Q1 2023 Hersha Hospitality Trust Earnings Call
Excuse me, ladies and gentlemen, the Costar momentarily the call we'll start momentarily.
[music].
Good morning. Thank you for attending today's Herschelle Hospitality Trust first quarter 2023 earnings conference call and webcast. My name is Alicia and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question.
Please press star one on your telephone keypad I would now like to pass the conference over to your host Andrew It's Himachal with her show Hospitality Trust you May now proceed.
Thank you Alicia and good morning to everyone joining us today welcome to the Hershey Hospitality Trust first quarter 2023 conference call.
Today's call will be based on the first quarter 2023 earnings release, which we distributed yesterday afternoon before proceeding I would like to remind everyone that todays conference call may contain forward looking statements. These forward looking statements involve known and unknown risks and uncertainties and other factors that may cause the company's actual results performance or financial positions to be considerable.
Different from any future results performance or financial positions.
These factors are detailed within the company's press release as well as within the Companys filings with the SEC.
It is now my pleasure to turn the call over to Mr. Neil Shah freshwater Herschelle hospitality Trust's, President and Chief Executive Officer, Neil You may begin.
Thank you Andrew.
And good morning, and thank you to all of you for being with us on today's call.
Joining me this morning is Ashish Perique, our Chief Financial Officer.
I will kick things off by covering the portfolio's performance in the quarter before touching on our capital allocation outlook.
Ash will talk through our second quarter guidance discuss our margin outlook and provide an update on our balance sheet.
When we last spoke in mid February there has been increased volatility in the market, which has been felt by every sector, but it had an outsized impact on the credit markets banking sector and commercial real estate.
We remain confident that lodging fundamentals are positive and the current setup continues to point to a multi year recovery ahead for our sector.
While being cognizant of the possibility of continued market volatility and the potential for a more challenging economic landscape or a recession in the back half of this year.
Many of the signs that led to our optimism in February have come to fruition, we recorded nearly 15% year over year Revpar growth in the first quarter driven by more than 30% year over year growth in our urban portfolio.
Our portfolio is generating cash flow and experienced significant acceleration in performance as the first quarter progressed, which is historically our slowest seasonally.
With nearly $200 million.
And cash on hand, and access to 100 million Undrawn revolver and no meaningful debt maturities on the horizon, we can focus our efforts on driving cash flow through operations.
In the first quarter, we executed several significant renovations across our portfolio the.
The common area upgrades at both of our Manhattan Hilton Garden, Inns, and a major guestroom renovation at our Philadelphia Westin were completed in time for our spring season.
We also completed the first phase of upgrades at our Sanctuary Beach resort in Monterey, California, and are close to opening our new restaurant and bar the helmsman at the Mystic Marriott Hotel and Spa in the coming weeks.
These projects were strategically undertaken in the portfolio slowest season to minimize their financial impact, but had a greater impact on our first quarter operating results than we originally forecast.
Largely due to weaker demand in those markets some of which was related to weather impacts across the quarter.
With the renovations behind US we expect these newly renovated properties to perform at levels above their historical performance and drive organic cash flow growth for the remainder of this year and beyond and deliver an attractive return on investment in a similar manner to our pre pandemic renovations at hotels like the parrot key resort.
Villas, the Cadillac Hotel and Beach club, the Ritz, Carlton Coconut Grove, and the Annapolis Waterfront hotel.
With that I will jump to our performance in the quarter.
Our comparable hotel portfolio generated approximately 68% occupancy and an ADR of $268, resulting in revpar of $182 for the first quarter 2023.
This equates to 20% ADR growth driving two 8% revpar growth and a one point and a 1% EBITDA expansion for the first quarter compared to 2019 despite.
Despite disruption from our properties under renovation.
Excluding our properties under renovation our portfolio generated over 73% occupancy just 600 basis points below 2019, and an ADR of $290, resulting in revpar of $212, an 11% increased 2019.
This subset of the portfolio generated EBITDA of just under $15 million, a 19% gain on the first quarter of 2019.
EBITDA margin of 24, 1% was approximately 200 basis points greater than 2019.
The disparity in the results illustrates the impact of the renovation disruption and we are excited to move into the spring season with the projects completed.
As I transition to our market performance I will start off with our resort portfolio, which continued its robust performance in the first quarter generating revpar of $242, an increase of nearly 25% to 2019.
This growth was primarily the result of pricing power as resort ADR of $321 was nearly 27% ahead of 2019.
