Good day, ladies and gentlemen, and welcome to iStar Financial’s first quarter 2009 Earnings Call. (Operator Instructions). As a reminder, today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to iStar Financial's Senior Vice President of Investor Relations and Marketing, Mr. Andrew Backman. Please go ahead, sir

Thank you, John and good morning everyone. Thank you for joining us today to review iStar's Financial’s first quarter earnings report. With me today are Jay Sugarman, our Chairman and Chief Executive Officer; Jay Nydick our President; and Jim Burns our Chief Financial Officer. This morning's call is being webcast on our website at istarfinancial.com in the Investor Relations section. There will be a replay of the call beginning at 12:30 pm Eastern Time today. The dial-in for the replay is 1-800-475-6701 with the confirmation code of 996727. Before I turn the call over to Jay, I'd like to remind everyone that statements in this earnings call, which are not historical facts may be deemed forward-looking statements. Factors that could cause actual results to differ materially from iStar Financial's expectations are detailed in our SEC reports. Finally, as we are currently engaged in the series of private exchange offers and cash tender offer for our debt securities, we will not be able to discuss these transactions on this call. These offers currently expire on May 6, after which we would expect to announce the final results, unless we extend or terminate any of the offers. Now, let me turn the call over to Jay, Jay?

Thanks, Andy, welcome everyone. The first quarter marked another difficult quarter for iStar and for the overall commercial real estate industry. While the market appeared to hold up relatively well through much of 2008, sharp reduction in commercial real estate values is now taking place in almost all sectors. Its credit availability has remained at very low levels and fundamentals have weakened materially. Hopeful policy initiatives have been delayed and remained somewhat murky at this point. So we are battening down the hatches and trying to create an operating runway that can carry us out 2010 and beyond, as we deal with the reality of weak asset values and continued liability maturities. Our goal in the first quarter was to make sure we provided for projected capital needs through 2009, even in a downside scenario and as we announced in March, we were successful in putting in place a new secured bank line that gives us more flexibility in managing down our asset base and helps us meet our obligations through the end of this year. This was an important step. We appreciated the constructive approach our bank groups [that] are working with us to accomplish it. Let me move on to first quarter results. Unfortunately, earnings in the first quarter reflected this increasingly harsh environment. First quarter adjusted earnings were negative $0.61 per share, driven negative by continued high loss provisions on the loan portfolio, and lost income from a high level of non-performing loans. That was offset somewhat by continued reductions of outstanding debt at discounts to face. As we said in the past, slower resolution of non-earning assets continues to be a problem, and one of the drivers of the bank transaction was to give us more runways to accomplish sales and resolutions at the appropriate time…

Thanks Jay, and good morning to everyone. Before diving into our usual review of quarterly earning, I’d like to first provide a quick recap on a couple of capital markets initiatives that we touched on during our last call and there we subsequently announced and that Jay just mentioned. On March 13th, we closed the restructuring at some of our credit facilities that resulted in a new $1 billion delayed draw secured term loan, as well as our securing $2.6 billion of our then existing $3.4 billion of unsecured credit facilities. As part of this transaction, we also modified some of the covenants in order to provide the company with additional operating flexibility. In addition to the bank transaction, we are currently offering to exchange a portion of our existing unsecured bonds for two new series of secured bonds. They would have a second lien on the same collateral as the secured bank group. As Andy and Jay mentioned, because of the exchange offers are ongoing private securities offerings, we are not able to discuss the transaction on this call. As mentioned, the exchange offers currently expire on May 06, and we would expect to announce the final results for the exchange offers unless we extend or terminate them. Okay. Let me run through the results for the quarter. Adjusted earnings for the quarter were loss $64 million or $0.61 per common share. These results included $154 million of gains associated with the retirement of $286 million of debt at a discount, as well as $11.6 million of gains from the sale of two corporate tenant lease assets. Also included in the quarter are $258 million of additional loan loss provisions, versus $252 million from the prior quarter. During this quarter, we recorded $25 million of impairments relating to OREOs…

Thanks Jim. Lot of information there, but bottom line really is there is no easy answers, and what we're trying to do is preserve and protect value as best we can, and I think that's going to likely be restored for quite a while. Let's go ahead and open it up for questions operator.

