WP Carey Inc (WPC) 2008 Q3 法說會逐字稿

Greetings and welcome to the W.P. Carey & Co. Third Quarter 2008 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will be following the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Miss Susan Hyde, Director of Investor Relations for W.P. Carey & Co. Thank you, Miss Hyde, you may begin.

Thank you. Good morning and welcome, everyone, to our Third Quarter 2008 Earnings Conference Call. Joining us today are W.P. Carey's Founder and Chairman, Bill Carey, Chief Executive Officer Gordon DuGan, Acting Chief Financial Officer Mark DeCesaris and Chief Operating Officer Tom Zacharias.

Today's call is being simulcast on our website, wpcarey.com, and will be archived for 90 days. Before I turn the call over to Gordon, I need to inform you that statements made in this earnings call that are not historic fact may be deemed forward-looking statements. Factors that could cause actual results to differ materially from our expectations are listed in our SEC filings.

Now, I'd like to turn the call over to Gordon.

Good morning and thank you all for joining us. As we said in the press release, this was another solid quarter for us in the midst of a terrible financial crisis, as you all know. Revenues and FFO were ahead of Q3 in 2007 and we were pleased with the quarter.

While the financial crisis has and will create a variety of challenges for us, and I'll discuss some of those in detail on this call, the reason I think we had another solid quarter is our business model is defensive in nature. And there are a couple of reasons I think our business model is defensive in nature.

Number one, we don't use our balance sheet for speculative purposes. We haven't in the past, we don't today. Two, we utilize lower levels of debt. Mark will discuss the capitalization and liquidity position of the Company at this point. Number three, we've always utilized long-term non-recourse financing for our investments. And today, other than the line of credit at W.P. Carey, none of our funds have any recourse debt. Long-term financing is obviously safer as an investor because it minimizes your chance of -- your refinancing risk, which is a major issue for a lot of people today.

Number two, non-recourse debt is safer for investors for a variety of reasons, but primarily because any one investment, you're only at risk for the equity in that investment. You don't put your company at risk beyond the equity that you've invested in that deal. So, long-term financing has always been safer and non-recourse debt has always been safer. And that's how we've financed our investments over the years and continue to finance our investments today.

And lastly, the funds, the CPA funds that we manage, that we started in 1979, have always had a defensive investment focus. Those are the funds from which we earn our revenue. And so, the defensiveness of those funds directly correlates to the defensiveness of the revenue for us. Those funds invest in long-term obligations with a broad variety of corporations based upon a bond-type net lease. And again, the sensitive nature of those funds creates a more defensive nature of the management revenue stream that we receive. And I think for all of those reasons, we think we're positioned defensively.

Let's jump into the results. Revenues and FFO, as I mentioned, were up quarter-over-quarter. Revenues were up to $55.3 million from $51.2 million, an increase of 8%. FFO was up slightly to $33.5 million from $32.2 million Q3 of last year and net income was down to $19.2 million, down slightly. Mark will discuss the makeup of these revenues as well as the components when he goes through a more detailed discussion of the financial statement.

In addition, as you'll see, we have provided a variety of supplemental metrics. We have FFO from our Real Estate Ownership segment, that was up slightly and we would point you to the information in there. We've also provided an EBITDA of our Investment Management segment. And the reason we've done this is FFO is the traditionally used earnings measure for real estate based operations. EBITDA is the traditional earnings metric for investment management businesses, so we've broken up our business into those two metrics and provided that additionally. And we have that in our press release as you'll see.

Also, we have a supplemental metric that we use to try to measure core operating cash flow from our business. This is an adjusted cash flow from operations. We've been providing this for some time now. And adjusted cash flow from operations for the nine months of this year was up 3% to $70.1 million, up 3% over last year.

I want to talk a little bit about assets under management because the driver of our business is our Investment Management business and assets under management directly correlates with how we're doing in that business. The CP -- the Q3 of 2008, as you see, assets under management are up 10% over Q3 of 2007. I think that's a heck of a testament to the defensive nature of our business model.

