Q1 2021 Ares Commercial Real Estate Corp Earnings Call
Good day and welcome to the Ares commercial real estate companies first quarter 2021 of the earnings conference call all participants will be in a listen only mode.
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I would now like to turn the conference over to John <unk> of Investor Relations. Please go ahead.
Good afternoon, everybody and thank you for joining us on today's conference call I'm joined today by our CEO of Bryan Donohoe, Tae Sik, Yoon, our CFO and Carl Drake head of public company Investor Relations.
In addition to our press release on the 10-Q that were filed this morning with the SEC. We have posted the earnings presentation under the Investor Resources section of our website at Www Dot Ares CRE Dot com.
Before I begin I want to remind everyone that 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.
Any of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may and similar such expressions.
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 condition or results and involve a number of risks and uncertainties. The company's actual results could differ materially from the as expressed in these forward looking statements as a result of number of factors, including those listed in the SEC filings.
Ares commercial real estate Corporation assumes no obligation to update such forward looking statements.
During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance and these measures should not only be considered in isolation.
Or is the substitute for measures prepared in accordance with generally accepted accounting principles.
The measures may not be comparable to like titled measures used by other companies with that I'd like to turn it over to Brian.
Thanks, and good afternoon, everybody the.
This morning, we announced another strong quarter with distributable earnings of <unk> 40 per share for the first quarter of 2021 of 25% year over year and well in excess of our combined regular and supplemental dividends.
We're pleased with our performance, which was driven by our portfolio of strong credit quality healthy level of high quality, new investment activity. The actions, we've taken of reduce our financing costs and the benefits from our LIBOR floors.
Our portfolio and our real estate platform continue to benefit from an improving economy and the more active real estate market, which is enhancing our already strong competitive position as a reliable and stable capital provider.
With some legacy market participants narrowing their underwriting criteria are not yet returning to the market.
We are finding an attractive competitive landscape.
As a result, we continue to see new loans with the all in spreads roughly in line with our greater than pre pandemic levels and our primary areas of focus with more attractive attachment points. In addition to more friendly lender terms.
These factors have led to an improved pipeline of attractive investment opportunities that our diverse across property types and geographies.
We continue to target launched the high quality sponsors primarily secured by multifamily industrial self storage and select office properties in markets with strong demographics and favorable real estate fundamentals.
Our playbook remains consistent to originate short term, primarily senior loans with strong covenant protections in support of value creating business plans.
Against this backdrop, we closed 205 million of new commitments across multiple property types in the first quarter of 2021.
As a reflection of our increased conviction in the future investment opportunities, we expanded our access to efficient financing and capital throughout the first quarter.
In January we closed our fourth CLO, which provided us with additional match funded non recourse financing.
As previously discussed the $667 million securitization reduced our funding costs enhanced our nonrecourse funding to more than two thirds of our debt capital and enabled us to purchase loans from the Ares warehouse.
Then in February we issued 7 million common shares to raise more than $100 million of equity capital at a slight premiums of book value to invest in the future growth opportunity, we see unfolding.
Underscoring the strength of the opportunity set we have closed over $270 million of new loans between our balance sheet and into the areas warehouse already in the second quarter.
Turning to the portfolio our portfolio is well constructed with 97% invested in senior loans and approximately two thirds of our loans collateralized by multifamily office industrial and self storage properties.
We continue to be underweight hotels, and Standalone retail centers.
The backdrop of an improving economy has further supported the strength of our portfolio.
100% of our loans made their contractual debt service payments for the first quarter and our weighted average internal loan risk rating modestly improved to $2 90 versus three point O at year end 2020.
Additionally, there were no new loans on non accrual status during the quarter.
While the COVID-19, pandemic and all of the resulting uncertainty and challenges. It brought are not completely behind us we remain optimistic about the future benefits that the economic recovery will have on our portfolio.
Along these lines in the second quarter, we resolved the senior loan collateralized by of student housing property that was on non accrual as of March 31 above our carrying value.
This resulted in a return for this investment consistent with our overall portfolio.
The successful outcome here underscores the strength of our upfront underwriting the benefits of our conservative approach, our active asset management capabilities.
Before I turn the call over to <unk> I did want to point out that we declared our second quarter dividend of 33 per share plus a <unk> <unk> per share supplemental dividend, which is consistent with last quarter.