Thank you. And ladies and gentlemen today's question. (Operator instructions). And from the line of Omotayo Okusanya with UBS please go ahead.

Good morning gentlemen. Just a couple of questions. Jay in prior quarters, you used to give a little bit more detail and robust resource of use, the resources and usage of cash and this quarter at least we have an update on the sources side, opted on the users side but not as much detail on the sources side. Is that just because it’s become a little bit more unclear, where you’re going to beginning at capital from or you just going to leave it open to explore your different options?

Yes, I guess it’s a combination of difficulty predicting far out. I think we got pretty good clarity on the near term quarter-to-quarter. Remember predicting things a year or so out has been a fools game and we have not been very good at it. I think what we have seen is an ability to kind of switch among different sources of capital, whether it be sales of credit tenant leases or loan monetizations or actual loan repayments. A lot of those things are just blowing together right now. Borrowers are making partial pay downs, instead of full debt pay downs. We are giving partial extension, so unfortunately giving you hard numbers on each of the various categories is difficult and frankly I am not sure it’s a great exercise. We know what we have to achieve on the users side and we know we have the multiple sources of capital to do that. And so, what I think we're trying to do is tell you what we’ve got to do, tell you that we think we have all the levers to do it, but rather than give very specific projections that right now I got to tell you I wouldn't believe anyway.

Okay. And then with the new line of credit, with the whole the private exchange offering and exchanges some of the covenants a little bit if we deal good with the private exchange offering. How should I be thinking about if all of that gets done, the amount of unencumbered assets you still have under book, and the amount of those unencumbered assets you can encumber, such that you're still in compliance with your covenants?

Tayo, this is Jim. One of the things about both the bond exchange, as well as the fact that we've been buying back some of our debt at a discount, as well as I mentioned, we are actually de-levering the balance sheet each time we pay down more debt. And the combination of all three of those factors actually increases the ratio of unencumbered assets to unsecured debt. While both the amount of unencumbered assets and the amount of unsecured debt is shrinking, again really the primary driver is just as the balance sheet de-levers and that's really just an unencumbered leverage ratio. The leverage actually improves. So it depends a little bit on the outcome of some of these transactions, as well as the speed or the rate at which the balance sheet shrinks.

There are two real constraints on this Tayo, on is obviously the UAUD test at 1.2. There is also a constraint inside our new bank deal of how much incremental asset we can encumber, that’s $750 million. So those are the two constraints within which we can do anything that still works.

Do you have a sense of what you think could work within those constraints?

If you’re taking a dollar of unsecured debt out of the system, basically you’re freeing up a $20 at a minimum and today a $30 of unencumbered asset. So, mathematically there are plenty of things we can do if we were to take a $1 billion dollars of assets and encumber them we would have to eliminate approximately $800 million of unsecured debt. So given that as Jim said some of the debt is trading at a discount and that we still have some room in flexibility under UAUD given we are at 1.3 times and we need to maintain 1.2, there is still an ability to encumber some level of debt, although I tell you, the banks were quite focused on that. They have given us the constraint on an overall number, which we can do that.

And not the 775 million number?

750 right?

Oh, sorry, 750. Fine thank you very much.

And that will be from line of James Shanahan with Wachovia. Please go ahead.

Hi good morning. Thanks for taking my call. I had a question here about non performers in LTVs, how do the average last dollar in LTVs for NPLs and what those assets compare to the overall reported metrics, and relatedly how are you able to get comfortable with current LTVs in these volatile markets?

