Q3 2021 Claros Mortgage Trust Inc Earnings Call

Welcome to Clarets mortgage Trust third quarter 2021 earnings Conference call. My name is Alex and I will be your conference facilitator today.

All participants will be a listen only mode.

After the Speakers' remarks, there will be a question and answer period.

To ask a question you can press star one on your telephone keypad.

I would now like to hand, the call to Nguyen Vice President of Investor Relations for Clarus Mortgage Trust. Please proceed.

Thank you I'm joined by Richard Mack, Chief Executive Officer, and Chairman of Claris Mortgage Trust.

And Mike Mcgillis, Chief Financial Officer, and director of Claris Mortgage Trust.

We also have Kevin calling in executive Vice President who leads our Brooks origination.

And Priyanka Garg Executive Vice President, who leads IMAX asset management.

Prior to this call we distributed C. M. P. G of the earnings supplement.

We encourage you to reference these documents in conjunction with the information presented on today's call.

Have any questions. Following today's call. Please contact me.

I'd like to remind everyone that today's call may include forward looking statements, which are uncertain and outside of C. N T G as control.

Forward looking statements imply risks and uncertainties and actual results may differ materially from expectations.

You should not place undue reliance on these forward looking statements and we do not undertake any obligation to update or correct any forward looking statements.

Peter that's proved out to be inaccurate.

In addition, we will also refer to certain non-GAAP financial measures.

For non-GAAP reconciliation, please refer to the earnings supplement.

I would now like to turn the call over to Richard.

Thank you.

Morning, everyone and thank you for joining us.

As many of you know Claris mortgage trust recently completed its initial public offering marking an important milestone in our evolution.

During the Companys formative years, we made the strategic decision to scale the business before going public.

We did that to provide our initial investors within non mark to market investment with a steady dividend, but more importantly, we believe the day viewing as a public company with both scale and a multiyear track record with best position Claris for CMP G with a lower cost of capital to fuel dividend growth.

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Since this is our first earnings call as a public company I'd like to welcome our new investors and recognize and thank our foundational investors for getting US here. We appreciate all of your support and we look forward to sharing our progress with you in the quarters and years ahead.

Let me begin today with a quick background on our company for those of you who may be new to see MTG.

Our investment strategy is to focus on lending opportunities in the transitional commercial real estate sector that are secured by high quality assets with institutional great sponsorship.

Transitional CRE lending was dominated largely by banks pretty Dodd Frank.

Today non bank alternative lenders such as CMC G are increasingly providing capital to this segment of the market.

Transitional properties or assets that require some level of repositioning renovation leasing development or redevelopment in order to maximize value.

Currently we land on assets located in the United States, where our sponsor Mac real estate group has a significant presence either through boots on the ground or existing infrastructure and deep experience.

One of <unk> key Differentiators is that we are affiliated with Mac real estate group, a commercial real estate owner.

Operator property manager developer Investor and lender with roots dating back to the 19 sixties Mac.

<unk> real estate group or <unk> has a proven track record.

Stablish scaled platform with more than 220 employees across the U S.

CMT G is distinct from many alternative lenders and that we employ an ownership mindset towards lending.

Our sponsors roots as an owner operator and developer with decades of real estate experience enables us to fully appreciate and understand our borrowers collateral and business plan.

We believe this vantage point enables us to underwrite transitional loans more effectively and ultimately be better capital partners to our borrowers our investment portfolio primarily comprises assets owned by Premier commercial real estate institutions. In addition to many repeat borrowers who choose us for this.

Following reasons.

We have proven ourselves time, and again to be a dependable reliable source of debt capital.

We understand the complexity and we can participate in large scale institutional projects.

And lastly, we have the expertise to create both lending solutions for our borrowers.

Our ownership mindset also serves as the foundation for how we manage risk in our investment portfolio.

What this means is in part that we only lend on assets that we would want to own in markets, we know well at a basis, we find compelling.

Fundamentally we believe that taking an appropriate level of execution risk rather than basis risk and excess financial leverage by levering our balance sheet too much provides for better risk adjusted returns to our investors.

