Great Ajax Corp (AJX) 2019 Q3 法說會逐字稿

Good day, and welcome to the Great Ajax Third Quarter 2019 Financial Results Conference Call and Webcast.

(Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Lawrence Mendelsohn, CEO.

Please go ahead, sir.

Thank you very much.

Thank you, everybody, for joining us on our third quarter investor call.

Before we get started, I want to point everybody to Page 2, the safe harbor disclosure and discussion of forward-looking statements.

And with that, we get started on Page 3. In general, Q3 was another good quarter.

We bought loans from multiple sources, primarily in joint venture structures, which closed in very late September.

We continue to improve the rates in terms of our asset-based financing, including closing our second rated long-term securitized bond structure.

The market value of our assets continues to increase, and we'll see that when we look at loan performance migration later on this call.

And as a result, intrinsic net asset value grew in Q3, and it continues to grow more so in Q4.

I want to give a little kind of high-level business overview before we get into the quarter results on the next page.

It's very important to understand where we get loans from.

You can see from some of the data that our cost basis in loans and the types of loans we buy is different than others.

And our sourcing network is very important to our ability to acquire these loans at the prices we want and the kinds of loans we want.

Our sellers, our banks, originators and funds and the yield curve environment in the last few months has increased supply into our markets as well.

Our manager, it's very important to understand the analytics approach.

We have 11 people in the analytics group that analyzes large amounts of data to determine the target loan characteristics for the loans and also to develop pattern recognition algorithms for choosing what kinds of loans we want, what characteristics they should have, how to price them and also to drive the servicing platform.

Third parties and our joint venture partners rely on our manager's analytics and oversight as a service now.

We own 20% of our manager, and we have a 0 cost basis.

So as a result, our book value does not reflect any value in the manager as we carried it at 0 basis.

Similarly, our affiliated servicer services our loans asset by asset and borrower by borrower.

The servicer's performance has created significant net asset value increases to the loans we own and it's helped bring institutional investors to us as loan purchase partners.

We own 20% of our servicer as well, including warrants.

Since our investment in our servicer, its servicing portfolio has more than doubled during the 18 months we've been invested.

We use moderate mark-to-market leverage, average level -- average leverage, including corporate leverage for the third quarter was 3x and asset-based leverage was 2.7x.

This was approximately 6% lower than the second quarter and 10% lower than first quarter 2019.

On Page 4, we'll have a good discussion about the quarter itself.

We acquired $241 million in UPB through joint ventures.

Unfortunately, they closed in the last week of September, so we only received 4 days of interest from these investments.

So timing does matter in that regard, but $241 million in joint venture investment in loans, $43 million, our share in the joint ventures.

We acquired 3 multi-family rental properties for $16 million and 2 single-tenant triple-net lease commercial properties for another $1.5 million.

The 2 multifamily properties are in -- 2 of the multi-family properties are in Dallas.

One more is in Baltimore, and the 2 triple net lease properties are in Boston.

Net interest income in Q3 2019 increased approximately $700,000 versus Q2 2019 primarily driven by a $1.1 million decrease in interest expense, and that was partially offset by a decrease in loan interest income.

You may remember that we sold loans in the second quarter of 2019, and we didn't materially reinvest the proceeds until late September, as we just discussed at the end of September, and those purchases were primarily investments through joint ventures.

As a result, we had less interest-earning assets on our balance sheet in Q3 than we did in Q2 and therefore, less loan interest income.

If we had purchased asset earlier in the quarter, net interest income would have increased by a materially larger amount.

Another item to keep in mind is that interest income from our portion of joint ventures shows up as income from securities and not loans.

Also, since servicing fees for securities are paid out of the securities that waterfall itself, our interest income for securities is net of servicing fees unlike interest from loans, which is gross of servicing fees.

As a result, as our JVs grow, interest income will grow slow -- interest income will grow slower than if we directly purchase loans by the amount of the servicing fees, and the servicing fee expense will decrease by the corresponding offset.

In Q3 2019, most of our investments were made through joint ventures.

However, since these closed in late September, they had little revenue benefit.

Our overall cost of funds decreased by approximately 20 basis points during the third quarter due to issuance of our rated securitization, Ajax Mortgage Loan Trust 2019-D, as well as from lower interest rates on our repurchase lines of credit.

The advance rate on 2019-D for a AAA through A-rated securities was 81% of UPB with a weighted average coupon of 3.01%.

