Good morning, and welcome to the Ares Commercial Real Estate Corporation's conference call to discuss the company's fourth quarter and year-end 2014 earnings results. During today’s presentation, all callers will be placed in a listen-only mode. Following management’s prepared remarks the conference call will be opened up for questions. As a reminder, this conference is being recorded on March 5, 2015. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of such words as anticipates, believes, expects, intends, will, should, may and similar expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment. These statements are not guarantees of future performance, conditions or results and involve a number of risks and uncertainties. The company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors including those listed in the SEC filings. Ares Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I will now turn the call over to Mr. Todd Schuster, Acres' President and CEO. Mr. Schuster, the floor is yours, sir.

Thanks Mike. Good morning, everyone. I'm joined today by Tae-Sik Yoon, ACRE’s Chef Financial Officer, and Carl Drake and John Stilmar from our Investor Relations. This morning, we reported record earnings in the fourth quarter of $8.9 million or $0.31 per common share, well in excess of our $0.25 per share fourth quarter dividend. As we have discussed on prior calls, we spent 2014 building our principal lending portfolio and repositioning our mortgage banking business. Q4 in our opinion is a reflection of our accomplishments over the past year and of the potential earnings power of our asset base and mortgage banking platform as we move into 2015. I would like to touch on a few of our major accomplishments in 2014. For starters, we have now reached critical scale with a $1.4 billion portfolio of self originated, high-quality loans without any incidents of default. Second, we successfully expanded our product suite as evidenced by a significant preferred equity investment in the fourth quarter. We have chosen to invest in preferred equity investments as we believe they can provide attractive risk-adjusted returns. More on this later. Third, we have continued to optimize the right side of our balance sheet by increasing our debt capacity from diverse sources, while simultaneously lowering our cost of funding. As an example, we completed our second securitization at our higher advance rate and with a cost of funding that was approximately 44 basis points lower than the securitization we had executed in 2013. Lastly, we successfully repositioned our mortgage banking business in 2014 as illustrated by our strong fourth quarter production activity of $313 million versus the $200 million to $215 million estimate we had provided in last quarter’s earnings release. While the progress in mortgage banking took longer than initially expected, we are confident…

Great. Thank you, Todd, and good morning, everybody. Thanks again for joining our year-end 2014 earnings call. I’m going to begin this morning by a quick recap of our fourth-quarter and full year 2014 financial results, but really I am planning to utilize most of the time this morning to talk in detail about how we are continuing to optimize our balance sheet and how we’re managing our remaining liquidity and investable capital. So to recap, we are obviously very pleased with our fourth quarter 2014 results. Net income was $8.9 million or $0.31 per diluted common share. This consisted of $6.7 million in our principal lending business and $2.2 million in our mortgage banking business. These fourth quarter results contributed to full year 2014 earnings of $24.4 million or $0.85 per diluted common share, again comprised of $22.5 million from principal lending and $1.9 million from our mortgage banking operations. At year-end in our principal lending segment, we have 46 investments totaling 1.6 billion in commitments and 1.4 billion of outstanding principal, excluding non-controlling interest held by third parties. All of our loans continue to perform in accordance with returns and we have no delinquencies, defaults or impairments as of December 31, 2014. We also continued to match fund our assets and liabilities to its respective interest-rate exposure in our principal landing segment. As such, approximately 89% of our $1.4 billion in loans as measured by outstanding principal, earned interest based on LIBOR, which compares well to approximately 94% of our 1.1 billion in outstanding debt liabilities in which we pay interest also based on LIBOR. Due to our match funding strategy we believe that we are well-positioned to benefit in a rising interest rate environment, so that if LIBOR rises we expect our net income to rise commensurately.…

Thanks Tae-Sik. As you may have seen from our earnings release that we issued this morning we have provided earnings guidance for the full year 2015, and for the first quarter. Specifically, we expect improved profitability in 2015 with earnings ranging from $1.02 to $1.14 per diluted share. Importantly among the many assumptions we detail in our earnings release, our outlook assumes no incremental equity in 2015. Accretive raises, if available, would likely enhance these earnings especially in light of our $125 million of working capital facilities, which enable us to draw and repay capital as needed, therefore minimizing the drag associated with the [rate] should it become available to us. Additionally while we expect significantly higher full year earnings for 2015, first quarter tends to be the low period for mortgage banking production. In order to provide transparency for our investors around this issue, we are providing first quarter earnings estimates of $0.21 to $0.24 per diluted share. Lastly, I just wanted to remind everybody that with approximately 9% of the company owned by affiliates of Ares management, the board and specifically ACRE’s senior management, we have strong shareholder alignment and fervently believe in the opportunity for our company. I want to thank our investors and employees that have supported the company’s expansion in 2014 and I look forward to a prosperous 2015 and beyond at ACRE. This concludes our preferred remarks. Operator, please open up the lines for Q&A.

