Q3 2021 Prospect Capital Corp Earnings Call

[music].

Good day and welcome to the prospect capital third fiscal quarter earnings release and conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star Keith followed by zero.

After today's presentation there'll be an opportunity to ask questions.

Last question you May Press Star then one on your Touchtone phone.

To withdraw your question from the queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John Barry Chairman and CEO. Please go ahead.

Thank you Sarah.

Joining me on the call today, and my friend Greer logic, our president.

And Chief operating Officer, and Christian ran desk, our Chief Financial Officer Kristin.

Thanks, John and.

This call is the property of prospect Capital Corporation unauthorized use is prohibited.

This call contains forward looking statements within the meaning of the securities laws that are intended to be subject to safe Harbor protection.

Actual outcomes and results could differ materially from those forecasts due to the impact of many factors.

We do not undertake to update our forward looking statements unless required by law.

For additional disclosure please see our earnings release, and our 10-Q filed previously and available on the Investor Relations tab on our website Prospect Street Dot Com now I will turn the call back over to John.

Thank you Christian.

Before reviewing the quarterly results I would like to accentuate the obvious but thinking.

And the multiple teams and prospect that helped us produce the numbers that everyone sees this quarter.

I can start with Kristen.

And our accounting team.

Who worked all weekend to take care of some last minute items that would otherwise be attack was tough, but I'm thinking.

Kristen and her team are large team for that our lawyers led by John we protect our firm and our shareholders every step of the way.

And our investments on any disagreements and we may have with Counterparties Fortunately they're rare.

Our investment professionals from structured credit to aircraft leasing.

Two real estate led by Ted Fowler.

These business units had been firing on all eight cylinders. The last 10 quarters, which is when our and a V was last at this level.

And I want to thank all of the people who work at prospect for making this happen and for their dedication and devotion to the shareholders that trust us shareholders, many of whom have been with us since our initial public offering and 2004.

And so on behalf of all shareholders I am thanking all the people that work at prospect for a job well done many of them are shareholders, along with me and people listening to this call and are benefiting.

From their hard work financially.

So, let's turn to the results for the quarter.

And the March quarter, our net investment income was $73 $4 million.19 per common share.

Exceeding our distribution rate per common share by a penny.

Our basic net income attributable to common stockholders was $246 million or 64 cents per common share.

As the overall value of our investment portfolio increased for the fourth consecutive quarter due to a combination of positive company specific and macro factors.

Our NAV stood at $9.38 per common share in March up 42 cents and 5%.

From the prior quarter, our fourth consecutive quarter with NAV growth.

Our NAV per common share is now at the highest level since June 2019.

We have outperformed our peers during the past multiple quarters.

Of macro pressure is a direct result of our previous derisking from not chasing leverage as well as other risks management controls.

We are staying true to the strategy that has served us well since 1988.

Controlling and reducing portfolio and balance sheet risk both to protect the capital entrusted to us and to protect the ability of such capital to generate future earnings for our shareholders.

And the March quarter.

Our net debt to equity ratio.

Was 56, 5%.

Town.

1760 basis points from March 2020.

And down 460 basis points.

From our December quarter.

As we continue to run and under leveraged balance sheet.

Which has been the case for us over multiple quarters.

Over the past three years.

There was the Bdcs overall have increased leverage with a typical listed BDC no.

Now at over 100% debt to equity.

We're over.

40 percentage points higher than pre prospect.

Prospect has not increased that leverage chasing returns and.

Instead, electing lower leverage.

And lower risk at this time and the economic cycle as.

As money printing and inflation.

Every investors enemy return and force.

In May 2020, we moved our minimum and 1940 act regulatory asset coverage to 150%.

Equivalent to 200%.

Debt to equity.

Which not only increased our cushion.

But it also gave us flexibility to pursue our recently announced junior capital perpetual preferred equity program, which counts toward 40 act asset coverage, but which get significant.

Equity treatment by our rating agencies.