Our amortized cost in the underlying assets was only 87% of UPB.

So as a result, we effectively received 81/87 leverage at 3.01% fixed rate match funded nonrecourse.

Our amortized -- as a result, we'll get more leverage through the securitization of these loans and our cost of funds versus repurchase facilities, support loans declines by approximately 120 basis points.

Also, as LIBOR has decreased materially, the cost of our repurchase lines of credit have decreased commensurately as well.

Subsequent to September 30, 2019, we put in place an additional repurchase line of credit for our joint venture securities that is approximately 65 basis points cheaper, and we expect our interest costs related to financing joint venture securities to decline as we rotate securities to that facility.

Net income attributable to common stockholders was $7.7 million or $0.39 per share.

We've already discussed the impact of having less interest-earning assets on our balance sheet and as a result of selling loans in the second quarter and not reinvesting until late in September 2019, so a timing difference of receiving proceeds and putting them back to work.

Additionally, the loan sale from second quarter of 2019 triggered a $490,000 incentive fee payable under our management agreement due to the increase in book value that was triggered by the payment of the dividend in September.

The onetime fee is $0.025 a share, $490,000.

If we had reinvested the proceeds in the beginning of the quarter and had no incentive fee or we've had effectively not having sold loans, our per-share income for the third quarter would have been about $0.45.

We continue to have significant cash flow from our loans in our joint venture portfolio as our loans consider -- continue to have very robust payment performance.

And we'll see more about that in a few slides.

And the other thing is, with the decline in rates, prepayment has increased materially as well.

Our average daily cash balance for the quarter was $56 million and we -- and continue to have approximately the same amount of cash on balance sheet because of loan cash flow.

We continue to be primarily RPL reperforming loan driven for our loan portfolio.

At quarter end September, we were 97% reperforming loans.

If you look at property value, you'll see an increase quarter-over-quarter in our REO and rental portfolio.

The REO and rental did not increase because of an increase in REO.

It increased because of an increase in rental assets.

We purchased urban multi-family properties in Dallas and Baltimore and triple net lease properties in Boston.

As our property portfolio grows a bit, we'll see an increase in noninterest income.

REO held for sale, which was -- which results from foreclosures continues to decline.

On Page 6, you can see that we continue to buy lower LTV loans with our overall reperforming loan purchase price of approximately 61.8% of property value and 87% of UPB.

And our NPL portfolio, while purchased NPLs have been declining in absolute dollars invested, our NPL portfolio purchase price to property value is 54.5%.

As you might expect, higher loan-to-value NPLs become REO sooner and lower LTV NPLs become REO later if at ever, as lower LTV NPLs are much more likely to become paying loans.

Our markets keep going.

A couple of things to point out.

We've added to our Dallas and Houston investments as well as our local infrastructure in those markets.

Number two, we're seeing that the new tax law is having material effects on higher-end property values in 4 states more than others, New York, Connecticut, New Jersey and Illinois.

We're definitely seeing a decrease in value differences between the higher end and middle property deciles.

So we're seeing a compacting of the higher end towards the middle, so there's less difference between, what I'll call, decile 6 versus decile 8 or 9 than there used to be.

California continues to represent the largest segment of our loan portfolio, both in residential RPLs as well as in small-balance commercial loans.

Our California assets are primarily Los Angeles, Orange and San Diego counties.

We're seeing consistent payment and performance patterns in these markets, particularly in the urban centers.

We've also seen consistent prepayment patterns, especially for certain borrower characteristic subsets and also prepayment related to tax laws in different states.

One thing I do want to point out given the current events, we have not seen any impact on our California loan portfolio from the current wildfires.

Portfolio migration, this is kind of the most important part to me, is the improved performance of loans once we own them and our servicer starts servicing them.

A lot of that is driven by the analytics of what loans we think will do better, and a lot of it's driven by the way our servicer performs.

And the analytics used by the servicer that our manager produces for it.

Right now, we have -- or at quarter end, we had $1.04 billion of loans that were 12 of 12 in payments or better.

Only $269 million of these were 12 of 12 or better when we bought them.

For the loans that we buy based on our analytics and the way our servicer services the loans, our data suggests that once 1 of our loans gets to be 7 of 7 payments, there's a 93% chance that it's going to be 12 of 12.

The intrinsic value of their loans, as you might imagine, increases materially when we buy them.

If you kind of look at less than 4 payments of $500 million, and those all become -- or overwhelmingly would become 12 of 12, 24 of 24.

