Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) Q1 2023 Earnings Call Transcript

Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) Q1 2023 Earnings Call Transcript April 27, 2023

Apollo Commercial Real Estate Finance, Inc. beats earnings expectations. Reported EPS is $0.48, expectations were $0.41.

Operator: I would like to remind everyone that today’s call and webcast are being recorded. Please note that they are the property of Apollo Commercial Real Estate Finance, Inc. and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I’d also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. Today’s conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections.

In addition, we will be discussing certain non-GAAP measures on this call, which management believes are relevant to assessing the company’s financial performance. These measures are reconciled to GAAP figures in our earnings presentation, which is available in the stockholders section of our website. We do not undertake any obligation to update our forward-looking statements or projections, unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apollocref.com or call us at 212-515-3200. At this time, I’d like to turn the call over to the company’s Chief Executive Officer, Stuart Rothstein.

Stuart Rothstein: Thank you, operator and good morning, and thank you to those of us joining us on the Apollo Commercial Real Estate Finance First Quarter 2023 Earnings Call. As usual, I’m joined today by Scott Weiner, our Chief Investment Officer; and Anastasia Mironova, our Chief Financial Officer. Despite the steady stream of negative headlines concerning commercial real estate, ARI’s predominantly senior floating rate loan portfolio produced another quarter of distributable earnings comfortably in excess of the common stock dividend with generally stable credit performance across the portfolio. ARI continues to benefit from higher base rates as 99% of the $8.5 billion portfolio consists of floating rate loans, which has resulted in a 360 basis point increase in weighted average yield on the portfolio over the past 12 months.

Higher base rates combined with ARI’s robust pace of loan origination in 2021 and the first half of 2022 has put ARI in a position to take a conservative approach to additional capital deployment while still comfortably covering the quarterly dividend to our stockholders. Before I get into more details on ARI’s quarterly performance, I want to take a minute to discuss the current market environment. Throughout the first quarter, interest rates have remained elevated and uncertainty around both the trajectory of the economy and future Fed action has persisted. As a result, overall real estate transaction activity was limited. The regional banking crisis only exacerbated market fears with respect to commercial real estate liquidity, availability of financing and asset values.

While there will be pockets of distress, particularly in certain sub-sectors of the office market, and it will take time for there to be clarity on the trough and then ultimate recovery of real estate values through this cycle, we believe the CRE market is much better positioned today than it was leading up to the GFC. There is far less leverage in the overall commercial real estate financing ecosystem than there was in 2007. Since 2009, leverage levels generally have remained within the 60% to 70% loan to value range and key market participants. Notably, the large money center banks are much better capitalized. In addition, while still relevant, the overall size and the relative market share of the securitization market have declined, and a larger share of real estate financing has been provided by balance sheet lenders.

There is also a record level of dry powder in a variety of real estate equity and credit vehicles that views the current market opportunistically and that dry powder will ultimately be deployed. Lastly, two quick points to note. First, apart from office assets, underlying operating performance for commercial real estate generally remains positive. While the rate of occupancy or net cash flow increase may be slowing, rents continue to trend higher and occupancy levels remain stable. Also, the combination of elevated inflation and tighter financing markets clearly is impacting the supply of new real estate product, which over time should benefit both the performance and value of in-place assets. With that somewhat lengthy backdrop in mind, we continue to take a cautious approach to capital deployment on behalf of ARI and are focused on increasing liquidity through expanding existing financing relationships, putting new facilities in place, and selectively selling loans.

As I previously mentioned, higher floating rate base rates position ARI to comfortably cover its quarterly dividend, while building more financial flexibility into the balance sheet. During the quarter, ARI finalized a new $300 million asset-backed facility with Banco Santander as well as $170 million revolving credit facility led by Bank of America. Despite elevated attention to the pullback in real estate lending by regional banks, ARI’s keys secured lending counterparties very much remain open for business and are continuing to provide additional financing for ARI’s assets. These financial institutions have been the beneficiaries that have been inflow of deposits over the last month and remain committed to commercial real estate lending.

