Lar Espana Real Estate SOCIMI SA

MAD:LRE

Earnings Call Transcript 2020-Q3

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Good afternoon, everyone, [Foreign Language] and thank you for joining us today. This is Hernán San Pedro. Welcome to our 9 months 2020 results presentation. As always, the press release has been sent and the presentation and financial report are also available in our website and at the CNMV official website. Presentation team for us today, Miguel Pereda, our Director of Lar España and Chairman of Grupo Lar; also Jose Llovet, Chief Executive Officer of Commercial Real Estate for Grupo Lar; and Jon Armentia, Corporate Director and CFO of Lar España. This quarter, the structure of the presentation is going to be deferred, as we want to give a little bit more color on Lar España and the realty sector context and an update on the COVID situation and how is the company handling it. Nine months 2020 results and the summary of next drivers will be the second part of our presentation. You will have the opportunity to submit your questions through the website. And at the end of the presentation, we will answer all of them. And now let me hand the call over to Miguel Pereda. Please, Miguel.

[Miguel Pereda Espeso, CEO & Director]

Thank you, Hernán, and good afternoon, everyone. It is very clear that since March, we are living a very special situation that is affecting our activity in a very strong manner. And in the same way, it's affecting our country and our economy. During this presentation, we would like to explain you how we are facing it and also how that is reflected in our financials.I would like to start by remembering why we must not [indiscernible] about retail and also remarking why we think Lar España is especially well prepared to drive the situation in which we are at the moment. Secondly, Jose Manuel will go in the details of what we are doing in our assets and what are the effects that the pandemia is having in all the major metrics, as sales, footfall, leases, et cetera. Jon afterwards will take you through on how that is reflected on the financials of Q3 that we are presenting today. Perception about retail is leading to why the discounts across the retail sector in public markets with very little difference over the different companies and the different countries. This, in our view, is clearly the wrong approach. First, because Spain is a market that is different, with lower commercial density, more modern assets and lower weight of activities that have been highly affected as, for example, the department stores, when you can see in other countries that we are compared with. It is clear that the different markets and the different companies are behaving very differently. And we hope that is something that you will recognize during the course of this presentation. It is also true that the online penetration rate has increased with COVID. But also in a context where retailers are becoming more and more omnichannel in all the different ways, our e-commerce presentation is still very different in different countries due to cultural reasons. It is also very clear that the gap of quality and nonquality assets is getting wider. And that is strongly affecting the speed of the visits and of the sales recovery. That is why each country and each company will have a different impact. And general perception hides these mistakes.As I told you at the beginning, we would like to remark also why Lar España is especially well prepared to face the situation that we are living. And that is something that you can see in Slide 7 in depth. First, because our business model is different. Our portfolio has prime and dominant assets in the locations. We are highly protected because of the quality, the size, the tenant mix and the high occupation of our assets with, in all of them, the best brands as tenants, and also because we have a big weight of activities that have been especially resilient during this period. Also, the combination of shopping centers and retail parks has become a big, big strength.Our geographical positioning is also very important. We have a diversified portfolio all over the country, and we are present in most of the core locations. This has become especially important in a situation where the restrictions implemented have been very different depending on the different regions. That's something that you will have the opportunity to see later. Also, we have previously invested around EUR 68 million in a very ambitious transformation plan, which now is almost completed -- or was completed before the health crisis. So the portfolio now is adapted to all the latest retail trends and is now fully focused on new customer needs. Also a strong and an experienced management team. And of course, that with a very good and a close relationship with tenants has been completely key. These allowed us to reach agreements with around 95% of the GLA in negotiations that have been held on one to one with no intermediaries and adapted to the situation of each tenant, each activity and each location.Technology was also key and has become even more important now. The fact that in Lar España, we are leading the process since the beginning, incorporating technology through all aspects of our shopping centers. And our management has become not only a big tool, but also a great advantage to react to the situation of today. Also, the focus on ESG has demonstrate to be and to have tangible value. As an example, since the outbreak of the health crisis, we were able to react and to present our assets as safe spaces to our clients, being pioneers in a COVID certification by [indiscernible] and SGS. We are sure that, that is helping on a quicker recovery on visits and on sales. With that and turning to Page #12, I would like to explain what we have achieved. And clearly something that you will see in more detail later. The diversified portfolio and the ownership of 100%, clearly part of our strategy, has become key to our successful reaction to the COVID, having a relevant percentage of the GLA open at all times, even when the closing was started. The ambitious refurbishment plan carried out was nearly completed, so we have a modern portfolio adapted to the latest trends, safe and with no major investments needed in the future. We will show successful operational numbers with material increases in NOI compared with the figures published in Q3 2019. We have comfortable levels of liquidity and a cash position that covers all expenses in the next 4 years. Also, we have a very strong and solid balance sheet. We have an optimal mix of activities with high exposure, around 43%, to very resilient activities, as food, home, sports or electronics, that have proved to have a quick recovery with sales even above last year in many cases. We maintain a high occupancy that is over 95%. We consider that as technically full occupancy. And over 60% of the contracts have a duration that is more than 4 years. With all that, we have been able to recover a level of 96% on the visits and on sales in Q3 2020 compared with September 2019. And now let me pass the call over to Jose Manuel, that will give us a lot more details on what is happening in the portfolio and in our different assets.

