Q2 2023 KKR Real Estate Finance Trust Inc Earnings Call
Good morning, and welcome to the KKR Real estate Finance Trust, Inc. Second quarter 2023 financial results Conference call.
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I would now like to turn the conference over to Jack Switala. Please go ahead.
Great. Thanks, operator, and welcome to the KKR Real estate Finance Trust earnings call for the second quarter of 2023 as.
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 Ken judicious.
I'd 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 second quarter of 2023, we reported a GAAP net loss of $25 8 million or negative 37 cents per diluted share, including a seasonal provision of $56 $3 million or <unk> 82 cents per diluted share.
Distributable earnings this quarter were $33 $1 million or 48 cents per share.
Book value per share as of June 30th 2023 was $16 38, a decline of four 5% quarter over quarter.
Our seasonal allowance increased to $3 30 per share from $2.48 per share last quarter.
The increase was primarily due to additional reserves on risk rated five senior office loans as well as macroeconomic conditions.
Finally in June we paid a cash dividend of 43 per common share with respect to the second quarter.
Based on yesterday's closing price the dividend reflects an annualized yield of 13, 5%.
With that I'd now like to turn the call over to Matt.
Thanks Jack.
Good morning, and thank you for joining us today.
Okay rest of it.
Generated another quarter of strong distributable earnings of 48 cents per share relative to our 43 cents per share dividend.
Distributable earnings continue to benefit from the higher interest rate environment.
While higher interest rates are beneficial from an earnings standpoint.
This dynamic has created challenges for commercial real estate.
With little capital markets liquidity and declining asset valuations.
We anticipate the current dislocation.
And associated volatility will persist for the foreseeable future.
Regional banks have begun pulling back from the market, while larger money center banks remain cautious.
Borrowers will need to recapitalize.
The equity infusions or sell assets.
As approximately one trillion of commercial real estate loans mature in 2023 and 2024.
Notably.
The CRE lending market is highly competitive for stabilized in favour assets with insurance capital very active.
This environment warrants patience and discipline with a particular focus on liabilities with duration and durability.
Generation, we've had front of mind in building <unk>.
Despite the volatility we have seen progress on a number of initiatives.
First we are in the late stages of the sales process on a risk weighted five Philadelphia alone.
Second.
Our borrowers marketing our risk weighted for D C office asset with.
With initial indications above our $162 million loan amount.
After significant progress on the business plan.
The property is near stabilization.
Having signed over 70000 square foot of leases year to date.
With total occupancy increasing from the low sixties to the high Eighty's.
Third.
Many of our other office product sponsors are signing leases.
Excluding the leases I just mentioned.
Our office assets have signed over 435000 square feet of leasing year to date.
Including the largest lease in Philadelphia.
And 18 months.
Finally subsequent to quarter end.
Our Oakland, California office loan was paid down by 68%.
In connection with the lease modification and pace financing.
And we expect full repayment in the summer of 2024.
Hey, Ralph steady focus on building non mark to market financing sources.
Maintaining high levels of liquidity over the past few years has two crucial and navigate in this kind of environment.
We continue to have ample liquidity, ending the quarter with $800 million of availability, including $208 million of cash and $560 million of corporate revolver capacity.
We had no new loan originations this quarter as we focus on maintaining a robust liquidity position.
At quarter end.
Nearly 70% of our portfolio was comprised of multifamily industrial and risk rated three office property types.
The multifamily portion of our portfolio continues to perform well.
With weighted average rent increases of seven 5% year over year.
In the second quarter alone.
Loan repayments totaled 339 million, creating a net portfolio reduction of $162 million.
With floating rate coupons at mid 8% today versus takeout financing closer to 6% for stabilized properties.
We are beginning to see borrowers opt for fixed rate refinancings.
Beyond K RAF KKR is actively lending across a diverse CRE capital base, including bank and insurance estimates.
In private desktop.
Which allows us to stay active in the market and service our strong client relationships.
Our integration with <unk> broader real estate business that manages $65 billion of assets.
It provides us with real time market knowledge across both debt and equity.
Our team of approximately 150 professionals as.
Has a strong reputation as a best in class capital solutions provider.
