Vornado Realty Trust (VNO) Earnings Call Transcript & Summary

I think we'll get started now. My name is Camille Bonnel. I am the office and industrial analyst on the BofA REIT's team. I am joined by Jeff Spector, who heads our team as well as Rachel Hu. And we welcome you to our afternoon roundtable session with Vornado Realty Trust. Joining us from Vornado, in the middle we have Mike Franco, President and CFO. We have Glen Weiss on the left -- far left, EVP of Office Leasing and Co-Head of Real Estate. We also have Tom Sanelli, EVP of Finance and Chief Administrative Officer. And lastly, we are joined by Gary Hansen, SVP of Investor Relations. So we're asking the companies to present a 5 to 10-minute introduction to the company and any operational updates before diving into Q&A.

Okay. Great. Good afternoon, everybody. Nice to see everybody here. I see a number of familiar faces and also happy to see some new faces. Maybe I'll kick it off, and I'll turn it over to Glen to talk about some of the other activities. But in terms of Vornado, I think hopefully everybody is familiar with Vornado. We are a company that is predominantly focused on New York City. 85%, 90% of our EBITDA comes out of New York City largely from the office business and a portion from the high-street retail business. And then we've got franchise assets in San Francisco and Chicago. And I would tell you that as we sit here today, while the economy is certainly not as strong as it was in 2021, there's more volatility in the marketplace just given what's going on in terms of rates, supply chain, et cetera. The overall New York City market is actually pretty good right now. Job growth has been good. We're back to pre-pandemic levels. We've got a healthy tenor in the leasing market, which Glen will talk about. And I would say -- I think unquestionably, we own the best portfolio of assets here in the city. And I think the performance reflects that, and I would say the same about the building we own in San Francisco as well where we continue to, I think, have a unique level of leasing activity there. So we're in an environment where we've talked about flight to quality for a period of time. I think that's never been more true. It will continue to be true. There will be some component of the office sector that will just, over time, I think, not be attractive to most tenants and its flight to quality will continue. It will favor strong sponsors, strong balance sheet players and those that own assets in the right locations and that have the right qualities, which I think we do in spades. We've talked a lot over the last few years, and in particular, the last couple of years, as we've kicked off our Penn District development. And that's a portfolio of assets of roughly 10 million square feet today. We are in the middle of redeveloping half of that portfolio between Farley, PENN 1 and PENN 2, which I'm going to let Glen talk about and making a number of district improvements, which I think by the end of 2023, that area of the city is going to be transformed by what we're doing, and that's going to have a catalytic effect on everything else that's going to follow. The state approved the general project plan recently, which will ultimately facilitate additional development in the district, a number of those sites we control. And so as that market continues to improve from what we're doing, we think that will pave the way for additional development opportunities and growth over time from development. So we're excited about that. We think that is a unique opportunity, significant growth to come out of what we're doing just on the initial 3 assets that we've been redeveloping. And so maybe with that -- well, let me spend one minute and then I'm going to turn it over to Glen to talk Penn. And lastly, I'll touch on just coming back to retail. The retail market in the city has definitely bottomed. We're definitely seeing improved retailer interest and leasing activity is picking up. Rents have clearly bottomed. In some submarkets, it's picking up, but I wouldn't say in general, rents have picked up meaningfully yet. But we are seeing tenant interest, I would say, across all submarkets and there's some deals in the works, which is encouraging. Times Square actually read a stat yesterday that I think from a tourist count is at 95% of pre-pandemic level and if you now try to go through there -- by the way, I would say today is actually the busiest day I've seen in the city in some time. So the traffic in the city feels better. And I think the retailers are seeing that, and that's manifesting itself in that increased level of dialogue. So I'm going to turn over to Glen to talk about what specifically is happening in the Penn District and then we can feel some Q&A.

