Invesco Mortgage Capital Inc (IVR) 2014 Q2 法說會逐字稿

Good morning ladies and gentlemen. Welcome to Invesco Mortgage Capital Inc.'s investor conference call. (Operator Instructions) As a reminder, this call is being recorded. Now, I'd like to turn the call over to the speakers for today; Rob Kuster, Chief Operating Officer; Richard King, Chief Executive Officer; John Anzalone, Chief Investment Officer; and Lee Phegley, Chief Financial Officer. Mr. King, you may now begin.

Thanks, operator, and good morning and welcome. Thanks for joining today. IVR's management team believes we can deliver optimal shareholder value over the long term by producing a high level of current income to shareholders generated through core earnings and passed along in the form of dividends. We believe we can deliver book value stability over the long run by managing risk appropriately. That means accepting risks that may generate near-term volatility, but allow us to meet our earnings targets. It also means avoiding the types of risk that create risk of longer-term book value loss. Our results since the Company's IPO over the past year and over the past quarter reflect that philosophy.

As shown in the financial highlights on slide 3 of the presentation, in the second quarter we earned core earnings per share of $0.50, in range with the past year and in line with the dividend. In the second quarter, our book value was up $1.27 per share or nearly 7% to $19.80. We generated economic value of $1.77 per share in the second quarter, which is about 9.55% economic return on book value in the quarter. This follows book value gains of $0.56 in Q1 and $0.33 in Q4. We also made significant progress in our strategic objectives on both the asset and the liability sides of our balance sheet. In the table at the bottom of page 3, we want to highlight this shift we've planned and executed in our assets.

Over the past five quarters, we have reduced 30 year agency MBS from 56% of our assets to 30% of our assets. That capital has been redeployed into agency hybrids and loan strategies in each of residential and commercial credit. We've maintained momentum as well in the new loan securitization space. I'll let John Anzalone get into more detail on the asset strategy later. For now, let's turn to page 4 and I'll briefly talk about the environment. We see the economy improving, more jobs are good for mortgage credit. The improvement in the second quarter in employment was real in that the drop in unemployment was not from discouraged workers leaving the workforce. Long-term unemployed are getting jobs.

At the same time, we think growth is capped and that is primarily due to government debt loads and increased regulation here and globally that continue to burden future potential growth. We are likely to see modest growth, but not strong growth. That should keep inflation in check and keep interest rates from increasing dramatically. In this environment, credit spreads will likely remain low as well because investors need for yield in a very yield repressed world is pretty great. That dynamic is exacerbated in the mortgage space where we see negative or very limited net issuance of agency mortgages, RMBS and CMBS. Agency MBS as a percentage of the Barclays Ag Index by way of illustration is down dramatically from over 40% in 2008 to about 28% today.

Issuance in non-agency RMBS space remains a small fraction of what it was. Issuance was over $1 trillion in the mid-2000s, it's about $14 billion last year. And annual issuance is about one-tenth or less of what is just rolling on. Meanwhile, there are a number of favorable trends in our mortgage markets. Financing rates are improving, prepayments are muted, rate volatility is low, fundamentals for mortgage credit are excellent, new loans exhibiting next to no delinquencies, and legacy loan delinquencies continue to improve as well. We expect home prices nationally to increase a sustainable 5% in 2014. Commercial real estate fundamentals are also strong as rents are increasing and valuations are improving.

The environment is good for our strategy of extending mortgage credit and earning a reliable net interest spread after loss assumptions. Please turn to slide 5. This chart is meant to illustrate why we believe we can build [relative] book value stability. The blue line is the yield on the 10-year US treasury note. I entered the investment business in 1984 30 years ago. Interest rates have clearly trended lower for the entire 30 years, but for the 30 years before that rates clearly trended higher. Investors do not want to be overweight interest rate risk when the trend once again changes towards higher yield. That is why we hedge duration and earn our dividends primarily through capturing credit spread premiums.

The green line on the chart depicts investment grade corporate bond spread premium, but the picture would look similarly cyclical in mortgage credit. The spread is cyclical. We know credit premiums widen in a recession and tighten when the economy is improving generally. We believe this is a good time to own mortgage credit spreads. Besides the fact that issuance is extremely limited as I spoke about, loans being made are well underwritten, house price affordability is high, and leverage has been significantly reduced. By investing in our strategy, (technical difficulty) investors get a high yield and total return and it's a good diversifier versus both the equity market and the fixed income market or interest rates.