The value increases materially on average over our ownership time.

In current markets and is evidenced by a Fannie Mae loan sale today as well as loan sales over the past few months, clean pay 12-month or better loans with LTVs under about 90 trade to yields around 3.50% to 3.60%.

When you think about our loans with an $87 price and an average weighted average coupon of about 4.5%, you can imagine there's a significant amount of built-in value in the migration -- due to the migration of our portfolio.

The other thing that this performance does is, in addition to increasing cash flow and NAV materially, the significant cash flow velocity from these loans also lowers our asset-based financing costs and it increases the securitized bond senior class advance rates as well.

As you can see from our securitization 2019-D that we did in Q3, AAA, AA and A is 81 to -- 81 divided by 87 or over 90% of our cost in terms of A or better advance rate clearly shows this.

Additionally, we're working on another rated securitization currently for Q4.

Subsequent events, we had a very busy late Q3, and it's continued into Q4.

We continue to buy low LTV loans as purchase price to collateral values in the 50s and 60s percent.

We expect the bulk of these identified transactions to close in early December.

We also continue to grow our urban center, small balance commercial properties and triple net lease properties and -- as well.

Our Board, at our most recent Board meeting, declared a $0.32 dividend to be paid on November 26 to common stockholders of record of November 16.

If we turn to the metric slide, there are a couple of things I want to point out on Page 11.

Yield on -- as I mentioned before, yield on debt securities is net of servicing of approximately 75 basis points so -- and relative to underlying cost basis.

Debt securities is how the interest in JVs are presented under GAAP.

As our JVs increase, which we expect them to, the GAAP reporting net of servicing, unlike loan interest income, distorts average asset yield lower and related ratios by the amount of that servicing fee.

So it's important to keep that in mind when you see some small changes in yield, much of it is related to the combination of what goes to joint ventures that is net of servicing fees and what goes to loans that is gross of servicing fees.

We continue to expect the asset level debt cost to decrease even more, both through securitization and the repurchase lines of credit.

You can see it came down from 4.7% to 4.5%, and we would expect that number to come down as well in Q4.

Our leverage ratio with so many loans performing, we're comfortable with a little more asset-based leverage.

However, the loans are paying so much, our leverage actually has declined rather than increased from the cash flow from that leverage.

On Page 13 and 14, our most recent income statement and balance sheet, those are also in our press release.

And with that, I'm happy to take any questions anybody may have.

(Operator Instructions) And our first question will come from Tim Hayes of B. Riley FBR.

My first question, through the first 3 quarters of the year, you've earned $1.06 in taxable income versus the $0.96 of dividends you've paid out.

There's still another quarter to go.

We're almost halfway through.

But based on what you're seeing so far, do you expect taxable income will exceed the annual dividend run rate given where the dividend is now?

And if so, how do you anticipate handling distributions to shareholders?

Sure.

I think we probably do expect taxable -- taxable income to exceed the dividend, the 4-quarter dividend run rate as so far.

I think we do expect that.

I think that our Board will decide later in this quarter.

As to whether to deal with that either in a special dividend or in a dividend increase with a smaller special dividend.

And -- but as of now I think where we expect that the taxable income will exceed the combined dividend, the cumulative 4-quarter dividends.

Okay.

Makes sense.

And appreciate the comments there.

And I think you might have answered this already, but just on taxable income, a bit low this quarter.

It seems like most of that was due to the REO sales and some of those headwinds you mentioned that impacted GAAP results.

And just looking at Slide 10, you noted a little bit of the asset yield compression and kind of explained that.

But just wondering if there were any impacts from interest rate movements or cash flows that impacted taxable income or asset yields in a negative manner.

Not in a negative manner.

Prepayment is good.

The #1 detriment to taxable income is selling REO.

For a nonperforming loan, when you foreclose, you have a taxable gain equal to the gross value of the property minus your tax basis and the gross value excludes all costs related to the REO itself once it becomes an REO, so taxes, insurance, maintenance repairs.

So when you sell the REO, unless you sell it for more than its gross market value plus expenses, right, you will have a tax loss at the time of sale.

So as a result, we had 30 REO sales but only 7 newly created REOs, which meant that we had a 23-property deficit of sales that had tax losses as opposed to 7 that had tax gains because only 7 new ones were created.

So it's really -- that was kind of the biggest driver in taxable income is so many REOs being sold versus new REOs being created.