We also continue to benefit from our long standing banking relationships as part of the broader KKR franchise.
As we have previously stated.
We expect the portfolio turnover modestly in 2023.
And anticipate future funding should be offset by future repayments for the full year.
A lack of capital markets liquidity continues to challenge the office sector.
We increased reserves this quarter.
Primarily driven by a higher reserve on an existing watch list loan that was downgraded to a risk weighting of five in the quarter.
At this point, we believe we have identified all the potential office issues in our watch list and do not anticipate further ratings migration within the three rated office loans.
While we are focused on long term solutions to resolve watch list loans.
We are seeking to maximize shareholder value.
And where there is a dearth of liquidity.
We have tools at our disposal to seek other options.
Including modifying loans.
And taking title and managing properties.
I expect we'll have various outcomes as we work through the five rated loans.
<unk> was built for moments like this.
We are operating here out of the 800 million of liquidity.
76% of our secured financing as of quarter end was fully non mark to market.
We upsized, our master repurchase agreement from $240 million.
The 400 million.
All while succeeding in terming out our debt.
With care up having no corporate debt or final facility maturities due until late 2025.
And we have a robust <unk>.
Will estate business with a strong reputation across real estate equity debt and asset management.
Finally, it is worth mentioning our managers ownership of approximately 14% of chaos shares outstanding today.
Which we believe is the highest percentage held by a manager in the mortgage REIT sector.
And demonstrates meaningful alignment between KKR.
Hey, Ross.
With that I'll turn the call over to Patrick.
Thank you Matt Good morning, everyone I'll begin by providing a few still reserve and watch list update followed by our efforts on the capital and liquidity front.
This quarter, we recorded a $56 million increase in our C store reserve for a total reserve of $228 million.
Or 304 basis points of our loan principal balance.
This increase in our reserve was due mainly to additional reserves taken on our office loans risk rate at five.
Most notably with the addition of the Mountain view, California office alone that our principal balance of 200 million at June 30th.
Approximately two thirds of our total seasonal reserve held against the first three five rated loans.
The Mountain view office alone was initially placed on the watch list in third quarter 2022.
The property is a recently renovated very high quality class a office campus, but it is located in a more challenged leasing market.
And we transitioned the asset to nonaccrual status in June .
At this time, we are considering next steps for the asset which may include taking ownership.
As we work with our sponsor on a transition plan.
As we have noted in prior quarters.
When loans move from a four to five risk rating, there's generally a meaningful increase in our loss expectation.
Regarding our $194 million Minneapolis office, we have decided to modify the loan after testing the sales market.
The loan was restructured this quarter with a two year term and bifurcate it into a 120 million dollar fully funded senior mortgage loan.
And the $70 million $79 million mezzanine note, including 5 million of proceeds for future leasing.
The senior loan is current on contractual interest payments through July .
This property is well positioned to capture tenant demand and that's one of the best buildings in the market in terms of both quality and location.
And at least over 100000 square feet over the last 18 months.
The renovated class a property is nearly 80% leased with adequate cash flow to cover the senior debt service.
And as tenants seek space and well capitalized buildings that can offer attractive leasing packages, we expect further positive momentum.
The loan extension insurers the building is capitalized to fund leasing cost.
We feel this approach preserves optionality to optimize the value of the asset for K rough.
On the risk rated five Philadelphia office long.
We are working with the existing sponsor on a short sale process.
In which we will provide financing to a new equity sponsor.
If a sale occurs we will recognize a loss there were a cash metric distributable earnings.
We added one Boston office alone to the watch list this quarter.
Which is secured by a class a office located in downtown Boston on Cambridge Street.
The property is currently 90% leased.
Given our conservative approach to identifying assets of concern.
We downgraded this loan given the elevated loan to value head of the loans initial maturity.
And first quarter 2024.
Where are you from the watch list or risk rated three office portfolio.
Which equates to just under half of the outstanding principal balance of the office segment.
10 years to perform well and has attractive credit metrics.
Aggregate seven properties, representing these underlying risk rated three office properties are 93% leased.
With a weighted average debt yield of.
Of eight 9%.
And a median 8.4 years of weighted average lease term remaining.