[Operator Instructions] The first question we’ve comes from Steve DeLaney of JMP Securities, please go ahead.

Thanks good morning everyone and congratulations on a strong close to 2014. So, Todd given the comments that you made about capital strategy and which you would and wouldn’t do and take – about capacity. Should we expect if we look at 2015, I think last year, which is a $1.3 billion total and maybe 500 of that was in mortgage banking. Given that mortgage banking business is less capital intensive should we think, and we think about total originations, is it likely that volume is going to be greater in mortgage banking then principal lending as you see 2015 unfold?

This clearly, thanks Steve first of all for the kind comments. There are – we certainly expect to see mortgage banking pick up meaningfully in 2015 as a result of all the works and efforts and investment that we put into ACRE cap. And as you mentioned, right now our plans are not to raise capital by issuing stock dilutively or issuing stock below book value. So, as a result we’re going to have, certain limits on our capital availability and so it makes perfect sense to me that mortgage banking production could potentially exceed the production that comes out of the principal earning side of the portfolio.

Great, that’s helpful. Just in terms of thinking about our model, and could you let us know the total number of loan originators that you currently have and each segment today in principal and mortgage banking?

In mortgage baking the numbers move around I’d say between 12 and 15, on the principal lending side it’s probably around 4 to 6 somewhere in that range. Yes, right when we talk about originators we’ve teams of analysts and underwriters etcetera who support these folks and close those etcetera.

The numbers I wanted were sort of the same ULS, the real producers here, so 18 to 20 across the platform. I guess just to pick up on your comments about all the repositioning if you had to guess out of that 18 to 20 people, what percentage of those people were with ACRE say at the end of 2013?

Low percentage, of folks. Yes, we’ve done a substantial turnover of the production side of that business and it’s something we’ve been discussing for a while here and in fact, several of those new hires didn’t even come on until the mid if you will of 2014 or second quarter 2014. So, we’ve not in 2014, we did not get the full benefit if you will of the stabilized year out of the lot of those folks. I think the cap.

Right, understood. Thanks for those figures that’s helpful.

And just to mention as a follow up, in the principal lending side of our business, we’ve very little turnover of folks that’s a much more kind of established in trench group of folks that we have outside of the business.

Okay, thanks. And Tae-Sik that was I noticed which you did in about leveraging some of your retained bonds, how far down in the structure in terms of, this was you’re seeing BF deals, so I guess they rate everything, pretty far down, how far down in terms of ratings are you able to assign that collateral?

Sure, Steve. We were able to take that $99 million retain which were all the bonds that were initially rated below investment grade obviously we’ll retain all of those bonds and that is really what we have use as collateral for the $57 million in financing we received. The other thing I should mention is that we also received an upgrade of the senior certificates that were issued in that securitization. The lower rate we’re trying to, is we’re not rerated, senior certificates were re-rated.

So, you basically just pledged everything that you had below the senior notes and receive the $57.2 million?

And again, that was one of our strategies to make sure that as our first securitization starts to deleverage with the principal repayments that we’ve had in the loans. This is the way that partly mitigate the impact of that deleveraging was to lever our retained certificates.

Totally get it, makes a lot of sense. Now on the same line, and those CMBS structures are all different in CLOs, but are you exploring the way CLO is structured, is there any possibility to do something similar to lever your subordinate position and your CLO?

Yes. I mean, there is really nothing structurally that would prohibit us from doing, obviously our sec and securitization when we issued back in August of 2014 that obviously has not experienced the same degree of deleveraging. And so, at some point I think we’ll continue to explore the idea of potentially leveraging that second retain securitization.

Got it, thank you appreciate the comments.

Thanks so much Steve.

The next question we’ve comes from Rick Shane of JPMorgan.

Thanks guys for taking my question. Just want to circle back on the preferred investment a little bit. So what is the actual whole size here?

The whole size on the preferred is, we were left with $87 million investment in the transaction.

Got it. And you said, you’ve an 11% unlevered yield on that?

In Excess.

And how should we think about, how you fund that is there, are you using leverage on here $87 million old or should we think of these investments going forward to the extent that you do additional ones as unlevered investments on your balance sheet?

