Blackstone Mortgage Trust Inc (BXMT) 2004 Q3 法說會逐字稿

Hello and welcome to the Capital Trust third-quarter 2004 results conference call. Before we begin please be advised that the forward-looking statements expressed in today's call are subject to certain risk and uncertainties, including but not limited to, the continued performance; new origination volume and the rate of repayment of the Company's and its funds loan and investment portfolio; the continued maturity and satisfaction of the Company's portfolio assets; as well as other risks contained in the Company's latest Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

There will be a Q&A session following the conclusion of this presentation. At that time I will provide instructions for submitting a question to management. I will now turn the call over to John Klopp, CEO of Capital Trust.

Thank you. Good morning everyone. Thank you for joining us and for your continued interest in Capital Trust. Last night we reported our results for the quarter ended September 30th and filed our 10-Q. The bottom line is $0.51 per share, $0.04 ahead of Q2 and dead on our targets.

Brian will get into the detailed numbers in just a moment, but first I want to review the highlights of what was certainly the busiest, and we believe, one of the most successful quarters in the history of Capital Trust. Hold on, because we have a lot to cover.

The primary drivers of CT's business model can be boiled down into three categories -- first, finding good assets, originating credit solid investments in the face of increased competition; second, leveraging efficiently, driving down our cost of funds and actively managing our asset liability mix; and third, raising equity capital to support our investment programs both for our own account and our managed funds. On all three fronts, we made significant accomplishment was quarter.

We closed just under 400 million of new investments in 58 separate transactions, bringing total originations for the year to $800 million. 345 million of the quarter's production was for CT's balance sheet, led by our purchase in late July of a $251 million portfolio of floating rate B Notes from GMAC. Working with four different counterparties we originated 15 additional B Notes in CMBS investments, aggregating $94 million prior to quarter end.

We continued to originate our traditional mezzanine loan product, but our current strategy for the balance sheet is also focused on smaller balance, lower loan-to-value B Notes, and CMBS, where today we're fining more opportunities and better risk-adjusted returns.

Fund III closed two investments totaling 52 million during the quarter, reflecting the intense competition for large balance mezzanine loans backed by Class A properties. Our current pipeline of opportunities for both CT and Fund III is quite active, but we are definitely working harder to deploy the funds capital than in the past.

Going forward, the keys to origination volume will be flexibility and relationships. At CT we have the experience and infrastructure to retool our investment strategies as market opportunities shift. Plus the breadth and depth of relationships with first mortgage lenders to ensure continued product flow.

In late July we closed our first CDO financing, selling 253 million of investment-grade floating rate liabilities backed by the GMAC assets, and 73 million of similar collateral from our own portfolio. The first CDO is secured primarily by D Notes and mezzanine loans, and the first commercial real estate CDO with a reinvesting feature. This groundbreaking transaction provides the perfect financing vehicle for our target assets. The economics are compelling -- a roughly 80% advance rate at a cash cost of LIBOR plus 60 basis points. And the structure is superior to our existing credit facilities, term-match, no marked-to-market and no recourse. We are already hard at work on CDO2, and believe that this technology will reduce our cost of capital and open new investment opportunities for the Company.

Also in late July, we completed a 4 million share public offering, raising 42 million of primary capital and transforming 45 million of convertible debentures into common equity. In September strategic investor W.R. Berkley Corporation exercised their warrants and holders of the remaining 45 million of debentures converted their securities into an additional 2.1 million common shares. These capital transactions, coupled with a revaluation of our CMBS portfolio, increased shareholders' equity to over $300 million and book value to over $20 per share. At September 30th our debt-to-equity ratio stood at 1.5 to 1 and we have the available liquidity in hand to substantially grow our asset base.

In a market environment characterized by ever-increasing competition, Capital Trust continues to thrive. Year-to-date we have increased assets by almost 100%, increased shareholders' equity by over 200%, and increased book value per share by over 40%. Year-over-year, we have increase net income by 25%. The credit quality of all of our portfolios remains strong and the risk profile of our balance sheet has been substantially reduced.

In the coming quarters our growth will come from fully deploying and leveraging our existing capital, continuing to use CDO technology to reduce or funding costs and expand our product mix, harvesting incentive management fees from our existing funds, and growing our third-party assets under management through the creation of new funds. Or omission is to grow dividends per share. And our policy is to set our pay-out at a level we feel is comfortably sustainable and consistent with maintaining REIT status. In the fourth quarter, our Board of Directors will reassess our current dividend payout of $0.45 in light of that policy.

