Blackstone Mortgage Trust Inc (BXMT) 2006 Q4 法說會逐字稿

Good day and welcome to the Capital Trust fourth-quarter and year-end 2006 conference call. Before we begin, please be advised that the forward-looking statements expressed in today's call are subject to certain risks and uncertainties including but not limited to the continued performance, new origination volume and the rate of repayments of the Company's and its funds loans and investment portfolios, the continued maturity and satisfaction of the Company's portfolio assets as well as other risks contained in the Company's latest form K-10 and K-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 questions to management.

I will now turn the call over to Mr. John Klopp, CEO of Capital Trust. Please go ahead, sir.

Good morning everyone. Thank you for joining us once again and for your continued interest in Capital Trust. Last night we reported our results for the fourth quarter and filed our 10-K. In a record-breaking year for the real estate industry, Capital Trust delivered strong performance and steady growth by doing exactly what we've been doing for the last ten years, originating, underwriting, managing and financing solid investments that produce attractive risk-adjusted returns.

Geoff Jervis will run you through the detailed numbers in just a moment. But the bottom lines for 2006 contain nothing but good news. Diluted earnings per share of $0.91 for the fourth quarter and $3.40 for the year, an increase of 18% compared to 2005; total dividend of $3.45 per share, up 41% over the prior year. More important we feel very good about our prospects for 2007 and last night we also announced a $0.05 increase in our regular quarterly dividend to $0.80 per share.

The fundamentals of our business remain the same, so we intend to turn off the screens, at least the one that displays CT's stock price, put our heads down and continue to do our jobs our way. These fundamentals start with originating good investment opportunities and in 2006 we closed over 2.1 billion of new commitments spread across 96 separate transactions.

In a competitive market awash with capital, we searched far and wide and found value in a broad array of products including whole loans, construction loans, mezzanine loans, syndicated loans, B-notes, CMBS and synthetics collateralized by all property types in many markets, sourced on both a direct an indirect basis. In 2007 we expect the mix to broaden even further as we continue to seek out the best risk-adjusted returns.

Of course volume is only the beginning of the story and credit quality is a true determinant of long-term success. In 2006, we incurred no losses, no provisions and no impairments and all of our portfolios performed strongly.

However, we are not perfect. We continue to work toward resolution of our one nonperforming asset, a loan originated in 2000 on a property in Baja Mexico that has a current carrying value of 2.6 million. Tom Ruffing, our Chief Credit Officer and head of asset management, has assured me of a positive outcome -- sometime before I retire. Going forward we will stubbornly stick to the underwriting standards that have served us well and actively manage our portfolios to anticipate any problems that may arise.

In 2006 we financed our growth with a combination of debt and equity demonstrating our ability to access the markets to produce cost-effective capital. This mix included CT's first issuance of trust preferred securities, our fourth CDO and a 2 million share common offering, our first since 2004. In addition, we increased our committed repo facilities to $1.2 billion to ensure a flexible revolving component to our liabilities.

In 2007 we will continue to actively manage our capital structure to maintain our asset liability match, mitigate interest rate risk and drive down our cost of capital. While the fundamentals of our business remain the same we are constantly looking for new endeavors where our experience and skills can be brought to bear. In 2006 we repositioned our investment management business to focus on smaller vehicles with targeted investment strategies that complement the broader strategy of the balance sheet. As a result we launched two new mandates and raised $575 million of third-party capital.

Also last year we made our first international investment becoming a founding equity investor in Bracor, a new commercial property net lease company in Brazil. In its first six months the Bracor team has committed to purchase almost $500 million of high-quality real estate net leased on a long-term basis to credit tenants. We're excited about the prospects for these new initiatives and believe that more are in the offering.

The world in 2007 is a very different place than we started Capital Trust in 1997. Real estate debt and equity Capital Markets are more sophisticated, more liquid and more interconnected even globally. Success in this environment requires both old skills and new tricks. We are confident in ourselves and in our business and firmly believe that the best is still ahead of us.

I'm going to turn it over to Geoff Jervis, our CFO, now to run you through the detailed numbers.

Thank you, John, and good morning everyone. Since John discussed the highlights for the year, we'll get right into the numbers. First to the balance sheet. During the year, total assets increased by over 70% from $1.6 billion at the year end 2005 to $2.6 billion at year end 2006. The primary drivers of asset growth were new originations of interest-earning assets which we define as loans, CMBS and total return swaps.

