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Resource Capital Corporation (NYSE:RSO)

Q1 2011 Earnings Call

May 3, 2011 8:30 am ET

Executives

Jonathan Cohen – President & Chief Executive Officer

Purvi Kamdar – Director of Investor Relations

Dave Bloom – Senior Vice President of Real Estate Lending

David Bryant – Chief Financial Officer

Christopher Allen – Senior Vice President of Commercial Real Estate

Analysts

Steve Delaney – JMP Securities

Gabe Poggi - FBR Capital Markets

Operator

Good day ladies and gentlemen and welcome to the Q1 2011 Resource Capital Corporation Earnings Conference Call. My name is Towanda and I will be your coordinator for today. (Operator instructions.) I would now like to turn the presentation over to Mr. Jonathan Cohen, President and CEO of Resource Capital Corp. Please proceed sir.

Jonathan Cohen

Thank you. Thank you for joining the Resource Capital Corp conference all for Q1 ended March 31st 2011. I am Jonathan Cohen, President and CEO of Resource Capital Corp. Before I begin I would like to ask Purvi Kamdar, our Director of Investor Relations to read the safe harbor statement.

Purvi Kamdar

Thank you Jonathan. When used in this conference call, the words “believe, anticipate, expect” and similar expressions are intended to identify forward-looking statements. Although the company believes that these forward-looking statements are based on reasonable assumptions such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from these contained in the forward-looking statements. These risks and uncertainties are discussed in the company’s report filed with the SEC including its reports in the form 8-K, 10-Q and 10-K and in particular item one on the form 10-K report under the title Risk Factors. This is a caution not to place undue reliance on these forward-looking statements which speak only as a (inaudible). This company undertakes no obligation to update any of these forward-looking statements. And with that I’ll turn it back to Jonathan.

Jonathan Cohen

Thank you Purvi. First for a few highlights. For the three months ended March 31st 2011 we had adjusted net income of $15.7 million or $.26 per share diluted as compared to $10.1 million or $.27 per share diluted for the 3 months ending March 31st 2010.

Estimated REIT taxable income for the three months ended March 31st 2011 was $8.6 million or $.14 per share diluted as compared to $9.3 million or $.24 per share diluted for the three months ended March 31st 2010.

We announced a dividend of $.25 per common share for the quarter or $17.6 million in aggregate, which was paid on April 28th 2011 to stockholders on record on March 31st 2011. Book value increased to $6.08 per common share as of March 31st 2011, an increase of almost 2% since December 31st 2010.

With those highlights out of the way I will not introduce my colleagues. With me today are David Blume our Senior Vice President in charge of Real Estate Lending, David Bryant our Chief Financial Officer, Christopher Allen our Senior Vice President of our Leverage Loan Business and Purvi Kamdar our Director of Investor Relations.

In my opinion Q1 2011 saw great improvement in the outlook for Resource Capital. We saw an increase in our net interest income of over 35% and revenues grew by more than 50% compared to last year at the same time. We made significant investments and restarted our commercial mortgage origination platform. We are truly a new company.

Including those loans that we are committed to sell, we have strong real estate loans that we are committed to sell. We have shrunk our pre-2008 real estate B-noted Mezzanine loan exposure to under $137 million from a peak of $312 million in December of 2007. We are extremely well capitalized, have access to all types of liquidity and are prepared to grow.

With these results and with our new investments I reiterate, as I have many times before, that we are dedicated to a $1.00 cash dividend for 2011. We as managers and shareholders are working hard to build a company that can both pay a substantial dividend and increase shareholder value by building and growing businesses and business platforms.

During the quarter we took the opportunity to sell two more large legacy subordinate loan positions, over $40 million of real estate loan balance, continuing our reduction of exposure to the subordinate positions originated before the financial crisis. Although we believe that these loans will be collectible, they were subordinate to much larger loans and exposed us to potential binary risks. So we considered it prudent to pair back those positions and focus our capital on new investments. In doing so we took a loss of $2 million as recorded this quarter. We maintained our general reserves for real estate loans and have a $10.5 million balance at the end of the quarter.

Q1 of 2011 was marked by many positive events including earning $.26 of adjusted net income with over $200 million of cash on hand doing that and making new investments of over $60 million into commercial real estate loans, our syndicated bank loan business and commercial finance. All areas were able to achieve projected pre-tax returns on those investments of 12% to 25% on new dollars invested.