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Thank you, Miguel, and good afternoon, everyone. Linking with Miguel's presentation, we will remark some points and I will try to give you more detail about the most important. We will start now with the evolution of the operational performance indicators. You can see in the chart in this Page 14, what we have is the evolution of the GLA opening, the footfall and the sales recovery. All the assets of Lar España have been one of the first in opening and generate rents. The question is why? There are 2 main reasons. First is that around 20% of our surface is dedicated to food. Food has been operating and paying rents without interruption. And let me say that this is one of the strengths of our portfolio. None of our peers in Spain own all their supermarkets and hypermarkets within their centers. Second is because more than 40% of our area is retail parks, and they opened before in the month of May. Therefore, we had a reduced constant income stream and earlier opening, and both have a relevant impact in our results. From June 21, we have seen a quick and steady recovery in footfall and sales in our assets. In September, we have all our shopping centers and retail parks in operations and 98% of the let GLA opened. And sales and visitors reached 96% compared with the same month last year. It is clear that the customer has come back to the shopping centers and retail parks. This is in general and in a greater extent to our centers. Shopping centers and retail parks, together with the tenants, have invested in health measures to get safe locations, as safety is the priority #1 for all of us. However, the evolution of the pandemic during the last days is resulting in different methods, depending on the severity per region. We are seeing temporary closing or closing spur activity that will have an impact in the coming weeks. We will evaluate and act in consequence at that moment. In the next slide, #15, we have included the evolution of sales and visits since general opening in June. These figures are absolutely clear. June is coming back with higher sales per visit, and from July, a steady improvement and a correlation between visits and sales. What really stands out is the comparison in footfall with the Spanish ShopperTrak index. The traditional outperformance is strongly widening in this moment. We believe this is the result of being leaders in the places where we are, having the best tenants in town and an effective management focus in our client needs in this special moments. Year-to-date up to September, which takes into account, of course, the impact of the lockdown, visitors in Lar España decreased a total of 23.8%, while the Spanish index was down 34.7%. And in terms of sales, the drop is 22.5%.If we move to Page #16, we saw that there are different regional decisions and how they affect our assets. As I told you before, measures are taken by regional authorities based on a set of parameters. For instance, in Catalonia, shopping centers, among other activities, are closed for 15 days until November 14. And we have there Anec Blau shopping center. In Castile and León, shopping center are closed from the 6th to the 19th of November. We have there El Rosal. And in some others, there is a selective closing, mainly in food and beverage activities. In total, today, we have currently 85.4% of our surface open and operating. It is true that it is clear that we are in a changing moment, and we will take the decisions in any future scenario as we have done so far. It is also important to know that we are in permanent contact with local and regional authorities. There is strong collaboration and also discussion over the criteria. At the end of the day, a strong collaboration. They need the information that we are providing to evaluate and take that decision. The sector, in general, has proved its commitment with the implementation of a complete action plan to create safer places as possible. And Lar España has led this movement, invested in resources in the benefit of our clients' security. Next slide for me is Slide 16. And this slide is quite important. It tries to respond to 3 main questions. First, how are the rent negotiations with tenants going? Second, how much are we invoicing and collecting? And third, what is the estimate impact of rent reliefs and deferrals?To the first, we have negotiated with each and every tenant, as Miguel said before, one by one without intermediaries. And making the long story short, we have now agreements with more than 95% of total GLA. Despite of that, we are still working with the remaining only 65 out of 1,100 contracts that we have because we will be happy, if at the end of this strong and exhausting job, we could get agreements with all of them. We have agreed to bearing the impact together. This is our mutual commitment. Discounts have been granted based on specific terms. Mains of them are, what