Apollo Commercial Real Estate Finance Inc (ARI) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Apollo Commercial Real Estate Finance, Inc., second-quarter 2016 earnings conference call. (Operator Instructions)

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 would also like to call to your attention 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. 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.ApolloREIT.com or call us at 212-515-[32]00.

At this time I would like to turn the call over to the Company's Chief Executive Officer, Stuart Rothstein. You have the floor.

Good morning and thank you for joining us on the ARI second-quarter 2016 earnings call. Joining me this morning is Jai Agarwal, our new Chief Financial Officer, who will review ARI's financial results after my remarks.

The second quarter of 2016 was another solid quarter for ARI operationally as we continue to find attractive investment opportunities and produce strong financial results. Our operating earnings per share for the quarter of $0.51 a share represents a 13% increase over the second quarter of 2015. These numbers reflect an adjustment to exclude $1.3 million of transaction expenses associated with our pending acquisition of Apollo Residential Mortgage, Inc., or AMTG, which I will comment on towards the end of my remarks.

During the quarter, the Company closed two first mortgage loans totaling $95 million and funded an additional $64 million from previously closed transactions, bringing year-to-date capital commitments and deployment to just over $500 million. On the financing front, ARI increased the borrowing capacity on our main credit facility with JPMorgan from $600 million to $800 million, which enabled us to fund our incremental investment activity.

Turning to the portfolio, at quarter-end ARI's commercial real estate debt portfolio totaled $2.7 billion, representing 30% growth on a year-over-year basis and generated a leverage weighted average IRR of 13.2%. The weighted average loan-to-value of the portfolio was consistent at 63% and the portfolio remains diversified, both geographically and across property sectors. Notably, for the second quarter in a row our asset mix has shifted to reflect an increase in floating rate first mortgage loans.

As noted in the press release, this quarter ARI recorded a $15 million provision for loan loss against our $55 million first mortgage loan on a multifamily property located in Williston, North Dakota. Just to be clear, at this time the loan is not in default and, as such, our earnings continue to reflect scheduled interest from the loan. That being said, the market has certainly changed from when we made the loan and we thought it was appropriate at this time to be conservative and take a loan-loss reserve against the asset.

As a reminder, the collateral for ARI's loan consists of 330 multifamily units, 36 single-family home rentals and additional land consisting of both finished and unfinished lots. Based on my recent trip to Williston, as well as ongoing dialogue by myself and other members of our team with a variety of contacts that are close to the market, it appears that the economy in Williston has certainly started to recover from the lows experienced during the first few months of this year. With oil north of $40 per barrel, there has been an increase in economic activity that is reflected in the increase in rig count and the number of active wells.

Consistent with the recovering local economy, we have seen an improvement in ARI's collateral with occupancy at approximately 80%, but it's worth noting that rents are still well below original underwriting. We continue to be in active dialogue with the borrower to ensure the best possible outcome for ARI and preserve the Company's capital. We will certainly provide updates on this situation as they become relevant.

Now turning to our CMBS investment. As a reminder, ARI is investing in both legacy AJ bonds and legacy AM bonds with an advertised cost of roughly $357 million and $134 million, respectively. We financed our CMBS investments with two turned out facilities and, as a result, net equity dedicated to our CMBS strategy at June 30 was about $150 million, or roughly 9% of our total equity.

Based on the broker quotes we used to mark the CMBS portfolio at quarter end, the AM bonds have remained essentially flat quarter over quarter, while the marks on the AJ bonds have resulted in an additional $11 million of mark-to-market loss, approximately $0.17 per share. At quarter end the cumulative unrealized mark-to-market loss on the AJs is about $35.7 million, or about $0.55 per share. The market volatility around the AJ bonds is driven by market participants taking varying views on the expected cash flows from each bond, which are ultimately the result of the performance of the loans underlying each bond.

Given the number of loans maturing this year and next, including loans which have been or will be transferred to special servicing, and the differing views about where we are in the US economic cycle, it is not surprising to see a wide range of expectations on underlying asset values, loan-level outcome at maturity, and ultimately bond performance. We continue to monitor our bonds closely and each quarter we conduct multiple scenario analysis for the bonds we own, including detailed loan-by-loan analysis where warranted. Based on our most recent analysis, our current expectation for principal recovery and future bond cash flows is in excess of the assumptions implied by the current marks and we still expect that through final resolution the cash flows received by ARI will be consistent with our updated underwriting.

