Acres Commercial Realty Corp (ACR) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2007 Resource Capital Corp. Earnings Conference Call. My name is Twalisha and I will be the operator for today. At this time, all participants are in listen-only mode. We will facilitate a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to your host for today, Mr. Jonathan Cohen, President and CEO. Please proceed, sir.

Thank you and welcome to the third quarter earnings conference call for Resource Capital Corp. I am Jonathan Cohen, President and CEO of the Company.

Before I begin, I would like to take a moment to read the Safe Harbor statement. When used in this conference call, the words believes, anticipates, expects and similar expressions are intended to identify forward looking statements. Although the Company believes that these forward looking statements are based on reasonable assumptions, such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from these contained in the forward looking statements.

These risks and uncertainties are discussed in the Company's reports filed with the SEC including its reports on Forms 8-K, 10-Q and 10-K, and in particular, Item One on the Form 10-K report under the title risk factors. Listeners are cautioned not 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.

Again, I am Jonathan Cohen, President and CEO of the Company. With me today are David Bloom, Senior Vice President in charge of Real Estate and David Bryant our Chief Financial Officer.

For financial companies worldwide, the third quarter of 2007 will go down in history as one of the most tumultuous and difficult quarters. From large investment banks to small commercial banks and mortgage REITs, anyone involved with the debt markets, whether a lender, borrower, originator, or seller has been hit by a massive new pricing of risk and a potential of default and fear of default in the sub prime mortgage and other markets.

It's been quite a ride, but I'm pleased to report that our core businesses in commercial real estate and corporate lending have continued to perform well. Not only did we maintain our dividend of $0.41 in the third quarter, but we achieved $0.46 of adjusted net income, excluding the non-cash impairment charge on our ABS/RMBS portfolio of $25.5 million.

We've continued to see our assets perform with very little credit loss and have seen many assets pay off even in this environment. We've been able to buy loans at a discount in the corporate market and in the real estate market, we've had widened spreads on new hold [ems] to 300 to 400 basis points over the index. Loans to value have come down, limited recourse is back in many cases and only the best goings are being bought and financed.

We are maintaining our guidance for a dividend at $0.41 for the next quarter and at least at that level for 2008. We believe our economic book value is $12.44 per share as of September 30, 2007. As we add back losses, in excess of maximum exposure in consolidated investments and swaps, which are marked down significantly as rates have dropped, which we used to match our liabilities. The only swaps we add back are those that do not have a corresponding mark due to the fact that we do not mark to market our commercial real estate, fixed rate loans and leases.

When I speak about the consolidated investments and maximum exposure I'm speaking about our ABS portfolio, primarily. When you further adjust to factor in unrealized losses on CMBS that we expect to recover as the markets realign our book -- economic book value, our -- realign our economic book value is $12.75.

We are positioned to continue to perform well as a significant majority of our investments are now in senior secured loans lent against individual companies and individual properties. We believe we have done a good job, stress tested these loans to expanding cap rates and tried to access risk accordingly.

Obviously, the availability of long term liability is at very favorable rates which we have, will enable us for the next five years or so to capitalize on widening spreads and not fear anything than our investments perform.

We have chosen not to show in our economic book value the effect of marking the value of our liabilities, but if we did, we would have a huge positive mark based on having issued approximately $1.6 billion of very low priced long-term liabilities, as well as $50 million of very low priced 30 year trust preferreds.

We have seen spreads, including discounts, start to affect the asset value of our businesses and wished that we had more capital to exploit in this opportunity. It is always best to invest, in my opinion at least, when there is a scarcity of capital available and good values. In this regard, we continue to actively search for third party capital with which to asset manage. We will keep you up to speed on our success in building asset management here at Resource Capital. Now, I will ask Dave Bloom to walk through our commercial real estate portfolio.

Thanks, Jonathan. Our commercial mortgage portfolio has a current committed balance of approximately $958 million across a well diversified pool of 54 separate loans. During the third quarter, through today in the current quarter, we have originated approximately $116 million of new loans, 100% of which were self originated whole loans.

Our portfolio of commercial mortgage positions breaks down in components as follows -- 66% whole loans, 23% mezzanine loans, and 11% B notes. Our strong focus on self originated whole loans continues to drive a shift in our mix of collateral. While we do have B note and mezzanine loan positions in our portfolio, it is important to note that the weighted average loan to value ratio of the subordinate debt component of our portfolio is just below 75%, which we view as conservative.

