Werner Enterprises Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 7, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Bridge Investment Group Second Quarter 2024 Earnings Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Bonnie Rosen, Head of Shareholder Relations for Bridge Investment Group.

Operator

Thank you. You may begin.

Speaker 1

Good morning, everyone. Welcome to the Bridge Investment Group conference call to review our Q2 2024 financial results. Prepared remarks include comments from our Executive Chairman, Robert Morse Chief Executive Officer, Jonathan Slager and Chief Financial Officer, Katie Elszemp. We will hold a Q and A session following the prepared remarks. I'd like to remind you that today's call may include forward looking statements, which are uncertain, outside the firm's control and may differ materially from actual results.

Speaker 1

We do not undertake any duty to update these statements.

Speaker 2

For a discussion of some

Speaker 1

of the risks that could affect results, please see the Risk Factors section of our Form 10 ks. During the call, we will also discuss certain non GAAP financial metrics. The reconciliation of the non GAAP metrics are provided in the appendix of our supplemental slides. The supplemental materials are accessible on our IR website at ir.bridgeig.com. These slides can be found under the presentations portion of the site along with the Q2 earnings call event link.

Speaker 1

They are also available live during the webcast. We reported GAAP net income to the company of approximately $27,500,000 for the Q2 of 2024. On a diluted basis, net loss attributable to Bridge per share of Class A common stock was $0.11 mostly due to changes in non cash items. Distributable earnings of the operating company were $35,500,000 or $0.19 per share after tax and our Board of Directors declared a dividend of $0.13 per share, which will be paid on September 13 to shareholders of record as of August 30. It is now my pleasure to turn the call over to Bob.

Speaker 3

Thank you, Bonnie, and good morning to all. Bridge reported improved financial results for the Q2 of 2024 with fee related earnings to the operating company increasing 6 percent from last quarter and distributable earnings increasing 10%. Despite the challenges posed by malaise in the real estate markets, in large part due to the rapid rise in interest rates and borrowing costs over the past 2.5 years and also by shifting use cases both positive and negative, we have successfully navigated through this period. To do so, we focused on selective asset acquisitions of compelling value, industry leading asset performance with our forward integrated property management capabilities and carefully selecting the sectors in which to invest. Through this period, Bridge delivered resilient results.

Speaker 3

Since the peak of the real estate markets in the Q4 of 2021, we have increased recurring fund management fees at a 26% compound annual growth rate from $34,000,000 in 4Q 2021 to $60,400,000 in 2Q 2024. This growth trajectory underscores our ability to navigate and capitalize on market dynamics. Fee earning AUM has also shown robust growth, increasing at a 21 percent compound annual growth rate from $13,400,000,000 in the Q4 of 2021 to $21,500,000,000 in the Q2 of 2024. This growth has been fueled by successful fundraising efforts, particularly in our flagship real estate strategies and by the strategic acquisition of Newberry Partners, our bridge secondaries business. We are seeing increasing signs of moderating inflation and further evidence that macro conditions are conducive to Fed actions to reduce interest rates.

Speaker 3

Rates have already declined meaningfully from higher levels earlier in 2020 24 and market expectations are that the Fed will implement at least 2 rate cuts before the end of the year. If this occurs and especially in conjunction with some of the real estate specific factors that Jonathan will detail, it is expected to benefit and the broader private assets ecosystem. Already in the past 60 days, yields have declined approximately 93 basis points or 19% in the 2 year treasury and 60 basis points or 14% in the 10 year treasury. Lower borrowing costs and a more stable inflation outlook enhanced the attractiveness of real estate investments and provide a conducive environment for continued growth. I mentioned earlier that shifting use cases were driving opportunities in selected sectors and Bridge is well positioned.

Speaker 3

Macro dynamics around residential rental, logistics and credit should provide tailwinds for investment in those sectors. Our focus on middle income and workforce housing is especially attractive at times of slowing economic activity. And in combination with higher mortgage rates, the target renter population is larger than ever. Additionally, our focus on the value add spectrum of our specialized verticals further amplifies opportunities in the current environment. Our extensive and successful investment history in these sectors reinforces our competitive position.

Speaker 3

Simultaneously, our newer initiatives in solar renewable energy and penetrating the accredited investor retail channel are starting to bear fruit. Throughout market cycles, our forward integration and sector specific expertise remain pivotal differentiators. Our sustained operational focus continues to yield results across our real estate portfolios, particularly evident in recent times as the impact of leverage during the quarter we proudly welcomed Alison Brown as President of Bridge Property Management and Deputy CIO for our Bridge Workforce and Affordable Strategies. Alison brings over 25 years of real estate experience and a proven track record of building and supporting successful teams. She joins us from Livecor, a Blackstone Portfolio Company, where she served as SVP of Operations.