Isolating the fourth quarter over one-third of our asset growth occurred in the period as assets grew by $379 million from September 30, 2006 to year end. For the year, interest-earning assets grew by approximately $1.1 billion from $1.5 billion to $2.6 billion at year end '06. Originations for our balance sheet of interest-earning assets totaled $1.8 billion with partial and full repayments of approximately $700 million for the year netting to the previously mentioned $1.1 billion increase.

For the fourth quarter, originations of interest-earning assets totaled approximately $650 million with partial and forward payments of approximately $275 million netting to a $375 million increase.

2006 balance sheet originations were comprised of $395 million of CMBS; $1.4 billion of loans, $1.2 billion of which were funded and $200 million of which were unfounded; and $4 million of total return swaps. The weighted average all-in effective rate on new originations was 8.62%.

At December 31, 2006, the entire $2.6 billion portfolio of interest-earning assets had a weighted average all-in effective rate of 8.4%. From a credit standpoint, the CMBS portfolio has an average credit rating of BB+ compared to BB- at year-end 2005. And the loan portfolio has an average last dollar appraised loan to value of 70% compared to 67% at year-end 2005.

Credit for the entire portfolio remains strong across all investment categories. Inside the loan portfolio, the only nonperforming asset at quarter end remains the Baja loan that John discussed earlier.

Moving down the balance sheet, equity investments in unconsolidated subsidiaries decreased by $3 million from $14.4 million at year-end '05 to the $11.5 million at year-end '06. The decrease is due to the continued ordinary course liquidation of the CT Mezzanine Partners funds partially offset by $6 million of fundings associated with our new investment in Bracor; 39% of our total $15 million commitment as of year end.

Looking at equity investments as a whole, while we expect to fund the remaining Bracor commitment over the next few periods this growth will continue to be offset by the liquidation of the CT Mezzanine Partners funds. Performance of these funds remains strong with no nonperforming loans. Fund II had one remaining asset at year-end and in January that asset repaid. In accordance with the fund operating documents, we are in the process of winding up operations and making the final distribution to the Partners.

From an accounting standpoint, we expect to realize the remaining promote from Fund II in Q1, expense the remaining capitalized costs for Fund II and pay employees their share of promotes received.

At Fund III as of December 31, we had five investments with total assets of $195 million. As we have disclosed in the 10-K, the gross promote value to us embedded in Fund II and Fund III assuming liquidation at year end was $1 million and $7.5 million respectively. Collection of the Fund III promote is of course dependent upon among other things continued performance at the fund and the timing of payoffs.

That said, we currently expect to begin collecting Fund III promotes starting in the second half of 2007. As is the case with Fund II, any Fund III promotes will be accompanied by expensing a portion of capitalized costs as well as payments to employees their shares of promotes received.

In addition to Fund II and Fund III, we also manage two other Investment Management vehicles, CT Large Loan 2006 which we have discussed in previous calls and CT High Grade, our new separate account designed to invest in low-risk mezzanine investments and formed in November of 2006. At year end, CT Large Loan had three investments and total assets of $157 million and CT High Grade had two investments and total assets of $65 million. We do not co-invest in either of these vehicles and earned management fees of 75 basis points on assets, subject to leverage levels for CT Large Loan and 25 basis points on assets for CT High Grade.

On the right-hand side of the balance sheet, total interest-bearing liabilities defined as CDOs, repurchase obligations and trust preferred securities were $2 billion at December 31, and carried a weighted average cash coupon of 5.97% and a weighted average all-in effective rate of 6.15%.

Our CDO liabilities at year end totaled $1.2 billion. This amount represents the notes that we have sold to third parties in our four CDO transactions to date. At year-end the all-in costs of our CDOs was 5.86. All of our CDOs are performing, fully deployed and in compliance with their respective interest coverage over collateralization and reinvestment criteria. And the total cash in our CDOs at year end was $1.7 million recorded as restricted cash on the balance sheet.

Our repurchase obligations continue to provide us with the revolving component of our liability structure from a diverse group of counterparties at ever improving economic terms. At year-end we had borrowed $704 million and had $1.2 billion of commitments from seven counterparties. This is up from $775 million commitments with the six counterparties at year-end 2005.

We remain in compliance with all of our facility covenants. With the $500 million of unutilized capacity on our repo lines that are all revolvers, we are confident that we have the immediately available debt capital to fund our near- and mid-term growth.