There are a couple of reasons for that. One, the sticky nature of the investor capital. These are long-term investments for these investors. And as you see, in a market like the financial markets at the third quarter, the way these funds are structured, they tend to be very long term and relatively sticky in terms of the assets. The second piece is the underlying investments, as I mentioned earlier, are long-term bond-type instruments. And those instruments are more defensive in nature and so we don't see the same fluctuation in values.

Now, in terms of values, we have not updated our NAVs since April on two funds and December on two funds. We typically update them at the end of each year. We will be updating our NAVs at the end of this year. There will be some challenges that we face in the updated NAVs. As I mentioned, these are bond-type net lease investments. Credit spreads have widened this year, which means the discount rates used to assess those cash flows have gone up.

In addition, the dollar has strengthened against the euro, so therefore our equity exposure in dollars that we have in Europe may suffer from that, depending on where the dollar ends the year this year. So, those are a couple of the challenges we will face at the end of this year when we publish our new NAVs. We'll publish those NAVs in March.

Some of the mitigants to that, we use CPI increases in our leases. The CPI in both the Eurozone and the United States has been running at a pretty good clip and we have CPI increases in over 70% of our leases in W.P. Carey, CPA 14, CPA 15 and CPA 17 and over 80% of our leases in CPA 16 are tied to the CPI. And what that means is that that tends to increase the NOI of these funds as the CPI increases kick in and increase the cash flow.

In addition, we use amortizing debt. I mentioned the long-term non-recourse debt that we use, that tends to be amortizing debt which each quarter gets paid down, each year gets paid down. And lastly, to mitigate the currency exposure, we borrow in the local currency when we invest in an asset. And it's a very effective long-term hedge for the majority of the value of that asset. So, those will all be mitigants to those challenges.

On the other side of it, as I mentioned, as our NOIs increase in the funds, that is a positive through the CPI increases. The flip side of that is potential for increase in defaults. Tom will discuss in greater detail where we are from a default standpoint, but the fund occupancy today is at over 99%. But the potential for increase in corporate defaults remains an area of concern and caution for us going forward.

But I would also want investors to keep in mind how we're different from many investors and many net lease investors in terms of how we attempt to mitigate the potential for increases in corporate defaults. Number one, we use an Investment Committee process made up of people with decades of corporate credit, experience. It's a separate Investment Committee process from our Investment and Acquisitions process. And we've been using that process for many, many years now, it's been a key to our success and we continue to use that Investment Committee process.

In addition, we try to focus on critical operating facilities. These are facilities that companies need. Even as their businesses go through tough times, they need to pay the rent and keep the lights on in these properties to continue operating. And we seek to find and invest and lease back those types of operating facilities for the various businesses that we're conducting sale leasebacks with.

And the third mitigant is diversification. We attempt to diversify the portfolios by tenant. The two primary diversification goals, there are others, are tenant and tenant industry. And furthermore, we're diversified by tenant industry in terms of North America versus Europe. And so, diversification is a very important part of what we attempt to do to mitigate the possibility of an increase in corporate defaults.

The mitigants don't mean that we'll be unaffected by the macroeconomic climate and the potential for a worsening economy, but there are aspects of our investment approach that are unique and we hope that those mitigants will help us through the possibility of a tougher macroeconomic climate.

The other thing that affects NAVs are asset sales in the funds. We don't have any significant asset sales planned, so we would not expect NAVs to change based on that. Then lastly, the positive effect to NAVs is investment volume. When we make new investments, we are paid revenue for structuring those investments. They then add to our asset management revenue going forward as they're added to our asset base.

In the third quarter of this year, we closed $259 million of investments versus $214 million in the third quarter last year. Three of those investments were in the United States totaling $120 million. Two of those investments were international sale leasebacks in Germany totaling $139 million. Interestingly, all five of those investments closed with non-recourse mortgage financing, although I would describe the process of finding financing for investments in the third quarter today as looking for a needle in a haystack.