Invesco Mortgage Capital is not a rate play. We aren't deriving our yield from lending long and borrowing short. Our equity duration that is the percent change in our fair market value given a 100 basis point change in rates is about [2], which is very small. It's small because 95% of our short-term borrowings are hedged, extended if you will, with paid fixed interest rate swaps. As a result, our economic returns have actually been just as good in periods where rates rose as when rates were stable and falling. We aren't a rate play, we aren't a yield curve play. But we are a credit spread premium play, if you will, and we like mortgage credit at this point in the cycle.

Let's now turn to financing. On the liability side of the balance sheet, we've made great progress here as well. We've been hard at work in 2013 and 2014 to diversify funding sources. In the top panel of page 6, you can see that we continue to find new ways to fund asset purchases. We have issued preferred equity, corporate notes, used securitization of financing, and our insurance sub has utilized secured federal home loan bank advances. Shortly after quarter-end, we entered into $1.25 billion of floating rate advances with a 10-year maturity. This will extend our consolidated average maturity profile from about 2 months to about 12 months. Securitization financing is growing each quarter as well and at quarter-end we had over $2 billion of asset-backed financing on the balance sheet.

By the end of Q3, securitization financing is projected to be quite a bit larger with the deals we have in the pipeline. On page 7, we display book value in the second quarter. The bottom line is this; each of agency MBS, non-agency, and CMBS prices rose more than equal duration treasury notes or interest rate swaps. Hedging costs of $0.90 per share were more than offset by the gains in each of these categories that combined for $2.17 increase for a net increase of $1.27 per share. On the right side of the page, you can see we have maintained consistency of core earnings. We came in on the higher side of recent quarters at $0.50 per share.

Comprehensive income was strong in Q1, it was also in Q2; and adding them together, we've generated comprehensive income of $2.79 per share in the first half of 2014. We've now seen three quarters in a row of healthy book value improvement comprehensive income increase. In the fourth quarter I'll remind you book value grew amid rising rates and in the last two quarters it grew amidst falling rates. We anticipate an environment characterized by low yields, low interest rate volatility, and low spread volatility for the remainder of this year.

John Anzalone, our CIO, will now talk about our investment strategy.

Thanks, Rich, and thanks to everyone joining us this morning. As Rich just mentioned, we've been successful in migrating the portfolio away from interest rate risk and towards a greater exposure to credit risk. The graph on slide 8 provides a nice illustration of the progress we have made. As you can see, our fixed rate agency position has declined significantly down about $650 million year-to-date with our exposure to lower coupon 30s cut in half from a year ago. We have continued to add hybrid arms and our balance in that sector is up about $800 million year-to-date. These moves have kept our interest rate exposure very manageable and our book value improvement has been attributable to credit spread tightening not changes in rates.

We closed our seventh jumbo prime securitization during the quarter. We will close at least one more during the third quarter. On the CRE side, the loan pipeline is growing and we expect to close several loans during the third quarter. Please turn to slide 9. It's in the agency book that you can really see how we've reduced our exposure to rates. We focused our sales and lower coupon 30-year collateral and those coupons now represent 31.5% of our agency book, down from over 56% a year ago. The average coupon of our 30-year agencies is 4.17% and we have increased our exposure to hybrid arms up to about 28%. Rotating away from lower coupon 30s and into shorter duration hybrids has served to further lower our rate risk. Fees picked up a bit this quarter reflecting spring seasonals as well as the changing mix of our portfolio.

Slide 10 highlights our residential credit book. We continue to add legacy non-agency bonds as these bonds benefit from further improvement in borrower and collateral performance. We added another $272 million of jumbo prime loans through our latest securitization and we added an additional $401 million securitization, which is expected to settle during the third quarter. Those two additions will take our resi loan balance up to approximately $2.7 billion. The credit performance of those loans remains exceptional with no loans 60 or more days delinquent. We also remained active in the GSE credit risk transfer space as our balance there increased by $157 million amid continued purchases as well as spread tightening during the quarter. We have seen a back up in CRT spreads during July and we view any additional widening as an opportunity to add to our position.

