SLR Investment Corp (SLRC) 2025 Q1 法說會逐字稿

Please stand by. Your program is about to begin. If you need assistance during your conference today, please press 0. Good day everyone, and welcome to today's Q1 2025 SLR Investment Corp earnings call. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask a question during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing in.

Please note this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Michael Gross, Chairman and co-CEO.

Thank you, very much and good morning. Welcome to SLR Investment Corp's earnings call for the quarter ended March 30, 2025. I'm joined today by my long-term partner Bruce Spohler, co-Chief Executive Officer, as well as our Chief Financial Officer Shiraz Kajee, and the SLR Investor Relations team. Shiraz, before we begin, would you please start by covering the webcast and forward-looking statements.

Thank you, Michael. Good morning, everyone. I'd like to remind everyone that today's call and webcasts are being recorded. Please note that the property of SLR Investment and that any unauthorized in any form is strictly prohibited. This conference call is also being webcast from the events calendar in the investor section on our website at www.sinvestmentcorp.com. We'll do a replace of this call will be made available later today as disclosed in our May 7th earnings press release.

I would also like to call your attention to the customary disclosures in our press release regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections. These statements are not guarantees future performance or financial results. It involve a number of risks and uncertainties, as performance is not indicative of future results. Actual results may differ materially as a result of number of factors, including those described from time to time in our filings with the SEC.

We do not undertake to update any forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit our website or call us at 212-993-1670. I'd like to call back.

Thank you and thank you to everyone for joining our earnings call this morning. Following a strong year of operating performance, portfolio credit quality, and platform expansion in 2024, we're pleased to report a solid start to 2025 despite looming global economic and policy uncertainties. While the path ahead is fraught with many unknowns from the impact of tariffs, changes in supply chains, and investor angst, we believe FLRC's portfolio is entering this uncertain period in a position of strength.

Our first quarter results reflect another quarter of stability and resilience, furthering a pattern of performance at SLRC, which is grounded in conservatism, broad diversification, tactical asset allocation, and downside protection.

The appearance of these tenants can be evaluated through the lens of the portfolio's credit quality via SLRC's substantial portfolio composition and firstly loans, low levels of non accruals, low level of stress investments, and low levels of pick income. Consequently, we remain confident in our ability to navigate this period of uncertainty and any slowing in the domestic economy and to capitalize on volatility from widening credit spreads, create a growing investment pipeline across our special financed strategies.

Summarizing results, SLRC reported net investment income of $0.41 per share in the first quarter of 2025 compared to our base dividend of $0.41 per share, representing return on equity of approximately 9%. Net investment income per share in the first quarter withstood the lag effect from the FOMC's 100 basis points reduction in base rates in the second half of 2024 and a continuation of fiercely competitive market conditions in sponsor finance that led to a compression and illiquidity premiums on new investments. The company's net asset value of quarter was $18.16 per share, down only $0.04 from December 31st.

We believe the durability of our portfolio yields and a strong credit profile reflected by the stability in our net asset value of the direct result of the disciplined exercise during borrower-friendly market conditions and a multi-strategic approach to private credit investing. More than a year ago, we began a gradual shift in the portfolio mix to asset-based, specially advanced strategies that provide greater downside protection principle from underlying liquid and hard collateral.

We have favored these borrowing-based structures to the protection of principal from the more cyclical nature of enterprise value that secures cash flow loans while simultaneously offering attractive and often higher yields from the complexity premiums of special finance investments. As of March 30, approximately 80% of our portfolio is derived from special finance investments, the remainder of the portfolio being comprised of cash flow, sponsor backed loans to companies and recession resilient industries like healthcare and business services.

SLRC originated $361 million of new investments across the comprehensive portfolio and received repayments of $391 million in the first quarter, resulting in a total portfolio of $3.1 billion at quarter end. Originations were up approximately 38% year over year and 7% versus seasonally strong fourth quarter.

The yield on the copy of the portfolio was 12.2%, representing a 10 basis points increase in the yield of 12.1% in the fourth quarter and a 40 basis points increase in yield of 11.8% in the first quarter of 2024, which we believe compare favorably to changes in base rates over the comparable periods. Due to the more favorable conditions and especially financed markets, the company's investments in the 1st quarter were once again more heavily weighted to those after classes, which we believe currently provide a more attractive risk adjusted return relative to sponsored finance loans.