Overall resort EBITDA of $13 $1 million was nearly 43% greater than 2019 production and EBITDA margins increased by 535 basis points.
We remain confident in the demand for high end differentiated and experiential offerings and believe our resorts will benefit from their appeal to the modern traveler in both leisure and business segments.
All of our resorts are located on premium real estate.
Been well maintained and thoughtfully renovated.
And face very low supply dynamic very low supply dynamics in the coming years.
And we believe in the long term fundamentals for growth in each of these markets.
As a reminder, all but two of our resorts are located in markets that cater to additional travel segments aside from leisure.
These markets benefit from multiple demand generators, including convention centers corporate headquarters and universities.
The two pure leisure resort markets of key west in Monterey, California are coming off of two years of unprecedented performances in 2021, and 2022, and we will face more challenging comparisons.
The parrot key hotel and villas benefited from the extraordinary pricing power and demand in a time, where international travel, particularly to the Caribbean and Europe was limited.
This demand coupled with an unsustainable staffing model resulted in record EBITDA production at the resort even in off peak seasons.
Performance in 2022 will result in difficult comps for 2023 with more normalized growth expected in 2024, but to be clear, we do not expect significant retracement to pre COVID-19 levels. In fact in the first quarter of 2023, the parrot key hotel and villas generated revpar growth of 30% to 2000.
19, driving EBITDA expansion of 70% to $2 9 million.
The parrot key hotel was our second largest EBITDA contributor in the first quarter and we anticipate the resort to continue to be one of our top EBITDA producing assets for many years to come.
As I discuss the century Beach resort was impacted by the renovation.
This disruption coupled with economic headwinds in the bay area and severe weather and flooding experienced in northern California impacted the resorts first quarter performance.
In addition, the unprecedented snowfall in the Western U S extended favorable ski conditions, well into the first quarter and drew some of our typical travelers to alternative destinations.
The first phase of the resorts renovation has now been completed and the remaining scope will be completed over the slow winter months in time for next year's peak season.
This renovation will reposition the property for another level of growth moving forward.
The Miami market was the biggest EBITDA contributor generating just over $8 million, the Cadillac and the Ritz Carlton Coconut Grove, where two of our top three EBITDA contributors generating $4 9 million and $2 2 million respectively.
We remain very optimistic on south, Florida as long term prospects.
Although missing are very bullish internal forecast for the first quarter Miami did exceed 2022 revpar by over 11% in 2022, EBITDA by more than 2%.
On the West Coast, our hotel Embrose generated just under $1 million in EBITDA for the quarter, surpassing both 2019 and 2022.
Yeah.
And what is typically a very slow quarter, the Annapolis waterfront hotel, 80% occupancy with nearly 800 basis points above pre COVID-19 levels and the hotel's EBITDA of $724000 was 87% above 2019 production and 43% ahead of 2020.
Two.
With that I will transition to our urban portfolio.
Q1 is typically the slowest quarter in our urban markets.
After surpassing 2019 Revpar in Q4, which is one of our strongest urban quarters due to the strength of business travel in October and New York's holiday surge in December .
We are still recovering to pre pandemic levels as of April in our urban portfolio.
That being said Q1 2023 urban Revpar was 31% ahead of 2022.
And as the first quarter progressed, we experienced tremendous acceleration.
Washington, DC, Boston and Manhattan led the way for our urban markets as Revpar increased 120%, 58% and 55% from January to March respectively.
The turnaround in DC was a welcome sign after being one of our laggard markets in 2022.
Also of note occupancy in our New York City cluster of 77% in March was just below the fourth quarter of 2022, which is seasonally much busier in the holiday season started the year and this is a great sign heading into the spring season.
Thus far in April month to date Revpar is up more than 15% in each of these markets from March.
To put that into perspective April EBITDA is expected to exceed the entire first quarter production for these markets as our urban portfolio continues its acceleration into the second quarter.
This pickup has been driven by weekday demand in particular month to date in April urban weekday Revpar is up 80% for our urban portfolio versus the same time period in January with every market experiencing growth greater than 25%.
Performance in Philadelphia was challenged in the first quarter, while much of this is attributable to the renovation disruption at the Westin that I touched on earlier there was softness in the market and we did not see pickup in the back half of the quarter that we had forecasted.
But we are confident that given the new rooms products. The Westin, we will see improved performance moving forward.
Meanwhile, our Rittenhouse hotel was named the first and only independent Forbes travel Guide five Star Hotel recipient in Philadelphia in 2023, which will meaningfully drive leisure International and the group segment across the coming years.
