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Executives

Andrew G. Backman - Sr. VP of IR

Jay Sugarman - Chairman and CEO

Catherine D. Rice - CFO

Analysts

Don Fandetti - Citigroup

Jim Shanahan - Wachovia

Susan Berliner - Bear Stearns

David Fick - Stifel Nicolaus

Michael Dimler - UBS

Omotayo Okusanya - UBS

Doug Harter - Credit Suisse

Stephen Laws - Deutsche Bank

iStar Financial, Inc. (SFI) Q4 FY07 Earnings Call February 28, 2007 10:00 AM ET

Operator

Good morning, and welcome to iStar Financial's Fourth Quarter, and Year End 2007 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to iStar Financial's Senior Vice President of Investor Relations and Marketing, Mr. Andrew Backman. Please go ahead, sir.

Andrew G. Backman - Senior Vice President of Investor Relations

Thank you Kent and good morning everyone. Thank you for joining us today to review iStar Financial's fourth quarter and year end 2007 earnings. With me today are Jay Sugarman, Chairman and Chief Executive Officer; Jay Nydick our President, Tim O'Connor, our Chief Operating Officer, and Cathy Rice, our Chief Financial Officer. This morning's call is being webcast on our website at istarfinancial.com in the Investor Relations section. There will be a replay of the call beginning at 12 PM Eastern Time today. The dial in for the replay is 1-800-475-6701 with the confirmation code of 909339.

Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be deemed forward-looking statements. Factors that could cause actual results to differ materially from iStar Financial's expectations are detailed in our SEC reports.

Now, I would like to turn the call over to iStar's Chairman and CEO, Jay Sugarman. Jay?

Jay Sugarman - Chairman and Chief Executive Officer

Thanks Andy and welcome everybody. We got a lot of information this morning to share with you. So let me quickly recap fourth quarter and full year results right upfront, first on the earnings front.

Our fourth quarter included two unusual items $135 million in non-cash impairments in our corporate loan and debt portfolio and an increase loan loss provision approximately $50 million higher than expected. Including those two items adjusted earnings per share were negative $0.29 in the fourth quarter and positive $2.72 per share for the year. Excluding the impairment EPS was $0.74 per diluted share $3.75 per share for the full year and actually excluding both items the EPS was $1.13 per share and $4.14 per share for the full year. Cathie, will talk more about the economics scenario now embedded in our reserve and impairment decisions in just a minute.

Second we funded $1.3 billion in new and existing investments and received over $500 million in repayments during the quarter and for the full year funded $7.7 billion in new and existing investments and received $2.7 billion in repayments during the full year.

We'll share with you some detailed repayment information from the residential portfolio later in the call. Deferred return on equity on equity was obviously disappointing impacted by those tow items from above the ROEs for the quarter and year were negative 6.1% and positive 14.6% respectively including those items. They were 15% and 19.6% excluding the impartment, and 23.3% and 21.4% for the quarter and year respectively excluding both those items.

While the increases in first mortgages as percentage of the portfolio and the Freemont acquisition bumped up overall leverage target slightly. We still believe the portfolio is quite considerably and appropriately leverage relative to other finance industry metrics and run rate return on equity are still quite good.

Fourth on credit we adjusted our overall macro economic view downward resulting in more asset down grade and increased reserves. We still believe the portfolio breaks down generally and to approximately 15% grade assets and 70% of the assets being just fine. And 15% of the assets with the potential for some level of principle loss.

I will walk you through our view on reserves and discounts we put in place to protect against those assets for the issue after Cathie walks you through the earning detail. Lastly on the strategic front we are moving forward on several fronts to position the company to get out of the mud first and fastest and make sure we are well placed to take advantage of our market environment that should play to our strength for years to come.

We announced another strategic alliance this time $500 million JV with Lubert-Adler a multi-billion dollar private real estate investment firm. To expand our network of knowledge and to add a large equity investor viewpoint on markets and asset types that look right for high risk adjusted return lending. We also announced a significant transaction in our TimberStar venture that will generate very strong returns for us and our partners. And we began utilizing the strength of our balance sheet to selectively access part of the credit market available for us as a result of our diversified and unencumbered portfolio.

With that quick overview let me turn it over to Cathie, and then I am going to follow-up with some more detailed comment, Cathie.

Catherine D. Rice - Chief Financial Officer

Thanks Jay and good morning everyone. As Jay mentioned over the past few months we've been working on a number of initiatives. To build liquidity and to position our firm for the new environment. We believe that the steps we are taking now will allow us to maintain our financial flexibility and begin to take advantage of certain opportunities, we are starting to see in the market. as we discussed at our Investor Day back in December our almost $16 billion unencumbered assets will enable us to tap attractive sources of secured capital at a time when the unsecured debt market remain disrupted.

Before I give you an update on some of these initiatives, let me review the results for the quarter and for the year. Our fourth quarter earnings clearly reflect the impact of the current credit environment uncertain of our investments as well as the continued stress in the overall market.

Our adjusted earnings resulted in a loss this quarter of $36.6 million or a loss of $0.29 per diluted common share. Included in fourth quarter earnings, were $135 million of non-cash charges associated with the impairment of two credits in our corporate loan and debt portfolio.

Excluding the effect of the impairments for these two credits, adjusted earnings for the fourth quarter were $95.4 million or $0.74 per diluted common share. Let me provide you with some background on the impairment. We took a non-cash impairment charge totaling $135 million on two credits which are accounted for as held to maturity debt securities.

Both credits are performing and continue to pay interest. The accounting for these securities, does not allow loan loss provision to be taken against them but requires that the value be impaired based on a significant drop in market value for an extended or other than temporary period of time.

Our $1.8 billion corporate loan and debt portfolio has two primary types of investments. $1.4 billion of what we call regular way loan that are accounted for as held for investment. And approximately $425 million of held-to-maturity debt securities in six diversified credits. Again, we can take loan loss reserves against our loans but not on our debt securities.

Excluding the two credits that were impaired in the fourth quarter, the remaining four investments in the held-to-maturity bucket are currently trading close to our cost basis. Our net investment income for the fourth quarter was $221 million up over 80% from the fourth quarter of 2006. The year-over-year increase was due to growth in the overall loan portfolio primarily due to the addition of the Fremont assets as well as the amortization of $43 million of Fremont loan purchase discounts recognized in the quarter.

New commitments for the fourth quarter totaled $705 million in 15 separate transactions, $213 million of which was funded during the quarter. We also funded $1.1 billion of pre-existing commitments, and received repayments of $505 million. This resulted in net asset growth of approximately $800 million for the quarter.