I'll finish with slide 11 and commercial mortgage credit. We increased our CMBS balances by $339 million as we were actively purchasing AA and AAA classes. These bonds were contributed to our insurance subsidiary and financed through federal home loan bank advances. This financing allows us to purchase bonds higher up in the capital structure, which reduces our credit risk and lowers our book value volatility. We expect to continue to add AA and AAA CMBS positions going forward. Our commercial loan book consisting of direct loans, mez certificates, and joint ventures now totals about $187 million. The pipeline here has been growing and you should see several more loans on our books when we report next quarter. As in our resi book, improving fundamentals are benefiting the portfolio here also.

And with that, I'll open the floor up for questions.

(Operator Instructions) Douglas Harter, Credit Suisse.

Rich, you mentioned your interest rate exposure was about two years this quarter, can you just remind us what it was last quarter?

I think last quarter we probably said two to four years. So, it's been coming down as we've continued to sell longer fixed rate paper and we really haven't taken off swaps. So, we've contracted further as rates kind of get lower in the range here.

And how would you think about your extension risk in an up 100 basis point environment today versus say a quarter ago given those portfolio changes?

It's definitely at last. I mean when you sell like 30-year, [3.5s] primarily is what we've been selling and while they're pretty extended, they could get longer and back-up in rates. The kind of stuff we're buying, the hybrids just don't have much extension risk and CRT obviously is floating rate, the GSC risk transfer trades.

And then can you talk about the returns you're seeing on the jumbo securitizations, one that you did in the second quarter and one you did in the third quarter, how those returns are looking today?

I mean they're low double-digit type returns and the great thing about that is we have locked up financing for the term of the loans are match funded non-recourse. So, those returns there are locked in and so the key thing there is the credit. And we have lots of underlying loans and as John said, there are actually no delinquencies 60 plus and over 3,000 months.

Great. Thanks, Rich.

Mark DeVries, Barclays.

First question, I just wanted to get a sense of in addition to the jumbo where your levered returns are on incremental investments and all your different asset classes right now.

Just one second. We've got a little table we can -- here we go.

So, I'll just start on the agency side. It's actually interesting because across different asset classes, a lot of the returns have kind of converged on top of each other so there's going to be a lot of similarities here. But in agencies, we're probably around 10% to 11% I would say in terms of levered ROEs. Obviously, there's lot of risks around that with those bonds in that strategy being a little bit harder to hedge. In terms of sort of the legacy RMBS and legacy commercial, we're looking at maybe high single-digit type ROEs levered. The issue there really is finding legacy paper that we like and, as Rich mentioned, those asset classes on the legacy side certainly are shrinking and on the resi side particularly we're not seeing any real meaningful supply there.

In GSC risk transfer, we're looking at 10% to 11% on the unrated classes on a levered basis and, again Rich mentioned, we like that trade a lot and that has to do with the fact that it's floating rate so there is no interest rate hedge. As long as you're comfortable with the credit, you should be fine there. And then in the loan strategies, I think we're basically in the call it high single digits I would say on the commercial side. So really what it comes down to is everything is in that call it 9% to 11% range and it's a matter of where you want to take your risks and right now, we think credit is a much more manageable risk than interest rates right now.

Okay, great. And then next question I just wanted to touch on Richard's opening comments about kind of managing or limiting book value volatility in the business model. I appreciate that you've been moving towards more stable non-recourse liabilities, but in this past quarter your leverage didn't move down very much when you consider the ongoing shift towards less liquid and credit sensitive non-agency assets. So could you just discuss how you're thinking about the risk to NAV volatility as this shift continues?

Well, there are two sides to the NAV volatility I guess. First of all a, if you don't have mark-to-market financing, if you have locked-in financing; the securitization financing, that's not something we actually owe money on so we have the strength to stay with those trades no matter what so when pricing widens, you're not forced to do anything from a portfolio perspective. In addition on the loan strategies, they are held at cost, they're held to maturity, and so you won't have book value volatility in those strategies so that will definitely reduce book value volatility. And then generally on the floating rate stuff, you're going to have a lot less because you don't have any interest rate exposure. You still have some credit premium. But the point there is over cycles, you're going to have some volatility, but the trick is managing the risk such that you have strong hands and you make sure you have enough cash liquidity unencumbered et cetera to manage through those periods and then what you end up with is just a really attractive income over the long term which creates total return.

That's helpful. Thank you.

Joel Houck, Wells Fargo.