is the activity? What is the duration of the contract? And very important, what has been the performance since the opening in May, June? We did not choose a global solution because all the tenant situation, their contract sustainability and future potential of our commercial relation is not the same for all of them at all. It has been a great job of our team that also proves the excellent relation that we have with our tenants. The tight relation through the years and our style of management produced results in this complex moment. Second question was about the collection of rents. We are in 85% collection at the end of September. But please note that our team is doing adjustment of invoicing in real time. As soon as they have an agreement with the tenant signed, they proceed with the adjustment and reinvoice. Therefore, the figure of 85% is changing up almost day by day.And third question is the estimated impact on cash flow -- in cash flow in P&L terms. Total reliefs and deferrals will be in the region of EUR 19 million to EUR 20 million. And this is cash terms. On the other side, on P&L terms, considering the linear impact during the life of the contract following the IFRS rules, the effect will be less than EUR 2 million in 2020.We move to the next page, it's Page 18, and coming back to the nature of the business that at the end of the day is the relation between the landlord and the tenants. I already mentioned that Lar España has a very solvent and diversified tenant base. And also, we enjoy a strong and regular partnership with all of them that is helping now. Let me remind you some information about our tenants, which we call them our partners. 60% of the contracts have a term of more than 5 years. WAULT stands at 3.4 years. We have a normalized effort rate, including expenses, below 10%. The occupancy ratio is 96%, which is technically full occupancy. All this considering that we have more than 1,000 contracts. A piece of information that I wanted to share with you that I consider is absolutely relevant is that only 6 shops have not opened after the end of the closing period, 6 out of 1,000. On the other side, let me know that despite all of this, we keep on working on the letting of units and trying to bring new tenants to our centers. It is not easy, but we have to be dedicated to that. And you can see some examples in the table, very well-known names of very good fashion or restaurants that are coming or have already opened in the centers. We have signed 81 operations during 9 months, not this year, with EUR 4.4 million of new rent and almost 19,000 square meters of GLA rotated, which implies an annualized rotation of around 5%.Now moving to page 19 and for closing my part, I wanted to share with you what, in my -- in our opinion are the reasons why we are reacting quicker and probably better, and why we are -- we have a resilient portfolio with adaptation capabilities and recovery potential. From the operational point of view, I would say that our portfolio is diversified between shopping centers, retail parks and supermarkets. I will also mention before, the 20% of our GLA are food tenants. We own the food unit in our centers as well as a portfolio of supermarkets, which both are providing the stability to our income stream, even in the worst moment. Our portfolio is full of top names, big companies. We have their flagship stores adapted to the latest brand concept, and all of them are very resistant. They have capability to resist and to face the future in a positive way together with us.Another critical element now is the quality of the management. And maybe I wouldn't say about that, but let me say that Lar España is having a very responsive manager that is being key in these times. We inform you that we have implemented all our protocols that have been certified by SGS to guarantee health of hygiene and safety measures, social distancing and communication plans to keep the customers informed. All these assets are ample and large spaces to avoid crowding with the best accessibility practices and the latest technology.After me is coming Jon Armentia with solid financials, but I wanted to highlight our financial strength that has been key for implementing our measures, has been key also to have all the assets recently refurbished, and it has given us the opportunity to invest in technology and services. In the other side, we have controlled loan-to-value and the condition of the debt, that Jon will explain you later, provide a strength to our company. And this high-liquidity position potentially improved with disposals. This is another additional guarantee, but also for our tenants, also for our customers. It is important for the investors, but this financial -- strong financial position gives also confidence to our retailers and allow us to have this tight relation that we have been mentioning several times during this presentation. And that's all from my part. Jon?