Now keep in mind that because NPLs are becoming such a smaller percentage of our portfolio, there won't be that much new REO created in our balance sheet.

But on the flip side, we're selling REO so fast, there's only so long that we'll still have REO to even sell.

Right.

Okay.

Got it.

And then just a quick one on the new credit facility.

Is there an interest rate floor on that credit facility or no?

No.

It's a LIBOR plus almost nothing facility versus LIBOR plus 1 something facility -- or, basically, it's a reduction of the spread by 65 basis points versus LIBOR on the new facility for our joint venture securities.

So that'll be -- now as -- so as repo rolls off, we will move them, rotate them over to the new facility, and so that over the course of 12 months, it will be kind of all moved.

But over the course of any month, it'll move kind of a little bit more early than later, but I would expect a good chunk to be moved within the next 2 to 4 months over to the new facility and saves about 65 basis points.

Got you.

And as spot LIBOR moves down, your cost of -- like your cost will continue to move down.

Yes, yes, yes, absolutely.

Yes.

If you just look at LIBOR over the last 3 or 4 months, it's come down pretty significantly.

So our loan facilities have come down -- our repo facility has probably come down by 20 basis points just because of LIBOR movements in the last 3 or 4 months.

But then if you take the joint venture facility and you subtract another 65 basis points, it effectively means that the joint ventures are cheaper, 20 to 30 basis points just because of changes in LIBOR versus, say, late Q2, early Q3 and another 65 basis points from reduction in spread.

Got it.

Okay.

And then just one more for me.

Just wondering what your estimate -- you mentioned that the servicing portfolio for Gregory has doubled over the past 18 months.

Just wondering if you have an estimate for the value of that platform.

And any updated thoughts on how to best maximize its value?

I think the expectation for Gregory is that it's going to continue to drive the revenue side of its servicing platform.

At the margin, its new servicing is very profitable for it.

So its executive committee has become very focused on having it drive revenue over the next kind of 12 to 24 months and increase third-party servicing and joint venture servicing.

And so as a result, if that's accomplished, I would expect its value to increase significantly.

I would say that from an investment perspective now, Great Ajax invested when it bought the equity.

It bought 8% at a $35 million pre-money value and also got warrants for another 12% at different prices, marginally above that, between $39 million and $50 million.

I would guess that market value is probably closer to $50 million than $35 million in its current structure, perhaps a little more based on some interest has been shown by third parties with regard to Gregory.

Our next question comes from Kevin Barker of Piper Jaffray.

So on the outlook for the interest income and the spreads that you're generating right now, obviously, you've seen quite a bit of expansion, and I appreciate the detail you gave to Tim earlier.

When you look out, when -- given the interest rate environment that we see today where we're kind of seeing a stabilization, maybe even like a steepening a bit, at what point do you feel like the spreads will stabilize given the outlook that you see today?

Obviously, LIBOR is starting to stabilize or at least came down quite a bit still here in the fourth quarter.

At what point do you feel like the asset yields and the liabilities will start to stabilize just given the current rate outlook?

I think we would expect our cost of funds to continue to decline.

I think that the lenders themselves are -- we've had a lot of lenders, prospective lenders reach out to us and propose new lines of credit on the loan repo side that are cheaper than our current ones and more aggressive.

I think banks, certainly the larger ones, are looking for some spread income and they're -- and also that they can get good capital treatment.

So we're seeing banks making pretty aggressive so -- pretty aggressive proposals to us.

The -- so I would anticipate that our cost of funds will continue coming down.

Asset yields, a lot -- there's a lot of seasonality to where new assets -- where assets are -- prices assets are sold at.

There's seasonality to supply, but there's also seasonality to demand.

We see, not for someone like us but in -- for other types of buyers of assets, there's a lot of seasonality to when they want to buy things and when they don't want to buy things.

So we do see a little bit difference in price.

We also see that very large pools, like $500 million plus sell for much higher prices than, say, $50 million does or $20 million does.

And we're aggregators, and that's still a pretty inconvenient business for most competitors that we have.

But it's kind of our nuts and bolts of the way we operate.

So we haven't seen any material impact in yield other than so many loans are paying.

It extends duration a bit.

But cash flow is off the charts as a result.

The -- what I will say is we're going to have to, over the next -- if prices stay where they are for clean pay kind of 12- and 24-month loans, we're going to continue to refinance in rated securitizations very cheaply, but also, I think our Board would want to take advantage of the kind of the 10% a year exception as to selling -- 10% of tax basis per year of selling assets.

