Resource Capital Corporation Q4 2007 Earnings Call Transcript

Mar.14.08 | About: Resource Capital (RSO)

Resource Capital Corporation (NYSE:RSO)

Q4 2007 Earnings Call

March 14, 2008 08:30 am ET

Executives

Jonathan Cohen – CEO, President

David Bryant – CFO, Treasurer

David Bloom – Senior Vice President of Real Estate Investments

[Porvi Condar] – Director of Investor Relations

Analysts

Douglas Harter – Credit Suisse

Robert Napoli – Piper Jaffray

[Jeremy Banker – Citi]

[Lee Cooperman – Omega Advisors]

Andrew Wessel – J. P. Morgan

Operator

Good day ladies and gentlemen and welcome to the fourth quarter and fiscal year end 2007 Resource Capital Corporation earnings call. My name is Tanya and I will be your coordinator for today.

(Operator Instructions)

I would now like to turn the presentation over to your host for today’s call Mr. Jonathan Cohen, President and CEO please proceed.

Jonathan Cohen

Thank you and thank you for joining the Resource Capital Corporation’s conference call for the fourth quarter of fiscal year ending December 31, 2007. I am Jonathan Cohen President and CEO, Resource Capital Corporation.

Before I begin, I would like to ask Porvi Condar our Director of Investor Relations to read the Safe Harbor Statement.

Porvi Condar

During this conference call, the words believe, anticipate, expect and some other 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 reports filed with the Securities and Exchange Commission including such reports as Form 8K, 10Q, 10K and in particular item 1 on the Form 10K report under the title Risk Factor.

Listeners are cautioned no to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update any of these forward-looking statements.

With that, I will turn it back to Jonathan.

Jonathan Cohen

Thank you Porvi, first a few highlights for the quarter ended December 31, 2007, Resource Capital Corporation reported adjusted net income of $10.7 million or $0.43 per share-diluted. For the year ended December 31, 2007, RCC reported adjusted net income of 42.7 million or $1.72 per share-diluted. For the quarter ended December 31, 2007, Resource Capital Corporation reported weak taxable income of 11.4 million or $0.46 per share-diluted. For the year ended December 31, 2007, Resource Capital Corporation weak taxable income of $42,400,000 or $1.71 per share-diluted.

Credit quality across of commercial real estate portfolio and our commercial finance portfolio were remains strong. We declared and paid a divided of $0.41 for the fourth quarter.

In addition, earlier this week we declared our dividend for the quarter ending March 31, 2008 of $0.41 payable on April 20, 2008. We reiterate our guidance for 2008 at $1.64 per of dividends or $0.41 per quarter.

Our economic book value, a non-GAAP measure, was $12.25 per share as of December 31, 2007. Our GAAP book, our actual GAAP book value per common share was $10.82 as of December 31, 2007.

During this quarter, we did meet general and specific reserves against our assets. We are comfortable with our balance sheet as most assets are match funded. We have recourse at the Company level to under $10 million of short repurchase agreements secured by face value of over $27 million of assets and have over $20 million in cash and availability on our corporate credit lines.

With those highlights out of the way, I will now introduce my colleagues and then proceed to dive deeper into the Company, it’s performance and the drivers for successful 2008.

With me today are David Bloom, Senior Vice President in charge of real estate lending and David Bryant our Chief Financial Officer and of course Porvi Condar our Director of Investor Relations.

To those of us in the real estate business, these truly are excruciatingly difficult times. The world has changed substantially not only in perception but also in reality. The crisis that began with sub prime mortgages has spread to all parts of fixed income world and all parts of the real estate business. It has been quite an experience but I am glad to report that all of our commercial real estate loans are performing. This is the super majority of our equity allocation.

Our credit quality in our commercial finance business also remains strong. I am speaking about the bank loan business.

As of today, all but one loan that we currently owned in our commercial finance business is performing. That loan represents a total $1.7 million of investment out of $931 million as of December 31, 2007, and we have reserved substantially against it this quarter, tremendous performance.

I though I would take this time to walk you through the factors that we believe are helping and hurting us at this point. On the positive side, we continue to have strong credit performance; we continue to use our match funding vehicles to finance our business; we continue to replace loans that pay off with new investments, which we bought at very attractive discounts and then very attractive discount margins.

For instance, since September 30, 2007, we have had prepayment of our bank loan portfolio with over 7% of our portfolio pre-paying. This has allowed us to purchase new loans at a substantial discount and with an average Moody’s credit rating of approximately BA3, resulting in a yield improvement of about 150 bases points and a tremendous weighted average rating factor improvement.

