Good morning and welcome to iSTAR Financial's second quarter 2009 earnings conference call. (Operator instructions). At this time for opening remarks and introductions, I would 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.

Good morning everyone. Thank you for joining us today to review iSTAR Financial's second quarter earnings report. With us 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 and there will be a replay of the call beginning at 12:30 p.m. Eastern Time today. The dial-in for the replay is 1-800-475-6701 with a confirmation code of 106328. Before I turn the call over to Jay, let remind you 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. With that, let me turn the call over to iSTAR's Chairman and CEO, Jay Sugarman. Jay?

Obviously, the past quarter marked another difficult quarter for us, as lack of financing and reduced values continued to impact all parts of the portfolio. And while we have seen other parts of the credit markets begin to recover, a healing of the commercial real estate market will likely be slow and painful and our focus continues to be on working through the many challenges in the portfolio. Our second quarter results reflected this difficult environment. As you saw, our adjusted earnings were negative $2.51 per share driven by large loss provisions on the loan portfolio and lost income from the high level of NPLs. That was offset somewhat but continued reductions of outstanding debt at discounts to face, but slower resolutions of non-earning assets continue to be a drag on earnings and the number of assets we are foreclosing on has increased materially. The flow of funds liquidity remain negative, with fundings under existing commitments continuing to exceed repayments net of the Fremont A-notes, but we are hopeful this dynamic will turn around by the fourth quarter and turn positive next year. Again selective assets sales were used to continue to fill the gap as necessary. Lastly, on the balance sheet front, we continue to seek to streamline the asset base and reduce debt, but this will only start to show up in a material way when the forward-funding commitments begin to significantly burn off, which we expect after the beginning of next year. And with that quick overview, let me turn it over to Jim. Jim?

I'd like to cover a few topics this morning, including second quarter results, credit quality, the bond exchange we completed in the quarter and an update on liquidity. Let me first run through the results for the quarter. Adjusted earnings for the quarter were a loss of $250 million or a loss of $2.51 per common share. Results this quarter included $435 million of additional loan loss provisions, $25 million of impairments relating to OREOs and CTLs, and a $42 million charge associated with terminating a long-term lease with our landlord for new headquarters space. Partially offsetting these losses were $108 million of gains in the quarter associated with the bond exchange we closed on May 6 and $93 million of gains associated with the retirement of $372 million of debt at a discount. Revenues for the second quarter were $225 million versus $320 million for the second quarter of 2009. The year-over-year decrease is primarily due to a reduction of interest income as a result of an increase in non-performing loans, lower interest rates and a smaller overall asset base. Net investment income for the quarter was $289 million versus $150 million for the second quarter of 2009. The significant year-over-year increase was primarily due to gains recognized in the quarter associated with our bond exchange and the early extinguishment of debt that I just mentioned, offset by lower interest income. At the end of the second quarter, our leverage, defined as book debt net of unrestricted cash divided by the sum of book equity, accumulated depreciation and loan loss reserves, was 2.8 times down from 2.9 times at the end of the first quarter. We expect to continue to reduce our debt and the size of our balance sheet. During the second quarter, we funded a total of…

As we see it, two things will really be key drivers in the portfolio going forward. One is the state of the economy overall. The other is the reopening of the real estate finance markets. And I want to finish up just by talking about the second of those because in many ways, we see the dynamics that made us enter the real estate finance markets in the early '90s as beginning to appear again, and with them the same set of challenges for the industry as a whole that existed back then with perhaps one or two new twists. And there are in our minds four things have to happen for lending and credit to start flowing again. One, the pricing gap has to shrink. Two, the proceeds gap has to shrink. Three, the structuring gap has to shrink. And four, a new legal risk gap has to shrink. Of the four, I think the first is perhaps the most straightforward and the one for which there's actually been some progress. Fundamentally, the markets can't restart if very high-quality securities are trading at double-digit coupons. So when AAAs are trading at double-digit yield and bonds of companies like Simon Property are available at north of 10% coupons, no viable broad-based real estate finance market can really exist. While we've seen a meaningful rally in such securities as investors and programs like TALF begin to bring down spreads for higher quality security and the corporate debt market rally makes real estate securities look relatively attractive. While the pricing gap is closing, the proceeds gap is going in the other direction. As lenders tighten their criteria and market fundamentals and values continue to fall, the proceeds gap has become a very large issue. Here's a quick example to highlight that issue.…