Since mid-July, the commercial mortgage market has adjusted significantly and the pull back of CMBS lenders and other commercial mortgage originators has continued. Loan sizing, pricing and other terms have changed, with much more conservative approach having been adopted across the board. The long-term fixed rate loan market is reemerging, albeit at lower leverage points with higher spreads.

RCC is a floating rate lender and we self originate new whole loans that predominantly provide acquisition financing to well capitalized and experienced sponsors for value add transactions tied to very specific assets.

A brief description of a loan that we closed in June of this year will provide some context to the type of lending that we do. RCC provided a $15.7 million loan for the repositioning of a 57,000 square foot office building located in Century City California in the dynamic west Los Angeles sub market.

At the time of our loan the building was approximately 52% vacant resulting from an owner's desire to let existing tenant leases expire until such time that there was enough space to relocate his company to the building. Prior to the completion of the plan to vacate the building, our borrower was able to take advantage of the preprogrammed vacancy and offer a contiguous 30,000 square foot office space for lease in a very tight office market.

The RCC loan was structured with an initial advance of approximately $12.7 million, which represented an LTV of 60% with a $3 million future advance component to fund 10 improvements, leasing commissions, and other capital expenditures. The loan was at a rate of 300 over LIBOR with both origination and exit fees.

Within two months of the loan closing the borrower signed a lease with a publicly listed company for all the vacant space in the building at a rent substantially above our pro forma underwriting. The new tenant is not going to take possession of this space for approximately 18 months, so we still expect a good holding period for this loan although with vastly improved collateral.

The example of the Century City deal hits on many points that are emblematic of our lending style. First the property was well located in an infill location in a very strong office market.

We are drawn to infill locations and have a strong bias toward 24 hour cities. Second, the property had a vacancy issue for a specific reason in an otherwise well occupied market. This was a simple lease up play. It worked even if below market rents were achieved. The plan for the asset was straight forward and verifiable. Finally, there was substantial sponsor equity in the deal with the initial loan advance at a 60%, as is LTV, and additional advances for good news events that create additional value.

Sponsor equity is of primary importance and we require meaningful initial equity in addition to plans for value creation. RCC is a property specific, sponsor driven lender and each deal that we do backs a unique asset that we have analyzed and stressed. As I've said before, we don't make macro bets and each deal that we do is based on an individual credit analysis.

While the permanent fixed rate market is recovering, there are far fewer active floating rate lenders than there were even just a few months ago. With the pull back by floating rate lenders, we are seeing a record level of transaction prospects. We continue to see very strong credit characteristics in deals and the retreat of Wall Street and other lender creates opportunities for us to originate loans at wider spreads.

We continue to be active in all of our markets and we will use this window to make loans at appropriate levels with current market environment. We are taking a measured approach to new originations with our primary focus, as always, on credit. But the absence of securitized lenders in the transitional loan space creates opportunities and we will benefit from loan repayments as we reinvest higher yielding investments into our locked-in financing vehicles.

Having built out our direct origination capabilities and fully 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.

Our collateral base continues to be diversified across the major asset categories in geographically diverse markets. The portfolio breakdown is as follows, 28% multi-family, 21% office, 29% hotel, 15% retail, and 7% other, such as industrial and self storage.

We recently received a payoff on a $21 million B note secured by a condominium conversion deal in Manhattan. The loan that paid off was the only pure play condo conversion position in our portfolio. So we have eliminated what small exposure we had to that market entirely.

In general, our portfolio of closed commercial mortgage positions is performing extremely well with many of the properties in our portfolio above pro forma underwriting and ahead of schedule. I'm pleased to again report that our commercial mortgage portfolio continues to be fully performing with no defaults or impairments. With that, I'll turn it back to Jonathan and rejoin you for the Q&A.

Thanks, Dave. I will give -- I will now give you some statistics on our corporate bank loan portfolio. The portfolio statistics are as follows, we have about $950 million of bank loans, encompassing over 30 industries. Our top industries are health care, diversified, premium publishing, chemicals, plastics and rubber, and broadcasting.

As of the end of the quarter, our average loan asset yields were 2.21% over LIBOR and our liabilities are costing us 47 basis points over LIBOR. We've been able to buy loans at a substantial discount over the last few months and we should see widening gear on the asset side in terms of the primary market and what we can buy in the secondary market at what appears to be a steep discount.

