Blackstone Mortgage Trust Inc (BXMT) 2014 Q2 法說會逐字稿

Welcome to the Blackstone Mortgage Trust Second Quarter 2014 Investor call. I would now like to turn the conference over to Weston Tucker, head of investor relations. Please proceed.

Great. Thanks, [Jasmine]. Good morning and welcome to Blackstone Mortgage Trust's Second Quarter 2014 conference call. I'm joined today by Steve Plavin, President and CEO; Mike Nash, Executive Chairman; Paul Quinlan, CFO; Doug Armer, Treasurer and Head of Capital Markets; and Tony Marone, Principal Accounting Officer.

Last night, we filed our 10Q report and issued a press release with a presentation of our results, which hopefully you've all had some time to review. I'd like to remind everyone that today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Actual results may differ materially.

For a discussion of some of the risks that could affect a company's results, please see the risk factor section of our Form 10K. We do not undertake any duty to update forward-looking statements.

We will refer to non-GAAP measures on this call. For reconciliations to GAAP measures, you should refer to the press release and to our Form 10Q filing, each of which have been posted on our website and have been filed with the SEC.

This audio cast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without consent. So a quick recap of our results before I turn things over to Steve, we reported core earnings per share, 43 cents for the second quarter, which was flat compared to the first quarter, as a sharp sequential increase in net interest income offset the impact of additional shares from our April equity offering.

A few weeks ago, we paid a dividend of 48 cents per share with respect to the second quarter. If you have any additional questions following today's call, you can reach out to me or Doug directly. With that, I will now turn the call over to Steve.

Thanks, Weston, and good morning, everyone. I'm very pleased with our strong performance in the first half of the year and our momentum heading into the second half. Our core loan origination business exceeded our expectations for the quarter.

We closed 11 loans representing total commitments of $1.1 billion. Including loans and closing, we have now originated 56 loans, more than $5 billion of total commitments since our relaunch in May of last year.

We have established a diverse senior mortgage portfolio comprised mainly of office, hotel and multifamily loans with over 60 percent of the collateral located in major markets: New York, California and the U.K.

At the time of our re-IPO, we emphasized that there was a significant embedded value in our legacy portfolio that wasn't fully reflected in our financials. This quarter, much of that value was delivered to shareholders with 27 cents per share of net income for promote payments related to [Sutapi], a legacy opportunistic debt and equity fund.

This realization came sooner than anticipated and is a significant milestone in terms of the wind down of the legacy business and the redeployment of legacy capital into our loan origination business.

We are also able to retain most of this income in book value in a quarter end, VXMP's book value per share stood at 25.51, up 88 cents per share. We have discussed on previous calls the anticipated growth of our origination business in Europe.

In Europe, the recovery and property values and cash flows are in an earlier stage than in the U.S. and the financing markets are less efficient. These credit conditions are very favorable for our lending business.

In the more opportunistic environment, there's less regular way transaction activity and related borrower demand. As a result, market presence, local knowledge and the ability to find opportunities off the run are critical to succeed.

Like in the U.S., our European lending platform benefits greatly from Blackstone's extensive real estate ownership and very active opportunistic and core plus equity investment initiatives in the region.

This market-leading position is tremendously beneficial in sourcing and evaluating perspective loans. Our experience London-based STAT team led by [Rob Harper] has made great strides in developing the European senior mortgage business for BXMT.

During the quarter, we closed 3 loans totaling $424 million in Europe including retail and hotel transactions in the U.K. and our first Euro-denominated loan, which is secured by an office portfolio in the Netherlands.

This activity drove the European loans in our portfolio to 16 percent of the total as compared to 4 percent at the end of Q1. Even with the significant growth in our U.S. and European loan portfolios, we have maintained our levered returns and we've strictly adhered to our primary mandate of keeping our investments in what we consider to be traditional senior mortgage risk.

Our portfolio LTV remained at 63 percent in line with prior quarters. To further support the growth of our loan origination business, in April, we issued $255 million of equity. We also significantly extended our debt capacity during the quarter including the addition of a $500 million credit facility.

Our total debt capacity now stands at nearly $4 billion including our multi-currency credit facilities in asset specific financings. Now, we continue to work on developing additional dollar, Pound and Euro-denominated credit, including our ongoing analysis of CLO and term loan options.

