Earnings Call Transcript - KREF Q4 2021

Operator, Operator

Good morning, and welcome to the KKR Real Estate Finance Trust, Inc. Fourth Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Jack Switala, Speaker

Great. Thank you, operator. Welcome to the KKR Real Estate Finance Trust earnings call for the fourth quarter of 2021. We hope that all of you and your families are safe and healthy. As the operator mentioned, this is Jack Switala. Today, I'm joined on the call by our CEO, Matt Salem; our President and COO, Patrick Mattson; and our CFO, Mostafa Nagaty. I would like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor Relations portion of our website. This call will also contain certain forward-looking statements, which do not guarantee future events or performance; please refer to our most recently filed 10-K for cautionary factors related to these statements. Before I turn the call over to Matt, I will provide a brief recap of our results. For the fourth quarter of 2021, we had GAAP net income of $35.2 million or $0.59 per share. Distributable earnings this quarter were negative $2.9 million or negative $0.05 per share due to $0.55 per share in realized losses on loan write-offs this quarter. Book value per share as of December 31, 2021, increased to $19.37, which includes the cumulative CECL impact of $0.39 per share compared to $19.09 per share as of September 30. This increase in book value was largely driven by CECL reversal benefit along with an accretive equity offering in October of 2021. This is the seventh consecutive quarter in which we have grown book value per share. Finally, in mid-January, we paid a cash dividend of $0.43 per common share with respect to the fourth quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 8.1%. With that, I'd now like to turn the call over to Matt.

Matt Salem, CEO

Thank you, Jack. Good morning, everyone, and thank you for joining the call today. KREF achieved record originations this quarter, closing on 18 loans for $1.8 billion, concluding a record year of $4.8 billion. In 2021, we expanded our portfolio by approximately 35%, growing from $5 billion at the beginning of the year to $6.8 billion by year-end. I want to point out four major factors that contributed to our increased activity. First, our real estate credit team has grown to 53 professionals from 24 prior to COVID, and our senior investment team now includes 8 senior originators with strong relationships with borrowers and brokers. In 2021, we originated 37 loans, with 24 going to repeat borrowers. Second, we've expanded our range of commercial real estate lending products across KKR, allowing us to provide various solutions to our clients, including fixed rate, floating rate, and core to value-add. This wider product range contributed to over $14 billion in total KKR Real Estate credit originations in 2021, enhancing our client relationships. KREF is well-positioned to leverage this increased connectivity as the first priority in the allocation waterfall for senior floating rate commercial real estate loans. Third, we've utilized the KKR platform to diversify our capital base further, including upsizing existing facilities like our CLO and Term Loan B under favorable terms, raising bespoke non-mark to market financing, and strategically increasing our permanent equity base through issuing fixed for life preferred shares and raising common equity. Finally, we have greatly benefited from being integrated within the broader KKR organization; we have unique access to economic insights from our global macro team, which are particularly valuable in a changing interest rate environment, as well as real-time market and property-level data from our real estate private equity team. KKR has been our largest shareholder since our inception, owning 23% of our shares today. These factors drove our originations above $1 billion in both the third and fourth quarters, and we anticipate a similar originations pace moving forward. However, despite this record growth, our credit denominator remains stable. Currently, 46% of our portfolio is in multifamily properties, 28% in office assets, of which 91% is Class-A. In the fourth quarter, we closed 18 loans totaling $1.8 billion, with 13 loans in the multifamily segment, representing 64% of our fourth-quarter originations. We also originated two loans each in the office and life sciences segments, making up 18% and 14% respectively, along with one hospitality loan for $66 million, which accounted for 4% of our fourth-quarter originations. These loans were underwritten at attractive low double-digit weighted average IRR, consistent with our pre-COVID target returns. In the fourth quarter, we received $680 million in repayments from six loans, including three partial paydowns. We indicated to the market that the latter half of last year would see higher repayments, and while predicting repayments is always challenging, we now expect a more typical repayment rate of around $2 billion per year, with a slight bias towards the first half of 2022. Since the onset of COVID, our earnings have benefited from LIBOR floors; however, these floors are transitioning through repayments and portfolio growth. Our new originations have floors set close to zero. In the upcoming quarters, we anticipate income will become positively correlated with increases in short-term interest rates. Additionally, amidst the current rate environment, we view the senior secured CRE loan market positively. We have already seen strong activity in January and have nearly $900 million in loans that are either closed or under exclusivity since the end of the quarter. Our pipeline is primarily made up of multifamily loans, but we also plan to remain active in growth segments such as life sciences and industrial, which now represent 9% and 4% of our portfolio respectively. I would like to conclude by noting that while we achieved a record quarter and year, our portfolio is currently stronger than it has been since the start of COVID. The portfolio is fully performing and entirely floating rate, with a weighted average LTV of 68%. At the beginning of the pandemic, we placed seven loans on our watch list, and currently, only three risk-rated loans remain, each of which has positive momentum. Lastly, I want to take a moment to express my gratitude to our CFO, Mostafa Nagaty, who will be leaving us in early March to pursue other opportunities. Mostafa has been an essential part of our team and has made significant contributions since joining in 2018. We wish him success in his future endeavors. Now, I'll turn the call over to Patrick.