Sure. Hi, everybody. So before I get to Penn specifically, I think as it relates to Vornado and our business, it's important to talk about the composition of our portfolio in Manhattan. I mean, everyone is very focused on Penn as you should be. But if you think about our 20 million feet, we really cover all the bases that you should care about. So we have Penn, which is the 10 million foot target that we're all focused on, which is becoming more and more a, call it, technology tenant corridor every day that we live in there. Obviously, book-ended by Facebook who moved in yesterday to Farley and by Apple, who has now moved into PENN 11 as of 2 weeks ago, a lot of our activity at PENN 1 is also technology-laden and PENN 2 will probably be a mix of technology and financial. Then as you go uptown in our Midtown portfolio, I think one thing that people are not focused on enough is the great mix of the product we have in Midtown. So if you think of what we've done over time in those 10 million feet, whether it's Neuberger Bermans at 1290, a redeveloped building; the PwCs at 90 Park Avenue, the financial buildings are very busy where we have financial tenants, the 8887s, the 1290 of the Americas, the 640 Fifth Avenues, the 350 Parks, the 280 Parks. So when you think about our portfolio, we think not only is it a best-in-class from a quality standpoint. But as we speak to it, we think we have matched tenant demand grade with those buildings, whether it's in Midtown Penn or Midtown South, all the way down to 770, which is also where Facebook is. So we like our straddling of the city. And I think that's something everyone needs to focus on more so than I think everyone has been in the last few years to be quite frank. As it relates to Penn, we're running on all cylinders. The chapters that we have written are working very well for us. At PENN 1 specifically, rents have now risen into the triple digits as we had predicted. What's most interesting about our Penn activity, every tenant who walks through our door at PENN 1 or PENN 2 is either coming from Hudson Yards and Manhattan West or going after us to Manhattan West and Hudson Yards, we are competing with new buildings. So if you think about what we've done at PENN 1 and PENN 2, which those buildings are 50, 60 years old, but if mostly you have been to PENN 1, we've turned the building on its head. We created this campus amenity center for the entire district, 200,000 feet. And it's not just about the amenities. It's about the authenticity of the product, the feel of it, the way people feel being in there, whether it's the fitness, the conferencing, the food, the whole logistical orientation we created, people are loving it, not liking it. And it's going to be even more so with PENN 2 when that completes in about 15 months. So we're feeling good about Penn. We're feeling good about the portfolio. At the same time, we all know it's happening from a macro level. Some companies are hesitant to pull the trigger on space. Some are reducing in size. Some are expanding in size. So we're not fooling ourselves. We're still in a challenging point of time, certainly feeing a lot better than we have since this pandemic has started. Office-using jobs in New York are at or above now pre-pandemic levels. New York feels good. I think if you're coming down here this afternoon, New York is busy. So certainly, we still have a lot of wood to chop. We -- I don't think this work-from-home pandemic hybrid. This is going to take a long time still to figure out. But quite frankly, we're keeping our heads down. We're going after all the tenants who are in the market and trying to make matches with our portfolio; that's our job. So instead of complaining about and whining about it, we're just doing our jobs. And that's really where we're at right now from a leasing standpoint.

And then Jeff, last thing, Camille, last thing I'd say before turning over to you guys for Q&A is paramount importance to us, as it always has been, is our balance sheet, right, making sure we have liquidity to weather any storm, making sure that our maturity schedule is well-laddered. Nothing is going to cause any threat to the company or have any major issues. And I think we've done a very good job of terming out our debt, having significant liquidity. And so we sleep well at night and then hopefully, our shareholders sleep well at night knowing that our focus is always on the most important thing every day is to make sure that the company is well-positioned. Balance sheet has the capital to do what it needs to do and be fine.

That's great. Thank you. I think everyone make this interactive. So if anyone has questions, you may raise your hand. Camille, did you want to kick things off? Or did you want me to --?

Well, we can start with big question that we've been hearing in a lot of these discussions is how demand has been trending. If you can provide a little bit more color on how those conversations are going, particularly within the smaller leasing and the bigger sizes as well.

Sure. So I would say the small to medium-sized tenants are very active right now, particularly in the financial services, very active. So our Midtown activity, our pipeline is deep in that realm. As it relates to the big headquarter pipeline, it's not as strong as it was, say, 6, 9 months ago. There are tenants out there. A lot of them have now landed whether in a lot of the new buildings on the west side or downtown. But I do think there's very good momentum in the small to medium-sized category as we sit here. There's a -- we're doing a lot of presentations for tenants, big tenants who were coming out with expirations, call it, 2, 3, 4 years from now, even longer. A lot of them looking at our new product in Penn, whether that's PENN 2 or PENN 15, the Hotel Penn site, et cetera. But certainly, there's action. If you look at our portfolio, we don't have a lot of huge spaces that are vacant. We have kind of pockets. Some of those are at PENN 1 and other buildings in Penn. So we don't have any huge blocks. So in terms of the action, we're leasing small, medium, and that's what I would say is 50,000 footers and less. I'd say that's the bread and butter right now in the market.