We are seeing increased competition in certain segments of our market. The reemergence of pooled floating rate CMBS has compressed lending spreads for fully funded loans on more stable properties.

For the majority of our business, transitional lending against assets not yet fully leased or with post-close and capital needs, the CMBS originators are not a factor. To address spread compression resulting from increased competition and to maintain the lowest possible cost of debt capital, we continue to actively manage our funding costs.

During the quarter, we negotiated material pricing improvements for new credit facility borrowings and extended term with our initial credit facility providers. Overall, we are excited about the prospects of the business as we have ever been.

I believe that we have the best brand in the business, as well as, the strongest platform and the most talented team. We remain committed to protecting and growing our investment capital through our strategy of disciplined growth and are focused on creating a LIBOR indexed low volatility dividend.

And with that, I'd like to turn the call over to Paul to review our financial results.

Thank you, Steve, and good morning, everyone. Our financial results demonstrate the continued strong execution of our business plan on a number of fronts. In our latest E segment, 2Q marked the first realization of carried interest income in Sutape, the C.T. opportunity fund in which BXMT has a 55 percent promote interest.

The realization of $13 million of net income from the Sutape promote contributed to 70 cents of GAAP net income this quarter. As Steve mentioned, this was a significant step in winding down the C.T. legacy portfolio.

There is still earnings upside in selected legacy assets reflected in the unrealized markup in C.T. legacy partners, which contributed $3 million to income in the quarter, as well as, $8 million or 16 cents per share of unrecognized net promote income in Sutape; however, the legacy segment now represents only 3 percent of our capitalization, down from 9 percent in last year's second quarter.

So 97 percent of our capital is dedicated to our core loan origination business. Our core earnings in the quarter was Weston mentioned were 43 cents per share, a result of a 27 percent sequential increase in net interest income as our origination engine drove strong volume through the first half of the year.

This increase fully offset the downward pressure on core earnings per share from our accretive equity offering in April reinforcing the disciplined approach we take to sizing our offerings. Excluding the impact of the stock issuance, our core earnings would've been 52 cents per share.

Expenses included in core earnings were up $1.1 million during the quarter due to the increase in management fees associated with the April issuance as other G&A remained approximately flat at $1.1 million.

Net loan fundings in the quarter were $828 million including $173 million of repayments. We focus on this metric from an earnings perspective as net fundings represent an in-place growth driver to net interest income.

Net fundings are also important from a capital management perspective as we consider future capital means. Loans closed during the quarter carried an all in yield of LIBOR plus 4.8 percent. This was slightly lower than our overall portfolio yield; however, ROIs remained consistent due to lower financing costs for new originations.

On the liability front, we tapped asset specific financing sources for three transactions during the quarter. We sold two senior participations for $371 million and closed on a $194 million asset-specific repo agreement.

This is an important alternative funding source for our business providing additional capacity in our credit facilities. These agreements are typically fully non-recourse and also provide diverse funding terms and pricing directly linked to the underlying financed assets.

Our overall leveraged level at quarter end was approximately two times with total liquidity of more than $350 million representing potential leverage origination and funding capacity of approximately $1.3 billion.

We paid a dividend of 48 cents in the quarter representing a 7.5 percent yield on book value. We think shareholders benefit from the stability of the cash we generate from the BXMT platform in the form of senior loans on the asset side of our balance sheet, coupled with highly structured, low-cost leverage to generate a gross ROI of LIBOR plus 12.7 percent.

We also think there are several sources of upside from the platform. Most imminently from the continued growth in seizing of the business in both the U.S. and Europe, in the medium-term from rising rates as our floating rate portfolio would generate a 10 percent plus increase in earnings from a 100 basis point increase in LIBOR, and in the long-term from Blackstone sponsorship and continued focus on growing the business to maximize long-term returns for shareholders.

And with that, I will ask Jasmine to open the call to questions.

Ladies and gentlemen, if you have a question, please press star one on your phone. Again, for any questions, please press star one. If your question has been answered or you would like to withdraw your question, simply press star two.

And your first question comes from the line of [Aaron Sugonovich] with Evercore. Please proceed.

It was a very impressive origination quarter. I was wondering if you could talk about maybe the timing of the closings. Were they a little bit later in the quarter and then generally just the competition you're seeing for the -- you know, the transitional commercial real estate asset loan that you're -- that you're providing?