And which provides significant equity cushion.

For any leverage.

We have no plans to increase our actual drawn debt leverage beyond our historical target of 0.72 0.85 debt to equity.

And we are signet currently significantly below such target range.

Prospects balance sheet is highly differentiated from peers with 100% of prospects funding coming from unsecured and non recourse debt since our IPO in 2004.

Unsecured debt was 84, 3% of prospects total debt and March <unk>.

2021.

We're about 28 percentage points higher than around 56% for the typical listed.

D C.

Our unsecured and diversified funding profile provides us significantly lower risk and significantly more investment strategy and balance sheet flexibility.

And then many of our BDC peers enjoy.

On the cash shareholder distribution front.

We are pleased to report that.

Words declaration of continued steady monthly distributions.

We are announcing monthly cash com and shareholder distributions.

Of six cents per share for each of May June July and August.

These four months represent the 14th and fifth <unk>.

46, 47 and 48.

Consecutive six cents per share dividend monthly dividend.

Meaning we have now reached the four year Mark for stable monthly cash shareholder distributions.

Consistent with past practice.

We plan on our next set of shareholder distributions and all.

And against.

Our goal over the long term is to maintain.

And ideally grow this steady monthly cash shareholder distributions as we seek to provide low volatility and.

Income stability to our shareholders amidst a macro market backdrop that delivers greater volatility elsewhere.

Since our IPO.

And he always 17 years ago through our August 2021 distribution at the current share count.

We will have paid out $18.84.

Per common share to original shareholders.

And aggregating approximately $3 4 billion and cumulative distributions to all common shareholders.

Yeah.

Since October 2017.

Our net investment income per common share has aggregated $2.74.

While our shareholder distributions per share have aggregated $2.52, resulting in a net investment income.

Exceeding distributions during this period by 22 cents per share.

Our net investment income covered distributions and the June.

2020 fiscal year, and ethics and have exceeded distributions and the 2021 fiscal year to date by two cents per share.

Yeah.

We are also announcing.

More preferred shareholder distributions following following the launch of our $1 billion, 5.5% preferred program.

We've raised over $80 million and our preferred stock program to date.

From institutions family offices registered investment advisors broker dealers and other savvy investors, including the reason and addition of a top five.

Independent broker dealer system.

Looking forward. We are currently focused on multiple initiatives to enhance our net investment income and then a V.

And return on investment and and accretive fashion, including first our recently announced $1 billion.

<unk> preferred.

Stock equity program.

Number two.

Greater utilization of our cost efficient revolving credit facility.

Which provides us and incremental cost of capital of approximately 1.46%.

Today's one month LIBOR.

Number three.

Retirement of higher cost liabilities and <unk>.

Including multiple reason.

Says full tender offers and repurchases.

Number four issuing lower cost notes, including recent five year senior unsecured notes with coupons of approximately three to three 7%.

And number five increased originations and senior secured debt.

And selected equity investment to do live to do liver targeted risk adjusted yields.

And total returns as we deploy available capital.

From our Kermit under leveraged balance sheet.

We believe there is no greater alignment between management and shareholders than for management to purchase in the market.

A significant amount of stock.

Particularly when management has purchased every share on the same basis as other shareholders.

In the open market as we have.

Prospect management is the largest shareholder and prospect.

And has never sold a share.

Senior management and employee insider ownership is currently approximately 28%.

Shares outstanding representing over $1 billion of <unk>.

Our net asset value.

We're trying to think.

Our management team and any other company that eats its own cooking.

To the extent and we have.

Thank you.

I'll now turn the call over to Greer.

Thank you John.

Our scaled platform with over $6 4 billion of assets and Undrawn credit continues.

To deliver solid performance and the current challenging environment.

Our experienced team consists of around 100 professional <unk>.

Representing one of the largest middle market investment groups in the industry.

With our scale.

A longevity.

Experience and deep bench.

We continue to focus on a diversified investment strategy.

