Kelly Kunath: Hi. Thank you for the question. Just a quick one back on Caret, is there a threshold that you feel like you need to cross before the focus kind of goes back to Caret? Maybe it’s stringing together a couple of series of positive quarters in the origination front or something? Thank you.
Jay Sugarman: Yes. I think that is probably the biggest variable right now is when does growth kick back in, and I think that’s a function of external growth in terms of new deals and also just stability in the existing book, UCA. So a couple quarters would do it, but this is a long-term investment. People are trying to center on a growth rate. We’re still relatively new as a company, so putting a couple new strong quarters on the board I think is really what people are waiting for, to be honest.
Kelly Kunath: Thank you.
Operator: Thank you. Our next question is coming from Matthew Howlett with B. Riley. Your line is live.
Matthew Howlett: Hi. Good morning. Thanks for taking my question. So what’s the update on Fitch and their review? I know they reaffirmed a few months ago. And then just remind me again what the interest cost savings could be if you have the dual AA, single A minus?
Brett Asnas: Hey, Matt, it’s Brett. So when we think about our conversations that we’ve had with Fitch over the last couple of years, I think what we’ve outlined for them is that the credit looks materially different than when we’re first rated. Obviously, the asset base today versus early 2021 is doubled. Revenues and net income have doubled. The unencumbered asset base has grown five-fold, right. We have $4 billion of unencumbered assets. I think the big piece of the puzzle was a year ago when we closed the internalization that changed a lot of the governance aspects that they evaluated us by. I think from a liquidity perspective, our revolver is now 3.5 times the size of what it was three years ago. We’ve been able to prove out public and private capital raising in the debt markets we’ve played across the curve.
I think we’ve gotten our cost structure in line. I think we’ve prudently hedged. You take the combination of all that and it feels like we’re a different credit today than we were a few years ago. I think when we ask what is it that we need to do to get there; a lot of its continue to do what you’re doing. We obviously are a newer company in the IT space. Building that track record and building that operating history is important. So they want to continue to see us do that. So we’re having constructive conversations with them and we’re going to continue to push there. I think from an interest cost savings perspective, we obviously have seen some of the flow through from the Moody’s upgrade in the fourth quarter. Even today when you look at the bonds that we just issued back in February, they’re trading 15 to 20 basis points tighter on a spread basis.
So we’ve seen some of the flow through there, but I would expect to see another 20 plus basis points of incremental savings if we get that second A rating. I know it’ll be certainly helpful to both the public and private side, and that remains our objective and we’re going to continue to do what we can to control that aspect for us.
Matthew Howlett: Well, that could be, you said 20 to 30 basis points that could be significant for new 30-year unsecured debt.
Brett Asnas: Absolutely. Yes. As Tim and Jay have spoken about on the origination side, I think the pass through to our customers and being able to provide the best cost of capital for them to be able to get deals over the hump. We want to make the appropriate margins for this business. I think a lot of the hedging that we’ve done will start to flow through as we procure long term debt and pay down our revolver borrowings. But we’re sitting here today and we have ample liquidity, we’re hedged, and at the end of the day we want to make sure all the good work that we’ve been able to exhibit over the last few years to the agencies and creditors, flows through to what we feel is today, great relative value for investors. But we’re going to continue to look to tighten that gap versus other investment grade names.
Matthew Howlett: Great. And then maybe one bigger picture question for you, Jay. When you get to a normalized market, let’s just look out whether it’s a year or two, do you still feel it’s a $1 billion, $1.5 billion in annual originations? And when I run my model, should I still run it? 60% debt, 40% equity? And I guess the question is, over time, given just the low risk that’s in these ground lease, can you take leverage up? It just seems like over time, when I run my leverage, over time will go up, just given the risk adjusted returns here on that asset.
Jay Sugarman: Yes, we certainly built the business to do $1 billion plus a year. We think the market size of the opportunity makes that very, very doable in a normalized market. So, I think that number feels right to us. We’re just not seeing that right now. And that’s a function of, I think the volatility and uncertainty in the market and just the nominal rates relative to cap rates isn’t lining up great in a lot of areas. I still don’t think we’ve changed our mind right now in terms of where we think the right leverage levels are. But this business was meant to scale to a much larger number, and I think that’s really our goal. We’re not anywhere close to what I think the true size and scale of this business should be.