Past cycles have proven to us time and time again that it is extremely difficult to resolve problems that stem from excessive lending or excessive balance sheet leverage.

At the low level, we drive our underwriting process with a focus on assessing execution risk. It involves extensive analysis and due diligence that is reviewed by a cross functional executive team from across our platform. We also placed an emphasis on structuring our loans in a way that allows us to mitigate.

Risk and identify problems early.

Finally, given our focus on basis, we often require borrowers that have significant subordinate capital to protect.

This proactive approach to asset management also provides us with a competitive advantage in that it is continuous comprehensive and is supported across the broader <unk> organization throughout the life of the loan our asset management team is integrated into the originations process and monitors and holds our borrowers.

Cannibal to their business plans as reflected in the loan documents.

When they are planned variances, our asset management team often collaborates with the broader <unk> platform in order to work with our borrowers to help effectuate positive outcomes and because of our significant local management and development presence on the ground, we usually know about potential problems at the asset before the.

Borrower reports them to us.

Since commencing operations in 2015, we have originated over $12 6 billion of investments, which reflects the strength of our business model and originations capability.

Since our formation, we have not incurred any creative losses, and we have only taken over one load out of the 95, we have originated.

Lastly, <unk> has a weighted average IRR of 13, 2% on a realized loans, which we are very proud of.

Now turning to the quarter.

During the third quarter, we significantly increased <unk> origination activity closing more than $900 million in floating rate transitional loans, which represents an annualized origination run rate in line with the $4 billion of originations <unk> achieved in 2018 and 2019 pretty.

Covid.

On a smaller capital base.

We originated loans in several high growth markets, such as Austin, Texas, and Atlanta, Georgia.

Historically, we've been very active in coastal gateway markets and recently, we've been capitalizing on the favorable demographic trends and underlying job and rent growth in other select markets.

We have the benefit of following our equity investments group's lead into these markets.

This is where we are most active on the equity side now given our pre COVID-19 pivot and more recent acceleration of investments into these markets and believe these high growth markets offer attractive returns on a relative basis, while providing <unk> with an opportunity to further diversify its portfolio.

Back to our portfolio during the quarter. We also added industrial exposure and capitalized on attractive attractive opportunities in certain out of favor asset classes, such as the hospitality and office sectors.

The largest loan we originated during the quarter was the refinancing of a June $125 million loan on a hotel located in Savannah, Georgia. The collateral is a drive to leisure asset that is newly constructed luxury branded additives reporting strong occupancy and ADR. Despite even.

Coverage across the hospitality sector.

We also closed a $167 million construction loan for an industrial project located in Atlanta that is fully leased to a global E. Commerce firm for 15 years on a triple net basis.

The borrowers are repeat borrowers who provide us with an exclusive opportunity to provide the lending solution on this project.

And we were able to provide a solution because there were unique attributes related to the deal that we were able to effectively underwrite by working alongside our internal industrial development team.

We believe that this investment is yet another illustration of the advantages of the Mack real estate group platform and our ability to cultivate deep repeat borrower relationships and to underwrite complex transactions. Most of our recent investments speak to our ability to understand and price large complex transactions and because.

Of our balance sheet capacity, we can serve as a capital providers and sophisticated borrowers.

Adrian institutional project.

CMT G seeks to originated loan balances of size, which is what we did during the quarter.

Not only does this segment of the market play to our strengths, but there are only a handful of market participants who can originate transitional loans of this size.

There continues to be healthy demand for transitional CRE loans and continued support from the banks, who prefer to lend to us and to make these loans directly.

As transaction activity has picked up in capital markets have stabilized we have seen an increase in equity sponsors with dry powder looking to execute on transitional development and construction business plans, especially in many of the high growth markets, where supply is not currently able to keep up with demand we.

We expect this dynamic to continue.

In the medium term, increasing the demand for transitional lending for the foreseeable future. We have a robust investment pipeline that we anticipate closing in the coming weeks and into the first quarter of 2022.