Speaker 3

Allison's leadership and knowledge from overseeing a broad array of property management partners will contribute greatly to the continued improvement of our already best in class in house operating capabilities. Turning to capital raising. Throughout the Q2, we continued to foster robust dialogue with investors, sensing an enthusiasm for what appears to be a promising cyclically attractive entry point in the real estate cycle. While sentiment continues to shift more favorably towards real estate, we acknowledge that investors remain cautious in their approach and that the lack of realizations is influencing their broader cash flow allocations. Since the start of this year, our Client Solutions Group has conducted over 6 70 discussions and meetings with institutional investors, complemented by over 1200 engagements with retail investors.

Speaker 3

Our teams have traveled to key global markets, including Europe, the Middle East, Japan, North and South Asia, Canada and across the United States. We raised $305,000,000 of capital during the 2nd quarter and another $400,000,000 subsequent to quarter end for an aggregate of $700,000,000 since March 31. Inflows were primarily driven by 2 of our flagship strategies, workforce and affordable housing and debt strategies, which have recently reentered the markets. Notably, the quarter included the first close for the next vintage of our workforce and affordable housing strategy, which will have a rolling first close in 2 parts to accommodate investor timing. Thus far, the response from both existing and new investors has been encouraging, with many recognizing the attractiveness of the opportunity based on the significant pricing reset.

Speaker 3

In addition, we had the final closing for our latest Opportunity Zone strategy, bringing Fund 6 to approximately $240,000,000 Despite certain tax provisions sunsetting, those that remain still make a compelling case for continued demand for this strategy. We also continued to make progress with our accredited investor strategy launched within our net leased industrial income vertical to capitalize on the growing retail investor segment. As discussed last quarter, we are approved with several major custodians including Fidelity, Schwab and Pershing, as well as I Capital. We've also added our 1st independent broker dealer partner and are in dialogue with many other relationships, which we hope to expand over time. Capital raising for our secondaries platform, Newberry Partners, has been slower than anticipated as investors face the same liquidity challenges that drive the need for secondary solutions.

Speaker 3

However, the expected re ups from predecessor investors coupled with new interest originated by the Bridge Client Solutions Group is generating momentum and we expect to raise capital well into 2025 for this vintage as we build on this traction. Looking ahead, we seem poised at the beginning of a new real estate investment cycle that presents compelling opportunities for improving fund performance, stronger deployment and a pickup in fundraising. This favorable market outlook, coupled with our proven track record and strong investor relationships, positions us well to achieve success in the years ahead. With that, I will turn the call over to Jonathan.

Speaker 4

Thank you, Bob, and good morning. Last quarter, we discussed the bottoming of real estate values and the beginning of price stabilization and equilibrium. This stabilization has built momentum through the Q2. For the first time in over 2 years, Green Street's Commercial Property Index has reported 6 straight months of either stable or rising value. Conditions are ripe for a rebound based on years of subdued real estate transaction volumes, a large wall of near term real estate related debt set to mature and record dry powder.

Speaker 4

Overall, commercial real estate transaction volumes remain 30% to 40% below average levels. Within multifamily, for example, since the beginning of 2023, the average commercial real estate transaction volume has been just $30,000,000,000 per quarter, in contrast to $44,000,000,000 per quarter average from the 3 pre pandemic years of 2017 through 20 19. This means that there has been an $84,000,000,000 deficit in trades, which represents half a year's average volume. The situation is similar in other sectors, which spell opportunity in our view. In addition to the pent up transaction volume, we are also facing a loan maturity wall across the spectrum.

Speaker 4

Again, using multifamily as a proxy for the market in general, there is $470,000,000,000 of debt maturing in 2024 2025, most of which can no longer be refinanced at close to current par. We're beginning to see these assets come to market. Lastly, there is over $150,000,000,000 in dry powder in value add and opportunistic equity funds in North America alongside other $40,000,000,000 in debt funds, which have been patient for a long time and are poised to deploy into repriced assets. A recent investor survey by CBRE expressed that over 60% of commercial real estate investors anticipate increased activity over the next 12 months, while under 10% are expecting less activity. We see all this setting up for a meaningful recovery in transaction volume and value resurgence.