(Operator Instructions). Our first question comes from Matthew Burnell – Wells Fargo. Matthew Burnell – Wells Fargo: Great. Just a couple of, I guess, administrative questions and thanks for taking my call. First of all, your debt ratings have been negatively impacted by the weakening of the portfolio's asset quality, and we saw a little bit more of that this quarter. I guess I'm curious if there is further degradation in your debt ratings, does that materially impact the strategy of the company over the next six to nine months in terms of working your way out of the current problems?

You know there are no ratings triggers per se in any of our debt instruments or anything, there are some pricing grids in some of our facilities where the pricing is based on rating. But based on where our ratings are right now we're already at the top of those pricing grids. So any decrease in ratings would have no financial impact to us. So over the next six to nine months I would have to say the answer is no. Matthew Burnell – Wells Fargo: Jim, if I could just follow up in terms of the breakdown of the collateral for the unencumbered assets relative to the pledged assets, given your risk rating it looks as if the unencumbered assets are somewhat lower quality on average or at least lower risk rating on average than those that have been used to secure financing. And I'm wondering if the assets that are currently unencumbered would need to be used for further encumbrance. Would the advance rates on those assets be materially different than what you've received already on what you've already secured?

Well, I think it's fair to say as you can see from the risk ratings that overall the quality of the unencumbered assets is lower than those we're pledged, which I guess would not be unexpected. Having said that, all financing and secured financing is difficult in this environment and I probably can't disagree with your statement. I think we have some – we could have some ability to do some additional secured financing. But as the quality of the overall pool drops you would expect to see more difficult financing terms.

Our next question comes from David Fick – Stifel Nicolaus & Company. David Fick – Stifel Nicolaus & Company: All right, actually Dave Fick here with Josh also. Can you walk us through how you're currently looking at your sources and uses for 2010?

Really we're looking at it the same way that we're looking at it over the next six months. As we pointed out and as everyone knows refinancing and selling of assets has been difficult. That's resulted in a lot of NPL's that have generated by loans that have gone beyond their maturity date, and so we've got $15 billion of assets towards the end of this year. Our unfunded commitments will come down when Jay pointed out at some point on a monthly basis our net cash flow between funding and repayments will start to turn positive. At some point next year we'll pay off the Fremont A-note. That will result in more proceeds coming back to us. But we'll continue to do what we've been doing now for a while which is to the extent that we need to bridge any gaps to meet debt maturities we will do that with a limited number of asset sales that we will need to make from our total portfolio. David Fick – Stifel Nicolaus & Company: And what are you currently presuming about repayments in terms of staging your need to sell assets?

David, I think two or three quarters ago we kind of backed off a little bit providing guidance on those repayments because as the market has continued to deteriorate our forecasts were not reliable. And so I think both to not give you the wrong numbers and I think also the way we're looking at it is we are skeptical of all repayments and we'll keep doing what we need to do to generate liquidity. But the way we look at it is whatever gaps we need to fill we'll fill and there will be gaps there and we will need to sell some assets. David Fick – Stifel Nicolaus & Company: You walked us through the forward commitments, could you just review that in terms of 2010 in total commitments and the debt maturities in terms of what you feel you're going to have to pay out in 2010?

I mean from a debt maturity perspective, David, we've got in March and April we've got some unsecured loans, the total now of about $500 million. And then in December we have another unsecured bond for $300 million. So we've got a decent period of time between April and December where we don't have any debt maturities. Fundings, again additional funding, should really be coming down really fairly significantly towards the end of this year and the beginning of next year. We'll still have a tail there but funding will really be fairly low. So on the uses side that's basically what we're facing. David Fick – Stifel Nicolaus & Company: Okay.

