Q2 2020 Getty Realty Corp Earnings Call
Welcome to Getty Realtys earnings conference call for the second quarter of 20 Twond.
This call is being recorded.
Prior to starting the call Joshua Dicker Executive Vice President General Counsel and Secretary of the company, we're reading our Safe Harbor statement and provide information about our non-GAAP financial measures. Please go ahead Mr. Tucker.
Thank you operator I'd like to thank you all for joining us for Getty Realtys second quarter earnings Conference call.
Turning the company released its financial results for the quarter ended June 32020, before making an earnings release are available in the Investor Relations section of our website Getty Realty Dot com.
Certain statements made in the course of this call or not based on historical information and May constitute forward looking statements. These statements are based on management's current expectations or beliefs and are subject to try and events and uncertainties that could cause actual results could differ materially from those described in the forward looking statements.
Forward looking statements include our 2020 guidance and May also include statements made by management in their remarks that in response to questions, including regarding the company's response to the covert Nike pandemic future company operations future financial performance and the company's acquisition or redevelopment plans and opportunities we call.
Such statements reflect our best judgment based on factors currently known to us that actual events or results could differ materially I refer you to the company's annual report on form 10-K for the year ended December 31 2019.
Subsequent quarterly reports filed on form 10-Q, and all other filings made with the FCC for more detailed discussion of risks and other factors that could cause actual results could differ materially from those expressed or implied in any forward looking statements made today you should not place undue reliance on forward looking statements, which reflect our views only as of the date.
Rob The company undertakes no duty to update any forward looking statements that may be made in the course of this call.
Also please refer to our earnings release word discussion of our use of non-GAAP financial measures, including our definition of adjusted funds from operations or Hey, I've talked about and our reconciliation of those measures to net earnings when that it's my pleasure to turn the call with of course to work off our Chief Executive Officer.
Thank you Josh good morning, everyone and welcome to our call for the second quarter ended 2020.
What Josh and me on the call today are Mark <unk>, our Chief operating officer, and Danion Fielding our Chief Financial Officer.
Similar to last quarter will provide an update on our business in the context of the ongoing covert 19 pandemic. It also provides provide our customary quarterly review of our portfolio and financial statements.
Regarding cobot 19, I can report that to date, yet another pandemic has had a profound impact on the U.S. economy in general it has not had a meaningful negative impact on getty's financial results.
Our strategic focus on essential segment of the retail economy, the strength of our portfolio and the efforts of the entire Getty team have resulted in strong quarterly performance for our company.
Continues to be proud of the resolved and hard work that our employees have shown during the stressful period.
Executing on all our initiatives within the company or maintaining getty's high quality standards of under challenging circumstances.
The net result of our efforts combined with the resilience of our commuting gas and other automotive portfolio of net leased assets was another quarter of earnings growth, where our quarterly after FFO increased by 3% and on a per share basis grew to 44 cents as compared to 43 cents in the prior years core.
Turning to our strategic objectives year to date Getty acquired 15 high quality properties for approximately 69 million, including the acquisition of three properties during the quarter.
Well the transaction market had taken a pause to promote the second quarter and continues to be restricted in certain ways by the cobot 19 situation, we're beginning to again see opportunities emerge.
In addition, we completed two more redevelopment projects in the second quarter, bringing our total number of completed projects through 17 since the inception of our redevelopment effort.
Let me now share some additional detail against performance starting to pandemic.
For the performance of the convincing gas and other automotive asset classes in general and our portfolio more specifically was strong we collected more than 96% of rent and mortgage payments and agreed to 2.3% of short term deferrals for rent in mortgage payments.
These deferrals were granted you select tenants and mortgage arrears, who made specific requests and were able to demonstrate immaterial negative impact to their businesses.
And most of these cases, the base rent or mortgage payment deferrals will be paid back over the course of the falling six to 12 months, depending on the particular arrangement.
Looking ahead to the third quarter as of today, our collections rate increased to 98% for the month of July and we also agreed to additional short term deferrals of 0.6% a random mortgage payments for the month.
In addition, we collected substantially all the kobin related rent in mortgage deferrals that were due to be repaid in July.
I will now provide some additional perspective to better understand the basis of our strong right collection.