Speaker 4

We're excited for this pivot in market dynamics, but it's important to remember that cyclical recoveries historically have played out over quarters years, not months. Despite slower activity in broader real estate markets, our teams continue to find attractive opportunities. During the quarter, we deployed over $364,000,000 of equity cap. Notably for multifamily, our investments year to date were underwritten to unlevered IRRs that are 30% better than pre pandemic levels and on a replacement cost basis were at 60% versus the pre pandemic average of 80% and at peak nearly 100%. Likewise, Bridge Logistics Properties is seizing on opportunities with prices 40% below their peak and capitalizing on the widest risk spreads since the early 2000s.

Speaker 4

Within secondaries, our team has sourced and closed a number of highly attractive transactions. Our secondary deal flow has been robust as the multiyear drought in distributions from primary investments continues to drive private equity investors to seek alternative liquidity solutions. Given their long standing role in the LP led secondary market, our Newberry partners are a trusted counterparty for limited partners seeking secondary liquidity. With over $3,100,000,000 of dry powder and active investment pipelines across our verticals, Bridge is well positioned to capitalize on the reviving market. On the capital market side, conditions have continued to ease as evidenced by increasing CMBS issuance and a meaningful tightening of credit spreads.

Speaker 4

Specifically, CMBS issuance volume is already 11% higher year to date as compared to the full year of 2023 and spreads on BBB- loans have tightened 285 basis points. We've capitalized on this in our SFR business, Bridge Homes, which just completed a securitized debt financing for Bridge SFR Fund 4. This is our 2nd securitization since acquiring Bridge Homes with the deal pricing 200 basis points lower than the first securitization in November 2022 despite underlying treasury rates being just 2 basis points lower. We had broad participation with 17 investors including 11 new investors from the last issuance and we're able to increase the loan to value to 68% from 62.5%. This improved execution was a combination of better market conditions and a recognition of Bridge SFR's strong operational outperformance.

Speaker 4

Keep in mind that securitization happened before the recent downturn in rates. Despite improving competitive dynamics in the debt market, construction costs continue to outpace inflation, leaving the U. S. Market with a significant deficit in new construction starts for multifamily and logistics, 2 of our core sectors. Over the past 3 years, construction costs have surged by more than 18% with materials and labor in double digit increases.

Speaker 4

As a result, new construction starts are approaching trough levels not seen in a decade with multifamily starts declining by 47% from peak levels and logistics starts falling by 70%. This pivotal shift in supply demand dynamics underpins our positive expectation for long term asset values in these property sectors. The juxtaposition of these rising costs with lower asset values sets up a great buying opportunity. The operating trends in most of our property portfolios remain healthy as Bridge's operational focus continues to drive results. In our most recent multifamily and workforce vintages, we have exceeded our NOI projections by 8.4% life to date.

Speaker 4

In our 1st logistics value vintage, we've exceeded underwritten net effective rents by 20.5 percent on average since inception. In our single family rental portfolio, Bridge maintains a 96% occupancy and first half performance of just over 6% blended rent growth and approximately 9% NOI growth, which are solidly ahead of the public peers who have reported an NOI growth in the mid-four percent range. Now turning to investment performance. Our equity real estate portfolio valuations were roughly flat in Q2, in line with the broader market trends of stabilization. While dispositions have been more limited, the results have demonstrated continued demand for our product with a weighted average IRR of 23.1 percent and a 2.13% multiple on year to date multifamily sales.

Speaker 4

With the potential for a constructive pivot in monetary policy and anticipated improvement in transaction market liquidity and long term favorable supply dynamics in our core property sectors, we're excited about our opportunity set going forward. These improvements won't happen overnight, but the momentum is building and our platform is poised to capitalize on the value recovery and ultimate growth following this dramatic market correction. I'll now turn the call over to Kate.

Speaker 2

Thank you, Jonathan. Bridge's business stability continues to be bolstered by our recurring fund management fees, which increased 1% from last quarter. Fee related earnings to the operating company were $35,900,000 increasing 6% from last quarter. This is mostly attributable to higher other asset management and property income of $2,800,000 which included a one time benefit of 1,900,000 dollars Fee related expenses decreased by approximately $700,000 mostly due to seasonality. On a modeling note, we expect to recognize fee related performance revenue in Q3 2024 related to the crystallization of carried interest for our open end net lease strategy for the first time.