Our adjusted return on equity excluding the non-cash impairments was 15% this quarter at the low end of our targeted range of 15% to 20%. Our net finance margin for the quarter excluding the amortization of the Fremont loan purchase discount was 3.16%.

With respect to our credit statistics for the quarter, again excluding the non-cash impairment, interest coverage was 1.6 times compared to 1.8 times last quarter. Our trialing 12 months fixed charge coverage ratio as calculated in accordance with our covenant was 1.7 times. Our coverage statistics were down this quarter primarily as a result of the $113 million loan loss provision we recorded versus $62 million provision last quarter an increase of $51 million quarter-over-quarter.

As many of you know who follow the company we undertake a comprehensive review of all 600 plus assets in the portfolio during our regular quarterly risk rating process. It is through this process that we determined whether any assets are impaired and whether we need to increase our loan loss provision. This quarter we took a more conservative view with respect to current and near term market conditions.

So the quarter-over-quarter increase in our loan loss provision is based on the continued deterioration of market conditions and the impact we expect on our portfolio. However despite a more gloomy outlook it is important to remember that the vast majority of our assets are performing as we expected and our portfolio remains highly diversified by product type, geographic area, loan structure and origination vintage.

At the end of the quarter our equity represented 23% of total capitalization and our leverage defined as debt to equity plus accumulated depreciation, depletion and loan loss reserves was 3.4 times versus 3.3 times at end of the third quarter. We expect to see slight variations in quarter-over-quarter leverage but don't anticipate leverage increasing materially from these levels.

Now let's take a few minutes to talk about risk management and our overall credit quality. While the economy is placing strains on all lenders. We believe iStar is well positioned to manage through the current cycle, with nearly 140 people at the firm devoted to tracking, managing and understanding the risks associated with our portfolio. Risk management remains a critical part of our overall strategy.

While there are problems concentrated in parts of our loan portfolio. The issues are notable and under writable. Based upon our risk rating review this quarter, 19.6% of our structured finance asset rank 4 or higher this quarter. Of the assets that rank 4 or higher, 78% are on our watch list or on NPL status. At the end of the fourth quarter, 31 assets were on NPL status representing $1.2 billion of gross book value or 6.4% of total managed assets.

In addition, 40 assets were on the watch list and were performing, representing $1.6 billion of gross loan value. As a reminder, gross loan value represents iStar's book value, plus Fremont's A-participation interest, excluding Fremont's A-participation interest on the associated assets, NPLs were $719 million and performing watch list asset for $1.2 billion.

Loans on NPL status and watch list, range in size from $1 million to $200 million but are typically in the $35 million to $40 million range. The largest of our NPL this quarter is a $200 million first mortgage on a well located mixed use in midtown Manhattan. This loan was put on NPL status in the fourth quarter due to a maturity default. But as we hold the senior most tranch with an approximately 55% loan to value we're comfortable that we will recover entire principle amount in addition to default interest and other fees.

As we've mentioned several times during past conference calls we expect NPL and watch list assets to increase somewhat over the coming quarters. Several of the assets on NPL and watch list were higher risk transaction that were underwritten with higher return expectations. The majority of the Fremont assets that are on the NPL lists are condominium conversions. We do expect to resolve several NPLs in the first quarter and we'll update you on our progress on the April earnings call.

With the addition of the $113 million in the loan loss provisions this quarter we now have $385 million of total loss coverage. Total loss coverage includes $218 million of on balance sheet loan loss reserves and $167 million of remaining discount from the Fremont acquisition.

Our loss coverage represent 3.6% of total loan assets. However if you take the total loss coverage over 100% of our NPLs and 50% of our watch list assets we have 19% loss coverage on these assets. We believe that our loss coverage provides adequate protection against future loan losses.

During the fourth quarter we also took title to three properties. All of which were previously on NPL status. This resulted in a $19 million charge against asset specific reserve. We are taking a long-term and a powerful view to managing the issues in the portfolio. It is our policy to stop accruing interest on NPL assets. This obviously impacts our earnings.

While we try to resolve issues and remove assets from our NPL list as soon as possible, our greater priority is to generate the highest return possible from these situations. Even if the expense of a larger NPL list, and lower near term earnings. We are prepared to enter into restructuring discussions, and in certain cases to fore close if necessary rather than simply extending defaulted loans. Because we have the in-house capabilities to manage these assets. Our 140 asset managers, leasing experts, and construction professionals have extensive local market knowledge, and currently manage our owned portfolio of over 40 million square feet of commercial real estate across the country.

With respect to our CTL portfolio, there were no material changes in the credit metrics in this quarter. At the end of the fourth quarter, the portfolio included 407 office, industrial, entertainment, hotel, and retail facilities with over 40 million square feet of space lease to a 121 different credits. The portfolio was 95.3% leased with a weighted averaged lease term of 11.2 years.

Before turning to funding and capital markets initiatives, let me quickly review the year end results. Adjusted earnings for the year ended December 31, 2007 were $348 million of $2.72 per diluted share. Excluding the $135 million of non-cash impairment charges adjusted earnings were $480 million or $3.75 per diluted share which was $0.25 below the low end of our guidance range.

Net investment income for the year was $694 million and total revenue was a record $1.4 billion. Our pre-impairment earnings were lower primarily due to the increases in our loan loss provision in the fourth quarter. As we mentioned earlier we took a relatively conservative stance based on the continued deterioration of the market and the impact we expect it to have on our portfolio. If the increase from our third quarter to our fourth quarter loan loss provision was also excluded adjusted earnings per share would have been $4.14 inline with our prior guidance.

However the market has deteriorated somewhat more than we expected over the last quarter. And we believe that it was prudent to increase our loan loss provisions accordingly or by 51 million more than we originally modeled for the fourth quarter.

Net asset growth for the year was $5 billion including $5 billion of funding in a 138 new financing commitments. $2.7 billion of additional funding and $2.7 billion in repayment and asset sales. This compares to net asset growth of $2.5 billion for the fiscal year 2006. The increase was primarily due to the addition of the Fremont portfolio as well as overall growth in our core portfolio.

Now let's turn to liquidity and our funding initiatives. We have been working on several initiatives to raise the most cost effective capital available in the current and still very dislocated credit environment.