Last quarter, we discussed the impact of the public health crisis associated travel restrictions and stay at home worse. As a reminder, the vast majority of our convenience stores and gasoline stations and other automotive related properties, including our Carwash assets were deemed essential understate guidelines, meaning that almost all of our properties have remained operational again.
I want to reiterate it remains a challenging environment for our tenants with reduced customer traffic and sales and many tenants continue to face multiple operational and health and safety challenges our properties of tenants have fared much better than other retail asset classes.
Nationally fuel volumes are rebounding from their lowest level starting to pandemic of being down almost 50% and are now down approximately 20% much of this recovery can be attributed to the fact that is it is the summer season, which is typically strong for fuel volumes combined with the fact that people are avoiding air travel for summer vacations.
That certain office markets already over.
Although the recent historically high fuel margins have stabilized that continues to be slightly elevated on a national average, meaning that our tenants are making more money on a cents per gallon basis.
That said the overall net impact to fuel gross profit remains a highly regional issue with certain of our tenants experiencing year over year declines and others reported increases of annual fuel gross profit.
In contrast, the convenience store side of the business has generally performed well across the board.
Many of our tenants reporting results are slightly ahead of prior years performance.
While our industry has continued to exhibit stability and there are number of positives forgetting in particular I would like to emphasize that the greater the duration and severity of the covert 19 pandemic in United States, the greater the risk that there'll be additional economic impacts on consumer and retail activity generally and therefore to get these financial results.
To touch on our balance sheet and liquidity position, we ended the quarter with 25 million of cash on hand, and 225 million availability on our revolving credit facility. Additionally, we were active with our ATM program in the quarter in officially raised permanent capital.
We place a premium on low leverage and remain committed to maintaining a well laddered and flexible capital structure.
We believe we have sufficient access to capital as we sit here today for cash on hand funds available under our revolver and our ATM program.
Looking ahead, while the situation remains fluid, we're continuing to effectively navigate this uncertain environment.
We believe that our execution of our strategic objectives over the last several years.
The essential nature of our tenants businesses and that lease structure of our leases and our stable balance sheet all position us well.
Furthermore, we believe there will continue to be opportunities for gauge it continue to grow its business.
We're confident that our target investment strategy, which focuses on the largely internet resistant service oriented can been seen gas and other automotive sectors in the trial metropolitan markets across the country will continue to create value for our Charlotte shareholders over the longer term.
We remain committed to an active approach in managing our portfolio net leased assets expanding our portfolio through acquisitions, and the convenience gas and auto related sectors and selective redevelopment projects.
Confident in our ability to continue to successfully execute on our strategic objectives over the long term.
This approach and focus on these critical components.
Should result in driving additional shareholder value as we move through 2020 and beyond.
With that I will turn the call over to Mark Olerup to discuss our portfolio an investment activities.
Thank you Chris in terms of our investment activities for the second quarter, we were able to close on three single asset transactions, which were previously under contract.
And later in the quarter, we started reengagement transactions from our pipeline, which were put on hold during the early stages of the Covidien 19 pandemic.
For the second quarter, we invested 11.3 million in these three high quality assets.
These include two convincing gas acid gas assets in New York State, which are at least speedway properties acquired are subject to a triple net lease with 8.5 years remaining on their base lease term and multiple renewal options.
Additionally, we closed on the acquisition of a car wash location in Cincinnati, Ohio.
Subjects. The site is subject to a 15 year triple net lease with Zips Carwash.
We remain highly committed to growing our portfolio in the convenience and gas sector as well as our other auto related categories, including car washes and automotive service centers.
The coven 19 pandemic had an impact on the overall trends transaction market during the second quarter as transactions parties focused on their core operations and many transactions were put on hold.
With that said as business conditions for our target asset classes stabilize we have seen in noticeable increase in activity in our pipeline.
As a result, we expect that we will be able to resume our acquisition activities in the second half of 2020, although we do not dismissed the continued recipe transaction activity from possible Coburn 19 developments.
As we move through the underwriting process on potential transactions get he will remain committed to its core principles acquiring high quality real estate and partnering with strong tenants our target asset classes.
Moving to our redevelopment platform for the quarter, we invested approximately <unk> point 8 million in both completed projects and sites, which are in progress in the second quarter, we returned to redevelopment projects back to our net lease portfolio.