Great question. Generally speaking, our leverage is applied to our first mortgage book and our subordinated book or preferred equity book we tend not to leverage. So, as a general matter going forward yes, you can expect that preferred equity investments are likely as we originate them to come on the books without kind of explicit leverage on them.

I realize ultimately the leverage is little bit tangible, but in answer to question exactly the way we want it to understand it, for example and this is entirely hypothetical if you were to run the book only, only in these types of investments there would be no leverage.

Taking my comments to the extreme yes, absolutely.

Got it. And what are the economics, are there any beneficial economics other than diversification from syndicating out the other portion? And again on sale, are there any fees that you capture upfront related to that?

There was an origination fee that we captured, as we do with most of our loans. Yes, there is, the net impact was left with an $87 million investment with a yield in excess of 11, it was done again for the purpose of kind optimizing our capital structure and importantly diversifying risk, I mean, that was one of the drivers.

Got it. And then, last question when we think about that 11 plus percent yield is that basically accreting in the origination fees on the whole $170 million over the expected life of your $87 million old?

Yes.

Okay, got it, thank you very much guys.

Thank you.

Next we’ve Jade Rahmani of KBW.

Yes. I wanted to ask another question around investment capital, do you think that the manager could consider upping its stake or making direct investment in ACRE at book value after fees in order to help accelerate earnings, signal confidence in the business outlook which you guys seem positive on and while also not diluting existing shareholders?

I hate to, I don’t love the questions about what’s possible because of course anything is possible, but look we think Ares has been incredibly supportive of this vehicle in a whole host of ways as I pointed out in my scripted remarks there is alignment of interest by virtue of sort of insight ownership here at 9%. Ares of course, came through with a guarantee of one of our working capital facilities not so long ago, we’re picking up also it’s a benefit as it relates to relationships on the capital and capital market side as evidenced what we did on the preferred on the equity investment bringing in an investor that was strong relationship of Ares. So, I firmly believe that Ares has been incredibly supportive to-date.

Okay. I mean, it just seems that the company on the principal lending side is in somewhat of a tenuous position with respect to access to capital and we know the impact that can have on originators. So that would seem to be one alternative, what about other –

Hold on, just for a second Jade. Just let me interject here for a second, because there is a couple of thoughts around that. I guess, I objected the concept that the principal lending business is in a tenuous state, I mean, the principal lending business is as solid as it’s been, it’s setup to generate a fairly predictable and stable slow of earnings for us over the next year. And as it relates to the origination staff being concerned about our lack of capital, keep in mind, again this is an example another benefit of being affiliated with Ares and I think we actually announced this. We raised, we created a $700 million separate account with an insurance company to invest money in flooding rate and fixed rate loans in the U.S. We’ve also got a smaller SMA in Europe to originate loans over there, so from our perspective, the production staff is being kept busy by these other products which is great. So, and these products don’t necessarily compete with what ACRE would do if ACRE in fact did have much more capital.

Okay. I want to ask also about alternatives such as a convert and also whether the previously set range for financial leverage has been reconsidered, what kind of balance sheet leverage would you be comfortable with?

Sure. Good morning Jade, this is Tae-Sik. With respect to a potential convertible note, we are always examining different capital options available for a company. We are always seeking opportunities to optimize our balance sheet as we have talked about. I think we have been very successful as we also mentioned of extracting more capital out of our using assets so that we don't have a need to raise common capital. As I mentioned in my remarks I think in 2014 alone we raised more than 200 million of investable capital out of our existing assets base and we will continue to do that and so the idea of a convertible note is certainly something that we will continue and we have looked at. I think the market is fairly strong. Our understanding is it’s not as strong as it was sort of in late summer early fall of last year, but is off to get start in 2015. We obviously have a convertible that is expiring that is coming due at the end of this year so we will also be looking to refinance that convertible note and we think the good news is that if we were to look at pricing of convertible notes today it would be materially lower than the convertible note that we have outstanding. So, we look at it as a in fact an opportunity to lower our cost of funding if we were to issue a new convertible. And as far as total debt to equity, think we have said that we expect to be sort of in low to mid three debt equity range and I think you will see us in that range throughout 2015.

Okay. Regarding the service transfer that was mentioned is it reasonable to expect this to have a modest reduction in G&A?

Yes, I would say, I wouldn't call it a modest reduction in G&A I think it’s a servicing transfer actually loans that were previously being serviced by third party to ACRE capitals actually what you will see is small pickup in servicing revenue for the mortgage banking sector.