When we started this business seven and a half years ago, real estate mezzanine investing was viewed and as an exotic, somewhat suspect pursuit. Today mezzanine has gone mainstream, becoming the established part of the real estate debt capital markets, and along the way, attracting a wave of new participants. Increased competition has created spread compression, and in some instances, credit drift. In this environment long-term success will depend on careful underwriting and creative structuring. At Capital Trust, we have what it takes.

Now I will turn it over to Brian Oswald to discuss the results in greater detail.

Thank you, John, and good morning everyone. As John discussed, we've been very busy on both sides of the balance sheet. It's difficult to decide where to begin, but let's start with the CDO.

On July 20 we completed two simultaneous transactions which together we refer to as CDO-1. In the first we purchased 40 floating rate B Notes and one mezzanine loan from GMAC for $251.2 million. These loans were priced to yield approximately LIBOR plus 459 basis points before adjustment for any anticipated credit losses.

In the second, we contributed to GMAC assets along with assets of approximately $73 million from our own portfolio to a wholly-owned subsidiary, and issued 320.8 million of floating rate CDOs. 252.8 million was rated investment-grade and sold to third-party investors with the balance retained by CT. CDO-1 is callable after two years and includes a 4 year reinvestment period during which we can reinvest any principal payments received in new qualifying investments. This feature allows us to use the vehicle for the next four years as the equivalent of a revolving credit facility. The investment-grade securities were issued with a blended average coupon of LIBOR plus 62 basis points, or approximately LIBOR plus 104 basis points after the amortization of all fees and expenses.

The net balance sheet effect of the CDO-1 transaction is an increase in loans and debt by approximately $250 million each. CT will be initially recording the return of LIBOR plus 405 basis points on the purchased assets after adjusting the cash flows for anticipated credit losses on the purchased assets. The initial anticipated effect of CDO-1 is an increase in annual net income of approximately $7.5 million.

In addition to the assets acquired in the CDO-1 transaction, we originated 14 new B Notes totaling $69.3 million and one new CMBS investment for $24.5 million. While we added only the $124.5 million CMBS investment, CMBS increased by over $55 million during the quarter. The additional increase in the CMBS portfolio was primarily due to a general tightening of spreads on subordinate CMBS and improvements in the credit characters of certain of our bonds, which drove a 35.5 million increase in the valuation of our existing CMBS portfolio.

Overall, total assets were $787 million at September 30th, 2004, an increase of $315 million or 66.7% from the 472 million at June 30th, 2004 and an increase of 387 million or 96.8% from the 400 million at December 31st, 2003.

On the liabilities and equity side of the balance sheet there was a flurry of activity during the second and third quarters, which began with our sale of 1,635,000 shares of common stock in March and warrants to purchase an additional 365,000 shares to W.R. Berkley Corporation in May and June of this year. In September Berkley exercised its warrants for the additional 365,000 shares. The net proceeds from the 2 million shares issued to Berkley were $46.5 million.

On July 28 we announced the closing of a public offering of 4,025,000 shares of CT common stock at a price of $23.75. We've sold approximately 1.9 million primary shares including 525,000 shares pursuant to an over-allotment option exercised by the underwriters. The net proceeds were approximately $41.6 million after payment of all expenses.

In addition to the primary shares that we sold, holders of 50% of our convertible junior subordinated debentures converted their securities to approximately 2.1 million shares of common stock and sold those shares in the offering. The remaining holders of the debentures converted their securities on September 29, 2004 into an additional 2.1 million shares of common stock. Going forward these conversions will eliminate approximately $9 million of interest expense on an annual basis.

Our debt-to-equity ratio decreased significantly from June 30th to September 30th as a result of the new equity and conversion of the debentures. At June 30th our debt-to-equity ratio was 2.3 to 1 and at September 30th it stands at 1.5 to 1.

Or liquidity position remained strong and we currently have approximately $63 million of liquidity including $6 million of cash on hand and 57 million of available borrowings under our committed credit facilities. We believe that this level of liquidity is adequate to fund our near-term needs including funding our equity commitments to Fund III and originations of new loans and investments for our balance sheet.

