Q3 2023 Ares Commercial Real Estate Corp Earnings Call
Good morning, welcome to Ares commercial real estate Corporation's third quarter September 30th 2023 earnings Conference call. At this time, all participants are in a listen only mode.
Speaker 1: Good morning. Welcome to ARIES Commercial Real Estate Corporation's third quarter September 30, 2023 Earnings Conference call. At this time, all participants...
Speaker 1: As a reminder, this conference is being recorded on Friday, November 3rd, 2023. I will now turn the call over to your host, Mr. John Stilmore, managing director of investor relations. Thank you, you may be.
As a reminder, this conference is being recorded on Friday November 3rd 2023, I will now turn the call over to your host Mr. John still more managing director of Investor Relations. Thank you you may begin.
Good morning, everyone and thank you for joining us on today's conference call I'm joined today by our CEO Bryan Donohoe, our CFO and other members of the management team and.
Speaker 2: Good morning, everyone. Thank you for joining us on today's conference call. I'm joined today by our CEO Brian Donohoe, our CFO Toussaint and other members of the management team.
Speaker 2: In addition to our press release and the 10Q that we filed with the SEC, we've posted an earnings presentation under the investor resources section of our website at www.areecre.com.
In addition to our press release and the 10-Q that we filed with the SEC.
The earnings presentation under the Investor Resources section of our website at Www Dot Aerie CRE Dot com.
Speaker 2: 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 four looking statements that are subject to risks and uncertainty.
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 subject to risks and uncertainties many.
Speaker 2: Minions for different statements can be identified by the use of words such as anticipate, believe, expects and tends will should make similar such a special before the statements are based on management current expectations of market condition and management judgment. These statements are not guarantees of future performance conditional results and involve a number of risks and uncertainties.
Many of these forward looking statements can be identified by the use of words such as anticipate.
Stocks and Jens will show Okay.
Similar such a question.
Forward looking statements are based on management's current expectations of market conditions.
The judgment.
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 forward looking statements as a result.
Speaker 2: that companies actual results could differ materially from those expressed in the form of this statement. As a result of a number of factors, including those with students FEC file.
All of a number of factors, including those listed in SEC filings.
Speaker 2: Aries Commercial Real Estate assumes no obligation to update any such forward-looking data.
Average commercial real estate it seems no obligation to update any such forward looking statements.
During this conference call, we will refer to certain non-GAAP financial measures.
Speaker 2: During this conference call, we will refer to certain non-gap management measures. We view these measures of operating performance, and these measures should not be considered an isolation form, or substitute for measures prepared in accordance with generally accepted accounting points.
We use these measures of operating performance. These measures should not be considered in isolation from or substitute for measures prepared in accordance with generally accepted accounting principles.
Speaker 2: These measures may not be comparable to like title measures by other companies. Now I'd like to tell you McCollough to our CEO Ryan Donnell.
This may not be comparable to like titled measures by other companies.
All of which our CEO Brian <unk>.
Speaker 1: Thanks and good morning everyone. During the third quarter, we continued to execute on three primary goals we've discussed previously.
Thanks, and good morning, everyone.
During the third quarter, we continued to execute on three primary goals, we have discussed previously.
Speaker 1: First, we intend to maintain strong levels of liquidity and moderate levels.
First we intend to maintain strong levels of liquidity and moderate leverage.
Speaker 1: Secondly, we want it to take advantage of the lending market and our liability structure to selectively originate new loans. That would be a creative toward
Secondly, we wanted to take advantage of the lending market and our liability structure to selectively originate new loans that would be accretive to our earnings and.
Speaker 1: And finally, we wanted to continue to maximize the value of our underperforming.
And finally, we wanted to continue to maximize the value of our underperforming assets.
Speaker 1: In general, we are pleased with the progress we have made executing against these.
In general we are pleased with the progress we have made executing against these goals with.
Speaker 1: With respect to the portfolio, we experience generous stability and credit performance as our level of defaults and the universe of risk-graded 4 and 5 loans modestly declined quarter of
With respect to the portfolio, we experienced general stability in credit performance as our level of defaults and the universe of risk rated four and five loans modestly declined quarter over quarter.
Speaker 1: While the benefit of today's rate environment has served to enhance our net interest in...
While the benefit of today's rate environment has served to enhance our net interest income the impact of the higher for longer interest rate environment has resulted in greater economic uncertainty and further headwinds to commercial real estate values.
Speaker 1: The impact of the higher for longer interest rate environment has resulted in greater economic uncertainty and further headwinds to commercial real estate value.
This higher cost of capital is also leading to dramatic reductions in new construction, which we ultimately we believe will result in favorable supply dynamics and drive support for commercial real estate fundamentals and values in the future.
Speaker 1: This higher cost of capital is also leading to dramatic reductions in new construction, which we ultimately believe will result in favorable supply dynamics and drive support for commercial real estate fundamentals and values in the future.
Specific to acre, we believe our deliberate approach of operating with moderate leverage while still generating attractive earnings is the best strategy for navigating todays market.
Speaker 1: With Pacific to Ager, we believe our deliberate approach of operating with moderate leverage while still generating attractive earnings is the best strategy for navigating today's
We believe the strength of our balance sheet and capabilities of the broader Ares platform gives us a distinct advantage in addressing our underperforming investments as well as selectively investing in today's attractive lending market.
Speaker 1: We believe the strength of our balance sheet and capabilities of the broader ARIES platform gives us a distinct advantage in addressing our underperforming investments, as well as selectively investing in today's attractive lending.
Speaker 1: Now let me spend some time discussing some of the actions we took this quarter and our approach in maximizing value of our underperforming loss.
Now, let me spend some time discussing some of the actions we took this quarter and our approach of maximizing value of our underperforming loans.
This quarter, we foreclosed on the $83 million loan collateralized by a mixed use facility located in Florida.
Speaker 1: This quarter, we foreclosed on the $83 million loan collateralized by a mixed use facility located in Florida. This loan is now held...
This loan is now held azaria on our balance sheet.
Speaker 1: As a reminder, this is an office and retail mixed use property in Tallahassee that is over 90% least and continues to generate cash flow that is roughly equivalent to the interest income we earned as a loan.
As a reminder, this is an office and retail mixed use property in Tallahassee that is over 90% leased and continues to generate cash flow that is roughly equivalent to the interest income we earned us alone.
