Q2 2023 Granite Point Mortgage Trust Inc Earnings Call
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Yeah.
Good morning, My name is Robert and I'll be your conference facilitator at this time I'd like to welcome everyone to granite point mortgage Trust's second quarter 2023 financial results Conference call. All participants will be in a listen only mode. After the Speakers' remarks, there'll be a question and answer period. Please.
Today's call is being recorded.
I'd now like to turn the call over to your host Chris Petta with Investor Relations for granite point.
Thank you and good morning, everyone. Thank you for joining our call to discuss granite Point's second quarter 2023 financial results.
With me on the call. This morning are Jack Taylor, our President and Chief Executive Officer, Mark <unk>, Our Chief Financial Officer, Steve out part of Chief Investment Officer, and co head of originations Peter morale, Chief Development Officer, and co head of originations as Steve Potts, Our Chief operating officer.
After my introductory comments, Jack will provide a brief recap of market conditions and review our current business activities.
Steve I'll part will discuss our portfolio and most of them will highlight key items from our financial results and capitalization.
The press release financial tables and earnings supplemental associated with today's call were filed yesterday with the SEC and are available on the Investor Relations section of our website along with our Form 10-Q.
I would like to remind you that remarks made by management. During this call and the supporting slides may include forward looking statements, which are uncertain and outside of the company's control.
Well, we're looking statements reflect our views regarding future events and as such.
The chart in cheese that could cause actual results to differ materially from expectations.
Please see our filings with the SEC for a discussion of some of the risks that could affect results.
Not undertake any obligation to update any forward looking statements.
We will also refer to certain non-GAAP measures on this call.
This information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and slides.
Available on our website.
I'll now turn the call over to Jack.
Thank you, Chris and good morning, everyone. We would like to welcome you and thank you for joining us for granite Point's second quarter 2023 earnings call.
Granite point had another strong operating quarter as our pre loss distributable earnings of <unk> 20 per share again covered our common stock dividend.
Returns from our floating rate senior loan portfolio continued to benefit from higher short term interest rates.
Despite or maintaining the company's leverage meaningfully below our longer term target levels because of the market uncertainty.
As the commercial real estate sector continues to adjust to higher cost of capital lower liquidity in the market and reset property valuations. The majority of the loans within our well diversified and granular portfolio had been performing well and supporting our operating results.
Our balance sheet remains defensively position with low leverage a diversified funding mix and strong liquidity and advance of the anticipated repayment with cash of our convertible bonds maturing in October .
As we navigate this challenging environment, our lending partners remain very supportive of our business and our proactive asset management efforts.
To that end in recent months, we have extended the maturities on three of our large financing facilities that total over $1 $2 billion in borrowing capacity, demonstrating our lenders alignment with us and support of our platform.
In fact, our lenders are looking to expand with us and participate as granite point grows over time.
We continue to focus on bolstering our balance sheet given the stresses of the increased cost of capital for floating rate based borrowers and the associated refinancing and sale challenges for properties in this market.
Our proactive and constructive asset management strategy has been facilitating win win resolutions as we realized over $200 million of repayments in paydowns during the quarter some of which were on loans that were previously modified to give borrowers more time to effectuate their exit strategy through either a sale or refinancing.
Despite some early signs of developing stability in select areas of the real estate capital markets. We believe that property values and liquidity will continue to be under pressure for the foreseeable future and.
And given this backdrop, we are maintaining our conservative approach to new loan originations.
One of our top priorities is resolving our non accrual loans given their meaningful impact on our profitability and the timing of when we can go back on offense, one signs of greater market stability emerge.
We estimate in the second quarter non accruals alone impacted our interest income by over $5 million not even taking into consideration the higher cost of funds associated with the financing of these assets.
We are actively pursuing a range of resolution strategies for these loans and as in the past, we intend to employ a variety of tools available to us including modifications include principal pay downs or other credit enhancements.
Taking title to the property is via a foreclosure or deed in lieu.
And loan sales as we determined the best course of action to maximize the economic outcome for our shareholders.
During the second quarter, we made the decision to take title to the office property in Phoenix through a negotiated deed in lieu of foreclosure, which had previously collateralized our $29 billion senior loan that was risk rated five.
We believe that the optimal resolution path for this investment will be achieved by our having taken ownership of the property and then the ultimate future sale of the property to a new owner.