The final component of interest-bearing liabilities is trust preferred comprised of the $50 million of securities that we issued in the first quarter of this year. These securities have a thirty-year term and carry a cash cost of 7.45% and 7.53% on an all-in basis.

One more item of note in liabilities is participations sold. This line item represents loans that we closed at CT in which we subsequently sold participation to third parties. In accordance with GAAP, we are required to present these participations sold on a consolidated basis. With the amount sold recorded as both assets and liabilities on our balance sheet and the income earned on the loans recorded as interest income with an identical note recorded as interest expense. At year end, we had $209 million of participations sold on the balance sheet as loans receivable and liabilities and the passthrough rate on these participations was 8.86%.

Over to the equity section, shareholders equity at year end was $426 million, an increase of $87 million year-over-year. The change in booked value is primarily attributable to the common stock offering we executed in November selling 2 million shares of Class A common stock for net proceeds of $87 million. On a per-share basis, book value rose from 2192 per share to 2406 per share, an increase of $2.14 or 10%.

At year end, our debt to equity ratio defined as the ratio of interest-bearing liabilities to book equity was 4.6 to 1 compared to 3.5 to 1 at year end 2005. We remain comfortable with our leverage levels and as we have said in the past, these levels will migrate depending upon the types of assets we originate and the structure of the liabilities we raise.

As always we remain committed to maintaining a matched asset liability mix. And at year end, we had approximately $351 million of net positive of floating-rate exposure on a notional basis on our balance sheet. Consequently an increase in LIBOR of 100 basis points would increase annual net income by $3.5 million. Conversely a 100 basis point drop in LIBOR would decrease our earnings by that same amount.

Our liquidity position remains strong and at year end we had $28 million of cash and $81 million of immediately available borrowings under our repo facilities for total liquidity of $109 million.

Turning over to the income statement, we reported net income of $54.1 million or $3.40 per share on a diluted basis for 2006 representing growth of 18% on a per share basis over 2005. Comparing the fourth quarter to the third quarter we reported net income in Q4 of $0.91 per share compared to $0.86 per share in Q3, an increase of 6%.

The primary drivers of net income growth for both the full-year and the quarter were increases in interest-earning assets and net interest margin. Year-over-year net interest margin increased by $21.8 million or 45% from $49 million in 2005 to $71 million in 2006. For the fourth quarter net interest margin increased by 12% compared to the third quarter, up $2.1 million to $19.3 million.

Included in these figures are $4.5 million and $900,000 respectively of items that we consider non-recurring for the full year 2006 and the fourth quarter. Nonrecurring items include prepayment penalties, accelerated discount realization and accelerated origination fee and exit fee realization from the early repayment of loans.

Other revenues from the year primarily management and advisory fees from our funds were $5.8 million, lower than last year as Fund II and Fund III continue to wind down partially offset by the added impact of CT Large Loan and CT High Grade later in 2006.

We did collect some Fund II promote in 2006, receiving $1.4 million for the year. The net impact of this receipt however must be assessed in light of the other income statement items impacted. In Q4 while we collected $1.4 million of promote, we also expensed approximately $325,000 of capitalized costs and paid approximately $350,000 to employees as their share of promote, netting roughly $800,000 to the Company or just under $0.05 per share.

Moving down to other expenses, G&A was $23.1 million for the year, an increase of $1.1 million from $21.9 million in '05. This increase amounts to approximately 5% lower than one might expect given the increased business activity at the company in 2006. Looking inside the numbers there is a partial explanation in the G&A in 2005 contained several items that skew that comparison including expenses of $2 million for Fund II employee promote payments and roughly $800,000 for various onetime items.

We recognized a tax benefit of $281,000 for the fourth quarter bringing the total tax benefit for the year to $2.7 million. These benefits were generated at the company's taxable REIT subsidiary to CTIMCO.

In terms of dividends, our policy is to set our regular quarterly dividends at a level commensurate with the recurring income generated by our business. At the same time in order to take full advantage of the dividend pay deduction of a REIT, we endeavor to pay out 100% of taxable income. In the event the taxable income exceeds our regular dividend payout rate, we will make additional distributions in the form of special dividends. During 2006 we paid regular quarterly dividends of $0.60 in Q1, $0.70 in Q2 and $0.75 in both Q3 and Q4 for total regular dividends of $2.80, a 24% increase over 2005.

In addition to regular dividends, we paid a special dividend with the fourth-quarter regular dividend of $0.65 per share for total dividends of $3.45 per share, an increase of 41% over 2005.