Approximately 88% of our first quarter originations were in specialty financed. We passed on the refinancing of several cash flow investments within our portfolio, allowing our sponsor finance portfolio to further shrink. Cash flow loans now represent less than 20% of our comprehensive portfolio, the lowest level in 3 years. A bright spot against a more competitive environment for cash investments has been the supportive, fundamental, and technical tailwinds for asset-based lending strategies.

Regional banks continue to tighten credit standards, modernize regulatory capital ratios, and rationalize business lines, providing an increasing supply of portfoliole transactions, joint ventures, or acquisition opportunities. This coincides with frequent financial sponsors seeking more creative ways to provide liquidity to their portfolio companies through ABL financing solutions. Today, the current environment is marked by a degree of policy volatility and economic uncertainty that is unprecedented in recent memory.

Sweeping policy shifts, particularly around trade and tariffs, have introduced a wide range of potential economic outcomes, with most market participants now significantly increasing their expectations for elevated inflation, slower global growth, and the risk of a tariff-driven recession. In operating a business development company that invests in the United States companies, we think investors should take comfort in the fact that our cash flow investment portfolio is heavily focused on domestic service-oriented businesses, primarily to healthcare providers and services, insurance brokerage services, business services, and select financial and software services.

In addition, the majority of our specially financed loans are backed by working capital collateral, which we expect to be more insulated from the direct impacts of higher tariffs as a result of less less exposure to international markets and global supply chains. Quarter to date, the impacting tariffs has little to no impact on the existing portfolios. Across SLR. We are actively engaged with portfolio companies and are carefully monitoring any primary or secondary impacts from tariffs.

We remain pleased with the composition, quality, and performance of our portfolio. The tactical allocation afforded by SLR's multi-strategy approach and the decision be more discerning cash flow loans has safeguarded our performance through the prolonged high interest rate and inflationary environment. At quarter end, 96.4% of our comprehensive investment portfolio was comprised of firstly senior secured loans.

SLR's long-standing focus on first lane loans has resulted in a portfolio which we believe is conservatively positioned and better equipped to withstand persistent inflationary pressures and high interest rates than portfolios of second lean and broader cyclical exposure. As of March 30th, first, we had only one investment on non-accrual representing just 0.6% and 0.4% of the investment portfolio on a cost and fair value basis respectively.

And only 2% of our income, our total income, was from restructured pick in cash flow loans. We believe these metrics compare very favorably to pure public BDCs. On March 30th first, including available credit facility capacity at SSLP and our special advanced portfolio companies, we had over $800 million of available capital to deploy. This puts the company in a position to take advantage of either durable conditions or softening the economy. And now turn the call back over to Shiraz, our CFO, take you through the Q1 financial highlights.

Thank you, Michael. That's Investment Corp's net asset value on March 31st, 2025, was $990.5 million or $18.16 per share compared to $18.20 per share December 31, 2024. The SLRC's unbalance sheet investment portfolio had a fair market value of approximately $2 billion in 118 portfolio companies across 32 industries compared to a fair market value of $2 billion in 122 portfolio companies across 32 industries on December 31. SRC's investment portfolio is funded by a combination of our revolving credit facilities and the issuance of term debt in the unsecured debt markets.

The company is investment grade rated by Fitch, Moody's, and DBRS. During the first quarter, the company privately placed $50 million of 3-year unsecured notes at a fixed interest rate of 6.14%, representing a spread to the then 3-year Treasury rate of only 190 basis points. As of March 31, 2025, SLRC had 359 million of unsecured debt, representing over 34% of funded debt. The company does not have any near-term refinancing obligations with the next maturity occurring in December 2026.

Given our pipeline and expectations to expand leverage, we expect to opportunistically access the capital markets. On March 31st, the company had approximately $1 billion of debt outstanding for a net debt to equity ratio of 1.04 times. We expect our net debt to equity ratio to migrate towards the middle of our target range of 0.9 to 1.25 times.

In terms of liquidity, we believe we have ample amounts of cash and borrowing capacity to support unfunded commitments with capacity amounting to more than 2 times our unfunded commitment to non-controlled borrowers. Moving to the PO for the three months end of March 31st, gross investment totaled $53.2 million versus $55.6 million for the three months end of December 31st. That expenses totaled $31.1 million for the three months ended March 31st. This compares to $31.8 million for the prior quarter.