Importantly, as Matt mentioned earlier, we don't foresee any negative ratings migration or.
On our remaining three rated office loans.
The average risk rating of the portfolio was 3.2 consistent with the prior quarter.
And 83% of our portfolio is risk rated three or better.
Our portfolio is 99% floating rate and in the second quarter, we completed our transition to sofa.
And now all of our floating rate assets and liabilities are benchmarked to the market convention rate.
One of <unk> key Differentiators is the composition of its financing structure.
76% of our outstanding financing remains fully non mark to market and the remaining balance is marked to credit only.
We continue to optimize and in the second quarter, we upsized, a $240 million master repurchase agreement to $400 million.
Excluding match term secured financing there are no corporate debt or final facility maturities until fourth quarter 2025.
KBR is well capitalized with a debt to equity ratio of 2.2 times.
In total look through leverage ratio of 4.0 times as of quarter end.
As of June 30th K, rough had $208 million of cash and $560 million of corporate revolver capacity available.
The resiliency of our financing structure, coupled with our independence from the public capital markets buffers K rough on the liability side during times of capital markets volatility.
Thank you for joining us today now we're happy to take your questions.
We will now begin the question answer session.
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At this time, we will pause momentarily to assemble our roster.
The first question today comes from Rick Shane with Jpmorgan. Please go ahead.
Hey, guys. Thanks for taking my question I know one disadvantage of being first is I'm still kind of pulling some data for.
So the background on this question, so if I trips and things up I apologize.
Like to talk a little bit about the Minneapolis transaction.
Obviously, you put the spread on the deal on the on the floating rate portion by about 150 Bips.
The pic component on the Mezz and this is I think the thing that surprises me.
Is fixed rate and it's actually below the.
The coupon on the senior.
So I guess a couple of things did the sponsor put in additional equity.
And to the extent this deal was restructured and extended.
Where's the upside for you what what is the Optionality that if this is presumably.
Sort of by the sponsor or additional time in order to sell the property, where do you guys participate in the benefit of that transaction.
Good morning, Rick I'll take the question it's Patrick.
So to answer specifically no there was no additional sponsor equity into this deal.
As we've said and as you know this is a cash flowing asset. So one of the benefits that we have here is that we've got an asset.
Nearly 80% lease it's got cash flow that can support.
Debt service and the structure and really allowed us to play the asset forward here continue to finance it at an attractive basis gives clearly the sponsor some optionality here, but also gives us optionality to not sell into.
Obviously, not a great capital markets active.
Environment, So we're able to play it forward.
And look for a better time to sort of exit.
The asset at the same time, we can continue to work with our sponsor continue to maintain leasing at this asset I mean, like I said look for a better capital markets exit.
Got it Hey, Patrick so two follow ups to that.
One is that you guys had made the comment that it is it a is covered on a cash flow basis, but that's at the on the senior side. It's 120, what it had been covered at the prior coupon at the prior note size or just shrinking the note and shrinking the spread put you in there.
That situation and then the other side of this is and this is what I was trying to look up was the loan on nonaccrual before so you will actually see a pickup in <unk> in reported interest income because of this loan goes from nonaccrual to accrual even if its smaller than at a tighter spread.
I'll take the second part first Rick you're right in observing there.
We will see some pick up on this asset as we move it off of non accrual and the senior now.
We will be a performing loan and so youll see that flow through.
Our net interest <unk>.
The asset prior to the restructuring was very close to a one times the SCR clearly with the re cut here in the senior loan being smaller and at a lower coupon that allows for excess cash to be captured within the within this assay.
And that cash then can be utilized very proactively to continuing the leasing efforts here.
Got it and I apologize to my peers I'm going to ask one last question is there a will there be a catch up.
In the third quarter related to the reversal of non accrued prints.
Principal that was captured running through the interest line or anything like that I, just want to make sure theres no noise that we need to be thinking about.
No Theres no recapture.
Thank you.
Thank you.
The next question comes from Barco with B P. I G. Please go ahead.
Hi, everyone. Thanks for taking the question. So we saw both the Boston office added to the watch list and the Mountain view office, you now see that downgrade there.