Patrick Mattson, President and COO

Thank you, Matt, and good morning everyone. I'll first touch on our capital base, which has grown over the course of the last 12 months to support our $6.8 billion funded portfolio as of year-end. On the liability side, we executed a $350 million repricing and add-on to our Term Loan B in the fourth quarter, reducing our cost of capital relative to our inaugural issuance by 175 basis points. Just last week, we priced a $1 billion CRE CLO supported by 100% multifamily properties with an investment-grade advance rate of 84.75%. This is our third CLO and our second issuance within the last 6 months. This transaction will result in approximately $850 million of new match term, non-mark to market and non-recourse liabilities, increasing our percentage of non-mark to market liabilities back above 75%. The CLO priced to weighted average running cost of capital of term SOFR plus 171 basis points before amortized fees and expenses. Relatedly, going forward, we expect all our new loan originations and associated financings will be SOFR based. While existing loans financing facilities and future borrowing on existing financings may remain in LIBOR until June 2023, we are actively managing the LIBOR to SOFR transition with the goal of mitigating basis risk. Turning to other areas of our capital structure, in January, we raised approximately $155 million of gross proceeds through a follow-on issuance of our Series-A preferred shares at a fixed for life cost of 6.5%. This permanent capital helped support a funded portfolio of $6.8 billion as of year-end, which grew by over $950 million in Q4 on a net basis. This raise, along with the issuance of approximately $125 million in common equity in October 2021, which is accretive to book value by $0.22 per share, helped grow our permanent equity capital base to approximately $1.5 billion today. I also want to touch on the positive momentum we are experiencing with respect to our watch list. The current portfolio has a risk rating of 2.9 on a 5 point scale, a slight improvement from 3.0 last quarter. Notably, 94% of our loans are now risk-rated 3 or better, compared to 91% last quarter and 84% as of year-end 2020. At the beginning of the pandemic, we placed seven loans on the watch list, and today only three remain. Most recently, in January, our Brooklyn-based hospitality loan, originated in January 2019, was repaid in full through a property refinance with the money center bank. In December, we took title to the Portland retail property we had discussed on our Q3 call. We've capitalized the property through a joint venture with our partners at Urban Renaissance Group or URG and are beginning the planning phase for the revitalization process of Lloyd Center. URG is a full-service institutional real estate company with a local Portland presence that specializes in re-imagining, developing and managing Class-A commercial real estate. On the equity side of our business, we have a longstanding relationship with URG, where we own 2.6 million square feet of Class A office across the Fusion Sound region. From an accounting perspective, we were more than adequately reserved for this loan on a GAAP basis with a CECL reserve of $40.3 million as of Q3 on a $109.6 million outstanding principal balance. As a result, in Q4 we recognized an $8.2 million GAAP gain from the CECL reversal regarding this loan. We also realized a $32.1 or $0.54 per share loss on this loan through distributable earnings, contributing to the negative $0.05 per share in Q4 DD. We are seeing positive underlying trends with our remaining watch list loans. For example, our New York luxury condo loan, which had an initial loan balance of $240 million, has now been paid down to $40 million through unit sales, with only 6 units remaining to be sold, 3 of which are under contract. Lastly, KREF finished the quarter with a strong liquidity position of approximately $530 million, which included over $270 million of cash and $200 million in undrawn corporate revolver capacity available to us. We also had $235 million of unencumbered and unpledged loans as of quarter-end that can be leveraged to provide additional liquidity. In summary, a record originations quarter capped off a record year with $1.8 billion in originations last quarter, and a solid start to the year with $900 million closed or under exclusivity since year-end. We grew the funded portfolio by over $950 million in Q4 to a record $6.8 billion, compared to $5 billion at the start of 2021, all while maintaining our high credit quality standards. We expanded our permanent equity base to approximately $1.5 billion, raising $120 million in accretive common equity in October 2021 and approximately $155 million in gross proceeds of preferred stock last month. Lastly, book value increased by $0.28 per share in Q4 and was the seventh consecutive quarter of book value per share growth.