Accordingly, the company's net investment income for the three months ended March 31st, 2025, totaled $22.1 million for $0.41 per average share compared with $23.8 million.44 per average share for the prior quarter. This was in line with our $0.41 per share distribution during the period. Below the line, the company had not realized and unrealized loss for the first quarter of totaling $2.2 million versus a net realized and unrealized loss of $1.2 million for the fourth quarter of 2024. As a result, the company had increased net assets resulted from operations of $19.9 million for the three months ended March 31st compared to a net increase of $22.6 million for the three months ended December 31st, 2024.

On May 7th, the board of SLRC declared a Q2 2025 quarterly distribution of $0.41 per share, payable on June 27, 2025, to holders of record as of June 13, 2025. For that, I'll turn the call over to our co-CEO Bruce.

Thank you, Shiraz. Before I give you an update on the portfolio, let me spend a minute reminding shareholders that our multi-strategy investment approach, which spans both specialty and sponsor finance credit investments, is designed to deliver consistent returns and protect capital across market cycles. Asset-backed strategies often exhibit countercyclical characteristics benefiting from periods of market volatility and capital dislocation, while sponsor finance can outperform in periods of economic expansion and robust M&A activity. The low correlation between these investment strategies enhances portfolio stability while diversified exposure enables us to capture shifting market dynamics without compromising our credit discipline.

As Michael indicated, we've deliberately tilted the portfolio to specialty finance investments, which we believe offer superior downside protection and more actionable risk controls relative to traditional sponsor finance only portfolios. Our specialty finance strategies include ABL, Life Science, and equipment finance and are underpinned by high quality collateral such as accounts receivable, finished goods inventory, commercial loan portfolios, essential use equipment, as well as intellectual property.

In most cases, the assets are governed by dynamic borrowing-based frameworks which enable real-time monitoring of the underlying asset performance and levers to manage our exposure, which include eligibility tightening, advance rate adjustments, and cash dominion. Unlike sponsor finance loans that can delay active lender engagement, especially in finance investments that allow us to engage early with our borrower, intervene proactively, and take steps to ensure repayments.

In the current market environment, the relative value in specialty finance is especially compelling, not only offering greater structural protection and real-time risk monitoring, but also delivering what we believe is a superior risk adjusted return profile compared to cash flow lending. Our flexibility to allocate capital to the most attractive risk return investment opportunities is especially critical in a market where selectivity and downside risk mitigation are paramount.

Now let me turn to the portfolio. At quarter end, the comprehensive investment portfolio consisted of $3.1 billion of investments with an average exposure of approximately $3.2 million. Measured at fair value, 98.2% of our portfolio consisted of senior secured loans with 96.4% invested in first lien loans, including investments in our SSLP. And only 0.2% was invested in second lean cash flow loans with the remaining 1.6% invested in second lean asset-based loans. At quarter end, our weighted average yield on the portfolio was 12.2%, up from 12.1% the prior year after.

Based on our quantitative risk assessment scale, our portfolio currently has one of the strongest credit profiles in our history. At quarter end, the weighted average risk rating was under 2 based on our 1 to 4 risk rating scale, with 1 representing the least amount of risk. Just under 90% of the portfolio was rated 2 or higher. Moreover, 99.4% on a cost basis and 99.6% on a fair value basis was performing with only one investment on non-accrual.

Now let me touch on each of the 4 investment verticals. Cash flow sponsor finance. In this business, we originally first leaned senior secured loans to middle market companies in non-cyclical industries such as healthcare, business services, and financial services. This has helped to mitigate the impact on the portfolio from cyclical economic factors. At quarter end, this portfolio was just under $590 million across 35 borrowers.

Representing 19% of our comprehensive portfolio. With approximately 99% of this portfolio invested in first lien loans, we believe we are well positioned to withstand pressures that our borrowers may face. Our borrowers have a weighted average EBITDA approximately 90 million and carry low LTVs of under 44%.

Sponsor finance, the portfolio company EBITDA, and revenue growth continues to be in the mid-single digits year over year. Overall, they have successfully managed the transition to an environment with higher cost of capital as well as inflationary premiums.