Finally and in some ways most importantly we put into overdrive our newly restarted commercial real estate mortgage business. It had begun to put out the massive cash balances we have been carrying over the last year or two. We expect to finalize new lines of credit for this business within the next few weeks.

Included in this cash balance is the net proceeds of the offering we completed at the end of last quarter. We expect that these dollars will be deployed in the next three or six months into new investments with a focus on directly originated whole loans and mezzanine loans aiming to achieve mid-teen returns or better.

The balance of restricted cash should be used for whole loan origination in a four to six month time period. In my opinion, while doing this reshuffling we’ve ended up with a much-improved company, more stable and able to seize more upside. Going forward we will focus on expanding our real estate lending operation, finding new investments and syndicated bank loans and finally building franchise value at our commercial finance business.

Now I will ask Dave Bloom to review our real estate activities. Dave-

Dave Bloom

Thanks very much Jonathan. Resource Capital Corps commercial mortgage portfolio has a current committed balance of approximately $657 million in a granular pool of 41 individual loans. Our portfolio of commercial mortgage positions is in components as follows. 78% whole loans, 15% mezzanine loans and 7% B-notes. Of note in our portfolio composition is the significant increase in the percentage of self-originated whole loans and the corresponding decrease in our subordinate debt positions.

Year-over-year we have realized a 15% increase in our whole loan positions from 63% in May of 2010 to the 78% we have today and the corresponding decrease in our subordinate debt position is from 26% mezzanine loans and 11% B-notes in May of 2010 as compared to the 15% and 7% respectably today.

The collateral base underlying the portfolio continues to be spread across the major asset categories in geographically diverse markets with a portfolio breakdown of 34% multifamily, 14% office, 30% hotel, 14% retail and 8% other such as light industrial and self-storage. We continue to see both sale and financing transaction volumes increasing and liquidity returning to the market. And we continue to experience pay offs in our portfolio.

During Q1 through today we closed three new loans totaling approximately $26 million and have another three loans totaling approximately $30 million that are approved and in the closing process for a total of $65 million in aggregate new loan production.

We currently have a full forward pipeline of approximately $200 million of new transactions and will continue to convert select opportunities to loans for our portfolio.

We see increased liquidity in all segments of the market and after the close of the quarter we again took advantage of this increased liquidity by shelling out of two subordinate depositions; one B-note and one mezzanine loan at extremely high dollar prices. We still see substantial activity in the subordinate debt market as large funds and other market participants look for ways to deploy capital without the benefit of direct whole loan origination capability.

RSO’s relatively small remaining portfolio sub-debt positions was originated during a time when there was still good relative value in this space and while we were fully establishing our whole loan origination platform. These subordinate depositions tend to be in complex multiparty capital structures and we view our ability to exit at high dollar prices as a way to eliminate binary risks from our portfolio after having collected several years of high quality income from these positions. The ability to sell and remove ourselves from these complicated subordinate depositions provides additional equity that we will deploy into new whole loans in situations where we are the sole lender.

We are impressed with the resilience of our existing portfolio and pleased to see that asset-specific business plans are again progressing and borrowers value creation plans being realized.

Across the portfolio leases are being signed in office buildings, rents are increasing in multi-family properties, occupancy and average daily rate numbers at hotels are rising and so on. In addition we are again hearing from borrowers about unsolicited offers on properties and other situations that will result in pay offs of loans in our portfolio.

From a credit perspective we note improving metrics across the portfolio with the majority of the property securing our loans, having improved cash flow on a year-over-year basis and continuing to trend in an upward direction. I am pleased to report that our commercial mortgage portfolio continues to be current with no defaults.

The real estate debt market has definitely returned and we continue to observe a significant increase in financing activity from banks, insurance companies and from reconstituted CMBS programs. We’re again seeing situations where multiple lenders are competing for the same loans. The steadily increasing flow of real estate finance capitals is obviously a positive sign for the market in general and for our portfolio in specific as we see a number of our portfolio properties readying for takeout financing.

RSO benefits from our focus and expertise in directly originating loans between approximately $10 million and $20 million. And even though there are a large number of capital sources in the market to make new loans, there are relatively few market participants focusing on these institutional middle market sized loans. Our full-forward pipeline provides opportunities to directly originate whole loans at new market valuations, premium spreads and optimal structure. There are hundreds of millions of dollars of loans coming due and not enough debt providers to address the total financial demand as properties trade or the existing owners commit new capital to existing situations (inaudible) financing at a new and much lower basis.

