Aug 2, 2013
Executives
Paul Elenio - Chief Financial Officer Ivan Kaufman - Chief Executive Officer
Analysts
Steve Delaney - JMP Securities Stephen Laws - Deutsche Bank Lee Cooperman - Omega Advisors
Operator
Good morning and welcome to the Q2, 2013 Arbor Realty Trust earnings conference call. At this time all participant are in a listen-only mode.
At the conclusion of today's conference call instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder this conference call is being recorded today Friday 2 August, 2013.
I would now like to turn the call over to Paul Elenio and Ivan Kaufman. Please go ahead.
Paul Elenio
Okay, thank you, Gary. Good morning everyone, and welcome to the quarterly earnings call for Arbor Realty Trust.
This morning, we'll discuss the results for the quarter-ended June 30, 2012. 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. I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.
Ivan Kaufman
Thank you, Paul and thanks to everyone joining us on today's call. Before Paul takes you through the financial results, I would like to touch on some of our recent accomplishment and then focus on our business strategy and outlook for the remainder of 2013.
We are very pleased with this quarter's progress, especially on our ability to continue to access the debt and equity markets and deploy our long-term growth capital in to high yielding investment opportunities, resulting in increased core earnings and dividends growth. As we discussed on our last call, we completed our second perpetual preferred stock offering raising $30 million of capital in May at a substantially lower rate than our preferred offering in the first quarter.
We also continue to add to our short-term funding sources in the second quarter with the closing of a new $40 million warehouse facility. The new facility has a one-year term with pricing at 200 over LIBOR and leverage of up to 75% depending on the asset finance and also includes a $10 million sub-limit to finance retail and office properties.
We feel the significant progress we have made over the last several quarters in accessing the debt and equity markets including the utilization of non recourse CLO vehicles to finance our investments as well as the improvements we have made in our short-term financing capabilities has positioned us very favorably to continue to execute our business strategy of originating attractive investment opportunities and generating mid-teens leverage returns on our capital. We are very pleased with the investment opportunities we continue to see to our external managers, expansive multi-family originations platform, which has allowed us to deploy our long-term growth capital quickly and has increased our pipeline significantly over the last several months.
This has resulted in an increase in our core earnings, which has allowed us to grow our dividend to $0.13 a share for the second quarter representing an increase of approximately 8% of the last quarter. In a moment, Paul will elaborate further on how this growth has translated into a substantial increase in earnings run rate going forward.
Additionally, we believe the growth in our pipeline and originations platform will allow us to continue increase our earnings and dividends over time. We had a very strong second quarter originating approximately $181 million of loans with an average yield of approximately 7.2% and a levered return of approximately 15% which combined with our first quarter originations of $99 million totaled approximately $280 million of loan originations for the first six months of the year with mid-teens levered returns.
In addition, we have had a good start to third quarter originating approximately $15 million of loans in July. On our last call, we increased our 2013 guidance for loan originations from approximately $316 million to a range of $450 million to $500 million.
As I mentioned earlier, our pipeline continues to grow rapidly and this combined with originations success with the first several months of the year is allowing us to increase our 2013 guidance again to a new range of $500 million to $600 million in originations. We also had an active quarter in our residential securities platform purchasing residential mortgage securities in the second quarter totaling $85 million with mid-teens expected level of returns.
At June 30, 2013 we had $190 million of residential securities outstanding with corresponding leverage of $157 million. As we have discussed in the past a critical part component of our business strategy continuous to be finance a substantial amount of our investments with non-recourse debt through CLO vehicles allowing us to match the terms of our assets with the term of our liabilities without being subject to event risks.
We have a tremendous amount of securitization expertise and as a result have become a leader in the commercial mortgage re-securitization market. As we have discussed on our last call, we have two new CLO vehicles in place with $385 million of collateral, $265 million of leverage and the ability to substitute collateral for a period of two years through a replenishment feature in both vehicles.
And we believe that our ability to continue to originate quality collateral from both our structure finance team and our managers extensive multi-family origination sales force allow to continue to access the CLO market when appropriate and available. We also believe the success we have had in increasing in accessing the securitization market provides us with the significant long term strategic competitive advantage allowing us to have permanent non-recourse debt financing for the liability structure that matches our asset maturities without being subject to mark to market provisions.