And on the sources side, same thing; it's very difficult to predict. David Fick – Stifel Nicolaus & Company: Right. And then the last questions I guess for Jay. Jay, you mentioned that you were looking for ways to start participating in some of the offense – putting my word on it – the offensive opportunities that may be out there. And I'm sure you're aware there's a number of filings out there for entities in formation right now to take advantage of the inexpensive debt that you referenced. How would you see iSTAR perhaps siloing off the history a little bit and getting back into position to where it can start to pull in capital and what form would that take in terms of where that capital comes from?

It's probably a little premature to talk about exactly how we how we would think about it but I think you're on the right path in terms of there is capital out there, and we have one of the only fully integrated blending platforms still in existence. We obviously have $15 billion to $20 billion of real time market information in major MSAs coursing through our hands, and I think we'd be remiss if we didn't have some game plan to start thinking about how to capture some of the value embedded in that intellectual property. We do have still a lot of work to do on our existing portfolio and we want to make sure we've gotten that put together in the best way we can, but as we get comfortable that we've done everything we need to do there, certainly we're going to look to repeat what we did in the early '90s by taking out what is now again one of the few fully integrated lending platforms. And either through third party capital or some other way to access new capital, we'll put that to work. But I think it's still a little premature to think about exactly how we could do that.

Our next question comes from the line of Louise Pitt – Goldman Sachs. Louise Pitt – Goldman Sachs: I just have a couple here. I guess a couple of people have already talked about sources and uses. I wonder if you could just run through, third quarter looks a little tight in terms liquidity, could you just talk about some of the short term liquidity options that you're contemplating?

Sure, I mean the, I think again as we've been doing over the recent past, liquidity will be tight but, again, we have $15 billion of assets and we have demonstrated our ability to monetize a sufficient number of assets to meet any gaps that result as a result of repayments being slower or borrowers being unable to pay us down. And so I think if we are getting repayments, they're not – there are loans that are maturing that are not repaying but we are getting some repayments as you saw from the second quarter numbers, so it's not that there're no repayments. But we do expect that we will need to sell some assets to meet the, to bridge the gap but we think that the size of the gap is very doable given the number of assets that we can monetize, and that's what we'll just continue to do. Louise Pitt – Goldman Sachs: Looking at the full $17 billion of cash and available on the facility, looking at the numbers on the balance sheet that were provided in the press release, it would appear that you've drawn down entirely on the those priority secured facility and that majority of that full $17 billion is cash, is that correct?

Correct, yes. Louise Pitt – Goldman Sachs: Okay, and then one of my last questions was just on TALF. Can you talk about why TALF is not an option for you guys please?

Yes, in terms of aggregating some of our own assets and using TALF to refinance, that's certainly a potential for the CTL portfolio in particular. I think TALF is good on pricing and not so great on proceeds, would be my characterization at this point. So in terms of being the best source of financing for us long term, I'm not sure it is, but it's nice both for the industry and for us to know that there is a viable mechanism out there for high quality assets to receive relatively low cost financing. We'd certainly like to see that market mature a little more and to see spreads tighten in a little more before we would ever think about becoming a participant, and I know there's a handful of deals in the pipeline that are comprised of reasonably high quality assets. So we'll be watching very carefully to see how those price and what kind of proceeds level they're able to achieve against those portfolios.

Oour next question comes from James Shanahan – Wells Fargo. James Shanahan – Wells Fargo: In the press release here on page 15 you detail it looks like $2.3 billion in land loans and on page 14 $1.6 billion in land loans in that are NPL, and I've had a lot of questions from investors about your land loan portfolio and I'm curious. Have you fully reserved for the short fall between current market value for all outstanding land collateral and your entire $2.3 billion loan basis, or are you just establishing reserves for nonperforming land loans?

They are – the reserves are established for nonperforming loans and we put a loan on nonperforming status if it meets any one of three thresholds. One, being maturity default, two being 90 days delinquent, but three that also if we feel that we are not going to recover full principal and interest we will put a loan that could be – not to maturity default; it could be current. We would put it on NPL if we had a problem with the valuation. So our reserves at the moment on the land loans as for all other loans based on what we know today are sufficient for what we believe, but obviously the market has continued to deteriorate and we will continue to assess that as part of our ongoing reviews and particularly as part of our quarterly risk rating processes, procedures, which we've explained to you in the past. James Shanahan – Wells Fargo: In your analysis there of the appropriate reserve levels, how much would you say the value of land collateral has declined relative to the initial underwriting?

