Q1 2022 Ares Commercial Real Estate Corp Earnings Call
Good afternoon, and welcome to Ares commercial real estate Corporation's conference call to discuss the company's first quarter 2022 financial results.
As a reminder, this conference call is being recorded on May 3rd 2022.
I will now turn the call over to Veronica Mayer from Investor Relations.
Thank you Matt Good afternoon, and thank you for joining us on today's conference call I'm joined today by our CEO , Bryan Donohoe, David <unk>, and our CFO and Carl Drake head of public markets Investor Relations and <unk>.
And to our press release and the 10-Q that we filed with the SEC. We have posted an earnings presentation under the Investor resources section of our website at Www Dot Aries CRE dot com before.
Before we 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. Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may and similar expressions.
These 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 those expressed in the forward looking statements as a result of a number of factors, including those listed in its SEC file.
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Ares commercial real estate Corporation assumes no obligation to update any such forward looking statements. During this conference call. We will refer to certain non-GAAP financial measures. We use these measures of operating performance and these measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable.
Like titled measures used by other companies now I would like to turn the call over to our CEO Bryan Donohoe.
Thanks, Ron and good afternoon everybody.
Following a very strong end to last year. We believe we are well positioned to continue to deliver attractive returns for our shareholders in 2022.
During the first quarter, we leveraged the breadth of the Aries origination platform to navigate volatile and uncertain markets to originate $263 million of new loans.
We continued this momentum with $123 million in new and loans closed to date in the second quarter, and we have more than $200 million in the closing process.
The overall credit quality of the portfolio remains stable and we finalized the sale of our only Oreo property the Westchester Marriott Hotel.
And as Tae sik will discuss in detail our earnings are positioned to continue to benefit from increases in interest rates due to our floating rate portfolio and the hedges we have on our liabilities.
We began the year navigating significant market volatility caused by rising inflation more aggressive fed tightening and global conflicts all of which serve to further slow what is already a seasonally light quarter for activity.
In the first two months of the quarter, we continue to be highly selective and we believe that our patients was rewarded.
Towards the end of the first quarter when our transaction flow in originations increased we began to see more attractive credit spreads on new investments.
Our first quarter distributable earnings of 34 per share were influenced by our more measured approach on new originations early in the quarter and as we discussed on our last quarter's earnings call. The pull forward impact of early prepayment related fees that we recognized in the fourth quarter of last year.
While we are pleased with our execution of the sale of this Oreo property holding the asset through what is a seasonally weak quarter for this hotel, we incurred a loss of <unk> <unk> per share in the quarter.
We expect the accelerated pace of originations at wider spreads coupled with increases in base interest rates should result in a pickup in distributable earnings for the second quarter and our asset sensitive balance sheet puts us in a great position to generate additional earnings assuming interest rate increases throughout the year.
As a result of these factors. We believe we are on track toward our goal of having distributable earnings cover our dividends for the full year as we have done for the past five years.
During the second quarter, we have seen investment opportunities with more conservative structures at wider spreads amidst the volatility.
Our market visibility continues to increase.
From being a part of the broader Ares management Global real estate strategy, which now has $46 billion of assets under management, including over $10 billion of real estate debt assets.
Our presence in liquid and illiquid markets across the U S and Europe provides valuable insight into how we invest in dynamic markets.
We also benefit from in house specialized capabilities like in the industrial the industrial sector, where we've been a top three buyer of U S industrial real estate over the past decade.
This type of in house expertise and the information that comes with it allows us to see trends in real time.
As we have grown our real estate debt platform. We have also expanded our suite of products, which has allowed us to be even better partners to our sponsors and borrowers and to increase share.
We continue to find attractive opportunities in our target sectors like industrial and self storage, which can complement investments in other sectors, where we see attractive relative value.
For example in the first quarter, we found an opportunity on a unique destination hospitality property backed by a highly regarded sponsor at an attractive spread.
In terms of geographic dispersion, we continued to see robust activity in the south and mid Atlantic mid Atlantic regions, where we see strong demographic growth drivers.
Our originations this quarter were consistent with our existing portfolio, which is comprised of 99% senior loans and 98% in floating rate instruments and continues to perform well.
Let me now turn the call over to <unk> to walk through our quarterly financial highlights.