Furthermore, ARI has not had any margin calls or requests for deleveraging from any of its counterparties since the failure of Silicon Valley Bank. Another avenue for both generating liquidity and reducing certain exposures for ARI has been to opportunistically sell loans. During the quarter, ARI sold three loans and a portion of another loan, all secured by European properties with aggregate commitments of approximately $237 million, $141 million of which was previously was already funded to another Apollo manage entity at 99% of par. In addition to reducing ARI’s European exposure, these sales also reduced future funding obligations of approximately $100 million. Shifting to the portfolio, ARI remains focused on proactive asset management and working with borrowers on paydowns and extensions were appropriate.

As a reminder, ARI’s borrowers are generally comprised of sophisticated, well capitalized real estate operators who typically have significant equity invested in the underlying properties. ARI had several office loans either partially or fully repay during the quarter, and overall office exposure stood at only 18% of the loan portfolio at quarter-end. More than half of ARI’s current loan exposure is in Europe where there are higher rates of office occupancy and work-from-home is having less of an impact on office usage. The two largest U.S. office loans in the portfolio have capital subordinate to ARI, and in the case of the Long Island City office loan, ARI received a partial paydown from the subordinate capital provider during the quarter in exchange for an extension intern.

With respect to the balance of ARI’s near term maturities, we are in dialogue with all borrowers and expect full or partial repayment on these loans. Many of the loans coming due this year are secured by hotel assets that have performed their underwritten expectations. ARI recently received full repayment on one such hotel totaling $60 million. Let me also clarify something I just said, which is, in any instance where we expect to get a partial paydown, we expect it to be a negotiated transaction where someone is partially paying us down and further committing to the asset in exchange for additional time on their loan. As we look ahead to the remainder of 2023, ARI is well-positioned on multiple fronts. The portfolio continues to distribute stable distributable earnings even while maintaining excess liquidity on the balance sheet.

While ARI’s transaction volume is expected to slow this year, Apollo remains active in the commercial real estate lending market on behalf of other managed capital providing ARI insight into market transaction activity and pricing. Continued proactive steps have been taken to strengthen the balance sheet and diversify funding sources and ARI’s only near-term corporate maturity is the $223 million of convertible notes coming due during the fourth quarter of this year, which we have already indicated we are prepared to pay off in cash as part of our overall forecast model for the year. Before I turn the call over to Anastasia, it is worth highlighting that at ARI’s current quarterly dividend run rate of $0.35 per share, the company is paying common stock holders of 15% plus annualized dividend yield coming off a quarter in which ARI earned $0.51 per share while trading at approximately 60% of book value with earnings supported by a portfolio consisting of 99% floating rate predominantly senior loans.

With that, I will turn the call over to Anastasia to review ARI’s financial results for the quarter.

Anastasia Mironova: Thank you, Stuart and good morning everyone. ARI produced strong financial results in Q1 with distributable earnings prior to net realized loss on investments and realized gain on extinguishment of debt of $74 million or $0.51 per share. GAAP net income available to common stockholders was $46 million or $0.32 per diluted share of common stock. The drivers for the delta that were net income and distributable earnings prior to net realized loss and investments and realized gain on extinguishment of debt includes Fed realized events, the increase in our general CECL reserve, equity based compensation expense, unrealized loss on the interest rate cap, and depreciation on real estate owned, all of which represent add backs for distributable earnings and each contributed about $0.03 per share.

It is worth noting that depreciation expense for this quarter includes ketchup depreciation on our DC hotel for the period in which the hotel was classified as real estate owned held for sale up to the point when it was requested back to real estate owned held for investment. Additionally, distributable earnings include the forward points benefit from our foreign currency contract. As a reminder, we hedge our exposure to foreign currency risk on a net equity basis by entering into forward currency contracts for all foreign currency nominated transactions at closing. Forward point impact during the quarter represented $5.6 million or additional $0.04 per share of benefit for our distributable earnings. Outside of the $0.02 per share of forward points associated with then widen of the hedges related to the European loan sales that Stuart discussed, there were no one-time event included in our distributable earnings this quarter.

However, I want to highlight that ARI currently has an interest rate cap in place for our 2026 term loan B, which is set to expire in the second quarter of this year. The cap had flat-lined the rate of the term loan B at 3.5%, fixing the base rate at three quarters of a percent. Upon expiration in June of this year, it has anticipated that ARI’s interest expense will increase by approximately $20 million on an annualized basis based upon the forward curves through the end of the year. Even with the expiration of the cap, ARI still will comfortably cover the common stock dividend this year. Portfolio credit was stable this quarter with no additional asset specific CECL reserve taken. ARI recognized that $4.8 million loss in connection with the foreclosure and the loan secured by a hotel asset located in Atlanta, Georgia.

