Q3 2022 KKR Real Estate Finance Trust Inc Earnings Call
[music].
Good morning, and welcome to the KKR Real estate Finance Trust third.
Third quarter 2022 financial results conference call.
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I would now like to turn the conference over to Jackson Paula. Please go ahead.
Thanks, operator, and welcome to the KKR Real estate Finance Trust earnings call for the third quarter of 2022.
As the operator mentioned this is Jack Switala.
Today I'm joined on the call by our CEO , Matt Salem, Our President and C O O Patrick Mattson and our CFO Kendra Decius.
I would like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the Investor relations portion of our website.
This call will also contain certain forward looking statements, which do not guarantee future events or performance.
Please refer to our most recently filed 10-Q for cautionary factors related to these statements.
Before I turn the call over to Matt I'll provide a brief recap of our results.
For the third quarter of 2022, we reported GAAP net income of negative $48.4 million or a negative 70 cents per diluted share.
Distributable earnings this quarter were $34 $4 million or <unk> 50 per share.
The rising interest rate environment served as the primary driver behind our strong distributable earnings supporting a dividend coverage ratio of over 1.1 times relative to our 43 cents per share Q3 dividend.
Book value per share as of September 30th 2022 was $18.28 a decline of five 6% quarter over quarter.
This was driven by an increase in our seasonal allowance by $1.16 per share to a dollar and 66 cents per share.
This increase was primarily driven by higher reserves on watch list loans.
Finally in September we paid a cash dividend of 43 cents per common share with respect to the third quarter and based on yesterday's closing price the dividend reflects an annualized yield of 10, 2%.
With that I'd now like to turn the call over to Matt.
Thank you Jack good morning, everyone and thank you for joining us today.
Hey, Ross generated another quarter of strong distributable earnings up 50 cents per share.
But what do you have greater than one one times dividend coverage ratio.
Our earnings continue to benefit from rising interest rates and.
And we expect further increases in base rates.
They serve as a tailwind for K Ras earnings heading into the fourth quarter and 2023.
Yeah.
To put this in context, we have stated in our supplement.
That 800 basis point increase in base rates.
From 3.04% at quarter end.
Would result in an increase of 21.
Annualized distributable earnings per share.
Based on our 930 portfolio with all else being equal.
The forward rate curve is projecting more than 100 basis points of increases.
With 55 basis points already realized to date.
The macro environment has continued to deteriorate.
Which has caused a corresponding negative impact to.
The commercial real estate values.
This was further accelerated by the September Federal Reserve meeting.
Real estate values are declining in real time as the market Digest, the higher cost of capital combined with potential slowing demand in a recession.
Hey, Chiara is integrated real estate business.
Which manages over 60 billion of AUM.
Yeah.
Affords us a robust view.
Of the current operating environment.
While valuations are changing.
Fundamentals across most of our portfolio remains strong.
And are characterized by high occupancy and rent growth.
Nearly half of our portfolio is secured by multifamily.
And another 19% is in the high growth segments of industrial.
In life Science.
Over 70% of our originations are secured by 2022 originations are secured by either multifamily or industrial properties.
However.
27% of our portfolio secured by office properties.
And this sector has the added risk of uncertainty around long term tenant demand given the work from home preferences.
Over the past quarter, we have witnessed a significant decrease in liquidity in the office sector.
As well as capitulation by owners.
In response to this we have materially increased our seasonal reserve.
And added three loans for watch list.
For a total of five loans.
In addition, we now have two loans, which are risk rated a five.
And it increased our dialogue with those sponsors.
We will use our extensive experience.
Across our take our platform.
To optimize these these resolutions.
I'll conclude my comments by discussing our market positioning.
<unk> was built for times like this.
Our conservative lending strategy is concentrated in growth property types and geographies.
And owned by institutional investors.
Our portfolio is financed with best in class non mark to market facilities.
I think at the beginning of the year.
We have been transitioning to a more defensive posture.
Highlighted a number of these steps we have taken.
We raised approximately $345 million of net primary proceeds through common and preferred equity offerings as well as our ATM program.