Great. Thank you, Brian and good afternoon, everyone. This morning, we reported GAAP net income of $16 2 million or 34 cents per common share and distributable earnings of $16 3 million or <unk> 34 per common share.
As Brian discussed our earnings were impacted in part by the timing of recognizing fees associated with earlier than expected repayments that were pulled forward into the fourth quarter of 2021.
As we discussed on our last earnings call in the fourth quarter of 2021, we saw repayments of $317 million, which included recognizing <unk> <unk> per share of remaining unamortized fees as compared to just one per share in such fee recognition in Q1 2022.
In addition, our former Oreo asset the Westchester Marriott <unk>.
Experienced an operating loss for the quarter, which as Brian mentioned accounted for about <unk> <unk> per share negative impact on distributable earnings for Q1 2022.
We ended the quarter with a diversified portfolio of 77 loans with an outstanding principal balance of $2 4 billion up 27% year over year.
In addition, we continued to benefit from our LIBOR floors, which had a weighted average rate.
98% or.
<unk> reserve was at $24 7 million at <unk> 2022, a slight decrease versus the amount held at the end of the fourth quarter of 2021.
Our weighted average loan risk rating for the portfolio improved from two eight at year end 2021 to two seven as of March 31 2022.
And no new loans were put on non accrual during this first quarter of 2022.
As a reminder, the unpaid principal balance of the two loans that continued to be on non accrual represent less than 2% of our overall portfolio.
I would also like to point out an inadvertent clerical error and the risk rating loan table in note four on page 20 of our 10-Q that was filed earlier this morning.
In the table the amount per year 2022 for risk rated four loans should have been 61 million and non zero.
And the total column amount for risk rated four loans should have been $163 million and not a $102 million.
Please note that this error was limited to this table and does not change our overall portfolio risk rating or are seasonal reserves.
We will be issuing a filing shortly to correct. This ended virden clerical error.
Let me now provide an update on our portfolio positioning in the context of changes in short term interest rates.
Brian stated our portfolio is currently positioned to benefit from increases in benchmark indices with 98% of our portfolio as measured by unpaid principal balance comprised of floating rate loans indexed to either LIBOR or silver.
Taking into account our LIBOR floors, approximately 50% of our loans are sensitive to increases in interest rates and will benefit should we see further increases in LIBOR or sofa above current rates.
In addition, we continue to match fund our assets and liabilities.
And hedged a significant portion of our floating rate debt through interest rate swaps and fixed the interest rate on some of our longer term liabilities, including the $150 million term loan that we upsized extended and converted to fixed rate last year.
Without our interest rate hedges the pro forma impact of rising rates would have had the opposite impact and reduce our earnings.
Additionally, as we continued to recalibrate, our hedge positions to better align it with our forecast with changes in our portfolio, including repayments as well as movements in interest rates, we unwound, a $170 million notional interest rate cap that generated an approximate $2 million realized gain.
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Or about <unk> <unk> per share and distributable earnings for the first quarter of 2022.
Finally, this morning, we announced a second quarter 2022 regular dividend of 33 per common share as.
As well as a continuation of our supplemental quarterly dividend of <unk> <unk> per common share.
At this point it is the goal of the company to continue sharing a portion of the earnings benefit from LIBOR floors with shareholders through the <unk> quarterly supplemental dividend and to continue covering our regular and supplemental dividends fully from distributable earnings on an annual basis.
So with that let me turn the call back over to Brian for some closing remarks. Thanks Casey.
As we look further ahead into 2022, we believe our company is well positioned from a market standpoint, and our balance sheet is strong with moderate leverage and an attractive asset sensitive position.
We continue to be on track for another record year of originations and to maintain a stronger pace of investments compared to the first quarter.
Before we take questions, we want to sincerely. Thank our team for all their hard work and our broader areas colleagues for their partnership in these periods of volatility where the breadth of experience has been incredibly valuable.
I also want to thank our all our shareholders for their continued support of the company and with that I'll ask the operator to open the line for questions.
Thank you at this time, if you would like to ask a question. Please press Star then one on your Touchtone phone.
If you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Doug Harter with Credit Suisse. Please go ahead.
Okay.
Thanks.
Given given the sensitivity that you shared around rising short term rates.
Can you just talk about how the board and Youre thinking about the supplemental dividend and kind of how if that continues or that gets converted to kind of being a regular way dividend and kind of how youre thinking about that.