Okay.

So are you thinking that maybe the asset yields start to flatten out maybe early next year or as it...

If you look at our asset yields, our loan yields have basically kind of been pretty stable somewhere between 8.5% and 8.75% for most of the last 12 months.

And our security and our securities yields have been around just kind of 6.5% to 7%.

And keep in mind that, that's net of servicing, so it's really about 7.75%.

I would anticipate that if the -- if there's no increase in default, which, in a weird way, would actually increase yields because of a shortened duration, it would reduce total cash flow, but it would increase rate of return.

It would increase unlevered yield.

Absent this material increase in default, you would probably see a small decrease in yields.

But it would be more than offset by the decrease in interest expense.

I mean that you're seeing coming in lumps.

Got it.

Okay.

And then as we look forward with some of the profile that you see out there, I mean, across the board, delinquency rates have come down quite a bit.

But we are seeing some instances where there are some delinquency rates picking up in certain pockets.

Are you seeing any more opportunities for buying assets right now (inaudible) fourth quarter?

Yes.

It's interesting.

One of the things we are seeing is that bank customers of ours are loan sellers as a way of getting income in a flat curve environment.

So we're seeing some of that.

We're seeing some funds, particularly NPL buying funds that have loans that have become performing, looking to shorten duration of the portfolio, return money and earn carry.

So they're sellers of loans once they start to make payments because they don't want the longer duration.

So we're seeing that.

And supply the -- between the banks and the agencies and funds and also originators, one of the things we were in a beneficiary in a small way so far in Q4 and very late Q3 was when rates rallied like crazy and mortgage rates dropped and MSR values went down.

There's a lot of small originators who finance MSRs, and MSRs are not that liquid.

So they had to sell loans rather than MSRs to pay down MSR financing.

Our next question will come from Scott Valentin of Compass Point.

With regard to the JVs, as you do more JVs going forward, how should we think about retention rates on those?

Is it -- you plan to retain about 20% of the JV?

Or how should we think about that as a model...

Yes.

We can -- depending on the JV, we can retain anywhere between 10% and 50%, and the choice is up to us.

We generally retain about 20% or 25%.

Now keep in mind, we earn money other ways because the manager gets a fee from the JV partner and the servicer gets a servicing fee, and we own 20% of each of the manager and the servicer.

And to the extent that those entities, they -- the valuations and those change over time and also some income we pick up from them from our ownership, we get some -- I don't want to call it invisible benefit, but we certainly get more benefit than just the rate of return on the assets inside the JV.

Okay.

Okay.

And then in terms of JV partners, I know you said you've been approached in the past by multiple entities.

I think BlackRock and DoubleLine are the 2 main entities right now.

Is -- other plans to expand that?

And would that help (inaudible) Gregory?

Yes.

We have 3 others who've joined in with us as well.

And I wish we could find enough loans to satisfy all the JV demand.

How about that?

Okay.

And in terms of infrastructures and infrastructure constraints, as you mentioned, you got new partners and you have -- the machine has to crank up more product.

Is there no infrastructure constraints that you have right now?

There's no constraints, and the good thing is that the constraints wouldn't be our expense.

It would be the expenses of the manager and the servicer.

That being said, we own 20% of each.

But they've spent a lot of money over the years on analytics and technology, and I would expect that to continue even more so on the servicing side given the -- how many loans they get to perform and a way of even further streamlining that.

So there's so much analytics in predicting what a borrower's going to do that the servicer doesn't have to waste time working on things that the borrower is not going to do.

So a lot of these kind of pattern recognition models that the analytics groups have built really help the servicer in terms of its marginal cost.

But that being said, as something gets bigger and bigger and bigger, we still -- you get things that come up that you haven't thought about until they actually confront you.

So I'm sure there'll be some one-off things here and there.

But for the most part, I think they have -- the servicer especially has a pretty good grand master plan.

Okay.

And then one final question.

You seem more active in the small balance commercial real estate/multifamily area.

Is that conscious in your part, an effort to -- or you're seeing better deals there than what you're seeing elsewhere?

Well, I don't want to say they're better deals.

We, in our small balance commercial loan business, have many times made a bridge loan to somebody who repositions the property.

And after they pay us off, we say, "Holy cow, we should have bought the property instead of made the bridge loan." And so as a result, we buy some properties that we would have been willing to make the bridge loan on and provide repositioning money for.