<unk> third party private equity sponsor related lending.

Direct non sponsor lending.

Prospect sponsored operating and financial buyouts.

Structured credit.

And real estate yield investing <unk>.

<unk> with past cycles, we expect during the next downturn to see an increase and secondary opportunities.

With wider spread primary opportunities with a pullback from other investment groups, particularly highly leveraged one.

This diversity allows us to source, a broad range and high volume of opportunities.

And then select and a disciplined bottoms up manner.

The opportunities, we deem to be the most attractive on a risk adjusted basis.

Our team typically evaluates thousands of opportunities annually.

And invests in a disciplined manner and a low single digit percentage of such opportunities.

Our non bank structure.

Gives us the flexibility to invest and multiple levels of the corporate capital stack with.

And a preference for secured lending and senior loans.

As of March 2021.

Our portfolio at fair value comprised 51, 8% secured first lien.

Four and 5% from December.

15, 2% other senior secured debt.

12, 8% subordinated structured notes with underlying secured first lien collateral.

One, 1% unsecured and other debt.

And 20% equity investment.

<unk> and a stable 79, 8% of our investment.

Being assets with underlying secured debt benefiting from borrower pledged collateral.

Prospects approach is one that generates attractive risk adjusted yields.

And our performing interest bearing investments were generating an annualized yield of 11, 8% as of March.

We achieved this increase despite a headwind from the past year decline and LIBOR.

Though we expect reasonable stability and all due to our LIBOR floors.

We also hold equity positions in certain investment they can act as yield enhancers or capital gains contributors as such positions generate distributions.

We've continued to prioritize senior and secured debt with our originations to protect against downside risk.

While still achieving above market yields through.

Through credit selection discipline and.

And a differentiated origination approach.

As of March we held 123 portfolio companies up one from the prior quarter.

And the fair value of 5.88 billion.

And increase of $258 million from the prior quarter.

We also continue to invest and a diversified fashion across many different portfolio company industries.

With a preference for avoiding cyclicality and with no significant industry concentration.

The largest and 16, 7%.

As of March our asset concentration in the energy industry.

Stood at one 3%.

Our concentration and the hotel restaurant and leisure sector.

And at 0.4% and our.

<unk> and the retail industry stood at zero percent non.

Non accruals as a percentage of total assets.

She was at approximately <unk>, 7% in March 2021 flat from the prior quarter.

Weighted average middle market portfolio net leverage.

And at five five times EBITDA substantially below our reporting peers.

Our weighted average EBITDA per portfolio company stood at $82 million in March 2021.

Originations and the March quarter.

Aggregated $258 million.

We also experienced $182 million of repayments.

And exits as a validation of our capital preservation objective and sell down of larger credit exposures.

<unk> and net originations of 76 million.

During the March quarter, our originations comprised 77, 2% middle market lending.

17, 8% real estate.

And 5% middle market lending and buyout.

To date, we've deployed significant capital and the real estate arena.

Through our private REIT strategy.

He focused on multifamily work force stabilized yield acquisitions with.

And with attractive 10 year plus financing.

And PRC are private REIT.

Real estate properties that have benefited over the last several years.

Rising rents.

Strong occupancies.

High returning value added renovation programs and and.

Tractive financing recapitalization.

Resulting and an increase in cash yields as a validation of this income growth business.

Long side, our corporate credit businesses.

And PRC as of March has exited completely 34 properties at an average IRR of 23, 4%.

And with an objective to redeploy capital into new property acquisition include.

Including with repeat property manager relationships.

We continue to monitor our rent collections, which are holding up well in the current environment.

Our structured credit business has delivered attractive cash yields.

Demonstrating the benefits of pursuing majority stakes.

Working with World Class management teams, providing strong collateral underwriting through primary issuance and focusing on attractive risk adjusted opportunities.

As of March we held $751 million across 39 non recourse.

Subordinated structured notes investment.

These underlying structured credit portfolios comprised.