This has also resulted in additional warehousing line capacity and lower pricing and as a direct result has enabled us to remain competitive on our pricing and on our investments to adjust when market yield tighten while still maintaining similar effective yields. On long term basis we will see the greatest benefit if and when the market backs up and liquidity becomes an issue as our debt structures will enable us to not only to maintain stable liability terms, but will allow us to continue to operate with the same low cost debt while assets are priced less competitively resulting in superior leverage returns.
As of today, we have approximately $90 million of capacity in our short-term credit facilities combined with cash of approximately $60 million for a total of approximately $150 million in cash in capacity to fund future investment opportunities. As we've discussed in the past we have also been very successful in repurchasing our debt at deep discounts recording significant gains and increasing our equity value.
While we did not purchase any of our CDO bonds in the second quarter as previously disclosed, we did repurchased $7.1 million of CDO bonds for a gain of $3.8 million in the first quarter. And as of today we own approximately a $161 million of our original CDO bonds at an $89 million discount to par, which represents significant embedded cash flow that we may realize in the future periods.
We will continue to evaluate the repurchase of our CDO debt going-forward based on availability, pricing and liquidity. Now I would like to update you on our view of the commercial real estate market and discuss the credit status of our portfolio.
On our last call as we discussed we had a significant increase in capital market activity in our space, increased liquidity which creating a more competitive market which was reducing yields on certain types of investment opportunities and that most of our yield compression was being absorbed by reduced financing cost. As you are all aware over the last few months interest rates have backed up significantly which has affected us positively in several ways.
First, we've seen an increase in deal flow as the increase in rates has resulted in few loans qualifying for permanent execution, and therefore more opportunity following into short-term lending arena. Secondly, the backup in rates has started to translate into high yields on investments while retaining similar debt costs and will potentially reduce the severity of future runoff on our legacy CDO vehicles.
As I mentioned before, we believe we are uniquely positioned and have a strong competitive advantage in the market by levering off of our managers' top Fannie Mae FHA platform with the significant sales force and a strong national presence in the multi-family lending arena. We are very confident in our ability to continue to produce significant investment opportunities for us to grow our platform and increase our core earnings.
We do expect the majority of our investments to continue to be in the multi-family asset class, although we have started to see accretive opportunities in commercial properties as well. We believe the multi-family assets will likely make up around 75% of our future originations with the balance being invested in commercial assets.
Looking at the credit status of our portfolio in the second quarter we recorded $1.5 million of loan loss reserves relating to two assets in our portfolio and recorded $700,000 in recoveries of previously recorded reserves. And at June 30, we had six non-performing loans with the net carrying value of approximately $15 million, which was unchanged from the prior quarter.
And although it is possible we could see some additional write-downs in our portfolio on our legacy assets. Based on market conditions, we are optimistic that any potential remaining issues will be minimal and that we will have some future recoveries on our assets combined with potential gains from debt repurchases to offset any potential additional losses.
However, the timing of any potential losses, recoveries and gains on a quarterly basis is not something we can predict or control. In summary, we're extremely pleased with our accomplishments, especially in our ability to successfully deploy our capital in to high yield investments and our core earnings and dividends during the quarter.
We're also very excited about the investment opportunities we continue to see from our deep originations in that market which has significantly grown our pipeline and core earnings run rate going forward. We're confident that our originations network will continue to produce attractive investment opportunities to grow our platform and allow us to achieve our goal of increasing the value to our shareholders by growing our core earnings and dividend over time.
I'll now turn the call over to Paul to take you through the financial results.
Paul Elenio
Thank you, Ivan. As noted in the press release, FFO for the second quarter was approximately $4.8 million or $0.11 per share and net income was $3 million or $0.07 per share.
Adjusted FFO was approximately $5.5 million or $0.13 per share for the quarter, adding back approximately $700,000 in non-cash stock compensation expense. As Ivan mentioned, we had a very successful quarter deploying the long-term growth capital we raised over the last several quarters.
And as a result, we have increased our common dividend for the quarter to $0.13 a share. We did record $1.5 million in loan loss reserves related to two assets in our portfolio and at $700,000, the recoveries of previously reported reserves during the second quarter.
And after these reserves, we now have approximately $147 million loan loss reserves on 20 loans with a UPV of around $248 million as of June 30, 2013. At June 30, our book value per common shares stands at $7.60 and our adjusted book value per common share is $9.63, adding back deferred gains and temporary losses on our swaps.