Since July, 2007, we've repurchased 263,000 shares at an average price of $10.50 per share. We will continue to optimistically buy back our stock provided our liquidity is sufficient, which it is. Now I will ask David Bryant, our CFO, to walk us through the financials.

Thank you Jonathan. I'll now cover some financial highlights for the quarter ended September 30th, 2007. Our estimated retaxable income for the three month period ended September 30th was $10.9 million, or $0.44 per common share. Our Board declared a dividend of $0.41 per common share for a total distribution of $10.3 million for the third quarter. This dividend is an increase of $0.04 or 11% from the prior year quarter and unchanged form the second quarter of 2007.

RCC's assets increased during the quarter by $523 million, or 29% to $2.3 billion from $1.8 billion at December 31st, 2006. This growth is primarily the result of our acquisition of bank loans of $350 million and the net growth of $274 million in commercial real estate loans and CMBS. This CRE growth culminated in our previously announced second real estate CDO for $500 million at the end of the second quarter 2007.

At September 30th, RCC's investment portfolio was financed with approximately $2.1 billion of total indebtedness and included the following -- $1.9 billion of CDO senior notes, $92.2 million in a three year, non-recourse commercial real estate repurchase facility, $79.2 million outstanding under a secured term facility, and $24.1 million in other repurchase agreements.

We have also $51.5 million from our unsecured junior subordinated debentures related to our two TruPS issuances in 2006. We ended the period with $174.3 million in book equity. RCC's borrowings of approximately $2.1 billion had a weighted average interest rate of 6.11% at September 30th, 2007.

We consider leverage ratio from two positions. First, our leverage based on our economic book value is 6.79 times. When we consider our TruPS issuances, which have a remaining term of 28 years as equity, we see our leverage drop to 5.7 times.

Our GAAP book value per common share was $6.97 at September 30th, as compared to $11.57 at June 30th. As Jon noted earlier, our economic book value, after adjusting for unrealized losses in the ABS/RMBS portfolio and unrealized losses form our cash flow hedges is $12.44 per common share at September 30, 2007.

At September 30th, our equity is allocated as follows -- commercial real estate loans, 75%, commercial bank loans 24%, and CMBS and direct financing leases and notes are 1%.

At November 6, 2007, RCC's liquidity consists of three primary sources -- first, capital available for reinvestment in our six CDOs of $88.3 million, made up of $50 million of restricted cash and $38.3 million of availability to finance future funding commitments on real estate loans. Second, our cash and cash equivalents of $13.3 million.

And third, financing available under existing borrowing facilities of $221.4 million comprised of $10.8 million of available cash from our three year non-recourse secured financing facility and $199.4 million of unused capacity under various repurchase facilities and $11.2 million of unused capacity under our secured evolving -- unsecured -- I'm sorry, revolving credit facility. With that, my formal remarks are completed and I'll turn the call back to Jonathan Cohen.

Thank you. And with that, we'll open the call to any questions that people may have.

Thank you. (OPERATOR INSTRUCTIONS). And our first question comes from the line of Andrew Wessel with JP Morgan. Please proceed.

Hey, guys. Good morning. I just had a couple, I guess, technical questions. On the final $700,000 of equity in the Ischus CDO, after that pays down or is written off, either/or, and you no longer have any exposure to it do -- does the mark -- is it my understanding that you no longer have to mark the assets is that correct?

Yes, we're working now -- we believe that we'll probably be able to deconsolidate that in December and if so, then our economic book value will be very close to our GAAP book value at the end of the year.

Okay great. And then can you remind us what the maturities are on that $200 million of the various repurchase facilities? I mean is it --?

Most of that is a term facility in Texas, and it's at three years.

Great. Thanks a lot.

And we have rights to extend and all that stuff.

All right. Fair enough. Thank you.

Thank you.

And our next question comes from the line of Bob Napoli with Piper Jaffray. Please proceed.

Good morning, everyone, this is Jason Deleeuw calling in for Bob.

Hi, Jason.

On the RMBS, I believe a lot of those loans were from 2004, the first half of 2005. How are the loans actually performing? Is that impairment -- are you assuming that you're not going to get anything back on those loans or is it more of a -- just the way the market is pricing these securities?

And if the economic value from those loans actually comes back and it's -- you're not going to have this loss of the $25.5 million. How would that come back in the book value?