For the full year 2021, we continue to believe that we will fully cover our exceed our dividends with our distributable earnings inclusive of the two per quarter supplemental dividend.
With that I'll now turn the call over to <unk> to provide more details on our first quarter results and healthy financial position.
Great. Thank you, Brian and good afternoon, everyone earlier today, we reported GAAP net income of $15 7 million or <unk> 45 cents per common share and distributable earnings of $13 9 million or <unk> 40 per common share.
Our distributable earnings for the quarter more than fully covered our <unk> 33 per common share of regular dividend as well as our supplemental quarterly dividend of <unk> <unk> per share.
Supported by our strong earnings and the slightly accretive 7 million common equity offering that Brian mentioned earlier, our book value per share increased by <unk> <unk> per share to $14.23.
This is the third consecutive quarter of improving our book value per share.
Our earnings also continues to benefit from LIBOR floors.
The weighted average one month LIBOR rate on our.
The loan portfolio at the end of the first quarter of 2021 was 1.56%.
Which compares favorably to the one month LIBOR rate of approximately 11 basis points.
Furthermore, during the first quarter, we executed approximately $1 1 billion of notional interest rate swaps and caps, which we believe provides significant protection against rising interest rates over the next few years.
Okay.
Our first quarter GAAP earnings also benefited from a $3 $2 million reduction of our seasonal reserve.
There are 13% decline in our seats of reserve was primarily driven by improved macroeconomic forecasts.
While we have reduced this balance of the past few quarters, our CSO of reserve balance as of March 31, 2021 remained at about four times pre pandemic levels at $22 million.
Now let me highlight some of the further enhancements that we have made to the liability side of our balance sheet during the past 12 months.
As you know heading into the pandemic last year, we were in a very good position and certainly the past 12 months tested our liquidity levels are fine.
Ensign vehicles and on.
Overall capital structure.
Despite the success. However, we have pushed even harder to further strengthen our balance sheet.
First our debt to equity ratio, excluding the seats of reserve is significantly lower at two four times as of the first quarter of 2021 versus three two times as of the first quarter of 2020.
Second as we continue to shift our funding mix towards termed out non recourse sources.
And with the successful execution of our fourth CLO and the extension of the reinvestment period of our third CLO.
Our percent of non recourse liabilities more than doubled the 71% as of the first quarter 2021 versus 32% as of the same period last year.
And finally, we increased our common capital base by more than 20% two our recent 7 million share offering in March 2021.
So despite challenging capital market conditions, the liability side of the balance sheet is in a stronger position today than it was at pre pandemic levels.
So with that let me turn the call back over to Brian for some closing remarks.
That's great. Thanks Tae sik.
In summary, we're off to a very good start to 2021 with strong quarterly earnings healthy on improving credit quality on the portfolio.
With the attractive sources of financing, including incremental equity, we are well positioned to more fully invest in the market opportunities we see in front of us we.
We expect future quarters will benefit from the resulting increased diversification of the portfolio and greater expense efficiencies that come with the deployment of this capital.
Importantly, we are actively and prudently investing our available capital against this attractive market opportunity.
As a result, we remain on track to deliver distributable earnings that meet or exceed dividends paid for the year.
We greatly appreciate the support of our investors and your time today.
With that I will ask the operator to open the line for questions.
We will now begin the question and answer session to ask a question press. The Star then one on a touchtone phone.
You are using a speakerphone please pick up of your handset before pressing the keys.
If at any time of your question has been addressed and you would like to withdraw your question Press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question comes from Tim Hayes with B T. I G. Please go ahead.
Hey, good morning, guys. Congrats on a nice quarter first question here, just Brian circling back on your comments about.
Spreads on new loans.
You can appreciate that spreads are at or maybe a little bit wider than pre pandemic levels, but curious how all in levered returns look relative to pre pandemic levels I know you've got great execution on the force CLO and it helps debt you've extended the reinvestment period for the third one.
But going forward just based on you know where where your funding costs are and maybe the direction, they're going a burst isn't the all in coupons on new loans, just curious how <unk> look to be.
Relative to pre pandemic levels.
Yes, it's a good question on what I'd say is I think theres certainly differentiation on asset classes.
The board I think we see ROE is in keeping with pre pandemic levels. However, there has certainly been compression and the industrial multifamily space and some tightening there so.
How the portfolio construction comes together well, we'll take into account the roe's available on an asset by asset basis, thus far we've been very pleased with the.