We anticipate additional return of occupancy and demand in the urban markets and are encouraged by the acceleration from March to April aided by an increase of group business transient and international travel as markets around the globe continue to open up from pre pandemic era restrictions.
Transitioning to the corporate front.
We are encouraged by our sector fundamentals not only from the long runways for the return of business in international travel, but also the extremely low supply environment in the coming years due to a dearth in construction financing.
We are confident in our markets long term outlook and due to the significant cash on hand access to an undrawn revolver and a lower leverage profile. We are very comfortable concentrating our focus on driving cash flow at our existing portfolio.
The debt and transaction markets are muted and due to these market conditions, we are unlikely to be acquisitive in the near term we are more likely to use our capital to pay down a portion of floating rate debt, which in today's interest rate environment is immediately accretive.
We will remain flexible and entrepreneurial in our approach.
Our financial flexibility in a time of economic uncertainty, we are very well positioned to act swiftly when the right opportunities do present themselves.
We firmly believe now more than ever that we trade in outsized discount to our private market value and are focused on closing that gap without diluting our shareholders.
With that let me turn it over to ash to discuss in more detail, our financial outlook margin performance and our updated guidance for the quarter.
Great.
Yes.
Thanks, Neal and good morning to everyone joining us on today's call let.
Let me begin by discussing the margin performance of our portfolio.
As I've mentioned before our pandemic era staffing models and modified offerings.
Were born out of necessity and many of these changes were not sustainable in the long term nor intended to be permanent.
With our current staffing protocols are reduced head count and technology deployment.
We have achieved numerous long term efficiencies that will allow us to offset wage pressure.
<unk> remains at approximately 85% of pre pandemic levels and.
And we now consider this to be a normalized operating environment.
We can operate our hotels at these head count.
While maintaining the high quality guest experience that our customers have grown accustomed to.
Wages, along with almost all other line items, such as property insurance and utilities have also risen.
But we've taken steps to mitigate these rising costs with a portfolio wide strategic approach and our asset managers are laser focused on expense control measures.
We've also looked at cost cutting measures and profitability at our restaurant restaurants, and bars and recently entered into a new third party tenant leases at the Hyatt Union Square and our Hilton Garden Inn Tribeca to drive improved profitability and margins.
Based on our forecast these leases should be in place and operational during the third quarter and we anticipate immediate growth in cash flow from both.
As we move forward, we are confident that our franchise operating model and close alignment with our affiliated management company.
We will continue to generate industry, leading margins and cash flows.
In the first quarter, our comparable portfolio recorded GOP margin loss of nine basis points and EBITDA margin growth of five basis points.
While exceeding 2019 EBITDA by just over 1%.
These results were significantly impacted by the renovations undertaken throughout our portfolio.
As Neil mentioned, we're confident in the growth that will be driven as a result of these investments and.
And are pleased to have completed these meaningful enhancement to our portfolio of seasonally slowest quarter.
We were also pleased that our non disrupted assets within the portfolio, we're still able to achieve margin growth within the range that we've been anticipating for 2023.
As that portfolio generated GOP and EBITDA margin growth of approximately 170, and 200 basis points, respectively for the quarter.
And generated 19% higher EBITDA compared to 2019.
Our resort markets had a particularly strong margin story in the first quarter as GOP and EBITDA margins of 44, 3% and 34, 4% translate into margin growth of 592 basis points and 535 basis points respectively.
As we look forward to the remainder of the year, we anticipate the resort portfolio will still have strong margin comparisons to 2019.
While our urban markets margin performance will accelerate.
One final note related to Capex after significantly reducing capex spend in the last few years, we anticipate approximately 30% to $35 million in Capex spend in 2023, and 2024 and project a lower capex spend in the out years after we get fully caught up.
We do not anticipate additional disruption to our portfolio until the fourth quarter of this year and are confident that the improvements will generate growth at each asset.
In a similar fashion to the growth experienced at assets, we renovated in the years, leading up to 2019.
Moving on to the balance sheet as part of our 22 refinancing we use an existing swap to hedge $300 million of the new term loan at a fixed rate of approximately 393%.
As of quarter end, 73% of our outstanding debt is either fixed or hedged.
And despite the continuation of interest rate hikes in the fed.
Our first quarter weighted average interest rate was approximately five 2% with.
With a weighted average life to maturity of approximately two one years.
Since the onset of the pandemic management has been focused on reducing our leverage and creating additional financial flexibility.
