pleased to be able to retain that capital.
We’ve had a quarter here now with the net income below the dividend that looks like with the expected runoffs you would anticipate that to be the case again, and perhaps in the coming quarter – next couple of quarters, is it the right thing to do to maintain the dividend where it is right now especially given where the yield is and the valuation of the stock?
Ivan Kaufman
Well, let’s just address the first body of question which is kind of on the special dividend. Our attitude has been with – any additional dividends whether it be special in the sale of assets, we’ve done an unbelievable job to retain all that excess cash as the market really doesn’t give us any value.
So any time we've monetized an equity kicker, I think you'll see we’ve come up with great structures to keep that money in the company and put it back out to use. Now, with the special dividend, looking at the potential tax losses that will flow through on somebody’s equity investments, we find an opportunity now that we don’t have to issue that special dividend and we’re pleased about it because there’s clearly no value in the market.
Historically, we’ve always maintained a position that a consistent stable dividend is important. It’s important to us and we still have that philosophy.
I can’t comment on what our dividend will be for the next few quarters. We don’t, but we are committed to a stable dividend.
James Shanahan – Wachovia Securities
Can you estimate, Paul, what taxable income was for the second quarter?
Paul Elenio
The taxable income for the second quarter was probably roughly around where the EPS came in if you add back the losses on the Alpine investment, because we booked a loan loss reserve of $2 million which does not – you’re not allowed to take that as a tax loss until you realize it, but we did realize $1.7 million of losses during the quarter on previous reserves. That’s probably pretty flat.
We don’t have the exact numbers, but like I said, it’s pretty flat.
James Shanahan – Wachovia Securities
So that’s $0.58?
Paul Elenio
Yes, somewhere around there.
James Shanahan – Wachovia Securities
All right. Well, thank you very much.
Appreciate it.
Paul Elenio
Thanks Jim.
Operator
You have a question from the line of Daniel Fisher with Wachovia Securities. Please proceed.
Daniel Fisher – Wachovia Securities
Hi guys. I just had a question regarding the crane property in New York.
You’ve not taken any reserves but it is not paying right now I guess and you’re foreclosing. Could you just go through it now, apparently you're pretty comfortable you're going to make full – that you are going to get paid in full in the end?
Ivan Kaufman
Sure. What we have done is we stopped recognize any interest or income on that asset, and we did that as of what date, Paul?
Paul Elenio
We stopped it as of April 1.
Ivan Kaufman
As of April 1. With respect to the value of that piece of land, we have a good handle on what that value is and we feel that our collateral position is not impaired.
And we have the expertise and the capability of taking that asset back. And even if we wanted to build it, we’ve spoken to many potential joint venture partners on this asset and we’re very confident in our ability to take the asset back and monetize our value.
Daniel Fisher – Wachovia Securities
How about – is there much of an issue with the potential liability? I mean, people were killed and everything.
Is it amply insured? Does that present any –?
Ivan Kaufman
That doesn’t – through our foreclosure process, all of that gets cut off. Their equity gets cut off and all potential claims get cut off, so we get a clean title.
Daniel Fisher – Wachovia Securities
Alright, thank you. And I think pretty impressive results considering the situation.
Ivan Kaufman
Thank you very much.
Paul Elenio
And just to correct myself, if Jim’s still on the line, you do have to add back the taxable income about $0.03 of restricted stock that was expensed during the quarter that was non-cash. So that number would be slightly higher.
Operator
At this time, we do not have anymore questions. Thank you.
And I would like to turn the presentation back to management for closing remarks.
Ivan Kaufman
Okay. I just want to thank everybody for their participation.
Clearly, it’s a very turbulent market and turbulent times, and I'm very pleased to have everybody participate and have the opportunity to speak about our results from last quarter, so have a good day everyone.
Operator
Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect.
Good day.