[Jon Armentia Mendaza, Corporate Director & CFO]

Thank you, Jose Manuel, and good afternoon, everyone. Let's start by looking at the Slide 21 after the COVID update, and they will run you through the highlights of the first 9 months of 2020. Despite the health crisis, our net operating income has continued to grow by 23.6% compared to the first 9 months of 2019, which equates to 2.5% on a like-for-like basis. EBITDA has increased 42% year-on-year and EPRA earnings per share has also increased by 61%. EPRA NAV per share currently stands at EUR 10.79, increasing 1.4% during the third quarter of the year.Moving on to our assets. We have seen a solid recovery in visitor numbers and sales and, once again, have outperformed the Spanish market. EPRA topped-up net initial yield stands at 5.9%. We also have an occupancy rate of 96% and the WAULT stands at 3.4 years.On the corporate side, following a detailed liquidity study carried out by the Board of Directors, we decided to maintain our dividend payment schedule. And on April 16, we paid a dividend of $0.63 per share based on 2019 results. The dividend payment places the company among the leading Spanish listed companies in terms of direct remuneration for a third consecutive year. In October, we extended the third share buyback program by 6 months until April 2021. We have already acquired 63% of the targeted share capital. Our cash position stands at close to EUR 140 million, which covers expenses for the next 4 years. Finally, our leverage stands at 41% net loan-to-value, with an average cost of debt of 2.2%.ESG is as important as any other business metric for us. For the third year running, EPRA has once again awarded us with their Gold Award in recognition of our dedicated ESG reporting. We manage our assets responsibly, and we position and manage each and every one of them, considering the environment, sustainability, accessibility and society. Together with SGS, we are leading the way in the certification of all health and safety protocols implemented against COVID-19 in our shopping centers and retail products. In Slide 23, I would like to run you through the key financial figures for the first 9 months of 2020. Gross asset value stands at EUR 1.5 billion distributed across 15 assets. Gross rental income in the first 9 months of 2020 amounted to EUR 71.4 million, growing a healthy 24% versus the same period last year, as well as EBITDA, which climbed over 42% to EUR 53.6 million despite the impact of an unprecedented health crisis. Gross financial debt stands at EUR 729 million with a net loan-to-value at 41%, and diversified financial structures at the very competitive cost of 2.2% and with no significant maturities in the next 16 months. In terms of EPRA, EPRA NAV amounted to EUR 916 million and EPRA NAV per share stands at EUR 10.79. When analyzing this figure, it's important to take into account the dividend paid in Q2 2020, $0.63 per share. EPRA earnings amounted to EUR 38.3 million and EPRA earnings per share rose to $0.45, up 61% on 9 months 2019. In terms of yields, the EPRA net initial yield stands at 5.7% and the EPRA topped-up net initial yield at 5.9%. Let's now move on to Slide 24 to go over the retail performance during the period. We registered a positive trend in gross rental income, increasing 22.9%, and net operating income rising 23.6% versus 9 months 2019 driven mainly by Lagoh shopping center. In like-for-like terms, we also registered positive growth of 1.6% in raw rental income and 3.5% in net operating income, thanks to the positive performance of the rest of the assets. We will particularly highlight that we have a high percentage of food-related tenants with close to 20% of total GLA, whose sales have increased 12.4% in September. We also have a large number of other resilient activities in the portfolio, such as home, exports and electronics retailers, that have recovered quickly after reopening and registered an 11% increase in sales in the month of September, with an occupancy rate of 96%, technically almost equivalent to full occupancy. In terms of yields, the EPRA topped-up net initial yields stands at 5.9%, and reversionary net initial yield at 6.5%, showing the potential of our retail portfolio if the entire GLA was listed at market price.Now let's turn to Slide 25 to go over the P&L. Despite the impact of COVID, our assets generated a rental income of over EUR 71 million, a 24% increase versus 9 months 2019. This was mainly driven by the entering into operation of Lagoh shopping center, further demonstrating the strength and resilience of our portfolio.Now focusing on the recurring column. While the recurring property operating results were up 31% above the same period last year, the recurring profit for the period was up 47%, reaching EUR 41 million. We focus on the recurring results as we have the impact of the change in the fair value of the assets, which contributed positively in the first 9 months in 2019 but negatively in the first 9 months of 2020. This is an accounting effect, but it does not affect the company's cash generation. In Slide #26, you can see that at the end of the quarter, the company's total debt stood at EUR 729 million with no significant maturities for debt coming in 16 months. Net financial debt stood at EUR 621 million, while net loan-to-value remained at 41% at the end of the period. We are fully compliant with all the covenants in our financing agreements. The average cost of debt stands at 2.2% and 100% of our debt is fixed. Let me underline that the company has a strong liquidity and is highly self-sufficient, given its significant financial resources. We have a cash position of close to EUR 140 million, which allows us to cover all expenses, including financial costs, for the next 4 years.Moving on to the next slide, #27. Our properties already meet the most stringent environmental, social and corporate governance standards in the sector. These are just a few examples of our ESG activity. In terms of our environmental commitment, we have continued to develop an automated platform that facilitates the analysis and visualization of data related to the use of resources, water and energy consumption, waste management and GHG emissions. This will ultimately improve the regularity and uniformity of data and will also save time. Additionally, we are also implementing an energy efficiency plan and a waste management plan in our whole portfolio. 100% of the shopping centers solely managed by Lar España are BREEAM certified. We are firmly committed to promoting social interaction. Lar España shopping centers are being adapted to high universal accessibility standards for all manner of disabilities. 100% of the portfolio has been audited for universal accessibility and almost 70% of the portfolio is in the process of obtaining AENOR's universal accessibility seal of approval. Lar España has been a pioneer in the certification of its shopping centers against COVID, implementing rigorous protocols in relation to monitoring health and safety and hygiene, all of which have been certified by the independent consultant SGS. In terms of corporate governance, Grupo Lar and the Board of Directors of Lar España are deeply committed to the company, even more so in these difficult COVID times. Proof of this is that the Grupo Lar has refused its base fee and the Board has also cut its 2020 remuneration. Now let me hand the presentation over to Miguel for the closing remarks.