As we look to the future we will continue to execute our investment strategy and proactively manage our portfolio with the objective of delivering an attractive dividend to our stockholders.

On that note. We are pleased to share that we recently announced a fourth quarter 2021 dividend of 37.

I would now like to turn the call over to Mike Mcgillis. Thank you again for your support and for listening.

Thank you Richard for the third quarter 2021, CMT G reported GAAP net income of $52 9 million or <unk> 40 per share and net distributable earnings of $45 3 million or <unk> 34 per share we paid a third quarter dividend of <unk> 37 per common share.

September 32021, <unk> book value per common share was $18 78.

Before reflecting reserves proceed so book value per share was $19 28.

As of September 30th CMT cheese loan portfolio based on <unk> was $6 4 billion with a weighted average all in yield of six 4%.

During the quarter, we originated $905 million of loans with initial fundings of $745 million for.

For existing loans total fundings during the period with $248 million.

We also received $676 million in full or partial repayments, which is indicative of the strong transaction volume. We're currently seeing in the market.

We have constructed a well diverse portfolio that reflects our ownership mindset, our ability to price complexity and our platform's experience as an owner operator and developer.

Our portfolio is comprised primarily of transitional floating rate senior loans.

As of quarter end senior loans represented 93% of the portfolio with the balance being subordinate loans and the weighted average LTV of our loan portfolio was 66%.

We are highly selective when it comes to our subordinate while exposure as we look to be compensated for the risk associated with this structure.

Our subordinate loans have a lower detachment point at a meaningfully higher all in yield than the portfolio average as of September 32021, the LTV at all in yield for our subordinate loans was 63, 5% and 11, 3% respectively.

The portfolio is highly diversified by collateral type as no single property type exceeds 20% of the portfolio.

Loans against multifamily for sale condo commercial real estate collectively represent 28% of the portfolio and have been a strategic focus for us.

Coming out of the pandemic we.

We expect that concentration to increase as a percentage of the portfolio in the near term not only do we view these loans to be lower on the risk spectrum, but we also believe that we have the expertise to reduce risks associated with this asset type given our platform's expertise and residential development ownership and management.

It's also worth noting that we do not originate loans secured by Standalone retail assets, which is by design or.

Our collective view is that retailers overbuilt throughout the U S and the available returns do not sufficiently outweigh the secular risk associated with this asset class as.

As Richard mentioned, we've been diversifying our portfolio by geography, adding select high growth markets to the portfolio and reducing exposure to the New York City market.

While we anticipate this trend to continue.

<unk> will always be a core component of our portfolio.

Our investment strategy is to land on large transitional and complex assets in New York City office and abundance of these opportunities.

We also have deep expertise in this market and organizationally have a large team here.

Turning now to our internal risk ratings, our asset management team conducts a rigorous loan by loan quarterly review to determine our risk rating for each investment on a five point scale.

During the quarter <unk> weighted average risk rating improved to three <unk> compared to $3 one for the prior quarter.

With respect to certain loans, we've been observing favorable trends in the performance of the underlying collateral supported by continued improvements in the broader economy.

We take a conservative stance towards leverage as of quarter end, our net debt to equity ratio and total leverage ratios were one eight times and two one times our equity base respectively.

As you are aware subsequent to the quarter end, we executed an IPO, resulting in gross proceeds of approximately $103 million.

And as a result of the IPO of $7 3 million shares of redeemable common stock or converted into common stock.

During our IPO process, we identified several key catalysts that we believe will help us increase our earnings and dividend profile over the next couple of years.

First was re pricing of our $763 million term loan b financing, which we were able to reprice a couple of weeks ago, reducing the coupon rate by 1%.

Thereby reducing our cash interest expense by about $7 $5 million per year in.

And shortening the next potential repricing period from one year to six months.

The transaction meaningfully reduced our overall cost of financing and will benefit our net distributable earnings going forward.

Looking ahead, we believe that leveraging our strong performance and track record as a public company, we will provide additional opportunities to further optimize our capital structure and reduce our cost of capital.