I guess maybe to kind of continue the theme. First on the agency side, obviously you've increased the allocation toward hybrid. Help us understand how you think about the relative value opportunity in hybrid versus the trade-off of it being less liquid. If you go back last year even though you guys didn't have a lot of hybrid exposure during the dislocation in the market, those securities performed worse than 30 years for a period of time. While that may not be happening, I'm just kind of interested to see how you guys are thinking about the trade-off between relative value and liquidity of the security?

That was definitely a unique time. We had gone through a period where there were a lot of players that only bought hybrid who were no longer raising capital and in fact were selling agency mortgages and so that was really a technical dynamic there. But from a fundamental perspective, they got way too undervalued and we took advantage of that. But that's not to say that the liquidity isn't good. I mean these are still agency securities that are shorter duration and I think in a period where rates are rising, people will like that story.

And Richard, do you kind of continue to see the allocation toward hybrids on a percentage basis increasing in the balance of this year assuming spreads don't move a ton? I mean is this still where you want to put cap on the agency side?

Yes, I think just the theme of continuing to shorten duration and particularly as we move into the later part of the year when the Fed taper or the Fed buy program really starts to wind down, we're trying to get out of the way of some of the lower coupons in anticipation of that and just overall just generally reducing our interest rate risk. So really we're looking at sort of the trade-off in terms of relative value between higher coupon 30s, 15 years, and then hybrids. And right now, I think hybrids are our favorite place amongst those three.

Okay. And then if I can just switch on the non-agency side, you've estimated I guess 5% HPA for 2014. We're halfway through the year now, I'm wondering how much you think is factored in. I understand that's a national number, but are we tracking close to that number, could there be upside, and maybe what that means for the pricing of your securities?

I think year-over-year prices are up 9%, but you had a pretty strong end of last year and that will be rolling off obviously and this year I think we're tracking pretty well. We've seen house price appreciation, but more recently not when you adjust it seasonally. So, we think we're definitely seeing lower house price appreciation, but I don't think anybody in their right mind thinks that we're going to have double-digits for a number of years given the credit availability that's out there. So, you're seeing slower home buildings just from a credit restriction perspective and so it leads to I think what can be a pretty stable increase.

And then in terms of impact on bond prices, I think given where the housing market is going, I mean we've seen as we mentioned the new issue credit has been just exceptionally good. And really for the legacy bonds that we own, we tend to be more up in the capital structure anyway [honoring] those so we wouldn't expect the housing market to have a real impact on the bonds that we own in terms of pricing.

All right. Thanks, guys.

Trevor Cranston, JMP Securities.

First of all, I think Rich may have made a comment about increasing the FHLB advances post quarter-end that I missed so I was hoping to get a clarification on that. And also related to that, I was hoping you can talk about kind of with the existing portfolio, have you pretty much transitioned the assets that make the most sense to fund with the FHLB over to that advance line at this point or do you think there's still room for you to kind of continue to shift some of the assets off repo and onto FHLB funding?

This is Rob. No, the moratorium hasn't really impacted current members that are in good standing so we did increase and took our borrowing up to the limit to the insurance captive so as Rich mentioned earlier, it's $1.25 billion in advances right now. We did use some agency collateral to do that so I think over the next couple quarters we'll probably be moving AA and AAA CMBS in there to replace that collateral and I think that's what's John alluded to earlier that our continued focused on the CMBS side will probably be to try and maximize that opportunity through the insurance.

Got it. That's helpful. On the non-agency side with respect to the legacy bonds you guys have been adding, can you just comment on kind of what segment of the market you like there? And we've also seen a couple new stories recently about some big auctions so can you maybe comment about any opportunities you've had to add to that portfolio since quarter-end?

The kind of bonds we like has been pretty consistent, generally prime and Alt-A hybrids. We really weren't very involved in the auctions. I mean we certainly have looked at a lot of stuff and bid on them, but the auctions tend to be pretty well bid and we tend get a little better value kind of cherry-picking things that aren't quite so widely distributed.

It's interesting. The dynamic recently in non-agency markets really flipped from a couple of years ago where big auction lists would kind of spook the market. And now what we're seeing is there's so little supplies, the trading lines have decreased so much that when you get fairly large lists, it ends up being extremely well bid and people are looking to [bonds] so it's actually extremely competitive on the list.

Got it. That's good color. Thank you.

Mike Widner, Keefe, Bruyette & Woods.

I want to talk about the FHLB piece a little bit and you guys have the check box on slide 6. I guess my first question is does that show up on the balance sheet yet and what assets would you guys be funding with that?