Hi, Aaron. How are you? It's Paul. I'll take the first piece of the question and then hand it off to Steve. So the average origination for the quarter closed approximately two-thirds of the way through the quarter.

Aaron, I'll take the second half. I think, you know, we're seeing increased competition in the -- in the segment, but we still find that we're on a competitive basis still letting, I think, our fair share or more than our fair share, you know?

There's a new CMBS initiative out there that offer floaters, but it's only impacting us slightly as I mentioned in my prepared remarks as it relates to some of the more stabilized assets that we've been asked.

For the more transitional assets, which again is the core of our -- of our lending activity, you know, we are seeing some competition, but in general we're seeing plenty of opportunity to get capital invested both in the U.S. and in Europe.

Great. Thanks. And then in terms of your funding, do you have a lot of capacity? You know, you continue to increase capacity with your credit facilities, you know? How far do you think you can take those and, you know, what other funding options do you think you'll use as you grow the balance sheet going forward?

You know, as it relates to capacity, you know, we think we have, you know -- it'll ultimately depend upon, you know, market conditions, the pace of new originations, loan closings and repayments, but we think we have the capacity to go another quarter or two, you know, given the capital that we have on-hand, you know?

We do intend to increase leverage over time, you know? Our leverage at quarter end was about two times and we do have a goal of trying to increase that leverage given our portfolio of senior mortgages which we think could handle a little bit higher leverage.

We have a lot of debt capacity both in the U.S. and in Europe and we're actively working on increasing that capacity. I talked about that as well, you know?

We're looking at the CLO market and the term loan market, but there's a lot of capacity left with the banks and our more traditional sources and we continue to push those sources very hard to give us, you know, very, very efficient terms and we've had success at doing that.

OK. Thanks. And then lastly, the 4.8 percent all in yield, I think that you quoted for new investments in the quarter, does that include the structured anticipation interest that were sold?

So, you know, I think it was something like 12.7 percent all in yield associated with that or is that just strictly from the origination level?

That was related to the loans originated during the quarter. So all -- any loan originated during the second quarter would've been included in that 4.8 percent.

Aaron, are you referring to the participation interest sold in the -- in the U.K. loan we originated during the quarter?

Well, there are a couple of, I guess, participation loans that I -- you know, if I -- if I back out, you know, the senior piece associated in the 10Q looks like the average yield remaining on your interest would be about 12.7 percent.

So I just was curious as to whether or not that was included in that 4.88 percent yield or if that was just before that, you know -- before you actually sold those participations.

That 4.8 percent is the unlevered asset yield and those participations sold that you're referring to sort of represent leverage to that 4.8 percent.

Great. OK. Thank you very much.

And your next question comes from the line of Donald Fandetti with Citigroup. Please proceed.

Steve, it sounds like, you know, the competition is certainly modest. I was wondering if you could just elaborate a little bit. Are there new players at the table when you're originating a loan or is it just CMBS market?

And then secondly, it seems like you're likely to be in a position of old leveraged returns at least in the near to intermediate term. Do you think that that's the case?

Thanks, Don. In terms of the first part of your question as it relates to competitors, you know, the group of competitors we see is relatively unchanged and so the 15 or so months that we've been originating loans is the combination of private equity funds who have a lending mandate other mortgage rates, occasionally banks, and now occasionally the floating rate CMBS originators.

And, you know, the banks and the -- and the CMBS market tend to really only focus on loans that represent, you know, the most conservative and stabilized of financings that we have the ability to compete for.

For the core of our business, you know, we haven't seen a lot of -- a lot of -- a lot of new competitors. So, you know, as a result, we find that we continue to win on a relatively high percentage of the time.

So we think the competitive landscape is favorable. In Europe, you know, the challenge there is really finding the opportunities. The market is more fragmented and less efficient. You know, we benefit greatly there from the Blackstone footprint in London. We have a very strong presence in Europe because we're investing a huge equity fund there, as well as, pursuing the lending activity.

So we're well positioned there to find these sort off-the-run loans. And so I think as a result of sort of net, I feel like we're in a -- with the competitive position of the -- of the company is as strong now as it's been in the -- in the entire sort of 15 or 16 months of our recent history.