[indiscernible] how much, like from which -- when you look at your -- what you're focusing on leasing, like how much -- do you have a percent by square foot like means like are you leasing mainly to those smaller sizes now? Or like can you break that out for us somehow?

I don't have it broken out. We have a couple of very large deals happening. We have some small. So I mean it's a [indiscernible] it always is. I don't think that's much different. But again, we don't have a lot of big vacancies, big block vacancies. And we have -- our vacancy is about 8% right now, and it's just these pockets. But we always have some big discussions going on. And otherwise, the normal bread and butter, I would say. I don't think the mix is that much different.

I mean I'd say the -- we went from a period where the last couple of years, I think big tech is probably the biggest driver, right, the big deals. And now we're still seeing some of the small, medium tech players and the big guys are pausing, they're digesting as Glen said, some of them are now just moving into their space. And some of the smaller tech players are still active. But I think we've seen a shift to the financial sector being more active, particularly in the -- I'll call it the investment management, asset management space where the big keep getting bigger, they're growing their businesses aggressively, and there's some large transactions in the works with some of those players right now, both with us and with other landlords. So I think that's an encouraging sign for the city.

And just to ask because everyone likes to compare to kind of pre-COVID in terms of volumes and tours and visits like, I don't know, are you able to compare how busy you are versus pre-COVID? And I don't know if you could break that out.

I mean I would tell you pre the summer, it sort of feel like pre-COVID with what's going on in the capital markets, it's now slower, I would tell you that. But certainly, we're touring and we're in proposals, but it was definitely busier, May, June compared to now, I would say that on the street in terms of the tenant.

Okay. August was a high leasing month. We did a call with the [indiscernible] last week. So…

Right. Those were signed deals. So if you think about all those deals were in action in the spring, right? So they all got kind of signed in, and that's just how this works is 4 to 5 months. Not lagging stat. So that's why I'm saying that makes total sense to what I'm describing, which is spring was busy, busy, busy. All of a sudden, inflation, macro picture, things got -- and here we are. But that doesn't mean there's not action, but there's -- I find it less, I'd say, less action on the street down than there was then. I would say that.

Okay. And then -- so I guess bottom line over the coming months, that data, the leasing volume by month or it sounds like it's going to be up and down.

Look, year-to-date, there's been 21 million feet of space leased throughout Manhattan. Same time in 2019, there was 27 million. So that gives you the stat you're probably looking for year-to-date.

And relative to latter, yes, that would be what…

It's above last year by 2 million feet or so. Half the activity, by the way, is in Midtown of that 21 million.

To be built this time. And then you…

And we look, the flight to quality is certainly there strengthening, whether it's the new buildings or the redeveloped buildings. The commodity buildings are quiet as they've ever been. But that the flight to quality themes here, I don't see it going away. That's for sure.

Both of -- both you and Michael said you guys have the highest quality portfolio. How do you define that versus some of your peers, like how do you save your natives portfolio is higher quality than some of your -- the New York City office peers?

I mean I think when we say that it's across all 20 million feet. It's a consistent product type. So if you walk into any of our buildings, I think pound for pound, the quality is better than the rest. I also think you have to talk about the service in those buildings as well. So we think the way we do things in the buildings, the way we serve our customers, the way we treat people, the way we build our buildings, I think you walk into all of our lobbies in our 20 million feet versus the competition, I think we stand tall.

Jeff, I don't -- we say we have the best portfolio. We're not saying that, I think, as Glen says, when you go -- if you started ranking buildings by portfolio, I think you can pretty quickly say that our highest quality buildings exceed anybody else's, right? And I think that's manifested itself in the average starting line if you look at us compared to others over the last several quarters and I think what we're doing at Penn in terms of the post redevelopment, we're starting to achieve there as well is reflective of that because I don't know you've walked through it yet. But what we're doing there, what we've done, I think is really -- is totally unique for tenants. And when you're a tenant there, when you're a CEO who wants to have the employees in the office, it's a very -- it's an easier sell, I think, than anywhere else, right, to have this -- you're on top of transit. You have this amenity package. It's really second to none in the city. So I think we've done a -- like we are long-term owners. We've invested with that mindset. I think our buildings have always been technologically and cosmetically top of the line. And I think the tenants that are within the buildings are reflective of the quality and rents are as well.