Second capital deployment, the excess liquidity, we held as a defensive measure during the COVID-19 induced market disruption has adversely impacted net distributable earnings.

With more than $300 million in cash and available liquidity at quarter end, coupled with the proceeds from the IPO, we have ample liquidity to close and a robust pipeline and.

And to continue to grow our portfolio.

Lastly continued progress resolving non accrual loans as well as improved operating performance of our REO portfolio for New York City Limited service hotels provide us with strong potential for increases.

<unk> earnings.

Thank you for giving us an opportunity to provide you with a summary of our third quarter results. Our team is looking forward to updating you on our progress in the coming quarters. In addition to delivering attractive risk adjusted returns to our stockholders.

I'd now like to open the call up for Q&A.

Yeah.

Thank you we will now proceed the Q&A if you'd like to ask a question you can press star one on your telephone keypad.

I would like to withdraw your question you can press star two.

And show you Unmetered locally when asking your question.

Our first question for today comes from Rick Shane from J P. Morgan Rick Your line is now open.

Terrific. Thank you guys for doing this and.

Would love to hear a little bit about.

Sort of trends into the fourth quarter, you provided an update $392 million of loans or investments originated <unk> loans so far.

I'm curious do you expect that sort of normal year end rush.

And can we see a significant acceleration versus that 400 million or.

Help us understand the run rate there.

Sure, Rick, It's Kevin Cohen, and I'll take that.

So as you noted we've closed on four investments in the quarter totaling just under $400 million.

But we're very much experiencing that year end rush that I think most of the folks across the street are experiencing right now.

We expect that run rate to tick up pretty meaningfully.

I would say we have a conservative view that will close over an additional billion dollars between now and the end of the year and it could be greater than that but some of the things that we are working on could slip into the early first quarter.

But certainly a meaningful pick up versus what you've seen so far in the fourth.

Quarter.

Kevin will be broke up did you say.

Richard Sorry, Kevin just to clarify did you say, an additional $1 billion by year end.

I think in excess of that conservatively, we expect it to be in excess of $1 billion between now and the end of the year.

Could be greater than that but there are a number of things that we're working on that could slip into the beginning of the first quarter, but.

By all accounts are a meaningful pick up over what we've closed so far in the fourth quarter.

Okay. Thanks, sorry, Richard I, just wanted to make sure I understood that totally.

Yeah, no it's a big number so ricky.

And what I would point out is that the securitization market is a bit backed up and this is providing an opportunity for us.

Here at year end not only too.

Get a lot of originations done, but also to do things at pricing that might not necessarily be available. So it's a pretty interesting time for US right now we're trying to lean into it.

Great.

Very helpful guys. Thank you very much.

Okay.

Okay.

Thank you Rick.

Our next question for today comes from a J to bromine from K B W. Jade.

Your line is now open.

Thank you very much.

We've all seen quite a lot of mortgage REIT ipos and tends to happen is they change somewhat poorly initially.

And so I'm curious since this is somewhat of a different construct than prior ipos.

Particularly the alignment of interest that the management team has with the shareholders and I do also want a clarifying comment to confirm that management participated in the offering.

But my question is what are the plans to get the stock price higher to create shareholder value in my mind that could include a potential stock buyback.

Some clarity around the alignment of interest.

Potentially dividend increases ahead of forecast and also value that is there to be unlocked from the non accrual loans can you give any comment as to.

Those questions.

Richard.

Yes go ahead Mike.

You start first.

Yeah. So in terms of how we.

Just the stock price back up I think it really is all about execution.

A number of a number of catalysts that will help drive net distributable earnings and then in turn drive dividend increases.

And those are really as follows repricing of our term loan b, which we completed a.

The repricing of that a couple of weeks ago effective early December.

Save us about.

1%.

And coupon on that which translates to about 5% <unk> per share.

Per year on MD in GAAP earnings.

In addition to that.

Deployment of the excess liquidity that we have been holding we've seen as Kevin mentioned is really the pipeline is.