Specifically in April the project was returned to the net lease portfolio and Paramus, New Jersey.
When we lease they say to bank of America.
Corporation for an ATM locations.
This is this is in this project, we invested 0.4 million and we expect to generate a return our investment and 10%.
The second completed project was a leased to a local developer for a multi tenant retail location Brooklyn, New York and this project, we invested 0.4 million and we expect to generate a return on our investment of 35%.
In terms of redevelopment leasing we ended the quarter with 11 signed leases or letters of intent, which includes six active project three sign leases on properties, which are currently subject to triple net leases, but which have not yet been recaptured from the current tenants.
And signed letters of intent on two vacant properties.
While these projects are continue to add to the redevelopment process again, I know due to the impact of the covert 19 pandemic. We continue to experience delays in certain of our projects as contractor suppliers and then municipalities deal with shutdown orders, social disconcert requirements and other impediments to normal functioning.
In total we have invested approximately 1.4 million in the 11 redevelopment projects and our pipeline and we expect to have rent commencements at several additional projects during 2020.
On the capital spending side, we estimate that these 11 projects will require total investment by Getty of 7.5 million will generate incremental insurance the company excel in excess of where we can invest these funds and that in the acquisition market today.
For more detailed information on the redevelopment pipeline. Please refer to page 15 of our investor presentation, which can be found on our website.
We remain committed optimizing our portfolio continues to anticipate redevelopment opportunities over the next five years, possibly involving between five and 10% of our current portfolio.
With targeted Unlever redevelopment program yields of greater than 10%.
Turning to disposition, we sold one property during the second quarter really realizing proceeds of approximately 0.1 million.
The properties sold was not consistent with our current real estate standards, we expect the net financial impact of this disposition to be minimal.
In addition, during the quarter, we exited three properties, which we previously leads from me third party landlords.
As you look ahead, we will continue to selectively dispose of properties, where we have made determination at the property is no longer competitive as yet CNG location and does not have redevelopment potential.
As a result of our activity we ended the quarter with 929 net lease properties six active redevelopment sites and 11 vacant properties. Our weighted average lease term is approximately 10 years and our overall occupancy excluding active redevelopment dipped slightly to 98.8%.
With that I turn the call over to Dan.
Thank you Mark.
The second quarter total revenues were 37.0 million, an increase of 8% over the prior years quota.
Rental income, which excludes tenant reimbursement interests on nodes mode. It's receivable also grew 8% to 36.3 million.
Our growth and rental income continues to be driven but escalated in our leases got additional run from recently completed acquisitions and redevelopment projects.
During the second quarter Twentytwenty, we experienced increases in both property costs and general and administrative expenses, driven primarily by Reimbursable real estate taxes and employee related expenses.
Information on specifically expense management. Please refer to this morning zoning raise.
For the quarter was 18.6 million 44 cents push.
As compared to 19.6 million well 47 cents per share probably is quota.
Hey, AFFO for the quarter was 18.6 million well 44 cents per share as compared to 18.1 million 43 cents per share for the previous quarter.
Turning to the balance sheet and capital markets activities. We ended the second quarter Twentytwenty with 525 in total borrowings, which includes 75 million Undrawn credit agreement and 450 million of long term fixed rate debt.
Our weighted average borrowing costs. It's 4.6 months then the weighted average maturity of our debt is 4.9, yet and 86% about that in fixed rate.
Yes debt maturity remains 100 million stands today, which matures in February 2021.
As of today, we have 225 million of Undrawn capacity on our revolving credit facility, which can be used to fund operations awful growth over the near to medium term.
At quarter end of debt to total capitalization stood at 31%.
Total asset body was 42%.
Net debt to EBITDA was 5.3 times.
Lastly, we used our ATM program fortified our balance sheet during the quarter as we issued 12.2 million of capital at an average price of $30.16 per share.
We have 67 million available to us under our existing aftermarket program.
Our environmental liability ended the quarter and yet 49.3 million down 1.5 million for the year.
For the quarter at the company is not environmental remediation spending was approximately 2.1 million.
Given the uncertainty related to the cause of 19 pandemic. The related showed in place restriction and that lengthen depth of economic impact us Colombia businesses.
Drill all 2020 as opposed to shake guidance in conjunction with first quarter 2020 result, given the continued uncertainty related to go to 19, we're not reinstating guidance at this point with that I would technical back it's Chris.