The company has multiple sources of capital and liquidity, including our cash flow from operations, our unsecured and our secured lines of credit, unsecured cooperate debt, mortgage financings, secured term loan, referred and common equity and select assets sales if appropriate. All of these sources of capital we believe will provide sufficient liquidity in the our short and long-term funding need.

More specific, let me give you an update on some of the financings asset sales that we are perusing. As I mentioned at our Investor Day in December, we are in the process of raising approximately $1 billion of mortgage financing that will be secured by a portion of our $3.3 billion CTL portfolio.

Over the past five years, we've moved to an unsecured model, which we believe provides the greatest amount of balance sheet flexibility and efficiency. Today we have very little secured debt and almost $16 billion of unencumbered assets. However, in times when the unsecured markets are disrupted, we found that the secured markets typically offers a more attractive cost to capital.

While are clearly certain area of the secured markets, such as the structured products arena remain essential shutdown. The first mortgage market remains open, all be it at some what higher spread and more conservative underwriting standard than in the recent path.

Our high quality, diversified single tenant CTL portfolio, is both easy to underwrite and easy to understand, and provides an attractive pool of assets for first mortgage lenders. We are seeing significant interest in this financing thus far from multiple bidders and anticipate closing some time in the second quarter.

We are also in the process of raising an additional $100 million to $200 million of capital secured by corporate tenant leased assets in our AutoStar subsidiary. We recognized the need to maintain significant level of unencumbered assets, and taking into consideration all of the secured financing initiative currently being perused. We anticipate our percentage of secured debt as a percentage of total debt remain at or below 15%. We still believe an unsecured investment grade model offers the most flexibility and efficiency.

As Jay mentioned, another step we've recently taken is to form a joint venture Lubert-Adler to create a $500 million investment fund. Founded in 1997, Lubert-Adler is a real estate private equity firm, with 30 investment professional and have invested over $15 billion since inspection. This vehicle will primarily focus on investing in first mortgages, greater than $75 million and junior loans larger than $50 million. The vehicle will be comprised of a $125 million contribution from iStar and a $375 million contribution from Lubert-Adler. We have recently begun to review investment opportunities together on behalf of this new fund.

Finally, we've also recently announced that TimberStar Southwest, a venture in which we are 47% partner, have signed a definitive agreement for the sale of its timber assets in the Texas, Louisiana and Arkansas region. This sale is consistent with the venture strategy which was to create compelling returns through value creation. Despite a relatively short holding period, the partners determined that the price we received was very attractive, and was enhanced by both the securitize debt we put in place at closing and the land and harvest optimization plan our team has executed over the past year.

We expect to receive approximately $400 million in net proceeds from the sales once completed in the second quarter. Based on our initial $185 million equity investment, we will receive a gain of approximately $215 million on the sale, representing a return of over a 100% in just 15 months.

Let me take a moment now to talk about our sources and uses of funds for the year. At our Investor Day in December, we walk through our expectations for our sources and uses of capital for the balance of 2007 and 2008. Since December however, market conditions have continued to change in a rapid pace. Like others, we've seen some slippage in the repayments of our loan.

At the same time we also seen slippage in our unfunded commitment obligation. As some borrowers are either out of compliance with their loan agreement or are postponing or even canceling their projects, as they reassess the economics in the current climate. Let me provide with you a revised look at our sources and uses of capital for the balance of 2008, as we see of today.

On the sources side, we now expect to receive $4 billion from asset sales... excuse me from asset maturities and paydowns this year, versus our expectations of $5 billion in earlier December.

In addition, we currently have $1 billion of capacity on our credit facilities. We expect to receive approximately $400 million in net proceeds from the TimberStar Southwest sale, and we expect to raise approximately $1.2 billion of CTL mortgage financing both from our core portfolio and our AutoStar portfolio. This brings our total funds available for the balance of the year to approximately $6.6 billion, versus the $6.5 billion we outlined in December.

On the uses side, we now expect to fund $3 billion of unfunded commitment for the remainder of 2008, versus our expectation of $4.4 billion in December. In addition, we will repay approximately $600 million of senior notes and other debt that matures this year, as well as the remaining $1.3 billion of our interim credit facility used to finance the Fremont acquisition.

This brings our total funding requirements for the balance of 2008 to $4.9 billion versus $6.5 billion in December. For the secured financing alternatives, we are currently executing, we'll provide additional sources of liquidity and cushion in 2008. And while we will not be perfectly matched quarter-by-quarter, we do not expect a need to raise significant incremental capital this year, assuming minimum net asset growth of the portfolio. We will however continue to assess the market and consider raising additional funds if market conditions improve or if the business requires it as we move forward in 2008.

Finally I'll conclude with a look at our earnings guidance. Given the uncertainty we continue to see in the market, it is still difficult to predict how the overall environment will shake out in 2008. We believe the only reasonable way to look at earnings guidance is to assume that the capital market remain disrupted, and that as a result we have little or no balance sheet growth. We call this our zero net asset growth scenario.

Based upon this view, we now expect 2008 diluted EPS of $3.50 to $4, and diluted GAAP earnings per share of $4 to $4.50. These numbers are below our previous guidance, but they take into consideration a more conservative outlook with respect to the overall market and little or no net assets growth year, both of which we believe are prudent.

With respect to our dividends, as you know we increased our quarterly dividend in the fourth quarter to $0.87 per common share or $3.48 per share on an annualize basis. We also issued a special dividend of $0.25 at the end of the year. This increase in special dividend were primarily the result of an increase in taxable income from the Fremont transaction.

Although we anticipate some of the expected gain we received from the sales of our interest in TimberStar Southwest to the netted with realized losses in our loan portfolio in 2008. We believe that our dividend had a solid foundation and reasonable cushion even at the lower end of our guidance range.

So, with that, let me turn it back to Jay.

Jay Sugarman - Chairman and Chief Executive Officer

Thanks Cathie. Cathie talked about the more conservative outlook we have utilized in our projection and our reserve analysis. I think there is no question its appropriate and reflects a very real chances of recession throughout 2008. However, it's also important to continue to watch the data in the real estate world very carefully and not the entirely captive to headlines and one-off anecdotes. And one statistics we track quite carefully, obviously as condominium unit closings in our portfolio projects that have units available for sale.

I think while the general concerns is that nothing is moving in that market, we think that's too general a statement and too draconian in a view with respect for our own portfolio, we track closings on a weekly basis across all projects we are invested in, that are in a position to close on contracts. And I thought I would share those statistic with you for the past few months.