Both of those were originated post COVID-19 and I'm, hoping you can speak to the issues cropping up in that post Covid office bucket, just given we've seen more issues of course in the pre COVID-19 bucket.
But starting to see some of those issues crop up can you talk about how expectations have changed for.
For that group since call. It you know early 2021 to know.
Hi, Sarah its Matt. Thank you for the question and joining US. This morning, I can I can try to take that.
Yeah.
You know I don't think that.
Whether it's pre COVID-19 or post COVID-19.
The properties are the loans or are experiencing anything, particularly different I think it's just the overall.
Market illiquidity.
Illiquidity in fundamental softness as well as we just adjust to.
Work from home.
And what the real demand is on an.
On office space.
Same underlying.
I mean, that's impacting.
When when the loan was made clear what post post Covid I would say our bar for lending on.
On office certainly was raised materially.
When we think about the <unk>.
World Post Covid and maybe that's what you're highlighting here a little bit.
The Boston asset ones.
It wasn't really a transitional asset it was a fully leased asset is 90% leased today. So it was almost a stabilized office building in <unk>.
So is it just a question of value now.
With the market illiquidity in the cap rates have moved out.
Okay Mountain view one's a little bit different that's clearly a lease up strategy from from origination but.
Just given the overall quality of that particular asset.
This is not going to be subject to some of the.
The same concerns around occupancy.
As you may have on some of the more generic office space.
Space in the market this asset 100% at least someday.
Very high quality asset, it's just going to come down to how long that takes and whats the whats the lease rate at that point in time. So hopefully that gives you just a little bit more context to that question.
Okay.
Thanks for that.
Just to move over to the other side of the balance sheet for a moment here I was hoping you could speak more to how you're thinking about liquidity and capital raising in the current environment, depending on the messaging that we here at the fed meeting on Wednesday.
Just given the amount of office exposure, that's still on repo you now combined with the growing watch list, especially for assets, where we've seen you know more of a valuation reset.
And we're K RAF has lowered net equity you know and you also mentioned in the prepared remarks that the money center banks are pretty cautious. So I'm just trying to gauge how youre thinking about your liquidity needs going forward.
You know at what point would you tap the corporate debt markets, you know that the term loan b markets. How are you thinking about that.
Yeah, I can take that it's Matt again.
First of all.
We have ample liquidity.
Anything we would do would be more opportunistic in nature, it's not we're not looking at the market, taking absolutely need to do something.
No there's really no immediate need for further liquidity right now you can see we have $800 million of liquidity.
Paul.
We'll be there to take number two.
Yeah, we're going to continue to monitor all of these markets they've recovered.
Along with the broader market so to the extent, we find something attractive we could certainly look at that.
The one thing Thats in the back of our mind that we did pay off our.
Convert this past quarter was small, but we paid it off so if there was an opportunity to term that out at some point in time down the road. We may we may look at a potential.
Opportunity to do that but overall I'd say, we're just kind of watching the market and waiting for a moment, where you could be attractive, but really no immediate need.
Thank you.
The next question comes from Jade Rahmani with K B W. Please go ahead.
Thank you very much and good to see some positive updates on the office side.
So the first question would be.
You know how far along through the scoping of credit risks do you feel we are would you say halfway is fair assessment or you know much more of a long than that I think you did take pains dimension that on the risk three.
Right. It office loans, you don't expect any negative surprises in that portfolio is well leased with long duration. However, we haven't touched on multifamily hotels industrial and even life Sciences, where we've seen a few hiccups so.
Could you just comment on that broad question.
Yeah.
Sure Jay it's Matt I'll take that thank you for joining.
Well, let's start with the with office because obviously that's much much further along I think with the office side of it we feel like we are.
Towards the end of.
Certainly identifying where there could be potential issues.
I don't think all of them. The four rated loans end up migrating the bi question.
You know what happens with some of those as we continue to kind of walk down.
As you know the path there.
As it relates to the five rated loans that feels like we've got pretty.
Sizable reserves against those and appropriate reserves. So the office I think we we've been pretty transparent I think we've been a little bit more front footed than some of our peers in identifying issues reserving well I think for US. We're we feel pretty far down the road not finished but pretty far down the road in the office side.
As it relates to the other property types.