It would come back primarily into income I believe, and from a tax perspective, it will be treated separately and be part of our retaxable income. Its performing continues to perform. I think we are seeing $600,000 this month from it. So it's certainly a different make-up than the 2006, but obviously from an accounting perspective, looking at what's out there in the world today it's hard not to impair these things.

So, I mean, it's -- it might be a situation where there was actually a lot more economic value than (multiple speakers).

Oh, yes, we definitely think that -- we definitely think that, given what's there today, that there is payment being made and we have ways that we can, in this structure, keep payments being made over time.

Okay. And then, just on the commercial real estate credit outlook, you guys gave a lot of great detail on the portfolio and it was very helpful. You said you had stress tested on the loans, and I was just wondering, what kind of scenarios you ran it through. Is it more - are you looking at - what kind of economic environment did you consider?

Well, for the most part, we play in 24-hour cities, San Francisco, downtown L.A. and tight office markets, New York. So, what we're basically doing is stress testing. We never believe that rent -- our pro forma is unlike maybe some others. We're not betting that rents go up, we just are hoping that they get a rent like the description that Dave Bloom gave of a building. They didn't have to rent it even at market, they could have rented it under market and it still would have been a great loan for us. So, what we do is we stress it to rent or in cases of hotels, different measures and we stressed it obviously to cap rate expansion, among other things.

Okay.

And, by the way, the borrowers that we're lending to are very deep pocketed borrowers and they obviously have a loan here that, in every case, is a two to three year with extensions for many years, and have the ability to prepay at any time or continue to pay. There are lots of reserves and these buildings are all doing pretty well.

Okay. And then on the growth front, the -- I was looking at what your originations were for the commercial real estate loans on this third quarter, I mean can we think in this environment, given the financing situation can we think of this third quarter as indicative of what it would be like the next couple of quarters until the financing environment improves and (multiple speakers)?

Yes, we, I think, last quarter estimated it would probably be somewhere around $60 million, net sort of new loans per quarter. And depending on what rolls off and where we have it levered, it really depends how aggressive we're going to be. But generally speaking wherever we have capital that comes back to us or frees up on any way, while keeping very adequate liquidity in the Company.

The market is very attractive right now because there are lots of guys who are commercial real estate guys who have great buildings in infill locations that want to go forward and are willing to put in a lot more equity.

Thanks. That's all for my questions.

Thank you.

And our next question comes from the line of Douglas Harter with Credit Suisse. Please proceed.

Thanks. I was wondering if you could sort of walk through the math of the benefit you get form repayments. What are the wider spreads that you have, that you can put on today and how much does that benefit you?

Sure, I mean on the bank loan book, obviously the market -- for the stuff that we're buying is anywhere from a 1 to a 4 point discount, which you'll accrue over the expected life of the loan which would probably add 50 to 100, 150 basis points, depending on the life of the loan. So I'll give you more, we've done about $24 million or $30 million in our portfolio to date. As we do more of those, that's really going to start to affect the asset side of our bank loan books and also in just building par across the portfolio.

On the commercial real estate side, as we said, we're seeing whole loans that we've originated be in the 300 to 400 range. The things that we've gotten repaid or are in queue to repay, unfortunately for us, are some of the wider spread names that we put on earlier in the process because they didn't -- through the two years that they needed to do whatever they were doing with the properties and so we're not getting that much of an affect from the new loans replacing the old loans yet.

But as things start to move, which we know one or two that will, including the office building that we have, you'll be adding like 50 to 100 basis points a spread into that portfolio. But more than anything, you're getting a spread but you're also getting a better loan. Like the last couple loans that we have of elements of recourse they lower LTV, after we stress test the cap rates, so it's really much lower LTV, more borrower equity, et cetera.

So, overtime we think that if you see $60 million of loans, real estate loans coming in per quarter, you could expect 50 to 150 basis points of widening in our book.

And how long are the reinvestments --?

And, by the way, we never did -- and Dave Bloom made this point --.

Right.

Even our B notes or our mezz loans are 75% centric. So we never did sort of the very fast mezz loans that might pay off, or not pay off in the 2004/2005 area. So our book is pretty whole loan, low leverage oriented. So anything we get here is really very additive.

And how long is the reinvestment period for -- with both the bank loans and the commercial real estate?

The bank loans probably have another three and a half to four and a half years and then another one to two years on top of that, after reinvestment.

Okay.

And then the CRE CDOs have --.

We have about four and five years [for seconds].

Great. And then on the share repurchase, was that repurchase done in the third or after the third quarter?