The hotel is now carried on our balance sheet on the real estate owned at a basis of $75 million. We currently are exploring several options for the hotel, including a potential sale. I would also like to point out that our two hotel properties, which are now both classified as real estate owned held for investment, are projected to generate meaningful positive cash flow for the remainder of the year, which would further benefit our distributable earnings. During the quarter, there was an increase in the general CECL allowance of $4.4 million, bringing it to 42 basis points of the loan portfolio’s amortized cost basis as of March 31. The increase is attributable to a more conservative macroeconomic outlook, partially offset by the impact of portfolio seasoning as well as loan prepayments and sales.

ARI’s book value per share, excluding general CECL reserves and depreciation, was $15.72 at quarter-end, an increase of about 5% as compared to March 31, 2022. Book value continues to benefit from the company’s earnings in access of the common dividend. With respect to our borrowings, ARI is in compliance with all covenants and continues to maintain strong liquidity bolstered both by proceeds generated from the loan sales, as well as the new facilities Stuart previously mentioned. ARI ended the quarter with $357 million of total liquidity, which was a combination of cash and undrawn capacity on existing facilities. ARI’s debt equity ratio at quarter-end remained constant compared to the previous quarter-end at 2.8. During the quarter, ARI opportunistically repurchase 7 million of our October, 2023 convertible notes at 97% of par generate and return on equity of about 11%.

And with that would like to open the line for questions. Operator, please go ahead.

Q&A Session

Operator: Thank you. Our first question comes from Sarah Barcomb with BTIG. You may proceed.

Sarah Barcomb: Hi, everyone. Thanks for taking the question. So just taking a look at the watchlist. We have several of those maturing over the next few months. Was hoping you could give an update on what it would take for us to see specific reserves there next quarter, and how those sponsors have progressed on their business plans as we approach the maturity dates specifically the retail asset in Ohio and the recently added Chicago office asset as well as the hotel in Vegas? Any update — any specific updates there you can speak to?

Stuart Rothstein: Yeah. I’ll probably take them in reverse order, Sarah. So the retail asset in Las Vegas where we’ve got a $20 million position outstanding, the asset is actually in the market to be refinanced at this point in time. As I think you’ve heard me and others on their earnings calls say, hospitality is performing quite well today. We’ve spoken to both the borrower as well as received a fair bit of information from the brokerage firm handling the refinancing and sitting here today, the expectation is that we’ll be paid off with a refinancing. With respect to the Chicago office building, the asset is approximately 85% leased today. It’s a sort of a mid to high single digit debt yield on our basis. The sponsor has been feeding the property to date either through cash injections or guarantees.

We expect though it’s not done yet, that they will continue to support the asset and we’ll probably play for time. There is also $20 million of preferred equity in between our loan and the equity holder. So we think between both the sponsorship and the press position, we expect there’ll be some sort of negotiated extension of that loan that gets us comfortable with respect to the asset continuing to be supported. And then in Ohio, which is the asset commonly referred to as Liberty Center. The good news is performance continues to improve. Movie theater is doing better, continuing to recover from the pandemic impact on movie theaters. Occupancy is trending up overall. There’s a couple things on the margin in terms of creating more density vis-a-vis a potential additional hotel parcel, as well as additional multi-family density at the asset that we continue to work through the planning process on.

So I would say overall the asset is trending positively. We feel very comfortable with where we’ve got our loan position marked after allowance. And I would say if positive performance continues, they’ll be an extension this year, but would hope to seek some sort of a exit for the asset potentially as early as the — early part of next year.

Sarah Barcomb: Great. Thank you. And just one more for me. So this morning, on the equity REIT side, we saw one company cut their dividend and it’s something that’s come up a lot on calls so far this quarter. From the seat of a mortgage REIT, can you sort of talk about — can you clarify for investors how you guys think about 15% yields right now, how you think about where you stand with the dividend at those yields? And maybe talk about buying back stock, or how do you balance that sort of return profile given you’re still putting out strong dividend coverage. And maybe just clarify how that’s different for a mortgage REIT versus an equity REIT in terms of the dividend yield?