Weighted average interest coverage on this portfolio increased to 2 times from 1.8 times the prior quarter. Additionally, only 2% of our gross income is in the form of capitalized pick income from cash flow borrowers resulting from amendments. During the quarter we made investments of $45 million in 1 million cash flow loans and had repayments of $73 million. As Michael mentioned, sponsor finance deal flow continues to be muted due to lower M&A volume, and we are selectively letting investments go in connection with refinancing if the new risk return profiles do not meet our criteria.

As credit investors focused on downside protection, our ability to say no and pass on opportunities that don't meet our high hurdle can often be measured by the investments that we don't do. At quarter end, the weighted average cash flow yield was 10.4% compared to 10.6% at year end. Thus far in 2025, there's not been a significant uptick in M&A, and the supply demand for middle market debt supporting sponsored finance transactions remains out of balance. In addition, the introduction of punitive tariffs has led to economic uncertainty resulting in widened spreads for new issuance US middle market debt. That said, wider spreads do not compensate for poor credit risk, and we will remain highly selective.

Now let me we turn to our specialty financed segments. Across the board, the credit quality of these investments continues to be solid with attractive LTVs which have meaningful collateral support and borrowing-based structures. Let me first discuss our asset-based lending portfolio. A quarter end, this portfolio to totaled 1.1 billion across 254 issuers representing 37% of the comprehensive portfolio.

Regional domestic banks have continued to adjust their business models in a higher rate environment and are retreating from the ABL market, creating an attractive opportunity for SLR's ABL team. Under tighter credit regulations, regional banks, ABL loans to non-rated companies are bumping into higher risk capital charges, making those business lines economically less attractive for the banks.

SLR is positioned to collaborate with regional banks who are shifting their ABL strategies in reaction to these challenges. Our late acquisition late last year acquisition of the loan portfolio and servicing platform from Webster commercial Services is an example of this. The integration of the portfolio went smoothly and it's performing in line with our expectations. In the first quarter we had approximately 164 million of new ABL investments and repayments of just under $100 million.

The weighted average asset level yield was 13.8% compared to 14.6% the prior quarter. Additionally, we're continuing to see opportunities to provide ABL facilities to traditional cash flow borrowers who are experiencing tightening liquidity pressures. Some sponsor back borrowers who had access to the cash flow and BSL market in a lower rate environment are now more receptive to our ABL solutions in order to provide incremental capital. These ABL facilities carve out working capital assets that are pledged to our borrowing base which support the loan and will provide liquidity for the borrower.

The new business pipeline has also expanded as fallen angel credits and other businesses seek additional liquidity in light of macroeconomic headwinds. Access to the larger SLR platform has allowed SRC to speak for bigger hold sizes and accordingly win more business, which led to our ABL team recently originating some of the largest investments in the company's history.

Finally, our ABL teams added new business development personnel, including senior level highers and origination professionals last year and continued to do so in 2025. Now let me touch on equipment finance.

At quarter end, this portfolio totaled just over a billion, representing approximately 36% of our comprehensive portfolio and was highly diversified across 636 unique borrowers. Credit profile of this portfolio remains stable quarter over quarter. During the first quarter, we originated 128 million of new assets, with the majority of this coming from our business that provides leases to investment grade borrowers for mission critical equipment. We had repayments of approximately 173 million.

Weighted average asset level yield was 11.5%. Our investment pipeline has expanded in conjunction with the disruption caused by last year's regional bank failures, and we are seeing demand from our borrowers to extend leases on equipment rather than buy new equipment at higher tariff adjusted prices. Finally, let me turn to our life science portfolio.

Quarter end, this portfolio totaled 187 million across 8 borrowers. Just under 89% of this portfolio is invested in companies that have over 12 months of cash runway. Additionally, all of our life science portfolio companies have revenues and at least one product in the commercialization stage, which significantly de-risks our investments. Life science investments represented 6% of the portfolio and contributed 13% of our gross investment income for the quarter.

During the first quarter, the team funded $25 million in one new investment and had 45 million of repayments. The quarter end, the weighted average yield on our life science portfolio, including success fees but excluding warrants, was 12.5% compared to 12.1% the prior quarter. While the US remains the most robust global market for biotech innovation and venture funds continue to sit on record levels of dry powder, recent cuts at the FDA and NIH will likely affect research, innovation, and public health initiatives with anticipated disruptions to the pipeline for new medical innovations.