Having kept our nationwide origination, asset management and servicing platform intact during the pullback and lending over the last few years provides a distinct advantage, as we are again very active on the new origination front. Our borrowers and the intermediary community are extremely familiar with RSO as a capital provider and our key professionals have remained in the market representing RSO’s lending platform. This continuity is a unique and distinguishing feature and provides the market with a proven platform with the same team that has closed approximately $1.5 billion of loans.

As our deal flow continues to increase we are poised to take advantage of opportunities for well structured transactions of premium spreads in today’s market and to match our production levels with our existing financing facilities and capital availability. RSO will continue to benefit from loan repayment or select additional loan sales as we reinvest well-structured higher yielding assets into our long term locked in financing (inaudible).

With that I’ll turn the call back to Jonathan and rejoin for Q&A at the end of the call.

Jonathan Cohen

Thanks Dave. Now I’d like to review the first part of our investment in commercial finance and then introduce Christopher Allen to discuss the second aspects syndicated bank loans.

In January we transformed our previous investment in leasing into a new one and now we own our interest through a joint venture we formed with Lead Financial and Guggenheim Securities. This joint venture is going well and is building its balance sheet, its proprietary vendor finance programs and its staff. Remember we also have warrant to purchase 48% of the business at a nominal price. These warrants give us the upside we are looking for while the coupon gives us the ability to generate a nice current return. Stay tuned for the progress of this venture. While we wait we will simply flip the 10% cash and pick coupons.

As for syndicated bank loan business I wanted to introduce Christopher Allen, our Senior Vice President of Leverage Loans who will walk us through our existing portfolio, our new purchase of the management (inaudible) of Churchill Pacific Asset Management, CPAM, now called RCAM.

Chris has been a senior officer here since our inception in 2005 and I welcome him as a participant in these calls.

Christopher Allen

Thank you Jonathan. I’m very pleased to take a few moments to discuss our accomplishments in the bank loan phase. As Jonathan mentioned, I’m the Senior Vice President of Resource Capital and the Chief Operating Officer of Apidos Capital Management and one of the founding partners of that business along with Gretchen Bergstresser.

The bank loan business has grown in importance at Resource Capital and I’m glad to have the opportunity to discuss that today and in the future. Resource Capital has direct exposure to bank loans through three CLOs managed by Apidos and it earns fees on additional bank loans through its ownership of Resource Capital Asset Management, formerly Churchill Pacific Asset Management.

Resource Capital’s three bank loan portfolios have a carrying value of $905.3 million and approximately $930.9 million in par value. Resource Capital Asset Management has assets under management of approximately $1.8 billion. For the most recent quarter the three CLOs that the company owns produced interest income 33% higher than in Q1 of 2010. Apidos CLOs have produced annualized equity returns greater than 23% since inception. The current cash on cash returns based upon our original investment of $79.5 million is approximately 33%. The carrying value of our bank loan portfolio is approximately $49 million representing approximately $.69 of book value per share such that the return on equity of our bank loan investments is approximately 54% with remaining upside accretion from discounted loans and securities purchased of nearly $26 million.

Over all, in my opinion, the portfolios are in excellent condition. They remain very diversified across industries. The average position size is about 40 basis points or roughly $1.2 million. The highest concentrations are in healthcare, business services, broadcasting and entertainment and printing and publishing. Included in the top ten holdings are issuers such as Community Health Systems, Sun Guard Data Systems, Cablevision and Flextronics. The average rating between a B2 for Moody’s and a B+ from SMP; strong ratings for loans suitable for CLOs. There is very little triple T exposure of less than 5% across the portfolios, about 2% of second liens and no bonds.

We continue to forecast a very benign outlook in corporate credit for the next two years. Our belief seems consistent with that of other market participants. According to SMP’s leverage commentary and data published on April 1st of this year, there were no loan defaults in March. As a result the lagging 12-month loan default rate fell to 1.11% by amount and 1.62% by number, both three year lows.

Currently the Apidos last 12-month default rate is .11%. Our watch list declined by more than 10% for the quarter. All of our deals have increasing amounts of principal cushion versus last quarter and a year ago.

According to Citi Group’s Global Structured Credit Strategy Report of December of last year, Apidos is 6th out of 48 US CLO managers for having the highest average cushion and the CLOs. During the downturn in 2009 Apidos had the highest cushion according to the same research.