As for our commercial real estate business, we have and we will continue to benefit from the effect of LIBOR floors, which are built into many of our commercial real estate loans. This has enabled us to benefit from falling LIBOR rates and allowed us to significantly increase our net interest spread from our commercial real estate CDOs.

Our weighted average LIBOR floor is 4.75% and we have this in well in excess of $400 million of loans.

We also benefit from the floating nature of our trust preferred securities as LIBOR declines, so do our payments.

On the negative side, those same LIBOR declines hurt our net interest margin on our floating rates because most of our loans are floating rate, a majority. But, this should help our borrowers stay current.

Our originations repayments have declined and therefore fees associated with them have also declined. We believe, however, that when you look at our Company as a whole and our portfolios and asset independently, we are able to generate enough re-taxable income to continue to support our current dividend payout.

As I said before, we iterate our guidance of $1.64 or $0.41 per quarter.

We are actively managing our portfolios to make sure that credit remains strong and that we are maximizing our ability too reinvest in this highly discounted market place.

Now I will ask Dave Bloom to walk through our commercial real estate portfolio.

Dave Bloom

Thanks very much Jonathan. Commercial mortgage portfolio has a current committed balance of approximately $917 million across a well diversified pool of 52 separate loans.

Our portfolio of commercial mortgage positions breaks down into components as follows:

66% whole loans

24% mezzanine loans

10% B notes

As Jonathan mentioned in his earlier remarks, commercial real estate credit markets continue to pull back in re-pricing that began in the third quarter of 2007. At RCC, we are taking an extremely measured approach to new commercial mortgage originations.

During the fourth quarter and through today and the current quarter, we’ve originated approximately $82 million of new loans. One hundred percent of which were self-originated whole loans and we have made future advances on existing loan positions of approximately $20 million.

Our collateral base continues to be diversified across the major asset categories in geographically diverse markets with a current portfolio break down as follows:

30% multi family

22% office

24% hotel

17% retail

7% other (such as industrial and self storage)

In general, our portfolio of closed commercial mortgage positions is performing extremely well with many of the properties in the portfolio well above our performer underwriting and ahead of schedule. I am pleased to again report that our commercial mortgage portfolio continues to be fully current with no defaults.

RCC is a portfolio lender for primarily transitional assets. We self originate new whole loans that generally provide acquisition financing to well capitalized experienced sponsors for the execution of value add transitions tied to very specific asset plans.

Our focus has always been on underwriting and structuring loans with strong credit characteristics and sound real estate fundamentals for experienced sponsors

During this period of lower transaction volumes, our real estate debt team remains extremely busy. There are 14 real estate debt professionals that are dedicated to the RCC Commercial Mortgage platform.

In addition to a loan asset manger team of four, there are ten professionals dedicated to originating, underwriting and structuring RCC’s commercial mortgage investments. While the origination and asset management teams always work very closely, during this period, the primary focus of the entire commercial mortgage group is on the asset management function. We have direct lines of communication with their borrowers and have taken this recent opportunity to bolster our routine asset management functions, which include monthly re-underwriting the property cash flows, monitoring the progress of capital expenditures, leasing and other upgrade plans.

Over the past several months, each of the senior members of the RCC Commercial mortgage team have had numerous in person meetings with borrowers and multiple property tours, which have validated original loan underwritings and confirmed the strength of the market in which we have investments.

The benefit and then open line of communication with borrowers and the ability to spot trends and be ahead of problems before they have a significant impact on collateral value. We will continue to talk to our borrowers and monitor the progress of the properties and, at some point, issues may arise on a loan-by-loan basis.

We are impressed with the performance of the portfolio and are pleased to see that the specific asset plans are progressing and the borrower’s value creations plans are being realized.

Across the portfolio, leases are being signed at office building, rents are increasing at multi-family properties, occupancy and average daily rate numbers at hotels are rising and so on.

In addition, we are still hearing from borrowers about unsolicited offers on properties and other situations that will result in payoffs of loans ahead of the underwritten holding periods. Having fully built out our direct origination capabilities and established our platform, we are uniquely positioned to take advantage of select opportunities for well structured transactions at premium spreads in today’s market and to match our production levels with our existing financing facilities. We will benefit from loan repayment since we reinvest higher yielding assets into our long term locked in financing vehicles.

With that, I will turn it back to Jonathan and rejoin you for Q&A at the end of the call.