Initial signs of recovery from lower-than-normal originations in life sciences are expected this year, but it may take more time for a substantial market reset until greater policy clarity is realized. It should result in improved investor confidence, increased investment and M&A activity. In the interim, we will continue to focus on later stage by science companies which are in or preparing for commercialization with very little FDA related risk that seek non-diluted capital to fund commercial scale up.

Lastly, let me touch on our SSLP. During the first quarter, we earned income of 1.9 million, representing a 15.7% annualized yield consistent with the prior quarter. During the quarter, we made $6.6 million of new investments and had repayments of approximately $20 million. At quarter end, the SSLP had an additional investment capacity in excess of 70 million and a portfolio fair value of $165 million. Now let me turn the call back to Michael.

Thank you, Bruce. Concerns about earnings and credit quality in private credit and BDC portfolios continue to remain top of mind for investors. We believe many of the decisions taken at SLRC over the last couple of years have put both the portfolio and the company in a position of strength today and view the consistency of results as a testament to SLR's multi-strategy approach to private credit investing.

The operating environment remains highly unpredictable, but we believe our 15 plus year track record with de minimis losses and its successful history of managing through periods of economic distress should give investors comfort to expect more of the same from us. The SLR platform has grown meaningfully over the last couple of years, creating a diversified commercial finance company with broad investment capabilities and deep experience through a 330-member team.

A multi-strategic approach to private credit investing emphasize emphasis on preservation of capital and dynamic portfolio construction with a special financed emphasis differentiates us from the majority of our peers and provides us an investment portfolio that contains very limited investment overlap. This platform growth, along with the stability and performance, positions the company favorably with momentum across our businesses and a growing investment pipeline heavily tilted towards specially financed investments. We are confident that we will remain opportunistic and prudent as we deploy capital with discipline and conviction.

In closing, SLRC trades at approximately a 10.5% di yield as of yesterday's market closed, which we believe presents an attractive investment for both income seeking and value investors and offers a more diversified investment portfolio compared to cash flow only private credit strategies. Our investment advisors alignment of interest with SLRC shareholders continues to be one of our significant hallmark principles.

The SLR team owns over 8% of the company's stock and is a significant percentage of their annual incentive compensation invested in SLRC stock each year. The team's investment alongside fellow institutional and private wealth investors demonstrates our confidence in the company's portfolio, stable funding, and earnings outlook. Thank you all again for your time today. As we know it's a busy day for those that follow the listed BDC marketplace closely. Operator, will you please open the line for questions.

Thank you. And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing 2. Once again, that is star and 1 to ask a question. And we will take our first question from Eric Zwick with Lucid Capital Market. Please go ahead to where the line is open.

Thank you. Good morning, everyone. I wanted to start with just kind of follow up on some of your commentary about the pipeline being more weighted towards the ADL and equipment finance opportunities. I wonder if you could just maybe put some rough percentages around the pipeline through your main lending verticals, as well as touch on where spreads are today versus say 3 to 6 months ago.

Sure, great question. The pipeline, I would say is 75-80% weighted towards ABL in particular, and as a reminder, our ABL strategies cover not only regional areas of focus but also industry focus such as healthcare, digital media, apparel in connection with the Webster acquisition. So it's across industries and the country. So that that is the dominant part of our pipeline. I think if you look at pricing, we really don't think of this as a spread business. This is an all in return business because there are a variety of fees that go into the eventual IRR and this has been, one of the hallmarks of ABL lending is that it doesn't have the same variability. It didn't GAAP out. The way cash flow lending did when rates popped up to 5.25% base rates, but it also doesn't compress to the same extent, so it tends to be an absolute return asset class that moves between I would say 11 and 13% depending on where we are in the cycle. Today it's probably in the midpoint.

That's helpful, thanks. And just in terms of, I think you used the word opportunistic in terms of cash flow lending opportunities that you would choose to move forward, I wonder if you could just kind of maybe generally give a kind of a description of something you've done recently where you did see what was attractive about, a cash flow deal that you've done recently.