I mean, it's hard to say, it's obviously could be early because we haven't seen any issues there.
And.
Clearly real estate values have changed.
Across the board with the increased cost of capital.
But the valuation changes have not been anywhere near as severe.
What we see on the office side, which obviously is getting hit from fundamentals as well as higher cost of capital as well as capital markets and liquidity. So it's a little bit of a perfect storm there.
So we're watching the portfolio very closely.
But even if you look beyond our broader portfolio outside of K RAF we've got almost a $30 billion mortgage portfolio across all the different accounts that we service or manage.
Really we haven't seen any issues outside of office.
I think a lot of those property types are well positioned and that's not to say that there wont be issues down the road because the cost the debt burden is quite high today.
And so that will impact certain sponsors.
But I don't think even if you have issues.
See the level I would doubt youll see the level of severity that were seeing on the office side, which again is kind of caught in that that perfect storm. So it's a hard question to answer, but we're certainly monitoring it and we just haven't seen anything in our broader portfolio of kbr's portfolio yet.
On outside of Boston.
And on the multifamily side, you mentioned the rent growth seven 5% I mean, we have seen multifamily performance.
Being pretty resilient so far Nevertheless, you know for those loans to be able to successfully refinance them. We're seeing some interesting dynamics, where lenders are providing preferred in order to have the L. T V.
Meet other senior lender requirements because of the preferred gets counted as equity do you think that the multifamily deals can stomach, a six 5% or 6% type interest rate.
Okay.
I think theres, a timing issue there and the question is.
What's the long term.
10 year rate.
You know I think there's a lot of sponsors today that are looking at their multifamily assets and.
And trying to basically bridge the period of time from now so when you get into a little bit lower interest rate environment.
At which point, they're going to feel pretty good about the value of their asset.
And the question is does.
Does your sponsor have the liquidity to bridge that gap.
And there's certainly the business plans.
That are in the middle and they are in the.
And then it'll renovating and operating unit that people will get caught in this a little bit is my view.
But I'd say for at least.
Our portfolio within <unk>.
We feel pretty good about it most of the class a real estate.
<unk>.
In liquid markets and the one thing I.
It always surprises me about.
About the multi sector is the amount of liquidity. There there is a tremendous amount of liquidity on both the debt and the equity side and I think that's propped up values a little bit.
And muted some of the issues that may be under the surface.
On the multi side so.
I.
I think to answer your question directly.
I think that that cost of capital is more temporary and so people are thinking about it on a more intermediate basis.
Thank you very much.
The next question comes from Don <unk> with Wells Fargo. Please go ahead.
Yes.
Just wondering if youre seeing any opportunistic capital forming in the industry for office, whether it's on the equity or debt side, I mean, obviously sentiments been extremely negative.
That's still the case or are you sort of seeing some green shoots.
Okay.
Yeah. It does.
So that I would say it's limited.
I think part of the challenge with office.
Is it the large property type.
And most investors, whether you are a debt investor or an equity investor you have significant exposure to them.
And everyone is dealing with their existing.
Assets and reserving whatever capital they have.
It should be a pretty extraordinary investing opportunity.
Certainly given the liquidity that we're seeing in the market today, but I don't think we're seeing really large.
Institutional capital being raised around.
Around the office.
Okay. Thank you.
The next question comes from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning.
Patrick who love the follow up I think you made a comment on the short sale on the Philly office. You know can you maybe help us get a gauge of how much the specific reserve.
Or of the reserve, it's roughly two thirds on the five rated loans kind of applies to that and is that a <unk> event or sometime over the second half as far as timing goes.
Good morning, Steven.
We didn't give a specific number there, but if you look at what's implied by the numbers you were talking about loss expectations that are potentially north of 25%.
On that asset and the other three rated assets.
We're obviously still working through that sales process and so want to be.
Mind full of that.
In terms of the timing.
It's it's difficult to it's difficult to predict right now.
On one hand, it feels like.
Things are progressing well and as Matt said, we're in the later stages here. So there is certainly could be a <unk> event.
But in this kind of market for these types of transactions to slip a couple of weeks or months.
Certainly not impossible and so.