On the lower leverage attachment points set of been available to us with again all in yield set of R. R.
Satisfactory to pre pandemic pre pandemic levels.
Okay.
Got it that's helpful. And then just on liquidity the update you provided at the May 3rd.
It sounds like you've been busy originating some new loans in the second quarter as well, which is great to see but your available liquidity has also come down quite a bit as well and I think there was a $40 million of ethics of.
The additional liquidity expected I don't know if thats just the loan repayment that you guys expect or maybe a couple but I'm curious how you feel about your current liquidity position versus the pipeline today and what you believe you can support at this time.
Absolutely I think I'll, let tastes of getting into more detail I think it is debt.
Difficult to take just a snapshot moment in time, given how dynamic the portfolio of us from a financing on origination standpoint, but tastes of why don't you take it away.
Sure Tim that's a great question I mean, obviously at quarter end, we had significantly more liquidity over $140 million.
At least the way, we define liquidity versus the smaller amount that we announced as of yesterday of the $36 million.
As Brian mentioned these are very specific moments in time and you know, we're always dynamically moving our capital position.
We felt it was important to note that we are expecting about $40 million of.
Financing proceeds to be available towards very shortly.
We're moving some bones around at the various financing vehicles, particularly R. S. L. Three securitization vehicle, which you noted that we extended the reinvestment period, so that gives us tremendous flexibility there.
But basically we have been very active in originating new loans. So the mentioned we've closed the number of loans since quarter end.
And certainly a significant portion of the capital that we had available as of March 31st, including the 100 million debt. We had raised through our common equity offering you know a significant portion of that has been invested and will continue to be deployed particularly against the loans that we had initially.
Clothes in the Ares warehouse line, which we all of that work very hard of the next couple of weeks to bring onto gross balance sheet.
With the with the liquidity that we have the.
The 36, plus the 40.
Okay, but with the.
Do you pay the do you believe that given I guess, the the 36 plus the 40 76 vs.
I think it was about 180 million or sale of loans in the pipeline.
Do you believe that you'll be able to kind of take those all on given your available liquidity or are you going to need to.
Hopefully add some loan repayments or some other.
On sources of capital commit to close those loans.
No in fact, I would say you know with with respect to the 36 plus 40.
We will use approximately half of that to bring on the loans that are currently closed on the Ares warehouse line. So again, the Ares warehouse line.
We showed the commitment amount, but really the funded amount in the Ares warehouse line is just over $130 million.
And together with leverage at will obtain will have sufficient liquidity.
In the 36, plus 40 to bring that 130 million of of.
Outstanding principal balance from the Ares warehouse line on takers balance sheet.
Okay got it that's helpful I'm going on.
Hop back in the queue. Thanks for taking my questions.
Alright, Thank you Tim.
Okay.
The next question comes from Doug Harter with Credit Suisse. Please go ahead.
Thanks, I was wondering if you could give us an update on the on the three nonaccrual loans on kind of how they're progressing.
Absolutely, Doug well first and foremost I think what we're seeing throughout the lodging landscape has continued uptick in occupancy.
Sorry of echoing pre pandemic levels or even the regularity of the terms of weekdays versus weekends, but out now positive trend lines there.
And then as we did mention we did resolve one of the student housing properties.
It was on non accrual last quarter post quarter end, where.
On the asset was sold above our carrying value. We were also able to secure the financing at a lower basis than where we were previously.
So and.
And we expect continued progress on the remaining two assets over the next quarter as we as we work through that with very constructive borrowed dialogue.
Got it I guess on the property that was sold I guess was there a reserve against that that gets released given the favorable outcome.
It takes if you want to walk through of the mechanics there.
Sure absolutely.
So Doug I think theres, not theres, no sort of called reserve, but because we put that loan on non accrual status.
I would call you know at the beginning of the pandemic.
We have been basically amortizing down reducing effectively the actual interest that we've received against the principal balance so that as Brian mentioned that carrying value that we had as of March 31st.
It was actually lower than the amount that we got repaid on that loan so that what youll see from the second quarter is.
We will show a slight gain on the on the disposition of that loan since we got repaid more than our carrying value because of the fact that we have been advertising of doubt.
With respect to interest payments because of the non accrual status. So it's not effectively release of of reserve, but the carrying value was lower than the.
Repayment of Mt.
I guess just on that as it goes.