Jonathan Cohen

Thank you, Dave. I will now give you some statistics on our corporate bank loan portfolio.

We have $931 million in bank loans encompassing over 30 industries. Our top ten industries are healthcare 11.5%, diversified 11%, printing and publishing 6.6%, broadcasting and entertainment 5.6% and chemicals 5.4%.

As of the end of February, our average loan asset yields 2.27% almost 2.27% over LIBOR and our liabilities are costing us 47 bases points over LIBOR. We have been able to buy loans at a substantial discount over the last few months and continue to see widening here on the asset side and from a discount margin as well. You might notice, by the way, in our press release, we tried to add a lot more information on it on a more detailed basis on our commercial real estate and other loans.

Now I will ask Dave Bryant our CFO to walk us thought the financials.

Dave Bryant

Thank you Jonathan, our coverage of our financial assets for fiscal year end December 31, 2007. Our estimated re-taxable income for the year was 42.5 million or $1.71 per common share. For the quarter end December 31, our Board declared dividends of $0.41 for common share for a total of 10.4 million. For the year ended December 31, 2007, our Board declared total dividends of $1.62 per common share for a total distribution of 40.7 million, which equates to a payout ratio of approximately 96% of our 2007 estimated REIT income.

The dividends distributed in 2007 are an increase of $0.13 over 2006 or approximately 9%. RCC assets increased during the 2007 by 272 million or approximately 15% to 2.1 billion from 1.8 billion in December 2006. This growth is primarily the result of our acquisition of bank loans of 314 million and net growth of 246 million in commercial real estate loans and CMBS. This is offset by the de-consolidated very low interest entity Ischus II and it’s related ABS RMBS portfolio.

At year end, RCC’s investment portfolio was financed with approximately 1.8 billion of total indebtedness and included the following:

1.5 billion CDO Senior notes

96.7 million in three-year non recourse commercial real estate purchase facility

91.7 million outstanding other secured term facility

19.7 million other repro agreements

We have also 51.5 million from our unsecured junior subordinated debenture related to our two trust issuances in 2006. We ended the period with 271.6 million in book equity.

RCC borrowings are approximately 1.8 billion had weighted average interest rate of 5.73% at 12/31/07.

It is worth noting that we have since de-levered our repurchase facilities. Our non-recourse commercial real estate facility is currently 66.9 million outstanding with approximately 116.5 million in collateral pledged against that facility for an advance rate of approximately 57%.

We have also paid down our other re-purchase agreements that primarily financed our CMBS portfolio to 9.2 million, which is collateralized by securities and one real estate loan with the total fair value of all that collateral of 27.1 million.

We consider leverage ratios from two positions. As Jon noted earlier, our economic book value after adjusting for unrealized losses in our CMBS portfolio and unrealized losses from our cash flow edges is $12.25 per common share at year-end. Our leverage based on economic book value is 5.7 times. When we consider our two TRUF issuances, which have a remaining term of 28 years as equity, we see our leverage drop to 4.8 times.

Our GAAP book value for common share was $10.82 at year-end as compared to $6.97 at September 30, 2007. It is important to note that the stated book value of 10.82 does not include any fair value adjustment that would have resulted from the adoption of FAS 159. This fourth quarter increase in GAAP book value of $3.85 is primarily due to the deconsolidation of the VIE and it’s related asset portfolio.

At December 31, 2007, our equity is allocated as follows: commercial real estate loans and CMBS 75%, commercial bank loans 24% and direct financing leases and notes of 1%.

Finally liquidity, at March 05, 2008, RCC’s liquidity consists of three primary resources. First, cash and cash equivalents made up of 11.7 million, 6.9 million of restricted cash in margin call accounts, 3.4 million in restricted cash related to our leasing portfolio.

Second, capital available for reinvestment in our five CDOs of 75 million, which is made up of 45 million in restricted cash and 30.1 million of availability to fund future commitments on our commercial real estate loans.

Last, financing available under existing borrowing facilities of 14.8 million comprised of 5.6 million available from our three year non-recourse secure facility, 9.2 million of unused capacity under our revolving credit facility.

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

Jonathan Cohen

Thank you very much and at this point, I will open the telephone call for questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first call is from the line of Andrew Wessel with J.P. Morgan please proceed.

Andrew Wessel - J.P. Morgan

Good morning, I just have a couple of questions. The first on, you talked about FAS 159 and you had to, obviously, change book value. Are you considering adopting FAS 159 for 2008?