And I would also say that the financing market at the end of the third quarter was worse than it was at the beginning of the third quarter. It's continued to worsen throughout the year and it's worse today than it was then. The good news is all equity pricing seems to be improving and we think that the direction of the way assets are being priced will hopefully allow us to make all equity investments that meet our return requirements, especially if the financing market continues to be as bad as it is.

All of this means we're cautious about short-term volume in our investment -- short-term investment volume. We're being selective about pricing in the opportunities that we're looking at, but we're bullish about the opportunity set from an intermediate and longer-term standpoint.

As we've said in the past many times, sale leaseback opportunities get better and more numerous in tough financing conditions. And we believe, and to paraphrase what Warren Buffett said, I hope everybody got a chance to read his letter that was published in the New York Times, but we have a similar philosophy. And to paraphrase him, of being fearful when others are being greedy or, to paraphrase, aggressive, and aggressive when others are being fearful. And we do believe that we'll have those types of opportunities going forward as this is a market where clearly fear is overriding sentiment. And that always presents opportunities.

From a fundraising standpoint, we've been adding resources in terms of getting aggressive about where we see opportunity. We've been adding resources to take advantage of this environment. We've increased our direct marketing staff for the fundraising from the end of Q2 from 17 people to 27 people. We've added new distribution networks representing thousands of new advisors, all in an effort to increase our fundraising as we go forward.

The flip side of that is the environment is a very tough environment when financial markets are extremely volatile. Q3 was basically flat with Q2 from a fundraising standpoint, but we did see in September and October the negative effects of all the financial volatility, as people get nervous when a financial environment gets extremely volatile. We're hopeful that will just -- it doesn't need to get better, it just needs to be more stable.

We have raised $300 million since launching CPA 17. We're hoping to raise $2 billion in the Fund. Interestingly, in a report published by Robert Stanger and Company, $2.5 billion was raised in the same distribution channel that we raised funding in in the third quarter. So, we think the opportunity set is there. And again, as Warren Buffett would guide, we think this is the way to capture the opportunity, by aggressively adding resources to seek out additional capital for the investment opportunities today.

The positive side of the ledger for fundraising, we have a terrific team in the field that we've been adding to and it built up to, as I mentioned, 27 people. We have a lot of great relationships out there. And most importantly, we have a cycle tested track record that dates back to 1979. And the good news about this track record is it's publicly available. It's filed with the SEC and I would encourage any investor in W.P. Carey or the CPAs to look at our SEC filings and take a close look at our track record and how we've been able to weather various cycles and perform through various cycles.

In terms of the balance sheet and our liquidity position, Mark will discuss in greater detail our balance sheet. Tom will cover mortgage maturities that we're facing in our funds from a liquidity standpoint. I mentioned that using long-term non-recourse financing is safer because it minimizes refinancing risk. Non-recourse, that is safer because you're only ever at risk for the equity in that one investment.

But we're also in a terrific liquidity position today. Today across W.P. Carey and all of our funds, we have $520 million of cash. In addition to that, we have $15 million of lender deposits held by lenders and we have $60 million of tenant holdback or deposits. But in any way you look at it, we're in a very good liquidity position at the right time.

To wrap up, over the years I think it's fair to say that investors have been concerned that we're too conservative, too boring, too old fashioned. We've heard all of those. But I would also say that, by sticking to the fundamentals, clearly this market is showing that people who have stuck to the fundamentals as we have are going to prosper relatively. And that allows us to be in the position that we're in today.

The credit crisis and macroeconomic situations we face will not leave us unscathed, unfortunately. It'll affect everybody. But I would say two closing points. One, we have shown since 1979 in our track record that we can ride through these storms. And again, I would encourage everybody to take a closer look at that track record. And number two, times like this present great opportunities. Warren Buffett believes it and we believe it.