We increased our revolver.
<unk> hundred $10 million and.
And extended its term to five years.
And added nearly two and a half a billion dollars of non mark to market financing year to date.
And we currently stand at 70, 276% of.
Total outstanding secured financings.
That leaves us today with over $900 million of liquidity.
Which does not include 370 million of Unlevered senior loans on the balance sheet.
While this market has a favorable.
Lending environment.
As we stated on the last call.
We will continue to operate K RAF with lower leverage and.
And higher liquidity.
And anticipate only originating loans to match repayments.
With that I'll turn the call over to Patrick.
Thank you Matt Good morning, everyone I'll focus today on our efforts on the capital and liquidity front and provide an update around our Cecil reserve and watch list loans.
As discussed in the past, creating a diversified liability structure built on non mark to market financing has been a top priority for K RAF.
And I'm pleased to note that since the beginning of Q3 last year, we have added over $4 billion of non mark to market financing capacity.
Including choose CRA clo's.
<unk> bespoke facilities.
And upsizing of our secured term loan b.
And an extension and Upsized, our corporate revolver.
So typically in the third quarter with the help of our partners and KKR capital markets.
We entered into a new 266 million dollar bespoke nodal note financing facility.
In connection with one of our loan originations.
And we completed a second upsize on one of our existing matched term financing facilities from $750 million to $1 billion.
Subsequent to quarter end, we closed a new 125 million dollar match term nonrecourse facility.
And importantly as of quarter end, 76% of financing remain fully non mark to market.
The resilience financing, we developed much of which has been done on a bespoke basis buffers us during times of capital markets volatility.
In addition to the fully non mark to market features associated with these structures.
We've also achieved an attractive cost of capital relative to other means of financing that can be sourced today.
At the CLO market is called over the past nine months and our spreads in the CLO market have widened our mix alternative sources of financing away from some of the more public capital market sources remains a major differentiator for K Ross.
In terms of capital management strategy.
K Ras is preserving flexibility and operating at the lower end of our target leverage range.
Given the broader market backdrop.
Our total debt.
Debt to equity ratio was one nine times and total leverage ratio was three six times as of quarter end and.
And we expect to maintain total leverage in the mid threes over the coming quarters.
Our approach to managing the balance sheet allowed us to start the fourth quarter with a record level of liquidity in excess of $900 million.
Additionally, at quarter end, K rough had $370 million in unencumbered senior loans on the balance sheet.
Turning to our <unk> reserves and watch list.
This quarter, we recorded an increase in our seasonal reserve of $81 million to a $115 million or 156 basis points based on the funded loan portfolio.
As a reminder, the change in reserves it's unrealized.
Noncash.
It does not reduce distributable earnings in Q3.
However, if such amounts are deemed non recoverable in the future we would recognize a loss through our cash metric of distributable earnings.
We have five loans on the watch list as of quarter end.
All of which are secured by office properties and.
And consistent with past quarters, we highlight those loans in our earnings supplement.
New loans were downgraded to a risk rating of Phi and account for nearly half of the $115 million in total she still reserves.
We have not disclosed the individual Cecil reserves around the five rated loans in.
Or to not disadvantage us as we continue discussions with our sponsors and other market participants.
Some additional details on the five rated loans.
First.
Philadelphia alone is secured by a four building portfolio comprised of approximately 600000 square feet of office and.
And includes a 500 space parking garage.
Hungary from the COVID-19, pandemic and return to office in the Philadelphia market has been relatively slow compared to some other major U S cities.
Current occupancy at the property is approximately 50%.
Down from the low Sixty's at closing.
The loans initial maturity date is may 2023.
But in recent conversations the sponsors indicated it does not want to continue the business plan.
The loan remains current however, and K referenced evaluating alternatives to maximize value.
<unk>, a potential sale of the loan or properties.
Second the Minneapolis loan is secured by a 1.1 million square foot two building class a property.
Our loan supported the refinance remaining capex and subsequent lease up of the property from an occupancy of 62% at closing.
The occupancy rate of 88% today.
NOI from the property generates a current debt yield of over 8%.