Comprised around 1700 loans.

And a total asset base of around 17 billion.

As of March the structured credit portfolio experienced a.

Trailing 12 month default rate.

Of 171 basis points.

Down 35 basis points from the prior quarter, and representing a 144 basis points less than the broadly syndicated market default rate of 315 basis points.

In the March quarter, this portfolio generated an annualized cash yield of 18.

6%.

And GAAP yield of 15.2%.

As of March our subordinated structured credit portfolio has.

And has generated 1.29 billion and cumulative cash distributions to us representing.

Representing around 92% of our original investment.

Through March we've also exited nine investment.

Totaling $263 million with an average realized IRR of 16.7%.

And cash on cash multiple of one five times.

Our subordinated structured credit portfolio.

Consists entirely of majority owned position.

Such positions can enjoy significant benefits compared to minority holdings and the same tranche and.

And in many cases, we receive fee rebates because of our majority position as.

As a majority holder, we control the ability to call a transaction and.

And our sole discretion and the future.

And we believe such options add substantial value to our portfolio.

We have the option of waiting years to call a transaction in an optimal fashion.

Rather than when loan asset valuations might be temporarily low.

We used the majority investor can refinance liabilities and more advantageous terms.

Remove bond baskets and exchange for better terms from debt investors and the deal and extend or reset the investment period to enhance value.

We've completed 28 refinancings and resets.

December 2017.

So far and the current June 2021 quarter, we booked $67 million and originations.

And experienced $85 million of repayments for $18 million of net repayment origination.

Originations have comprised 91, 9% middle market lending and 8% subordinated structured notes.

Thank you I'll now turn the call over to Kristen Kristen.

Thank you Claire.

We believe our prudent leverage diversified access to matched book funding substantial majority of unencumbered assets weighting toward unsecured fixed rate debt avoid.

Avoidance of unfunded asset commitments and lack of near term maturities demonstrate both balance sheet strengths as well as substantial liquidity to capitalize on attractive opportunities.

Our company has locked in a ladder of liabilities extending 22 years into the future.

Today, we have zero debt maturing until July 2022.

Our total unfunded eligible commitments to non controlled portfolio companies totaled approximately 24 million or 0.4% of our assets.

Our combined balance sheet cash and Undrawn revolving credit facility commitments currently stand at approximately 814 million.

We are a leader and innovator and our marketplace. We were the first company and our industry to issue a convertible bond.

Develop and notes program.

Issue under a bond ATM acquire another BDC and many other lists the first.

And 2020, we've also added our programmatic perpetual preferred issuance to that list first.

Shareholders and unsecured creditors alike should appreciate the thoughtful approach differentiated and our industry, which we have taken toward construction of the right hand side of the balance sheet.

As of March 2021 we held approximately $4 4 billion of our assets as unencumbered assets, representing approximately 73% of our portfolio.

The remaining assets are pledged to prospect capital funding, where and April 2021, we completed and upsizing and extension of our revolver to a refreshed five year maturity.

We currently have 1.0825 billion of commitments from 32 banks and increase of two lenders from before.

And demonstrating strong support of our company from the lender community.

The facility revolves until April 2025, followed by a year of amortization with interest distributions continuing to be allowed to us.

Our John pricing is now LIBOR, plus Q spot zero, 5%, a decrease of 15 basis points from before.

Our undrawn pricing between 35% and 60% utilization has been reduced by 30 basis points.

We also now have and improvement in our borrowing base due to a change and concentration baskets, which we estimate has increased our borrowing base by approximately $150 million.

Of our floating rate assets, 91.2% have LIBOR floors with a weighted average floor of 162%.

Outside of our revolver and benefiting from our unencumbered assets.

We have issued at prospect capital Corporation, including in the past few years multiple types of investment grade unsecured debt.

And convertible bonds institutional bonds baby bonds and program notes.

All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross defaults with our revolver.

We enjoy and investment grade Triple B negative rating from S&P.