That concludes our prepared remarks, so let me ask the operator to open the call for questions.
Thank you at this time will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question in queue. You made fresh start to if you'd like to remove your question from the Q participants using speaker equipment and may be necessary to pick up.
We're pressing the star Keith one moment, please while we pull for questions.
Thanks.
Okay.
Your first question comes from the line of Craig Melman with Keybanc capital markets. Please proceed with your question.
Good morning, guys.
Maybe we could drill in a little bit more to the acquisition pipeline sounds like you guys have a pretty good.
Opportunity set there could you just drilling a little bit and kind of give some more color on how much of that as she store versus.
You know carwash or other auto related opportunities.
Thanks.
Sure. It's this mark.
So I'd say the pipeline, it's pretty consistent with the pipeline over the last few years on that mix.
It is a bit lumpy on either side so.
It's close to 50 50.
You know over overtime.
No we're looking at.
Well, we feels a good number of portfolio transactions that had been presented to us in the last the last few weeks.
Certainly we continue to filter those through our normal we haven't deviated from our underwriting standards. So.
Some of those get discounted pretty quickly and some of those continued continued to advance through the underwriting and look forward to no updating those as the year goes on.
And I know you know, it's when you say portfolio transaction, usually to M&A that could be.
No more sizeable.
Similar to the Apple Green you guys did.
More recently are these kind of small portfolios that are going to be.
One just use these kind of package together.
Typically will use the word portfolio, we're talking about more than a handful of sites in any given deal but but.
Pipe as Mark has talked about in the past.
We look at single assets, we look at.
Small small packages in one or two sites and we also want that.
Well, it's a large packages right because I could have 15 20.
My name is 50 locations given package so.
Again, I think our pipeline and our underwriting our desire to continue to transact still has both aspects to it right we'd like the portfolio we like the.
15 year unitary lease that what we're doing ourselves back on and we also like to by individual assets, where we like the real estate and we like without.
And that's a good amount liquidity here with the wind capacity and additional ATM, but to the extent you were able to.
Final one of these larger portfolio transactions.
What are your thoughts on financing that in this environment do you have to come back to the equity market or can you give enough dry powder would get capacity.
Oh it depends on the size of the transaction correct, but.
We were in the ATM market in the second quarter, we certainly think about the debt markets are open for us should we need to take advantage of them. So our desire has been for the last several years and we'll continue to be to have a fairly balanced capital structure. So I don't think you'll see us get too far.
No into one one avenue, whether it be debt or equity right, but again some of it depends on the size of any given transaction or.
Multiple transactions that closed.
Fairly close to one another and.
But again on balance we prefer to be.
Services and.
Take advantage of.
Both types of financing.
And just remind just given kind of your leverage targets how much debt capacity do you have.
Under that those existing kinda thresholds.
Yes.
Yeah.
No I think we would certainly have enough runway.
We continue to use that both debt and equity to certainly be in April.
Color plus or minus $100 million.
The average.
Alright, great. Thank you yes.
Your next question comes from line of Michael Gorman with BTG. Please proceed with your question.
Thanks, Good morning, guys.
Wondering if if we could just stick with the acquisitions question for for a minute. There can you spend some time just as as the acquisition market starts to ramp up again have you guys seen an increase in competition from other buyers just given the performance of C stores in gas stations over the last three months.
I think the competition.
You know over my time here get it certainly.
Recognize the strength of the CNG sector and it has been steadily growing.
Given that I think the transaction market really took up kind of a two month pause and now we're really starting to dive back into our underwriting so little premature to say that there's no.
New players are significantly more competition, but.
Across the.
Public sector as well as some of the private funds and then.
Every year, there are more and more people coming into the CNG sector right that sector is growing up consolidating.
The store formats themselves are getting a larger.
And becoming more appealing for for a whole host of institutional real estate investors. So it's.
I don't think if anything new Mike and I, but I do think it's a little premature to say that there's.
X number of new entrance because of the performance during the pandemic.
Great Great. Thanks, and then maybe just stepping back a minute.
The strategic perspective, obviously, there have been some headlines lately with you know seemingly flashing numbers about declining miles driven because of work from home and.