What you'll see in the second quarter is $625 million advances against CMBS assets and then early in July we used agency collateral, moved it and contributed into the insurance sub and took a term advance against that. The way the loans are structured there, they're fungible so long as you keep the loan to value ratio, as long as you maintain that, you can move collateral in and out. So, we'll be actively moving contributing CMBS bonds into the insurance sub over the next couple of quarters.

Okay. So CMBS I understand, but did you also say you're moving like agency MBS collateral in there as well?

We did, yes.

Okay. Because I don't think we've seen anybody else do that and I just thought because of the terms and the capital you've got to contribute that economically that wasn't quite as good as the repo market.

It's a little more expensive. Predominantly what we're trying to do there is establish a term loan whereas normally you're funding agency collateral of one month or three months, this is a 10-year loan so you expect to pay some for that. The three-month floating structure, it's three-month LIBOR plus 15 so it's 38 basis points right now all-in so we're giving maybe 6 basis points, 7 basis points to one month repo.

But we do intend to over the next couple of quarters to, like Rob said, replace that with AA, AAA CMBS; which really from when you think about our credit book, I mean that really improves your credit quality because we wouldn't be able to -- AA and AAA wouldn't make sense otherwise.

And the real benefit we get is the change in our liability profile so as Rich alluded to it earlier, but we're estimating that it's going to take our average days of maturity up from 59 or 60 days that we've been running to about 12 months. That's a real change in risk profile.

Absolutely. And so the $625 million you mentioned, is that something that might grow or is that kind of what your line is with the FHLB so to speak?

Yes, the line is $1.25 billion.

Now, I guess the last question on that one is you guys sort of snuck in or you got it in before the so-called moratorium on allowing REITs to access the FHLB. I mean do you have any idea how and sort of when that's going to play out or if there's any thoughts on whether now that you're there, you're sort of grandfathered even if there is a change or any thoughts on sort of how that shakes you?

We can't really speculate. Our view is we're a member in good standing. We didn't know anything about the moratorium when we had worked on this for a year before we finally formed the insurance company and gained membership. We have a 10-year term loan and I think we'd expect that to be honored, but we'll see what happens.

Makes sense. I think it's hopefully a safe assumption, but looking forward to see how it all shakes out. Thanks for the answers, guys.

(Operator Instructions) Ken Bruce, Bank of America.

To one of Joel's questions, you responded just as it relates to what your position is relative to when the taper begins to be more pronounced later in the year. And some have speculated that they're quite comfortable that the technical dynamics should remain fairly strong just with the Fed continuing to reinvest principal and the like. And maybe you have a different position, maybe you have a similar one, maybe you could just essentially discuss how you think the market evolves as we go through the remainder of the taper, please?

I would say over the near term our outlook is fairly sanguine I would say. I think you're exactly right, the Fed purchases even as they progress through tapering is still going to support the market even at lower levels of purchases. But we do think that dynamic will shift a little bit and sort of that supply/demand dynamic flips towards the Fed not buying everything like they are now. So, we do expect that there will be a little bit of volatility around the end of taper. But there are mitigating factors, we're not saying (inaudible) it's going to completely rollover or anything. But certainly wouldn't be surprised to see some volatility around lower coupon mortgages. That said, we do believe that if we do get a significant widening and especially if it's accompanied by higher rates, you should see banks begin to purchase mortgages, you will see money managers cover shorts, hedge funds cover shorts, things like that will provide them support.

And the reality is that the rest of the fixed income market is extremely tight also so I would expect you'd see some reallocation into mortgages. So while we expect there will be some volatility and perhaps some weakness later in the year, we'd expect it in effect to be fairly limited. But really I think we're probably more worried about than actual -- like what you're getting at it what's going to happen to agency spreads, I think we're more worried about what might happen with rates in terms of being in shorter duration assets and assets that are easier to hedge, things like that.

Okay. And the prime jumbo securitization, could you discuss what your sourcing mechanism is and how you are managing the overall collateral from a due diligence standpoint? Can you remind us on how that happens again?

So, we're buying loan packages in bulk and we're underwriting those loans; 100% of the loans are diligence and we essentially form relationships with some of the large banks who have conduits and that's been working out very well. We end up with the assets we want on the balance sheet, term financing, and it's low impact to our shareholders in terms of we're not having huge like G&A expense from 500 employees or something like that. So, it's been a great strategy for this market where loan production is relatively low and we constantly monitor the market to determine when is the right time to start taking a more granular approach.