Jonathan Cohen

We began it an assessment, Andrew, of the impact of 159 and it is a fair value option, of course, on assets and liabilities and it’s impact on RCC and while we could benefit on a one time basis from the adjustment particularly on our liabilities, it is not likely that we will adopt to do that.

David Bryant

Let me just add something. We’ve done that now since obviously if we did it on our stated book value, whatever, after January 1 would pop up significantly to a number that would be eye popping but we feel like we don’t need to do that and it adds complications.

Andrew Wessel - J.P. Morgan

Then on borrowing, I didn’t write those numbers down quickly enough. Can you break down under liabilities what’s in CDOs and CLOs and then what’s in REPO and secure credit again.

David Bryant

At December 31?

Andrew Wessel - J.P. Morgan

Yes, please.

David Bryant

1.5 billion of CDO Senior notes

96.7 million in three-year commercial real estate facility

91.7 million in equipment leasing facility

19.7 million in other REPO agreements

51.5 million in TRUF issuances

Andrew Wessel - J.P. Morgan

I guess of that debt, that only 19.7 million is on REPO that’s (inaudible) could be recourse on a daily basis?

David Bryant

Exactly and that is down at approximately 9 million as of now and that is secure by $27 million of securities.

Andrew Wessel - J.P. Morgan

Even on a GAAP that is mind blowing. Even if the market wants to write off $9 million and assume that comes our of GAAP book, it still shows the devaluation and stock price might be a little out of control.

David Bryant

We agree.

Andrew Wessel - J.P. Morgan

Another question about the dividends, I know before that it had been $1.68 dividend target for this year based purely on reinvesting in your own, you’ve already played CDOs, and CLOs, are you still targeting that?

Jonathan Cohen

No, in this market given the repayment fees et cetera, we are just reiterating that $1.64, which is $0.41 per quarter. We see the LIBOR floor is helping us, the increase in fees from our loans and the decrease in equity comp and the increase in spread from our reinvested portfolio because remember we are investing specifically in loan. Bank loans for instance where we are seeing a constant on all the smaller pre-payment rate but you are buying back loans at $0.80 on the dollar and borrowing money and the CLO at 47 bases points.

Andrew Wessel - J.P. Morgan

Then, last question here just looking at it from a valuation perspective, can you help us think of…the only way I see it, you could see a great decrease in dividend, which obviously the yield is in supporting the stock because I wouldn’t think the market is reflecting that this yield is continuous. I only way I see that that yields could be cut and a dividend could be cut is if you start taking on losses immensely greater than you currently reserved for and that eats into your returns on the equity invested in all these levered bonds and everything else. Is there anything else that I am missing?

Jonathan Cohen

No, I think you’re right and we tried to take this quarter we took general reserves and perused our portfolios and put in general reserves right away and otherwise, I think you are right.

Andrew Wessel - J.P. Morgan

Great, thank you very much.

Jonathan Cohen

You’re welcome.

Operator

Your next call is from the line of Bob Napoli with Piper Jaffray please proceed.

Bob Napoli – Piper Jaffray

Good morning, in this day and age of very tight liquidity and crazy credit markets since you do have your funding it seems very well what you have today locked down certainly you could use more funding for growth but your stock is trading so far below book value and you have a 23% dividend yield. I know it seems that maybe the best investments are and you do have a stock buy back out there, it seems like you should be using that a little bit and it certainly seems to be a more attractive use of capital than making new loans. Although new loans are probably pretty attractive today too, but probably can’t compare to buying back some of your stock.

Jonathan Cohen

We actually agree with you. Obviously, these are very trying times for real estate companies around the world. Our belief is although we did buy stock under that stock purchase agree permission that the Board gave us, we feel like liquidity of the Company is key and any impact that we would have with the little liquidity that we could use all on buying stock would be not that meaningful. Therefore, I think in the near future meaning the next few months, we are probably not going to be actively buying stock back but we have permission and as things brighten, which we think they will for us, we will reconsider that and hopefully have a chance to take advantage of it.

Bob Napoli – Piper Jaffray

As far as adding new assets, the liquidity that you have you will want to probably horde. Essentially, are you going to be trading assets or should we expect your balance sheet to shrink from here or should we expect…

Jonathan Cohen

I think that over time it might shrink a little bit but primarily off our term faculties as we don’t reinvest because it doesn’t make that much sense. There we would want to take the capital out and buy back stock. I would say that in our CLOs and CDO of CRE, we have constant prepayments. We have been alerted now on the real estate side of the prepayments. We’ve constant although lower prepayments that normal in both areas but also in the bank loan portfolio. It is just amazing what you can do when you are borrowing money at 47 or 80 bases points over LIBOR and you can put the money out, you know 400, 500, 800, 1,000 over for better quality loans.