In the Grand scheme, it works out to be smaller numbers, but maybe just in your conversations with your tenants and as you're thinking about your underwriting going forward.
How are you thinking about that what are you hearing from your tenants in terms of what they expect again recognizing that were early sort of a long term impact on daily commuter traffic and maybe C store positioning.
Yeah, I think the first thing I would say there is it is highly regional right. So across the country average situation in each major market is different.
So as you have more.
When we started the pandemic than you had more of the immediate shutdowns on the coastal regions right.
Our tenants in New Yorker in California, certainly felt that first.
Tenants or in the middle of the country really.
Hadn't felt anything at all.
Yes, I think the expectation is.
Especially for tenants that are more.
Driving commuting towns as that that will the office will come back right people walk will continue to drive.
Yes, the C store.
Quite frankly has been doing very well.
And while customer visits are down right because people are driving generally the amount that their purchasing at the store has gone up significantly right. So net net on a on a profitability standpoint right on my remarks, I said that generally the C stores up year over year right because people are stopping.
Less right they are buying more per business.
Great. That's helpful. Thanks, and maybe just one last one for Dan in recognizing it's a small number because your collections have been so high but as you think about the deferral agreements in those conversations with tenants does that has has that changed any of the accounting with those tenants under deferral agreements in terms of straight lines are in terms of.
Hey, our write offs or anything like that or is that just kind of.
Then typical other standard agreement.
No it hasn't affected the leases we elected the Thats b.
Because it's a treatment.
Which has enabled us to not have to look at those leases.
He calls.
But obviously with the deferrals you do see that increase in Yale balance.
At the moment as we sit here today.
And hopefully over the next 612 months as we collect on but as the photos that should grow in the Bakken.
Great. Thanks very much.
Your next question comes from line Joshua Dennerlein with Bank of America. Please proceed with your question.
Hey, good morning, everyone on I guess, Chris maybe kind of Big picture, how do you think about balancing.
Your acquisitions.
Well you anything caching and this is an interesting Hastings kinda originated portfolios hauling really well.
Hi to keep getting outlook for that entry yeah.
Sure I think it comes back to Craig's question familiar I mean, we're not we're certainly not an organization that is going to be overly aggressive when it comes to leverage.
And you know as we think about.
Growth right, we are certainly measuring that against having available availability under the revolver, having a larger than normal cash balance on hand.
And we will make sure that to the extent there is.
A future impact to our business that we have ample funds available to us right to whether anything that that comes our way, but it's certainly part of the overall equation as.
As we look to grow.
We're not going to put ourselves in a position where.
We may be at risk to the extent there are some negative impacts to the company.
Got it and.
I think we touched on it.
When we talked about the transaction market.
But I guess cap rates.
What are kind of the early reads and maybe like your expectations for cap rate trends. It seems like yeah cross currents going on I think it's I think it's very early you know again I must say, we're really just kind of starting to dive back in acquisitions. My personal view is if you ever been in our sector thought that there would be.
Significant swings in cap rates at the start of the pandemic I really don't see that.
Obviously, there's the competitive dynamic across the private and public buyers.
Yeah, the assets have held in very well in terms of their profitability.
And.
Underwriting.
Four wall EBITDAR, but up.
There may be small movements.
Again, I think it's you won't see anything meaningfully quite frankly, I think it's still a little too early to put a number are you going to band around that.
Okay. All right. Thanks, one last one for me you mentioned in the press release is quite good 98% of July right is that kind of normal for this time in the month and than that.
Extra cheaper psychiatry Goldman.
Normally later that extra 2% all just trying to go for no I it.
Quite frankly, we've got 98, and then we deferred.
Just over half a percent and then we've got 1.4%.
Which weve abated and don't think we're going to collect and that's not normal for forgetting.
All right I think it I think it's still strong and I think that 2% right is.
Yes, something that get you will work through either sort of deferrals or through.
Effective asset management, but I certainly don't think we're operating in a normal environment right.
Okay.
Okay got it.
Thanks, Chris that's it for me.
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Your next question comes from line of John Massocca with Ladenburg. Please.
Please proceed with your question.
Good morning.
Hi, John.
So let me touching again on deferral and kind of cash rent you didnt collect and I guess can you quantify what percentage or what kind of kind of the numbers for rent you.