Lastly, with respect to an update on the AMTG transaction, pricing for the acquisition was determined and the proxy statement was filed with the SEC. We anticipate the proxy statement and prospectus will be mailed to AMTG stockholders starting later today for a special meeting scheduled for August 24, 2016. The final consideration to be paid values AMTG at approximately $13.83 per share of common stock, based upon the closing price of ARI's common shares on July 22, 2016, and AMTG's book value as of the pricing date of July 22, 2016, and includes 0.417 ARI shares of common stock per AMTG share of common stock at approximately $6.86 per share in cash.

As we stated in the announcement release, we do not intend to enter the residential mortgage market. We will sell AMTG's non-agency securities to certain subsidiaries of Athene Holding upon closing. In addition, we intend to sell the remainder of AMTG's investment portfolio and redeploy the capital into commercial real estate debt investments. We are very confident at this time in our ability to deploy the incremental capital as ARI has a robust transaction pipeline and we expect to see more coming our way in coming months.

At this point I would like to turn the call over to Jai, who started as CFO at the beginning of June. Jai comes to Apollo with many years of finance experience in commercial real estate lending and has hit the ground running.

With that, I will turn the call over to Jai.

Thank you, Stuart, and good morning, everyone. It's a pleasure to be on my first ARI call and I look forward to meeting many of you.

For the second quarter of 2016, our operating earnings were $33.40, $0.49 per share. Excluding one-time expenses of approximately $1.3 million associated with the pending merger, operating earnings were $34.7 million, or $0.51 per share. This is a per-share increase of 13% as compared to operating earnings of $26.4 million, or $0.45 per share, for the June 2015 quarter.

GAAP net income for the same period was $4.5 million in 2016, or $0.06 per share, as compared to $22.8 million, or $0.29 per share, in 2015. A consolidation of operating earnings to GAAP net income is available in our earnings release, which is posted in the investor relations section of our website.

GAAP book value at June 30, 2016, declined 2.4% from last quarter to $15.51 a share. This decline was driven by: one, as Stuart mentioned, unrealized loss on our CMBS portfolio, and two, loan-loss provision of $0.22 per share on our North Dakota loan.

Looking ahead to the third quarter, we expect the AMTG transaction to be accretive to book value. At June 30, 85% of the loans in our portfolio had floating interest rates. We anticipate that if LIBOR were to increase 50 basis points, our portfolio would generate an additional $0.07 per year in operating earnings.

With respect to leverage, we ended the quarter with a 1.48 times debt-to-equity ratio. Upon closing of the AMTG transaction, we anticipate paying down our JPMorgan facility.

With respect to the impact of Brexit on our currency exposure, it's important to note that we had hedges in place prior to Brexit and, therefore, the impact to our results was minimal.

Finally, I wanted to highlight our attractive dividend yield. Based on Monday's closing price, ARI stock offers an attractive 11.1% yield. Given the strength of our results to date and our previously-stated goal to establish a consistent quarterly dividend that is covered by operating earnings and meets the REIT distribution requirements, we have confidence in our ability to earn the quarterly dividend in 2016. Our Board will meet again in mid-September to discuss the Q3 dividend and we will make an announcement shortly thereafter.

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

(Operator Instructions) Steve DeLaney, JMP Securities.

Good morning and thanks for taking the question. Stuart, I wondered if you or Scott would be willing to just kind of share with us your thought process when you looked at the loss provision on the North Dakota loan; sort of how you decided to size the amount of a provision to take. I noticed that you did take the LTV, bump it up to 100% from 90% at quarter end. But any thoughts you could share about how you size that would be helpful.

Just to be clear, the LTV was really just -- I think we knew wherever we took it from a value perspective we would just sort of cap it at 100%. The loan still is technically worth $54 million and there are still scenarios where we will get paid our full $54 million, so I wouldn't read much into the move from 90% to 100%.

Stepping back and just trying to figure out what the appropriate loan-loss reserve is, Steve, is really trying to analyze what the actual assets are worth in different scenarios and there's really -- as we looked at it, there's really three assets we are trying to value. There is the existing product, which is 366 units that is actually the leasing momentum has been positive.