The other thing is we also -- we like the triple net lease space.

We have a relationship with a national credit tenant who's expanding in a lot of our target markets.

And as they buy up businesses in those markets, we buy the real estate and they sign an 8% triple net lease with us because they don't want to own the real estate.

They want to be operators.

And so we expect that, that portfolio would -- will grow as well, especially in today's market where you can finance triple net lease -- credit triple -- credit tenant triple net leases.

(Operator Instructions) Our next question will come from Stephen Laws of Raymond James.

You covered a good bit in the Q&A already, but I wanted to follow up on Scott's last question on the rental property portfolio.

How big can that get?

How should we think about that going forward?

I mean, clearly, doubled, I guess, almost doubled with the 3Q investments.

But kind of what's your forecast there or the pipeline of potential assets you'll add to that portfolio in the next -- any time frame you want, 12 months?

Sure.

The triple net lease -- let me kind of split them into the 2 buckets.

The triple net lease portfolio, those -- individually, those transactions are anywhere between about $600,000 and about $1.2 million.

And we would definitely like to expand that program materially.

That being said, realistically, for that type of asset that we're doing with the kind of tenants we do it with, it realistically can never be more than $150 million or $200 million.

And that's over 3 years, not over 1 year, okay?

The urban small multifamily and mixed use that we think is -- where our data suggest these markets are changing, even though when you walk down the street, you may not know that, that's something that has a lot of seasonality to it.

You don't see those properties sell in December for example.

So I wouldn't expect as much in Q3 for us as we did in Q -- I'm sorry, in Q4 for us as we did in Q3 for us on the total purchase price of multifamily.

The -- but over time, that could be a pretty substantial business, and it's a pretty good cash flowing business.

And it ultimately could be bigger than the triple net lease, particularly, right now we are solely focused on the markets that we are already involved in, in our residential business.

But to the extent that you expanded that to certain other markets that data suggests are attractive for it, we could expand that.

But that'll be, I think, more so in 2020 and '21 than in 2019.

Great.

To follow up on the seasonality and maybe switch to RPL, NPL side.

I know you commented on some transactions expected to close in early December.

But as we think about the holidays in the back half of the quarter, which way does it work?

Did things slow down just given fewer workdays?

Or does it go the other way as people would rather not carry RPLs or NPLs on their balance sheet over the year-end and they look to sell those?

Kind of what kind of seasonality do you expect in that business?

Sure.

We see the funds tend to be sellers earlier in the fourth quarter.

And perhaps, it's determined by the date their carry is determined or something else as opposed to year-end.

We find that banks are very year-end conscious but don't want to be there the last 2 weeks of December.

So kind of December 15 is year-end for them.

So we -- and -- but on the flip side, the very small banks, so for the days left to -- before December 31, the things close is directly proportional to the size of the bank.

So a small bank is a fewer number of days before year-end, and a big bank is a larger number of days before year-end.

Great.

That's helpful.

And lastly, it sounds like the opportunities seem pretty attractive across multiple business lines.

It also seems like the JVs gets you nice kind of embedded leverage given what you're retaining there.

To that point, can you talk about capital needs?

You've got $60 million of cash.

I'm sure there's other assets, liquidity options you could look at.

How do you think about your capital needs from here, especially with the stock right at book value or at least very close after the appreciation we've seen here recently?

Sure.

Well, kind of one fundamental theme that we have, which is the most important thing, is not for us to be bigger.

The most important thing is for our balance sheet to be more valuable than it was the quarter before each quarter so that we just keep growing kind of the NAV of the underlying business.

We're believers in capital on what I'll call just-in-time basis so that if you don't have a purpose to deploy the capital, there's no reason to go raise it.

It's one of those things where I know they teach in business school having been a professor years and years and years ago that kind of price to book is what matters.

But there's one more calculation, which is what are you going to do with the money.

So that if you issued stock at 1.5x book and you invested 0, it's still dilutive.

So for us, if we were to raise capital, it would be because there's an imminent transaction closing that we think is a good use of money as opposed to warehousing cash.

This concludes our question-and-answer session.

I would like to turn the conference back over to Lawrence Mendelsohn for any closing remarks.

Please go ahead, sir.

Thank you very much, everyone, for joining us on our third quarter 2019 investor call.

We're happy to take other questions over the next whatever period of time as you have any, and feel free to reach out to us, and we love talking about our business.

And with that, thanks again and hope everybody has a good rest of the week.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.