With that, I'd like to turn it over to Mark DeCesaris for a more detailed analysis of our financial statements.

Thank you, Gordon, and good morning. I would like to spend some time with you this morning reviewing the results of our core operation. And when we talk about our core operation, I look at the performance of our three primary revenue streams. And those revenue streams are annual management revenues, which we earn from the assets that we manage in the CPA series of funds, our lease revenues which we earn in investment in a portfolio of triple-net leases and our structuring revenues which we earn by structuring investments on behalf of the CPA series of funds.

The first two of those revenue streams, the management and lease revenues, are very stable, very predictable and they account for approximately 82% of the total revenues we earned for the nine months ending September 30th. The manager revenues, where we recognized approximately $60 million worth through September 30th, are supported by an asset base of $8.7 billion, spread across four funds.

In those funds are 210 tenants that are spread across 28 separate industries and in 14 countries, including the United States. They have a very low vacancy ratio at a range of about 1% and we are currently receiving approximately 50% of these revenues in cash. In other words, through September 30th, about $30 million of these revenues were paid to us in cash. The remaining revenues we take in shares of the CPA funds. These shares also generate cash that has distributions. And through September 30th, we received about $9 million in dividends from our ownership in these funds.

The lease revenue stream, and we've recognized approximately $57.6 million in revenues through September 30th. In addition, we recognized an additional $8 million in cash flow from dividends we received in investments which we account for under the equity method of accounting. While our lease revenue stream is not a growth driver of the Company, it is a stable and predictable source of cash flow, has a very low vacancy rate, approximately 5%, and we are actively managing both our lease rollover and debt maturities in this portfolio. Tom will give some additional detail on the portfolio in his comments.

Our third revenue stream, structuring revenues, are recurring but not as predictable from a timing standpoint. It is a primary growth driver of this business as not only do we earn revenues on the investments we structure for the funds, but as they go into the assets under management, we continue to earn annual asset management revenues on those on an ongoing basis.

They are positive to both earnings and cash flow. Roughly 55% of this revenue stream is received in cash at the time the investment closes. And approximately 45% is deferred over periods ranging from three to eight years, depending on the fund, and earns interest over that period of time.

As Gordon mentioned, our investment volume for the third quarter was approximately $259 million versus $214 million in the prior year. And on a year-to-date basis, our investment volume was approximately $404 million versus $950 million in 2007. The impact that had on us this year was our year-to-date structuring revenues are down approximately $25 million versus the prior year on a normalized basis. That impact was -- on our cash flow, we received approximately $9 million less in pretax cash flow as a result of that reduction.

I think it's fair to say from this revenue stream that while we're depending on this to drive growth in our business, we're no longer as dependent on it to cover our dividend. And when we look at our dividend coverage, we primarily focus on two metrics.

The first one is our adjusted cash flow and at September 30th, our adjusted cash flow was approximately $70 million and slightly ahead of the prior year. The reduction in cash flow created by our below average investment volume was offset by additional cash flow that we pulled from the -- our management revenue stream, as well as increased dividends from our ownership in the CPA managed funds. The current dividend payout ratio on this metric is approximately 84%.

The second metric we look at for coverage is FFO. And on a comparable basis, FFO for the quarter and year-to-date increased over the prior year, excluding non-recurring items in the prior year. Our FFO at September 30th was $2.25 a share versus $2.22 in the prior year and the current dividend payout ratio at September 30th is approximately 65% on this metric.

One of the major differences between our FFO and the adjusted cash flow metric is in the adjusted cash flow, we exclude the revenues that we receive in shares from the funds. So, even though we don't include this in our adjusted cash flow, we do get future dividends on those as part of that. And that is included in our adjusted cash flow metric. The other major difference is that in adjusted cash flow, we tend to normalize it for non-recurring events, such as the CPA 16 hurdle that was achieved last year and any non-recurring adjustments as well.