Fully covering the debt service on our loan.
However, the loan has an upcoming final maturity date in December 2022.
And the sponsor has indicated an inability to refinance the loan given current market conditions.
We're continuing to dialogue with the sponsor and are considering a number of options.
With regard to the broader portfolio.
89% of our loan portfolio remains risk rated three or better and we collected 100% of scheduled interest payments.
Across the entire portfolio in Q3 and through the first payment period in Q4.
In summary, KBR finished the quarter with a $7 $7 billion total funded portfolio.
Which has grown by approximately 33% on a year over year basis.
Originated two senior loans in Q3 for a total of $458 million.
We have over 400 million in loans under exclusivity.
This quarter and subsequent to quarter end, we sourced and closed two new non mark to market and matched term financing facilities.
And completed a second upsides on one of our existing non mark to market facilities to $1 billion.
Finally, we repurchased approximately 600000 shares of common stock at a weighted average price per share of $17 42 in Q3.
For a total of over $10 million.
Over the last two reported quarters and subsequent to quarter end, we have been opportunistic in utilizing our share repurchase program.
With year to date purchases of $2 1 million shares for a total of $36 million.
Our record liquidity puts us in a strong position to efficiently manage in this current environment and to further capitalize on the market opportunities ahead of us.
Thank you for joining us today.
Now we're happy to take your questions.
Okay.
Thank you we will now begin our question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will be from Jade Rahmani with <unk>. Please.
Please go ahead.
J J. Thank you Barry perhaps you.
Yes, I can hear you now.
Great. Thank you very much there's definitely indications that credit is turning.
Do you agree with that how do you expect the cycle to play out and specifically what I'm interested in understanding is with rates. This high and credit spreads extremely wide. Many borrowers are going to have difficulty refinancing at today's levels. So in my view modification.
It has become very important which means our capital Wherewithal you noted the 900 million of liquidity working with lenders I know care F has a high percentage of non mark to market financing and assessing borrower commitment to the property. So as you approached credit overall in asset management.
That going to be your primary focus.
And can you also touch on upcoming loan maturities, which I believe you spell out in the slides is that all encompassing about what you expect for the remaining part of this year and next year.
Yeah.
Oh, great Jay Thanks for the question, it's Matt I can take it and then Patrick if you want to jump in on the second point around.
The repayment profile.
First of all just with the credit dynamics I think it's a little bit.
Market and property type specific.
If you look at most of our portfolio, it's in growth markets, and obviously multifamily being the largest component of that but we have positions within industrial and life science as well and we're still seeing strong growth there strong rental strong tenant demand.
And so I'm not sure.
That will be a big part of a default cycle if you will.
I agree with your point that there could be modification discussions there over time, but.
We're really not seeing just from a property fundamental or a cash flow perspective.
Anything that would lead to lead us to suggest that there was some issues in those in those markets.
I think office is different and as we've highlighted certainly within our prepared remarks.
The lack of liquidity there and the uncertainty in that particular sector is very high and as it relates to.
Workout strategies, it's going to it's going to be very fact dependent.
If theres a sponsor.
Operating.
The property well and is willing to invest more capital.
And certainly we'd be very open minded to modifications and extensions.
Because we thought we think that could maximize value.
It's the opposite is true on either one of those then obviously, we're gonna have to create our own liquidity for that.
Central position.
And so I think we've got a range of options available to us as we kind of go through this this credit cycle.
But again it'll be very comes back dependent on it.
Dividual property circumstances.
Okay.
Jade I'll take the second part of that question with regard to the maturities that are coming up and we'd have a page in our supplement on page 21, which details the loan maturities.
And as you ask them, what we're reflecting here are the final maturity. So in 'twenty 'twenty. Two you can see that 194 million as the Minneapolis alone, which we talked.
<unk> talked about on the opening remarks, but you can see a lot of the maturities are backdated a lot of the portfolio has been originated.
Over the last couple of years and so that's reflected on this chart. So as we look out into 2023 and 2024.
Its relatively light in terms of upcoming final maturities.