Stuart Rothstein: Yeah. That’s a great question. And I think your question sort of alludes to the fact that obviously as a mortgage REIT versus an equity REIT, there’s a lot less tax benefit that we get most notably from depreciation because, rarely if ever do we own assets that we actually own a couple now. As my colleagues on the phone with me know, it pains me that we’re at a 15% dividend yield this year. That being said, as we think about the dividend, I would say we are at a point now just given how much higher floating rates have contributed to earnings. That I would say that dividend at this point is really about making sure we distribute all of our taxable income. And at this point, I would say there’s not a lot of the wiggle room is be taxable income to do anything with the dividend.

And if anything, if things broke correctly, we might even be faced the opposite situation where taxable income requires a little bit more from a dividend perspective, though not ready to commit to that yet, I think vis-a-vis capital structure. We have $170 million share repurchase plan in place. We were an active repurchaser of our shares during the pandemic. You heard Anastasia refer to the fact that we did buyback some convertible notes where we — when they got to a price that they — we thought they made sense for us. And we also coming out of our most recent Board meeting, have authority to do some other things in the other public parts of our capital structure to buyback if we think it makes economic sense. And you should certainly — you certainly infer that given my comments on building up liquidity within the ARI balance sheet, I would say one of the things we are certainly thinking about discussing and debating is the notion of how much of that liquidity we want to use just for what we perceive to be very attractive ROE investments within our own capital structure versus doing the next marginal loan in the market.

So very much top of mind right now.

Sarah Barcomb: Thank you.

Stuart Rothstein: Sure.

Operator: Thank you. Our next question comes from Richard Shane with JP Morgan. You may proceed.

Richard Shane: Thanks guys for taking my questions this morning.

Stuart Rothstein: Sure.

Richard Shane: Look, there’s a huge disconnect here, your CECL reserves 42 basis points, I think, is what you said. We calculated slightly differently. Implicitly, the market is pricing in on a levered basis, about a 10% cumulative loss rate. What’s the difference? And ultimately — and this really reverts to Sarah’s question from before. If the market — if you guys saw an investment in the world where you thought the loss rate was going to be 45 basis points, the market was pricing at 10 points, and you could get a 15% yield on that investment wouldn’t you make it all day long, which is a way of saying, why not be even more aggressive on the buyback?

Stuart Rothstein: I think it’s a great question, Rick. I think a couple of comments on that. I’d say one thing we’re always mindful of is our covenants and leverage, which means if we’re shrinking the equity side of the book, we need to be mindful of what’s happening on the liability side as well, because we can’t put ourselves in a box vis-a-vis economic flexibility. So it’s something we debate often. I think in terms of what we typically trade on a daily basis, there are limitations in terms of how much we could actually buy back. At a moment in time, to be fair. But as I said to fair, we’ve got the capacity to do it. It’s certainly very much on our minds as we think about what to do with our capital. And then there’s also a timing component to it.

And while I actually think where things are trading across the sector, not just for ARI, doesn’t make sense to what I’m seeing in the market. I’m not sure what actually causes that to change. And I would say as a potential buyer of my stock, if I’m going to buy it, I want to make sure I’m an intelligent buyer of it and buy it at the right price. But everything you say is very much a part of how we’re thinking about things internally.

Richard Shane: Stuart, thank you so much.

Stuart Rothstein: Sure.

Operator: Thank you. Our next question comes from Jade Rahmani with KBW. You may proceed.

Jade Rahmani: Thank you. Well, I just thought I’d follow up on the last framework, because I look at it a little bit differently. If we look at the historical spread at which the mortgage REITs trade relative to treasuries, it tends to be around 650 to 750 basis points. And then you’re adding a little bit of cushion given an uncertainty premium right now. So that would be 11%, 12%, maybe 13% dividend yields. Certainly, if these mortgage REITs issued preferreds, they could be in the 9%, 10% range. So the common stock dividend should be higher. Just extrapolating that versus ROEs in the 9%. You’re already at a discount to book value, 85% of book value, 90%. And then the companies are leveraged. And then they also have liquidity needs if they are going to have non-performing loans. So I think the implied losses are more like 4%, which might be extreme considering 65%, 70% LTVs. But do you disagree with any of that? Curious as to your thoughts.