Gordon spoke about our balance sheet and we do have a very conservative and strong balance sheet. Included in the assets on our balance sheet is our receivables of approximately $48 million, which are due from the CPA funds for things including deferred acquisition fees. And the majority of that $48 million is due in the next three years.

We currently carry in our equity investment line approximately $192 million worth of shares in these CPA funds. We have approximately $34 million in debt maturities coming due in the net lease portfolio in 2009. We've made substantial progress and don't see any problems in renewing that debt. And we have a fully committed $250 million line of credit with a term that runs through June of 2011 and carries with it a one-year extension option. The outstanding balance of that line at September 30th was $73.5 million.

Gordon mentioned the use of Company level debt and the only place across any of the W.P. Carey Group where we have Company level debt is the public company. And on a percentage of total market cap, that runs approximately 5%. So, it's extremely low level of Company level debt on the Company, it's a very conservative balance sheet. And even including the non-recourse debt of our investment in net lease portfolios, total debt for the Company to total market cap is approximately 30%.

We included in our earnings release a comparability page. We had two events last year which both were incremental to our net income last year. One was the CPA 16 hurdle. The second item was an out-of-period adjustment that we had taken in the third quarter. So, we included this comparability page to help you really look at the operations, excluding those two events. And I'm happy at the end of this call to answer any questions that you have on that earnings release.

With that, I'd like to turn the call over to Tom Zacharias, our Chief Operating Officer.

Thank you, Mark. I would like to now provide a brief portfolio report for the third quarter of 2008. In this current economic environment, there are always concerns about an increase corporate defaults. We closely monitor tenant performance for a review of tenant financial statements, meetings with management and review of financial covenant compliance.

We have seen an increase in the level of stress for tenants in certain industries, not surprisingly automotive parts, home building materials and prepared food industries to name a few. We've also seen that consumer-related industries are feeling the effects of a slowing economy, as well as businesses that are operating with high leverage.

We have not experienced a significant increase in corporate defaults year-to-date. So far year-to-date, we've had a total of four tenants enter bankruptcy protection, Quebecor, Lillian Vernon, Innovate and Buffets. This is out of over 290 tenants in the five funds.

Because we have large diversified funds and there's not a significant amount of cash flow in each fund, in each case, we have obtained so far between 43% and 100% of the pre-bankruptcy annual cash flow in the work out of each default. We expect in the next 12 to 24 months there will be additional corporate defaults. We monitor closely rent delinquencies as a precursor to potential default.

Because we seek to own critical facilities, as Gordon mentioned, where payment of rent is a requirement for utilization of space, we have been successful in keeping rent receivables low. We have seen a small increase in rent delinquencies in 2008 and we remain very focused on rent management issues and have devoted additional resources to enhance tenant monitoring and rent collection activities.

For the nine-month period ended September 30th, 2008 as compared to the same period in 2007, real estate revenue for the LLC owned assets increased by approximately $1 million or 2%, due to a favorable impact of rent increases and foreign currency exchange rates, as offset by the negative effects of property sales and lease expirations. At the end of the third quarter, occupancy was approximately 95%, no significant change from the prior quarter.

We sold one property in the third quarter back to the tenant for net proceeds of approximately $5 million. We have virtually no lease revenue expiring in the public company in the remainder of 2008. In 2009, we have 8% of the revenue expiring.

We are in discussions with all 13 tenants involved and expect a very significant portion of these tenants to renew their leases. Going forward for 2010 and 2011, the lease revenue expiring is approximately 18% per annum in each year and we are in discussions with each of these tenants to renew these leases early.

Mark has previously mentioned we have a modest amount, $34 million, of mortgage debt coming due in the LLC in 2009 and we are already pursuing refinancing options on this debt. So in summary, there are not significant lease rollovers and mortgage maturities for the public company for the remainder of 2008 and 2009.

As of September 30th of this year, the occupancy rate for the 91 million square feet of facilities owned by the CPA REITs was approximately 99%. We expect in this economic environment that the vacancy will creep up slightly going forward.