Second half of the question, Don?

Yes, I was just wondering if you expect that spreads come in a little bit if your financing costs will continue to sort of drive down and that as far as you can see out that levered returns look like they're likely to be steady.

Yes, I think that we've been able to maintain the levered returns probably from holding lending spreads in part from reducing, you know, the cost of our -- of our credit facilities and, you know, whether or not (inaudible) about how we finance ourselves as spreads compress on the asset side, you know, we're able to push an equivalent compression on the -- on the liability set given how we choose to capitalize ourselves.

So I see that construct changing -- not changing. Also, you know, we're able to increase leverage at the asset level if we choose and, you know, again, we're trying to increase the overall leverage of the company a little bit because we feel like we've been underlevered and, you know, that also serves to maintain or enhance our asset level levered returns.

OK.

And your next question comes from the line of Joel Houck with Wells Fargo. Please proceed.

Thanks. Just a question on obviously, you know, credit is really good right now and I guess across the industry, but when you guys look out whether it's geography or property type, are there certain things not necessarily transaction-based, but certain markets or within those markets property types that you shy away from that perhaps are either overheated or don't make economic sense to you?

You know, there's certainly things that we like, you know, more than others in terms of what we see in the market, you know? We have a strong preference for major markets and larger transactions, you know?

Those are -- those -- we find that to man at the tenant level is strongest for those -- for those properties. It's most synergistic with what we're doing on the equity side at Blackstone. But we found that liquidity stays longer with those assets and when it leaves returns more quickly.

So I think, you know, our big bias tends to be again towards larger transactions in major markets. The primary asset classes, we tend not to redline anything. We will look at anything that comes in to see if there's a possibility to make a loan against it that we think would be accretive to our business, but, you know, in general, I think it's the major market focus that distinguishes us from others.

OK. But nothing that stands out on the negative side either property type or geography at this time?

I think we're cautious on -- we're cautious on suburban office, we're cautious on suburban full-service hotels, you know? We're generally cautious on anything that involves a major aspect of development.

We'll finance development transactions, but we're very mindful of keeping leverage low and having very tight loan structures. But I think that no, it is not a lot that we redline.

OK. Great. Thank you.

And your next question comes from the line of Jade Rahmani with KBW. Please proceed.

Thank you. On the competitive landscape, have you seen anything, any changes in the underwriting standards that concern you whether it be on certain deal types, structures and can you comment on where the competitive pressure is greatest whether it be on yield origination fees or exit fees or something else?

I think as it relates to sort of underwriting and credit creep, I mean, you know, typically the way it works, right, is that the most conservative yields get done at the beginning of the cycle and the most aggressive at the end.

So I think where we are now we're sort of mid-cycle. So we are seeing a little bit -- you know, a little bit more pressure on leverage and on structure, but not at a level -- not at a level that's sort of alarming to us at this stage.

We're always very mindful of how we look at credit and what we're willing to do, but I do think the market at -- for the time being is not in a dangerous spot. We'll -- and where we're feeling competitive pressure, it's more on the -- on the lower leverage, more conservative loans that we try -- that we try to pursue that we're -- where we might have bank competition or CMBS competition, and that's generally -- that -- the -- what we feel there is generally rate pressure. So let's go lower in rate, you know?

And if we can't hold our levered returns on those transactions, we won't -- we won't pursue them, you know? A lot of times even on transactions of that profile, you know, borrowers need certainty of closing or whether they have timing pressure or there's a complex factor in the deal that they feel wouldn't be well addressed by the bank of CMBS market.

So we can still win a share of those transactions, but, you know, that -- those are the ones where, again, we feel the pressure most from occasionally from the banks and the CMBS originators.

OK. And are you guys being able to generally maintain your origination and active fees?

We have been able to for the most part maintain our origination fees unchanged through the 55 or 56 loans that we've now classified closed or in closing. We have never been -- we have typically not had exit fees as a -- as a component of our -- of our revenue envelope.

We do have prepayment fees, you know, meant to protect, you know, the minimum duration of the loan and we've been able to hold those as they in general it around the 18-month level.

OK. I think you guys regularly note that your dividend is LIBOR indexed. I wonder with respect to the underlying borrowers, what do you think's the ability of the cash flows of the properties has to do with spanned, say, 100 basis point increase in rates? Do you think that is there within the envelope of non-impacting the performance of those properties?