Didnt collect in Twoq, you that kind of flow through the revenue line item and then what was kind of any rent that was written off due to kind of.
Your view on Collectability.
So we collected as we said little more than 96% in Q2.
We deferred 2.3, right and those deferrals.
Some of them kicked in as early as the month of July.
As we commented on what we deferred in July we receive substantially all of that back right. So were we think we're in a good spot there.
And the balance which is roughly 1.4% of our normal.
VR right, we either updated or we just don't think we're going to collect.
So for the second quarter right I think it's a little little less than 4% of rent that was.
At issue right or an issue for us and again, we think we're going to being a good spot to collect the majority of that but there's certainly a few situations, albeit small, but we need to work for.
That's a new did all corporate all that 4% flow through into your Twoq numbers, no sorry, sorry, the 2.3%, yes that did 1.4% no.
Okay.
Okay.
And then.
Yeah, Yeah sticking with the a income seemed a little bit you name it was a little bit elevated versus kind of both once you mean in any of the year over year is there something one timeish rolling through those numbers or maybe non cash charges.
The reason for the yes. That's a good question. The reason for the increase is primarily stock based compensation.
So its non non cash, but it does flow it hit our DNA line of flow through into our AFA.
We don't backed that up.
Okay that makes sense and then lastly kind of.
As we kind of think about you, it's very little coverage going forward I know, it's a little bit tough trailing 12 month number and you don't really be.
The first impassioned coven really be kind of one Q stuff to do given its corner in arrears, but.
Was there a significant impact just.
From your view from kind of that for the end of Q1 Q on the coverage at all or was.
Correct.
Yes, it's a it lags a quarter behind right typically.
It pre pandemic write the business is somewhat seasonal.
Because you have the summer driving period, writing and.
Typically you don't see much movement in that number you know when we receive the financial information of publish it next quarter that we'll have the full impact of three months of Covidien right.
So I think yeah, maybe next quarter is really the quarter to dive and see how much if that if any right out to our tenants were impacted.
By the by they cobot situation again.
We'll go back to our comments from last quarter.
We had significant drop in volumes, but a lot of that was made up by.
Fuel margins that were 50, 60, 70 cents a gallon right because of the price of oil.
Some of that was offset and then the C stores themselves were.
Again somewhere doing quite well, depending on where they work. So I think on balance right. You may see that number move more than it normally would but I don't expect it to be a dramatic move.
Okay and may even it looks like one Q given Kevin northeast focus of the portfolio into should have been.
Some level of impact on the tail enemy that what you're seeing on one it pretty much kind of offset by those margin increases maybe.
Earlier in the pandemic.
Given the fact that things really started to hit specifically the northeast kind of mid March right. I don't think there wasn't as much of an impact to to the first quarter, but it's hard for us to see that typically quarterly financial results.
Yes.
We kind of gets lost in the in the summer presentations.
Okay.
That's it for me thank you very much.
Your next question comes from line of Anthony Paolone with JP Morgan. Please proceed with your question.
Okay. Thanks, just a few shown separately just to clarify make sure we're clear on it here than that 1.4% you didn't recognize it into Q and it looks like that that south to obviously for for through Q as well. So there's no change from like a recognition point of view that you anticipate now for more.
Revenue standpoint.
That's correct Tony.
Okay, and then getting did you give ROI capex for the rest of the year like what you expect to spend on sort of redevelopment pipeline. So.
On the redevelopment.
I'll catch that.
I think we break it out in the remarks by.
By the light for the project on started by year.
Is it just order of magnitude as it much to spend congrats for sure.
Yes, I mean, Tony what we talked about on slide 15 ride the he the 11 projects. The currently working on.
We have about another 6 million to be invested in those projects, but those really over the next three years.
So it is spread out.
Okay, and then I think I missed this did you give I did you comment on the ATM in the quarter.
Yes, we did.
That was 12.2 million so issuance in the quota.
And which was that an average price so that he told us in 16 cents.
Okay, Great. That's all I had thank you.
At this time, we have no further questions I'd like to turn it back to Mr. constant for any closure or further remarks, you great well. Thank you all for participating. This morning. We appreciate your interest in jetty and we look forward to speak.
Everyone when we close our third quarter.
In October.
This now concludes our conference call you may disconnect at this time.
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