Sure. Good afternoon, Doug. Thank you very much for that question.
Yes, clearly when we instituted the <unk> supplemental dividend going back to the first quarter of 2021.
We said it was for the purpose of sharing with our shareholders.
This extra benefit that we're getting from LIBOR floors as.
You recall, the LIBOR floors had been running off for the past 15 months since we instituted that supplemental dividend.
And we said that we would continue to evaluate the <unk> supplement in terms of <unk>.
<unk> as either a supplemental dividend.
Cessation of that dividend or continuation of it as a permanent dividend and really there is theres two factors that go into it right. One is how quickly it'll loans that have LIBOR floors run off and I think so far it's been tracking very consistent with our original forecast.
The second factor is where is short term interest rates going to be at the time, we have some run off of those interest rate floors. So for example, if you had a situation where most if all if not all of your fluids had run off by Barbara was still very low.
It would be harder for the company to continue to pay the <unk> dividend.
On the other hand, if the floors have remained in place.
I'll be easier obviously for us to keep that two supplemental dividend plays but the third scenario is that even if the floor, even if the loans with floors one off.
Got.
We have a increase in interest rates, we may still have the ability to therefore pay the <unk> supplemental dividend and potentially convert that to a more permanent situation longer term. So I think things are I would say trending in the right direction obviously we've.
We have seen.
The final the increases in interest rates over the past few weeks and months.
So it's a little too early to say, but I would say, it's certainly trending in the right direction fitting within that.
Scenarios, such that while we are having run off.
Loans have floors at the same time, we are seeing increases in base interest rates.
Got it.
That mix makes sense and then.
Our leverage.
Is the goal the target still to kind of work towards kind of three times debt to equity.
It is.
As we had mentioned we were certainly above that number.
Meyer to the onset of the pandemic and we have purposely reduced our leverage down to about two two.
Two more or less fortify the balance sheet during the pandemic at a time when liquidity and stability of the balance sheet was at a premium I would say our business model. Our earnings model is really predicated upon maintaining about a plus or minus three to one debt to equity.
Beneath that amount that gives us headroom to continue to do originations.
<unk> leveraged our balance sheet further generate and optimize the earnings potential of the balance sheet, but that is certainly the goal and continues to be the goal is to be plus or minus three three times debt to equity.
Thank you.
Thank you Doug.
Our next question will come from Steve Delaney with JMP Securities. Please go ahead.
Good afternoon, everyone. Thanks for taking the question.
Brian I appreciated your comments I believe in your remarks about.
The repayments were Phthisic apology. It may have been yours, because you were.
We're talking about the earnings.
The impact of.
Your clarity around the repayments and the difference between a <unk> <unk> benefit in <unk>.
And one company here in the first quarter so it <unk>.
Difference that helps us understand your bottom line number could you give us a little feel for the outlook for repayments maybe for what you're seeing here near term in the second quarter and then al.
For the full year that would be helpful. Thanks.
Yes.
Sure no absolutely Steve and again, thank you very much for your question.
We do think repayments are starting to so called normal lives right are normalized to us means that about a third of our portfolio.
Tends to repay on your average year, alright, and it makes sense given that we generally underwrite three year loans.
And although we do get some.
Early repayments.
It's hovered around two 5% three year average sale to kind of think that our portfolio runs off by about a third each year has generally been correct. Obviously during the pandemic we've.
We've had different circumstances.
But we do see the market in terms of repayments returning to a more normalized period, so that would really sort of infer a call it $800 million per year based on a $2 4 billion portfolio 200, a quarter I'm, a little reticent to even give a quarterly number because obviously there is.
<unk> quarter to quarter, it's very hard to predict 200 per quarter I think it's much more easier to forecast 800 per year.
Just because things don't happen neatly in quarterly increments, but we do get a sense that it is returning back to.
Fairly normalized circumstances.
I think when we look at our near medium and longer term forecast that continues to be where we see repayments happening.
Got it and of course second quarter was our excuse me first quarter was right on that that $200 million in the fourth quarter was 50% higher so kind of explains it correct. Okay.
And I would say Doug got leverage.
I guess my comment would be just that.
Anytime you have a quarter, where youre 41 30 <unk>.
It raises some questions.