Well, it's hard to generalize because we have urban lots that in some cases where pre-construction loans where the construction's not come out of the ground and those are now categorized as land loans. We have some very good infill land loans in some very good locations. They're still quite attractive and we have some, I guess, more speculative longer term land loans that are probably further out in terms of development. So it's, the land's a little – it's a little bit difficult to generalize for the portfolio overall. James Shanahan – Wells Fargo: Is there any opportunity to generate liquidity in your land loan portfolio or is there just no interest out there in these types of assets?

I think that's probably going a little too far, Jim. There are some assets that are quite attractive that we continue to field inbound inquiry. I would say, again, you're starting to see affordability in certain markets. The lack of new supply, some of the – time will heal some of these markets and homebuilders understand that and some of them are getting themselves in position to take down new lots. Our land team is kind of going market by market fairly methodically trying to choose the right partners and the right business strategy to maximize value in each of those, and sometimes that's going to lead us to a near term transaction likely at a meaningful discount to original underwriting but it may be the best economic decision for us. In other cases they've been pretty strong in saying this is really good land that's going to be developed. There's no reason you should take that bid today. Let this market season and you'll be rewarded for it. So I think, again, we are letting our teams go out and tell us deal by deal, asset by asset, market by market. Look at the market dynamics, look at the affordability indices, look at the new supply, look at the new competitive set and where possible go find us just the best partner in the market. And if they don't think they can achieve any or all of those things then they may come back with a "we think we should sell." We're just not – we're not a long term player. Some of the land as Jim said is quite good and probably increases in value over time. Other land we just think it's too long a hold period for us to be the right owner. James Shanahan – Wells Fargo: And one quick follow-up relating to capital, it appears that the company has retired it looks like about 25% of the outstanding shares over the course of the last 12 months and certainly the stock price would justify those share buy backs, but is it the best of use of your liquidity? And what is the outlook for shares buy backs in the second half of the year and beyond? Is this largely over with or should we expect these considerable incremental share buy backs in the future?

Well, the bank deal has a fairly tight restriction on us Jim in terms of how much we can buy. I think we've said in the past we have about $30 million to $35 million left under those restrictions. I think that's a small amount of the dollars in the relative scheme of things but we will continue to be prudent and judicious with every dollar here. But if we think the values do not reflect fair value, that's certainly something we'll consider on a relative investment opportunity basis.

Our next question comes from the line of Don Fandetti – Citigroup.

Good morning, Jay. You had mentioned third party capital. I was just trying to get a sense on whether or not you think the opportunities in commercial real estate debt are so compelling today or is it still too early and do you see better opportunities after we see a little more pain maybe going in to '10 just because what you hear from the banks is pretty dire, and I just wanted to get your thoughts on that.

Sure, I think that time is a big variable right now. I think over time the real estate market will improve but the next 12 to 18 months do look pretty ugly. I've been to dozens and dozens of assets in New York and Miami and Chicago and Philadelphia, and the thing that surprised me, or shouldn't have surprised me but did, is really what we're calling the X factor, which is not what your property's doing and what your property's worth and what your property has done right or wrong, but it's factoring in what everybody else is doing. And we've certainly seen in hospitality and apartments and condos and land that regardless of what we think or what our borrowers think about the value of their property, some of the things going on around them from their competitors, the X factor has materially diminished value in a way that we didn't anticipate and certainly our borrowers didn't anticipate. And I think that dynamic is just now beginning to take hold in some of the key markets and the marginal sale and the marginal competitor is now beginning to set the bar that everybody else is having to deal with. So I think you're right. I think the opportunity set over the last 12 months has not been that interesting because borrowers, frankly, liked what they owned or lenders liked their position. I think now people are starting to look at the X factor and saying yes, I'm fine, but if everybody else around me is going to crater, it's going to impact me and where is real value going to settle. And I think I agree with your assumption that probably the best values are still a little bit in front of us. What I do see, and…

Our next question comes from Shubhomoy Mukherjee – Barclays Capital. Shubhomoy Mukherjee – Barclays Capital: Yes, hi. I had a few questions, the first one relates to the unfunded commitments. Just wanted to check as to how - whether the Company has any discretion with regard to the timing of these outflows or could the borrowers [inaudible] and then draw down on these credit lines much quicker than what you expect. The second question that we have is around the 1.2 dollars of assets that are currently under foreclosure. What's the status with regard to monetizing some of these because it seems that you have more of a timing issue rather than an eventual recovery issue as far as these assets are concerned? Thanks.