As we've mentioned before, we believe that our adjusted book value better reflects our true franchise value as these deferred items will be recognized over time, while the significant economic benefit related to these items has already been realized. Looking at the rest results for the quarter, the average balance in core investments increased to approximately $1.8 billion for the second quarter compared to approximately $1.7 billion for the first quarter due to our second quarter originations.
The yield for the second quarter on these core investments was around 5.47% compared to 5.63% for the first quarter. The decrease in yield was primarily due to the collection of back interest in the first quarter on certain loans in our portfolio not previously accrued, partially offset by higher yields in our second quarter originations combined with the full effect of our first quarter originations.
However, the weighted average all-in yield on our portfolio increased to around 5.48% at June 30, 2013 compared to around 5.22% at March 31, primarily due to higher yields in our second quarter investments. The average balance in our debt facilities remained relatively flat at approximately $1.3 billion for the first quarter and second quarter.
The average cost of funds in our debt facilities was approximately 3.15% for the second quarter compared to 3.38% for the first quarter. This decrease was primarily due to higher cost associated with one of our warehouse facilities in the first quarter due to the transfer of assets out of this facility to our second CLO combined with reduced interest expense and fees in the second quarter related to our legacy CLO vehicles as a result of timing of one-off in these facilities.
Additionally our estimated all-in debt cost was approximately 3.21% at June 30, 2013 compared to around 3.17% at March 31, 2013. As we discussed on our last call, if we were to include the dividend associated with our two recent perpetual preferred stock offerings as interest expense, our average cost of funds for the second quarter will be approximately 3.36% compared to the 3.48% for the first quarter.
Our estimated all-in debt cost will be 3.46% at June 30, 2013 compared to 3.33% at March 31, 2013. This increase is mainly due to the closing of our second perpetual preferred offering in the second quarter.
So overall normalized net interest spreads on our core asset on a GAAP basis was approximately 2.32% this quarter compared to approximately 2.25% last quarter. Including the preferred stock dividends and debt costs, our net interest spread was approximately 2.11% for the second quarter compared to approximately 2.15% for the first quarter.
And our net interest spread run rate is now approximately $50 million annually at June 30, 2013 compared to approximately $44 million at March 31, 2013. This significant increase in our net interest spread run rate is again due to tremendous success we have had in deploying a substantial amount of the long-term growth capital we raised over the last few quarters into higher yielding investments.
Other income which primarily consists of net interest spread on certain RMBS securities which are deemed to be linked transactions for accounting purposes as well as asset management and miscellaneous fees decreased $800,000 compared to last quarter. The decrease was mainly due to the reimbursement of certain fees on loan in our portfolio in the first quarter and the net interest spread earned on our linked RMBS securities is not reflected in the net interest spreads that I just discussed.
NOI related to our REO assets decreased $1 million compared to the last quarter due to the seasonal nature of income related to our portfolio of hotels that we own. As of today we believe these two assets should produce NOI before depreciation and other non-cash adjustments of approximately $3 million for 2013.
The majority of which was recorded in the first two quarters again due to the seasonality of our hotel portfolio. This projected income combined with approximately $2 million to $3 million in other income related to our RMBS linked transactions and approximately $50 million of net interest spread on our loan and investment portfolio gives us approximately $55 million to $56 million of annual estimated core FFO before potential loss reserves and operating expenses looking out 12 months based on our run rate at June 30, 2013 which is up substantially from $50 million we reported as of March 31, 2013 again due to the significant amount of new originations at higher yields during the second quarter.
Additionally as Ivan mentioned earlier, we've originated approximately $50 million in loans in July and clearly our goal is to continue to deploy our long-term growth capital into accretive investment opportunities and continue to grow our core earnings and dividends all the time. Operating expenses were up compared to the first quarter largely due to increased legal and professional fees and an increase in non-cash stock compensation from the issuance of 70,000 fully vested shares to our Independent Directors as part of their annual compensation in the second quarter compared to stock awards that we granted to certain of our employees and employees of our Manager in the first quarter.
Next our average leverage ratios on our core lending assets decreased slightly to 64% this quarter compared to 67% last quarter including the trust preferred and perpetual preferred stock offerings as equity. And our overall leverage ratio on a spot basis including the trust preferred and preferred stock as equity remains flat at 2.2 to 1 at March 31 and June 30.