Thank you I'll get back in the queue.
Thank you.
Thank you and the next question will be from Stephen laws from Raymond James. Please go ahead.
Hi, good morning.
Maybe to follow up on the office stuff you know can you talk about how those are financed or any in clo's are they all on credit facilities.
The latter you know how are your discussions with those counterparties going with regards to.
You know credit Mark advance rates things of that nature.
Sure Good morning, Stephen It's Patrick I'll take that question.
So these loans are financed across a variety of our facilities I think as we've talked about them repeatedly.
We're very focused on a diversified financing structure, so as you might assume.
Our office loans in our portfolio in general is really diversified.
Where are these these loans reside.
On the office sector in particular, we're financing some of those assets in the CLO some of our non mark to market facilities.
We also have some assets that are unencumbered right now so obviously a lot of flexibility there.
In terms of discussions.
Not a lot to date.
If you look at the performance you know and as we've noted a 100% of the.
Interest payments have been collecting so the loans are you know our pain are performing as we get closer to these maturity dates.
You know both on the extension final I expect us to had increased conversations but given the liquidity that we discussed we feel well positioned to kind of manage through those through those discussions regardless of what the outcome is.
Thanks, Patrick.
<unk>.
You know, Matt I wanted to shift over to a comment because you know there's a couple of things going on right with the benefits of higher rates and obviously any any repayments from cielo is can be replaced at wider accretive spreads on the flip side a lot of concern over portfolio performance going forward.
When you think about kind of in reference to your your statement of 100 basis point increase would add 21 cents annualized NII you know what what type of portfolio deterioration does it take to offset that I mean in an oversimplified way if those office assets were 11%.
You know when you just take out 11% of interest income you know that's still not 21 cents per share. So kind of curious how you think about those two opposing forces as you look out over portfolio performance going forward.
Yes Stephen.
Happy to cover that.
We think that the.
You poorly perform it should be pretty resilient here.
As it relates to you know convexity too.
Increasing in interest rates and we have modeled a number of scenarios, especially as it relates to what you were breaking up in terms of.
Some of these these five rated loans.
And we.
We still think that the.
The coverage certainly versus the dividend will be will be quite strong.
Even when factoring in.
The existing <unk>.
Watch list assets of this fiber.
Those five rated loans so.
Listen it's a it's a very good market right now to be investing them agree with your comment on just the existing portfolio, we're gonna have to.
Watch that closely but I think it's mostly going to be concentrated in these in this office sector and again Thats one of the smaller pieces of our of our overall portfolio and a lot of that is is located in growth markets and we still feel pretty good about it despite the overall office market.
One thing I'll highlight is like we got a repayment on an office, but we had just recently.
So there is still some liquidity out there for you know for the right assets in the right markets.
Thanks, Matt and that leads me to our final question you mentioned not attractive new investments I don't know I believe as Patrick mentioned kind of mid threes leverage going forward. So that's kind of part of the equation, but how do you balance those attractive returns on new investments versus the stock buyback, which you've been pretty active with obviously year to date.
Yeah, and I think it's a fair question.
I think you've seen us do both recently right, where it's not just one or the other where we think they are both both attractive we think it's the right thing to do from a fiduciary shareholder perspective to try to buy back shares when when they look very attractive and obviously the other component that we're weighing here, it's just liquidity right overall.
Liquidity in a market like this so that takes precedent.
And it always will take precedent, but to the extent we've got.
Excess liquidity then that's what we're really evaluating the relative value between making a new loan and and buying back stock. The other component really is.
Some of the existing financing facilities that we have.
As you mentioned to the extent, we have open spots if you will in.
And the CRE CLO those are very attractive opportunities to create accretive return so.
It may just be like where where do we have liquidity and where can we where can we finance. It that's kind of weighing into decision, whether we buy back stock or.
Or make a loan so hopefully that answers a little bit of a question, but there's no hard and fast rule in terms of IRR. We're looking at the return on on either in comparing.
I appreciate the comments, Matt Thank you.
Yeah.
The next question is from Donald <unk> from Wells Fargo. Please go ahead.