Part of what the repayment amount that you got compare to kind of the initial principal of the loan.
So basically net it was slightly lower than that if you want to call. It the.
The legal outstanding amount only because of some expenses that were incurred as part of that transaction.
But importantly, the amount that we were repaid was above the carrying value.
Right.
Thank you.
The one thing I would add to that too is and we mentioned this on the call but from an ROE perspective, taking this from from beginning to end it was still a area of positive.
Return in keeping with the overall portfolio.
Makes sense thanks, Brian.
Thank you Doug.
The next question comes from Steve Delaney with JMP Securities. Please go ahead.
Hello, everyone and happy springtime.
Just wondered if you could talk a little bit about prepays.
First quarter was pretty light of about 130 million, we normally think about somewhere in the.
Area of maybe 33.
Some percentage of the portfolio of repaying each year and I guess that would put you on your 600 million. So any any comments or color you could give us about what the second quarter. What you are seeing near term.
And you have some visibility there and then put a good expectation might be for the full year. Thank you.
I think what we expect and it's a good question I think what we expect is a return to that equilibrium you mentioned towards the latter half of this year and candidly, we're spending a lot of time with our borrowers to understand where they sit on their business plan and get out in the front of any potential repayments.
But we do expect to get back to that normal course operations of of loans coming in and out on that normal 25% to 30 month tenor towards the latter half of this year.
Which is why obviously, we're really pleased with the origination pipeline that we see in front of us to to manage those in concert with one another.
I don't know if you have anything to add specifically to that.
Yeah, No I think thats very very quickly.
Listen with with our views so.
See that's exactly right I think pre pandemic. What you saw was about about a 3rd% to 40% of our portfolio.
They repay each year so call that on the average six to 700 million per year, obviously, the past 12 months to 15 months with significantly less than that but what we're saying is we're starting to see our borrowers start to achieve their business plans.
And certainly the markets for them to be able to to.
Either realize the value that they create their assets and door.
More permanent financing is starting to open more and more so I think that's right I think what we're forecasting is really second half of the year that we would start to see.
On a more normal if you want all of that pre pandemic level of repayments.
Got it got it okay. Thanks, that's helpful.
The see some reserve you know you talk about 22 million and four times pre COVID-19 in the $22 million today are there specific reserves that are in there or is that just reflecting sort of the general macro outlook.
Yeah, It's all of general macro outlook. If you want to talk in terms of you know what really caused the change the quarter to quarter from year end 2020 of the first quarter 'twenty 'twenty 'twenty. One we didn't really have any meaningful change in the credit profile of our loans.
And so some change, but not not as material of the change as the general economic outlook I think what we're finding from the.
The economic forecasts of third party economic forecast that we rely upon to really determine the seasonal reserve is that they have.
Certainly pointed to a much more positive direction than the current debt.
Then the situation of 12 months ago of nine months ago six months ago.
So we wanted to show that really the the change in the seasonal portfolio. This quarter was primarily due to the economic outlook going forward.
Post to the EBITDA metrics of our credit metrics of the loan portfolio of itself.
So going forward, obviously of plus to book GAAP book value, but no impact on on distributable EPS I would assume so as you.
As you recover more of that overtime. So I think that's right yeah.
Just like we saw that that's exactly what we've seen in the last two quarters or so.
And certainly for the first.
30 to 35 days of the quarter I think that's that's what we continue to see so far in the quarter.
Great. Thank you both of the comments.
Thank you Steve.
As a reminder, if you have a question press Star then one to be joined into the queue.
The next question comes from Jade Rahmani with K VW. Please go ahead.
Thank you very much.
Any of them.
M&A opportunities.
Our top of mind for management at this point.
Yes Jed.
Nothing specifically, obviously as we touched on last quarter and in prior quarters, we clearly see the benefits of scaling the business, hence the hence the raise a few months ago.
So we certainly have our eyes and ears open to opportunities, but there's nothing specific that.
We of the target on right now.
Okay.
One of your peers I guess, they probably don't.
Qualifies the peer anymore, but they.
They used to be of mortgage REIT now there.
The other a ground lease rate.
And the stock is trading at a really large premiums to book value.
In terms of cash flow, there probably cash neutral because.
Ground leases as I'm sure you're completely aware of.
The upfront yields of very low, but they grow over time.
So the stock is called safe.
One of the best performing Reits over the last two years.