It was somewhere --.

About half and half.

Half and half, Doug.

Okay.

In the third quarter, as everybody was, people were calling and saying, how much liquidity do you have. I think you and I may have had conversations. So we were very cautious as we realized where we are in the cycle, it's obviously our best investment.

Right.

Just to give you the exact break down, it was like $120,000 in the third quarter and $140,000 in October.

All right. And so it was probably towards the end of the third quarter. So the average --.

Yes, exactly. You'll have a little bit more of a pick up in the next quarter.

Great. Thank you.

And our next question comes from the line of Bruce Silver with Silver Capital. Please proceed.

Yes, I wanted to know, what is the returns on the investment? You're getting about an 18% return when you buy back stock, what is the alternative about -- you said the spreads are so attractive, what's the return comparison?

Well, -- first of all, hi Bruce, how are you doing. We -- the returns -- there's two elements. One is that we actually own the liabilities. So if we have the liabilities already outstanding and we need to reinvest that, but we're not using the cash flow from the Company and the cash outside the CDOs to do that. So when we have availability on the cash flow outside the CDO, which comes as investments on our term facility free up, it's certainly a better investment to buy our stock both from a book value perspective and an earnings perspective. Absolutely.

Okay, thank you.

Thanks.

And our next question comes from the line of Merrill Ross with FBR. Please proceed.

Hi, thank you but the question was asked and answered.

Thanks.

And now our next question comes from the line of [Mark Friedfertig].

Hi guys. Congratulations on another good quarter.

Thanks.

I just want to clarify a couple things, make sure I understand it. I'm just an individual investor so I mean I would understand it as well as the analysts. Just following up on the question with Doug. You said the new loans that you're able to put on are anywhere from 50 to 150 basis points better, but then that gets leveraged several times, is that correct? Or is that after the leverage?

Yes, well when we put it into our CRE CDOs, it is typically levered three times, three to three and a quarter times. When we put it on a line, like on a term facility, then it's typically leveraged about two times.

Okay. And I just want to make --.

And I also want to add, Mark, that now, unlike before, you're almost always getting 1 point in and 1 point out.

Okay.

So, if it ends up being a two-year term, unlike before where you might have had a LIBOR plus 200 loan, 75% LTV, if you had a LIBOR -- if that just went out 100 basis points, the LIBOR goes 300. You'd also have a point in and a point out, which over two years would add 100 basis points of return a year.

Okay.

So when you leverage that it's actually 200 basis points wider in that example.

Okay. So I -- okay. Very good. And then on the book value, I just want to understand this GAAP book value, this is something you had to do because of accounting and these things are being written down more than you think. Is that what's happening here and that's --?

Well, they're being written down. Our maximum exposure to that was we've now written off everything but $700,000. It is $27 million. But the way that you consolidate them would have you put all of your assets and liabilities on the books. You don't mark your liabilities, but you mark the assets. And with the mortgage markets and credit markets in disarray, all assets are being marked down pretty severely. Therefore we're marking our assets down much more than the $27 million, and that's causing the book value to -- from an accounting perspective, to be much lower, while in economic reality, we only have $27 million of exposure.

So what we've done for you is added back that and also added back swaps which don't have corresponding marks on them because we don't mark our commercial real estate loans, and it is a very small number. And that gets you to sort of the $12.44, I believe, economic book value.

Okay. And then lastly, it seems to me that what's really separated you guys from these other companies that are really struggling is this term financing. How long is this in effect for? How long could this -- what happens -- does it go away in five years and then we have -- then we're back on par with everybody else or does this continue?

Yes, as we were just saying to, I believe, Doug, these lines -- these vehicles and term facilities are anywhere from like four to five years. But what really happens if the industry doesn't recover by then, then the opportunity is even greater on an unlevered basis because there will be nobody providing this type of financing.

Right.

In other words, if nobody is around in four years doing this --.

Spreads will be --.

Spreads will be back to where they were when I started doing it in 1997, which were much, much wider than they are now.

Right. Got you. Thank you.

Thank you, Mark.

And our next question comes from the line of Jeremy Banker with Citigroup. Please proceed.

Hi, I was wondering on the ABS CDO, would there be any impact on the cash flows that you're currently receiving, if you were to deconsolidate?

No, they're completely different and, as I mentioned, we received during this month $600,000.

Great. And are you any where near any triggers that would send those cash flows to the senior bump?