Speaker 1: 100% of the office space is leased to a AAA rated tenant that has approximately a nine-year weighted average lease term.
100% of the office space is leased to a AAA rated tenant that has approximately.
Nine year weighted average lease term remaining.
Speaker 1: The retail space is also well-leased with approximately 85% occupancy and a weighted average term.
The retail space is also well leased with approximately 85% occupancy and a weighted average term of about seven years.
Speaker 1: This is where we at Aries will continue to actively manage the property, with the aim of pushing retail occupancy even higher.
This is why we at Ares will continue to actively manage the property with the aim of pushing retail occupancy even higher.
Speaker 1: It's important to point out that we do not recognize an impairment when foreclosing on the property and currently hold the property unlep.
It's important to point out that we did not recognize an impairment when foreclosing on the property and currently hold the property unless.
That's one of the leading value add and opportunistic real estate managers the capabilities at areas supports our ability to own and execute this business plan.
Speaker 1: As one of the leading value add an opportunistic real estate managers, the capabilities at areas supports our ability to own and execute this business.
Given our balance sheet position strong operational capabilities and the cash flow profile of the property we.
Speaker 1: Given our balance sheet position, strong operational capabilities, and the cash flow profile of the property, we are optimistic about the long-
We are optimistic about the long term value of this asset.
Speaker 1: We also exited a $35 million hospitality loan through a discounted loan pay-off.
We also exited the $35 million hospitality loans through a discounted loan payoff this quarter.
Speaker 1: Given the volatile cash flow profile of this property, the capital required to complete the business plan as well as our view of the future value. We believed it was in Acres best interest to exit the loan and redeploy this capital into higher earning and...
The volatile cash flow profile of this property the capital required to complete the business plan as well as our view of the future value. We believed it was an acres best interest to exit the loan and redeploy this capital into higher earning investments.
As both of these loans illustrate our platform capabilities and balance sheet position allow us to take unique strategies to each asset with the goal of maximizing value.
Speaker 1: As both of these low and industry, our platform capabilities and balance sheet position allow us to take unique strategies to each asset with the goal of maximizing value.
Our balance sheet position also allows us to opportunistically invest in today's market.
Speaker 1: Our balance sheet position also allows us to opportunistically invest in today's March.
Speaker 1: We remain focused on financing strong performing property classes with secular demand drivers, such as industrial, multi-family, and self-stores.
We remain focused on financing strong performing property classes with secular demand drivers such as industrial multifamily and self storage.
Speaker 1: For example, this pass quarter we originated a $58 million senior loan backed by a newly built, class A multi-family property located in Cincinnati, Ohio that is 95%.
For example, this past quarter, we originated a $58 million senior loan backed by a newly built class a multifamily property located in Cincinnati, Ohio that is 95% leased.
Speaker 1: This property is well located in an affluent part of the city with compelling local supply and demand dining.
This property is well located in an affluent part of the city with compelling local supply and demand dynamics.
Speaker 1: We finance this property at historically lower levels of loan to value, modestly wider spreads, and reset property value.
We financed this property at historically lower levels of loan to value modestly wider spreads and reset property valuations.
Speaker 1: Looking forward into the fourth quarter in year end, we expect to make further progress on reducing our exposure to office love.
Looking forward into the fourth quarter and year end, we expect to make further progress on reducing our exposure to office loans.
Speaker 1: Through a combination of principal paydowns and exits, we are targeting more than 70 million in outstanding principal balance of office loans to be cleared out in the fourth quarter. But that may well extend into the first quarter of next.
Through a combination of principal Paydowns and exits we are targeting more than 70 million in outstanding principal balance of office loans to be cleared out in the fourth quarter.
But that may well extend into the first quarter of next year.
With that tastes like let's walk through some of our financial highlights and further details on our portfolio and capital position.
Speaker 1: With that, TASIC will walk through some of our financial highlights and further details on our portfolio and capital position.
Thank you, Brian and good morning, everyone.
Speaker 3: For the third quarter of 2023, we reported GapNet income of 9.2 million or 17 cents per common share.
For the third quarter of 2023, we reported GAAP net income of $9 2 million or 17 cents per common share.
Speaker 3: Our gap net income was impacted by a $3.2 million net increase in our spatial provision or about six cents per common share.
Our GAAP net income was impacted by a $3 $2 million net increase in our seats, we'll provision or about six cents per common share.
Speaker 3: The sugarable earnings for the third quarter of 2023 was 13.5 million or 25 cents for common share.
Distributable earnings for the third quarter of 2023 was $13 5 million or 25 cents per common share.
Speaker 3: which was impacted by the 4.9 million or 910th procurement share realized loss on the defaulted half-the-tality loan that was resolved in the third quarter.
Which was impacted by the $4 9 million or nine cents per common share realized loss on the defaulted hospitality loans that were resolved in the third quarter.
Turning to our portfolio.
Speaker 3: Turning to our portfolio, we ended the quarter with a diverse high portfolio of 49 loans, health, and investment.
We ended the quarter with a diversified portfolio of 49 loans held for investment with an outstanding principal balance of $2 2 billion.
Speaker 3: with an outstanding principal balance of 2.2 billion. 98% of whips.
98% of which were senior loans.
During the third quarter, we received 48 million of total loan repayments, including $25 million of proceeds from the hospitality loan.
Speaker 3: During the third quarter, we received 48 million of total loan rates.
Speaker 3: including 25 million of proceeds from the hospital to the loan, as well as loans backed by self-storage and industrial properties that were repaid at park.
As well as loans backed by self storage and industrial properties that were repaid at par.
In terms of credit quality metrics seven.
Speaker 3: 78% of our loan portfolio had a risk rating of three or better, which improved from 74% in the second quarter.
78% of our loan portfolio had a risk rating of three year better.
Which improved from 74% in the second quarter.
Speaker 3: The improvement was driven by the reduction of our risk-graded four and five rated loans, as two such loans were either resolved or converted to RIF.
The improvement was driven by the reduction of our risk rated four and five rated loans as two such loans were either resolved or converted to Oreo.
Speaker 3: During the third quarter, no new loans originated from a risk rating 3 to a risk rating of 4 or 5 in the quarter.
During the third quarter, no new loans originated from a risk rating three to a risk rating of four or five in the quarter.
We did downgrade one office alone from a four to five risk rating.