We reported net income of $5.9 million for the quarter ended September compared to 4.8 million for the same period the prior year. Net income for the nine months ended September 30th was 12.5 million compared to 9.7 million in the prior year. On a per-share basis, net income of $0.51 is an increase of $0.04 per share compared to the second quarter of this year and a decrease of $0.15 per share from the third quarter of last year. For the nine months ended September 30th, net income totaled $1.45 per share compared to $1.67 for the same period in the prior year.

The simple comparison to last year is somewhat misleading because the prior results for the third quarter included a prepayment penalty on a fixed-rate loan which generated an additional $2.4 million of revenue. Getting into the details and comparing this quarter to last quarter, net income was up $3.4 million due to a substantial increase in average earning assets, increasing from 398 million in last quarter to 639 million for this quarter, primarily as a result of the CDO-1 transaction. While interest expense increased only 424,000, as we utilized the additional equity to reduce secured debt and used the CDO-1 liability which carries lower interest costs and other secured debt.

Most of the decrease in other income was the result of a $300,000 gain recognized on the sale of the Freddie Mac securities in the previous quarter and the reduction in the income from Fund II as the assets continue to repay at an accelerated rate.

General and administrative expenses were $736,000 higher than the prior quarter due primarily to increased compensation accruals as annual bonuses are accrued based on a percentage of expected annual net income before bonuses. Finally, we reversed all of the income taxes that were provided in earlier quarters of this year as our taxable REIT subsidiaries generated losses in the third quarter in excess of earlier quarters' net income.

Within our investment management business we are in base management fees and have the potential to receive significant future incentive management fees. As disclosed in the 10-Q, if Fund II's assets were sold and if liability settled on October 1st at the recorded book value, which is net of an allowance for possible credit losses, and the fund equity and income were distributed, we would record approximately $8 million of incentive income representing our share of the incentive management fees. This amount will change based upon the duration and performance of the assets in the fund. We are approaching the point where we will begin to receive this incentive compensation and are projecting that we will potentially begin recognizing this additional income in the first quarter of 2005.

Fund III has a similar incentive and management fee structure. We began deploying the fund's $425 million of committed capital in June 2003 and have originated over $573 million of loans and investments through September 30th. At September 30th Fund III had 15 outstanding loans and investments totaling $431.9 million after repayments and sell downs. Both Fund II an Fund III's investment portfolios are 100% performing and have not experienced any losses.

In September we declared a dividend of $0.45 per share payable to holders of record on September 14th, which was paid on October 15th. We remain committed to maintaining an asset liability mix which minimizes the negative effects of changes in interest rates on our future results. In the current interest rate environment, we are maintaining a net positive floating rate exposure on our balance sheet with $161 million more floating rate assets than floating rate liabilities. Based upon assets, liabilities and hedges in place at September 30th and taking into account the floors on some of our loans receivable, an increase in LIBOR of 100 basis point would increase the annual net income by approximately $1.5 million. Further, a 300 basis point spike in LIBOR would positively impact our earnings by approximately $4.8 million.

Our book value per share is based upon a number of factors and in this quarter was driven by the sales of common stock and changes in the market value through our CMBS investments, which we hold as available for sale of securities. We marked these assets to fair value based on independent third party valuations. Any change in value, up or down, are accomplished through equity without any effects on our P&L. During the third quarter of this year we experienced a $35.5 million increase in the value of the CMBS portfolio due to a general tightening of spreads on subordinates CMBS and improvements in the credit characteristics of certain of our bonds. This factor, along with the effects of the common equity raised during the quarter, resulted in a dramatic increase in our book value per share during the quarter. Our calculation of book value per share, $20.45 at September 30th, includes 159,000 shares representing in-the-money options in addition to the 15 million shares outstanding at that time. This is $4.10 per share or 25% higher than the $16.35 reported at June 30th, which included 174,000 shares of in-the-money options and warrants, in addition to the 8.4 million shares outstanding at the time.

That wraps it up for the financials. At this point I will turn it back to John.

Thanks, Brian. I guess at this point, we'll open it up for any and all questions.

(OPERATOR INSTRUCTIONS). Don Destino with JMP Securities.

I've got a laundry list, so let me ask a couple and then I'll get back in queue. The first one is kind of the 5000 ft. question. John, given where the B Note and mezzanine markets are right now, what prospect, or what does that say about your prospect of raising a fourth fund when Fund III is through its investment period? Or put another way, in the current environment if you did not have a funded investment period, would you be out looking to raise another fund? Is there demand for it, and do you think there are assets out there that would make that worthwhile?