With a stated goal of three to four times debt to EBITDA.
Our strategic activity in 2022 allowed us to achieve this goal as we ended the quarter at three seven times net debt to EBITDA on a TTM basis.
As a result of our reduced debt profile, we were able to save nearly $4 8 million and interest expense in the first quarter compared to 2022, despite the rising rate environment.
We ended the quarter with approximately $194 million in cash on hand. In addition to our 100 million Undrawn revolver capacity.
All of our cash is held with large national or Super regional banks with no threat of liquidity issues.
As of quarter closed approximately 65% of our cash was held in short term deposit.
Accruing interest above 4% and likely to move higher as these time deposits mature imminently.
Approximately 12, 5% of the cash was considered working capital and the remainder was held in a variety of accounts accruing between 3% to 4%.
With no maturity restriction.
In total we were able to generate approximately $1 $7 million in interest income on our cash reserves in the quarter.
As Neil mentioned, we are unlikely to be acquisitive at this time.
And are far more likely to use our cash on hand to further reduce our most expensive floating rate debt.
Which in the current interest rate environment is immediately accretive.
We've spoken about the valuation gap of the public market value of our portfolio and individual asset.
Our cash balance of approximately $5 per share is further evidence of this current and significant disconnect in our public market valuation.
We have once again provided financial guidance and looking ahead to the second quarter of 2023, the acceleration experienced in the first quarter has continued in several of our markets through the end of April and we continue to see pickup in our booking pace for the remainder of the quarter.
Our current plan is to start providing comparable 2023 results versus our comparable 2022 results starting with the second quarter and only utilized 2019 comparable when relevant and meaningful.
As we move forward forecast barriers as to how the economy will unfold as the year progresses.
But we remain optimistic about the long term growth prospects for our sector in our markets, including the runway remaining in the return of international and business travel.
And most notably the low supply environment, we forecast over the next few years.
Which is a significant differentiator to other periods when we went into those downturn.
With high supply deliveries on the horizon.
Due to our low leverage profile and significant liquidity, we can focus on driving operational cash flow.
As well as reducing our floating rate debt exposure to further mitigate costs within our portfolio.
And we will continue to view all corporate activities through a lens of maximizing shareholder value, while striving to maintain low leverage and flexibility.
Our liquidity will allow us to remain nimble and strategic opportunities present themselves. We are prepared to act quickly.
So this concludes my portion of the call.
And we're happy to address any questions that you may have.
Right.
Thank you.
If you would like to ask a question. Please press star followed by one on the telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one.
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The first question comes from the line of Ari Klein with BMO capital markets. You May now proceed.
Thanks, and good morning.
Can you unpack a little bit more on the softer Q1 result, there obviously the renovation headwinds, but it sounds like maybe some other markets were softer as well what do you think maybe change between.
More likely to spread to other markets.
As opposed to in those markets start to heal.
Most significant weakness that we're seeing more weakness or kind of the challenges is on ADR in leisure oriented markets.
Some of that we believe is just 2022 was was over over earned it was a level that just wasn't sustainable as more alternatives come up there is.
We suspect and believed that and and just kind of daily conversations with with people people are.
More uncertain they have less money they are paying higher interest rates for their homes and their credit cards in their student housing student loans.
Two to.
But to your point if you we are prepared for if there was just a big pullback in demand.
And but we're just not seeing that at this stage as we go through our major kind of corporate users the consulting firms Mckinsey Deloitte.
<unk> to travel and continue to utilize our properties at our expected levels at rates that are higher than they were in the past in financial services. We do a lot of work with Citi and Jpmorgan and Citadel, They've also continued to travel and our <unk>.
Driving.
Our outlook in Manhattan in New York and in other markets in Boston, we're seeing very strong pace.
As well in our hotels on the corporate side, we just haven't seen that kind of weakness.
But as we look forward today.
We continue to believe that the recovery.
And the normalization of kind of corporate demand has yet to come will it be will that recovery slow because of the recession, it very well could be a little bit slower, but just there is still a lot of recovery to go as you can see from our occupancy levels in these markets.
But to your point Bill it is a little bit unanswerable, but we are.
It's an uncertain world.
Sure.
As the year ended we started to see last year, we saw really good momentum in September October November .
And December throughout our portfolio in January we saw very strong performance, even our resort markets.
But six to nine months of kind of discussions and kind of fear of a recession.
Seeing interest rates go from there.
Zero to 5%.