My view from what I would call looking at the two sets of numbers in the fourth quarter in the first quarter somewhere in the middle is probably more like when you look at all the adjustments that you had.
Between the quarters. It seems to me that thats, probably more realistic run rate, but I'm not going to I'm not going to ask you to comment on that.
And the fact that there were there was noise both ways with the hotel operating loss in the derivative gain in center.
The one timers, if you will seem to be.
Working against you more than more than benefiting you. This quarter anyway. That's just my take on take on the bottom of the 34.
So.
That's all I have.
They will and we will do it again in second quarter.
Okay.
That sounds great. Thank you so much Steve.
Our next question will come from Rick Shane with J P. Morgan. Please go ahead.
Hey, guys. Thanks for taking my question this morning.
<unk>.
Obviously the markets evolve.
There is an opportunity for you guys to improved pricing and improved term.
I'm curious as the market shifts if there are opportunities that are being created either in geographies or in <unk>.
Property types that you were deemphasizing that are rebounding in terms of attractiveness at this point.
Yes, Great question, Rick I'll answer it in two ways first is that some of the opportunities that we're seeing in the market are driven by the change in liability structures for for many of our competitors in many of the folks in the real estate debt space and what I'm, referring to that.
Those those entities that are reliant upon the CLO market, where you've seen as such.
Impactful widening one that's causing.
Spreads to widen across the board in all liquid markets and even our liquids to a degree.
And certainly opening up some.
Some opportunities in that sense from a geographic or product or sector specific opportunities that I think you can probably correlate those to how the how lenders structure their liabilities and find some of that I wouldn't say that it's necessarily tied to.
Geography as much as we've touched on in previous quarters R. R.
Our footprint allows us to be somewhat agnostic, but focus on where we're seeing demographic growth in the southeast and southwest and those areas are not are not immune to the widening in the CLO market. So certainly we see some opportunities there.
And as we touched on in our prepared remarks, while our focus as a platform real estate debt and equity as an industrial is in multifamily is in self storage. There are those one off one off opportunities in office and lodging that are.
We are going to consistently present themselves and we have the ability to to underwrite those pretty efficiently.
Okay, it's helpful and that's actually good.
In terms of the broader markets because sometimes obviously, we look at things.
A little bit more narrowly you're myopically, perhaps.
So it hits helpful context, Thank you.
Okay.
Absolutely.
Our next question will come from Jade Rahmani with BW. Please go ahead.
Thank you very much.
Can you talk about what youre seeing in the market in terms of impact from higher rates as all in coupons and spreads have increased significantly I believe.
Howard how our borrowers in the market reacting to that.
Thanks for the question, Jason and its a good one I think it's the story is still being told in real time and when you take the factors you mentioned in some of the natural factors like the the Warren Ukraine for instance, we've got.
A lot of different tides and wind moving in opposite directions.
I would say that there is a quantitative side to what we do and when you. When you increase borrowing costs. It has to inform the value of underlying properties, but that runs counter to a degree to the inflation story, where are assets that are in the ground or greater discount to replacement cost today.
And in the sectors that we are most focused on industrial and multifamily and self storage as kind of a multifamily corollary youre seeing at least in shorter duration leases and industrial rents that are outpacing the impact of.
Higher interest rates.
I think as a whole as an industry I think we're seeing now we had record transaction volume as an industry last year I think you'd be hard pressed to say that that will continue. This year just the denominator has to shift downward to a degree and I think people will be.
At least a little more pensive on their investments notwithstanding capital flows.
As we touch on our remarks, we're going to be we were extremely careful at the beginning of the quarter. We saw opportunities that were attractive towards the latter half and we're still seeing that today, but I think in a broad stroke.
As I said you'd be hard pressed not to think that values of certain assets certain assets will be impacted by by rising rates just the.
Buying power is lesser today than it was six months ago.
Thank you very much so it's not as if the current.
Rate impacts we've seen thus far the rate move thus far has frozen the market theres still a healthy degree of transactions.
There are I mean, I think again, if you think about the natural lifecycle of a real estate transaction that Jane you're thinking that's going to take 90 to 120 days from beginning to end.
So.
I think youre seeing the culmination of the transactions that were begun prior to some of the more aggressive moves.
Movements in spreads or underlying base rates. So maybe the jury is still out but from our specific denominator perspective, theres plenty to do.
Okay.