Speaker 3: We did downgrade one office loan from a four to a five risk reading with a total unpaid rental balance of $33 million.
Total unpaid principal balance of $33 million and established a specific reserve of $14 4 million.
Speaker 3: and established a specific reserve of 14.4 mil.
Speaker 3: Inclusive of this specific reserve, we increase our overall CSA reserve by a net 3.2 million in the third quarter of 2023.
Inclusive of this specific reserve, we increase our overall seats of reserves by a net $3 2 million in the third quarter of 2023.
Speaker 3: Our total CSO reserve now stands at $116 million or about 5.25% of our outstanding principal balance.
Our total seats a reserve now stands at $116 million or about 5.25% of our outstanding principal balance.
Speaker 3: Let me provide some further details around the components of our 116 million CISO reserve, which equates to $2.14 per common share total reserve and impacted our book value per common share of $12.62 as of September 30, 2023.
Let me provide some further details around the components of our 116 million seats of reserve, which equates to $2 14 per common share total reserve and.
And impacted our book value per common share of $12.62 as of September 30th 2023.
As previously mentioned, we have specific reserves of $55 million, representing 61%, Okay 90 million in outstanding principal balance on the two risk rated five levels.
Speaker 3: As previously mentioned, we have specific reserves of 55 million, representing 61% of the 90 million and outstanding principal balance on the two risk-rated fiblas.
Speaker 3: Of the remaining 61 million reserves, 46 million is accrued against 388 million in outstanding principal balance of risk-graded for-law.
Of the remaining 61 million of reserves 46 million is accrued against 388 million outstanding principal balance.
Risk rated four loans.
Speaker 3: which equates to approximately 12% of the total risk-graded four-learn balance and compares to 10% in the quarter-price.
Which equates to approximately 12% of the total risk rated four loan balance and compares to 10%.
Quarter prior.
The final $15 million of our total reserve held against the $1 7 billion of loans rated at three or better for.
Speaker 3: The final 15 million of our total reserve is held against a 1.7 billion of loans, rated 3 or better.
Speaker 3: for an average reservation of about 86 basis points of loans' health investment with a risk rating of three or better.
For an average reserve ratio of about 86 basis points of loans held for investment with a risk rating of three or better.
While the market remains challenge, we believe that our CSO reserve level appropriately takes into account current market conditions.
Speaker 3: While the market remains challenged, we believe that our CESA reserve level appropriately takes no account current market conditions.
Speaker 3: and the macroeconomic outlook for our loans health or investment as of September 30th, 2020.
And the macroeconomic outlook for loans held for investment as of September 32023.
Speaker 3: With respect to the $57 million office loan that is risk-graded for us.
With respect to the $57 million office mountain that is risk rated five.
Speaker 3: We continue to the on target to resolve this problem.
We continue to be on target to resolve this property.
Speaker 3: which would result in approximately a $41 million realized loss in the fourth quarter of 2023, or possibly first quarter of 2025.
Which would result in approximately a $41 million realized loss in the fourth quarter of 2023.
Possibly.
The first quarter of 2024.
Speaker 3: As Brian referenced earlier, we maintain significant liquidity and moderate net debt of 2.0 at quarter-f.
As Brian referenced earlier, we maintained significant liquidity and moderate net debt to equity ratio of 2.0 at quarter end.
At quarter end, we had over $130 million in cash and amounts available for us to draw under our working capital facility.
Speaker 3: At quarter end, we had over $130 million in cash and amounts available for us at law under our working capital facility.
In addition, we are holding our Oreo unlevered, which we believe can be financed to further increase our liquidity.
Speaker 3: In addition, we are holding our Oreo unlever, which we believe can be financed to further increase our liquidity.
Speaker 3: Finally, we declared our fourth quarter dividend of 33 cents per share.
Finally, we declared our fourth quarter dividend of 33 cents per share.
Speaker 3: So with that, let me turn the call back over to Brian for some closing remarks.
So with that let me turn the call back over to Brian for some closing remarks.
Thank you Tracy.
While a higher for longer rate environment, we will extend this cycle and will likely present unforeseen challenges. We believe it will also present, some highly attractive investment opportunities, our moderate leverage and healthy level of liquidity positions us well to navigate these dynamics and ultimately deliver attractive shareholder returns.
Speaker 1: While a higher for longer rate environment will extend this cycle and will likely present unforeseen challenges, we believe it will also present some highly attractive investment
Speaker 1: Our moderate leverage and healthy level of liquidity positions as well to navigate these dynamics, and ultimately deliver attractive shareholders.
Yes.
Speaker 1: As always, we appreciate you joining our call today and we'd be happy to open the line for questions. Operator could...
As always we appreciate you joining our call today and we'd be happy to open the line for questions. Operator could you. Please open up the line.
Speaker 1: Thank you. At this time, we'll be conducting a questioned and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will be...
Thank you at this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
Speaker 1: You may press star two if you'd like to remove your question from the queue. For a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please.
Press Star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Sara Baack home with B T. I G. Please proceed with your question.
Speaker 1: Our first question comes from Sarah Borkholm with BTIG. Please proceed with your question.
Speaker 4: Hey everyone, thanks for taking the question. So you mentioned in the prepared remarks that you're targeting about 70 million of office principles to be cleared out between Q4 and Q1. And it sounds like that includes the five rated.
Hey, everyone. Thanks for taking the question. So you mentioned in the prepared remarks that you're targeting about 70 million of office principle to be cleared out between Q4 and Q1 and it sounds like that includes the five rated Chicago office loan.
Speaker 4: Chicago Office Loan. Just a balance of that include a potential resolution on the California Office Loan or is that mostly in the one to three rated book?
Just the balance of that include a potential resolution on the California office loan or or is that mostly in the one to three rated buck.
Speaker 4: And will those result from more asset sales or refinancing, or how should we think about it?
And will those you know result from more asset sales or refinancings or how should we think about that.
Yeah.
Speaker 3: Yes, good morning, Sarah. Thank you very much for your question. Yes, the 70 million does include the Chicago Office loan that we mentioned. We are targeting for resolution the fourth quarter. Again, that may slip into the first quarter, but right now we believe it is on target for fourth quarter. And then the other amount is made up of a Office loan in California, as you said.
Yes. Good morning, Sarah Thank you very much for your question, yes. The $70 million does include the Chicago office loan that.