Stuart Rothstein: Yeah. I’m much more simple in my math, Jade. And I basically look at something that’s got a book value of 1550 that’s trading at 950.So somebody is assuming $6 worth of losses on 145 million shares plus my CECL reserves. So somebody is assuming that my stock is worth $1 billion less than what a book value is. Again, we can debate whether there is something in the middle there, but it just doesn’t — the math doesn’t make sense to me.

Jade Rahmani: Okay. Well, I appreciate that comment. I wanted to ask about 111, West 57 since it is such an outsized position. How are sales pace and pricing trending? I think there’s been some decent comps in the market in terms of magnitude of transactions and what the outlook is there. So curious on that specific asset, if you could give any update.

Stuart Rothstein: Yeah. I think pricing is, I would say, consistent with where we thought pricing would come out when we took our most recent reserve last quarter. I would say there’s about $60 million of sales expected to close in the next month or so, which will go towards paying down both the senior mortgage and the senior most notes on a pro rata basis. Foot traffic is definitely increasing. I would say the — as you talk about pacing the next four months are critical, right, the prime selling season is spring through fall. We’ll know a lot more about pacing over the next four months. I would say what happened in the early part of the year from a pacing perspective was generally consistent with what we expected to happen. But our underwriting assumes things would pick up during the prime selling season. The foot traffic has, we need to see how much of that converts to sell.

Jade Rahmani: And as to the $60 million of sales closing in the next month or so, when were those contracts signed?

Stuart Rothstein: One was signed very recently and one which was a bigger unit was signed last year, and there’s just been a lot of work being done to the unit on a customized basis for the owner.

Jade Rahmani: Thanks so much.

Stuart Rothstein: Sure.

Operator: Thank you. Our next question comes from Steve DeLaney with JMP Securities. You may proceed.

Steve DeLaney: Thanks. Good morning, everyone. Can you hear me?

Stuart Rothstein: Yes. Good morning, Steve.

Steve DeLaney: Thank you. Yeah. The land line is down and from San Francisco, so dialing in on the cell phone, but glad it worked. Stuart, here you loud and clear on the 15% dividend yield. I would mention we are seeing — I’m looking at my sheet here, and I’ve got a couple of brand name sponsored commercial mortgage REITs at 17. So if that makes you feel better, you’ve got some company. You’ve got some company there. I think this — go ahead. I’m sorry. I didn’t mean to cut you off.

Stuart Rothstein: We’re happy for the company. We were just hoping over the year, we all tightened, not all widened together. So I got it.

Steve DeLaney: Yeah. 100%. Well, I do think — we just see where the Fed goes. There’s nothing that will help the group more than lower rates, maybe 2024, there’s some hope for that. This has been an interesting conversation both about capital allocation and targeted return on equity. Given where we are now, 24 company commercial mortgage REIT. I’m wondering if this is like a point of introspection for CEOs and Boards and as to the profile of our target portfolios. In terms of development stage, lending or earlier stage heavy transition versus more stabilized property types, that type of thing. And it may pencil out to 200 or 300 basis point lower yield, but we also have to measure the downside risk. And Jay, there’s a lot of debate out there as to what the ultimate hit to book value could be.

And obviously, people are pricing in some 25%, 30% types of numbers. We’ll see. I’m just curious, if internally, like today, okay, you’ve got some incremental capital to win. The property types that you’re interested today, maybe share with us kind of what looks the most attractive. And are you — is it possible to, in today’s market, to go to maybe lower risk, whether it’s industrial, whatever, a different property profile that would still give you an attractive return versus office versus condo, et cetera. So just curious your big picture thoughts there about investing the next dollar and actually in the portfolio. Thank you.

Stuart Rothstein: No, it’s a great question, Steve. And it’s one we debate on a regular basis. And I think the other thing I inject into the debate, and then I’ll answer your question more specifically is that what we all perceive to your point, as safer today might not be safer tomorrow and just use the simple example of hotel assets, which looked to be arguably the riskiest assets during the pandemic and are performing amazingly well today, and there’s limited supply, et cetera. So I think the notion of what might be safe in the moment is something we wrestle with quite regularly. I think the other thing that is just a reality of the market right now is that capital has not gone away. Yes, there’s — things are being valued differently and priced a little wider, but spreads have probably actually come in over the last three to six months or so.