But to give you a sense of what's going on in the market today, rents per square foot for multifamily in Williston today are somewhere between $1 and $1.15 a square foot. When we originated this loan -- not that we underwrote based on these numbers, but just to give you a sense. When we originated this loan, rents per square foot in Williston for multifamily were about $3 a square foot.

We are certainly not assuming the market goes back to $3 a square foot, but there's obviously a lot of room between current rents and what they peaked at last time. And I would say right now you are seeing the typical recovery in a market, which is occupancy starts moving up. But until occupancy really starts approaching 90%, you really don't have much of a catalyst to see rents popping much beyond where they are today.

So we looked at the existing assets. We then looked at our lots, both the finished lots and unfinished lots, and I would say the best guide we had in valuing those was that in the last month one of the large oil companies actually auctioned off some excess lots they had in the area. And I thought that was a great market comp and I think a very good data point for us as we try to figure out the value of the unfinished land.

Then using those as the starting point, we really just ran a bunch of different scenarios in terms of hold periods, stabilization, and then, ultimately, exit value based on cap rate, which is obviously a bit of a desktop underwriting based on what we see in other markets. And obviously knowing that Williston will always trade as a discount other markets.

The other thing that factored into our analysis is we can hold -- to the extent we need to foreclose -- and we're not there yet. The loan, as I said, is still not in default; the owner is still actively engaged in dialogue around the property. But to the extent we found ourselves owning this asset at any point in time, we could hold it for a very long time.

It's effectively $40 million -- the capital we have already deployed, we don't need the capital per se. We have other sources of capital, so we could hold this through a cycle. And I will tell you, when you are out there, clearly oil at $25 a barrel was the low point.

There's real activity going on at where we are now, say $40 to $45 a barrel. And I'm not saying we're in this camp, but there are many who would paint a very optimistic scenario for Williston if we start seeing oil again going north of $50 and head towards $60. We try to take a somewhat balanced view and used as many inputs as we possibly could in trying to derive the number.

Thank you, Stuart. That was very detailed and I think paints a good picture for us. What -- is there an interest reserve left on this loan? I know you're engaged with the borrower, but is there a cash interest reserve in place?

There is a reserve in place. It will run probably not to the end of this year, so we are already actively engaged with the borrower. And as I mentioned earlier, to the extent there's something material or relevant that comes out of those calls, we will update as need be.

Okay, great. Just finally on AMTG, you have set the special meeting here for August 24. Should we assume that closing -- if that vote goes as hoped, that closing would occur in a matter of days or a week or so after this special meeting?

Yes, I think high-level it's safe to assume a week later we could get this closed.

Okay, great. And you're going to have $400 million of fresh capital so the obvious question is -- I know at this point you can't make commitments until you get everything closed and have it in hand. But how long would that take you in terms of how many quarters to be able to fully deploy that capital as you see the pipeline of opportunities today?

I think, obviously, we are somewhat in control of that in terms of how aggressive we want to be in getting it out, and you could assume we have already started, while not getting too far out over our skis, engaging in dialogues that we think could be good business. Late third quarter/early fourth quarter to start getting capital deployed.

But I think it's a three- to four-quarter base of capital and part of that depends on opportunity set and where things go in the future. But I think, given what we are seeing right now and given what we know is coming from legacy CMBS deals that need to get addressed one way or the other, I really think the challenge is going to be selectivity on our part as opposed to worrying about opportunities to look at.

Got it, okay. Thank you so much for the color.

Jade Rahmani, KBW.

Thanks. Just wanted to ask or clarify on the North Dakota loan, is that financed on one of your credit facilities since the first mortgage?

It is currently financed today, I would say, at less than 20% leverage and you could assume it will be not financed within the next 30 to 45 days. And when I said less than 20% leverage that was based off of the original $55 million principal.

Okay. And in terms of the current earnings, I assume it's not cash flowing, based on your answer to Steve, but you are basically booking interest income through the interest reserve that you are drawing down?

Well, which effectively is -- we are getting the cash, but, yes, we are drawing from the interest reserve. It is positively cash flowing, but the asset itself is not generating enough free cash flow to cover all the (inaudible). So every month we are getting a mix of both cash flow from the asset as well as from the interest reserve to top up to what they need to cover.