[Miguel Pereda Espeso, CEO & Director]

Thank you very much, Jon. I will use Page 28 to highlight briefly key results to be confident in Lar España. Lar España has built a unique portfolio of strong and dominant assets, and that is clearly not reflected in actual share price. Having the full ownership of the assets delivers flexibility and also total control over the decision-making process that has been so critical now. We have a diversified portfolio with high exposure to food, with a strong income stream now and also during the lockdown. The refurbishment plan is finished and we're going to have better prepared schemes to meet all health and safety requirements. Due to all that, we have seen a fast recovery of footfall and also in sales, in all -- in both cases outperforming the Spanish market. Rental income has continued to grow and has proved to be very resilient. And we have a solid financial structure with no significant maturities in the next 6 months and a strong liquidity position, as Jon has explained. In the commercial side, we have maintained a solid relationship with our tenants, with an occupancy over 95%, and all the renegotiation process almost completed.Before finishing and before opening the Q&A session, I would like to go over our main strategic drivers. First is related to dividends. We will maintain an attractive dividend policy, always, of course, having prudent care of the cash and the liquidity position of the company. We are planning to generate additional cash from disposals. We have 3 assets held for sale, 2 noncore shopping centers and a portfolio of 22 supermarkets. We are not going to do any capital increase. First, because we don't need it, as we have, as we said, strong liquidity and strong financial structure, and also, as you know, we are trading strong below NAV. We will maintain moderate levels of LTV. We don't have any significant maturities before 2022, and our cash strength covers all company's expenses in the next 4 years. In terms of the share buyback, the current program has been extended for 6 months until April 2021. It is targeted up to 5% of the company's share capital or maximum of EUR 45 million. To date, we have already acquired or complete 63% of this. Our CapEx program was nearly completed before COVID started, and the remaining program was reduced to a minimum. And all the decisions on new projects will be taken -- will not be taken, sorry, till this health situation is completely over. At the same time, any new acquisitions have been put on hold in accordance with prudent cash control policy that we have in place. So thank you to all for joining us today, and we are now open to answer any questions you may have.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Great. Thank you very much, Miguel, Jose Manuel and Jon. We can start now with the Q&A session.