And investment grade B double a three rating from Moody's.

And investment grade Triple B negative rating from Kroll.

And investment grade Triple B rating from Egan Jones and.

And and investment grade Triple B low rating from D. B R. S.

We recently received a ladder investment grade rating, taking us to five investment grade ratings more than any other company and our industry.

We have now tapped the unsecured term debt market on multiple occasions to ladder, our maturities and to extend our liability duration out 22 years.

And our debt maturities extend through 2043.

With so many banks and debt investors across so many debt tranches.

We have substantially reduced our counterparty risk over the years.

And the March 2021 quarter, we completed successful tender offerings repayments and repurchases retiring around $52 million of our 2020 two notes.

$5 million of our 2023 net eight.

$8 million of our six spot three seven and 5% 'twenty 'twenty four and outs.

234 million of our 2024 notes.

And 45 million of our 2020 five notes.

And the current June quarter through tender offerings. We have retired 1 million of our 2020 three notes.

And in March 2021 quarter, we issued $400 million and unsecured debt maturing in January 2026, with a coupon of three 7%.

We have continued to substitute more expensive term debt with significantly lower cost revolving credit with an incremental 1.46% cost and our newly issued 2026 notes.

We also have continued with our weekly programmatic internet issuance on and efficient funding basis.

To date, we have raised approximately 80 million and aggregate issuance of our perpetual preferred stock.

We now have seven separate unsecured debt issuances aggregating $1 2 billion not including our program notes with maturities extending until June 2029.

As of March 2021 we had $673 million of program notes outstanding with staggered maturities through October 2043.

We have added a shareholder liability benefit to our dividend reinvestment plan or drip that allows for a 5% discount to the market price for drip participants.

As many brokerage firms either do not make trips automatic or they have their own synthetic drips with no such 5% discount benefit.

We encourage any shareholder interested and drip participation to contact your broker.

Measure to specify you wish to participate and the prospect Capital Corporation Drip plan through D. T C at a 5% discount.

And obtain confirmation of St from your broker.

Our preferred holders can also a lack to drip at a price per share of $25.

Now I'll turn the call back over to John.

Thank you Kristen.

We can now answer any questions.

Thank you we will now begin the question and answer session.

And I ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question from the queue. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from.

Robert Dodd with Raymond James Please go ahead.

Hi, good good morning, and congrats on the quarter a couple of questions about specific assets. If I can first on first tower.

It was one of your big of items this quarter.

And a lot of disclosure and the Q about why.

And just financial performance was better can.

Can you give us any.

Metrics and revenue growth.

And the Superbowls outstanding and any kind of metrics.

Uh huh.

Give us some information on how much the financial improvement was better et cetera.

Yeah Greer can do that go ahead career.

Sure. Thank you for the question.

Robert.

And so describe the.

Boosting and value for.

First tower, which was about <unk>.

$48 million for position.

As.

And significant part due to underlying performance.

And in a partial part do too.

Improvement in metrics values for comparable companies, including.

Public comps that helped to drive this.

Salutations these types of <unk>.

Companies are have been trading quite well in the March quarter from.

From a fundamental <unk>.

Standpoint, which of course is what we focus very hard on.

We've seen and improvement and.

Multiple areas, we've seen improvement and same store sales.

We've seen an improvement and.

Hmm.

And in charge offs really and all the states and which first tower operates.

And we've also.

Received a benefit and our financing costs switches.

Floating rate with a strong and supportive.

Bank group that has been with the business for.

Years, really decades, and know the company well and underwrite.

So with LIBOR.

A very low level financing costs have been low for the company that's well obviously the the macro backdrop is constructive with.

Strong consumer wallet helped and significant part by physical.

Fiscal spending.

<unk> has been and port driver and consumer credit across the board, but we credit and management team led by Frank Lee, whose family founded the company decades ago, Frank is a wonderful business person a leader and.

And a 20% equity holder and as Don.