That's why we're saying it could be a <unk> event, but we would certainly expect it to happen by <unk>.
Great. Thanks for the color there Patrick.
You know repayments came in a little higher than I was looking for a good bit higher than I was looking for actually but can you talk to that a little bit it seems like you're you know.
To reiterate a day kind of expect modest repayments over the year, which is consistent with last quarter.
But it looks like maybe a multifamily asset in Florida small Rajiv condo loan I think in Manhattan, but can you talk about what what repaid during the quarter and any trends, we can read into that.
Sure Stephen you're right and we did have.
Our condo asset, which is near Hudson yards had its last units sell in that asset paid off there.
There were three other multis that actually paid off they were paid off through a fixed rate refinancing.
So we're continuing to see as some of these assets in particular on the multifamily side reach on their business plans and a real opportunity to take coupons that are in the 8% to 9%. When you look at the margin plus the sofa index and refinance at a rate that's closer to 6%.
So we saw some of that activity and then we had.
Smaller number of partial repayments on some of our industrial loans, where there were where there asset sales.
And I guess, one thing I would just highlight Steve.
As we think about those.
Payments those multifamily loans that paid off were certainly risk rated three.
But if you recall at one point the condo asset was a risk rated a four asset and obviously clearly was paid out at par here. So.
Good quarter in terms of repayments I think as we look forward, we still expect the back half of the year to be muted.
Muted in terms of repayment expectations and if we see those.
Think that they are more towards the fourth quarter as opposed to third quarter.
Great and lastly, Matt what are you guys looking for to think about new originations here I mean, it's you know it seems like you feel pretty good about having identified problems in your office and feel good about what's currently remaining three rated.
You know you're looking for right to top out is it more macro or what are the deals look like that you are looking at the past couple of months, you've decided not to do and kind of what do you need to see improved to start doing those.
Sure.
It's a very <unk>.
Interesting lending environment today, So I'd say, we're very much looking forward to being able to get back into the market and create some new opportunities in the portfolio.
I would say really it comes down to just working through some of the watch list items and just making sure that we get through them, we find a home we get that equity.
Returning to working.
And and then it'll come down to that.
Side of that I think once we worked through that moment then.
Sure.
As we get repayments, we can go out and reinvest so.
That's really been part of the reason why we have been more aggressive with dealing with some of these issues identifying them trying to get through them. That's because we very much want to make sure that we have the opportunity to take advantage of the current market environment, but it is going to come down really to the existing portfolio.
What we're seeing in the market today is very attractive.
Great.
Patrick Thanks for the comments this morning.
Thank you.
Yeah.
The next question comes from Erin candidates with Citi. Please go ahead.
I was wondering if you could talk a little bit about the west Hollywood loan that you modified June in.
What was the reasoning behind that in and the outcome there.
Sure Erinn as Patrick I'll I'll take that one.
The real starting point here was just the.
The interest rate movement in.
Cap renewal that had to be executed when.
When we did the modification as part of the modification the sponsor agreed to put additional capital into the asset. So in addition to buying a caf added additional capital to help cover debt service, we agreed as part of the loan structure too.
Add some additional capital as well that will help carry this asset through its initial maturity date.
And as part of that modification entered into some profit participation above our basis. So net.
Net net it puts the asset on sort of better footing for this current rate environment.
The asset from an occupancy standpoint continues to operate in the sort of mid <unk> here.
I mean, that's something obviously, we're watching closely but at the end of the day. This is a really high quality asset.
Great location, and we feel really good about our basis here.
Thanks.
The next question comes from Steve Delaney with JMP Securities. Please go ahead.
Morning, everyone. Thanks for taking the question.
I almost prepared when we started the Q&A, we're actually starting to call.
To ask you about the three five rated loans and if you saw any you know salute potential solution short of an actual foreclosure and Lo and Behold you you've you've showed us two of the three you've worked something out so congrats on that progress just.
Just curious if if we were to look at this I knew these are moving pieces right. Both on the sale of Philly and the restructuring of Minneapolis, but maybe in a general from a general perspective.
As you look at those two transactions and you know the accounting as you move forward you have specific reserves.
Same on all of these five rated loans do you think that your resolutions as you model them out will you.