Good morning.
Ivan Sudan.
Can you talk about your expectations for multifamily performance going forward with rates going up and the macro softening.
And then secondly, where and you know what property types are you still seeing them attractive lending opportunities.
Thank you.
Sure just to start out on the multifamily side.
As I mentioned earlier, we're still seeing very.
Strong performance across really across the board there.
In terms of high Occupancies, good leasing environment.
And strong rental growth the growth has come off a little bit from the peak.
So where we were seeing call it.
Double digit type of growth in <unk>.
Year over year.
Re leasing spreads.
You know, that's raising rents and that's really come down to call. It high single digits in some of these growth markets. So.
Whether that's a function of the fed activity or whether that's a seasonally adjusted issue.
At this point, but lets say theres, a little bit of growth coming out of that market, but still very strong.
And values are changing their of course, just like all real estate values are adjusting to.
The new cost of capital or the new <unk>.
Interest rate environment.
Sorry.
<unk> are called down 10% to 15% and some of these growth some of these growth markets and in terms of just where we're focused lending, but honestly it hasn't shifted that much over the war over the course of the last few years I would say.
Certainly we're much more.
Focused on these growth on these growth areas in terms of property types. So you'll continue to see us land than multifamily industrial and light and life Science, which we think are kind of the strongest from a tenant demand.
Perspective, but just given the market environment and the competitive landscape.
We're what we're doing is.
Very much it's very much a lenders market today. So the loans that were creating today are lower leveraged or higher returns they have more structure and.
At some point lending on.
Less transition as well, you've got higher starting occupancy or cash flow.
Per our per unit of debt so.
Certainly a good market, but I think you'll continue to see us focus on on these growth segments.
Yeah.
Okay.
Thank you and the next question will come from Steve Delaney from JMP Securities. Please go ahead.
Hi, Good morning, everyone. Thanks for the question your $81 million Cecil Reserve addition, in the quarter can you comment on any part of that there was some specific on any of your fob rated loans or should we view it all as just a general unallocated reserve banks.
Hi, Steve it's contra thanks, so much for the question.
Maybe taking a step back for a second to talk about how we.
Creating a seasonal reserves. So we take a very conservative approach I think as you've seen in the past, let's see some reserve is evaluated and adjusted each quarter.
Consider it on a loan by loan basis, and individual facts and circumstances are taken into account when considering that you know future possible estimated losses and most loans are calculated using historical loss rates third party model and macro scenarios.
Do you take into account other factors to estimate possible losses, which are based on what we know currently and those factors could evolve over time, when we personally look at the reserve.
Individually.
But probably more so holistically in terms of where it's it needs to be the entire portfolio.
And so we really think of it more as I sat on a holistic basis and you know Patrick mentioned in his comments earlier with respect to couple of the five rated bonds in particular, we'd prefer not to disclose more on the belt currently to protect some of our commercial.
Interest.
Totally understand not to show your hand, obviously to when you're negotiating with a sponsor or a borrower that makes sense. Thank you for that Kendra.
On page three of the deck you say you did a 100% of interest was collected in the third quarter does that include five rated loans, where there still may be an interest reserve on the loan that has not yet been exhausted.
Steve It's Patrick I'll I'll take that question Patrick good.
Good morning.
Yes.
So 100% was collected in the third quarter. We've obviously had the October payments, we've collected 100% there.
Regardless of whether the loan is worse rated three four or five in some cases right theres interest reserves on all of these loans, we have a five rated asset that doesn't require an interest rate reserve, it's covering instead service.
Obviously that was collected we have other three risk weighted loans that might have that service just given where are they.
They have a carry reserve just given where they are in the business plan.
And those were sort of collect it all of the loans have a.
Some form of structure to allow us to.
Either theres cash flow in place or structure to hold cash to cover any interest shortfalls and those get replenished.
Now and then as we sort of project what future shortfalls are so hopefully that addressed your question.
That does thank you and lastly on the new life Science focus and the new two new ones that you made with that product. Obviously, we noted they were construction loans. So pretty you know early in the process do you normally find significant pre leasing commitments in place.