And I did see that Ares launched a strategy in the ground lease space with the company called real.
Regis, which created the invitation homes.
I happen to know the management team. So I'm just curious if that is an area of the capital and which Ares or air eight acre commercial real estate may participate in and then overall what your thoughts are on that sector of that growing sector.
I think the technology that they've put in place is really interesting I think the.
Yes, the CPI adjustments, you mentioned and the duration and the stability of the assets that they've invested in to make it a very attractive place to invest and hence.
The investment you mentioned made by our opportunity fund real estate opportunities on team alongside.
On the re just folks on our alternative credit team I think of it.
It's a great continues to be of very good relative value in the space, specifically because of the duration of those assets of their investing it.
I think that would be a fairly significant pivot for acre of not something that we envisioned but but I agree with you that it is a it's an interesting place to be investing today.
And they do of a program.
In which high Star provides construction loans alongside ground lease take out financing is that something you think hey.
Take care of my participate in.
We certainly talk to them on a good bad David Roth, who led the investment for Us and I sit next to one another and talk frequently about the ways, we could work together.
Candidly Jade, we think the bar will be pretty high just because we could potentially be in the same capital structure and want to be mindful of any potential conflicts, but I can tell you. We certainly benefit from a good bit of deal flow of that may or may not fit in either one of our investment.
The investment vehicles on the crossover there is pretty significant so whether or not there is a direct way to work together I think is TBD, but certainly there are benefits of being on the same platform.
Thank you and then just lastly in the issue that's come up.
On page eight.
The third one on exchanges.
One of them to find that given acres of.
The middle market focus.
What you think.
Either the impact on origination volume or on the underlying asset valuations might be if there were a curtailment of.
The tax benefit that tends to everyone on the exchanges for real estate investors.
I don't think it'll be that impactful to acre candidly the way we have traditionally looked at it is with the negative.
View.
The 10 31 exchange market, while it certainly has some value I think it also induces some investors to potentially overpay. So we would all of these discount the value ascribed to the 10 31, investor and underwrite it more.
More conservatively, because it's kind of it's a little bit of found money for that investor rights and definitional youre paying more than market in order to secure that ongoing tax benefit.
How it affects us, though I think minimal if at all.
Thank you for the questions.
Thank you.
The next question comes from Stephen Laws with Raymond James. Please go ahead.
Hi, Doug.
Good morning, I guess good afternoon, she goes on the East coast.
Two questions of lots been covered the I appreciate the commentary it looks like office was about half of originations in the quarter.
Not that atypical I think from of typical portfolio mix, but can you talk about what type of office assets Youre doing on the new originations.
Any type youre staying away from or kind of how of your underwriting standards changed in the the office segment versus 18 months ago. Thanks.
Yes, great question, and I think we've always been fairly provincial and on our and our outlook on underwriting of office opportunities and that remains so today.
The change probably for the for the most market participants ourselves included as I think we're going to look to see a flight to quality.
Of tenants and so therefore, the outdated businesses business models.
Our offices that are not in premier locations are going to be shunned by tenants and ultimately by the capital markets. So we're certainly taking that into account as we look to make.
Somewhat contrarian investments there.
And I think there are some some really interesting attributes right. If you think about being able to invest in an office asset with long term strong credit tendency in these core locations that have access to mass transit and the things that have always been attractive to tenants.
And to do so on a reset basis so.
2025% decline in value for.
For office properties, and some of the core markets and be able to ban the rate of 65% of the loan against that asset. We think that overall attachment point that decline in the attachment point presents a really interesting opportunity set.
We will still manage the portfolio and still have.
High concentration in the industrial and multifamily where all of this as I said prior.
But office will present, some opportunities and we will continue to be provincial with with the manner in which we invest in them.
Great appreciate the color on that Brian on them.
You know I thought the extended reinvestment period I think it was on sale of three is interesting certainly gives you guys a lot more runway.
You know your plants on costs, I guess going on and it helps you from that standpoint, not to mention just the the nonrecourse term financing so.
Can you talk about that if that's something that.
That's you know could could continue to occur with with other deals or extending further kind of how does how does that process play out of I'm not I'm not that familiar with the.
The extension on the reinvest period here.
Sure I'll start and then I'll, let tae sik walk into some of the details, but one of the things that we've always talked about is the value of being the incumbent lender of participant we benefit so much from.