We mentioned we are targeting for resolution in the fourth quarter.
You know again that may slip into the first quarter, but right now we believe it is on target for fourth quarter and then the other amount is made up of a office alone in California as you said.
Okay great.
Speaker 4: Okay, great. And then I was hoping you could talk about your outlook for net portfolio growth over the next few quarters. We saw the portfolio contract a bit due to the foreclosure and the loan sales, but new funding's actually, it looks like outpaced regular way repayments. So I'm just curious for any thoughts on your outlook for continuing to make new investments and how we should think about that net growth. Thank you.
And then I was hoping you could talk about your outlook for net portfolio growth over the next few quarters and you know we saw that portfolio of contracted that due to the foreclosure in the loan sales, but new fundings actually it looks like outpaced regular way repayments. So I'm just curious for any thoughts on your outlook for cause.
<unk> to make new investments and how we should think about that.
Growth. Thank you.
Speaker 1: Yeah, it's good questions, sir. I think it's tough to determine exactly what the cadence will be. As we said in the preparatory remarks, we do see, and I think you're seeing us across the industry, a good set of opportunities, but it's a little less rhythmic given the volatility and rates that we have surrounding us. So we'll continue to be opportunistic.
Yeah. It's a good question, sorry, I think tough to determine exactly what the cadence will be and as we said in our prepared remarks, we do see and I think youre seeing is across the industry a good set of opportunities, but it's a little less rhythmic given the volatility in rates that we have surrounding us. So.
We will continue to be opportunistic.
Speaker 1: And most specifically, we will continue to use the legacy liability structures that we have on the balance sheet to enhance the yields associated with those investments we do make. Tough to determine at this point whether that leads quarter to quarter to portfolio growth, but I think we'll continue to be opportunistic when situations arise. Okay.
Most specifically we will continue to use the legacy liability structures that we have on the balance sheet to enhance the yields associated with those those investments we do make tough.
Tough to determine at this point, whether that leads quarter to quarter to portfolio growth, but I think we'll still will continue to be opportunistic when when situations arise.
Okay. Thanks, so much for taking my question.
Thank you.
Speaker 1: Our next question is from Steve Delaney with JMP Securities. Please proceed with your question.
Our next question is from Steve Delaney with JMP Securities. Please proceed with your question.
Speaker 5: Thanks. Good morning, everyone. Good to see you finding opportunities to deploy capital.
Thanks, Good morning, everyone.
Good to see you finding opportunities to deploy capital.
Speaker 5: I'm curious if you look at the terms of your new loans that you're setting.
I'm curious if you look at the terms of your new loans that you're setting up.
Speaker 5: How would you compare the leopard returns that you're able to obtain today versus sort of an average of who we were back in a 2021?
How would you compare the Levered returns that you are able to obtain today versus sort of an average it because where we were back in 2021.
Speaker 5: First half, 2022, type of environment, which I guess I'll call a more normal environment. Thanks.
First half 2022 type of environment, which I guess I'll call. It a more normal environment. Thanks.
Yeah.
Speaker 1: It's a good question. I'd say that clearly the the bar is higher for new investments today. So you can expect to see those lever yields in excess of where they were at that point in time.
Yeah. It's a good question I would say that clearly the bar is higher for new investments. Today. So you can expect to see those levered yields in excess of where they were at that point in time.
Speaker 1: But one of the interesting factors right now is across the board we're seeing more and more appetite for warehouse lending from some of our counterparts on the banking side. And starting to see that net interest margin or the gap between the whole loan pricing and repo, get back to more normalized levels, which I think is a tailwind to new investments.
But one of the interesting factors right now is across the board, we're seeing more and more appetite for warehouse lending from some of our our counterparts in the banking side and starting to see that net interest margin or the gap between the whole loan pricing and repo get back to more normalize.
<unk> levels, which I think is a tailwind to new investments.
Speaker 1: And so there's some subtlety beyond that, though, as you'd expect, given the scarcity of capital in the space, those with capital can dictate terms to a better degree than maybe historically. So that starts to impact covenants, leverage. And certainly, as we said in the prepared remarks, the reset valuation just makes it a more attractive basis. So certainly in a track of time to invest in those circumstances that allow for it.
Theres, some subtlety beyond that though as you'd expect given the scarcity of capital in the space those with capital can dictate terms to a better degree than that maybe historically, so that starts to impact covenants leverage and certainly as we said in the prepared remarks, Dave.
Reset valuation just makes it a more attractive basis. So that's certainly an attractive time to invest in the in those circumstances that allow for it.
Speaker 5: interesting that those conditions with the lenders would evolve right ahead of an opportunity.
Interesting.
Those conditions with the lenders would evolve.
You know right ahead of the opportunity we may may be seeing for a an improved interest rate outlook over the next year or two as well so.
Speaker 5: for an improved interest rate outlook over the next year or two as well.
Uh huh.
Speaker 5: Sounds like you're in a pretty good strategic position. One final one. And you just, I don't need a long answer at all, but.
It sounds like you're in a pretty good strategic position one final one.
Yeah.
I don't need a long answer at all but there's a lot of distress out there I mean, you just had to take back.
Speaker 5: property, I think was Chicago that you were talking about in your remarks. Some deals.
Property I think it was Chicago are that you were talking about in your remarks.
Some deals.
Speaker 5: find a workout or some end up going back to the first the lender and the formal Aria. I'm curious if you guys are
On a workout or and some end up going back to the the first the lender and are in the form of our yet.
I'm curious.
You guys are seeing what I would call it.
Any rescue capital opportunities higher yield opportunities, where you may even you like the property.
Speaker 5: Rescue capital opportunities, you know, higher yield opportunities where you may even, you like the property, the loan is at a balance, et cetera, et cetera. You can come in with a mezzan.
The loan is at a balance et cetera, et cetera, you could come in with a mezz and.
Speaker 5: I don't think you would do a mess like that unless you could also get a nice slice of equity out of the deal. Is that too?
I don't think you would do a mezz like that unless you could also get a nice slice of equity out of the deal is that too.
Speaker 5: more merchant banking like as you see it before. I've seen the bridge lender or the these unique times.
More merchant banking light as you see it for a senior bridge lender or do these unique times.
Speaker 5: You know, would that encourage you to open your playbook up a little bit for that type of thing? Given the more.
No.