The specialized properties such as that or are these should we view these as more more spec buildings.
I can jump in on that one it's Matt.
Construction lending we've done.
There's a range.
Some are for lease up some theres a national tenant.
Place.
On these particular two these are both lease up strategies and obviously located in very strong markets and really catering to.
The most institutional and largest.
Companies within the within the life Science segment.
Thanks I appreciate the comments thank you.
Yeah.
The next question is from Eric Hagen with <unk>. Please go ahead.
Hey, Thanks, Good morning, guys hope you're well first one is can you just discuss how you stress loans during the underwriting process for both NOI growth and I take out through refinance or an asset sale like like what are the variables that you're using and thinking about especially with respect to interest rate risk management for the sponsor.
Eric It's Matt I can I can take that.
Well just first of all our loans, obviously have interest rate caps in place. So that's probably the number one mitigate them.
In terms of the existing portfolio to stresses on on cash flow or coverage.
But just in terms of how we're underwriting.
Today, we're really just looking at the current rent environment and the current occupancy environment and Youre trying to stabilize.
Out of that yield that's.
Well well north of today's cap rates, because our view is.
Those are gravitating higher over time as the equity market at kind of a just to again the new interest rate.
Environment.
So our base case really doesn't give credit for kind of future rent rent growth of course, we're looking at the sponsors underwriting and that typically.
And the growth there is a multifamily.
Industrial those will typically include some type of future rent growth, but we're really just looking at it today.
And then we put on I mean, really it's market dependent and property type dependent but we're putting on a range of.
Declines in both rent and occupancy and of course, stressing cap rates as well lets try to consider them to try to consider.
The downside scenarios and you've seen over the course of this year.
Certainly an entire market.
We're including this really start to decrease leverage pretty materially.
Just get that where.
You know, where we think values could go so it's been a threat to some extent of that lag.
The decline in the market and kind of market leverage availability. So.
Hopefully that gives you just a little bit of context of how we're underwriting things, but certainly we look at part of primarily debt yield, but we will also look at coverage.
A market like this and make sure we're stabilizing it.
North of a one point up coverage on these adjusted all in coupons.
Got it that's helpful detail and then at a very high level. If investors have the option. If you will the concentrate towards assets, which are nearly stabilized versus construction assets, where do you think you're getting a better relative value like especially when you factor in the liquidity and the funding for one versus the other.
Like where do you think shareholders are.
Our investors are picking up the better value how do you guys think about that thank you.
Sure well, we put it we certainly put a higher premium on on.
On construction lending just given the nature of the future funding like Youre, saying that all of our dollars are getting into the ground day, one and obviously there is incremental risk associated with them.
With building an asset as opposed to in place and construction overall is a small piece of our our portfolio.
So I'd say on a whole like most of most of what we do just given the nature of it.
Is going to be.
Predominantly funded built built assets accretive mostly funded loan, but when we see opportunities.
<unk>.
For development on on certainly in markets that that.
That we like with really really strong sponsors.
And have that financing kind of built in with that.
Which we have been in.
In the case of the two ones we had this quarter.
You know those can be very attractive opportunities, but again they come at a premium and that will always be a small piece of the overall portfolio.
Gotcha. That's helpful. Thank you guys very much.
Thank you and the next question is from Kelly Wang from Citi. Please go ahead.
Thank you most of my questions had been asking I'm, sorry, but just in terms of share repurchase and how shall we think about the pace of that going forward. Thank you.
Yeah.
Yeah.
It's Matt I can jump in and thank you for the question.
You know I think what you've seen over our history really as we've been.
Really a market leader in terms of buying back shares you saw it at the outset of Copa It obviously, we highlighted what we've done over the course of this year.
And as I mentioned I think Steven asked the question earlier.
You know, we're continuing to evaluate.
What's the relative value of <unk>.
Buybacks versus making a loan.
And sometimes again, making the loan equation is going to factor in where we have.
Financing available and what type of returns, we're able to generate through that.
And then finally.