As we mentioned last quarter. This property lays out favorably for a potential alternative use is multifamily where.
We're currently working on a potential sale and we are encouraged by the progress. So far however, given the continued overall market uncertainty it is difficult to predict the timing of the potential resolution for this property.
High interest rates continue to be a major headwind for the commercial real estate industry, keeping downward pressure on asset values and it remains unclear for how long rates will remain elevated.
Fortunately the U S economy is surpassing expectations and fundamentals across most sub sectors of commercial real estate market remained resilient.
Despite the broad negative sentiment around commercial real estate in general our borrowers remain supportive of their properties and continue to protect their investments while they wait for the environment to normalize and transaction activity to begin to increase so they can effectuate their exit and repay our loans.
Okay.
We are keenly aware of the headwinds in the office market, but it is not monolithic and loan performance depends on specific market fundamentals and the particulars of any given asset.
Okay.
It remains to be seen what impacts the regional banking developments will ultimately have on the commercial real estate market. So it is likely to result in continued lower liquidity and a longer recovery time frame.
Accordingly in light of these factors, we further increased our seasonal reserve on our portfolio in the second quarter to about 4.1% of total commitments from about three 8% last quarter.
Okay.
In the near term, we intend to maintain our conservative approach to managing our business and protecting our balance sheet, while emphasizing liquidity and focusing on resolving our more challenged assets. So as to over time improve our run rate profitability and close the gap between our stock price and our book value.
Over the course of our long careers and real estate lending. Our team has successfully managed through multiple credit and interest rate cycles, and we will do so again this time getting to the other side of the current disruptions and taking advantage of attractive investment opportunities in the future for the benefit of our stockholders.
I would now like to turn the call over to Steve how part to discuss our portfolio activities in more detail.
Yeah.
Thank you Jack and thank you all for joining our call. This morning, I'll provide portfolio highlights update on our four five rated loans and one Oreo property and our current view on capital deployment.
We ended the second quarter with a total portfolio of committed balance of $3 3 billion.
And then outstanding principal balance of about $3 1 billion.
With $172 million of future fundings accounting for only about 5% of total loan commitments.
Our portfolio remains well diversified across regions and property types and includes 82 investments with an average size of approximately $38 million.
Our loans continued to benefit from higher interest rates and deliver an attractive income stream with a favorable overall credit profile with a weighted average stabilized LTV at origination of 63%.
Our realized portfolio yield for the second quarter was about eight 2%, which account for the impact of the non accrual loans.
During Q2, we funded about $17 million of existing loan commitments and so far in the third quarter. We have funded approximately an additional $10 million.
Turning to credit despite.
Despite some of the challenges and headwinds that Jack just discussed we are very pleased that the vast majority of our borrowers are protecting their equity and carrying your properties, where additional capital as necessary as they continue to progress on their business plans.
We continue to see liquidity and our conservatively underwritten middle market loans with over $200 million of repayments and Paydowns realized during the second quarter.
And approximately an additional 23 million so far in the third quarter.
As our borrowers are able to either sell or refinance properties, even during these challenging market conditions.
We continue to see pressure in the office sector and that's reflected in our risk rankings.
As of June 30, our portfolio weighted average risk rating tick modestly higher with $2 seven from $2 six last quarter, mainly driven by the change in portfolio mix due to repayments and a few rating downgrades.
These downgrades involve moving loans from a rating of three to four mainly due to the ongoing office leasing challenges in those particular markets.
$37 million first mortgage loan collateralized by a mixed use office and retail property was downgraded to a rating of four given local market dynamics and a significant slowdown in leasing activity in downtown Los Angeles.
During the quarter, we also downgraded at $79 million first mortgage loan located along the magnificent mile in downtown Chicago.
The retail portion of the building is fully leased however, the office component has been lagging given the leasing market slowdown in Chicago.
We are in active discussions with both borrowers regarding next steps.
With respect to our non accrual assets back discussed the transfer of the Phoenix office property to RVO during the quarter, we negotiated a deed in lieu of foreclosure and we are actively working to sell the property.
The borrowers on the four nonaccrual five rated loans continue to work collaboratively with us on a variety of retinal resolution strategies as we look to maximize shareholder value.