And I guess what I'm getting at is in terms of your counterparties, are you facing off against large banks through their conduits or is there a more granular set of sellers that you ultimately are facing directly and who ultimately is going to have any potential risk just associated with the financial performance of the counterparty that's selling to you?

The reps and warrants are on behalf of the bank in these cases or the more highly rated originators, stronger originators, they have the reps and warrants. So, it kind of depends on specifics of the deal.

Okay. And maybe lastly, could you remind me these securitizations, are they consolidated on the balance sheet or are these ultimately you're just retaining the residual plus maybe some other component parts of the securitization itself? Can you just maybe talk through what the balance sheet impact is for these investments?

We actually bid on the loan package and we've worked on the deal documents and we consolidate them on our balance sheet.

So, the AAAs represent about 93% of those and what we actually retain are the 7% (inaudible) so we put some light terms of leverage on it to get to that sort of upper single-digit return profile we're looking for. And then the loans are consolidated on our balance sheet on a GAAP basis.

Okay. And I guess maybe just to put a fine point on that, you have essentially a security that you can liquidate at some point. Should you basically decide that it's fully valued away and just want to rotate out of that particular asset class?

We have several securities so we still tranche the whole deal so there are rated notes that we could sell, but we don't have any intention to sell.

Understood. I just like to understand how your strategy obviously has evolved over the last couple of years and arguably as we move forward, there's probably going to be some more changes and that may even force you to change tact again. So, I want to just understand the overall liquidity of the balance sheet as you kind of get through kind of the next few years. So, thank you for your comments.

Dan Altscher, FBR Capital Markets.

Just one final question on FHLB. You helped fill in the gaps a lot on the size and the cost of funds and the assets that are going to be rotating into there, but could you maybe just give us a little bit of sense of the relative yield on the assets that have been funded with FHLB and the terms of leverage just to kind of get to a bottom line ROE or economics on the business currently?

The way to think about that is that there's not a whole lot of difference in return profile. What is changing is the risk profile of the assets we're purchasing to get to that return. So whereas we were previously buying BBB or single A CMBS and putting those on one-month repo, here we're able to buy AA and AAA CMBS and term the financing out. So, it really should improve the book value stability in that suite of the portfolio and we think it's the right move.

Okay. So maybe you don't really see the program as a return enhance, but really more as a risk maybe mitigation or good risk adjusted return tool?

I think that's an excellent way to phrase it, yes.

Okay. And then just maybe shifting gears slightly, the stock is still trading at a fairly good discount to book value maybe not as wide as it was back in fourth quarter of last year when you did a pretty good sized buyback. But how do you think about executing on the buyback now with the stock trading a decent chunk below 90% of book value?

That's a good question too. We spent a good deal of the first quarter in a blackout period so we weren't able to go out in the market and purchase any stock. I think the blackout period will end a couple days after the earnings release is out here and to the extent we've historically been targeting 85% of book or below to be active in that so I think that's a good way to think about it.

Okay. That's great to put kind of a targeted range on it. I appreciate it. Thank you.

I think above 85% we're more inclined to buy assets.

(Operator Instructions) Douglas Harter, Credit Suisse.

Just following up, I just was hoping you can give a little more color on the big increase in the earnings from the equity JVs?

Early on, we made investments in a couple of joint ventures where we worked with investor real estate (inaudible). These were distressed loans primarily in the commercial space and some of those investments, it's private equity style fund and some of the investments are beginning to bear fruit and have realizations and so forth. So, we have a pretty nice pop this quarter in valuations and wouldn't be surprised to see some more of that, but we can't really give you a forecast specifically.

I guess how old are the typical investments in there and is that what would lead you to sort of have comfort that there could be more of those?

The investments have been made over from late 2009 through last year and a good example was the Atlas transaction where we bought a package of loans that were for sale from a large bank and there are many others. Real estate valuations as you know are increasing and so some of those loans we bought at deep discounts are maturing at par or being refinanced or re-tenanted, et cetera. So yes, we expect that to continue to go well.

Perfect. Thank you, Rich.

Thank you. I'm showing no further questions.

Thank you, operator, and thanks to everybody and we'll talk to you next time.

Thank you. Thank you all for attending today's conference. You may now disconnect.