With respect to those asset classes that have benefited from strong rent growth.
Such as multifamily.
We'll review that IRR had been running.
Paper IRR is and our model has been running a couple hundred basis points above.
Required hurdle rates, so there's room in the pro forma returns.
I'll make some increase in rate. There's also a lot of capital on the sidelines. So you could adjust.
You could take less leverage.
That helps with the interest rate costs, you could take less term you could use some io.
Do you think in your view that there is room in the model to absorb some of the rate impact without pressuring values at this stage.
I think it depends on the vintage of acquisition and the specific geography, certainly youre seeing rent growth that would would have and is expected to continue to outpace.
Initial underwriting as we sit here today, but some of that.
There are above pro forma that you are mentioning was owing to lower cap rates right and a few what we do and I think this is where the breadth of platform is super important.
If you go back to cap rates when rates were equivalent to where they are today or at least go back a couple of weeks and that was 2019.
Levels.
You would expect to see those three five to four cap multi and industrial assets may be widened to four and a quarter to $4 75.
Interest rate equivalent and we've gone back and we check that data and that informs the way we underwrite, but certainly if you look at our.
Specific assets that have benefited from rent growth that really no one would've underwritten and cap rate declines over the past two to three years, that's been the significance of portfolio wide I think youll see a lot of equity holders benefit from that combination and it will be interesting to see whether continued rent growth in that.
Sectors outpaces the change in cap rates, but I think youre thinking about it the right way.
And are you changing at all.
Your writing of multifamily and is that still a sector.
Acre is very focused on.
The fed has said that they want to get inflation under control and I believe one third of inflation is what they call. The shelter index, which is a composite and that includes rent growth and if we're seeing new lease rent growth at 17% and housing appreciation at 21%.
It stands to reason that they absolutely need to slow the housing market and the rental market the.
To control at least to reduce one third of inflation.
So are you at all moderating your assumptions in multifamily underwriting and is that still a target asset class.
Absolutely Great question still is still a target asset class I think what I'd say at a macro level one of the unique attributes of inflation today and this you could go back to the Seventy's for this as well as the supply side dynamic when we think about reducing rent growth there.
There's kind of two ways to do it one is legislatively and the other is through supply.
The United States was under supplied from housing from 2010 to 20 pretty dramatically.
Inflation is causing cost to escalate significantly to develop new multifamily assets. So some of the arrows that would theoretically be available.
Two to kind of lessen that rent growth aren't really there now so what are we looking at one is just absolute underlying economy to what we expect to see in a downside situation, where we have a recession or similar household formation in order to lessen the broader impact of of higher.
Rental rates.
But that's not really our base case today.
I think our expectation in the near term is.
So our continued rent growth in that it moderates, but what we're focused on again is just the affordability index right and I think that's when you start to see.
You might start to see bad debt creep up on the income statement of some of the.
Residential focused focused Reits and and we're certainly looking at that in our portfolio between debt and equity to see if thats starting to creep up in any way. So I wouldn't say wholesale changes remains a strong focus area for us, but we are absolutely paying attention a risk to the downside.
Thanks, and one last question is ground leases is that a competitive form of capital that you are seeing in the market currently.
I think the movement in rates is making that.
That arena pretty dynamic we are seeing throughout the last two quarters with that that changing dynamic a little bit.
<unk> participation in some of the ground lease businesses.
We treated and when we underwrite an asset is just simply additional debt and I don't see that.
Don't see broadly that that market.
Well kind of outstripped just the traditional financing lines.
But it is certainly an interesting space to watch.
Thank you for taking the questions.
Of course, thank you.
Our next question will come from Stephen laws with Raymond James. Please go ahead.
Hi, you cover you covered a lot already but I wanted to ask about office, Brian It's about a third of the portfolio.
I don't think you've originated loans.
In the office sector over the last couple of quarters, but maybe what are you seeing there you mentioned you might see some one off opportunities there.
But what are you seeing both opportunity wise and office and then maybe update us on how that third of your loan books are performing and what you're seeing inside the portfolio. Thank you.
Yeah, absolutely I think if we go back.
Nine to 12 months, we did see some one off opportunities in this sector.
Broadly speaking one of the unique attributes of the office sector. Today is that average rents in a given market no longer tell the full story, maybe they never tell the full story, but theres certainly telling less of the picture today.