Bob Napoli – Piper Jaffray

What level of new investment would you expect to make in the first quarter?

Jonathan Cohen

For instances, in our bank loans we try to…I don’t have an actual number but I would say it’s probably looking forward from this day, we probably know of 20, 30, 40 million of maybe a little bit more of commercial real estate side coming up. Then, we also know if you just take the numbers I gave you, it’s about 3 to 4% per quarter on our $931 million of loans but all that really makes a difference when you’re trading something that’s paying you LIBOR plus 227 for something that is on a discount margin paying you LIBOR plus 800.

Bob Napoli – Piper Jaffray

What is the…800 is probably on the high side? What can you put new money to work in?

Jonathan Cohen

I think that on the whole loan side, if we did new originations it’s probably LIBOR plus 400, 450, but I think that if we were buying loans some distressed players that are perfectly good loans, it is probably much higher than that on commercial real estate side. Then on the CLO side with things trading in the 90s or high 80s, if you use 40 years as a term your discount margin would probably be 5 to 600 over, which is very attractive. When we’ve been able to buy loans where before we were buying loans in the B1 area, B2 area we are now in the double B minus area.

Bob Napoli – Piper Jaffray

I agree with Andrew that the only way you have a significant in your dividend is through credit so on that and you went through some of the analysis in your portfolio. You did take a $6 million provision this quarter end and looking at the fair market value marks on the back loans, you had a increase in your mark there. I guess I would like to understand a little bit more about the level of the provision and the marks and the bank loans in particular. I think the CMBS is explainable.

Jonathan Cohen

On the bank loan side, we had about a $900,000 on a $931 million portfolio of two loans one of which we sold and one which is in default, which is a small loan. We specifically reserved against that and then we took a general provision of a little under $1.9 million.

On the leasing side, we took a couple hundred thousand dollars against a couple little leases and that was on the commercial finance side.

Bob Napoli – Piper Jaffray

What about the fair market value mark on bank loans?

Jonathan Cohen

That’s in our press release.

Bob Napoli – Piper Jaffray

It is explained in the press release?

Jonathan Cohen

No, the number is in there.

Bob Napoli – Piper Jaffray

The number is but I was just looking for a little more color on it.

Jonathan Cohen

Generally, it’s a big portfolio, we have a watch list, and many of the names went on the watch list about a week ago. Many of the names on the watch list appear to have stabilized a little bit but we are cautiously watching names on the watch list and we thought this was a fair provision to make sure that we have a channel provision, over time we may increase that. But, right now we feel comfortable there.

Bob Napoli – Piper Jaffray

My last question, as far as the ability to get new funding, obviously you must be talking to financing sources weekly, daily huddling or looking. What are you hearing and on what types of other financing programs are you working?

Jonathan Cohen

There are people now willing to move assets a lot of the bigger banks are willing to give you some term and low rates and to buy them at the right prices but there is nothing that are that attractive to us. I think that we are still a couple of months away from people saying look I have got to move assets, I want to do business and I am willing to finance these things for you or prices are so good I am willing to finance good real estate fiancé people. We are not seeing much that we like yet.

Bob Napoli – Piper Jaffray

Okay, thank you.

Jonathan Cohen

Thanks, Bob.

Operator

Your next call is from the line of Douglas Harter with Credit Suisse please proceed.

Douglas Harter - Credit Suisse

I was wondering if you could talk about the upcoming scheduled maturities and which of those maturities would have extensions.

Jonathan Cohen

Probably that’s a little too detailed for this call, but we would be happy to go through that with you. On the commercial real estate side, they constantly roll and they pretty much all roll-ons were two plus and two to three year loans with one plus one or three one-year extensions. We are naturally going to see the rate of those loans go up as they extend. Although as I said, we have had guys come to us and say, hey we are selling our multi-family apartment building to a big company. Hey, we are trying to please you, you have to help me out here LIBOR floor is killing me. I can get a loan from Wells Fargo or somebody. So, there are things happening there but on the state of maturities, there is typically a lot of extensions that are built in that they can pay for. The weighed average maturity of the portfolio on the commercial real estate side is two and a half years.

Douglas Harter - Credit Suisse

What I am trying to get at is, you don’t have many loans that are coming due that don’t have any other options in the current market?