And a strong job along with the rest of the management team.

And.

Sustaining and increasing improving performance and concluding and state.

Where first tower has expanded in recent years and whenever you expand into a new geography, there is always a micro learning curve associated.

And with the particular nuances of that area.

And individual management teams at the branch level and that needs to be so we're very happy with the across the board performance. We've now.

And then and 80% owner of this business and.

Lender.

Lender to the company as well for almost 10 years and about nine years and it's been.

Our strong long term hold.

Cash producer and high.

<unk> tax efficient as well.

Taxes and partnership.

Taxation downstairs and tax compliance so no taxation upstairs, so very pleased with the with first tower.

Got it thank you Amy.

On that I mean, given the valuation I mean, it's a very sizable asset on your books under work.

Good income contributed as well.

And under what conditions would you consider.

Selling that asset and redeploy the capital.

And to a more diversified pool, maybe and one one large single asset.

Well, we view it as a diverse and granular pool actually not a large singular asset there are hundreds of thousands of loans that underpin that book. So it's arguably a more diversified than our corporate credit book with a 100 to 200 name.

And geographically diversified as well so we view it and a look through diversified fashion.

Are we from a long term hold standpoint.

Evaluate this asset as we would any other and the book for example, and our real estate business. We do this regularly where we update on a quarterly basis and Tvs of each asset should we hold this asset should we divest it.

With the foregone IRR from divesting it and shall we optimize the financing or and some other fashion, what's the NPV maximizing strategy.

And where can we profitably redeploy.

And the proceeds.

And it would take a lot and order to sell this asset because it is so wonderfully tax efficient for us we are the lowest cost of capital most tax efficient owner of this business day of Lora to become a standalone public company, which certainly is of a scale.

And stature.

And to do as you know north of a $100 million EBITDA business.

It would be a corporate taxpayer and.

And perhaps if corporate tax rates are going up we will see but there certainly are non zero.

Out there there's zero for us are taxed.

Flow through partnership.

So that would be a very challenging endeavor, because the buyer I volume public exit what superimpose the higher.

Cost structure than where we hold the business today.

Good day.

So we're happy with the the business we haven't focused on.

Hyper growth, we focused on proper underwriting really using the same tried and true fundamental old fashioned values of our consumer credit underwriting.

Underpinning this a loan installment lender.

Lender, that's a bit higher up on the quality spectrum than others in the space.

And do not have any immediate plans to exit that.

Position.

Okay got it thank you for that one on one.

I mean.

In the Q1 and the reasons for the backup and the beat was obviously cap rate compression and.

John in your prepared remarks, you talked about obviously and ask the potential for rising inflation.

I wouldn't necessarily think that would impact cafe Shaw non but what what's your view.

The potential for longer term.

Inflation, and how would that capital right.

And all day.

Okay well Robert.

I'll gladly.

Gladly give career rest for a second just before I do just more and first tower.

John.

It's rare that we can.

Fine and management team and by a business run by.

By and management team that is experienced and expertise as frankly as team Schroeder.

Schroeder.

Jody Mccann and frankly, Frank has been running that business with his team for decades.

Through thick and thin.

So knowing how hard it is to find.

Great managers, I would be very slow to vote to so.

First tower and attempt to deploy the proceeds into another business.

What we would it be more likely to do.

And as hopefully find another great manager like Frank Lee and back that manager and and build that business under Frank's tutelage first tower has grown significantly our internal team.

Dennis.

Adderley.

And Edward hadn't helped Frank do that by optimizing the capital structure, helping to analyze.

Additional.

Acquisitions horizontal extensions and so we have a good situation with our internal team and with the external team and.

And so Rob.

Robert I, if you find a company that we should buy we'd love to buy it but I don't think we are going to need to sell first tower as I think you know we're significantly under levered.

And at least compared to other bdcs. So we have a war chest.

Capital that.

We're just sitting on and waiting for the now I'm getting to your question right.