There are not significant lease maturities in the CPA funds over the next three years as average lease terms in these four funds is between 11 and 18 years. Of the $4.3 billion of mortgage debt in these four funds, none is coming due in the remainder of 2008 and a total of approximately $311 million comes due for refinancing in 2009 and 2010. This is about 7% of the debt outstanding and we are pursuing refinancing options on these mortgages as well.

So now, I would like to turn the call over to our founder and Chairman of the Company, Mr. William Polk Carey.

Well, thank you very much, fellows. I want to particularly say thank you for doing such a great job for our managed funds, because I don't believe an investment management firm is any better than the job it does for the managed funds. And those funds, a year from now, the investor relations people, the investors calling in and say this is the best of my portfolio. And we've heard this time and time again.

And as far as I know, the unmanaged funds have done better than just about any managed funds of any kind, which is foot of the -- we have a very, very safe way of doing business. And some people call us a stay-rich investment instead of a get-rich investment. But still, people have gotten significant increases in value of their investments over time and they've gotten some very significant income and it's been a good way to protect yourself.

These are very much like bond funds, except they are better, and I -- because they have the inflation protection of the CPI increases and they have the -- besides having the credit of the tenants, they have the -- they're backed up with the critical property of those (inaudible).

And it just works better than just about anything, and I believe that everybody -- I believe John Vogel when he said everybody should be in bond-type funds for -- at least for his age as a percentage of his investments. So, if you're 25-years-old, you should have 25% of your money in bond-type funds, and if you're 75-years-old, you have 75% and things like that. And everybody -- and this is the best kind of bond-type fund that I know about -- know of.

It's ideal, [most hanging] advice, you put everything into one thing. But, a very -- we have such broad diversification, and it's so careful. They -- and I showed you -- I shouldn't finish without saying how much I appreciate the diligence of our Investment Committee, which basically -- if I tried to influence them to do a deal, they'd just quit.

These people are so independent, and they're so over -- wonderfully qualified with -- but it -- earning investments is [comp-based], accumulated assets in the trillions, and it's just amazing the -- of people that we've able to devote themselves to this. And they care about our investors like they care for their own children.

They do a great job, and I want to thank our investors for being with us and believe me, I'm one of them. I bought an additional 350,000 shares in September, and we will be working hard to make this investment pay off very well for our investors over the long run. We are -- our two mottoes are investors for the long run and doing good over doing well. As you probably know, we have done -- well, we've been doing this business.

We've got two business schools, one, Arizona State University, called the W.P. Carey School, which has also a significant operations in China, which building good relations with that big country and also the Carey Business School at Johns Hopkins. And we're proud that we continue to do that. We don't use shareholder funds for it. We use a couple of years of dividends that I get, we devote largely to this type of thing.

So, we're going to work hard to bring those dividends up and do more good while we're doing well. Thank you very much.

Thanks, Bill.

Well, thank you very much. That concludes our presentation this morning. We'd now like to open the call up for any questions that you may have.

Thank you. (Operator Instructions).

Our first question comes from tonight comes from the line of Andrew Dizio with Janney Montgomery Scott. You may proceed with your question.

Hi. Good morning, guys.

Hey Diz, good morning.

Just a couple of quick questions for you, I guess first in regards to capital raising for CPA 17, you mentioned you guys have secured some new distribution channels. Can you just comment on the nature of those channels, if they're similar to your previous channels with the automatic assessment?

Yes. They -- the -- what we can say is that they are similar to our current channels. We have not -- those aren't all publicly known what those channels are, but they are -- they're similar channels to our current -- the current channels that have been selling.

Okay, thank you. And in regards to the investments within CPA 17, are you continuing to see deal flow come across? Or, can you comment on the flow and the pricing?

Sure, yes. The -- they're -- those are two separate points. As you know, we're seeing a lot of deal flow, and when times get tough from a credit space, we've always seen an increase in the amount of deal flow for -- that -- from a -- as a sales leaseback investor. So, deal flow is good. We're seeing a lot of deal flow.