Stemming from Resource Capital’s successful experience with bank loans managed by Apidos, Resource Capital has sought to be a beneficiary of manager consolidation in the loans base.

On February 24th Resource Capital completed its first loan manager consolidation with the purchase of Pacific Asset Management for $22.5 million. Now renamed Resource Capital Asset Management it manages five CLOs totaling approximately $1.8 billion in asset (inaudible) management.

By owning the manager Resource Capital is entitled to the fees earned from managing bank loans, which tend to be very stable over time. Resource Capital Asset Management expects to receive management and incentive fees in excess of $33 million over the next several years earning expected IRRs of approximately 22% pre-tax with a possibility of additional upside.

Going forward we believe that the trend of manager consolidation will continue and that Resource Capital will be a major beneficiary. We regularly review additional acquisition candidates.

The new issue CLO market is becoming much more attractive as well. Credit spreads have returned to more normalized levels post crisis and the risk appetite of investors has returned. In addition the bank loan asset class has shown that it has performed very well fundamental. With triple-A lending at attractive levels we should have the opportunity to continue to earn pre-tax returns in the high teens or low 20s. We have deployed our efforts on behalf of Resource Capital with excellent results and look forward to continuing and expanding that success in the future. Please feel free to contact me if you would like more information on our bank loan activities.

Jonathan Cohen

Thank you Chris. Now I will ask Dave Bryant, our Chief Financial Officer to quickly walk us through the financials.

David Bryant

Thank you Jonathan. Our estimated REIT taxable income for Q1 2011 was $8.6 million or $.14 per common share. I want to add a few thoughts about the REIT taxable income for Q1 2011. There were two non-cash losses from GAAP earnings to arrive at the estimated REIT income number, namely losses from a real estate joint venture of $4.4 million and net [Break in audio] to tax adjustments of $1.6 million from our foreign TRS subsidiaries for losses previously recognized on the books. These combined non-cash items of approximately $6.4 million representing timing differences reduced REIT income by nearly $.11 per share without effecting our ability to pay the dividend which of course was $.25 per share as declared by RSA board.

At March 21st 2011 RCC’s investment portfolio was financed with approximately $1.5 million total indebtedness that included $1.4 billion CDO senior notes, $51.5 million sourced from our unsecured (inaudible) subordinated debentures related to our two TruPS issuances in 2006 and approximately $15 million of repurchase agreement debt from our new Wells Fargo facility.

We ended the period with $427.2 million in book equity. RCC’s borrowing of $1.5 billion had a weighted average rate of 1.07% at March 31st, a sign of the ongoing low interest rate environment. We remain committed to our long stated philosophy of maximizing match funding and our investment portfolio is almost completely match funded by long term borrowers at quarter end.

We continue to pass all of the critical interest coverage and over collateralization tests in our two real estate CDOs and three bank loan CLOs through April of 2011. Each of these structures performed and generated stable cash flow to RCC in Q1. The CRE CDOs produced over $5.1 million and bank loan CLOs generated over $6.3 million of cash flow during the period ending March 31.

Of note, as of April 30th we have an excess of $167 million in investable cash in these deals comprised of approximately $53 million in the bank loan CLOs and $114 million in the real estate deals respectively. This cash is available for reinvestment in our CLOs and CDOs to generate very attractive spreads over the cost of the associated debt and strengthen our overall position in each structure. For example, during the period ended March 31, as Dave Blume mentioned, we originated two new CRE loans for a total of $18.3 million at stated rates before exit and origination fees of 6.75% and 6.25% respectively.

Also noted by Dave we see numerous additional opportunities to originate new loans in the near term as we sell some of our legacy positions and reinvest the accumulated cash in these financing structures.

Our provision for loan losses of $2.6 million is almost entirely from losses on CRE loans. As John indicated, $3 million of provisions came from the sale of a B-note, which closed after quarter end. $400,000 was added for a previously impaired whole loan and $700,000 was added to our reserves for costs related to the sale of a mezzanine loan, which was sold at par.

On the bank loan portfolio positive credit trends remain and accordingly reduced our reserves by $0.5 million. Overall our credit otherwise remains stable and notably all of our commercial real estate loans; both legacy and newly underwritten loans are performing.

Our leverage is 3.4 times. When we consider our TRuPS issuances which have a remaining term of 25 years as equity, we see our leverage drop to 3.0 times.