Very strong and getting that capital deployed should add additional and D and ability to pay dividends.

The other critical.

Pieces here are.

The improvement in our REO asset.

The hotel portfolio, which we've seen.

Very good trends on.

Through the third quarter and into the fourth quarter. So we're optimistic about that that has been a drag on GAAP and GAAP earnings and <unk> over the course of the year.

But it's turning a corner.

And then with respect to the non accrual loans getting those resolved getting that capital back to you.

Earning again is another key component for US I think it's also worthwhile to highlight there are some there is significant unrecognized.

<unk> coupon interest on.

On those loans as well as default interest on those loans, which in the event.

Those ultimately get realized would be a significant boost to GAAP earnings in MBE.

In the coming quarter, and the coming quarters and years.

So those are those are really the key.

The key things that we view, we have to execute on to drive N D E and drive dividends on a go forward basis.

Yes, So Jay let me let me go ahead David.

Yeah, I just want to answer a few more of your questions.

I want to start by emphasizing what Mike said this is about execution and demonstrating that we can continue.

Continue to improve our dividend performance and we're going to do that I think.

We are making a lot of progress.

The Oreo asset as well as the non accruals and we hope to have.

More concrete news that we can share on that but we are working very hard and we.

I have every expectation things are going to continue to get better there as it relates to in alignment and investment.

Uh huh.

Have about but we had about $30 million and equity invested originally in this business I'm not counting this substantial amount of dollars that we expanded to carry the infrastructure and create the business will be a $30 million in cash invested in loans and we put approximately another $30 million in.

At the IPO, So I think a big show of faith.

In the business.

And more alignment of interest.

We believe in this business, 100% and we think the market overtime is going to see it the way, we do but it's going to be all about execution.

Thank you very much and I appreciate the clarity on the alignment of interest did.

We did see the management 30 million participation in the IPO I wanted to ask secondarily around strategy you you emphasized to a great extent the ownership mindset as well as the Mac.

Companies.

Historical track record in development. So my question is why not go a step further, especially if you believe we're at perhaps an earlier point in the economic cycle with the economy fully coming out of Lockdown and post COVID-19 trends emerging why not do some kind of hybrid equity strategy to.

On the upside on the assets that you say you're lending on and in fact, the only lend on assets you would want to own is that something that you might contemplate.

In such transactions.

J look we're open to everything I think the first thing to do is to execute on the core business plan and make sure that people have great confidence in that we have confidence in this we've been executing on it.

For several years now, but we want to execute as a public company.

There could be.

A natural opportunity overtime.

Look the triple net lease space it is a place where.

Equity ownership and credit.

Seem to intersect.

And it might you know we've seen other mortgage Reits.

Execute strongly in that space and that might make sense for us over time, but we are we are going to be very cautious about moving into any new businesses and really make sure that people understand the base business and then any type of move like that will be well received by the market, but as to your point.

We do have significant expertise on.

On the equity side and we also have significant expertise.

And ownership.

In the past.

Ripple net lease space. So it's something we're thinking about.

Thank you very much.

Thank you Jade.

Our next question comes from Steve Delaney from JMP Securities. Steve. Your line is now open.

Thanks, Good morning, everyone and happy holidays.

Just one thought the year's Ipos done, we're getting ready to turn the calendar as you look out to 2022 and <unk>.

So you're going to deploy this additional $100 million in your cash pretty quickly can you just share your thoughts about alternative capital sources, such as preferred stock in unsecured senior notes and how you see those fitting into the capital structure to support additional growth next year. Thank you.

Sure Steve. Thanks for the question I think I think there's a few things that we're thinking about obviously we.

Completed the repricing of our term loan b.

We think that shortened.

Shortening that.

Soft call period.

Will help us achieve another repricing and perhaps even diversify that that financing going forward a little bit more.

We view should be accretive to earnings I think the.

As a public company, obviously, there's a few other source of capital that could be available to us that will continue to evaluate.

And I think the other key thing is we have been accumulating.