Pricing is the difficult -- one of the challenges we face, which is just to how to price returns today, we want high returns for our investors, and companies want to keep those returns down and there's a little bit of tension there. So I would say in general, we have been looking for higher returns than some other investors, because we think -- we think our investors deserve those higher returns.

So, it -- part of why I mentioned we were short-term cautious on investment volume is that we think that -- that we think we ought to get pretty good pricing in a capital-constrained world. And to the extent a company isn't willing yet to agree to that pricing, we're willing to wait.

Okay, thank you. And one last question, just in regards to the potential for tenant default, is there any industry or set of industries that you're focusing on or that you see that potential being greater?

Well, the great part of diversification is it allows you to have your eggs in a lot of different baskets and not have any one industry be too worrisome. On the other hand, as Tom -- Tom did mention a couple of industries and maybe, Tom, you'd just comment on when you have tenants in 28 different industries, some industries are always going to be under stress. And we're seeing some stress in some particular industries.

Yes. The beauty is that we are well diversified. We have done several investments in the automotive parts industry. That's an industry that's under stress right now. We have done very well in that industry in the past, however. We had two tenants go full cycle where there were Tower Automotive and Collins & Aikman, and the tenants filed. They restructured. They improved their balance sheet and came out, and we have better credits of -- as a result of that, and they never missed a rent payment.

I don't know whether that'll happen on every deal, but those were two very successful deals in the automotive space. But that's been one, and we have some companies that are involved in the home-building materials industry, and they're experiencing some stress.

And ultimately for us, this equation is do they need our property to continue to operate? And if we've done that part of the underwriting well, often we have companies get stressed, get into financial difficulty but continue to pay their rent, not always but often. And so, the company getting into financial stress is worrisome, but it does not -- it's very important to say it does not necessarily portend the loss of revenue on that transaction. It may, but it certainly may not.

Sure, okay. Thank you. That's all my questions, thanks.

Thanks, Dizi.

Thank you. (Operator Instructions).

Our next question comes from the line of Everett Reveley with Davenport. You may ask your question.

Good morning.

Good morning, Everett.

Good morning.

A couple of questions for you, first off, what is your current investment capacity in the funds in terms of I guess just pure equity capital? And then if you could get your normal leverage?

I'd say probably a quick cut at that is just if we were to stop fund -- all fund-raising today, which we certainly wouldn't, we'd have about $500 million in cash. So if you were to -- if we were to get our normal leverage, that's about $1.2 billion. That's -- that's kind of a short answer, but obviously we're throwing a lot of resources at new fund-raising to try to increase that dry powder, if you will.

You'll have a goal that you're willing to share with your fund-raising going forward?

What I would say is we filed for $2 billion in Fund 17. We hope to raise that. We are putting resources at work to try to raise that, but that's our hope-for goal. But, it's not -- the pace of fund-raising would have to pick up to get to $2 billion.

Is there a cut-off point when that $2 billion has to be raised by?

Yes. It -- my understanding of it, Everett, is and not being a securities attorney, this is just my understanding of it, is through -- we have through the end of 2010. We have -- the offering goes through the end of 2009, and then we extend that -- we can extend that offering for a year and continue the offering through the end of 2010.

Got you.

So, we have quite a bit of time.

Thank you. And did you all say whether you had repurchased any shares since your new authorization?

Yes, we did. I think we disclosed -- no, we didn't, sorry. I just got the headshake, Everett.

Got you. Okay, thanks.

Sorry about that, Everett, I -- yes, that business -- in high school basketball, we used to call that a pump fake.

A throw for all. My next -- can you give any kind of a rough estimate for how badly your NAV would be affected for your funds right now if you had to mark them to market?