Yes, I don't think there would be any credit impact for even -- I would say even 200 or 200 to 300 basis points of LIBOR uptick, you know? We underwrite presuming a much higher stabilized interest rate, an interest rate on the exit and current rates.

And so our loan's really built to withstand much higher rates. In addition, also, we do require for most of our loans that the buy -- that the borrowers purchase an interest rate cap, you know, that would pay out if LIBOR exceeded a threshold level, typically around three percent.

Jade Rahmani: OK. That's very helpful. Just regarding the participations that were sold, I think the presentation says senior loans comprised 94 percent of the portfolio. Does that -- did that count the participations in that 6 percent?

And also, can you just maybe provide a little color on what the participations were or are you guys retaining a B-note or are they (inaudible)? What's your pursued structure?

Yes, Jade. Hey, it's Doug. I can -- I can answer those questions for you. The participation sold that show up on the balance sheet, you know, are -- sort of correspond to the assets that are consolidated on the balance sheet.

So the six percent of loans that aren't first mortgages on, you know, consolidated as assets are really related to those investments that we made where there aren't participations sold consolidated on the balance sheet.

If you look at our earnings release on page 6, it's the off-balance sheet senior interest sales that sort of give rise to that 6 percent of loans which aren't consolidated. So none of those occurred this quarter and everything, you know -- all the participations sold relate to senior loans that are on our balance sheet.

OK. And can you just -- are those -- are those A-notes that you've sold and you retained a B-note?

That's right. You know, what typically we used for that consolidated treatment is when we sell an A-note, you know, from our balance sheets. So we maintain property with the borrower. We own the whole loan and with a form of financing, we have sold the participation to a third party.

Jade Rahmani: OK. Great. Thank you very much for taking my questions.

(Inaudible).

And your next question comes from the line of Rick Shane with J.P. Morgan. Please proceed.

Thanks, guys. Good morning. It's safe to say that my questions on competition have been asked and answered, so thank you.

You're welcome, Rick.

Thanks, Rick.

And your next question comes from the line of [Dan Aucture] with FBR. Please proceed.

Thanks. Good morning. And I appreciate you taking the call. You know, with now the largest loan being the U.K. hotel, can you maybe talk about the investment merits of that loan and as you've walked through in the investment committee, you know, what do you -- what do you see as the appeal, the attraction and, you know, relative on pricing, which, again, we're the overall merits that warrant a, you know, very sizeable loan here in the region.

You know, that loan was a really compelling loan that we -- that we, I think, were able to win on a competitive basis by moving very quickly and having some prior knowledge of the -- of the asset base and the -- and the situation which led rise to the loan.

The loan itself is a 57 percent loan to cost loan, which, you know, is a very conservative loan to cost and loan to value ratio. And so, you know, we were very excited about the opportunity to lend on a -- on a pool of cash flowing hotels at that leverage level.

There was also a lot of cash flow relative to our loan. So it's a -- it's a lot of coverage as well as sort of a low basis loan. So all around, you know, a great loan for us. We're very excited about it.

OK. So, I mean -- but that still fits the nature of, maybe, a transitional or a value-added type of loan?

It was transitional in that, you know, it has -- it has been a distressed situation. Our loan initially is actually secured by our borrower's loan, which is a mortgage loan to the -- to the ultimate owner of the -- to the current owner of the properties.

Our loans are meant to transition to be -- to a direct mortgage loan as our borrower takes control and ownership of the properties. So a little bit of a -- you know, a little bit of the back end of a -- of a previously distressed situation, which enabled us to lend, you know, at a -- at a higher rate than what a low LTV loan like this might otherwise warrant.

OK. Got you. And then, you know, maybe taking a look from the top down to the -- to the bottom, can you maybe just walk through some metrics or ideas around the loan process? In other words, how many new loans do you look at that end up going to committee that end up getting bid upon that end up winning?

Kind of like what's that top to bottom down hit rate, if you will?

We don't keep -- I don't -- we don't keep the -- those statistics specifically, but we'll say that the vast majority of the opportunities that we see are reflected relatively early on in the process, you know?