Operator, Operator

Thank you. We will now begin the question-and-answer session. And the first question will come from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani, Analyst

Thank you very much. Can you talk to where you see levered ROEs in the business, if they are consistent now versus prior periods? And also, what if any rough commentary you could give towards sequential earnings trajectory; one of your peers did talk about NII outlook based on timing of originations repayments, noting that this quarter for KREF distributable EPS ex-items was around $0.50, still in excess of the dividend, but yields are coming in. So just if you could talk to levered ROEs and maybe something around earnings trajectory.

Matt Salem, CEO

Sure, Jade. Thanks for your question and for joining the call today; it's Matt. Let's address the first part. I believe returns are generally in line with what we experienced before COVID on a return on equity basis, estimating that to be in the range of 11% to 13%, which is quite healthy. It's important to note that the components of that return are primarily at the asset level and are currently spread out, with most new loans we're making having a SOFR floor close to zero. Therefore, those returns on equity will benefit from future rate increases. This trend has been consistent over the last few quarters, and the market currently appears stable on both the asset and liability sides. As for earnings, we aren't providing projections at this time, but we've communicated a couple of points to the market. First, as our LIBOR floors expire and we reset the portfolio to zero LIBOR or SOFR floor, we expect earnings to decrease to levels similar to those observed before COVID. We anticipate this will occur. However, on the positive side, as indicated in our prepared remarks, the portfolio will become increasingly sensitive to short-term interest rate increases over the next quarter or two, potentially leading to growth from that perspective.

Jade Rahmani, Analyst

Thank you. Just on the credit side, how would you describe the quality and characteristics of post-COVID, post-March 2020 originations versus the preceding period? Is it consistent? Are there any changes? I know you've increased exposure to industrial life sciences; multifamily remains the core focus. Beyond that, anything more specifically you could provide on just how credit might compare?

Matt Salem, CEO

From a pre-COVID basis, Jade?

Jade Rahmani, Analyst

Yeah. The loans you're doing now; clearly, the production level has materially increased, and the platform has grown. The types of deals you're looking at are probably a lot broader than before. So, how would you characterize credit characteristics?

Matt Salem, CEO

I would approach this from a couple of angles, focusing on both the equity and credit sides. Overall, the market is quite favorable now, even more so than in the second quarter before COVID when considering fundamental lending aspects. On the equity side, the underlying conditions are strong, with noticeable rent increases and considerable demand for real estate from capital allocators in favored property types. There is significant momentum from investors seeking yield on real assets as a hedge against inflation, which is driving up transaction volumes. This surge in transaction volume is filling our pipelines. If we examine our activity in the fourth quarter alongside some of our peers, it reflects all this demand and activity on the equity side as we support the transaction volume. When we turn to the credit side, thanks to these substantial volumes, the market is currently very balanced. Loan-to-value ratios are reasonable, and covenants and cash flow sweeps remain consistent with previous quarters. We are not experiencing pressure from capital or from the search for yield in the current market. Thus, there are plenty of transactions to consider, and the lending environment is very balanced at this time.

Jade Rahmani, Analyst

Thanks for taking the questions.

Matt Salem, CEO

Thank you.

Operator, Operator

The next question is from Tim Hayes with BTIG. Please go ahead.