Yeah, most of what we're seeing, and this is consistent with the broader. A cash flow. You're not seeing the creation of many new platforms and so what's attractive to us is to finance a tuck in acquisition. It's a seasoned platform that the sponsors owned for a couple of years, probably only have a couple of years left on the facility, so it gives us a short duration and an ability to re-underwrite in 2 years, 3 years, determine if we want to stay in or move on. And again we're financing an add-on acquisition so the business is growing.

Technically additional equity might be coming in alongside that and it will be in a sector that both the sponsor and we are extremely comfortable with. So, we saw this similar dynamic in this location in 23. And we're able to take advantage of it. So that's the typical opportunity that we would see, the ability to finance an acquisition or two as the sponsor is getting closer to potentially exiting that investment.

That's a great color. Thank you. And last one for me, it looks like the contribution from Kingsbridge in the quarter was up relative to where I've been in the last few quarters, curious if there's anything kind of one time in nature there or is that a decent run rate going forward?

Yeah, it's a combination. There's some one time where they had some gains from some asset sales, but it is continuing to perform well, as we mentioned in our comments. This is an environment where Borrowers will extend their leases, and that's just falls to the bottom line is additional income so we're cautiously optimistic, but there is definitely a little bit of one-time elevated income in Q1.

Thank you. That's all for me today. I appreciate it.

Thank you.

Thank you. And as a reminder, if you would like to ask a question, please press the star and one on your telephone keypad now. And we will take our next question from Melissa Weddle with JP Morgan. Please go ahead.

Good morning. Thanks for taking my questions today. First, I wanted to say thanks for talking about how you're monitoring tariff exposure in the portfolio. I may have missed it, but did you give sort of a ballpark estimate of tariff exposed companies in the portfolio?

No, you didn't miss it as always, Melissa, you're on top of it, specifically. Let me just comment that if you think of the industries where we are lending into healthcare services, business services, financial services, all domestic, by definition, it would actually be difficult to have much exposure just because we're service-based, US service based, and recession resilient businesses that are not dependent on the global economy, broadly speaking.

So, as we look at it, we really think less than 1% of the portfolio has any direct exposure. There are a couple of healthcare companies in life sciences that may manufacture goods in Mexico. We think those are exempt and a small part of the business that those companies do, but we're trying to really dig into every little. Opportunity to face some headwinds and we feel very good about it. I think as we also mentioned a corollary is we're more focused on policy around healthcare policy than we are around tariffs given the construct of our portfolio. We'll say that in our ABL portfolio there are borrowers because we're financing inventory in a number of cases. That are going to struggle, but because we are lending against liquid collateral, we feel extremely well protected.

Obviously, we're monitoring these borrowers and because we are Monitoring and have a front row seat on trends in their receivables and their inventory turns, collections, we can see if they're beginning to struggle and clamp down on our advance rates and make sure that we continue to be protected. So it's not to say that our ABL borrowers won't have some headwinds, but we feel extremely well. Given both our collateral and our underlying controls and ability to monitor that risk real time, but I think broadly we're more focused on some of the policy initiatives around healthcare as we touched on and how that may impact not so much existing investments but the future pipeline.

Well, that's very helpful. I appreciate the extra detail there. To follow up on a comment you made about the equipment finance business and you're seeing borrowers wanting to extend leases rather than go buy, more expensive new equipment in a sort of post-tariff world, is that why is that repricing that extension? Is that why the yield on that portfolio was up meaningfully quarter over quarter?

It is, but, as I've mentioned also, there are some one-time gains as they had some assets that they were able to sell off because the equipment finance business is selling off streams and keeping the residuals, and there is profit in that residual. The profit increases to your point if they extend the leases because they have sold off the stream and so that's additional profit that falls to the bottom line. It's too soon for us to know what the run rate of that will be. So, there is some one time, as I mentioned in Q1, but we do think that there's an opportunity to have elevated income subject to how the tariffs play out because again the borrowers both because of the increased cost of new equipment as well as the uncertain economic environment, it's easier to extend the lease than to start expanding capital expenditures.

Makes sense. Thank you.

Thank you.

Thank you. And it appears that there are no further questions at this time. I will now turn the program back to Michael Gross for closing remarks.

I just want to say thank you for all your time on what we know is a busy earning season, as always, if you have any follow-up questions, please feel free to reach out to any of us. Have a great day.

Thank you. This does conclude today's presentation. Thank you for your participation. You may disconnect at any time.