And it's like Atlas as restaurant and I'll finally get there.

We see.

I mean I.

I think you put your common sense hat on.

And and ask yourself and the U S government spend how many trillions is it six trillion dollars.

And in less than a year.

Oh, just mailing checks to people.

And expect that there would not be inflation.

Of course, there will be inflation, and we're seeing it everywhere lumber commodities housing prices bitcoin.

So.

We are sitting on and war chest.

We believe it is.

It should be very similar to what happened during the Carter years and.

And the fed will have to chase the inflation.

Raising interest rates won't be helpful to anybody.

But our job as stewards of our shareholders' capital.

As to see reality for what it is.

Not for what people want to tell us it is.

And yes.

Investors worst enemy is at the door.

And inflation.

Because what happens is.

First you are being taxed.

And.

Returns it or they may not even be positive on a real basis, Fortunately investors and our company and are receiving.

Hi, real as well as nominal returns.

Investors and some of these tech companies are going to see inflation and higher interest rates significantly and road.

And your value as discount rates.

Compound.

<unk> and diminish the.

The value of the gold at the end of the Rainbow 10 years from now.

So the way we see it.

Our workshop <unk> of capital.

Our low leverage.

Our expertise.

And dedicated really devoted origination team.

Is ready for what comes next.

We believe that there will be companies and distress as there have been in the past and we will be able to purchase those companies.

Distressed prices.

That's why we've been keeping our leverage low even though some people would argue oh.

If you can borrow at one seven and 6% and reinvest at 10.

Why aren't you doing more of that.

Well.

If you read the book built to last Youll see that.

If you want and build the company to last.

You remain disciplined through all cycles and get ready for the next one and so that's why I added to my remarks.

And.

And my concern about upcoming inflation and the need for really all investors to be ready for it.

Is your view different robber.

I wouldn't say, it's substantially different but you're the.

The one running there.

The company. So I just wanted to get your opinion on that point.

Right.

I just have to evaluate to London.

So you'd asked about real estate Robert and.

So real estate is a classic inflation hedge, especially multifamily.

And why is that well because one can re price the rent.

Frequently.

Because the leases are.

One year.

Typical duration.

At the same time financing costs are locked in for the long term.

And do we have essentially.

Almost entirely fixed rate long term.

Finance book.

So your financing cost and and debt service payments are fixed.

While rents go up and in an inflationary environment and net operating income goes up.

It is possible there's a give back to your question about cap rates, yes.

The fed response.

And inflation fighting.

In terms of increasing.

Short term rates are to the extent that increases our typical benchmark like a 10 year treasury to which.

Financing costs would often be pegged.

And it is possible that there could be some cap rate increases that occur as a result.

But.

The net operating income will.

We will surely be growing and that inflationary environment.

So likely those are significant offsetting trends, maybe NOI growth is actually.

Greater because you've got a and investor.

Rotation into the sector.

Fleeing a fixed income and and other areas that are having issues. So you may not have the change in cap rates at all and you get the NOI boost so the best of both world. So we view that as a leading light and really bright star and the portfolio.

That differentiates us substantially.

From our peers.

And and inflationary environment or potential for substantial increase in inflation due to the fed's printing.

Of money and.

And are very very happy.

With the performance of our real estate book and also.

Acts as a significant diversification benefit.

Relative to the rest of the book low correlation.

Dampens volatility efficient frontier attractive addition to the investment portfolio construction.

So we're quite pleased with that business and we continue to make new investments.

Continuing to exited investment selectively utilizing.

Utilizing that quarterly NPV maximization.

Upland a cash.

Capital allocation methodologies and articulated previously.

Hey, Selman.

So Robert and I can remember and the 19 seventies and early eighties to real estate investors, where the people that survived.

The huge inflation and then.

With more of their capital and anyone else. So we do regard.

And the large multifamily book.

As an anchor to windward.

Okay, well thanks, everyone.

Have a wonderful afternoon bye now.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.