Thanks, Don. We'll take them one at a time I guess. I clearly think that there is demand in the marketplace for mezzanine exposure. Essentially for the same reasons that you've seen, as we've said, a number of new players appear on the scene. That is the ongoing desire for investments that produce current yield and are secured by hard assets, particularly real estate. So I think the demand is there. Clearly we are in the process of deploying Fund III. As Brian mentioned, we've done something approaching $600 million of total originations to date in Fund III. But it is tough; there's no question about it. The investment strategy of Fund III is specifically designed to focus on larger transactions, $15 million and above a specified minimum. And very high-quality, stabilized existing commercial real estate, income-producing real estate. And in that sector, large loan, sort of pristine assets, there's an enormous amount of competition today. And we are feeling the heat; there's no question about it. However, we continue to originate what we believe are solid risk-adjusted assets return on assets for Fund III, and we are chopping our way through the woodpile of deploying that capital.

We're obviously at this point considering what we might do come next June, which is the end of the scheduled investment period for Fund III. We have always tried to adapt our investment strategies to what we think the current, then-current market opportunities are. And the truth is, I don't know what we will do about Fund 4 at that point in time, because I think we need to see between now and then how we do in terms of deployment and what the market configuration is at that point in time. I continue to believe that there is strong appetite, both in the public market and in the private capital market, for the types of investments we are making. I continue to think that there are opportunities. But we may well recalibrate the specific targeting for our next fund offering in accordance with what we see to be the best opportunity at that point in time. We will certainly remain in the investment management business, but we may shift the exact formant to meet what we think is the best opportunity at that point in time.

2 quick ones I think, and then I'll get back in queue. Brian, if memory serves, does potentially recognizing incentive fees from Fund II in Q1 of '05 -- has that schedule moved up a quarter or two? I think I have in my head that we were thinking more like the second half of '05.

I believe that is probably true from the past. We have seen a significant acceleration of pay-offs in Fund II. And the way the incentive fee works is that we return all of the capital first and then there's an 80/20 catch-up on the next dollars coming in. And then it's switched back to 20/88. So, it comes in very concentrated at the beginning. And yes, we have moved that forward because we're going to get to a point where we've returned all of the capital sometime in the early part of 2005.

Got it.

Obviously not in control of when these assets pay off, but we are clearly anticipating that we will cross that threshold, as Brian said, of returning all of the capital plus achieving the preferred return on that capital, which is 10% preferred return in Fund II and in Fund III. Some time, sooner I guess would be fair to say, than we previously anticipated.

Would be fair to characterize that as sort of a double-edged sword -- it's nice to get the money sooner, but it would be a little bit higher if it was out there a little longer?

I think that's absolutely correct. Duration counts, and in terms of absolute dollars of earnings and in turn, our share of the profits. And it is a double-edged sword. The credit quality of our portfolio is very strong. The markets are very hot. And these assets are repaying more quickly than we perhaps had anticipated. And in some ways, perhaps, had hoped.

Last one. Brian, is it possible to decipher what portion of the CMBS write-up was credit-related and what portion was just spread-related?

Let me jump in as Brian is thinking for just a second. The way you framed your question, Don, credit-related versus spread. I think spread is kind of the proxy for credit. In general, spreads have come in quite significantly on subordinate CMBS, Double B generic spreads in the last quarter have probably come in 90 to 100 basis points or thereabouts. Reflecting the demand for this kind of product, reflecting in part, I think it's fair to say, what is called the CDO bid, meaning the existence of CDO financing technology has produced more efficient financing for large portfolios of these kinds of assets, and in part, I think, the demand is driven by that availability.

The increase in the valuation of our specific portfolio is key to that general market tightening, but it is also specific to our individual bonds. And in some instances, what we have found, is in those specific bonds that we hold we have had significant credit improvements in the underlying collateral that serves as the security for those CMBS bonds. And so, it's both, I'd say, generic market and specific bonds movements, both of them credit-related. These are fixed-rate assets that we hold on our balance sheet, but we also have in place, as we've discussed in the past, hedges which are designed to protect the assets from changes in absolute interest rates. Essentially, the movement in the third quarter was credit-related.

That gets to what I'm saying. Obviously spreads are tightening throughout the market. But also a portion of the $30-some-odd million write-up was due to the credit performance of the actual loans in the underlying bonds of your specific holdings, right?