[Operator]

[Operator Instructions] I now hand the call over, Hernán San Pedro.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

The first question we have is a member of buy side. On valuations, can you please give an expected income on gross asset value for the second half of the year? Also, what do you think of other peers guiding 22%, 25% decline in values from retail in Spain by end of 2022?

[Miguel Pereda Espeso, CEO & Director]

It's Miguel speaking now. Where we are, it's very difficult to answer the question. And the values should be related to -- we have explained what is the -- our approach and what are our estimation of income up to today and till the year-end. We are starting now the process of valuation for the year-end. We might have a slightly increase in the exit yields. That might have a minor effect in value. But I think it will be very difficult to do today an estimation. In the conversation with valuers, we don't see dramatic changes in value. I don't have any idea of why the peers -- or some peers are estimating 20% decrease in value. And I come back to the first part of my presentation. I think that just talking about retail in general, I think, is a big mistake. And at the end, we need to jump into countries, assets, et cetera. And I suppose that if they think that 20% is going to happen, it's because they are talking about their weaker part of the market.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you very much, Miguel. The second question is from a sell-side member. Please, can you give some more color about the disposals policy of the company?

[Miguel Pereda Espeso, CEO & Director]

Yes. Well, what we are thinking is that we will want to -- or we will put for disposals 3 assets because, first, we think they might be well-valued; second, because they are not as strategic; and third, because we don't see an income screen -- strong income stream in the next future. And being nonstrategic, we think that the focus on cash is the right approach, the desired approach. Also because we will -- we are not -- we will not intend to put in the market assets that today will be bad valued. So 2 of them were already noncore and they were there since the beginning. And the supermarket portfolio was decided in June because we think the appetite for that is -- might be high and, again, value creation for the next few years is low. Altogether, just to give you an idea, we are talking up to a maximum -- I'm talking up to a maximum of EUR 100 million.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you, Miguel. Next question is from buy side. Please, can you explain us why have you extended the present share buyback period?

[Miguel Pereda Espeso, CEO & Director]

Well, because first, the first one was not finished in terms of amount. And in a situation with this volatility and with a super strong discount to NAV that we are suffering, we think in the Board that a good tool to have open is through that -- to use it on a smart way. So that's the reason. I mean it's clearly creating value, on one hand. It's not damaging the liquidity of the company because it's -- we are using it in a very moderate way. And the cash position of the company is very healthy. And again, I mean, in a world with very low liquidity in the markets, in general, we think that is a good tool.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you. Another question, any color about the potential impact of the new measure of regional governments closing some parts or some activities in the shopping centers?

[Miguel Pereda Espeso, CEO & Director]

Jose Manuel, that's probably a question for you.

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Yes, but I didn't hear you well. You mean the impact of potential future closings?

[Miguel Pereda Espeso, CEO & Director]

The actual new measures approved, I understand.

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Sorry, I don't hear you. Maybe it's my laptop? I don't hear you well.

[Miguel Pereda Espeso, CEO & Director]

Well, I can help you on that, Jose Manuel, and you can jump in if you want. Well, what we know is the amount of -- or sorry, the measures that have been already approved that are affecting in a different way different activities and different assets. As you know, Catalonia and Castile and León are the 2 toughest ones, and we have also restrictions in restaurants in some of the assets. If we use the knowledge that we have of the previous negotiations with tenants, we think that, that might bring, in terms of cash, not in terms of P&L, as Jon was explaining, extra help to tenants at a maximum level of EUR 2 million. And that's with the information that we have up to today. So that's from September -- the end of September, Q3, and up to today. So 10% more of the actual figure.

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

Thank you, Miguel. No more questions at the moment. David, can you explain another time the process to send questions through the website?

[Operator]

[Operator Instructions]

[Hernán San Pedro López de Uribe, Director of Investor Relations & Head of IR]

So there are no more questions. Thank you very much for attending the call today. Remember that all the Lar España team and Grupo Lar team are at your disposal for any other information you need. Please feel free to contact us. Thank you very much, and good afternoon.