The four loans total about $245 million of principal balance and have $62 million in specific seasonal reserves, implying an average estimated loss rate on those loans of about 25%.
We are working with the sponsor of the Minneapolis hotel on a potential short sale process.
But he is currently being marketed for sale by a national brokerage firm.
The marketing is in the early stages, and we will reevaluate next steps with the borrower once they have some more feedback on their process in the coming weeks and months.
We've been working on a potential sale of the Dallas Office law.
Process is ongoing and we are hopeful that we can come to a potential agreement in the coming months.
With respect to the San Diego Office loan, we mentioned on our prior call that the property is a good candidate for alternative use either as a hotel or multifamily assets.
Discussions are ongoing and we hope to potentially resolve this asset by the end of the year, while the timing and ultimate outcomes remain hard to predict.
Guarding the $93 million office loan in Minnesota. This property is well located in the CBD and historically performed well.
While the local economy continues to be stable and healthy with low unemployment. The challenge in the near term is that the Minneapolis CBD office market has seen a delayed recovery and leasing and employers returned to office policies compared to many other large cities.
It's harder to predict when the recovery in this market will occur but some of the key variables include more employees returning to the office increase leasing and investment sales activity and the commercial real estate capital markets. Following some for office properties, we continue to be constructive with the properties institutional quality sponsor as we work toward a resolution and we will.
Keep you updated as the situation progresses.
We remain focused on resolving these assets given the magnitude of their impact on our returns and we will provide more information as these situations develop over the course of the coming months and quarters.
As we have discussed in the past over many real estate and economic cycle. Our team has used a variety of tools to resolve challenged assets, including modification restructuring recapitalization loan sale and taking title VI of foreclosure or deed in blue and we intend to use all the tools available to us as we determined the most.
Optimal paths to maximize economic outcomes.
Turning to capital deployment, we have been maintaining our cautious stance on new loan originations and continue to have a preference to carry higher liquidity levels, given overall market uncertainty and our upcoming convertible note maturity in October .
Therefore, we anticipate our portfolio of balance continued to modestly decline for the remainder of the year.
I will now turn the call over to Martin for a more detailed review of our financial results and capitalization.
Thank you Steve Good morning, everyone and thank you for joining us today.
Yesterday afternoon, we reported our second quarter GAAP net income of $1 $4 million or <unk> <unk> per basic share.
This includes a provision for credit losses of $5 $8 million or 11 cents per basic share.
Compared to the prior periods, our GAAP results improved mainly due to a lower provision for credit losses.
The increase in our system reserve driven by continued unsettled market conditions was more muted in the first quarter.
We lost distribution of our earnings for <unk> were $10 2 million.
Our about 20 cents per basic share largely in line with the prior quarter and again covered our 20th and common dividend.
The portfolio runoff was mostly offset by higher interest rates and lower expenses.
Our distributable earnings to common stockholders were about $6 million of <unk> 12 per share and reflects the realized loss of $4 $2 million or eight cents per share.
Related to the transfer of our Phoenix office asset to Oreo during the quarter.
Going forward, we anticipate results from the real estate operations to be largely breakeven from a distributor earnings perspective.
While the GAAP results will include expenses related to depreciation and amortization on the <unk>.
Yes.
Our second quarter book value declined by about <unk> 15 per share or about 1% to $13 93 per common share.
And was mainly affected by the loan loss provision.
We did not repurchase any shares in <unk> after being very active buying back about 1 million shares in the first quarter.
As we have done in the past.
Tend to remain opportunistic with respect to our buybacks.
Given our flexible and shareholder value focused capital allocation strategy.
As we navigate the uncertain environment and evaluate our liquidity and other factors.
Our seasonal reserve at quarter end stood at about $134 $6 million or $2 61 per share.
Presenting about four 1% of our portfolio of commitments as compared to three 8% last quarter.
The increase in our seasonal reserve quarter over quarter.
Was mainly related to a higher general allowance driven by assumptions.
Further declines in property values and other macro factors.
As disclosed in our earnings supplemental.
Slightly less than half of our CSR allowance is allocated to the four nonaccrual loans.
Turning to liquidity and capitalization, we ended the quarter with over $235 million of unrestricted cash, which represented about 25% of our total equity.
Our total leverage modestly declined to two three times from two five times in <unk>.