Tim Hayes, Analyst

Good afternoon, everyone. Congratulations on a strong quarter. My first question is about asset sensitivity. Matt, you've discussed it quite a bit, but do you have an estimate for how much of the portfolio needs to turnover before we can benefit from a 50 basis point rate hike? I'm interested in any internal modeling you can share or at least what point you anticipate that happening, considering the pipeline and repayment activity you see. When do you think you'll be able to take advantage of a modest increase in short-term rates?

Matt Salem, CEO

Tim, thank you for being on the call and for your question. We have a better understanding of the timing than the sensitivity at this moment. While it’s possible to calculate, it involves multiple variables, and predicting repayments and originations is a complex modeling task that could introduce additional uncertainty regarding potential impacts. Nevertheless, I am confident that in the next quarter or two, we will see positive responsiveness to those interest rates. The portfolio growth and repayments since COVID indicate that the portfolio is quickly repositioning and has made significant progress. There is still room for improvement; some charts in the earnings supplement show that sensitivity has decreased considerably, and we anticipate a turnaround in the first and second quarter. I wish I could provide more specifics, but it remains somewhat unpredictable.

Tim Hayes, Analyst

I appreciate the clarification. When you mentioned the next quarter or two, I wasn't certain if you meant the end of the first quarter or early second quarter or the end of the second quarter or early third quarter. It sounds like you're referring to the earlier timeline, which is encouraging. I have a question that I've asked before. You guys have been involved with the broader KKR platform and recently acquired a residential transitional lending platform. You've also expanded your focus on single-family rentals over the summer in terms of equity. I'm curious if KKR plans to make further moves into these asset classes that are not traditionally associated with KREF and your lending portfolio. What kind of benefits could that provide, and do you see opportunities to broaden your focus in that area?

Matt Salem, CEO

That's an important question, and we consider it daily. Primarily, it relates to market connectivity. To put it simply, our equity business has significantly expanded, utilizing various vehicles that are currently investing across both opportunistic and core plus strategies and engaging in many different property types. We've become a more significant partner for banks, brokers, and operating partners, which leads to enhanced opportunities and connections with the overall markets. That is our top priority; we've developed much deeper relationships within the real estate sector. Secondly, as we begin to invest in equity in areas where we haven't previously been involved, we gain valuable market data and insights that enhance our confidence in making transactions on the debt side as well. For instance, we've built a substantial history in single-family rentals, which has informed our lending portfolio in that area; it’s an essential segment for us, and we remain actively engaged there. Similarly, in industrial real estate, we have a considerable portfolio and have been involved in that market for quite a while. The size of our portfolio provides us with a wealth of market data, enabling us to seize opportunities thanks to our insights, which may not be available to some competitors. Additionally, we have a global real estate equity platform and are pursuing the development of a team in Europe. I anticipate we will be active there, maintaining a collaborative and integrated approach across both debt and equity, and I expect our engagement in Europe to grow throughout the year.

Tim Hayes, Analyst

And can you just remind me kind of just where you're at with that initiative in terms of building up the team in Europe? And are you acquiring existing infrastructure/teams that are already based there or is it being built out organically?

Matt Salem, CEO

No, we have hired someone to lead that effort, his name is Ali Imran, who came over from LaSalle. He is currently working with us in London, and we are in the process of building his team. Once the team is established, we will begin lending.

Tim Hayes, Analyst

Got it, got it. Okay. Well, thanks for taking my questions this morning.

Matt Salem, CEO

Thank you, Tim.

Operator, Operator

The next question will be from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws, Analyst

Hi, good morning. I wanted to touch on just geographical; it looks like the exposure to Florida roughly doubled sequentially. Can you talk about your origination pipeline there? Is it existing borrowers taking you to Florida, or is it you guys winning new relationships there? Kind of talk about the strength in that market, please.

Matt Salem, CEO

Thank you for the question, Steve. Florida is clearly a growth market with strong fundamental support. This illustrates how our other investment areas are synergistic with KREF. For instance, we've significantly boosted our lending in the insurance segment through our affiliate Global Atlantic, enhancing our borrower relationships, especially in the core plus and multifamily sectors. Previously, we lacked connections in this area due to cost of capital constraints. Many sponsors are primarily core plus borrowers but also require KREF-type loans, which has driven our increased activity, expanding our client base. This year, in Florida, many of our newer clients were active in the multifamily market, allowing us to work with them on KREF transactions as they purchased properties. Given Florida's demographic growth, we're positioned well for multifamily equity and lending investments, driven by our new client base and multifamily originations in a supportive market.