In October of 2007, 292 units closed generating a $147 million of sales proceeds. In November of 2007 a 197 units closed with $89 million of sales proceeds. In December 243 units closed with a $175 million of sales proceeds. In January 304 units closed with $209 million of sales proceeds. And in the first three weeks of February 338 units have closed with $228 million of sales proceeds.

Now we aren't telling its all rosy on the condo front, but we would caution extrapolating from some of the headlines out there. We believe borrower will need to work very hard to help buyers access mortgage financing, to be realistic with respect to pricing, and to accept as the profit potential in many projects is gone, and now it is really about them recouping part of their equity.

Let's switch to reserve in discount question. As I've said before. If you give us 20 points to workout a portfolio of messed up first mortgages, we think we can bring you out very close to hole. As Cathie outlined, the reserves and three month discount currently available in our portfolio add up to around 19% of the combined principle balance of the NPLs and 50% of the watch list asset. In raw numbers that's around $380 million to fix or resolve $2 billion of assets that need work.

Based on what we know today, that might be a little short or a little extra, but it's not a lot sort. And with a few more data points coming in, it should be easier to start demonstrating that in coming quarters. And with the actual issues in many cases not likely to occur until 2009 or even 2010, we expect to have plenty of time to reserve appropriately, for whatever the economic environment turns out to be.

One other note before we open it up for question. I look back at the transcript of my closing comments from last year's fourth quarter call. We called the market irrational and said it had reached a point where it was no longer based on value and logic. And we said look forward to return to more thoughtful and value based markets and reposition ourselves to be a leader in that environment.

Now given our viewpoint back then, we should have positioned ourselves better for the expected correction. But I do think we have gotten a value based market we hope for and I firmly believe we will emerge as we did in 1993 and in 1999, as the leader in our field during what is shaping out as another extended period, where very attractive lending will be possible.

Andrew G. Backman - Senior Vice President of Investor Relations

So stay tuned and let's open up for question. Kent?

Question And Answer

Operator

Thank you. And today's question-and-answer session would be conducted electronically [Operator Instructions]. Thank you. And our first then come from the line of Don Fandetti with Citigroup. Pleas go-ahead.

Don Fandetti - Citigroup

Hi. Jay question CRE fundamentals and delinquencies remain pretty good. Yes it seems like your portfolio is starting to really show some weakness. What you tribute that to? Is it that you have a residential team, and how do you expect to sort of manage with that as the market gets tougher in CRE?

Jay Sugarman - Chairman and Chief Executive Officer

I guess two things Don, in terms of the parts of the portfolio obviously, Cathie mentioned the condo conversion market. We took a pretty hard view pretty quickly and said, if you are not prepared to put out money an protect you position we are going to foreclose periods. As Cathie also said in each case we have a choice, we can workout lower interest rate, provide more capital, waive some requirements. Our fundamental view over the last six months has become that we don't control the collateral value it destroyed. And so in cases where we not seeing a response from a borrower that indicates a belief in either the return of value to their equity position or protection of mezzanine lenders of their position. We are going straight to guys of unit... if you don't believe hand of the key. If you don't want to hand them politely we are going to take them.

I think a lot of these situation we will recover full value In some case we'll recover extra return through either default interest, extension fee. But I guess our view right now is, let's get our hands on the collateral because we feel very comfortable we can maximize the value. It is primarily in the residential related area, I think as we look our loaned values we still feel pretty good about most of the book. But we setup 300 plus million dollars against the bunch of assets we expected to have to work on, and we still feel really good as you heard me say that, if you give us $0.20 on a deal that was 0 to 80% loan to cost and you give us a big basket of those to work with, we are going to get out. And our returns and our profile have always have been premised on, we can loose up to $0.20. That what we believe.

And I still think that number is the correct number. It might be a little bit off, if not a lot off. So I think the real estate market is weakening. I think we are trying to been proactive, I think where customers and sponsor show commitment, we shouldn't have a problem. Where they don't, I think we are probably moving a little more aggressively perhaps than other to say, we are not going to cut our interest rate, we are not going to waive a floor, we are not going to do the things that transfer value from our shareholders to your pocket book, unless you show a very serious commitment in and your own capital. And so, I feel like that the credit market downshift here needed to be reflected in all numbers. We took a pretty harsh feel across of wide range of asset and said, that should be put on watch list because if this market continues with very, very limited liquidity, we are going to be in conversation with that customer. Ii doesn't mean we are going to loose our money, just means we are going to be in a hard conversation.

Don Fandetti - Citigroup

Okay. And then Cathie just to clarify, when you closed the secured debt on the CTL portfolio you will be paying off the bridge prior to maturity is that correct?

Catherine D. Rice - Chief Financial Officer

Yes. The both the AutoStar... excuse me, the AutoStar, the CTL proceeds and obviously the timber sale will be happening sort of in the second quarter. So we'll have plenty of liquidity to pay the bridge down.

Don Fandetti - Citigroup

Okay. That's all I have. Thanks

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks Don. Next question Kent.

Operator

Thank you. Yes your next question comes from the line of Jim Shanahan with Wachovia. Please go ahead

Jim Shanahan - Wachovia

Thank you and good morning. First of all with regard to the condo unit closings, Jay thank you very much for providing that incremental disclosure that's that was very helpful. Can you provide however a little of that in contacts in, what I mean is how do you for example these strong loan closing especially giving what I would expect to observe to your seasonal trends in January, February. How does those closing compare to the number of unites in the portfolio that are available for sale? And what kind of actions do you take in terms of pricing or really in the other potential added value to the buyer to incent them to, to act and the close on a condo?

Jay Sugarman - Chairman and Chief Executive Officer

Yes Jim we tries to come over this statistic, I think that's exactly what you are asking, that it is not simple way to do it on a portfolio wide basis. Obviously new projects that reach the state or reach... receiving their certificate of occupancy can begin closing on contracts. So we are in a position where we track those every week, and its hard from week-to-week to give you a statistic that actually make sense. So we are giving you raw data. There are probable somewhere between 7,500 and 10,000 units that we track inside our portfolio available for sale. We only need a fraction of those to close to get us out. But obviously the equity sponsors are trying now when to get their money back pay off their mezzanine, but actually in many cases they still believe they have meaningful profits at stake.

And we don't control the pricing, it's really not our per view as a lender to tell people what to do. We can wait minimum release prices, we can work with bars to say, if you sell at this price, we might be willing to do something for you. But at this point we're just trying to encourage everyone that we think still has value in their projects to understand that. On a net present value bases, they will do better in the long run from actually moving units with a customer who says, I want to close and even need a little help in price, I it need a little in terms of getting financing. That's what they should be focused on rather than holding tight and saying we are not going to move prices.