Well let me tell the process we use -- to tell you that I am comfortable with them, kind of goes back to my overall comments about what's happening to real estate value. Everyone of those assets is revalued as a function of all the current market environments that we see out there, discount rates, Cap rates, all the factors that a typical net present value depending on the product type we're taking into account. So free rent concessions, ultimate market rents achieved, we do that every time we do an NPL and then that's where the specific reserves come from. Some NPLs actually have excess value in them. It's really more a matter of who is going to own the upside of the assets and so if a borrower is not willing to negotiate with us, then we think there's going to be a fight that can go on NPL, even though there is sufficient value to protect that. So I would tell you the overall NPL LTV is probably in the mid 90s. Now that's a function of many of the deals being at a 100% and a few deals being under a 100%, because we're just fighting about who owns the upside. I think in watchlist it's better than that but we clearly see diminishing the value events that could impact our position or we see a borrower who is destroying value as opposed to preserving value, and so we are projecting out a problem. That's probably in the high 80s. That's not a comfortable place, but in stabilized markets those should be okay. Unfortunately, we are not looking yet at a market that is stabilized. So I think the measures we use are, if we were a buyer using the input and metrics that we see in the market today, how do we value those assets, we have confidence that we have chosen the appropriate inputs, but whether the scenarios that were choosing are the ones that come true, clearly in the last 12 month they have been worse, then we had hoped. I think we are probably going to reach a bottom at some point in 2009, value reductions are beginning to crystallize across the board. And I think our expectations are based on that kind of crystallization. But, right now we just give you the best number we can based on what we would say even going back two or three quarters ago, really had a fairly negative view of the world.

Thanks for that. I would like to ask one additional follow up question if it’s okay. You can probably answer this question something better that I can, but I am speculating here that there is a fair amount of time and distraction involved with managing all of the public company relationships on the equity side. And kind of getting the question of, have any strategic alternatives been considered here potentially like a going private type transaction well. For the next three, four, or five quarters, you continue to kind of work through all of these non-performers. Seems like there could be some nice upside for equity investors from the current dollar price, and a lot of value to be achieved for management and maybe a strategic investor and maybe iStar comes out of this cycle few quarters from now, much stronger company and maybe in a better position to raise capital, debt and equity capital in the public markets versus today, where you either issuing secured debt or maybe you buying back stock. I mean, certainly that an issuer of capital in these markets. So just sort of some commentaries, Jay, if you don’t mind about, what you might be thinking strategically and if any of these might be realistic option?

I think you partially answered it with some of your comments which is -- we right now are a buyer of our securities not a seller. We believe existing shareholders have a lot upside. We're trying to protect that and preserve it with best we can in a market that continues to shift beneath our feet. I think if the right strategic investor ever approached us, we would look at the expected value of that course of actions versus what we think we can achieve on our own. I don't think any of the pressures of being a public company is driving our decision right now. We know what our job is everyday, and we're trying to execute it. I think so far we've been able to protect a book value for shareholders reasonably well. Ultimately, we think that value will be recognized, but it's a long slow slog here. We thought, perhaps there would be some green shoots appearing and I can talk about some of the things we see that are positives and some of the things we see they're negatives. But right now, we got our heads down and we're just doing what we think is best and I don't think there is really any big strategic course of action that we're considering.

Are there any issues Jay, with regards to retention of talent? Or is the market for talent commercial real estate, is it poor everywhere else and they really aren’t a lot of quality places to go in the current market?

Well, there's always places for talent to go. So we fundamentally believe, this is going to be a great business for the next five to seven years. We think that opportunity set still exits at iStar and we try to give our folks both the incentives and the understanding of why we should be one of the players who can achieve that. It also requires them, kind to keep their noses down to the grindstone for while as well, so it's a balancing act. I wouldn’t say, there's no place for talented people to go. That’s probably not a true statement. But we think, we still have something pretty special here. This is probably as challenged as we've ever felt as a company. But, we certainly aren't giving up and we certainly think some of that upside is still out there for all of us to benefit from.