The opportunity set that we see from borrowers that we've led to previously and I think there's also the the least amount of friction for our liability side is to continue to work with our current of Counterparties have been great partners to us in the past and I think this extension was a prime example of that.
The <unk>, maybe you can walk through some of the benefits from a quantitative standpoint.
Sure Stephen that's the excellent question.
You know one of the big benefits of.
Doing of securitization of course is that you enjoy a very strong leverage non mark to market non recourse match funded strategy.
And when you compare of CLO financing versus warehouse or node on node type of financing there were clearly advair.
Outages, you know one of the big disadvantages of CLO.
Particularly a so called static CLO, where you don't get to reinvest proceeds that are paid off.
The loan within the securitization of pay down is that you can delever itself relatively quickly that's.
That's the first big disadvantage rather than the second biggest advantage is the cost associated with doing of securitization because of all of the legal work and all of the placement work that is done. So those are really the two biggest disadvantage of the securitization I think we know we feel very fortunate with ethanol free in particular debt.
We've been able to really manage both of those disadvantages quite well by having now the second extension of the reinvestment period. So this securitization was actually done.
Back in I believe our.
Second quarter of 2017.
And so we've had this thing outstanding already for four years. So we have an initial two year investment period extended that in 2019, the 2021 and now we've extended it three years of 'twenty 'twenty four so effectively we will have if you want to call. It the full leverage it won't amortize down, but you know as long as.
We continue to fine.
The appropriate inapplicable replacement of assets, we will be able to continue to enjoy the benefits of the securitization for nearly a seven year period in which we will be fully levered.
As well as you know amortize down the cost of initially setting this up over a much much longer period on a typical of static pool CLO. So we think this is the.
A significant advantage yeah, we were able to do this because as you recall the.
2017 out of all three securitization was done with one single purchaser of all of the investment grade notes and so we have been able to go back to that single investor and negotiate the terms of the reinvestment period extension and as you'll also recall one of the big things, we were able to save even back in 2017.
It is because of that placement was done directly through relationships that we had here at Ares, we did not have to pay a significant placement fee to.
The the typical placement agent for debt securitization.
So on both ways you know I think we have significantly extended the useful life of the securitization as well as significantly lower our cost of typically doing a securitization.
Great. Those are helpful comments, thanks, Tae sik I appreciate the time the.
Absolutely. Thank you Steven.
The next question comes from Charlie of Riskier with J P. Morgan. Please go ahead.
Hey, guys. Thanks for taking the question of today, we've covered most of them, but just a few small items for me.
Looking at the new originations I see you know the office property in Illinois, and the self storage in Florida.
I'm just curious on the California mixed use what are the actual components of that property and I'm curious if there's any retail component there.
Okay. Thank you on that takes us.
Sure I think.
The mixed use does have a.
The retail component of it it's really office and retail components.
We find that we have as we mentioned not very purposely.
It went against Standalone retail centers.
But we do believe that you know when you do mix.
When you have a mixture of situation that retail can actually enhance the.
The desirability of the other commercial users in that facility. So it does have a retail component to it.
It's really a mixture of office and retail.
Okay got it and I appreciate the color there.
And then lastly, just a housekeeping item basically but wondering how we should think about the run rate going forward for the Westchester Marriott you know it seems like both revenues and expenses dip this quarter.
Again, I realize the sudden probably going to be of long term asset for you guys and I'm sure. There's some.
Seasonality combined with everything else, that's going on with the broader reopening, but I just wanted to make sure of that I am.
You know really capturing the.
What's happening there.
Yeah.
Yes, I think of it sounds like you're on the right track certainly I think seasonality for the first quarter is an issue for for that geography of hotel. So January was.
On a lower month continue to benefit from all of the things we've talked about in prior quarters, specifically the closing of a good part of the competitive set.
So if you looked at the trend lines, it's very similar to prior years.
We are also continuing to harvest more of the demand that does exist in the market due to the closure so trend lines are positive.
<unk> of relatively small part of our our balance sheet, obviously and we continue to monitor.
To find the best time to exit the investment.
Thanks, very much for taking the question.
Yeah.
As we have no further questions. This concludes our question and answer session I will now turn the conference back over to Bryan Donohoe for any closing remarks.
Yeah.
Thank you and thanks to everyone for their time today. We appreciate your continued support of acre and we look forward to talking to you again on our next quarterly earnings call. Thank you and be well.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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