Well, we've gotten nearer. There's been downgrades in the portfolio, but we also have the right to buy bonds out and to add equity to keep the cash flows going. We had a very specific CDO that we did early on that allowed us to do that. So unless there's a massive wave again, which takes it down as much as the last wave did, then we think we're in an okay position here for the next year or two.

Great. Thanks.

And our next question comes from the line of [Ed Finder] with [Star Finder Financial].

Good morning Jonathan and (multiple speakers).

Hi, Ed.

Hi. Congratulations on a good quarter in a very tough environment.

Yes.

My question has to do with the shelf registration. I'd just like to know under what terms you would use it and under what conditions you would not use it.

I mean obviously we've been buying back our shares, we bought back 263,000, which isn't that much, but is about 1.25% of our Company at $10.50. Obviously we would not be using it in any kind of common stock way unless we were selling shares above book value, what we think is economic book value.

Thank you very much, Jonathan.

And our next question comes from the line of Don Fandetti with Citigroup. Please proceed.

Hi, Jonathan.

Hi, Don.

Quick question. I know you and your family members are involved in a lot of different securitization markets. I just wanted to get sort of your broader throughs on where we are in this process and do you see any signs of certain markets coming back, are you more bearish today or more bullish on the rebounds in these various securitization markets?

Well, I would say in CMBS I was probably -- in taking ABS out of it, our residential mortgage fund. Eventually CMBS will come back and its just going to take time and obviously what's going on now, across the credit market is not helping that. And we're seeing -- although we were starting to see some events over the last two weeks at the mega money center banks, I think have caused people to retrench a little bit in that market.

In the CLO market there are deals getting done both in the U.S. and in Europe that seems to have the wide spreads on the liabilities be a consistent ability to put together deals. Although of course not at the level that, or number, or tightness of the liabilities that we were seeing six months ago, but nor are you seeing in that market, you're seeing the spreads on the liabilities, the discounts you can get in the market be much wider.

So I would say, on the corporate loan market, up until a day or two ago things were recovering and we were hearing that people were opening warehouses and getting back to a semblance of business ready for the next year, but of course these last couple weeks or last week or two have been pretty tumultuous.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). And our next question comes as a follow up question from Robert Napoli with Piper Jaffray. Please proceed.

Good morning, Jonathan.

Morning.

This is --

Oh, hi, Bob.

Hey, guys. I just wanted to -- a question, you had brought up the -- an asset that you were looking to manage third party money -- looking for opportunities to manage third party money in the current environment. I just was a little bit confused by that because essentially RSO is managed by REXI (multiple speakers).

Yes, that would be -- Bob, I'm sorry. That would be with RSO managing it.

Right.

With its origination staff.

Okay.

So the fees would be all going to RSO.

Okay, that's -- isn't the RSO origination staff actually employed by REXI?

Yes. But what we've agreed to here that we would keep everything there, because we do get 25% of the promote and we also get -- we also are very large shareholders so interested in building book value and growing the Company.

Okay, great. So -- now, in -- I mean how realistic is that? There has got to be a lot of investment funds out there that are looking to take advantage of this opportunity. Are you finding a lot of interest?

We are talking with people and there are people find that new -- being able to go out there with the CRC Capital and do individual deals there is definitely a lot of people who are interested in working with us. And so we're in the process of trying to figure out how exactly we do that.

Okay. And just I would clarify one of the first -- earlier questions. The unrealized losses that you've taken, that -- the difference between the economic and GAAP book values, what exactly has to transpire in order for you to be able to reverse the unrealized loss? Because you sounded like (multiple speakers).

Well, substantially what we're hoping for is basically a FIN 46 change and a change in who has the primary loss and so we'll get back to you about that in December, when it actually happens.

And, I mean -- what would be -- would actually be the -- those assets being --?

Yes --.

Yes, it would be the deconsolidation that Jon alluded to earlier, Bob.

Precipitated by the performance of the assets?

No, it's --.

No, no, no by FIN 46 primary loss, primarily risk analysis.

Okay.

In consideration. That's very technical. We're happy to take you through it offline.

Okay. All right. Thank you.

Thanks, Bob.

And there are no additional questions at this time. I would now like to turn the call back over to Mr. Jonathan Cohen for any final remarks.

Thank you and we appreciate your support in this very difficult market and we hope we can continue to perform. Thanks.

This concludes your presentation. You may now disconnect and have a great day.