Would that encourage you to open your playbook off a little bit for that type of thing given the market.
Speaker 1: Yeah, it's a great point and certainly the uncertainty the opaque nature of the market keeps us...
Yes, it's a great point and certainly the uncertainty the opaque nature of the market keeps us.
We're really focused on the flexibility we outlined on the call.
Speaker 1: focused on the flexibility we outlined on the court.
Speaker 1: and that uncertainty I think you've heard pretty widely throughout the industry. I'd say that for the most part, thus far, those that gap financing or benzene or pref type structures.
And that uncertainty I think you've heard pretty pretty widely throughout the industry I would say that for the most part.
Thus far those that gap financing or mezzanine, a prep type structures.
Speaker 1: We haven't seen it in any volume yet, so it's been an innocent critic. I do think that in times like this, the playbook will open up, although the charter that we consistently talk about is we want to remain a lender to the space and a high degree of conviction around being a first mortgage lender rather than.
We haven't seen it in any volume yet so it's been at any other synchronic I do think that in times like this the playbook will open up although the charter that we consistently talk about is we want to remain.
A lender to the space and a high degree of conviction around being a first mortgage lender rather than then focused on the mezzanine, but across the broader Ares platform will continue to see and seek out opportunities for that gap financing for those those best in class pieces of real estate throughout our core markets.
Speaker 1: then focused on the mezzanine. But across the broader ARIES platform will continue to see and seek out opportunities for that gap financing for those best in class pieces of real estate throughout our core markets.
Thank you Brian for the comments.
Of course, thank you.
Speaker 1: Our next question comes from Don Vendetti with Wells Fargo. Please proceed with your question.
Our next question comes from Don Vendetti with Wells Fargo. Please proceed with your question.
Yes, when you do go to cell alone how is the bed.
Speaker 6: Yes, when you do go to Sulla Loan, how is the bid and what's the profile of the buyer? Is it offshore type investors?
And what's the profile of a buyer or is it you know to offshore type investors.
Speaker 1: It's probably not enough of a data set to say that there's a trend one way or the other. Clearly, the investor base that's going to participate in this market is going to have some level of conviction on the sector or that location. So we don't have enough to point to say it's coming from one part of the world or another. In general, it's unique parties that are familiar with an asset.
Yes, I'm, probably not enough of a data set to say that theres a trend one way or the other clearly the investor base, that's going to participate in this market is going to have some level of conviction on the sector or in that location. So we don't have enough.
To point to to say, it's coming from one part of the world or another in general. It's it's unique parties that are familiar with an asset.
Speaker 1: and see the long-term trends of supply and demand, especially as we touched on with this reduction in supply that we expect to see kind of fast forwarding 12, 18 months. And that buyers trying to take advantage of a reset basis.
And see the long term trends of supply and demand, especially as we as we touched on with this reduction in supply that we expect to see kind of fast forwarding 12 to 18 months.
And that buyer is trying to take advantage of a reset basis.
Speaker 1: going into that dynamic, but no consistency in terms of where the Catholic is coming from as of yet.
Going into that dynamic.
No consistency in terms of where the capital is coming from as of yet.
Got it and then if the fed is done and the 10 year yield eases a bit like how do you how does that impact your business over the next six to 12 months.
Speaker 6: And then, you know, if the Fed is done and the tenure yield eases a bit, how does that impact your business over the next six to 12 months?
Speaker 1: What I'd say is I think if we can get that consistency with respect to rates, I think that clearly values are resetting based at least in part on the impact of rates.
What I'd say is I think if we can get that consistency with respect to rates I think that.
Clearly values are resetting based so at least in part on the impact of rates.
Speaker 1: If we can get stability, I think that assets become more under-right-able across the sector, and I think we'll free up some capital and allow people to move forward. So I think, first and foremost, you'd be able to digest rates if they remain kind of range bound. And I think you'll see transactions volume pick up.
If we can get stability I think that assets become more underwrite a bowl across the across the sector and I think we will free up some capital in <unk>.
Allow people to move forward, So I think first and foremost.
You'd be able to digest rates if they remain.
Kind of range bound and I think youll see transaction volume pick up.
Thank you.
Speaker 1: Our next question comes from Jade Ramami with KBW. Please proceed with your question.
Our next question comes from Jade Rahmani with K B W. Please proceed with your question.
Okay.
Speaker 7: Thank you very much. For me, one of the important pieces is cashflow from Operation.
Thank you very much.
For me one of the important piece is is cash flow from operations.
Speaker 7: And you know, it's been running a little bit below the dividend.
And you know, it's been running a little bit below the dividend.
Speaker 7: So what would be your thoughts as to dividend sustainability at the
So what would be your thoughts as to dividend sustainability at this point.
Yes.
Speaker 3: Thank you for your question, Jade. Now that is an extremely important question. And obviously we are monitoring our actual casual from operating activities very carefully.
Thank you for your question Jade you know that is a extremely important question and obviously, we are monitoring our actual cash flow from operating activities very carefully.
Speaker 3: Jade, you probably are referring to our cashroll statement in our financials versus our dividend. Maybe I'll just point out a few things that may help reconcile maybe some of the differences that you're seeing.
Jay do you probably are referring to our cash flow statement in our financials versus our dividend maybe I'll just point out a few things that may help reconcile maybe some of the differences that you're seeing so if you look at third quarter 2023 for example.
Speaker 3: So if you look at third quarter 2023, for example, I think our net cash provided by operating activities is around 13.5 million.
Our net cash provided by operating activities is around $13 5 million.
Speaker 3: and we think in addition to that 13.5 million, you know, you would add, for example, 1.5 million of fees that we have already received, you know, for example, as origination fees upfront.
And we think in addition to that $13 5 million.
You would add for example, $1 5 million of fees that we have already received for example, as origination fees upfront.
Speaker 3: But we don't amortize it under the cash flow statement obviously because it's cash flow. Oh, but that is, you know, actual cash that we have already received, you know, as part of making a loan. And again, that adds about a million five. So you're up to about 15 million from there.
But we don't amortize it under the cash flow statement, obviously, because its cash flow.
That is actual cash that we have already received.
As part of making alone and again that adds about 1 million five you're up to about $15 million from there and.