Okay. And then, just on the ACRE capital side, can you talk to where gain on sales margins are running and what your expectations are for the year?

So, in our numbers for the quarter I think we were showing gains on sales Tae-Sik around 2.6. So that's probably a reasonable maybe low end of the range kind of margin that we think we could achieve over the course of the next – over the course of 2015.

And Jade, it will be driven primarily by the product mix obviously as well as market conditions. So, the product mix between Fannie Freddie, FHA, HUD, obviously the great news is that we have capabilities in all three of those sectors and so the margin will be determined both by market conditions as well as the mix of those three product base.

Okay. And on the servicing fee, I think that's been coming in around between I would say 28 and 30 basis points. Is that reasonable to expect or do you still expect to see some benefit from Fannie Mae DUS business driving that higher?

Yes, I mean, generally it’s been I will call it 35 to 40 basis points on UPB and again it will change overtime albeit slowly because most of our servicing book will be based on MSRs that we already have in place. But obviously we will be putting in place new MSRs that will have different servicing fee margins going forward so that mix will change over time but currently its about 35 to 40 basis points.

Okay. And then, just finally on prepayments what’s in the principal lending segment that came in pretty low this quarter. What would be your expectations for 2015?

Look, we fully anticipate that we are going to have prepayments especially in some of the loans that are kind of the older loans in our book. I don't know that we are putting out specific number as it relates to projections on prepayment for the year. But, we clearly anticipate that we will see some additional prepayments and by the way that actually kind of cup those ways because if prepayments are low that's obviously a benefit for us and if prepayments are high it does kind of give us an opportunity to unlock some of the value for example that's in FL1 because when we get to a certain point we will be able to unwind the trust and basically more efficiently use those remaining assets to our advantage. So high prepayments, low prepayments we still think we generate fairly predictable and stable level of earnings out of the principal lending book.

Thanks very much for taking my questions.

Thank you Jade.

Next we have Doug Harter of Credit Suisse.

Thanks. Can you just help us understand the difference in gain on sales margin across the different channels of DUS and Freddie and HUD?

Yes, look we have three products, I would say in order FHA is our highest margin product followed closely by Fannie DUS and then sort of a distance third is Freddie Mac. So, of our three products two are what I would call higher margin products. I would say and Tae-Sik correct me if I am wrong here, but I would say that the HUD product is probably kind of a flourish point margin and Fannie DUS is slightly lower than that and Fannie Mae is probably around one point. I am sorry, Freddie Mac is around one point. So, four at the high end for HUD, one at the low end for Freddie and then Fannie somewhere in the middle but closer to the FHA product.

And as we think about the mix going forward what are going to be the key drivers that kind of drive the mix between Freddie and HUD and Fannie?

Well FHA is sort of its own kind of in its own space so it’s hard to sort of compare it to Fannie and Freddie. Fannie and Freddie are often compared to each other right now I think it’s fair to say at least if you look at our kind of pipeline that Freddie is probably touch more aggressive right now and we are seeing a little more production on the Freddie side, but I think it’s important to understand that one is always more aggressive than the other at any given point in time and so over the course of year we expect to see that kind of go back and forth. Freddie actually has a $30 billion lending CapEx to Fannie, I think Freddie is actually closer to hitting their lending cap right now than Fannie is. So, over the course of the year we expect to see that relationship kind of move around back and forth. So and in FHA, it’s kind of a longer lead time business and it’s got very different kind of metrics and timing associated with it in volumes.

Great. Thank you.

Dan Altscher, FBR.

Hey. Thanks. Good morning everyone. I appreciate you taking my questions. Tae -- disclosure around Huston exposure I am just wondering if you could give us any sense if there is anything kind of in the Dakota, Bakken, Shale region that maybe we should also be aware of?

Sure. Good morning Dan. Thanks for your question. Yes, I should have mentioned sort of North Dakota Montana, so for our principal lending business we do not have any loans located in those geographic markets and in our mortgage banking business, I believe we have sort of less than 10 loans on the Fannie Mae side that are in either those markets and I think that is primarily in the Montana market not in the north Dakota market.

Okay. Cool. Yes that's helpful. Can you give me a little bit of sense as towards I guess timing throughout the year of future fund commitments on loans that have already been committed to?