Again, the biggest piece of this puzzle right now is really liquidity and just making sure that we've got liquidity and I'm running at a lower leverage point them to.
Two one just be defensive in a in a very volatile market environment, but to be positioned for opportunities that are going to come out of a.
Out of this volatility so we will continue to weigh these but hopefully our track record.
Gives you some indication.
Of how we how we think about share buybacks.
Yeah.
Thank you.
Yeah.
And the next question is a follow up from Jade Rahmani with K B W. Please go ahead.
Thank you very much on the Minneapolis office last quarter. It was risk rated two and now its risk rated five what really changed was it the interest rate shock and the time.
Timing of the upcoming maturity.
And what is your dialogue with the borrower currently suggest.
Thanks, Jade, it's Patrick I'll I'll take that question, Yeah timing is real a real big factor here.
Each of these loans is going to have a different sort of approach to them.
Just for a little bit more context. This was an asset that was under contract in the spring for a good premium relative to our debt that contract fell out over the summer.
And now we're at a maturity date in December .
So I think what you're seeing here in terms of the risk rating is a reflection of the fact that there's likely going to be a near term event here just given that that maturity.
All of the options are on the table, including extending alone.
But they're not free options and if.
If we you.
You know there aren't free options and so as we get to this maturity date, if we feel like there is a better approach to maximize shareholder value, we're going to explore that path and so we're in dialogue with our with the sponsor.
And I expect us to continue to dialogue throughout this process as we think about financing as we think about how do we maximize the return back to Kay rough.
Thank you very much you mentioned, Matt that multifamily values in growth markets. You believe are down 10% to 15%. What would you say is the case for office clearly big bifurcation in the office space, but maybe if you could generalize and also for commercial real estate prices overall.
Well I think the challenge in office today, as you know nobody knows right in that.
Not a lot of liquidity.
Outside of the highest maybe the highest end.
Very class a or trophy type of type of asset so and that's that's the challenge right and that's why I think why you were talking about this.
It has been at Minneapolis asset right, where it says, whereas their liquidity at what at what level. So.
It's hard for me to say exactly where the office market is generally but listen if growth markets are down 15%. You can obviously guests that office is going to be down significantly more than that.
So just.
Just given the uncertainty there.
But.
I think like you say the whole real estate markets are adjusting to.
To this new interest rate environment.
But I wouldn't want to speculate I'm, just like whats the overall U S. [laughter], what's the U S real estate value decline that'd be a tough one to.
To figure out.
Okay. Some other questions. We've all I believe gotten on the space in general, but where does margin call risk stack rank in terms of you know.
No issues, you're managing to.
Yeah.
Okay.
That's a very good job there if you want.
You know for us it is.
Not.
You know, it's not a big factor for us.
The vast majority of our portfolio is financed on a non mark to market basis, we have a lot of liquidity.
And we certainly havent seen.
You know that.
Any margin calls or I haven't heard of any of them nor have we experienced any.
Through this through the cycle.
One can imagine that.
You know you could see that if the market continues to be to be volatile, but just given our positioning and how we choose to finance our portfolio its not.
You know, it's not a big concern of ours.
Yeah.
And in terms of the access to capital.
Clearly some positive.
Initiatives or additions in the quarter, the new asset specific financing facilities.
Where do things stand in terms of talking to non U S. Banks are they interested in gaining exposure to dollar denominated U S based assets and is that an area that could help.
Create accretive financing opportunities.
Okay.
Oh good.
Go ahead Patrick.
I was going to say.
There's a there's a.
There's a several different paths I think that.
We've got in this market I think one of the areas.
Of growth potentially.
Isn't that.
Non U S institution and so if we look at this past year and where we've seen some of the growth in our financing capacity it's come from that.
That's not the only area, but we think it is one of the areas that could.
Could help support this market.
Thanks, Matt did you have anything to add.
No I think that's wassa.
Great. Thank you for taking the questions.
Thanks Jade.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Jack's what's Ala for any closing remarks.
Great. Thanks, operator, and thanks, everyone for joining us today, please reach out to me or the team here. If you have any questions take care everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
Okay.
Yeah.
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