Speaker 3: And then the second thing just to, again, point out is if you kind of look at our dividends for the third quarter, I think what you'll see is in cash flow again, you'll see that dividends paid in the third quarter, which really the dividends declared for the second quarter, which included the two-cent supplemental, which obviously was not declared and payable for the third quarter dividend. So I think the difference that you might be seeing is a little bit smaller than maybe where you started out with.
And then the second thing just to again to point out is if you kind of look at our dividends for.
For the third quarter I think what Youll see is in cash flow again, you'll see that.
Dividends paid in the third quarter was really the dividends declared for the second quarter, which included the Tucson supplemental.
Which obviously was not declared and payable for the third quarter dividend. So I think the difference that you might be seeing is a little bit smaller than maybe where you started out with but.
Speaker 3: But we do think that our distributional earnings is a very good measure of our actual cash flow.
But we do think that our distributable earnings it was a very good measure of our actual cash flow I think probably the biggest difference youll see between those two measures again take into account some of the timing differences of when you pay payables receive receivables.
Speaker 3: I think probably the biggest difference you'll see between those two measures, again, taking to account some of the timing differences of when you pay payables, receiveables, there's probably some payment and kind low.
There's probably some payment in kind loans.
Speaker 3: We think we have a fairly limited amount of that, but that would probably be the biggest difference between actual operating cash flow versus our distributable earnings.
We think we have a fairly limited amount of that but that would probably be the biggest difference between.
Actual operating cash flow.
Versus our distributable earnings.
Speaker 7: Okay, that's a great answer. So when the boards thinking about the dividend is going to be based on these training and do they give any consideration to the capital from operations performance? I do realize the accrual nature of the income statement, which also triggers retaxable learning. So I appreciate your commentary around the resignation.
Okay, that's a great answer and so when the board thinking about the dividend is it going to be based on the distributable earnings and did they give any consideration to the cash flow from operations performance and I do realize the accrual nature of the income.
Statement, which also triggers REIT taxable earnings so.
I appreciate your commentary around origination fees.
Speaker 3: Yeah, and that's a great question. Again, we present all this information to the board. We discuss, you know, cash flow from operations, we discuss credit, we discuss outlook, we discuss balance sheet, we discuss liquidity. So there are, you know, a whole host of factors that are taking the account by the board in setting and declaring dividends.
Yeah. That's a great question again, we present all of this information to the board.
We discuss.
Cash flow from operations, we discuss credit we discuss outlook, we discuss balance sheet, we discuss liquidity.
So there are a whole host of factors that are taken to account by the board in setting and declaring a dividend.
Speaker 3: You know, one thing to just note about our pick income is that, you know, for the quarter, I think it totals around 2.2 million. And if you compare that against our total interest income for the quarter of around 53 million, you know, it's around 4%.
One thing to just note about our Pik income is that for the quarter I think it totaled around $2 2 million and if you compare that against our total interest income for the quarter of around $53 million. It's around 4%. So we do think that is a manageable number.
Speaker 3: So we do think that is a manageable number, but again, all of those considerations are, we've really taken account by the board in setting the dividend.
But again all of those considerations are we believe take into account by the board in setting the dividend.
Okay. Thanks, very much if I could ask another one.
Speaker 7: Thanks very much if I could ask another one. It would just be the decision on loan sales at this point.
Would just be like they.
The decision on loan sales at this point, specifically on office tier TX said something similar so I'm just wondering if it's related to liability management.
Speaker 7: specifically on office here tx said something similar so I'm just wondering if it's related to liability management
Speaker 8: Are you a repo lenders or the CLO?
Your repo lenders or CLO.
Speaker 8: you know, potential buy downs out at the sea, buy out at the sea alone, prompting those decisions or is it just your assamandment and deciding to be proactive.
You know potential buy downs atom by atom CLO, prompting those decisions or is it just your asset management and decided to be proactive.
Speaker 1: I think it starts from a fundamental perspective on
I think it starts from a fundamental perspective on.
Kind of future values, and certainly kind of out earning any issues by redeploying that potential cash inbound with with new investments going forward, but certainly there is an overlay of whatever liability structure that asset may have resided in.
Speaker 1: kind of future values and certainly kind of out earning any issues by redeploying that potential cash inbound with new investments going forward. But certainly there's an overlaid of whatever liability structure that asset may have resided in.
Speaker 1: So, Jay, it really comes down to a fundamental view of office valuations or that specific asset valuations alongside the specifics around the liability structure. So, it really remains a case by case basis.
So jade it really comes down to our fundamental view of office valuations or that specific asset valuations alongside the specifics around the liability structure. So it really remains a case by case basis.
Thank you.
Thanks, Chad.
Our next question comes from Stephen Laws with Raymond James. Please proceed with your question.
Speaker 1: Our next question comes from Stephen Laws with Raymond James. Please proceed with your question.
Speaker 9: Hi, good morning. You know, I think it was mentioned in the Herdermarks, but tastes that no nude downgrades, I think, three to four.
Hi, good morning.
You know I think it was mentioned in the prepared remarks about tastes like no new downgrades I think three to four.
Speaker 9: You know, I just wanted to confirm that and also, you know, at a higher level when you think about your portfolio and the one to three rated loan.
I just wanted to confirm that and also at a higher level. When you think about your portfolio in the 1% to three rated loans.
You know how cultural are you in those ratings that you know the the concerning stress points during the past and you and Youre not concerned about you know kind of more negative rating migration, you know kind of what percentage of those three years do you still think out.
Speaker 9: You know, how comfortable are you in those ratings that the concerning stress points are in the past and you're not concerned about kind of more negative rating migration, kind of what percentage of those three is do you still think have, you know, maybe a material stress point in the next six to 12 months that you're really focused on. Kind of any color on that would be great.
Materials stress point in the next six to 12 months that are that you're really focused on kind of any color on that would be great.
Speaker 3: Sure, good morning, Steven. Thanks for the question. I'll start and we'd love to have Brian you know add to add to my comments so correct We do not have any negative migration from You know loans that were rated one two or three from second quarter the third quarter You know we did mention the negative migration from one loan from four to a five
Sure. Good morning, Stephen Thanks for the question I'll start and we'd love to have Brian add to add to my comments.
So correct.
We did not have any negative migration from loans that were rated one two or three from second quarter to third quarter.
We did mentioned a negative migration for one loan from four to five.
Speaker 3: In terms of outlook, I mean, I'll just start very briefly and really turn it over to Ryan. You know, I think again, you know, we are assessing our loans, you know, very carefully each quarter.