And then to have a month like March where we had two bank collapses. The third one almost collapse that merge into it you.
It's hard not to expect it's hard not to believe that there would be an impact on performance in March and April but.
We've now reflected that in our outlook for the quarter end.
And we will remain nimble and willing to kind of.
Make the tough cost cuts, if we need to but at this stage, we feel like we've kind of rightsize the business model for what we are seeing today.
Perfect.
Tom I, just wanted to get kind of answered your heads.
Thank you Mr <unk>.
The next question comes from the line of David Katz with Jefferies. You May now proceed.
Good morning, everybody.
Covered a lot already but I was hoping we could maybe discuss the circumstances in the landscape under which there might be some M&A opportunities on either the buy side of the shelf side.
<unk> that the refinancing climate may drive some properties to come to market.
Of interest.
And I should ask whether.
Anything could potentially be sold.
And whether that or that's just kind of off the table or unlikely at this point.
Yes.
David.
I think where we stand is like right now where the where the world is right now the transactions market has really cooled and there just isn't a lot of.
Interest.
On.
Sellers part to be sellers it at.
There buyers are willing to willing to to have conviction.
I think it's just a cost of capital issue.
Like it is for US. It is also for private equity it's your borrowing it today at 8% to 10%.
Versus 5% a year ago.
And that is.
Shooting up.
Their equity return requirements and there just arent sellers at that level today.
Where we're seeing private equity spend real time, and we're starting to see some transactions get done is in the debt markets. There you have willing sellers you have banks that want to get loans off their books and the like and so I think youll see some transactions.
On that side, we've also heard from some <unk>.
Private equity firms that led.
Similar to pre pandemic, our prepaid I've looked similar to look those first six months of the pandemic we're seeing.
Some private equity actually buy.
REIT stocks, because you can't get control at these prices, but you can trade at these prices and so.
That's where we're seeing some activity today.
As we move forward through the year I think it's just a matter of lending catalyzing.
Having a little bit more certainty around the forward curve for investors to think through when they'll be able to refinance.
Acquisitions that they may do with more equity today.
So thats in the next say the next three to six months, we continue to think of this as a pretty.
Slow transactions market, but longer term or.
Looking towards the end of the year and into 2024.
Bob.
We feel like lodging is going to be very attractive.
The fundamentals in this space are better than nearly any other real estate asset class.
Apply has come to near standstill, we're going to be it.
Kind of one to one 5% supply nationally for the next several years when Thats happened in prior times like 2003 to 2006 or 2010 to 2014. Those were days those were periods of time, where hospitality valuations went up quite a bit and it attracted a lot of new investors to our space and so we.
We expect that to come.
Until that comes though it's hard for us to think of being a seller of assets. We don't have any need for capital is it where we have enough cash on hand to pay down debt and to.
To get refinancing is done in the portfolio.
We have good strong growth expected at nearly most nearly all of our hotels today and so we're not willing to take major discounts.
To trade assets on the sell side.
On the buy side I think that as the year develops and as we look forward, we will see opportunities there is going to be.
On one hand, this hasnt been a demand shock for our sector. So it's Ben.
So its so its unlike the last several downturns.
But there is a liability shock and lenders are going to require very significant paydowns.
Even if interest rates come down to 67% just the the debt yield.
Is pretty significant and painful for for existing owners, so we're going to see.
Lender driven kinds of dispositions.
Dispositions and we're going to see.
Capex driven dispositions as as you've heard from us.
The projects that we are doing they are more expensive than they've ever been and they are disruptive and.
And when those when brands push owners to do it which is happening across the last year and we will continue to happen. This year, we will see more assets come to market.
So I think later in this year and into 2024, we think there will be very significant acquisition opportunities there will be a kind of a meeting of the.
Bid ask spread but today, we're just not there.
That's perfect. Thank you very much.
Thank you Mr. Kent.
The next question comes from the line of.
Chris <unk> with Deutsche Bank, you May now proceed.
Hey, good morning, guys.
So.
Yes, I'm trying to square the commentary up a little bit I mean, you're.
You are talking pretty bullishly, especially about urban markets, but then.
Comment about.
Loosing, some some FTE positions in certain hotels is this.
And in some of the resort markets, you need to offset a little bit of a loss of REIT with lower expenses. Let me is there a way to kind of get a little bit more granular on.
Why you would be cutting ftes, or where youre cutting them versus where you are.
Still growing or staying flat.
It's in markets Chris.