And that will be from line of [Tim Wingard] with Deutsche Bank. Please go ahead.

Good morning. I was wondering if you could talk about the loan sales this quarter and sort of where you saw in this percent of sales, and what types of loans were sold?

I think it is a combination of things that we are reaching a point where either because of low coupons or relatively near term payoffs, we sold just to accelerate some of the cash flow. Those were probably done in the 90s and even higher, and then there were some actual assets that we had credit concerns about and those were probably done in the 80s. Even touching probably in the 70s for a couple of them. So I think in many cases, we felt pretty good about the underlying credit quality and just sold for economic reasons. We felt we could take that money and redeploy that higher rates of return. But, there were real credit issues in some of these as well that we sold.

Yes great. And I was wondering, if you have any thoughts on the Fremont APs and just sort of when you might expect to complete repaying that?

Yes I think going back to Tayo’s question, we are having a increasing variability in repayments, and so, I think we are hopeful that the first quarter would kind of see the tail end of the Fremont A-note. I would push that out a quarter or two. It’s still possible that it might move in from there, but right now it still hasn’t quite reached bottom, and we are seeing a lot of borrowers acting like they’re going to need next to six months or so for sure. That tells us that better to [air] on the side of same of probably mid 2010, late second quarter, mid third quarter then to tell you the first quarter still feels good. And the good news about that is that April obviously later postpone 50, still remains very attractive liability, and so the actual extending of 7% or 8% loan when 70% of its costs is effectively 2%, 2.50% is okay.

And on the expected usage of cash, I think it was mentioned 800 million. Is that fairly lumpy or is it spread out through the year?

The forward commitments are continuing to decline from today’s kind of monthly number every following month is a little bit lower. For those we feel like we have a pretty good handle on how they are going out the door. The debt maturity is obviously are scheduled. So we have pretty good handle on exactly when and exactly what's going out the door, a little less confidence in what's coming in. And again as Jim said, it’s a combination of the safety net of the bank line plus the repays and the asset sales we're working on.

And that will be from line of Matt Burnell with Wachovia. Please go ahead.

Good morning. Just an administrative question. The remaining purchase discount on the Fremont portfolio, am I correct in assuming that that was essentially used up this quarter?

Yeah. It’s pretty low it’s down around $30 million.

Okay. And then unrelated question, in terms of the geographic performance of the portfolio we're hearing sort of I guess green shoot arguments for the residential mortgage market and some markets in California beginnings of some green shoots I guess in Florida. Is that having any beneficial affect on the commercial real estate markets or has that yet to follow through?

Yes. I guess, I’d say in the commercial market there’s not many green shoot per say, but the required corrective mechanisms are slowly taking shape. And we’ve said low interest rate generally help heal real estate. Obviously the Fed has put those employees and the longer they stay in place, the more and more quickly this market can recover. We are pleased to see that there is some capital market access for some of the top names in the business, and we think you needs to have some healthy folks who have incremental capital to clean up some of the issues. We have not had that in this industry for the last 6 to 12 months. We are happy to see that some of the bigger players are being able to access capital. Right now probably more defensively, but hopefully going forward a little more offensively. We think that’s good for the industry. As you mentioned, the affordability of housing your low interest rates, lower looking prices and cheaper construction cost, all are pretty good mix for some healing in that market. We’re just waiting for consumer sentiments to pick up, because we think the affordability indices in California, Florida, and Phoenix and other markets are starting to look fairly good on a historical basis. And overarching all of that is obviously there’s going to be relatively little new construction for quite a while. So our old basic supply demand charts, all are starting to look pretty good. And if you think that if you don’t start permitting today you are not getting out of the ground and you’re getting financing for couple of years. We do think the commercial real estate markets can work off some of the problems but offsetting that it’s values have fallen pretty materially, and without financing, without credit, there’s just no way to turn that market around on a dime. So we continue to look and hope that some form of credit availability becomes apparent towards the second, third, fourth quarter this year. We just can’t point to it right now. We’ve spend a lot of time with the Fed and Treasury over the last six months and my candid assessment is we've missed the period where an ounce of prevention was possible. We are now into the pound of cheer period and it's going to take a lot of cure to really turn around values and undo some of the damage that's been done. So I think, the green shoots in residential are a positive parts of our book. We will definitely benefit from that but I’d tell you our sentiment on overall commercial real estate still has a way to go, before we think the real bottom has formed.