There are some changes in the balance sheet compared to last quarter that I would like to highlight. Restricted cash decreased by approximately $38 million primarily due to the full utilization in the second quarter of the ramp-up feature associated with our second CLO vehicle which closed in January, the purchase agreements and credit facilities increased by approximately $52 million due to the financing of our second quarter originations and total equity increased approximately $34 million this quarter primarily due to our second preferred stock offering in the second quarter as well as from a $5 million increase in the value of our interest rate swaps which has accounted for and accumulated other comprehensive loss in the equity section.
Lastly, our loan portfolio statistics as of June 30 shows about 71% of the portfolio is variable rate loans and 29% are fixed. By product type 71% was bridge, 16% junior participation and 13% mezzanine and preferred equity investments.
By asset class 58% of the book was multifamily, 24% office, 6% hotel and 8% in land. Our loan to value was around 78%, and geographically we have around 30% of our portfolio concentrated in the New York City.
That completes our prepared remarks for this morning. And I will now turn it back to the operator to take any questions you may have at this time.
Gary?
Operator
(Operator Instructions) We have a first question from the line of Steve Delaney of JMP Securities. Over to you Steve.
Steve Delaney - JMP Securities
Would you please remind us about, you have a $40 million new warehouse facility and Ivan, you mentioned $90 million of capacity, I was wondering, Paul, if you could just remind us with your total bank financing availability is for whole loans, both available and already committed. I don't have that handy.
Paul Elenio
Sure, Steve, we do have, I think three warehouse facilities in place and then one kind of revolving credit facility and the total, we have a $50 million facility, a $75 million facility and this new $40 million facility and then the $20 million credit facility is known about for a while. That's a total amount of short-term warehouse facilities we have and as we said in our prepared remarks, as of today, we have roughly $90 million of capacity in those line and one of the reasons to that is because of the large amount of originations we were able to create in the second quarter, if you remember from the first quarter, we have a $50 million ramp-up built up in our second CLO.
So we're able to utilize that ramp-up in the second quarter and really still retain a lot of the capacity in these lines going forward.
Ivan Kaufman
I think, Steve, we have been very conscious not to have lines of credit that are too large with our associated fees with that. So we do have the capability, at least management believes that we have the capability to increase those lines from business gross.
So I get, we are looking to have a significant diversity in terms of lenders we deal with and also recognizing that in additional capacity with those lenders.
Steve Delaney - JMP Securities
Yeah, that was a good point you made about your ramp, but you also have a replenishment feature there in your CLOs right, where if you get loan payoff some of your new originations can go into those two existing structures.
Paul Elenio
That's right Steve and I think one of the comments that I made in my prepared remarks is that our leverage ratios stay flat quarter-over-quarter, and you would think with $181 million of new volume that would not be possible but it's exactly the reason you mentioned, the ramp-up we use right away, we did receive $34 million in raw during the quarter, the $30 million of which was in our CLO vehicles. So the new CLO vehicles we were able to immediately replenish those assets.
So we do have lots of tools in the tool box and one of them is that if we stop to see run off in those vehicles, the assets are relatively short-term in nature, we have a period of time that we can replenish and not have to incur significant increase in short-term debt.
Steve Delaney - JMP Securities
Yeah. I was going to ask you about that, that was my next question is the four loan payoffs, were the legacy or post crises it sounds like most of it was fresher loans that were in the CLO structure, so…
Paul Elenio
Yeah, that's correct they will both in the normal course of business, as you know the loans we originate, generally have a term anywhere from 12 to 36 months, so that's normal course of business.
Steve Delaney - JMP Securities
So we really, when we think about the kind of run rate you have now $150 million capacity that really kind of understates really your ability to win because with your the shorter term nature of your bridge loans, you going to have to be originating to couple of replacement as well for the near term, so those healthy that would help you dialog there, I just have one other thing because you guys are pretty thorough in our remarks. Paul, I happen to like AFFO because it gives us closer to what we like to use a term core EPS and the key there is takeaway non-cash items like your stock comp, I am just wondering if you are considering either adding AFFO or converting from FFO to AFFO was your primary earnings measure?