We know what we like and what we don't like. And so -- and we're very disciplined in terms of what we'll -- what we'll pursue. So I guess that 70 or 80 percent of what we see is rejected almost immediately out of hand and there's a -- there are a large number of assets that we think are -- warrant additional underwriting consideration and we'll -- and we'll pursue those deals.

Some of those will follow underwriting, some won't, and then, you know, generally what we -- by the time we're taking somebody to the committee, we have a pretty good feel that it's an appropriate risk for the business and we -- and our competitive position in terms of winning it is fairly strong.

So not everything goes through the committee process comes out the other side in a -- in a positive way. I mean, a lot of times there's a lot of discussion around the fifth of the business and the credit characteristics of a specific deal.

We have a very robust committee process. So -- and which meets live on Mondays. So it's a rigorous analysis that's done and then challenged in the committee, but -- so we think the process works great.

We're seeing plenty of opportunity now to continue to move the business forward as we moved it over the last 15 months or so and don't anticipate that changing, you know? There's a lot of borrower demand in the U.S. and we have also a great ability to find transactions through our London office in Europe.

And then maybe just one quick one^ Do you think there's any seasonality effect in the summer months? I mean, obviously we can see that sometimes on the -- on the residential side, but getting the commercial side maybe a little bit more immune to that summer slowdown?

No, I actually think there is -- there is a summer slowdown. It's hard to exactly tie it to when our loans -- when loans will close, but certainly our -- the origination market is quiet in August, especially in Europe. But in the U.S. as well. It's a slow -- it's a slower month.

Now, the loans we already originated that haven't yet closed, some of those will close in August and September, but, you know, the new loan originations that was, you know -- the new loan origination activity flows a little bit in August, but then picks up very significantly in the fourth quarter.

Great. Thanks so much.

And our last question will come from the line of Ken Bruce with Bank of America. Please proceed.

Great. Thank you. So I'm going to ask a question and I apologize if it's been either addressed in your prepared remarks. It's been a busy morning, so I may have missed it.

You mentioned that you're willing to let leverage drift higher or you're willing to take leverage higher. Maybe you can put some parameters around how you're thinking about consolidated leverage at this point, you know, what the -- what the maybe the bookends are in terms of how high you're willing to go on the balance sheet leverage, please?

Ken, hey. It's Doug. That's a good question. I think -- I think the right place to address that question is thinking about the -- you know, the liquidity that we have on the balance sheet now, the origination potential that that represents and relating that to our sort of current two times leveraged status.

So to run through the numbers real quickly, we're at -- you know, we have about $2.4 billion of financings on the balance sheet right now, which is 2 times our, you know, $1.2 billion of equity in the loan origination segment.

And if you -- if you think about the $1.3 billion of additional potential loan origination capacity at June 30th, you -- that brings you to a total of $3.7 billion of debt, which represents 3 times leverage on, you know, that same $1.2 billion of equity, and that's essentially the sort of bookend for fully deployed given our current portfolio.

So you can assume that we'll, you know, run somewhere between that 2 and 3 times leveraged level on a consolidated, you know, gap basis looking at the entire balance sheet and that flows from the 3 to 4 times asset level leverage assumption.

OK. And is there just in terms of thinking what will push it towards, you know, say the upper end of that, is it a function of the pricing competition that ultimately requires, you know, more leverage in order to make the, you know, end returns justified or is there something around the particulars of the types of investments you may, you know, be pursuing that gives you the greater comfort to do that or maybe in the -- not to put words in your mouth, but I thought that the two times is relatively conservative anyway and this is just really kind of a natural extension of greater comfort with, you know, the overall financing markets to be willing to do that.

I think -- I think all three of those are factors, but I would put the emphasis maybe as you did on the latter factor, you know? You know, three times is really what we're comfortable with. It flows from that three to four times leverage asset level leverage target.

We may tend a little bit more towards four times, you know, in respect of the -- you know, the, you know, spread compression pressure in terms of maintaining our ROIs, but basically, you know, that two to three times range is sort of what our business model supports and what we're comfortable with with the type of loans that we're originating.

Great. Great. Well, that was it. Thank you for your comments and it was nice to see the legacy assets begin to materialize meaningfully. So thanks.

Thanks, Ken.

For closing remarks, back to Weston Tucker.

Great. Thanks, everyone. Thanks everybody for joining the call this morning.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. To you all, have a great day.