Yes, you'd have to say it was both, Don.

Don Fandetti, Wachovia Securities.

A couple of quick questions. John, if I recall correctly, the 8 million incentive fee is a taxable event in your TRS. Any thoughts on how you might offset that? Or will you just pay the tax?

I guess the simple answer is unfortunately we will just pay the tax. Brian, do you want to take it more technically than that?

The way this works is we have actually been paying the tax already, because this is a book and tax difference for us. And that's was generating most of the deferred taxes that are on our balances -- the deferred tax asset that is on our balance sheet. So we will just be recognizing it as an as expense, but the taxes themselves have already been paid to the IRS.

If I look at page 14 of your 10-Q, under your segmented reporting, it looks like your TRS our investment management business had a greater increase of G&A allocated, yet revenue were essentially unchanged. Can you clarify that?

As I said in why G&A was up, G&A is up because the way we accrue our bonuses is based on our projected net income for the year. And all of our compensation expenses are in the TRS, so all of the increase would come through the TRS.

That make sense. Lastly on CDO-2, should we expect a similar type of sourcing for new investments where you have some new assets plus current assets on your balance sheet?

I guess the answer is that while I mentioned it, and we're working on it, we're still pretty preliminary in terms of exactly what CDO-2 will look like as distinct from CDO-1. Clearly you need to have a critical mass of assets and a level of diversification in order to make this financing work. We have existing collateral on our balance sheet that could work for a subsequent CDO, CDO-2, but we are always actively in the marketplace looking to increase our collateral base, in part to affect this type of CDO financing, but just in general to increase our interest-earning assets.

So, and maybe you can't comment on this, but what does it mean that you have started CDO-2? Does that just mean you have signed an agreement with a bank or you're just sort of kicking it around?

I'd say somewhere in between. We have signed nothing with no one, but we're certainly working more diligently than kicking it around. We're trying to basically assess what's available in the marketplace in terms of collateral, what's available in terms of the ever-evolving CDO marketplace for financing these types of assets and make sure that what we put in place is both accretive to the Company and expansive in terms of the types of products that we can handle. We're working on it, but we certainly are not there and have not signed anything or locked in with anyone.

If I could just ask 1 other question, John? Some of your peers are running at a return on equity in the 15 percent range. Where do you think you can run CT from a return on equity perspective?

I think that we believe that what we're targeting in terms of a return on equity for CT, given the underlying risk profile of our assets we would say a range of low-to-mid-teens. That would include the number that you used. But it also speaks to a range. We believe that we're trying to calibrate our risk-adjusted returns to the kinds of assets that we're originating for our balance sheet. And I think that assessing relative ROEs you need to also factor in relative risk profile.

We've always been a subordinated debt provider, not a disguised equity partner, if you will. There's a broad range of what people refer to as mezzanine; a broad risk spectrum of what people refer to as mezzanine. And I think that we have generally played on the lower risk end of that spectrum.

It obviously also depends on what kind of leverage ratio you are running. We are currently, we believe, relatively under-levered on the balance sheet relative to the risk profile of our assets. And we are in the process of deploying out that capital and leveraging it up. And I think the returns will follow.

Thanks a lot. Appreciate that.

(OPERATOR INSTRUCTIONS) Richard Shane, Jefferies.

Most of our questions have been asked, but just a couple different things. On the incentive fee, what would sort of the timeframe for recognizing the incentive fee be? Is it a 12-month, 24-month type thing? Just help us understand how we should look at that, sort of layering into income going forward.

It all depends, unfortunately, on uncontrollable variable of how our loans in Fund II, or whatever the relevant fund is, pay back. We have an expectation, but we, as I said, don't have any control.

The mechanics of how the incentive management fee works Brian spoke to a bit. Essentially, what happens is as loans pay back there's a formulaic system whereby the investors in the fund received 100 percent of their capital back and a 10 percent return on that capital deployed. The next dollars that come out as distributions from the fund essentially are again subject to a formulaic catch-up provision, which essentially says that the next roughly 80 percent of dollars that are distributed go to the sponsors in the form of incentive management fees until the sponsors have received 20 percent of all of the profits, at which time it flips back to, as Brian said, 20-80, if you will.

The result of that is, given the fact that Fund II invests in rather large loans, average ticket size 25, $30 million, it will be somewhat lumpy, and, again, somewhat hard to predict in terms of precise timing. I think bottom line we would expect in the realization and of the incentive management fees in Fund II will largely occur once they start within probably a 12, 4 or 5 quarter type period.