Paul Elenio
Yeah, it's something we are considering to see and I announced it in my prepared remarks that it wasn't in the press release because the stock comp really was the major add back and that really only happen in this quarter and last quarter, but as that becomes more recurring and you are leaking that in as an expense some of the accounting rules each quarter, we are going to take a hard look at AFFO which we look at things, it's how you look at things and I think it's a better representation of really the cash generated to cover the dividend and we'll definitely take that under advice it hasn't been material to-date, to become more material, we will definitely look at that presentation.
Operator
Thank you. Your next question is from the line of Stephen Laws of Deutsche Bank.
Over to you Stephen.
Stephen Laws - Deutsche Bank
Thank you, and like Steve and I want to congratulate guys on a very nice quarter, and it looks like growth continues accelerate with regards to your new investment activity, Ivan on a couple of questions I was looking at maybe to follow-up on his last point, you guys have done a great job of growing the dividend, I think of about 53% since the first quarter of 2012. What is the best metric for us to really forecast the dividends, we look at the FFO and that back to non-cash is that really more massage by the board, because you are in a position where you can retain some cash flow for reinvestment in growth for the portfolio or really how should we think about getting our hands around the dividend trajectory from here?
Paul Elenio
Sure Steve. Hey, it's Paul.
I think the way we look at it and the board looks at it is in my commentary, in my prepared remarks I talked about kind of a core FFO run rate. And I think today in my prepared remarks I said, the core FFO run rate is about $55 million, $56 million as of June 30 looking forward with no new activity before operating cost and obviously reserves.
I think our operating cost right now for the first six months are running at a run rate of around $31 million to $32 million for the year. So that put you with roughly 24 million or 25 million of kind of core FFO, over 43 million shares that's roughly $0.55 to $0.57, the dividend annually now it's $0.52.
So we look at that payout ratio with the board and say we want to keep some cushion. I think what we have to be careful with when talking about what the dividend will be going forward, obviously we're very excited about the growth we've had, we're very excited about the pipeline and we'll just monitor what our runoff and what where our pipeline will go and that will depend on how quickly we can grow the earnings and to the dividend.
But we look at it based on core earnings, we look at it, based on where we think it's going to go and what our reasonable payout ratio is. And that's kind of have all the factors we take into consideration when deciding a dividend.
Ivan Kaufman
And I think clearly, management focus is on core earnings and to the extent that we can grow core earnings we like to provide a consistent growth and steady dividend.
Stephen Laws - Deutsche Bank
Great. Well, that's great color.
I appreciate that and I think you guys have done a great job growing the cash for the last six quarters, on the RMBS side looks like if I did the numbers quickly, I think you've roughly doubled the size of the investment pace in Q1, a little over $80 million this quarter versus maybe $40 million in Q1, can you maybe talk about what you're seeing in those opportunities, that the volatility in the RMBS markets create more opportunities for you guys. I know it's still relatively small piece of your portfolio but it can still be a valuable contributor there.
So you can talk a little bit about what you're seeing in RMBS investment opportunity market.
Ivan Kaufman
Sure, I think it's a good opportunity for us to give a little bit of an overview on the RMBS market. When we entered the RMBS market we were targeting high teens, low 20s returns.
The market was a little inefficient and we saw that as a great opportunity to deploy our capital especially if we were raising capital we could deploy it very quickly into short term instruments, what we've seen over the last six months is that market become extremely competitive and the yields decreasing on a levered basis probably to mid to low teens. So we've actually stepped back a little bit of recent in terms of our outlook in growing that book because we believe that we can have superior risk adjusted returns in the commercial multifamily market which is more our core strategy.
So I think what you should be looking at on the RMBS side is probably a shrinking book given the investment opportunities we're seeing in our core business. So I wouldn't be surprised over a period of time if that the yields continue to compress on the RMBS side to see that book go away over the next couple of quarters, replaced with superior risk adjusted returns on the commercial side, which could result in probably more attractive core growth.
Stephen Laws - Deutsche Bank
Great. That color is very helpful, thanks for taking my questions and again congrats on very nice quarter.
Ivan Kaufman
Thanks, Steve.
Operator
Thank you, and next question is from the line of Lee Cooperman of Omega Advisors, over to you, Lee.
Lee Cooperman - Omega Advisors
Most exciting thing you said this morning, I am trying to understand if I am correct in my understanding. I have been said that you thought you can get a mid-teens leverage return on capital.