In terms of outlook.
I'll just start very briefly and really turn it over to Brian.
Again.
We are assessing our loans very carefully each quarter.
Speaker 3: Obviously the future forecast is taken to account.
See the future forecast is taken into account.
Speaker 3: But with the auto markets that we're all in today, it's hard to set an exact macroeconomic environment, which we would be assessing alone.
With the Alltel markets that were all in today.
It's hard to set an exact macroeconomic environment in which we would be assessing the loans.
Speaker 3: I would tell you that, you know, we take no count what we do know and we do this every quarter.
I'd tell you that we take into account what we do know and we do this every quarter.
Speaker 1: Brian , did you want to add them? Yeah, I'll just kind of echo that, but I think it is.
Brian did you want to add to it yes, I'll just kind of add to that but I think it is.
Speaker 1: Clearly a good bit of uncertainty out there. We're spending the vast majority of our time on the asset management side of the business in dialogue with sponsors and really taking in all the outside factors in real time that we're all collectively sharing. So when we see rate movements one way or the other, clearly that impact.
Clearly a good bit of uncertainty out there we're spending the vast majority of our time.
On the asset management side of the business and dialogue with sponsors and really taking in all the outside factors in real time that we're all collectively sharing so when we see rate movements, one way or the other clearly that impacts values and to some of the earlier discussion some of that stability will be seen.
Speaker 1: values and to some of the earlier discussion, some of that stability.
Speaker 1: will be seen as a positive for the commercial real estate industry. But we remain cognizant of risks in terms of supply dynamics in certain markets. And really the impact of rates still being.
It's a positive for the commercial real estate industry, but we remain cognizant of of risks in terms of supply dynamics in certain markets and really the impact of rates still being felt on the income statement and balance sheet of a lot of the borrower community. So I would say risk aware and focused on each individual asked.
Speaker 1: on the income statement and balance sheet of a lot of the borrower community. So I'd say risk aware and focused on each individual asset situation and resolving it as best we can throughout the next few quarters.
Situation in resolving it as best we can.
Throughout the next few quarters.
Great I appreciate the comments thank you.
Speaker 1: As a remind if you'd like to ask a question, please press star one on your telephone keypad. One moment...
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.
Our next question comes from Rick Shane with J P. Morgan. Please proceed with your question.
Speaker 1: Our next question comes from Rick Shane with JP Morgan. Please proceed with your question.
Speaker 9: Thanks everybody, good morning. Hey, I do want to say I appreciate the transparency both in terms of highlighting Earth.
Thanks, everybody good morning, Hey.
You want to say I appreciate the transparency both in terms of.
Highlighting earth.
Speaker 9: I want to find the potential loss in the fourth quarter and also being clear about what the specific reserves are against individual five graded loans. It's very helpful and creates a much greater degree of transparency for analysts and investors. So thank you for that.
Quantifying.
Potential loss in the fourth quarter and also.
Being clear about what the specific reserves are against individual five graded loans, it's very helpful and creates a much greater degree of transparency for analysts and investors. So thank you for that.
Speaker 9: I wanted to talk a little bit about the REO. And there are a couple comments that this is an investment that is now on lever. There's potential liquidity that can be unlocked there.
I wanted to talk a little bit about the Oreo.
And there were a couple of comments that this is an investment that is now unlevered theres potential liquidity that can be unlocked there.
What.
Speaker 9: What, you know, I guess there are really three courses that you can, three pads here. You can continue to run this unlevered. And it sounds like the cash flows are roughly comparable to the yield, but that's somewhat inefficient. You could go out and lever this on the property. That's not really your core business. And I'm curious in this environment where
I guess there are really three courses that you cant three pads here you can continue to run this unlevered on it sounds like the cash flows are roughly comparable to yield, but that's somewhat inefficient you could go out and lever this own the property that's not really your core business.
And I'm curious in this environment, where.
Speaker 9: banks prefer to be lenders to lenders rather than be lenders on personally, whether you would actually wind up going to a peer company in order to get that leverage. Or third, why not really kind of do what you guys do, sell the property, finance it, and generate income in the way that you, you know, sort of more core to the acre business model.
Banks prefer to be lenders to lenders rather than be lenders on first lien.
Whether you would actually wind up going to a peer company in order to get that leverage or third why not really kind of do what you guys do sell the property finance it and generate income in the way that you.
It's sort of more core to the acre business model.
Speaker 1: Yeah, it's a great question. And all of those avenues are available to us. And hopefully that came through in the remarks, just the balance sheet allows us that flexibility. I think with respect to this asset, there's some unique attributes, right? It has a fixed income.
Yes, it's a great question and I and all of those avenues are available to us and hopefully that came through in the remarks, just the balance sheet allows us that flexibility.
I think with respect to this asset there is some unique attributes right. It has a fixed income like cash flow stream in terms of the credit quality of the tenants and the duration of the of the leases.
Speaker 1: like cash flow stream in terms of the credit quality of the tenants and the duration of the of the leases.
Speaker 1: But there is some upside that we think may be available.
But there is some upside that we think may be available.
Speaker 1: through property management and leasing as we touched on. I think what we would look, if we think we're getting fair values and absolutely a sale would be part and parcel with what we have looked to do historically, and whether we participate in that from a mezzanine perspective.
Through property management and leasing is as we touched on.
What we would if we think we're getting fair value then absolutely a sale would be part and parcel with what we have looked to do historically and whether we participate in that from a mezzanine perspective, allowing longer duration senior debt to go in front of us right because it does fit.
Speaker 1: allowing longer duration senior debt to go in front of us, right? Because it does fit better into a fixed rate.
It better into a fixed rate take out rather than floating which would be our core competency.
Speaker 1: take out rather than floating, which would be our core competency. So, the point being all these channels are available to us. But first and foremost was getting our arms around the asset, hopefully enhancing the cash flow profile and resolving it in one of the ways that you put forth.
So the point being all of these channels are available to us, but first and foremost was getting our arms around the asset hopefully enhancing the cash flow profile in resolving it in one of the ways that that you've put forth.
So sorry, I don't have a more specific path that I think what we like about it is that it is all available to US right now and we'll do what's best for for the company.
Speaker 1: So, sorry, I don't have a more specific path. I think what we like about it is that it is all available to us right now and we'll do what's best for the company.