So I would say there’s nothing from our perspective today, and be very candid that is just the deal of a lifetime. I would say the nice thing is the higher base rates and spreads where they are, you can certainly move more conservative from a risk perspective, but I would define that less about property type and more about what is or isn’t being done to the asset, right? So to your — as your question was whether it’s development or conversion risk versus more traditional asset classes and what are perceived to be better markets, I would say we’re certainly thinking about it from that perspective. I think we’re also spending a lot of time as is always the case, thinking about it both in terms of ultimate sponsorship as well as — as we’ve moved more and more senior from our position, it’s been — I would say, it’s fair to say we’ve been generally pretty happy in most situations where there’s been either press equity or sub debt behind us as we look to get paid off or work through certain assets that might not have hit business plan.

It’s proven remarkably valuable to our franchise to have others behind us as we work through solutions. So not a specific comment on particular asset types, but more a little bit of a flavor of how we’re thinking about it, putting out the next marginal dollar.

Steve DeLaney: Yeah. That’s helpful. And you mentioned debt capital is not going away. As painful as it’s been, this is obviously not the GFC. And I’m just curious if there’s enough blood on the water out there that you’re seeing any sovereign wealth or mega money starting to nibble around, not so much on the debt side, but on the actual equity actually coming in and buying distressed properties. Is there any sign of that happening? Or are we unfortunately not quite cheap enough yet for that–?

Stuart Rothstein: There is capital, and there is a lot of chatter. I would say we’ve yet to see any meaningful transaction activity.

Steve DeLaney: Got it. Well, thank you for the comments and all the best.

Stuart Rothstein: Thanks Steve.

Operator: Thank you. Our next question comes from Stephen Laws with Raymond James. You may proceed.

Stephen Laws: Hi, good morning.

Stuart Rothstein: Morning.

Stephen Laws: Stuart, actually I want to follow-up on Steve’s question and others have asked about buybacks. But I mean, the comment about a lot of peers being at very similar multiples, but I think you’re very familiar with and other parts of Apollo probably borrow and do investments with those. Have you ever looked at buying a basket of common stocks of your peers? I mean, it gives you similar exposure valuation yields. It doesn’t permanently retire your capital. You don’t have to pay a fee to raise it later. It doesn’t change your leverage metrics. We saw a couple of mortgage REITs do that in 2009 after the word valuations were in 2008, but it good REIT income, good REIT assets. It might trigger a taxable gain when you sell it, but that’d be a good problem to have. So just curious about your thoughts on possibly buying some of your peers’ stock.

Stuart Rothstein: It’s a fascinating question. If you actually look back at the pandemic experience while not in the realm of ARI, there were certainly other parts of Apollo that took a opportunistic view with respect to the mortgage REIT space more on the resi side than on the commercial side. But I think your — the premise of your question is accurate. I would say to the extent myself or Scott are involved in those conversations broadly inside Apollo. It’s less be — it’s more being a resource for other potential capital where those sorts of strategies are more mandate as opposed to how we perceive ARI is sort of sticking to its knitting as the lending vehicle. But I think your question is an interesting one.

Stephen Laws: Well, great. Maybe we can discuss it further sometime.

Stuart Rothstein: Sure.

Stephen Laws: And then along those lines, when you think about the tailwind of earnings, the dividend coverage, higher rates, strong portfolio performance, some of which is benefiting from money caps or continue and those type things. But you look at the forward curve, rates could move lower quickly before given the repayments before a lot of your capital resets to higher LIBOR floors is embedded in new originations. You guys have been more active than most of your peers with regards to using swaps and caps and things to lock in return. Have you looked at buying your own floors just to put those in place, not a lot of capital may turn over on a 5% LIBOR world and maybe protect spreads as you look out to where the forward curve may be in 18 months?

Stuart Rothstein: It’s a constant dialogue internally. Obviously, there’s a lot of expertise in the firm around various hedging and swap strategies and either myself or Scott is constantly sort of pressing on that notion about how we should be positioning the books. So I haven’t asked it yet, but it is very much on the radar screen.

Stephen Laws: Great. Appreciate the comments this morning, Stuart.

Stuart Rothstein: Sure. Thanks for the time.

Operator: Thank you. And this concludes the Q&A session. I’d now like to turn the call back over to Mr. Rothstein for any closing remarks.

End of Q&A:

Stuart Rothstein: Thank you all for participating this morning. Obviously, as things have been slow, myself, Hilary, if we could provide perspective or answer questions going forward, always happy to do it. Thanks for the time.

Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.