And that will be Joseph Schwartz with Goldman Sachs. Please go ahead.

Yeah, hi. Good morning. It's actually Louise Pitt here from Goldman. I just wanted to ask one question on the $286 million of that buyback. Can you give us any more of a breakdown on what that total was by maturity?

It's really been across curve. So, we've looked for where we think our securities have been undervalued, where they spend liquidity. I would say it's pretty evenly spread out.

Okay, great. And then just a follow-up. In terms of the guidance on NPL resolutions on asset repayments, I know that they mentioned earlier that it was the court verdict, but is there anything you can give us on that?

As Jay kind of pointed out, there is some [blowing] here in terms of, we're trying to as things come to or with things that are in default, the way we are resolving them and the way that we are treating liquidity is to either get somebody to pay us back. In some cases, we will need to foreclose and sell assets, but in another cases we can get partial paydowns or things that we can do to restructure assets. So we're looking at that is being kind of fungible across those options, and it’s a little bit difficult to predict the exact mix that we'll actually realize.

And that will be from the line of David Fick with Stifel Nicolaus. Please go ahead.

It’s actually Joshua Barber here with Dave. Jim I heard why do your comments on the residential market and weakness in construction, could you talk a talk a little bit more about your land exposure specifically what kind of values you're seeing on any possible NPL resolutions or sales and what debenture end gain is with one of that product. Thanks.

I hate to generalize. Again I think, there is a very large proportion of portfolio that is well located with strong sponsors that just the markets kind of gotten ahead of them or really diminished value in the near term, but there is long-term value. And so, I think many of those positions, we’ve kind of anticipating holding for quite a while, and probably won't try to resolve in this kind of market environment. We have been able sell a few things at prices that were reasonable either to adjoining property owners or in position and places where commercial or residential development is starting to feel like it’s a possibility. But I’m going to tell you that that's probably the part of portfolio we push least hard on because we think we're pushing against the string a little bit, as the residential market picks up, and certainly some of the stuff we have in California is a low enough basis that we should be able to make some progress. But I would tell you like the projects we have in New York City are proper are not going to get built for quite a while. So our view is, some of these are going to be long-term holds. We like the real estate, we certainly like the position. In most cases, we think simply put up 30%, 40%, 50% of the original buyers cost, and that we have a reasonable basis. But I'll tell you, some of these markets, I'm not sure there is a bit. So we've broken out portfolio down into things we can resolve, things we think there is natural buyers for that, there's a fair price. We'll certainly consider [JV] with some of the top builders in individual markets or some of the top national builders. We certainly have the ability to landbank or provide seller financing. And then there are few positions, we're just to going to landbank ourselves, because we think they have real value. We're pretty sure we're not going to be paid for that value today. And it probably makes more sense from a portfolio strategy, to keep their best pieces and ultimately wait for the market to come back a little bit.

Josh, thank you. Jay we’ve, a lot of questions we have for today. So I want to thank everybody for joining us this morning. If you should have any additional questions on today's earnings call, please fell free to contact me directly in New York. And John, would you please give the conference call replay instructions once again. Thank you.

And ladies and gentlemen, the conference replay starts today at 12:30 PM Eastern, and will last until May, 14 at midnight. You may access the replay at anytime by dialing 800-475-6701 and entering the access code 996727. That number again, 800-475-6701 and the access code 996727. That does conclude your conference for today. Thank you for your participation. You may now disconnect.