There's just a great bifurcation in terms of tenant demand between newer assets with high amenity package either interior exterior so think well located Soho office in the New York market or similar.
And you see the headlines right were class B rents are $40 to $50 in New York and class a rents don't seem to have a ceiling in terms of some of the newer developments.
In terms of the opportunity set will continue to be selective there and from a portfolio standpoint, where we pay attention as to tenant retention and weighted average lease term.
I think in our in our top assets in the office sector, we still have long duration in excess of five years.
Which is obviously beyond the.
The loan tenor that we would typically say so.
Space, we're paying attention to from a risk management perspective, and we will continue to be selective from adding from an addition to the portfolio perspective.
Great I appreciate it Brian .
Thank you.
Again, if you have a question. Please press Star then one our next question will come from Eric Hagen with <unk>. Please go ahead.
Hey, Thanks, good afternoon.
The new originations in the quarter does the yield of seven 1% is the forward. So for curve at the end of the quarter and do you feel like there is any room for that to improve as the fed raises rates.
And can you also say how the yield compares to the securities to the loans that paid down in the period.
Yes. Thank you Eric in terms of the quoted number.
Unlevered effective yield that is using the spot rate as of quarter end.
And these are these are floating rate loans. So they should go up in coupon and rate has further increases in rates happen, but but quoted number.
Upon the spot rate today.
In terms of what is what is running off I don't have the exact number in terms of the unlevered effective yields of the loans that paid off this quarter.
But it was certainly below what was originated for the first quarter.
And again.
It's <unk>.
<unk>.
Based upon again, the March 31, right and not any sort of forward looking curve or forward looking rates.
Got it that's really helpful. Thanks.
Can you also talk about plans around managing the CLO that you sponsored in 2017, whether theres an opportunity to maybe refinance that or issue a new one.
And maybe even more generally can you point to any kind of catalysts for spreads to tighten in the CLO market right now.
Sure.
In terms of our F. L. Three 2017 F. L. Three that loan that securitization has been modified a couple of times now.
In fact to extend the management period in which we can continue to replace loans that run off within the CLO structure.
This is alone. This is a CLO structure that we were able to place with one institutional buyer of all the investment grade certificates.
So we have continued to work very closely with the one holder to again extended a couple of times I think it has been extended twice now.
To again extend both the revolving period and the eventual term.
Very good example of the type of benefits, we get by being part of Ares management.
This is a CLO that we did without the assistance of a third.
Third party placement agent.
<unk> saved significant sums in terms of expenses and fees associated with it but far more important because we have that excellent relationship with the single holder of the investment grade notes, we've been able to keep this CLO going for five years, plus now and I think it's been a huge huge.
Benefit both in terms of.
Advertising what is generally a very expensive cost of getting a CLO done plus.
Plus reducing the risk of getting market execution on new CLO hose.
Alright, and I think your second question was about again.
Just sort of market changes in CLO spreads I mean, clearly the first couple of months of this year, we saw significant spread widened widening in the CLO market.
The pace of that widening has slowed down from our perception from our perspective.
We don't think it has certainly come in anywhere near what the levels were in 2021, but we are seeing sort of a slowing down of the <unk>.
Spread winding itself.
Yes.
I'll just pile on Eric if I could just with respect to spreads.
For for our underlying loans I would say similar to what <unk> said tough to see what the catalyst would be for tightening as we sit here today.
Normally when we see rising rates, we would see that compress compression in credit spreads and we're just we're not seeing that right now and I think thats just a function of the market dynamic I touched on earlier and if you go through.
Now investment grade corporates.
The movements there high yield similar and obviously the stock market being down 12%, 13% year to date.
Not a great catalyst for tightening.
Overarching I think this type of volatility.
<unk> is something that.
That gets us excited.
Just given as we think about our own liability structure not being reliant on the CLO market and.
And having steady partners that finance, a good portion of our business as well as.
We touched on a bit earlier as well, increasing our leverage to that three to one target.
This is a pretty sound environment.
For us to invest.
That's really helpful. Thank you guys very much.
Thanks, Eric.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Bryan Donohoe for any closing remarks.
Thanks, I just wanted to thank everybody for their time today. We certainly appreciate your continued support of acre and we look forward to speaking to you again in about 90 days. Thank you.
Ladies and gentlemen, this concludes our conference call for today.
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