Yes. From kind of negatives, positives, you feel from a company standpoint whether it was floating rate debt or I think last year, the market was [indiscernible] that was coming due like are we passed kind of some of the -- is there anything on the horizon we should be focusing on that might be hitting the numbers in the next year, let's say?

Look, I mean I think the biggest issue for all companies is just what's the macroeconomic environment, right? And I think that's the most important thing that's going to drive leasing velocity and rents and so forth. Like we talked on the last call, we had -- we benefited from a number of years from floating rate debt. Now we're getting hit going the other way. We're probably -- I think even since the call, we've swapped a little. We're probably at a 70-30 ratio fixed floating now. So -- and I don't think we're ever going to be [ 100 zero ]. We want to maintain flexibility, whether it's to sell assets, recap assets, whatever it is we want to do. So even within ventures, you can't do certain things, right? So we're more protected. But I don't think that protects you fully anyway, right? When you have your refinance assets, you could be fixed for 5 or 10 years, and you roll off and you're in an environment where if you have to finance today, it's not a great market to finance it. So that helps you on an interim basis, but I don't know that ultimately the macro, what's the absolute level of rates, what's the absolute level of the economic growth, I think, drives everything. So look, we still have to go through the PENN 1 ground rent reset and we've put a marker out there publicly. That dialogue will kick off in earnest at some point later this year. And we'll solve it either -- my guess is at some point next year, if not by the reset date in June. So beyond that, I don't know if there's much that's -- other than ordinary course stuff that's going to happen either good or bad.

And investors want to see earnings growth. I guess, can you talk about earnings growth from here? Just your thoughts on delivering FFO growth this year or just as you're thinking about your 3-year or 5-year plan, how do you think about the earnings profile?

Yes. Look, I think this year, I mean, to some extent, it does depend on what happens to the rates, right? And we've got some deals in the works that could swing things, frankly, a few cents either direction. So our expectation is we're going to still have growth this year over last year. Next year is harder to predict just as we sit here, just it wouldn't be -- it wouldn't make sense to get that granular just because we've got to re-budget everything and see where we're at. So I don't want to predict '23. I think if we look out beyond that, right, we just think about what's the impact from finishing leasing up the retail at Farley, leasing up PENN 2, rolling over PENN 1, we think that's going to add significant income over time, right? And that's probably, let's say, a next 3-, 4-year type activity predominantly, right? When it actually starts, whether it's GAAP or on actually cash pays depending on what you're talking about. But Penn's going to add, I think we talked in the last time, somewhere in that $250 million, $300 million neighborhood of growth. Some of that's in the numbers already with Farley. But we think there's a lot of growth to come out of Penn and, knock on wood, some things we're working on will add to that as well. So that's sort of the longer 3-, 4-year program, right, a little bit this year, we think up over last year, and then next year, too early to tell you until we go through the reforecast.

Any questions. I guess just to confirm, but you are focused on trying to grow earnings.

We are focused on growing earnings. Yes, yes, yes, yes. That was an all in question, Jeff. We want to grow earnings. We want to have asset value, but we want all that to occur.

Stock price to increase.

Like stock to go up, exactly. So look, we thought we would have significant growth this year. We still have a little bit of growth, but it's not going to be what we wanted and most of that's due to rates going up and a couple of operational things that went against us. But we absolutely want to drive our earnings growth.

And I guess, the latest on Penn and the potential spin or when people are thinking about that…

Tracker?

Yes.

Yes. Look, the tracker remains in the forefront of our mind. And I think it's something that we are -- it's -- we are actively evaluating again. We paused it for a couple of reasons. And we're actively thinking about it again. We think the merits of it still make sense. That's a longer term project in terms of its development cycle. I think as we look at our stock today, there's clearly no value being given even to the growth that's coming on near term from the redevelopments. And then the overlay everything else is going to come beyond that and coming out of the general project plan approval that we can execute. So there's just a dichotomy in how we think the market's valued. And there's some investors that very much just want to play that, right? They've told us that. Love Penn, really don't want to invest anything else. Is there some way you could create that for us? And then other investors have a mixed view of that or a negative view of that. So -- but we think -- and if you like both, you can continue to hold those. But fundamentally, we do think that it is a different play and that over time, that will get recognized. And so it's under active consideration. And we're not doing it for sport. We're doing it because we think that it will attract a different investor base. And ultimately, 1 plus 1 will equal 3 after a period of time of stabilizing.