Lot of capital that we think could be attractive for CLO execution.

So.

We would look to execute a CLO at some point.

In 2022.

And that would help sort of clear out some of our some of our repo lines and.

Further bolster our ability to.

Effectively deploy capital.

Yes, that's a good point because your loans tend to be a little chunkier.

Would you think do you think you have assets on the books now that property types LTV are such that maybe you could.

Altogether cut alone in half and break it down into a 50% participation. So that it would fit better into a CLO could that be part of that strategy, obviously, rather than dropping all the way down into the middle market.

Exactly that is that it's one of the strategies, we're evaluating right now.

Okay, great. Thank you for the comments.

Have a great into the year and holidays.

Thank you Steve.

Yeah.

Thank you Steve.

Our next question comes from a dump on Duffy from Wells Fargo Dome. Your line is now open.

Great Mike.

Look to Q4 do you expect any new non performing loans.

At at this point.

No it's as Priyanka likes to say every loan in our portfolio as a watch list loans, because we are a transitional lender.

So we're continuing to very closely monitor.

The portfolio.

I would say at this point no but.

Something that work.

Monitoring vigilantly across the portfolio and hopefully we can have some as Richard mentioned, we can get some resolutions on some of the existing non accruals in the near term, but priyanka I don't know if you want to comment any further on that.

No I agree with that it's a very fluid and we're constantly evaluating it.

You look at every loan based on the underlying collateral sub market broader asset class borrower sponsorship.

<unk>, so it's a very fluid, but I agree with Mike as we sit here today.

Okay, and Mike can you put a number out there in terms of the Oreo of hotels with occupancy as of Revpar and just give us some perspective on where you are today.

Versus you know 123 quarters ago, and just so that we can keep an eye on it and track their progress.

Sure I'm going to hand that one over to pretty accurate she is up in <unk>.

Running with that.

Okay.

Thanks, Don.

Yeah, we've been very pleased with performance, thus far Revpar Revpar has certainly been moving in the right direction. This summer.

With a good pick up once the economy started opening in fall.

Relatively strong, particularly on the weekends.

But where we are now is that performance is not very consistent throughout the week and we're seeing deaths on midweek demand, but the difference here in December as we sit here today, it's where we're having very strong weekday so.

Peak Revpar pre COVID-19 was around $200 and received some nights that are touching that frankly exceeding that on our strongest nights, but theres no consistency around that so it's something we're monitoring very closely but we.

So we feel like the market will recover over time and have consistent performance and that will ultimately yield a monetization opportunity for investors.

Got it.

Just give us a sense on the occupancy I mean seven.

Seven hotels.

Is it 20%, 50% 70%.

Yeah.

The averages are tough on them on a monthly basis, they're kind of 60% to 70% but.

And again, just very high on the weekends versus weekdays so.

Really cloudy and consistent and I think as is always the case in New York City.

On the precipice here in the first quarter.

We're gonna be dealing with some seasonality issues as well.

Got it and I guess my last question Richard If you could just comment a whole lot of New York exposure.

The Covid cases are up like what is your thought process.

You're overweight position in New York.

Yeah.

Look we believe in New York long term and we have the loans that we have to some of the best sponsors.

In the city means that they are.

They're performing well or protecting.

And they believe in New York.

So it's a question of getting through a little bit of a rough patch we have no retail exposure here and we have not.

Not much office exposure, but you know I think we are worried.

About about building a diverse book of business and I think we're going to continue to diversify out of New York as loans pay off and I think youre going to see.

That.

Progress continue, but we need a meaningful presence in New York has a large loan transitional lender.

And we are we believe in the long term prospects in New York, we have.

Kind of a strong views on kind of what sectors to be in and not being in New York over a long period of time and one thing we've never done here.

Is a luxury that can cover I would call Super luxury condo and I don't think that I think that was the right deal and I don't think anything is going to change and we.

Focused significantly on residential exposure and what I would call more affordable luxury in smaller size condominiums to the extent that we were it was outside of the rental market and that strategy has proved.