Regarding your first question, we disclosed both the discretionary and the non discretionary fundings that we have committed to and we've given some guidance to what we actually think we'll fund and don't think we'll fund all of that. But the way it works is for the most part we don't have control over the timing if the borrower has met certain hurdles, then we are required to fund. We have seen historically that our funding projections, while they're pretty good, tend to be - our actual findings tend to be a little bit slower than we have anticipated because these are almost all construction loans and it's rare for construction to run ahead of schedule, very rare. And it's very common for constructions to be a little slower than expected. So it's highly unlikely that we are going to be materially inaccurate in terms of forecasting them and have people come in and draw down the lines. They're not like standby lines of credit. These are loans where we fund as people are spending the dollars on their construction projects. So the pace is really not controlled by the borrower either except to the extent that they're managing the speed of the construction but it's difficult to speed that up. So it's not likely to be too surprised there and have major outflows that we don't expect.

Yes I guess on the foreclosure issue is you know foreclosure laws vary by the jurisdiction around the countries, so it's very hard to generalize about the timing any particular foreclosure, depends on the state, depends on the circumstances. I think our view across the entire portfolio as Jim said, there are $15 billion of assets when we do need to or choose to sell, we're trying to find the best price we can get. And I don't think we distinguish necessarily between any particular status of an asset. We're just looking to achieve what we think represents reasonable return versus our long term hold strategy. So I think in terms of monetizing assets again, the amount we would expect to monetize versus the $15 billion gives us some selectivity and you'll see us try to be as selective as possible in thinking about our loan book, our REO book and any other assets we have for sale. Shubhomoy Mukherjee – Barclays Capital: Just as a follow up, could you also give us some indication on what your thoughts are around [tapping] the residual capacity within your bond exchange?

Yes for those who don't know, we have about $360 million left of second lien notes that could be issued in conjunction with the bond exchange. We certainly have that as a means to change our liability structure. And when it's appropriate or if it's appropriate, it's something that we certainly can factor into our thoughts. Shubhomoy Mukherjee – Barclays Capital: Thanks.

[Ken], I think we have time for one more question please.

Okay, thank you. And our last question and is follow up question coming from the line of Louise Pitt with Goldman Sachs. Please go ahead.

Hi guys, thanks for taking a second question from me. But you mentioned $525 million of remaining unfunded commitments over the next six months. Just based on previous comments, there were 800 over the course of the second, third and fourth quarter of '09, I think this was from the first quarter call. And the fact that you did 380 this time, we had 420, which was the remaining amount. So this an incremental $100 million that has come due and being brought forward into '09 or can you reconcile those numbers please?

I think Louise, there's a little bit of back and forth. I think there is probably a little bit, on one case, some slippage and in some cases there are probably - I think it is true that there was probably a little bit brought forward.

So we should not be using the $800 million less the 380? We should be working on 525 over the course of the last six months of this year?

Yes, our best estimates right now for the remaining six months are 525.

Okay, perfect. Thank you.

Great, thanks, Louise. And thanks for Jay and Jim for joining us today and everybody else. If you should have any additional questions on today's earnings release please feel free to contact me directly here in New York. And [Ken], would you please give the conference call replay instructions once again? Thank you.

I certainly will, sir. And ladies and gentlemen, this conference will be available for replay starting today, Friday July 31 at 12:30 pm Eastern Time and it will be available through Friday, August 14 and midnight Eastern Time. You may access the AT&T executive playback service by dialing 1-800-475-6701 from within the United States or Canada or from outside the United States or Canada, please dial 320-365-3844 and then enter the access code of 106328. Those numbers once again are 1-800-475-6701 within the U.S. or Canada or 320-365-3844 from outside the U.S. or Canada. And again enter the access code of 106328. And that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.