Sure. Obviously we have a significant amount of funding commitments on existing loans. We work very actively with the borrowers to make sure we understand when they are going to be drawing the capital and I would say our historical experience is that not 100% of the capital that they have committed to and paid for in the form of origination fees are fully drawn. But we do work very carefully. I can't really share with you any specific numbers only because it is really a loan by loan analysis that we do but we are certainly on top of it as our management team does regularly talk with our borrowers to make sure that we fully anticipate their capital needs going forward.

Okay that's helpful. Todd question for you. I know, in the past we have chat a little bit about European opportunity coming along, I didn't hear any mention of it this quarter in terms of like the principal lending business is that kind of just not interest rate now or is it just there are other things that are maybe more exciting with on the preferred side and lending or maybe, I guess the rebound of the mortgage banking business?

Yes, I would, its great question and I would say two things. One, yes as it relates to more kind of compelling interesting opportunities that we are seeing that's definitely going on in the U.S., we are starting to see that. Europe has gotten more competitive and as we are starting to get into our pipeline the volatility around the currency in particular we would hedge our exposures in our European loan book if we had one and given the volatility around the currencies, it kind of took out a lot of the extra yield that we are seeing in that market and so kind of backed off a bit as a result. The hedge would have been much more expensive as it relates -- because of the volatility in the currency.

Okay. Got it. That's helpful and then definitely heard your comments before Todd about the insurance by the parent and sold out [indiscernible] also but is there any expectations that's going to maybe drive some incremental volume or sharing of volume at the ACRE level is that kind of totally its own other silo and it doesn't imply doesn’t believe in terms of activity?

Well, the belief through is a little more nuance in that I mean so if you think about the way we are constructing our business, our view is that if we can provide our sales team and production forces with kind of a wider ray of really competitive products then the dialogue they are having with their clients is deeper and wider and they can – they are talking about more opportunities and if they are talking to them about more opportunities we are seeing more and if we are seeing more, we can afford to be more selective. So, it sees on itself that way, the product, the mandate that we have got to $700 million mandate is not a product that really overlaps per say with what ACRE offers. It’s much more complementary it’s a little more lower, in the kind of lower loan to value, lower spread kind of product in what ACRE typically offers.

Okay. Now that's good color, thanks so much.

Next we have Charles Nabhan of Wells Fargo.

Hi guys. Could you help us understand the mix of fixed versus floating origination to the ACRE capital and maybe comment on the differences in economics between the fixed versus floating rate product?

In 2014, I am just trying to think of the total 500 million of production, we didn't get an exact number but I am thinking the number on floating rate might have been around 100 million maybe less. And as a general matter floating rate loans we see difference in the economics tends to be around the MSR because they tend to be shorter duration and they have more optionality around prepayment which kind of impacts the MSR evaluations.

Okay. And staying with ACRE capital, I was wondering if you could comment on the expense base and obviously there is going to be some seasonality for origination within the business but to what extend is that expense base variable and that will reset down or does you have seasonally weak quarters such as the first quarter for example?

Sure. Charles good question. I think the biggest variability you are going to see in mortgage banking sort of quarter-to-quarter or year-to-year is really based upon the commissions that our originators earn on production. So, I mean, just to make a very generic statement and give you all the warnings related to generic statements but certainly periods in which you see higher volume, higher margin, higher revenue of mortgage banking income due to higher originations you will see compensation benefits line out and go up because of the commissions and bonus structures that we have built in there and they are tied to revenue and production number. The other thing that you will see is for 2015 and you saw some of this, in fact a lot of it reflected in the fourth quarter results is you will see that G&A has declined significantly versus the first three quarters of 2015 because as we mentioned we spent the first nine months of 2014 restructuring and reorganizing the ACRE Capital Team, one of the biggest expenses we incurred in 2014 was to really move a servicing and F&A office up in Michigan to our headquarters building in Plano Texas. And so the move and restructuring cost there were really reflected primarily in the first three quarters of 2014, so you will see a significant decline in G&A starting the fourth quarter and continuing to go in 2015.

The next question we have comes from Don Destino of Harvest.

Hi guys. I’ve got a list here so bare with me. Jade did a good job of introducing a couple of my questions, Todd, I mean you guys definitely went out of your way to say you don’t want issue common equity below book but you got all of the opportunities for capital. Just, how I think common shareholder feel, we would not want to see equity tied issuance either, I mean it just like what just improved the return on capital and get the stock above book before raise capital not, so issuing converts below book and bringing all the shorts and all that volatility in the balance sheet, that would not be viewed positively by most of your common shareholders?

So again, if you look at our annual guidance that we issued of a $1.02 to $1.14 that assumes no external capital raises.