Speaker 2

This is expected to be approximately $5,000,000 on a gross basis and $1,500,000 net. You will see this in a new line item within our non GAAP financial measures and we have updated our FRE definition consistent with the industry convention. The related compensation will be integrated into the cash based employee compensation line within fee related expenses. Should the strategy continue to outperform its performance hurdle, we would expect further positive contribution to FRE in the future. However, we do not anticipate revenue to be material in the near term following Q3.

Speaker 2

This performance is a testament to Bridge's success setting up a new platform and the Net Lease Industrial team's ability to execute on attractive investment opportunities in a dynamic market environment. The earning AUM decreased from $22,000,000,000 to $21,500,000,000 mostly driven by management fees for Newberry Fund 3 moving from being based upon committed capital to being based upon NAV with the fund hitting its 11th year anniversary. Despite this slight decrease, there have been no notable redemptions and 97% of our capital remains invested in closed end funds with a weighted average duration of 6.6 years, ensuring a stable foundation. Further, the capital raise during Q2 and post quarter ended, combined with this deployment, is anticipated to drive positive momentum in the upcoming quarters. Institutional investors continue to seek specialized strategies and favor closed end funds for their stability and strategic focus.

Speaker 2

Conversely, retail investors generally prefer open ended funds for their enhanced flexibility and liquidity. Aligning our product offerings with these preferences allows us to address the needs of both institutional and retail investors, supporting the ongoing resilience and growth of our business. As Jonathan noted, real estate deal volumes in the market appear to be improving. However, a rebound in transaction related revenue could take time to materialize. Fee related margins will continue to be impacted should we have lower transaction fees and catch up fees from capital closing into closed end funds.

Speaker 2

As transaction and capital raising volumes normalize, we expect to see a movement of our margins towards our longer term average of approximately 50%. Distributable earnings to the operating company for the quarter were $35,500,000 with after tax DE per share of $0.19 increasing 12% from last quarter. The increase was mostly due to the items discussed within fee related earnings, along with lower net interest expense and realized loss, partially offset by lower net realized performance fees. Similar to last quarter, performance fee realizations primarily consisted of tax distributions within debt strategies. As a reminder, the non controlling interest for this vertical is 60%, leading to a ratio of 24% of the gross realized performance fees that flow through to the operating company.

Speaker 2

Net accrued performance revenue on the balance sheet stands at 338,900,000 dollars which increased $19,000,000 compared to last quarter. Realization revenue in the near term is expected to remain subdued. However, we are well positioned for an eventual acceleration in the context of improving liquidity in the real estate transaction markets. With that, I would now like to open the call for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from the line of Ken Worthington with JPMorgan. Please proceed with your question.

Speaker 5

Hi, good morning. Thanks for taking the question. I wanted to dig more into the outlook for deployment as we think about the second half of this year. As you mentioned in your prepared remarks, the market has witnessed a pretty meaningful decline in interest rates. Have good amount of dry powder as you also called out.

Speaker 5

Do you see market conditions as being attractive to deploy here? Or does the level of cautiousness that you've expressed in prior quarters really persist to the current day? And do you think sellers are willing to sell given outlook of potentially more favorable interest rates as we look forward? So ultimately, what's the outlook for deployment as we look forward?

Speaker 3

Jonathan, do you want to handle that question?

Speaker 4

Sure. Good morning, Ken. Yes, we I would just say that at this point, the pipeline is picking up. And I think we're seeing that across multiple sectors, both in the industrial side and on the multifamily side. It is certainly not the pipeline that we had pre pandemic levels and it's certainly not the pipeline that we had during the ebullience of the market.

Speaker 4

But I think you heard in my remarks that there's a lot of factors and a lot of reasons to think that, that pipeline will start to resurge relatively soon. And I think that we're already again, the green shoots we keep talking about, we're seeing it, I think, moderately pick up now. But I think the anticipation we reach out to all of our peers and we reach out to all of our broker friends and even our lender relationships. And I think people are starting to get ready starting to move make trades, accept that kind of we're in this hire for longer, recognize that there'll be some rate drops, but they're not I don't think anyone's anticipating the rates to drop at the pace that they rose, which would be what might really influence pricing really quickly. So I think what we just expect is that there will be an improvement, hopefully a relatively quick improvement, but an improvement in both transaction volumes and not just the stability, which we started to see as a stability in pricing, but actually an increase in pricing related to more competitive drivers and more attractive debt rates.