Jonathan Cohen

No.

Douglas Harter - Credit Suisse

Then on the provision, is there any expectation as to when some of those losses might be recognized as that will then impact taxable income and I assume that is factored in?

Jonathan Cohen

Only the one loan a little bank loan that we sold, which was the smart thing to do and which we realized in the quarter. Otherwise, we are just looking around the room…

Douglas Harter - Credit Suisse

That would be factored into your expectations of the $1.64 dividend and would be quite obviously, what you provisioned for?

Jonathan Cohen

Yes.

Douglas Harter - Credit Suisse

Great, thank you.

Operator

Your next call is from the line of Jeremy Banker of Citi please proceed.

Jeremy Banker – Citi

Hi, how are you doing? I was just wondering if you give some color on, keep drilling it down on this credit market story. What do you think is going to turn these markets around? What’s it going to take particularly in the corporate credit side.

Jonathan Cohen

I wish I knew; right now we are just focused on our individual portfolio as Dave Bloom said. Working with borrowers and keeping on top of them. Constantly reviewing everything and trying to take action where we can. We will leave the more global stuff to the big wigs at the big banks and the analyst there. From our perspective, we are locked up with our liabilities and we will continue just to do business as is and generate income for our shareholders. Certainly, it isn’t any better than it was when we talked last.

Jeremy Banker – Citi

Are any of your loans other breaching loan covenants charging penalty interest?

Jonathan Cohen

No.

Jeremy Banker – Citi

Lastly, is there any effect…I believe last quarter we talked about cash flow still coming out of that ABS CDO that was de-consolidated this quarter. Are you still receiving cash flow from that CDO?

Jonathan Cohen

Yes as of March, we are still receiving cash flow.

Jeremy Banker – Citi

Can you say how much that is?

Jonathan Cohen

March was about $379,000 and we are predicting about a million. If you look at it per quarter, it’s $0.03 net of per quarter and that’s factored into our thinking.

Jeremy Banker – Citi

You still are comfortable on your cash flow triggers related to down grades?

Jonathan Cohen

Yes because what’s happening with the CDO is you’re getting a lot of repayments remember this is CDO and then a lot of 03, 04 and 05s as they are downgraded the bonds there are getting prepaid because they are hitting their triggers and therefore, it is actually better to be prepaid and that gives you back those C. We are comfortable for now but obviously, it is a moving situation. We are not that worried about it from a dividend perspective. It is factored into our thinking.

Jeremy Banker – Citi

Great, thanks.

Operator

Your next call is from the line of Lee Cooperman with Omega Advisors please proceed.

Lee Cooperman - Omega Advisors

Hi, good morning, one of my questions was raised but I will repeat it. But first someone should take the time to congratulate you guys on doing a very fine job in a treacherous environment not withstanding the price of the stock which is terrible, you produced a fundamental result and that is the most important thing. I congratulate you in a very difficult environment.

Second, a couple of questions ago on the repurchase, I would second that recognizing what a very treacherous environment but the way I would encourage you to look at this is you’ve got a portfolio, I think you said of over 50 loans and you feel pretty well diversified. I don’t know whether you can make good, you used the term eye popping as regards to yesterday’s ASB 159 effect, which is a little illusionary. But on a 1082 GAAP book value of 23.3% dividend yield, I would encourage you to look very hard at the advisability of making new loans as opposed to buying into the 50 loans you already have on the books by shrinking the CAP and I know you are aware of that but I just was thinking that.

Third question is many companies like yourself have lending platforms that are probably more elaborate than the environment would allow for in terms of activity given how the market’s been freezing up. So, you see much opportunity for consolidation industry where one can drive more efficiency by getting more business in existing platforms. So, either somebody that we could buy or more likely somebody that would want to buy us given our evaluation?

Jonathan Cohen

Certainly, all the stocks that I follow are trading at heavy discounts from people who can get to the underlying nature of the loans and understand the cheapness of the liabilities meaning that you can also purchase the liabilities to own more of the underlying assets. I am surprised that there haven’t been more consolidation.

Lee Cooperman - Omega Advisors

It’s going to happen but once again congratulations, you are doing a very good job in a difficult environment.

Jonathan Cohen

Thanks Lee.

Operator

(Operator Instructions)

We have no other questions at this time.

Jonathan Cohen

Okay and thank you very much and we look forward to speaking with you next quarter.

Operator

This concludes the presentation; you may now disconnect and have a great day.

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