Finally, yesterday we declared a first-quarter 2007 regular cash dividend of $0.80 per share payable on April 15, 2007 to stockholders of record on March 31, 2007 which represents a $0.05 per share or a 7% increase from the prior quarter's regular cash dividend of $0.75 per share.

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

Thank you, Geoff. I think now, Tori, if you'd open it up for any and all questions. We are ready.

(OPERATOR INSTRUCTIONS) David Fick, Stifel Nicolaus.

Good morning. I applaud you for saying that you don't run stock screens and you just want to run your business. I try to do the same thing as an analyst. It is hard to take a long view though when the market is behaving the way it is.

And I guess my most fundamental question for you is, how do you view the ability to continue to run the right side of your balance sheet if there is collateral damage in the credit markets and in demand for real estate related bonds due to the things that are happening in other sectors that have nothing to do with your fundamentals? Can't there be an impact in your ability to continue originating?

Well, I guess there's a couple of different parts to your question. I'll take at least a bit and then open it also to Geoff and Steve Plavin who are both here if they want to add anything. I guess the first thing is I probably lied, I do peek at the screen, I can't help myself. But I think our general attitude is to do exactly what I said which is simply put our heads down and do our business.

And I think that there are certain times as we've learned over the long haul when there seems to be somewhat of a disconnect between underlying performance and underlying fundamentals and how the market perceives any particular stock, I think were at obviously at a point in time in the markets where external exogenous things are buffeting the markets and moving people's perceptions whether or not they have anything to do with our business.

I think -- so that is really the stock, the equity side of things. You asked a separate question really which is more toward the liability side of our business. We have increasingly over the last several years as have others in our sector used CDOs to finance our business and we expect to continue to do that. The CDO bid has clearly impacted the overall business. It has probably contributed in part to declining spreads on the left-hand side of the balance sheet but it provides us with a very powerful tool as we've said many times before, the ability to raise cost-effective liabilities on an index matched, duration matched, nonrecourse, non mark-to-market basis is pretty powerful.

We don't see any pause in the CDO market for CRE, commercial real estate. CDO's right now in fact I think you could argue in this much more interconnected world as the RMBS subprime business blows up, that there will be some degree of flight to quality to the CRE side of the aisle because the performance of the commercial real estate CDOs has been impeccable. Geoff?

The one thing I would add it is in fact in the future we do see the CDO dynamic change -- a couple things. Number one, we do have $550 million of our CDOs are revolving and therefore we have already priced $550 million of revolving liabilities where we can put new assets in and use old pricing metrics. So if things deteriorate on the CDO side we will have some what we will call legacy liabilities that will be cheaper than the market rate.

Second, on the repo side, our repos continue to be more and more competitive and they continue to get closer and closer to the CDO bid. In fact the revolving nature of our repos and the flexibility of our repo counterparties relative to the rigid rating agency structures of CDOs, they have their own value even side-by-side with CDOs. But if the CDO bid was to go away, we would have plenty of capacity. As I mentioned, we have $500 million of capacity on our existing commitments to continue to finance the business on an attractive basis.

And then lastly and I will sort of turn it over to Steve after this, if you see the right-hand side of the balance sheet widen out and you see CDO spreads widen out, you are going to see an impact on the left-hand side. You are going to see the asset side migrate in the same direction.

Do you know if you're going to see narrowing in that case?

I think you're going to see widening of asset spreads if you see widening of liabilities spreads.

Okay.

Don Fandetti, Citigroup.

Good morning, everyone. John, good quarter. A quick question about the credit environment. Obviously you and the market are holding up very well from a credit perspective. Are you seeing any signs on the margin of weakness and if so, what are those? What is your outlook over the next twelve months not necessarily for your portfolio but the market in general from a credit perspective?

Thanks, Don. I'm going to kick that one directly to Steve Plavin who is directly involved in our lending origination business day to day.

Don, the only real weakness I'm seeing really relates on the commercial side of the aisle really relates to condominium related financing in certain markets that are overbuilt. Otherwise I think all the other asset classes continue to perform well. Given the ever increasing aggressiveness of the first mortgage lenders, everything seems to be able to get financed and it's incumbent upon us to be very selective on the credit side to avoid those things which maybe won't work as well in the future as they have in the past.

So you are not even -- I understand that fundamentals are good -- occupancy and rent growth is picking up in certain areas. But the aggressive lending that has taken plus over the last year or two, you're not even seeing anything on the margin from an aggressive lending standpoint that is starting to show any signs of weakness?