And those sponsors who have actually done that are continuing to move units. We've seen that, again throughout the portfolio it's not concentrated any one geographic location. We see it throughout the portfolio. But at the moved market, through a market clearing price, there are people who are seeing both traffic and they are seeing closing, or like think again, we are fortunate that most of the project, the new build project are quite good, a good real estate and good location. In many cases they are the best product in the market. And when you cut the price to be competitive with old product or obsolete product. You start inducing people out of those project into your project.

Now that price point typically is fine for us and typically not so good for the equity or in some cases even the mezz. And so that's not something we can force them to do until they reach a point where they actually have to ask us, for a favor. And then we are kind of guiding them to look, the markets are not likely to get better. If you move to a market price now, here is how we are willing to play. But if you don't, then we are not going to sit here and take a, any sort of concession. And so you can try to make profit that we think are no longer available in the marketplace.

Jim Shanahan - Wachovia

Thank you. And a quick follow-up. Given the repayments and funding that have occurred in the typically cando loans and investments. Have there been any meaningful changes in the geographic diversification of the cando portfolio?

Jay Sugarman - Chairman and Chief Executive Officer

Not yet, I think you may see a reduction in the New York throughout this year. And even in South Florida we are see still of mind that enough units will close at... both of those exposures will come down fairly materially this year. But as Cathie said, we are been some what conservative, we take and repay it down, probably about 25%... 20% to 25% than last years viewpoints. I'll tell lower... certainly if all mind lower interest rate are helping. Expanded Fannie Mae eligibility will likely help a little bit. But this micro economic overlay is really the variable we are spending the most time trying to figure out, when does it stabilize, does it stabilize, and how do we play that both offensively and defensively.

Jim Shanahan - Wachovia

Thank you very much.

Andrew G. Backman - Senior Vice President of Investor Relations

Well thanks Jim. Next question Kent.

Operator

Thank you. Yes your next question comes from the line of Susan Berliner with Bear Stearns. Please go ahead.

Susan Berliner - Bear Stearns

Hi, good morning. I wanted to catch on two topics, one was if you can talk about the corporate loan and bond portfolio. And I guess just looks like the loan sizes is that we are led lot larger than you typically take in the loan portfolio. So I guess considering how its done and I know it's little unfair because what's going on the market. Are you revaluating, that kind of product type or investment?

Jay Sugarman - Chairman and Chief Executive Officer

Two good questions, on the first one these are two at larger positions. In one case there was meant be a exosmic control position and the other case we wanted to be a larger player. We had actually looked in the capital stock of the transaction with a very high end private intuitional equity investor. They were looking to actually put a mezzanine piece in. We did expensive and underwriting, decided that risk reward wasn't a appropriate for us. Dropped down into a senior bank debt position thinking we were saved. Market is kind of caught that one by the retail, the equity sponsor continue to believe in the story, continues to have a very significant investment junior, continues to pay those notes. But its right in the board tax that some other cost currents that are catching the market place. And while its in our health and maturity bucket... every body should understand when we put some thing and held the maturity bucket, its very, very difficult for us to exit and totaled a credit event.

We expected it to be a long term hold, and at this point is still a long term hold. But when it trades that's the kind of levels we've seen recently. We think it was is appropriate as we analyzed it recently to take that one down. The other asset is a controlled position in asset we thought we knew quite a bit about. We still believe there is inherent value there. But again that one is right in the gross cost heads of some of the markets dynamics, some ugly market dynamics. And its still paying and we are still going be in the mix there and certainly hope to recovered our collateral value. But again appropriate move that one down. So those are larger, in fact I think those are two of the largest exposure in that portfolio.

Susan Berliner - Bear Stearns

And I guess the other question was, its seem like you are talking about one $200 million mix use asset and on NPL list, you are seen pretty confident in that and you guys also made note to reserving a bunch of NPLs in the quarter. So I guess I'm trying to figure out, what can we expect for provisions... for additional provisions this year?

Catherine D. Rice - Chief Financial Officer

Yes Sue it's hard for us to predict obviously the provision is based on, again the risk rating process that we undertake after the end of the quarter. And as you can see while we busy resolving a number of our NPL and watch list asset, the watch list is also up a bit. And so I think it is a little difficult for us to give you a good forecast on the potential provision.

Jay Sugarman - Chairman and Chief Executive Officer

Alright, I would say of the just the categorization of the fourth quarter was unusual.

Susan Berliner - Bear Stearns

Okay. Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks. Our next question Kent.

Operator

Thanks. Our next question comes from the line of David Fick with Stifel Nicolaus. Please go ahead.

David Fick - Stifel Nicolaus

Good morning. Just following-up on that question. Cathie, you in your prepared comments said that the issues are notable and underwrite able, and yet we have this big impairment issue this quarter. And so... and I know it's hard for you to look forward. But clearly things happen that you didn't underwrite, didn't know. And I'm just wondering how you would advice analyst and investors to look at your, book value and the quality of the underwriting going forward?

Catherine D. Rice - Chief Financial Officer

Yes, now that's a good question and I think it's a little confusing in the corporate and loan and debt health maturity bucket. As we outline that bucket is not reserve-able and it is subject, it's like on the book the book value. And to the extend assets in the that portfolio trade down significantly on a more than temporary basis. We are required to take an impairment based on the market trading.

So that group of asset as we outlined, is only about $423 million, we took an impairment on two of the fixed asset in that bucket. And I am sure you are well aware that, the corporate debt market is been subjects to some fairly draconian trading levels at this point.

David Fick - Stifel Nicolaus

Yes.

Catherine D. Rice - Chief Financial Officer

And I think at the end of the quarter we felt although we are so relatively confident in both of these assets, that we need to take this impairment based on the market price.

Jay Sugarman - Chairman and Chief Executive Officer

I guess David just to chip in there a little bit. What's clear to us and I hope really is the punch line for Cathie's comment about underwritable and knowable, we do not structure products. We so not... assumption stuck into a model, if you are right you are right and if you are wrong you are wrong. But that's really... you are not even making a real estate call because you can't go and look at the real estate or you cant go and operating business. Basically have a structured security that has very volatile characteristic that are unknowable and ununderwritable. And we certainly have looked at a lot of opportunity in the current market dislocation that appear on the surface to be very attractive. But when we get inside they are unknowable and ununderwritable, and really don't fit our profile. The things we are investing and the things we hopefully are working on inside our own portfolio we can come to a reasonable value conclusion and can probably defend that across a wide range of investors and say, this is why this value is reasonable.