Very very strong.

We will continue to be looking at those type of positions going forward, but this is about diversification and acknowledging that there are places in New York that are going to be very strong in places in New York that are going to be challenged and as as we look to continue.

Investing in the biggest real estate market in the U S.

Having conviction around.

The places that are can you kind of continue to perform and perform better in the places that we really shouldn't be investing.

Thank you.

Thank you.

Thank you Don.

As a reminder, if you'd like to ask a question star one on your telephone keypad.

Our next question comes from Brock Vandervliet from UBS.

Your line is now open.

Thank you good morning.

I'll admit I'm I'm coming at this more as a as a bank analysts than a REIT or BDC analysts.

And then in bank land.

Often the attitude with with distress is your first loss is your best loss or at least it's been that way up until.

Covid.

I guess.

Can you first on the on the Oreo asset it sounds like.

It makes sense youre hitting good revpar numbers here in a seasonally strong period, but Q1 tends to be weaker for for New York hotels.

What's the.

Can you comment more about what the end game is in.

No.

I am kind of curious what your.

What are you playing for and why not just.

Why not just move on.

Hi, brackets, Priyanka I'll start and others can chime in if they want.

We feel really good about our basis is the short answer we foreclosed on on this portfolio in February of 2021.

Honestly, a very challenging time for hospitality.

And at that time, when we closed we are basically in line with appraisals at that time, you know, which obviously now you've had been hit quite hard so and we have the liquidity to continue to carry these assets and we feel that one.

There's real stabilization real forward booking stairs.

Some view into stability in France part forward looking that'll be the right time to go to market and monetize them and make them.

He didn't make any meaningful.

Increase in profits for our investors so.

And it's an attractive asset class to the extent that you're gonna be in hospitality in New York City that the limited service nature and the scale. That's provided by that seven hotels together, we think will make it an attractive investment.

Got it Okay, and let me add.

Let me add one thing to that sorry, it's Richard.

We our goal is not to own assets.

But.

I do think there is historical precedent.

I've been a distressed buyer and that's not our plan.

And the real estate business is the early 19th.

And over and over again.

The returns that have been made buying from the banks, who have taken that first loss.

Ben is in excess of other places.

In the real estate market.

So we don't want to hold Oreo, but we want to make sure that we're not selling at the bottom because we have the capacity.

And the expertise hold Oreo, if we need to but our goal is to have as little Oreo as possible and do everything we can to work with our borrowers.

Im sure that that doesn't happen.

Don't think we can run away.

From kind of the historical nature of real estate being a business that is incredibly cyclical.

Okay.

And separately on the non accrual can you just talk about how much of that non accrual amount is.

As rural land.

And what sort of the game plan is there.

Is it are those being marketed to an outside party or is the game plan too.

Ultimately extend construction financing there to the Doctor.

Current owner Whats the plan there.

It's priyanka I'll start there.

One one of those lines its on non accrual is wrong.

Its not raw land or our improvements on the properties, but we need the loan on we consider it a landline.

The collateral value of the land alone is and how we underwrote our exposure so.

Nonaccrual in particular, we are pursuing all rights and remedies available to us and that in that instance that include we've recently filed foreclosure papers.

On that.

On that loan and.

As you know, it's a judicial foreclosure that will take plenty of time to work through the system, but we have other opportunities that are available to us some of which you just mentioned and so the outcome is and it's.

It's still to be determined, but we feel very good and I always come back to the fact that we're very well collateralized against the real estate there.

Got it okay. Thank you.

Thank you broke that concludes the Q&A for today I will hand back to Mike Mcmanus for any closing remarks.

Thank you everybody for joining us for todays earnings call.

We really appreciate your time and your support should you have any further questions feel free to reach out to us.

Or myself. Thank you so much.

Hope everybody has a wonderful holiday season, and happy new year as we head into 2022.

Take care all.

Thank you for joining today's call you may now disconnect.

Yes.

Right.

Okay.

Got it.

Okay.

Okay.

Yes.

Yes.