Driven by loan repayments and remains meaningfully below our target levels.
We believe carrying lower leverage could be prudent given market conditions and our upcoming convertible note maturity in October .
We intend to satisfy with cash on the balance sheet.
Our funding mix remains well diversified and stable with continued strong support from our lenders.
Over the last few months, we extended the maturities on our financing facilities with Morgan Stanley Goldman Sachs and Jpmorgan.
Totaling over $1 $2 billion in borrowing capacity.
I think the strength of our long standing relationships with our lending partners and a generally favorable credit quality of our portfolio.
Additionally, post quarter end, we announced through an 8-K filing two amendments to our covenants within our financing facilities.
The amendments are a part of our active balance sheet management and are designed to better reflect the higher interest rate environment and better align the tests with the current market conditions.
That's further reinforces our a good standing with our lending partners.
Thank you again for joining us today and now we'd like to open the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Steve Delaney with JMP Securities. Please proceed with your question.
Good morning, everyone. Thanks for taking the question and congrats on a on a very solid quarter.
Got you always nice to see that page in the deck of five rated loans.
Why.
So shrink I realized that you have a property in Oreo.
Just a reclassification.
But you know that.
Strategically you have more control now so I look at that maybe not as a win but extending the game so on that point could.
Could we just get a little color.
Now that you live in a real estate asset and I was a little late joining the call I apologize, but could you give us a sense of where leasing stand.
At this point and also have all improvements that the former borrower contemplated to that property.
To prepare it for leasing have they all been completed.
Yeah.
Hey, Steve Good morning, It's D var part thanks for joining the call. This morning.
Good morning.
So with respect to leasing.
Mentioned in the past and on this call that the property is well located its in a convenient pedestrian downtown location near.
Light rail mass transit and that it lays out well for residential.
So as far as leasing goes that's not been the focus on this asset given that the highest and best use is likely conversion to residential versus maximizing office occupancy and office cash flow.
So that that's the current focus right now it's really on.
Selling the asset with the highest and best use being being multifamily.
Okay. So this is a this is an existing building that had been office and.
The plant is the thought is the highest and best uses to convert it to <unk>.
Condo or Oh.
Apartments for rent is that what I'm hearing.
Yeah. It's it's it's currently an office building.
There are.
Really office tenants in the building.
But that caused the highest and best use is likely to be rental apartments.
The focus.
Recently has not been an increasing office occupancy the focus has been on converting this asset to residents to residential rental use.
Makes sense now thank you so much for clarifying that sure.
So I guess Youre, obviously looking for probably a developer partner either either somebody who we take it over or someone to partner with you all.
Make that strategic change and the positioning of the property.
Okay.
Yeah.
Yeah Yeah.
Yeah, that's correct just to recap the wear.
And our sales broker has has been engaged we're.
We're working on a sale.
And currently it's not our expectation that we would.
Wrote it but that we would sell it to a residential conversion.
If I could just if I could just add.
We're not yet in a formal process of marking it we've had reverse inquiry.
From outside parties about this and it works either as an office or residential but it seems it might be.
To our benefit to respond and pursue a residential conversion reversing cry, we've had and I'll just say to answer your earlier question.
Our.
Former owner did.
Did complete there a renovation of the property is in fine shape.
Okay, great. Thanks for those comments.
And then switching over to the comment the potential sale of the.
The Dallas Office line.
That is that it's Bob.
Are you seeing.
Well, let me ask you this I mean.
Are you seeing activity on distressed buyers private debt funds.
Are you seeing.
Transactions out there and are there.
Brokers, if you will that are actually.
Reaching out to you or or other commercial mortgage Reits are banks.
I guess I'm trying to get a sense for how active the sale of CRE loans and stormed the private.
Market private debt markets, how active that business is.
Transaction standpoint around the country right now.
Yeah.
Hey, Steve Steve Steve again.
There is clearly a market there.
There are transactions taking place.
The activity obviously varies by market.
So there is a market out there and we are.
We are talking to potential of you said on the call we're talking to potential buyers on this particular asset about selling alone. So there is a market out there.
The amount of activity it really varies market by market deal.
Yes.
It's good to see we had a I think New York, Yes, bold alone last quarter as well, so I'd like to see that pick up okay well. Thank you all for your comments.