And the rents per square foot you cited, can you give a sense for what the average monthly rent per unit is right now? Is it something like $1,300 a month or --? You can go on the website to just look.

You're not far off, obviously. Each of the units is somewhat different sized, but I would say you are somewhere in the $1,000 to $1,250 a month, depending on the unit.

Okay. Wanted to ask about your UK exposure. The two predevelopment loans, can you provide some more color on that: what kinds of projects those are, the duration, and what you think the impact of Brexit would be on those two loans?

We've got two predevelopment condo deals in London, one which is known as 1 Grosvenor Square is what they would call in London it's a super-prime transaction. It's the former Canadian Embassy in London.

The developer has significant amount of capital invested in that deal. The loan does not mature until Q2/Q3 of next year -- I think it's actually September -- and I think it's too early to know exactly what's going to happen there. But I would say from a (multiple speakers).

That was September of 2017?

This year, I'm sorry. Did I say --? September 2016.

And based on what the developer has tied up in that deal as well as where our basis is relevant to where similar super-prime would trade at, we feel very good about that transaction potential for an extension as they try and figure out how to raise the capital to build it. But I would say we feel very good about that.

And then the other deal we have is also a predevelopment condo transaction known as 48 Cary Street. That actually matured on June 30 and we just executed a 90-day extension on that transaction. And, again, feel very good about our basis and, if anything, have used the 90-day extension to generate some incremental economics for ARI at this point.

Okay. By predevelopment loans these are basically just acquisition loans? So they are looking for (multiple speakers) financing? Both parties are looking for construction financing?

They are looking for construction financing. We maintained very tight controls over what they can physically do to the asset or not do to the asset while our loan is outstanding.

And on the 48 Cary Street situation, they had construction financing lined up before Brexit occurred and now they are just going back through the process again, because obviously the market has shifted somewhat. Though we are fairly confident in their ability to bring capital into the deal.

Is construction financing available right now for condos?

For certain projects, yes.

In London?

Yes.

And the LTVs that are in your slides, are those -- what are those exactly? Is that based on your cost or is that future condo projected sellout values?

It's not based on the sponsor's view of condo sellout value. It's based on appraisal at the time we did the deal and then our discounted view of the appraisal.

But appraisal of the lands or --? What's the appraisal?

No, appraisal of future value as planned.

Okay.

So as condo.

Just the maturities that you've been expecting, the $200 million fully extended maturities 2016; you just cited two of the loans that drive those maturities. I guess what are your expectations for maturities for cash flows this year?

And if we just took that $200 million plus what you anticipate in terms of capital from AMTG, that's quite a lot of capital -- $600 million of capital -- that you need to deploy, which I assume would cause near-term dilution to your earnings.

Again, we are in control of the pace. You are thinking about $600 million relative to -- we deployed $500 million in the first two quarters of this year and we already have future funding embedded in the portfolio.

I would say the only thing I'd say relative to dilution at this point is, given our assumptions on known future funding as well as some things we are working on already, we don't see anything from a dilution perspective that is going to impact our ability to cover the dividend, if that's where you are going with your question. And keep in mind, putting aside merger expenses, we've already over earned the dividend for Q1 and Q2. And, ultimately, we think about the dividend on an annual basis, not on a quarterly basis.

Okay. Just the maturities, so the $200 million, do you think that's still a reasonable expectation? I think you've received about $62 million so far.

Yes, as of now I think that's still a reasonable estimate.

Thanks very much for taking my questions.

Rick Shane, JPMorgan.

Thanks for taking my questions this morning. Just want to talk about Williston a little bit more. I'm sure you are not shocked by that.

The loan at this point has not reached the amortization and you walked through, with Steve and with Jade, sort of the interest coverage through the end of the year with the reserve. Can you help us understand the timeframe for amortization and the implications there?

I'm assuming at this point you are already in discussions about amending some of this. Can you help us understand where that might head?

Just to be clear, the loan -- we already amended the loan once -- I forget whether it was 6 to 9 months ago. Last year sometime when we took in excess collateral through the finished and unfinished lots. And certainly there is no additional -- I wouldn't assume any additional amortization of the loan right now right.