Given the comment that that could start as early as Q1 '05, is there a specific event that's been identified that's causing you to start saying -- to put that sort of timing on it?

No, it's really just the sequential process of loans paying off. And how they pay off, when they pay off, in which order, because of different magnitude, really determines when the timing of that incentive management fee realization is. I would again say for better or worse it is likely to be lumpy and somewhat front-end loaded.

Henry Stockman (ph), Bear Stearns.

Can you guys give any guidance as to target size for CDO-2?

No.

No problem. No problem. The other question I've got is on the off-balance-sheet funds there's mentioned in the prospectus that a Company, the secondary of your sort of target size for filling out Fund III, and I think numbers as large as 1 billion were used. How far along are you in filling that out?

We've originated something approaching -- I don't know the precise number -- $600 million of total investments in Fund III to date from the outset, which was June of '04 through today. We raised $425 million of total committed equity capital. And the fund has a maximum leverage parameter of 2-to-1 debt to equity. If it were to be fully maxed out, fully deployed, fully leveraged out, obviously the math can produce in excess of $1 billion of total investments. I don't think we ever anticipated being 100 percent deployed at any point in time, but obviously we are working very hard to get that capital to work in the face of a very competitive environment.

Today, 9/30/04, we have roughly 435 -- I think am rounding off -- of total assets outstanding in Fund III that reflects pay downs, payoffs, and sell downs. In certain instances we've originated assets and then sold down to control our position limits. And we've drawn something in excess as of that date of roughly a third, I'd say, of the total capital. That does not count a fairly significant capital call that we have just made into the fund post-9/30 and which has been funded by our partners to fund recent originations that we're in the process of closing right now.

So I guess that is sort of a long, not very specific answer. I'm sorry. We're slugging away at it and believe that we will be able to substantially deploy the capital in Fund III prior to the end of the scheduled end of the investment period. But it's a tough road to hoe in this environment right now.

Thanks a lot.

Don Destino, JMP Securities.

Regarding your liquidity position and pipeline, I think thank you said $63 million of liquidity. And obviously the leverage looks modest relative to the types of assets you're in. I don't think that adding -- that using up that liquidity would get you to a leverage ceiling, would it? Is there something else you can do in terms of secured lines to increase leverage before you need to actually go out and raise more equity?

I think the answer is CDO. Depending upon the underlying product, and the risk profile of the underlying product, and how you construct the collateral pool, in part with respect to diversification and scale, there certainly is additional leverage available in the CDO marketplace. And that's one of the appealing features, but certainly not only appealing 1.

I did not answer previous question as to size or anticipated size of CDO II, and I still won't. But I think that generally speaking in the marketplace what you see is kind of a minimum size of $300 million or their about in order to create the amount of diversity that's necessary and to create and scale that allows you to amortize the front-end costs of these financings and still make it quite efficient.

So I think that what we're working on in terms of the CDO front is in part an exercise of trying to optimize our leverage. Given the underlying risk profile of the assets on our balance sheet, we don't know yet what the next CDO will look like from either the perspective of the character of the underlying collateral or the nature of the liability side yet. But clearly that technology and the fact that we are now an approved collateral manager and an issuer of CDOs can help us in terms of accessing that marketplace going forward.

So am I thinking about this correctly, that you have $63 million of -- could I call that uncovered capital and then 80 percent advance rate would mean you need about $60 million of equity in a $300 million CDO? Is at the way I could think about it if I wanted somewhere down the line modeling it a CDO?

It's the way you can think about it if in fact the character of the assets in the CDO was similar to our CDO-1. I think that that's an accurate calculation based upon that data point. Again, we're considering a bunch of different variations on theme, and where we end up in terms of leverage will depend upon how we essentially calibrate the risk profile of the assets that produced the collateral.

Perfect. Appreciate it. Thanks again.

It appears there are no further questions. Gentlemen, do you have any concluding comments for the group?

No. Again, thank you all for your interest and your confidence in Capital Trust. And stay tuned; more to come. Thank you.

That concludes the Capital Trust third-quarter 2004 conference call. A recorded replay of the conference call will be available from noon on November 4th through midnight on November 18. The replay call number is 1-800-839-6136 or 402-220-2572 for international callers. Thank you and you may now disconnect your phone lines. Have a great day.