No and I appreciate that and I am giving you an opinion and may be its not shared but I’d rather the stock back up on the merits then if you kind equity linked capital, when it comes down to it, it really does feel like the expense load here is just too high I mean – I know it’s not apples to apples and you’ve got different businesses and you’ve got mortgage banking business but on kind of any measure if you look across other externally managed mortgage REITs, commercial mortgage REITs, on an efficiency ratio basis or expense load as a percentage of equity, you guys are just, I mean you stand out not as a greater than average but as kind of the highest fee load or expense load mortgage REIT out there, I mean is there anything that could be done there, has Ares looked at the contract and decided that may be, we over-reached here or a bit thought about cutting expenses for some period of time until you can’t get the ROE to help the double digit level and it can support, higher expense base?

A couple of things, first of all I think we did have an expense cap if you will in place that Ares was providing so it was the – the sponsor Ares was actually absorbing some of the expenses that would otherwise be attributable to the vehicle – to the REIT. And look our cost structure in parts reflects our size and scale.

Todd, I mean that’s right, the justification for externally managed is that one of the justifications I should say is that it provide scale for something that’s going to be a scale. So I would hope that that wasn’t a reason why the expense load was so high because that’s why it’s one of the reasons we pay Ares that they asked the manger and they provide the scale that a smaller vehicle needs?

So, we are getting a variety of benefits from Ares right now and in terms of justifying why we are externally managed we think the external management structure brings all sorts of value and benefits to the REIT that would not otherwise exist if we internally mange the connectivity back to the parent just as an example on that preferred equity investment that we have talked about earlier is a huge benefit and as noted in my scripted comments allows us sort of play in a field that we would not otherwise be able to play and see opportunities that we would not otherwise be able to see. So, we think the external management structure adds a tremendous amount of value and as it relates to the cost structure, I mean, if you look at again in our guidance for the year and the implied ROEs, the additional strategies we have to enhance our ROEs beyond that over the longer term, we think we stack up pretty favorably right now relative to the peer group.

Okay. And in your guidance what is your assumption for what mortgage banking is going to contribute to that guidance?

So, we haven’t provided that level of specificity, but I will say that we clearly see mortgage banking picking up a nice head of steam. We start coming out of Q4 where we kind of beat the production guidance we gave, the pipeline in Q1 looks good, the longer term pipeline which we tend to see is more of a FHA thing, is also looking quite good. So, we do expect a mortgage banking business to pick up and contribute significantly more than it did in 2014.

So is that if 2015 the year that kind of, it earns it cost to capital?

Yes, I think that’s a fair statement.

What do we think the ROE is kind of an incremental capital right now? You talked about what’s your kind of available equity – leverageable equity capital is, on the margin what do you think the ROE of that capital should be?

Well, I guess the easiest thing to your point to is kind of, one of the last transaction that we have closed in Q4 which was that preferred equity investment which was in 11+% expected return. So that probably is a good as an example as you are going to get as the most current example.

Okay, I mean 11% expected return - I mean again the problem is that we are running at – and again I understand that’s a marginal return so that should all be leverageable on the expense base but the expense load of 7%, 8%, 9% ROE on equity it makes it difficult particularly if you are kind of getting close to your – becoming close to capital constrained, I have seen what Jade suggested before and I think it’s very effective, if Ares thinks that this is a really good opportunity then it should have a really good IRR and putting capital when booked value and generating return on that and then increasing the earnings and getting the perpetuity of increasing capital and earnings fees on that for years and years and years or cutting fees for some period of time and figuring out what the IRR and that is to get the earnings in stock up. But I do definitively think that there is kind of an expense problem here and something should be looked at carefully? Thank you very much.

One important thing, I don’t know if you are still on the line that we just want to mention is something that you just alluded to which is that it’s incremental revenue, incremental expense concept which is at a lot of our expenses and this is particularly true for the principal lending side and primarily true for the mortgage banking side, is that lot of our expenses are fixed. So as you see that we have reached critical scale as Todd mentioned in our principal lending book as we continue to grow the asset base of the company, I think again we do not expect expenses to rise immensurately [ph] so that incrementally as we add new assets on our balance sheet, you will see that flow through being captured on a much higher percentage.

I appreciate that, thanks.

Thanks, Don.

At this time, we are showing no further questions. We will go ahead and conclude today’s question and answer session. I will now like to turn the conference back to Mr. Todd Schuster for any closing remarks. Sir?

Thanks and we have no further remarks. So, I just want to thank everybody, appreciate your time today and look forward to catching up with you all on the next call.