Your file your specific reserve will be sufficient to kind of niche you well flat once those two transactions are or recorded thanks.
Hi, Stephen it's Matt Thank you for joining us I'm sure.
Yes, and yes.
Yes, I think that when we look at.
The sale and the modification we think these reserves.
A match.
Excellent current value expectations.
I think the question Youre trying to get through I think we're appropriately reserved on those too.
Exactly and Windows, obviously, whatever reserve you had and whatever will there be will there be any kind of accounting issue that we all struggle with this you know the gap and then the distributable do you think these these transactions.
Will there be a distributable impact that the animals that we should be thinking about with respect to model.
Modeling.
Yeah.
Hey, Jack we can follow up offline I'm, just trying to understand and get it out there that you know this could be is this going to be an issue with respect to distributable beyond the fact that you're well reserved on Cecil.
Yes, I mean, if we have a loss the seasonal is going to translate through to Dayton.
Yes, I think we mentioned that on the prepared remarks as well so the most obvious one is if we get to a sale on Philly are seasonal reserve, where we think were appropriate reserve will.
Flushed through if you will.
At sale.
Yep.
We'll see what we get to but yes at some point in time, you would expect some of these seasonal reserves to be realized.
Right now in the case like that you actually take a property back lets say you know you foreclose on mountain view at that point, I assume and you're going to hold it and youre going to operate it optimize it for you a couple of years.
That order you would come on at fair value. So if you actually do foreclose.
Converted from a wound to Oreo or is that also a situation where they are you would be booked at current fair value.
That could trigger a a realized loss.
Yes, yeah, if we went to title.
Like you said, we would value the asset.
Yes.
We would take a realized loss on the difference between our basis in that value.
Okay, Great. That's all that's helpful and I guess this is not a question, but maybe your request.
So as these situations play out with respect to actual closings of these anticipated it would be great. If you guys could consider you know an 8-K or maybe your press release, just alerting the analysts and the investment community that you know that transaction is now closed and therefore.
Like in three Q, Yeah, Mammogen you could've happened in three keywords like a slot to for Q, you know, we'd love to have the opportunity to tweak.
So that you know that we're we're not out of line. If you. If if you will with respect to where where do you see your distributable comic your D. So thanks, Thanks, Barry I'll just leave it there and thank you very much for your comments.
Thank you.
If you have a question. Please press Star then one to enter the question queue.
The next question comes from Jade Rahmani with <unk> W. Please go ahead.
Thank you very much just curious if you have a.
Borrower.
Where you have multiple deals.
And one of the deals you know you're in discussions on because it's having issues you.
Do you make relationship based decisions or everything is case by case with respect to an individual deal.
Yeah.
I mean, it's really a case by case basis Jade I mean, we're trying if we've got an issue and we're dealing with the sponsor.
We very much are trying to optimize the outcome on the issue.
So I think we're taking we're taking those individually.
What kind of outcome, we can get to.
So on Minneapolis, let's say the sponsor there has several other deals that.
You know, they're not in the same position, but they they could they could have some issues down the road.
You're aware of in anticipating its just not at the same risk level youre not going to you're not going to talk holistically.
It really depends I mean.
Although you say same sponsor in many cases it may be the same sponsor, but you have different funds or different equity capital involved we may have it in different portfolios as well so.
To the extent it just pay wrap on a bilateral negotiation with the sponsor that has the same equity base.
And they want us to talk about a holistic solution.
Of course, we can have that conversation thats not typically how it goes you usually just in front of them on one deal at a negotiating that.
Okay.
The second question just to really put a fine point on what Steve Delaney was asking and also what's.
What Steve was asking earlier.
The Philadelphia sale. The short sale is that going to hit book value further than what's already reserved.
It's not our anticipation nothing done in this market until done but yeah.
We think we're appropriately reserved.
At the kind of current expectations and sell price.
Okay.
So much for taking the follow ups.
Okay.
Yeah.
Thanks Jay.
This concludes our question and answer session I would like to turn the conference back over to Jack Taylor for any closing remarks.
Oh, great. Thanks, operator, and thanks, everyone for joining today, you can reach out to me or the team here with any questions take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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