Stephen Laws, Analyst

Great. Thanks. And then to touch on unfunded commitments; that's kind of increased over the past year, probably by design, but can you talk a little bit about what's driving that? Is it the shift in mix? Are you doing some things with more deferred financing involved? Kind of what's driving the increase there?

Matt Salem, CEO

Yeah, I can start out, and then Patrick, feel free to jump in with anything that I miss. It is by design; I think when we think about some of the business plans that we're lending on, some of the market opportunity that we're seeing, it comprises a larger piece of future funding, the most obvious being construction lending. If you look at what we've done on a post-COVID basis, we have done a bit more construction lending, most of which has been in the industrial segment of the market. Clearly, when we think about future funding, several things we consider are cash drag, liquidity constraints, and how quickly the capital gets allocated into the loan. I think from an industrial perspective, the construction period is typically very short, and you get capital into the ground relatively quickly, but that's really what's driving that number. I think we're in the band of where we'll be going forward; of course, it will bounce around from quarter to quarter, but it's in the range of what we would expect over the next few quarters.

Stephen Laws, Analyst

Great. Appreciate the comments.

Matt Salem, CEO

Thank you.

Operator, Operator

And the next question will be from Don Fandetti with Wells Fargo. Please go ahead.

Don Fandetti, Analyst

Yes, Matt. I was wondering if you could talk about your CLOs; are you seeing the same buyers or investors today that you saw pre-COVID? And how much debt do you think there is to that market to handle, sort of, like say, credit widening hiccups and things of that nature?

Patrick Mattson, President and COO

Hey, Don. Good morning; it's Patrick, I'll take that one. I think as we think about the CLO market today, obviously, last year was a huge year in issuance. The segment has really grown significantly over the last couple of years. As part of that, we've seen a widening of that investor base throughout this time. I think if you sort of fast forward to today and we see the deals that are getting done, I think we largely see that same investor base buying. I think the big difference that we're witnessing in the first part of this year is the demand and the size allocation that some of those large buyers were previously taking has been reduced. The question will be, is that a short-term phenomenon or will that persist over the longer term? Obviously, to get to the type of gross CLO volumes that we had last year, those buyers have to be bigger in the space or we have to grow the investor base, but we're seeing a little bit of a pullback in the market, just given some of that demand; not that people are exiting the market, but that people aren't buying as much.

Matt Salem, CEO

One more thing I would add to that also is that we really take advantage of that market opportunistically, and we've got so many other options within KREF; I think you've really seen us being a leader through Patrick and through our capital markets team developing this bespoke non-mark to market facilities. Of course, we're the leader in terms of that component of our liabilities. So for us, it's not necessarily a material thing whether that market is attractive or not because I think we have a lot of other outlets to go to, but clearly, we watch it as an indication for return on equity for the competitive set.

Don Fandetti, Analyst

Thank you.

Operator, Operator

The next question will be from Rick Shane with JPMorgan. Please go ahead.

Rick Shane, Analyst

Hey guys. Thanks for taking my questions this morning. Look, it's interesting; almost two years to today, before COVID and everything that's happened, we would have been talking a lot about CECL reserves. The good news is that we're kind of going back now to where we were hopefully two years ago and you're going to drive some good growth; we're going to have some good loan growth, and we're going to have a normalization of reserves. With all of the information that you have gathered over the past two years and sort of thinking about CECL reserves from an actuarial perspective, how many basis points roughly, when you add $100 million of loans, for example, should we expect in terms of incremental reserve? Because it's going to be an important part of the story over the next few years?