And just to put in how long a period of time is Penn if you think about that?

I think you're going to have this period where everything that we are doing right now, that will -- if you think about the time line, right, PENN 2 will be finished by the end of 2023. When it's actually leased up cash paying, let's say, it's '25, '26, right? PENN 1 is just a constant role. Okay. So that's -- right, that's got an average 10 years, probably about 5, 6 years [indiscernible]. That's just going to come over that period of time. And again, the rents Glen talked about, we're triple digits there. The yields we published in our supplement are definitely not triple digits, right? So as tenants get to see it, experience it, right, everything is better when you actually get to see and touch what it is. So we think that will -- we think those rents will continue to march up, and we'll mark those to market. And then beyond that, we've got other existing assets that are going to benefit from everything we're doing, right? So if you think about the 330 West 34s and that PENN 11s and so on, right, that's going to get a natural uplift as we finish everything else. And then the next phase will be development, right? And that will be -- that will start kicking off. We'll see. The Hotel Penn site will be down by the end of next year. We've got a site on 8th Avenue that's ready to go. And so that will -- it will be market dependent as to whether that gets going in '24. It's beyond that. There will be some residential in there. So that obviously that can happen as soon as that's actually ready. The office is more dependent on where the market is and finding a tenant or say a Hotel Penn. But it'll, I would say, come in at '24 to '34 time frame, right, maybe sooner, just depending on market conditions, but -- and how much is resi versus office, and we just -- we're still working through that.

Please.

So…

Feels pretty good, right? Feels pretty good, right? Yes. Where do you live? Washington. Yes. Well, I think, yes, like [ Sharon ] did coin that markets tilting south. I think we have the best portfolio for that. And so is it perfect? Nothing is ever perfect, but I think we are very well-positioned for that. And that really was the thesis on continuing to accumulate product around Penn Station. And then it was a matter of waiting for the right time to begin to execute the redevelopment, right? It was really when Hudson Yards was developed and Manhattan West was developed where the Penn District went from being the further most western part of the city to now being in the center, right? And so we can command rents of triple digits in those buildings. And if they're going further west and paying more that's less, can be on the transit standpoint, maybe the product is new, but we have a better amenity package, et cetera. So we're very well-positioned. We've got product up and down the west side, whether it's in Chelsea, Meatpacking near NYU with 770. So 85 Tenth, I mean I think if you think about some of the large institutional quality office buildings up and down the west side, I think we've got more of those, certainly in the public markets than anybody collectively, right? So I think our portfolio is well-positioned. At the same time, Midtown is not going away. Park Avenue is absolutely having a renaissance, kick it off by JPMorgan's headquarter redevelopment. You've now got between that, one Vanderbilt, 425 Park. There's another building that's going to get built. There's another probably 2 or 3 other things in the works that will happen in the next 3 to 5 years. Park Avenue absolutely is going to come back and be the highest-priced district in the city, driven by the financial tenants. But in our portfolio, we feel very good about where it is. We think it's positioned for that south and west. And being on top of transit, I think, has never been more important, which is where Penn Station is and everything we have around it. So all the government investment infrastructure was one on railroad, whether it's the new train hall, Moynihan which we redeveloped, which if you guys have not been in, you really should stop and it's world-class at something, New York, I think as a city should have had. And it matches up with anything as you go around the world. So I think we feel good about it.

Back to leasing, I guess everyone's trying to figure out, Glen, that when things -- when we may have some more visibility, I guess, you're talking to your leasing team or just your thoughts, like, I mean, is there an answer on that? Or just still off [indiscernible]?