Speaker 3

Ken, I would just add to that question that Bridge prides itself always on being selective and careful in terms of acquisitions. And we were that way in the last upcycle. We expect to be that way in this, hopefully developing up cycle as well. The recent transactions, Jonathan referenced a couple of them, but there are many, many across our different investment vehicles. The recent transaction that we've done, we think are have been executed at outstanding value relative to what the fundamentals in the real estate market are.

Speaker 3

So that's selectivity coupled with what is expected to be an uptick in transaction volume should result in good performance, good performance creates momentum on the capital raising side, creates happy LPs and hopefully happy shareholders as well.

Speaker 5

Great. Thank you. And then there's been a number of articles about multifamily housing and the Sunbelt discussing oversupply and decelerating investment momentum. So can you talk about your portfolio in multifamily and sort of what you're seeing there?

Speaker 3

John?

Speaker 4

Yes. In the Sunbelt, we're actually continuing to see resilience operationally. We're continuing to have rent growth. And across the markets, we have, I think, weathered the major impact on the supply. The supply is still coming.

Speaker 4

It's peaking out this year, I would say, and into next year, we see supply and demand being balanced. But the absorption in the demand has actually been really strong and that's allowed us to continue to see modest compared to certainly compared to peak, but compared to even more regular way rent growth levels. But we are seeing rent levels and we're seeing relative stability on occupancy.

Speaker 5

Okay, great. Thank you very much.

Speaker 3

Thanks, Ken. Thanks for the questions and interest.

Operator

Thank you. Our next question comes from the line of Bill Katz with TD

Speaker 6

Cowen. Maybe just, Bobby, and John, you've also spoke about increasing momentum of the franchise. And in your press release, you sort of called out a number of different vehicles that you're going to be in the market for. Looking ahead, I was just sort of wondering if you could help us frame maybe the opportunity set in terms of the quantum of dollars here. And I was wondering if you could also zero in a little bit on Newberry.

Speaker 6

It seems a little counter to what we're hearing in the industry in terms of demand for the secondary. So just trying to understand when you might start to get a little more traction with that platform. So overall gross sales outlook for maybe second half of the year, early part of next year, a little more specific comment on Newberry's outlook. Thank you.

Speaker 3

Thanks, Bill. So I think we spoke a bit about the first close of our most recent vintage of workforce and affordable housing. We've seen a meaningful evolution of the multifamily sector in general and workforce in particular. Workforce is being viewed as an independent asset class. When we launched our first fund, it was oriented really towards impact investors and investors that had Community Reinvestment Act Capital to deploy.

Speaker 3

I think that that investor universe has broadened out dramatically since that point. And the recession resilience of workforce, the undersupply of workforce, the enormous market of potential tenants and residents who are looking for quality housing and community services etcetera which we and some others offer, but we offer we think in an extraordinarily positive fashion is attractive in and of itself. So we've had a first closing and we think that there's a lot of opportunity there. Same thing really as it relates to our flagship debt franchise. We've been successful in raising capital as we've started to prosecute the 5th vehicle in that fund series.

Speaker 3

And the performance of earlier vintages, I think is driving a significant amount of interest there. The focus on multifamily as collateral, the lack of office exposure, certainly relative to all of our peers and the performance of predecessor vehicles has and continues to drive interest. We mentioned Jonathan mentioned logistics as an area where we're finding some terrific investments in the U. S. Is short infrastructure, if you will, and value add logistics is one of the nodes of infrastructure that we think has a great deal of value and interest.

Speaker 3

And so we're capitalizing on that. As it relates to Newberry, we try to be as precise as possible in our prepared comments. Newberry is an established and practiced participant. We've begun to build a really compelling portfolio of investments in Newberry. We have typically seen Newberry has typically seen a significant amount of re ups from satisfied earlier investors.

Speaker 3

That's beginning to happen at this point. And one of the strategic objectives and advantages of that transaction between standalone Newberry and legacy Bridge is the breadth of the potential LP market that has contributed by Bridge to the overall Newberry efforts. And between what we're doing in the U. S, in Asia, in the Middle East, Canada and elsewhere, we're starting to see a meaningful amount of interest in Newberry from legacy bridge investors as well. So we've had a first closing of Newberry Investment Funds Vehicle Fund 6.

Speaker 3

And we see momentum that's continuing to build in that respect and hope and expect that we will achieve results that are commensurate with what our objectives are for Newberry.

Speaker 6

Okay. Thank you. And then just a follow-up. You mentioned almost getting a little traction on the retail accreditation retail democratization in credit market. I was wondering if you could maybe expand on your comments just in terms of just having a little bit of a choppy experience with the office platform, just where you are in terms of footings, AUM, what kind of products you're in the market for?