We're just very focused on covering expected interest, which I mentioned cash flow covers partially and then interest reserve covers some of it. And I think I indicated in my response to Steve that the interest reserve certainly won't get the loan to the end of the year based on our operating assumption.

So dialogue has already started with the equity sponsor. Obviously, those discussions can go in many different directions, but I think it's fair to assume that by the time we are talking on our Q3 earnings call, we should have some sort of update in terms of where those conversations seem to be headed, if not sooner.

Stuart, what is your history with this particular sponsor?

It's a very large, well-known sponsor also housed within a large alternative asset manager like Apollo and if you did a Google search you could probably figure out who I'm talking about. So I would say we have many touch points on the real estate side and then I think, broadly speaking, both firms have many touch points.

That being said, they are going to look at this purely economically; we're going to look at it purely economically. The best I could say is that all expectations are it will be a rational and open dialogue that's still unclear where ultimately at the end of the day both parties will decide to be vis-a-vis their respective economic interest.

Got it, that's very helpful. Thank you.

Dan Occhionero, Barclays.

Good morning, just a quick one. Do you guys model more merger costs in Q3 or has most of that gone through Q2?

Most of it is gone through Q1, Q2. I think then you could expect, realistically, another plus or minus couple million dollars in Q3. Look, the way we think about it, at the end of the day, we are buying the AMTG assets at, call it, a 10.75% discount, given the price of [89 spot 25].

The accretion to ARI from doing the deal is really coming twofold. One, it's coming from an equity issuance north of book value and then, two, it's coming from whatever we can recover north of the purchase price we assumed less transaction expenses. A lot of those transaction expenses plus what will incur in Q3 have already run through our P&L and we clearly anticipate recovering the transaction plus someone when we ultimately liquidate the portfolio.

Thank you.

Charles Nabhan, Wells Fargo.

Good morning and thanks for taking my question. The investment shifted towards floating-rate senior mortgages in recent quarters. Just wanted to get a sense for what the pipeline looks like at the current time and if we can anticipate a continuation of that shift, or emphasis, when -- after the AMTG deal is closed and the capital is deployed.

I think it's always tough to predict what exactly it is we will do, because we sort of take things on a deal-by-deal basis. But certainly if you look at the pipeline, it's probably marginally weighted towards senior opportunities versus subordinate opportunities. But I would expect we will continue to be active in both parts of the bucket.

Okay, great. As a follow-up I was wondering if I could comment on what you are seeing in the environment from a competitive standpoint, from a spread standpoint. Not just in the US, but maybe in Europe as well; if you potentially see any opportunities coming out of Brexit, either in the UK or in Europe over the long term.

Look, I think for the US not much has changed, to be honest with you, over the last three months. It's still an active market. There's a lot for everybody to look at. I would say it's no more or no less competitive than it has been over the last, call it, few quarters.

I think everybody is trying to figure out what's going to happen as we move towards the end of the year and the impact of risk retention on the CMBS market. But as someone who sits inside of a shop that is both a lender and then elsewhere within our business we are a borrower, I would say we have still seen a very healthy lending market where there are a lot of transaction activity, a lot for us to look at as a lender. And I think, for us, it all comes down to finding those few interesting transactions where we think we can earn excess return for trying to understand complexity or create a bespoke solution for someone on the borrowing side.

I think with respect to Brexit and Europe -- and obviously the only place we've done business at so far is in the UK -- I think it is possible, though still too early to tell, but I think it is possible that we will see some interesting things come our way as a result of Brexit. I do think there may be some situations where folks who are on a path to financing might see that path as being longer than they originally envisioned, and for those who can move quickly and solve problems for people there is potentially opportunities.

But just to be clear, even with Brexit, there's no dearth of capital looking to pursue opportunities in Europe. And in a world awash in capital, you can only imagine how quickly all of a sudden everybody now pivoted and said, okay, maybe Brexit is an opportunity. So I don't want to overemphasize the opportunity, but we are certainly spending a little bit more time trying to look for unique situations that occurred as a result of Brexit.

Great. Thank you for the color.

Jade, KBW.

Just wanted to ask about the pipeline. Can you give a sense of the types of deals you are looking at? You said that they are weighted towards first mortgages, but are they condo loans? Do they have a construction component? Are there specific property types that you are more inclined towards or geographies?