Speaker 10: Got it. No, actually there's something interesting in there that I did not fully appreciate, which is that this is an asset that in fact may qualify or may fit better for a different type of population.
Got it no actually there is something interesting in there that I did not fully appreciate which is that this is an asset that in fact may qualify or may fit better for a different type of financing.
Speaker 10: And in some ways that makes more sense because
And in some ways that makes more sense because.
Speaker 3: probably if you guys see value there, locking in long-term, uncolvable financing right now is probably not the way to maximize long-term value. Certainly that's...
Probably if you guys see value there.
Locking in long term on callable financing right now is probably not the way to maximize long term value.
Certainly thats.
That's a key consideration absolutely.
Okay.
That's it for me thank you everybody.
Thanks.
Speaker 1: Our next question is from Jade Romami with KBW. Please proceed with your question.
Our next question is from Jade Rahmani with K B W. Please proceed with your question.
Thank you very much I know.
Speaker 7: Thank you very much. I know Aries does a lot on the equity side. So I wanted to ask your thoughts on multi-family. If you can give an update, quite a few of the multi-family reach have been signing.
And there's a lot on the equity side. So I wanted to ask your thoughts on multifamily if you can give an update.
Quite a few of the multifamily Reits have been citing.
Speaker 7: a significant change in the market in September and October with respect to the sunbelt.
A significant change in the market in September and October with respect to the sunbelt.
Speaker 8: citing newly-srem growth, you know, negative 8 to 9%.
Signing new lease rent growth, you know negative 8% to 9% attributing some of that behavior to so called merchant developers, who are making price concessions in order to lease up their projects, maybe theyre under pressure from floating rate loans.
Speaker 8: contributing some of that behavior to so-called merchant developers who are making price concessions in order to lease up their projects. Maybe they're under pressure from floating-rate loans.
Speaker 8: Increasing or something else, but how are you doing the overall multi-family markets? Or you nervous about credit there or do you view this more as an opportunity?
Increasing or something else, but how are you viewing the overall multifamily markets are you nervous about credit there or do you view this more as an opportunity.
Speaker 1: It's a great question, I think, certainly a dynamic landscape out there, and the more acute reduction in rents that you're seeing in markets.
It's a great question I think.
Certainly a dynamic landscape out there and certainly the more acute reduction in rents that youre seeing in markets that we are oversupplied right like like a Phoenix for instance.
Speaker 1: that were oversupplied, right? Like a Phoenix, for instance. We are seeing that. We don't have a lot of exposure to those. There are assets that enjoyed outsized rent growth beyond what a lender would have underwritten for the past couple of years. And so we're a little bit in the digestion phase of the multi-family market where you're seeing rents normalize, maybe dip, where you've had that porpoising of supply. I think long-term though, we sit here with...
We are seeing that we don't have a lot of exposure to those there are assets that enjoyed outsized rent growth.
What a lender would have underwritten for the past couple of years and so.
We're a little bit in a digestion phase of the multifamily market, where youre seeing rents normalize maybe dip where you've had that purposes of supply I think long term, though we sit here.
With.
Speaker 1: a patient approach to assets and valuations resetting. And if you look and you fast forward a little bit into the reduction in supply that you're going to see based on the capital markets interruption that we're seeing, if you're borrowing against a construction loan today, that's a low double digit cost of funds.
Ah patient approach to assets and valuations resetting and if you look and you fast forward a little bit into the reduction in supply that you're going to see based on the capital markets interruption that that we're seeing right if you're borrowing against the construction loan today.
Low double digit.
Cost of funds so.
Speaker 1: As you see that supply shift and really go back to lower than historical levels based on that capital markets interruption, and we remain at a housing deficit throughout the country, the long-term fundamentals are supportive.
As you see that supply shift and really go back to lower than historical levels based on that capital markets interruption and we remain at a housing deficit throughout the country. The long term fundamentals are supportive, but certainly over the next 12 to 18 months, we're cognizant of the digestion phase of the supply that we are seeing.
Speaker 1: But certainly over the next 12 to 18 months, we're cognizant of the digestion phase of the supply that we are seeing in certain markets. So...
In certain markets. So I think it's a little bit TBD, but we expect to participate in the re levering in the re <unk> of this market for the foreseeable future.
Speaker 1: I think it's a little bit TBD, but we expect to participate in the relivering and the re-equitization of this market for the foreseeable future.
Thank you.
Thanks, Jeff.
And just while we have the Mike I just wanted to go back to a question that was for SaaS by Sarah Barco. This relates to the question about $70 million of office repayments that we expect in the fourth quarter.
Speaker 3: And just while we have a mic, I just want to go back to a question that was first asked by Sarah Barcom. This relates to the question about $70 million of office repayments that we expect in fourth quarter, just to clarify that a bit. So the 70 million of office that we expect to be repaying the fourth quarter consists of our Chicago loan, the $57 million Chicago loan, as well as a partial repayment of a larger loan on a different office complex.
Just to clarify that a bit so the $70 million of office that we expect to be repaid in the fourth quarter consists of our Chicago loan to $57 million Chicago loan as well as a partial repayment of a larger loan on a different office complex.
Speaker 3: I think the $33 million office phone that Sarah was referring to in California, that loan we don't expect to resolve until 2024. So just want to clarify that comment in connection with Sarah's question.
The <unk>.
$33 million office phone that Sarah was referring to in California that loan we don't expect to resolve until 2024. So just wanted to clarify that comment.
Actually went sara's question.
Yeah.
Yeah.
Speaker 1: We have reached the end of the question and answer session. I would now like to turn the call back to Brian Donahoe for closing comments.
We have reached the end of the question and answer session I would now like to turn the call back to Bryan Donohoe for closing comments.
Great. Thank you I just wanted to thank everybody for the time today. We certainly appreciate your continued support of Ares commercial real estate and look forward to speaking with you again on our next earnings call. Thanks, everybody.
Speaker 1: Great, thank you. I just want to thank everybody for the time today. We certainly appreciate your continued support of Aries Commercial Real Estate and look forward to speaking with you again on our next earnings call. Thanks, everybody.
Speaker 1: Ladies and gentlemen, this includes our conference call for today. If you missed any part of today's call, an archive replay of this conference call will be available approximately one hour after the end of this call. In January 2020, the Baldest Gold Drive and Crash Under Mary Hard More
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