We are having a very high time when we get shown some of the structure products out that. Somewhere in its mix it has a piece of real estate. But it is so layered or so convoluted in its return profile, we can underwrite it and we don't really know how to defend purchase price. There maybe some great opportunities in that sector that's why we continue to look. But right now we think the structure of product quality is not our strength and we are very much focused on the existing portfolio and new opportunities where, we can bring the full resources of the firm to bear and actually come to a conclusion. Everyone around the table and every discipline from asset management to construction to legal to real estate investment can look at each other because that make sense I understand that.

David Fick - Stifel Nicolaus

Okay. Can you help us there with why GAAP EPS guidance is higher than adjusted EPS typically it runs the other way.

Jay Sugarman - Chairman and Chief Executive Officer

Yes, as I said and I think we've said this a couple of times in there past, we thinking embedded gains in the portfolio significantly outweigh some of the issues that obviously that have a lot of attention. As you talked about book value, we continue to believe very strongly that we have a number of assets that are very much under booked in terms of value and on the downside we have lots of reserves for those that are on the other side.

So we still feel very good about the overall book. When you look at timber in particular as one of the asset that, at least at this point we can actually demonstrate to you that dynamic. It's a $185 million of that, from depletion is down probably to about $150 million on our book. We are going to receive $400 million of proceeds. So it is going to be a very large GAAP gain and a large economic gain there. And so we from a GAAP perspective are going to have a very large gain. But that's not something we will run through a EPS, it only through GAAP.

David Fick - Stifel Nicolaus

Yes.

Jay Sugarman - Chairman and Chief Executive Officer

But it clearly is a taxable gain. And so in terms of the dividend as Cathie mentioned, it create a enormous cushion to protect that dividend in 2008, and we don't want that to be lost on folks.

David Fick - Stifel Nicolaus

The last question, the, clearly a lot of external factors that were affecting performance. But I am wondering if you can give us any guidance on how management compensation is been impacted by share performance and these loses?

Jay Sugarman - Chairman and Chief Executive Officer

Well as you saw G&A came down very materially in the fourth quarter, that was the reversal of some management bonus accruals. We continue to try to implement paper performance structures that align shareholders interest with managements interest. And we continue to have enormous amount of our network in this company and I'm going to continue to exercise option and buy share at these levels. I believe that at 16 dividend yield or 15 dividend yield I think that dividend certainly for this year is very well protected, is an extraordinary opportunity and we will to make the best with our board and our comp committee that we will generate strong returns for shareholders' over the next several years. And we'll structure a comp position appropriately.

David Fick - Stifel Nicolaus

Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks David. Next question Kent.

Operator

Thanks. Our next question comes from the line of Michael Dimler with UBS. Please go ahead.

Michael Dimler - UBS

Good morning. Just kind of curious to why are your last LTV rose during the quarter, when its been pretty steady all along. Can you talk a little about the dynamics of that?

Jay Sugarman - Chairman and Chief Executive Officer

Yes I mean, the heard the not think real estate values are going to be impacted by a lack of liquidity throughout the entire credit markets. Now generally thought even at the end of last year that values were starting to slip by as much as 10% or 15% or even 20%. So we have a pretty cushion in that we don't never marked our assets up internally to some other valuations that we thought were inappropriate. So the LTV has inched up, I don't think this has moved up with materially. But I think we are cognizant as everybody should be that some of the valuation metrics that existed over the last two or three years, are going to get an outstand if liquidity if deals doesn't comeback to this market. And based on our view that we have notched the entire risk complex down based on the macroeconomic over lay its not surprising. But LTV's are inching out

Michael Dimler - UBS

And in that's remark not necessarily to transactions, but to your view of where they should be prices, is that right?

Jay Sugarman - Chairman and Chief Executive Officer

Yes. Exactly I think we have mentioned our historical experiences our marks are significantly below where things actually traded or values up on, on which they were refinanced. I think that statistic which our asset managers track has been in the 20% to 25% range historically. As we said we are probably eating up some of that margin as values in the more frothy sectors come back to earth. But we still think we mark things very appropriately.

Michael Dimler - UBS

Andjust a follow-up, are you seeing any... I mean apart from condos are you seeing any serous acceleration, deterioration in other property classes?

Jay Sugarman - Chairman and Chief Executive Officer

The equity side of the real estate market fairly quite right now. And I think people are trying to find the new level some asset gets out of prices that still shock ups. And we have not seen the big distressed portfolio moves where you have seen real estate equity prices be readjusted materially. I think that will be matter of both the overall market environment and liquidity, and there will come a point where there will be sellers who have to sell there is plenty of equity money in this market there is plenty of mezz money actually in the market. What's lacking and this is unusual because its the 180 degree flip side of history is low risk, low return money has disappeared. So we have got high risk high return money sitting on the sideline waiting. But a lot of that money needs low risk, low return in credit, its actually make there play and right now that's the piece of the market that has not come back and that's the piece of the market we are watching very carefully because there will be driver of value not just in our market but in lots of market.

Andrew G. Backman - Senior Vice President of Investor Relations

Great. Kent next question please.

Operator

Thank you. Yes we have a question and from the line of Omotayo Okusanya with UBS. Please go ahead.

Omotayo Okusanya - UBS

Yes, good morning. I just wanted to do all my reconciliations of your actual versus my projections. And there is one thing I just need a little help with it. It's the large other expense line that shows up in the number this quarter that hasn't been there historically. Could you just give us more detail on what that is?

Catherine D. Rice - Chief Financial Officer

Sure other expense scale in this quarter is the $135 million impairment.

Omotayo Okusanya - UBS

Okay.

Catherine D. Rice - Chief Financial Officer

Primarily. Plus there are also the gain or loss, the mark-to-market on our derivatives.

Omotayo Okusanya - UBS

Okay. So that's the whole thing that goes. Okay. So it actually went through the P&L rather than going to return earning.

Catherine D. Rice - Chief Financial Officer

Yes.

Omotayo Okusanya - UBS

Okay, great. Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks. Next question Kent.

Operator

Thanks. Our next question comes from the line of Douglas Harter with Credit Suisse. Please go ahead.

Doug Harter - Credit Suisse

Thanks. I just wonder if you could help reconcile that the difference between the $4.4 billion of unfunded commitments you gave at the Investor Day and $3 billion that you are talking about today?