Speaker 6

And then just maybe expand a little bit on the distribution opportunity you articulated in your prepared comments? Thank you.

Speaker 3

Thanks again for the question. As it relates to accredited investment vehicles, we have one product in the market at this point. In order to be competitive in retail, we think you need 2 things. You need a compelling product that performs well, provides the financial metrics that the accredited investor is looking for, which is yield, safety, capital appreciation. We think that our triple net lease product provides all those and then some in terms of both absolute and relative financial metrics and you need distribution.

Speaker 3

And historically, Bridges distribution has been has had a significant warehouse component to it. That warehouse component remains. We've broadened our distribution team pretty significantly to include distribution to RIAs to independent broker dealers etcetera. And that breadth I think is best encompassed by the statistic that I shared. Since the beginning of the year, we've had about 1200 independent dialogues with different retail so called retail investor entities.

Speaker 3

Those are typically aggregated to be wirehouses, registered investment advisors, independent broker dealers, family offices, etcetera. And to in many respects to know us is to love us hopefully that when an informed investor compares the various alternatives for retail real estate exposure in the market that what we call big eye product stands

Speaker 6

tall. Thank you.

Operator

Our next question comes from the line of Adam Beatty with UBS. Please proceed with your question.

Speaker 7

Thank you and good morning. First, maybe a detailed follow-up on the triple net product and the incentive fees that Katie mentioned. She was pretty clear that in the near term it's going to be somewhat episodic. But just wondering over the longer term as things normalize, what might be the cadence of incentive fee crystallization and what the look back period is there whether it's current kind of current performance or a certain period of time? Thanks.

Speaker 3

Katie, do you want

Speaker 4

to No. What's that?

Speaker 2

Happy to take this one. Good morning, Adam. The crystallization that occurred today was related to our open ended net lease product. When the fund was originally launched 3 years ago, effectively the 1st 18 months were treated like an open like a closed end fund. So all capital that came in, in the first 18 months effectively went back to the date the fund was launched.

Speaker 2

It's a 3 year crystallization period. And so that carries that crystallized in Q3 effectively goes back to that period. Going forward, we'll have basically 12 months with limited carry and then it will crystallize on a regular basis. The other REIT product that we will be launching will have a 12 month crystallization period.

Speaker 7

Excellent. Very helpful. Thank you, Katie. And then kind of a bigger picture just around valuation. It looks as though we're kind of heading into perhaps a more benign period, certainly rate cuts would help.

Speaker 7

On the other hand, you and peers have both mentioned or alluded to kind of motivated sellers. Do you have any concerns based on historical experience that as those transactions start to pick up, the realized valuation might somehow put pressure on marks either across the industry or other firms. I'm sure Bridge has its own independent process, but just more broadly around the industry. Thank you.

Speaker 4

Do you want me to get that, Bob?

Speaker 3

Yes, please.

Speaker 4

Sure. I would say it this way. We do not expect to see broad based distress. So said another way, while we do expect to start to see a lot of those transactions clear where the borrower either has to desires to sell because they can't refinance. They still have the equity, but they can't refinance at par.

Speaker 4

So, they have to go out and either bring in capital to keep the asset and refinance the asset or they have to sell it. In that case, those players are going to be market players. They're going to want to try to get the best value they can, so it will be a competitive process. And I think the dynamic there that we've been seeing is both more attractive rates, right, and more aggressive competitive lending market as well as pent up demand from equity that's been sitting on the sideline doing nothing for a long time in funds that are ticking away, right? So that competitive dynamic is going to emerge as those come to market.

Speaker 4

The assets that go back to lenders were really ultimately the lenders are in control because their value is below 10 of the loan value. Those lenders are not they're well healed, meaning they're not in a position that they have to kind of push things to market and realize whatever they can realize. They're not distressed sellers. They are though, however, not people who want to own assets long term and they're not in a position to own and operate assets long term. So the expectation is those will flow through the market in a relatively orderly way.

Speaker 4

There will be attractive pricing opportunities there and structuring opportunities there. But it doesn't feel like a case where that's going to drag down values in a material way. So hopefully that helps you understand how we see the dynamic.

Speaker 7

No, absolutely. That's very helpful around the dynamics. Appreciate it. Thanks very much.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.

Speaker 3

Thank you all.

Speaker 1

Goodbye.

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Earnings Conference Call
Werner Enterprises Q2 2024
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