I think that the more relevant phenomena is probably the aggressive buying that's taking place right now which is probably I guess will be accompanied by perhaps some aggressive financing as well. So I think the things that were done a year or two ago as long as you're with the right sponsors and the right real estate are going to be fine. The prices have continued -- are continuing to escalate and cash flow continues to be a smaller consideration presumably in the purchase decision of some of the buyers. So we are being very selected in terms of where we go, what sponsors we choose, who to finance and what markets we choose to participate in.

So it is more -- you are more concerned about the loans that are being done today from a vintage standpoint?

Other than condominium related, yes.

Okay. That's all I had, thank you.

James Shanahan, Wachovia.

Good morning everyone. There are a lot of rumors that we're in sort of fear and panic out there right now as I'm sure you are observing in the market too. But there are rumors this morning that this AVS CDO bid from [Mezlayer] is really just dried up at this point. And I'm more curious, do you -- are you in touch with the CDO market daily?

And what are you seeing with commercial real estate CDOs just in the last couple of days, keeping in mind of course that we and I think others on the call are aware that CRE CDO bid have pretty much been tighter and tighter with more flexible terms for some time now. Really also frame it for us in terms of if there is a little bit of weakness, where that still really compares to where we've been?

We are definitely in touch with the market on a daily basis, no question about it. And I think I will kick that one to Geoff who runs our Capital Market side.

I think to your point that certainly in most ABS markets you've seen a big dislocation here. I think people are expecting some temporary spillover into [crete] CDOs. I think that there is actually some people that are pricing transactions right now and I think over the next week you are going to see -- really the proof will come out as to what the impact is.

I think when you do look at the impact -- it's funny to note -- there were some bid lists out just recently on this and on the synthetic you have seen widening mostly in the index trades, but on the single names you haven't seen that degree of widening nor on the cash market have you seen the same widening.

So I think that it will be interesting to see how the market sorts this out but as we have said in the past a little bit of volatility here in the market is something that we look forward to and we view as an opportunity potentially.

Gentleman, is there anything that you could imagine happening in the resi side of the business that would interest you? Could it get so bad where we could all of a sudden see a more residential mortgage strategy?

I think we look at -- we try to look at everything. And we have certainly thought about the resi side of the business in the past. I guess my own personal opinion is we ain't at the bottom yet. I think we would be exceedingly careful to step into a business that has different dynamics, different drivers than our business does. And by that I really mean we believe that the primary determinant of our business is credit. Subprime aside, that is not necessarily the primary issue across the full RMBS spectrum.

Are there any other -- aside from that I guess I'm fishing at this point, are there any other asset classes that maybe look more attractive now or things that you had not looked at in the past? Or haven't done in the past I should say?

This is Steve Plavin. We really on the commercial side have made an effort to look at all asset classes all the time. We've invested in healthcare and parking and land. We try not to redline anything and remain opportunistic as it relates to asset classes and market sponsors. So we are always serving the whole landscape of things.

Jim I would just say the more liquid markets like CMBS are ones that -- if you look at the volume of how much CMBS we printed on balance sheet obviously we haven't seen a tremendous amount in the second half of '06 -- if this continues and we do see spread widening and we believe that things are more attractive in a market like that, that could be somewhere where it could have a direct impact on the balance sheet.

Thank you very much.

[Lenny Trexler], [LRT Financial].

Good year, guys. My question was answered. Thank you.

John Moran, Cohen & Company.

Good morning, guys. Thanks for taking my questions. Real quick just two quick ones. The unfunded commitments which I think are mostly construction loans, the timetable for putting those out I assume is 12 to 24 months or is it kind of a longer tail on those commitments?

I think 12 to 24 months is a good accurate estimation.

Okay. And then next question, just repayments and prepayment activity has been elevated for the last couple of quarters I think versus what we had seen in the past. I assume that the vast majority of that has got to be related to just transactional velocity and solid CRE fundamentals underlying the properties that those loans are written on. Could you give us any additional detail on the level of overall activity and how you see that unfolding over the next couple of quarters?

The level of repayments is strictly impacted by ever increasing property values as well as improving terms of borrowers being given by lenders. There is accretive refinancings available to borrowers sometimes 6 to 12 months after they purchased a property or financed a property. So that is really the most difficult dynamic in the floating-rate outside of our business. It's very difficult to get a lot of call protection on a floating-rate loan these days given the competitive forces in the market.