Catherine D. Rice - Chief Financial Officer

Sure, I mean some of them have been funded in the interim. But as we have mentioned there are a lot of project that are either been delayed, postponed or cancelled, particularly given the current economic environment and what people are viewing as maybe at times to hold on those assets rather than proceed ahead. And try to get a better feel for... if it's a two year construction period when they really want to start that process.

Doug Harter - Credit Suisse

Thanks. And then on the debt maturities and paydown, I think you said that the paydowns in current quarter were like $500 million you are expecting $4 billion for the full year 2008. Is some of that seasonal or you expecting sort of a pick up in activity.

Catherine D. Rice - Chief Financial Officer

In terms are paydowns for the remainder of 2008 it totals about $4 billion that was versus $5 billion at the end of December sort of investor day. Received a lot of those paydowns we also scrubbed those numbers and as we've mentioned one of the thing that we have little less confidence is the repay schedule given the current liquidity environment. We are having borrowers that are having they have good projects great credit statistics on their projects while they are having trouble right now finding sources of the repayment.

Jay Sugarman - Chairman and Chief Executive Officer

I think is fair to say that second half repayments are slightly higher that the first half repayments so if you are looking for that trend up would be.

Doug Harter - Credit Suisse

Is that contractual or is that, so I am assuming that there are some improved liquidity in the market?

Catherine D. Rice - Chief Financial Officer

No this is not contraction process this is the list that how we look at it as what we expect to get.

Doug Harter - Credit Suisse

Okay.

Catherine D. Rice - Chief Financial Officer

Onour knowledge and our discussion with borrowers in that has 2008 maturity.

Doug Harter - Credit Suisse

Okay and you plan is obviously has more of built in cushion are you likely to sore of one run with that bigger cushion for the foreseeable future as opposed sort of deploying the assets. By deploying that excess sources?

Catherine D. Rice - Chief Financial Officer

You know right now Jay mentioned we are not seeing tremendous amounts of transaction volumes. There seems to be a bit of a stoppage in both the equity and debt side of the real estate capital market. We expect and hope that as the year continues we will see additional opportunities to put capital to work at. What we think will be very attractive risk adjusted returns but right now we're just not seeing that level of activity. So it's real hard to give you a view on that.

Doug Harter - Credit Suisse

Alright. Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Great. Kent next question?

Operator

Thank you. Yes, your next question comes from the line of Stephen Laws with Deutsche Bank. Please go ahead.

Stephen Laws - Deutsche Bank

Hi, good morning. Couple of questions. Want to follow-up the Fremont I guess unfunded commitment pipeline and I think talk in earlier. You know, you talk about, it looks like a little over $500 million was funded during the quarter yet the unfunded pipeline were down about $800 million, you are looking to fund about $1.8 billion of $2.2 billion left. Can you talk about why you expect the fallout to decline to decrease the pace there. And also talk about any property types or geographical regions where you are seeing high percentage of fallout?

Catherine D. Rice - Chief Financial Officer

Yes, there is a couple of things that impact the additional funding. One is, they tend to be pushed out from a timing perspective and this is nothing more than construction frankly always take longer than people originally think. So I think while a lot of those will be funded, they tend to lag what we originally think off as schedule. But the second thing as I mentioned, again a lot of, the early stage projects particularly in the Fremont portfolio we have sponsors who were so scratching their head saying. I am not really sure I want to move forward given what I am seeing in my market for this type of projects. So many of them are coming and we are working with them to say, we think that makes sense let's put the project on hold. And we are effectively canceling those commitments to fund.

Jay Sugarman - Chairman and Chief Executive Officer

I think those cancellations are fund loaded we trying to know which ones are not moving forward. We would not expect that same percentage to drop out of the future projection.

Catherine D. Rice - Chief Financial Officer

Every quarter.

Jay Sugarman - Chairman and Chief Executive Officer

People I missed benchmarks which give us the ability to say your projects is not viable or for them to say that project is not viable. A lot of that has already been floated through the book. By the end of the year the Fremont commitment are actually a quite low number so really 2008 will be the hump year. We pretty much have very good visibility. And we think we already know the vast majority of the deal that just will never fund or which will never hit the benchmarks because the fund. So I wouldn't project that for something it's going keep repeating itself.

Stephen Laws - Deutsche Bank

And then obviously I guess its lot of condo conversion but any other property types or geographic concentration we are seen that fallout, abnormally high?

Jay Sugarman - Chairman and Chief Executive Officer

I can't give you anything systemic that actually raises the level or appears a big trend. It's one-off projects sympathetic with the overall market conditions in almost every major metro market. People are much more cautious in terms of being able to deliver presales. That is one precondition on the residential side. Pre-leasing on the retail side, pre-leasing on the office side, if you are not hitting numbers the most of these loans are predicated on very stiff milestones and if you don't hit on generally if you have a chance to stop the project, borrowers are stopping. If it can they are in a position we'll require a put lot more money and before we are willing to do something.

Stephen Laws - Deutsche Bank

Okay great. I guess one quick question if you can just touch on the integration of the Fremont sales force. When the deal was completed you guys were looking or attaining most of the sales people on the various offices. And how thats coming along we are changing the culture there?

Jay Sugarman - Chairman and Chief Executive Officer

We spend a lot of time on that in the last six months, it's unfortunate that we have not really been able to unleash what the combination of the local market knowledge and some of the capital market knowledge. That we sitting in New York have. I think that's frustrating to everybody but I think the systems, process is some of the dynamic that we needed to get in place are there now. And I certainly feel like we have a very strong organization with tremendous capabilities right now. It would be nice to have the capitals to use that one of the reasons for the joint venture. What frankly guys on the ground and investing equity capital out of their new funds. They like see that the debt market is re-pricing much faster they like us see that the some of the more interesting area are semi-distressed and it's takes a real on the ground President to be able to underwriting and gain confidence that you are generating good or great risk adjusted return and we think that's another case where one plus one can actually equal three. So excited by that obviously we liked back in business investing lot of our own capital but first things first. And when we do get out of the mud we want running pretty quickly. So we are going to keep everybody focused on existing assets, new asset opportunities and market trends. And when the door opens we are ready to run through it.

Stephen Laws - Deutsche Bank

Great, and one final question is, some detail on the guidance, new guidance of $3.50 to $4 I think you said during the prepared remarks, assume zero net asset growth. Is it really the loss provision that's the key there from $3.50 to $4, or kind of what are the other mean variables to the end points of that range?