I think in these in the resort markets. It is harder to push ADR than it's been and that has a meaningful impact on margins.
On the urban markets is really the focus is really on Philadelphia right now that's the only market that we're seeing.
This level of softness that.
As we staffed up and as we opened restaurants and bars as we got our hotels fully staffed throughout this quarter as we look forward in the second quarter, it's still seeing some weakness and so that's I think our comments on Ftes in urban markets is really focused on Philadelphia.
Yes.
To grow in those areas, but we are a little bit more cautious in Florida.
Yes, just the way you see it now is there anything out there in the transient with BP trends that suggests booking windows that are shrinking or cancellations are up any any.
Anything like that.
So as we think about the acceleration for the remainder of the year for US It's really urban markets, where we think we will continue to have a stronger overall profiled in the resort market.
And we're just not that dependent on resorts as you get past really April .
Okay.
Helpful. I appreciate all the comments thanks.
Thank you Mr Walker.
The next question comes from the line of Michael Bellisario with Baird. You May now proceed.
Thanks, Good morning, everyone.
Two questions for me today first just on expenses and expectations for the year.
I know you talked about head count already but what about property taxes insurance utilities. Some of the other items that might be a headwind throughout the year and what might that do to margins as the year progresses.
Mhm.
Yes for for Us property taxes, as we look out.
To the back half of the year, we think that it would be higher.
But we're still.
At a lower base of property taxes, because a lot of markets such as New York go on historical income. So we're still seeing margin savings because of lower property taxes.
But we would imagine that they go up more at the cost of yes.
Cost of living type of adjustments I think insurance is an area where.
We feel as though markets not in hurricane prone areas of wildfire areas.
Aren't going to be impacted that much but we are cognizant that Florida.
He is going to go through pretty heavy.
<unk> adjustments in the back half of the year, we've built that into our models.
We werent affected over the last two or three years, so our should be a little more manageable properties that have had a big impact from hurricanes in the last few years.
Have had claims.
Hearing some pretty staggering growth numbers.
And utilities are actually an area, where they have come down and we've done a lot of.
Hedging and a lot of fixing.
Fixing of utilities contracts that we don't anticipate any increases.
Levels, we're at today.
Utilities cost for the rest of the year.
Natural gas is down significantly and we took advantage of that in January .
Yes.
Got it helpful and then.
In the supplemental you guys gave a lot new a lot more information on a property specific performance.
Performance in detail.
One what was the rationale for that to any areas of focus that you think analysts and investors should be taking a closer look at what those numbers.
Michael I think.
I think this portfolio has been transformed so significantly across the last several years that we felt like providing more detailed disclosure on an asset by asset basis across the last two to three years would help investors and.
And the investment community better understand the seasonality and of the portfolio and to highlight.
Property specific issues like renovations that you can then see in model through.
I think ultimately it also helps investors better understand the value of our hotels.
On an individual basis.
But that was the idea.
<unk> spent.
We know that.
All of the acquisition all the dispositions.
And transformative upgrades, we've made to our existing hotels has created.
Our new growth profile for our portfolio and we think that this level of added disclosure will help.
Investors.
Predict our performance a little bit more.
Yeah.
Fair enough. Thank you.
Thank you Mr with salary salary out.
The next question comes from the line of Morton Spector with Morton Spector holding.
May now proceed.
Yes.
If you can comment a little more about the sharp.
Discount in your stock.
All right.
And.
Years ago, we used to buy back a lot of stock.
Inefficiently higher prices than where they are today.
I was wondering if you can.
Talk about that a little Lindsay.
What can be done.
To drive shareholder value.
Yeah.
No.
Just on the stock buyback side, we discussed that with our board quite a bit.
Along with our dividend policy and on the buyback front couple of.
Reasons for hesitation on that one.
Just leverage profile.
It has a pretty significant impact on leverage to buy back stock.
And we've just spent across the last couple of years. So much time effort and really good sales to allow us to reduce our leverage to a level that is below our peer average and gives us a lot more flexibility as we look forward to whatever may come in the coming year or two ahead.
So.
And two so one it's just kind of leverage levels and financial flexibility that would be constrained by youth.
Using our excess cash for buying back stock.
The second reason is that we have meaningfully.
Reduced our equity cap across the last three years to five years, partly because of the stock we bought back that you remember we bought back nearly 20% of our float.
Doing that immediately accretive reduces our leverage profile and increases our financial flexibility for today's market environment. We believe the financial flexibility is the most important.
Thank you this concludes today's.