It's not a one-size-fits-all answer. It's tenant-specific and industry-specific and city-specific. So I don't think you're going to have clarity on it. I'm not sure when. It's going to take time. I think every tenant -- I mean we used to have like 4 calls with different tenants today. They all gave us a different answer. I'm shrinking, I'm growing, I'm thinking, I don't know, you have a lot of that going on. So I think it's very, very situational. There's not one answer for this whole thing. I mean, think about it. I mean we've never faced anything like this in anyone's lifetime sitting in this room. Think about [indiscernible], right. I mean we just went through this 30-month cycle. Have you overseen this in your life? Well, we're still sitting here, we're leasing space. We're building jobs, and we're keeping our heads down, but it showed every discussion is different. And that also goes to what kind of space do I need. More common, more communal, more office and an office tower and a smaller -- I mean, it's just across the board in different discussions going on with everybody right now. And they're all trying to figure it out. The CEOs are sitting there, they're trying to figure it out. They're trying to figure out how to mandate people to get back, how to deliver that message, when they come back, how their space is going to feel, should I move to create a new culture, should I stay as all these -- it's a puzzle for these CEOs to try to figure it out. And we're speaking to all of them in our portfolio.

Where do we stand on tenant launches and free rent? Is that stabilized?

That's all stabilized. Absolutely. Absolutely. Rents have held firm, by the way. I mean if you look at rents quarter-to-quarter over the past 12 months, they've held very nicely. In some segments, they've increased actually. Concessions have certainly stabilized. I still hate them, but they've stabilized.

But they're probably not cutting out.

The TIs are big. Look, it costs more to build space and the tenants are expecting us to partake more in the building. That's the game. And if you want to play, you got to do it. So we'll see where that goes.

And Glen, obviously, the tenants that have committed, I think we've leased over 4.5 million square feet over the last 2-plus years, and the average lease term is 11 years. So it's even more than it was in '18 and '19. So they're definitely committed to a longer term.

Back on retail, I guess, can we just talk about that a little bit more? I'm not sure if everyone realize that you're saying you feel like at least your positions in New York, it's stabilized…

Officially go, they would have been a little looser with where they would have been, right? A lot of parts of downtown get built out. They just failed, right? And now they realize, okay, I want to be in the city. I want to be in these 4 or 5 locations. So you're seeing that flight to quality. I think it's starting with the smaller commitments, right? SoHo started to come back first, right, because the dollar commitments were the smallest, right, smaller stores. But at the same time, you're seeing large format players like Wegmans come in and say, this is our time to come in, in New York, right? There's some availability, cheaper than would've been 5, 10 years ago, and we're going to pounce, right? So we did the deal at 770, and they're interested in more, and there's other players like that, that are looking in the city. So we're seeing a mix of new retailers. We're seeing a mix of existing retailers that are looking to expand. And I would say that there's pretty good activity throughout the city, Times Square is starting to see more activity, even Fifth starting to see some activity, that's probably the sort of laggard in terms of coming back just because the dollar commitments are so large there, but there is activity there now. Madison, we really sold out other than Fuller, which we kept because it's sort of the bull's eye at 57. Madison, I think has changed and there's a little more activity for that market. I think the rents have not recovered, and we think that's a longer cycle. But in general, there's definitely more activity, and it feels just like the rental levels affirmed and the discussions are more encouraging. So we're optimistic there. And we've -- I know we've given some guidance specifically on retail a number of times including recently, and we continue to feel good about the guidance we've given.

Great. I think we're out of time. We have 3…

That was quick.

It was quick.

It was quick.

Are we out of time?

Yes.

I think 4:15. So I think we have 3 rapid fire questions. Camille?

Yes. Just to start first question, which of the following is the greatest macro challenge facing U.S. public REITs today: a, risk of higher rates; b, risk of recession; or c, the rise of private equities and non-traded routes?

Rising rates. You agree with that?

Probably I would have said recession, but rising rates are a good answer too.

And that for all stocks rising rates? And I think that's sort of -- I think that's a REIT [indiscernible]. I think that's a REIT answer.

Second question is, which of the following is the greatest sector-specific risk: one, labor issues; 2, supply; or 3, liquid capital markets?

Probably get that a lot. You could argue any of those, but labor has been the top-of-mind discussion in our internal chat rooms for sure. And I think that goes for our tenants too. We're getting a lot of feedback about labor right now.

Yes. [indiscernible] tenant's standpoint.

From a tenant's standpoint, labor.

It seems like there's a consensus there. And finally, are you seeing any signpost of weakening demand? Yes or no.

Of what? I didn't hear.

Signpost of weakening demand.

I don't think so. And I think I described it before, we definitely were more demand earlier this year, less now. But I don't think it's going to get weaker from here. I don't think so.

Okay.

Great. Thank you.