Catherine D. Rice - Chief Financial Officer

I think it is a number of things. It's the loss provision, obviously we mentioned as throughput assets on NPL we stop occurring the income so that impacts income. I think we are also taking a harder look at the other income line item which historically has been primarily comprised of prepayment penalties. Obviously in this environment we are expecting lower prepayment penalties on assets. So it's a couple of things.

Stephen Laws - Deutsche Bank

Okay great. Thanks for taking my questions.

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks. Next question Kent?

Operator

Next question comes from the line of Dean Solcy [ph] with Lehman Brothers. Please go ahead.

Unidentified Analyst

Thanks for taking my question. Can you provide a little bit more color on the investment mandate for the private equity JV and the fee structure?

Jay Sugarman - Chairman and Chief Executive Officer

Sure, we are really targeting at the large transactions, the first mortgage is over $75 million junior positions over $50 million. We will be receiving a management fee and a small promote on capital that's actually deployed. I think that's probably secondary in our minds to really the ability to expand our network of knowledge with a firm that has tremendous relationships throughout the country. And we think is at ground zero in couple of markets where we think that it's going to be really interesting opportunity or by geographic regions and asset type. So I think we had a lot of people actually approach us with capital, I think frankly some of them on more attractive economic terms to us to invest, we like this structure for the one plus one equals three free network of knowledge angle. But it's also a very short term, it's a six month in duration investment period but it meant to be quick hitting.

It has a ability to some of the more semi-distressed that we think might be more interesting early in the current year. But it certainly only doesn't preclude us from doing some thing in a different weighing down the road we think this is the way to build our knowledge based very quickly in the market that we think is going to change valuation relatively soon if this market doesn't correct and we think we Lubert-Adler is a great partner here to use their new fund that they have raised to get into the market and some really great risk adjusted return opportunities that we see and you just share the economics of those.

Andrew G. Backman - Senior Vice President of Investor Relations

Next question Kent.

Operator

Next question comes from the line of Jim Shanahan with Wachovia. Please go ahead.

Jim Shanahan - Wachovia

Thank you for taking my follow up and I appreciate that. Just a quick question there was some volatility on the revenue side associated with joint venture income and I apologize if I missed that explanation but the last time in spite it had something to do with Ivy Hill can you comment on what like to big joint venture income increase. On the year-over-year and the sequential quarter basis?

Catherine D. Rice - Chief Financial Officer

The bulk of that increase was related to an increase in management fees and our 47.5% interest in Oak Hill.

Jim Shanahan - Wachovia

Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Thanks Jim, next question.

Operator

Next question come from the line of Susan Berliner with Bear Sterns. Please go ahead.

Susan Berliner - Bear Stearns

I just want follow up I guess Cathie on the sources and uses one quick question. Do you any of the loans or what percentage of the loans can be extended instead of being repaid?

Catherine D. Rice - Chief Financial Officer

We don't track that exact statistics but when we look at the forces from maturities and paydowns again this is not necessarily contractual date this is an assumption that we and our asset management team scrub almost on a weekly basis. To indicate when we actually expect so that the borrower may have a maturity coming up, but we know that he is working on refinancing and probably will be a months late. Instead of showing that at the maturity we would show it at when we actually expect to receive the paydown. Or if we don't expect to receive the paydown we would not include that. So we would obviously taken to account any extension any asset any as of right extensions if they have. And frankly assume in this environment that they will extend.

Susan Berliner - Bear Stearns

Okay. And I guess looking at the sources and uses the resources include the remaining on your bank line. And I know kind of mentioned asset sales as a possibility, I was wondering if you could elaborate a little bit on that. And also about potential for I guess additional equity issuance?

Catherine D. Rice - Chief Financial Officer

Yes. As we have already talked about we are in the process finalizing the sale of our TimberStar Southwest venture. We are also working on the sale which will take a little longer and has really just started the process of our Northeastern timber assets. With respect to equity issuance I think we don't have any firm plans there. And based upon the current valuations obviously that's not an attractive proposition. But it's early in the year and I think we'll have to keep you updated based on where we see the business headed.

Susan Berliner - Bear Stearns

Okay. Thank you.

Andrew G. Backman - Senior Vice President of Investor Relations

Thank you. Kent.

Operator

And our final question from the line of Omotayo Okusanya from UBS. Please go ahead.

Omotayo Okusanya - UBS

Yes. Thanks for taking my follow-on question. Just a little bit of focus on the dividend I mean when I think about the dividend, I mean, when I think about the dividend going forward, I really should be thinking about the taxable earnings, right? So although, even if provision levels go up going forward, if you guys are successful or working through any defaults and are you end up not having any charge offs. Then on a net basis, that's you are not seeing any impacts, taxable earnings which should not impact the dividends, right? Or am I thinking about this, or should I be thinking about this differently?

Catherine D. Rice - Chief Financial Officer

No, that's correct.

Omotayo Okusanya - UBS

Okay. Great, thank you.

Jay Sugarman - Chairman and Chief Executive Officer

Thank you. I guess just, let me just follow-up on that question. What are the priorities for the firm right now, I just want to make sure everybody understands that, from the credit perspective, being an investment grade company is sacrosanct we have worked in tremendously hard over 10 year period. We have unencumbered our balance sheet, we have kept low leverage relative to all the other finance metrics we've seen in the marketplace. That remain number one priority two that dividend is important for shareholders, we think with timber sales well cushioned at this point we fundamentally believe that the dividend is something that's critically important. And then lastly I think our focus in on raising the capital to get busy. We've got a very large and talented organization that is proved over 15 years and it can make 15% to 20% returns on equity. We want to deploy that in a market that we think is as good as it's going to be for many-many years and I think if we do those three things well this year. We are going to be very well positioned going into 09, 010 and 011.

Andrew G. Backman - Senior Vice President of Investor Relations

Great. Thanks Jay. And thanks to everybody for joining us this morning. If you do have any additional questions on today's earnings release or the call, please feel free to contact me directly here in New York, Kent will you please give the conference call replay instructions once again. Thank you, everybody.

Operator

Absolutely. Ladies and gentlemen, this conference will be available for replay after 12 PM today until March 13th at midnight. To access our playback service you may dial 1-800-475-6701 and enter the access code of 909339. International participants may dial 320-365-3844 and entering the access code of 909339. That does conclude our conference for today. Thank you for your participation and using AT&T. You may now disconnect.

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