Also, I think no one asked about 111 West 57th. Was wondering if you could give an update on that project.

It's being built and our loan matures in 2019. They continue to build it and we continue to monitor it, just to make sure there's capital there to continue building it. But as long as they are building it, our loan doesn't mature until 2019, so there is really not much of an update since then.

In terms of the pipeline broadly, look, I think at a high level, if you think what's likely to come our way, I think property type-wise it's office, it's hotel. There's a little bit of retail. There's little bit of condo. It's not to say we will do anything specifically, but that's sort of what's coming our way; where multifamily, generally speaking, there's still more attractive financings away from us.

Geographically speaking, I would say our pipeline, as always, still tends to skew slightly more towards New York and the East Coast, but we have looked at things elsewhere and are continuing to explore further opportunities, both in the Southeast and out West. Probably not a lot in the middle of the country.

I think we are probably spending the most time right now trying to figure out where the market is in certain secondary markets, both for office properties and for hotels, because there's clearly a divergence of view if you look at how capital is acting in terms of what it's buying and what the public markets are saying in terms of value if you look at the underlying REIT stocks. Ultimately everything we do is on the deal-by-deal basis, but I think those are the primary, at a high level, property types we are looking at these days.

Thank you.

Mihir Bhatia, Bank of America.

Thanks for taking my question. Just a real quick question on your -- on the table you guys put in your press release on the fully-levered weighted average underwritten IRR. Noticed it's down, I think it's like 1.3% quarter over quarter, and I was just wondering what's driving that. Are you seeing lower yields in terms of just new loans compared to what's running off, or is there also a cost of funds impact?

No, it's really driven by sort of the constant re-underwriting of the CMBS portfolio. If you think about the CMBS portfolio, as loss assumptions move up and move down, everything you do on the CMBS portfolio is done prospectively. And as the time to maturity shrinks, you have less time to catch up on your perspective.

Accounting -- so really what's reflected in the table is just a decline in our sort of this-point-forward CMBS IRRs. But if you look at the history of the CMBS investment going back to the time we made the investment, the IRRs are still performing pretty consistent with overall underwriting. So that's what's driving the change in the table.

Got it. Then just a quick follow-up on the subordinate loans. Noticed this is like the first time we are seeing debt on there and I think I was a participation sold, so it's a GAAP presentation thing. Is this -- should we be expecting that going forward, that you are looking to be selling more participations in things like that or --? Just wondering what's going on with that (multiple speakers).

No, I think, if anything, you are going to see that amount go down pretty quickly, so I would not expect much change there.

Okay, thank you.

Rick Murray, Midwest Advisors.

Good morning. Recently there has been a fair amount of press and discussion about the changing dynamics in the New York hotel market and some volatility around asset values. Just curious if you could update us on your thoughts on your exposures there. Thank you.

We've got two exposures in New York. One we show as a hotel; it's an asset known as 1568 Broadway. We call it a hotel. I would actually describe it as a mixed-use project. It is a Doubletree Hotel in Times Square that sits above The Palace Theatre.

And if you Google what's going on with The Palace Theatre, Fortress Investments, the sponsor, is actually planning to raze the theater and create a significant amount of street retail underneath the theater fronting I believe it's 47th and Broadway if I have got the address correctly. So we are very comfortable with our exposure there and, ultimately, we've got various corporate and fund-level guarantees backing our loan, so we are fine with that.

Then our other exposure in New York is the Carlton Hotel, which was also a fairly extensive renovation and rebranding of the hotel. So we feel good about both of our exposures. I think a lot of the negative headlines around what's taken place in New York is really very focused on limited service and select service product, where there's been a significant amount of new supply created over the last two or three years.

There's still a lot of hotel possibilities that come in through our pipeline. We continue to be very selective. I think the concerns over what's happening in New York are arguably somewhat overblown in terms of the negative reaction, though the impact of new supply and the slowdown in rent rates and ADRs is real. But I would say right now we feel very comfortable with both our exposures in New York on the hotel side.

Thank you.

Thank you. That now concludes today's question-and-answer session. I would like to turn the call back over to management for closing remarks.

Thank you, operator, and thank you, everybody, for participating.

Ladies and gentlemen, thank you again for your participation in today's conference call. This now concludes the program and you may all disconnect at this time. Everyone, have a great day.