Which is why in part we have attempted when we think the value is there to lengthen out the duration of our -- the average duration of our portfolio by adding some longer-term fixed-rate assets. We will continue do that when we find value in those types of instruments again with the idea being or the objective being to insulate the portfolio from some of that prepayment risk.

Great, thanks very much, guys.

Rick Shane, Jefferies & Co.

Thanks for taking my question. The new disclosure, the new MD&A is very helpful and there was one I thought very interesting comment in there which is the possibility of using CDOs within the investment management businesses. Can you talk about that a little bit, what the strategy there would be and what the potential for leverage at Large Loan and at High Grade would be?

Hi, Rick, thanks. I will take a start at least. As you know, the CDOs that we have executed to date four of them aggregating approximately $1.2 billion of liabilities sold have been financing techniques or vehicles for us. In other words, the assets are on our balance sheet, the liabilities are on our balance sheet and essentially we own all of the equity and therefore all of the risk in all of those assets. That is not necessarily the only way to approach CDOs.

Others with more of a so-called arbitrage structure assemble assets, organize the liabilities and sell through 100% retaining essentially no risk but generating fees on an ongoing basis and that is not atypical across what has become obviously a huge business both in real estate and in corporate land and ABS, etc. Clearly for us we expect to continue to use CDOs as a pure financing technique for our balance sheet risk but we do see some opportunities to do -- to take that experience, that expertise and apply it in a somewhat different way more of an investment management tool. We are not there yet but we're working on some things and I think that in the future you will see us use the CDO marketplace more and in different broader ways.

As it relates to the last part of your question, Large Loan and High Grade, in inverse order, the High Grade separate account designed to target lower risk, lower spread mezzanine loans is an unlevered separate account. And Large Loan which is a commingled leveraged account probably will not have the level of diversity sort of by definition designed to take down large transactions. Probably will not have the diversity to be able to execute a CDO.

Okay so the -- I misread that then or misunderstood it which is that it's unlikely that you are going to use CDOs as financing structures within the existing funds but potentially we could see an investment CDO appear under CTIMCO somewhere down the road?

Absolutely.

Okay, got it. That is very helpful. Thanks, guys.

What percentage of your current loan portfolio is in construction? And what property types are those?

That is a Steve.

I can handle that. We currently have at construction loan outstandings about $110 million. Our total assets are 2.6 -- so pretty small number. What was the second part of your question?

What property type?

Property types are office buildings and condominiums.

Okay, where is the condominium?

Two office buildings, three condominiums, two of the three condominiums are in New York, one is in Chicago. Two of the three loans are 100% covered by units that have sales contracts and hard deposits. The other is rapidly approaching that stage, about 60% LTV. All three of them are very, very, very strong performing loans.

Okay. Then my second question is obviously you had difficulty finding any CMBS traction in the fourth quarter. I think you said that that would be the case in your last call. Are you essentially out of that market right now in terms of being able to find deals that make sense?

I think that as spreads continue to race in in the fourth quarter, it was a difficult environment to buy CMBS and feel good about it. There wasn't a lot of secondary market trading activity in the bonds that we liked most. Current market volatility could create some opportunities for us. We're looking very carefully. And we continue to have a very strong focus on CMBS. We own a lot of it. We're in the market every day managing what we have and looking for new things to buy.

One thing I would add, David, is just that we do hold all of our existing portfolio CMBS $810 million at year-end on a carrying value basis. We hold that all on a held to maturity basis. So obviously with all the spread compression, that has had a positive impact on value but none of that is reflected obviously in the balance sheet given the way that we account for our bonds.

Okay. And then my final question goes back to your original statement about your stock price. You obviously think it is a screaming buy here. We have reiterated our view in that respect. Is management looking to buy shares?

Management owns an enormous number of shares. We are -- albeit a small company -- I think fairly unique in terms of the concentration of ownership amongst management as we define it which is the guys on the phone plus the people who work here plus our directors, etc. Part of our compensation system continues to be geared toward issuing restricted stock grants. Those stock grants vest over time and with elements of performance vesting attached also, so we are very, very invested.

I'm going to leave the commentary on relative value and stock price to you guys, that is your business, that is not really our job. But I think that what you find in an absolute and relative basis is that management is extremely committed to this company.

Great. That's what we want to hear. Thank you.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this time.

Well then, thank you very much all of you for your attention and your interest. Stay tuned, we will see you again in a few months. Thanks.

This concludes today's teleconference. Thank you for your participation. You may disconnect at any time.