We don't know, Everett. As I said, there's some positives on the ledger and there's some negatives on the ledger, and we don't know where it'll come out. So, we have -- we don't have an estimate of it, and we certainly -- we haven't made any public estimate of that. So -- and some of it will depend on where -- there are a couple of variables that will be variables as of December 31st. So for instance, the dollar euro currency exchange will be as of December 31st. So, it'll depend on where the dollar and the euro end up as of the end of this year.

There are a number of people, macroeconomists and experts in foreign currency, that believe the dollar has strengthened somewhat artificially in the last few months and that the overall trend for the dollar euro is favorable to the euro. But, it'll be as of December 31st that that variable is established, so we're -- we'd be guessing today.

Again, we do borrow in the local currency, which is a very long-term effective hedge -- very effective long-term hedge. It's hard to get long-term hedges, But we're not hedged on the equity piece of it and so again the dollar-euro exchange rate as of December 31st will be a big determinant of that NAV and any -- it's anybody -- we're guessing right now, although I would say that the macroeconomists that we've talked to have a favorable outlook of the euro versus the dollar. That's just one variable though.

But the main thing that I look at as an investor, and I think most people should look at, is what is the cash flow trend of these funds? Every single one of them is cash flow up. And dividends up. And the same with the advisor. And the inherent value of an investment is much income can you get from it.

And you -- if you -- and if the market is not -- obviously if the market were just booming for investments and if they're taking them publicly traded to being alternative, but why do it when you've got something that really works? And it's doing a great job for investors? And they pay it -- if we have no pressure from them to do it, we do have a custom of providing the liquidity of that. In fact it says so in the prospectus. We will endeavor to provide it. The liquidity of that is sometime between the 8 and the 12th year.

So we'll be probably looking at that for seek pay 14 next year. And figuring out -- trying to figure out a way, if we -- if the market is right, for you to have liquidity of that next year. But we basically -- are you taking them public? In this kind of a market, it wouldn't seem to be too exciting to me. I think somebody else knows better than I do about it.

Could you remind me real quick what percentage of your funds are international, that are assets?

It varies by fund. Tom, roughly?

Yes, we just did it in rough numbers. We have $3 billion in assets that are outside the US out of a total of slightly over $10 billion. So --

And can you just --

Less than a third.

Okay. Can you give me any kind of rough estimate for how much you think the appreciation in the dollar recently will kind of be a drag on earnings in the short term, as far as just rent income?

Yes. We -- that's probably something, Everett, we ought to talk about offline.

Okay.

And I -- Everett, I -- we haven't seen any real impact in the earnings from the euro-dollar. We -- it obviously has had some negative impact, but nothing material.

Okay.

And that -- we've been the beneficiary in past years of a strengthening euro and we've been a slight -- we've received the flip side of that this year. But in both cases, it's not been material.

Okay. And then my last question is somewhat of a philosophical question. You all talk a lot about using non-recourse debt, and that certainly makes a lot of sense, but I'm wondering, if push came to shove, would it -- is there any kind of implied backing from you all?

No. Let me be very clear about that. No. There isn't. We will, in any circumstance where we have a non-recourse lender, do everything we can to work our equity out of it. And then we will do everything we can to salvage the value of the lenders' investment in that. But we are fundamentally fiduciaries for the equity.

And we will, at some point, that investment, they're big boys, they're smart investors and if it's good money after bad, it's no longer our problem and we've been very clear with the lending market about that. And with the -- because expires and the old securitization world, we told them there's no implied backing. These are non-recourse loans. You're a big boy. We're a big boy. We will do everything we can to preserve our value. We will do everything we can to preserve your value. But at some point, if all goes wrong, it's your asset.

All right. Thanks.

(Operator Instructions). Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Thank you. Well, we wanted to thank you all for joining us today. As a reminder, our call -- a replay of the call will be available after 2.00 p.m. by calling 877-660-6853 account number 286 and a conference ID of 299626. That information is all available also on the press release. The replay will be available through November 21st.

Thank you again. And we look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.