Focusing on real estate we began 2010 approximately 2.3 times levered on our CRE CDOs. After giving affect to the debt repurchases throughout 2010 and affect to year to date 2011 activity, we ended the March quarter a mere 1.5 times levered on our real estate portfolio.

Our GAAP book value per share was $6.08 at March 31st, up $.09 from $5.99 at December 31. The change quarter over quarter resulted primarily from earnings of $.19 per share, improved marks on our CMDS portfolio of $.07 per share, a reflection of the rally in that market, $.06 per share from our common stock sales and improvement in the marks on our cash flow hedges of $.02. All of this offset by the dividend of $.25 per share. And all these per share amounts are based on our new share camp post (inaudible) at the end of the March quarter.

At March 31 our equity is allocated as follows. Commercial real estate and CMBS is 71%, commercial finance is 24%; this breaks down as 17% in bank loans and bank loan management combined, and 7% in small ticket leasing enterprise. We also have 5% of our equity in structured notes.

With that my formal remarks are completed and I turn the call back to Jonathan Cohen.

Jonathan Cohen

Thanks Dave. We are excited to reap the benefits of new opportunities we have already seized and to take advantage of even more opportunities. But we have started to do so already and we look forward to sharing the results with you in the future period.

Now we will open up this call to any questions if there are any.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions.) Your first question comes from the line of Steve Delaney with JMP Securities. Please proceed.

Steve Delaney – JMP Securities

Thank you. Good morning everyone and congratulations on a very solid Q1 and start to 2011. I guess this is for Dave Blume. I just wanted to, I was trying to take as many notes as I could but I’ll make sure I understand the origination activity year to date and pending. Was it two loans for $18.3 million that actually closed in Q1?

Dave Blume

Since Q1 through today because we had some other loans closing, it was a total of $26 million and it was three.

Christopher Allen

And Steve that includes future funding components to those loans whereas the $18.3 was the amount funded physically during Q1.

Steve Delaney – JMP Securities

So year to date we’re at three loans, through today, three new loans at roughly $26 million.

Jonathan Cohen

Exactly, actually no, yes, but with another $39 million that are in the closing process.

Steve Delaney – JMP Securities

And that’s what I wanted to go to as part two of my question. So as far as pending you would expect to close before maybe June 30, you know, how many loans and for what dollar amount would you be expecting?

Chris Allen

Well (inaudible) I think that we’re going to close at $39 million in the next month and we probably expect another $15 to $20 million after that. And you should see basically the way it works is you know, you know as you start up this process every quarter will be more and then you’ll see exponential growth into the next quarter into closing. So we have apps that are going out now that in a pipeline of close to $200 million and so when we talk about putting out the money into this, into our restricted cash in our CRE, CDOs, we expect that to be three to six months before we get that all invested. Now I keep doing Dave Blume a disservice because I keep selling legacy loans granted at par or close to it so I keep replenishing those (inaudible) a little bit making his job a little bit harder.

Steve Delaney – JMP Securities

Well it sounds like he’s got a lot on the desk. Would it be reasonable to think that, you know, once, because you are building this momentum that like somewhere around like at least $50 million or maybe $75 million a quarter, does that seem like a reasonable closing volume looking out to the second half?

Chris Allen

Yes.

Steve Delaney – JMP Securities

Okay. And then-

Jonathan Cohen

I just want to address that, as we get, Steve just, that’s probably right for the next few quarters but after that we’ll probably see a little bit of a hockey stick.

Steve Delaney – JMP Securities

Okay.

Jonathan Cohen

Because just the work that’s going on in the front end now is massive.

Steve Delaney – JMP Securities

And my last question, you touched on it in your answer, you know, you’ve sold I believe it’s four loans now between what you did in Q1 and what you have planned to sell here in Q2 of these subordinate loans. Do you feel, I mean have you about called out what you needed to or could we see some additional selling out of the portfolio from the legacy?

Jonathan Cohen

Well I mean to be honest we’re not actively selling but people are actively buying. So if we get a call tomorrow that says, “Hey we’ll take a loan off your hands at par,” after we’ve made 9% through the financial crisis on a loan that is not really that important to us and has binary risks, we always look at it. So there are a lot of private equity firms, a lot of private equity real estates firms that are looking at the legacy loans as a good way to position themselves in these buildings. And they want to control the buildings, a lot of times we own the first loft or the controlling piece so they’re very valuable to these players. So if we got a call tomorrow we could sell something. But it’s not as though any of these loans were that we picked up the phone and said we wanted to sell it to somebody specifically.