Mostafa Nagaty, CFO

Hi Rick, this is Mostafa. I'll take this one. Regarding the CECL reserve, the model we use, like our peers, is closely tied to the macroeconomic environment. A key factor is the CRE price index projections for the upcoming quarters. The type of property also influences the CECL reserve. It’s difficult to identify a specific CECL reserve for new originations. Historically, if you look at the quarter-over-quarter change in our CECL reserve, we ended Q3 with about 110 basis points of CECL reserve on the outstanding principal balance of our loans and Q4 with about 37 basis points. This significant reduction was mainly due to a $40 million reversal on the CECL for the Lloyd loan we wrote off in Q4. Most of our reserve has historically been linked to watch list loans. To answer your question, besides the macro environment, which is a key factor for our CECL reserve, any notable changes would be linked to shifts in our watch list loans. We anticipate a stable macroeconomic environment, and we expect the CECL reserve on performing loans to fall within a range, but without providing specific numbers, it could be around 20 to 50 basis points depending on the macroeconomic climate.

Rick Shane, Analyst

Got it.

Patrick Mattson, President and COO

It does, and obviously we understand the difference between the specific reserve and the general reserve. I'm thinking about this more from a general reserve perspective. I am curious, so the 20 to 50 basis points is a pretty wide range, and I think our expectation is somewhere in the middle of that. If you were to go back to your day one general reserve, what has changed in your thought process on the general reserve from day one to February 2022?

Mostafa Nagaty, CFO

Yeah. If you look at the general reserve that we had pre-COVID and the first quarter or the initial 1/1/2020, our CECL reserve was 109 basis points; so it was not significant pre-COVID. Post-COVID, obviously, all our peers have increased their CECL reserve significantly as a result of the impact of COVID on the macro environment. So again, it's very highly sensitive to the macroeconomic environment. It's hard to pinpoint a range or a number, but it is just hard to tell. I can tell you that day one pre-COVID, our CECL reserve was lower than Q1 2020. Right now we're reaching a phase where our CECL reserve is more stable given the macroeconomic backdrop. As long as this continues, we expect it to be at that phase that I alluded to earlier.

Rick Shane, Analyst

Okay, thank you very much.

Operator, Operator

The next question is from Steve Delaney with JMP Securities. Please go ahead.

Steve Delaney, Analyst

Thank you. Good morning everyone. So I wanted to ask a question about leverage. In the fourth quarter, we saw it move up to 3.7, really on the strength of about $800 million in net fundings in the quarter. Now Patrick's presented us with FL3, and you now have CLO financing of about $2 billion, and that looks to be about 40% of total funding. FL3 looks like initial, and you've got two years of reinvestment, but 5 times leverage, right, with an 84% advance rate. So my question is this: with the commercial mortgage REIT industry, we're sort of accustomed to thinking about leverage of 3 times, 3.5 times, but it looks like to me for this year, when we update the models and roll it forward, it looks like KREF may average something north of 4 turns of leverage just because of the benefit of the higher advance rates on the non-recourse CLOs. Could you comment on that and if we come out with a model that shows 4 times, 4.25 times debt to equity, are we thinking about that wrong?

Patrick Mattson, President and COO

Good morning, it's Patrick. I appreciate your question. When we engage in the CLO, we’re not adding new debt but rather reallocating existing loans from various sources, such as repo and warehouse facilities. The advance rate based on our asset profile is quite high, nearing 85%. We can reduce leverage on other assets in the portfolio by utilizing our unencumbered assets through the CLO strategy. Additionally, transitioning from the fourth quarter to the first quarter, we raised preferred stock, which counts as equity and will help balance our leverage. We're looking at a target leverage in the mid-to-high threes, which accounts for all our financing, including CLOs.

Steve Delaney, Analyst

I understand that you're highlighting the benefits of higher leverage on multifamily loans and the CLOs. However, overall, it seems that the additional net cash from the CLO refinancing will primarily be used to pay down other debt and to increase unencumbered assets. This clarification is useful because without considering that, we might end up with a figure higher than your run rate of 3.7. Thank you for that insight.

Patrick Mattson, President and COO

Sure. You're welcome.

Steve Delaney, Analyst

That's all for me. And I just would say, Mostafa, all the best in the future; we've enjoyed working with you. Thanks.

Mostafa Nagaty, CFO

Thanks a lot; I appreciate it.

Operator, Operator

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.

Jack Switala, Speaker

Great. Thanks, everyone for joining today's call. Feel free to reach out to me or the team here with any follow-up questions. Take care.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.