So, I am trying to forget the linkage of FFO to the mid-teens leverage return on capital. Let’s just say we use an average number, make it easy for you, dollar book value at a 15% return, we employ like $1.20 or so of ongoing earnings and I am curious whether that is a goal that you see as realistic.
How that relates to FFO and do you have a timetable in your mind with that kind of profitability to be achieved. This is well above we're currently earning.
And secondly, does the access to the deferred market make it likely that we won't have to resort to any equity financing, anytime in the foreseeable future?
Paul Elenio
Hey, Lee it's Paul. I think I'll handle the second part of the question first and then turn it over to Ivan for the first part.
I think the disconnect maybe between the commentary that we give that we're looking to earn mid-teens leverage returns on our capital versus what the FFO translates into which is a smaller number, is the expense level that we have in the company. So I think FFO, if you look at core FFO, the commentary I gave today of roughly 55 million to 56 million translates to about $0.55 to $0.57, that’s a return on our common equity of about 7%, its probably just under 6% on adjusted book value and I think what you are saying is well you can get mid-teens where you be able to get it up to mid-teens on that capital.
I think we can overtime and I think where we can do that is, we can continue to grow the book obviously the expense load become a small percentage and then obviously we have more economies in scale, it will take time to do that. But I think that’s maybe a little bit of disconnect between the FFO and our commentary on mid-teens levered return on capital, but I’ll ask Ivan maybe to comment on where he thinks that grows overtime?
Ivan Kaufman
Yeah, and I guess one of the issues we have which takes a little time to work our way out of is we have a legacy book and in that legacy book is in our CDOs and to the extent that we get payoffs we lose income and since those assets are not CDOs we don’t get to redeploy that cash. Over a period of time those CDOs will burn off and we will swap at those and when that happens we can redeploy all that cash into those highly leveraged returns.
So we are fighting a little bit to drag at those legacy asset and CDOs have. The second issue which we have talked about extensively is we have old swaps on from the crisis ere, now that dragging our earnings on a quarter-to-quarter and on an annual basis, those swaps will burn off and we will get the earnings power back on those swaps.
So I think over a period of time between the CDOs and the legacy assets in the swaps, it will allow us to really get the full benefit, not just the partial benefit the way we deploy our capital into the mid-teens returns, but we are only getting the partial benefit of that right now which is offsetting the drag that the legacy and the swaps have on us.
Lee Cooperman - Omega Advisors
Will it be reasonable to think that say that three, four years period that [7 ROV] on FFO basis could be a 12% and 14% number?
Paul Elenio
Yes, we deployed, I think it's hard to look out three, four years but certainly that's in our opinion a reasonable goal because in a few years from now we hope to recover a guidance that a significant amount of cash, where capital we have trapped in our vehicles and we will have to burn off with the swaps. And of course I can't predict where the market will be on the yield opportunities, but if we continue to see yield opportunities we're seeing today or better, then yes that should go quickly keeping in mind that our expense flow should not grow nearly as quickly as the income.
In fact, we should have huge economies of scale as we grow the portfolio from not having to add significant amounts to our expense flow. We do see that as a reasonable target and the target we have internally as well.
How long that time frame it takes to get there will determine on how quickly we can pair out of these CDOs, the legacy CDOs and get that money to work again back into the investments.
Ivan Kaufman
Yeah. And we have 3 CDOs roughly and each time we flip out of them enable to liquidate and to releverage those assets appropriately and redeploy that cash, we'll have an exponential impact on our core earnings rate.
Lee Cooperman - Omega Advisors
And in terms of equity, do you have adequate capital between the preferred and your existing debt lines that we don't have to think about an equity financing?
Ivan Kaufman
I think that, right now we're not in the market for equity or debt, we're quite comfortable funding our existing pipeline. And based on our runoff in our pipeline we're quite comfortable with what we have to continue to run our business.
Lee Cooperman - Omega Advisors
Thank you. Congratulations and things are going in the right direction.
Operator
Thank you. We don't have any further questions at this time.
Ivan Kaufman
Okay. Thanks for your participation everybody and look forward to our next call.
Operator
Thank you very much. Ladies and gentlemen, that now concludes your conference call for today.
You may now disconnect. Thank you very much.