Steve Delaney – JMP Securities

Got it. So it’s really a matter of somebody who’s strategically involved in that particular property as far as, or for, and that’s how they actually know about your role in the first place.

Jonathan Cohen

Right. Or it may be somebody who’s just calling the universe to see like we like Manhattan, we like LA, we like some area and we want to be involved. We like these buildings, they look up to CAP structures and come talk to us about it. Or it’s the owner of it and, you know, he’s trying to reposition it in a partnership. There’s lots of different scenarios that can happen here. But, no, there’s nothing on the horizon that we’re actually marketing. As of this point we’re happy with what we have.

Steve Delaney – JMP Securities

Okay. Sounds good. I appreciate the color. Thanks.

Operator

Your next question comes from Gabe Poggi with FBR Capital Markets. Please proceed.

Gabe Poggi – FBR Capital Markets

Hey good morning guys. Thanks for all the color; it was great on the conference call.

Jonathan Cohen

Sorry. It might have been a little too long but we’re trying- transparency is our middle name so.

Gabe Poggi – FBR Capital Markets

First question is you guys mentioned that you’ve reduced your balance of pre-2008 mezzanine B-note exposure to $137 million. Can you remind me what the pre-2008 balance is in the first mortgages and what those first mortgage’s LTD is give or take right now. Just because I know you have a bigger balance of firsts. What I’m trying to get to is the balance of the legacies and the new stuff you’ve done.

Jonathan Cohen

Well it’s actually, I mean we haven’t really done any new mezzanines since then so and I may be wrong in this calculation and we’ll get back to you if I am but my gut is that it was about $660 million of loans so we have $137 million of pre-2008 mezz loans, we haven’t really, we’ve (inaudible) a small bit, not much. So you’d be talking about $500 million of first loans, first mortgages.

Gabe Poggi – FBR Capital Markets

Right. But how much of that $520 is before it was originated?

Jonathan Cohen

Oh the bulk of it probably $440 million or so because we just started putting on new mortgages.

Gabe Poggi – FBR Capital Markets

Okay, that’s helpful. Then in-

Jonathan Cohen

And then you asked about LCDs, they were underwritten at 75%. Probably at some point they had gone to 95%. They’re probably certainly on the multis back to 75% and it depends but it’s probably, I would say it’s slightly north of 80% probably on kind of an underwritten today. The whole, whole loan I’m talking about.

Gabe Poggi – FBR Capital Markets

Got ya. That’s helpful. When you guys talked about kind of your capital recycling, Jonathan, you just mentioned you’re selling loans if there’s active bidders for loans and Dave is getting new capital recycle. What’s the general sprint pick up you guys are getting inside the CDOs as you recycle between-

Jonathan Cohen

Well I would say that if it’s an old mezzanine loan it’s probably break even to probably like if you sell some at 80% we’re probably getting 8%, you know, on a new whole loan though, so it’s a much better asset then we owned before plus some fees here and there and other place. But if we have a whole loan that’s prepaid which is also happening, we’re probably picking up 400 basis points.

Gabe Poggi – FBR Capital Markets

Got ya.

Jonathan Cohen

But all the stuff we’ve been selling has been mezz and subordinate risk.

Gabe Poggi – FBR Capital Markets

Right. And then one last question. Can you just provide a little more color on what you think kind of the go for and what opportunity set is for LEAF? I know you guys have a 10% if you clip your coupons but kind of the bigger picture down the line for LEAF.

Jonathan Cohen

Basically they’re rebuilding their balance sheet with our capital very successfully. And so as the quarters go by according to our position there we get more and more of a, you know, cash coupon out of them as well as we own 48% in nominal price and warrants and you know eventually we believe the banks are starved for leasing companies and other types of really high quality lending opportunities that are done on an actuarial basis through a, you know, a systematic approach. And I think that these kinds of companies will trade it big multiples within the next 36 months. So, you know, we’re fairly bullish on the prospects there.

Gabe Poggi – FBR Capital Markets

Thank you guys. Good quarter.

Operator

(Operator Instructions.) And with no further questions in queue I would now like to hand the conference over to Mr. Jonathan Cohen for closing remarks.

Jonathan Cohen

Again we appreciate your support during the quarter and the past few quarters and we look forward to performing for you in the future. Thank you.

Operator

Thank you for joining today’s conference. That concludes the presentation.

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