Thank you Steve.
Our next question comes from Stephen Laws with Raymond James. Please proceed with your question.
Hi, good morning.
Steve I appreciate the color on the loans you ran through when I wanted to kind of generally follow up on that and and also Jack I believe it.
It kind of a time some numbers together I think you had mentioned that there was a $5 million drag on earnings in Q2 from non accruals and as I think about those non accruals. Obviously Phoenix is now in Rio but you've covered that it sounds like the other four.
I think a few of them you mentioned you hope to have a sale of resolution in the next couple of months or by year end. So it sounds like.
The hope is a number of those get cleared up so can you talk about.
You know as you think about the relative weighting or you know your knowledge on the reserves against each of those individual assets.
How do we think about the incremental earnings power in the first half of next year.
Given your outlook on some of these potential second half resolutions.
Hi, Stephen It's Mark I'll answer the second part of your question and then flip it back to Steve I'll start.
I think on the on the resolutions and the earnings impact.
Obviously were.
As you've heard US say this a quite a few times now it's a meaningful drag and we are really focused on.
On resolving these assets.
The $5 million exact quote it is sort of just as if these loans or so to our earnings for the quarter, that's what what the impact would be.
Obviously, they are financed a pretty a pretty expensive levels as well so there would be some impact from potentially from that as well.
It's going to come down to timing right. It's it's if we're successful as we hope hopefully we are.
A couple of these by the end of the year that could be several cents a share in earnings per quarter, but it's really it's really hard to predict.
Predict as to when these things are going to happen and exactly what the structure of the potential resolution is.
But I think it's safe to say that once once these assets. So they'll leave the balance you do get sort of restructured whether theyre sold or only provide seller financing to a new owner.
The earnings pickup on a on a run rate perspective could be it could be quite meaningful here, but it's really going to come down to timing as to when that actually can happen.
And Steve It seems like you know the the many office was really the only one that had more of a longer term resolution path is that fair or how do you view the timeline on the other three.
<unk>.
Yeah, well have to see how it plays out like we just talked about the Phoenix RVO.
The Minneapolis hotel.
It's currently being marketed as we said it's early stages will evaluated over the next couple of weeks and months, we just spoke about the Dallas deal a San Diego.
Oh office deal.
We're hoping to resolve that over the next one or two quarters. It could go into early 2024, and then as you alluded to as we said the Minneapolis office is probably the most.
Ah the timing is probably the most delayed just given what's happening in that market you've heard us talk about delayed recovery in downtown Minneapolis market. So these are all hard to predict but that one if we had to predict right now is probably the.
The longest timeline, but look our as Martin was just talking our clear goal right now is to resolve all of these assets as expeditiously.
Additionally, as possible.
Great I appreciate the comments and certainly seems like there's some of those are resolved.
Potentially provide us a tailwind in the earnings as we see that occur so appreciate that.
Thank you sure. Thank you.
Our next question is from Doug Harter with Credit Suisse. Please proceed with your question.
Thanks sure.
Thing two liquidity.
How do you think about what the right or the necessary level of crashed the hole will be once you kind of get through the the October convert maturity.
Good morning, Doug, It's Martin happy to happy to answer the question.
I think we've always wanted to be sort of.
10% to 15% of our capital.
Plus or minus and liquidity obviously in this type of environment will probably want to be a little bit more than that.
We've done it we've done a good job sort of letting the portfolio run off of it and build the liquidity.
Obviously, fortunately or unfortunately, we have to sort of back to back converts that we had to pay off and within 10 months of each other so.
We're proud of the fact that we'll be able to sort of satisfy both of them with cash on the balance sheet from our own resources.
And obviously, we are quite de Levered I think there may be some opportunities to re lever certain areas of our portfolio, but it will really depend on sort of what's what's going on within the market and what's going on within the portfolio. If we believe we need.
Additional liquidity.
To sort of protect our balance sheet and manage the assets will always be opportunistic.
Is it sort of relates to our capitalization as we've done in the past. So the focus will remain on building some more liquidity and we'll sort of see where we are.
Over the next several quarters sort of depending on what our market and our portfolio is doing.
Great.
As you guys mentioned when you three of your credit facilities kind of in the recent months.
Was there any significant change in the term you know in any of the terms, whether that's advance rates or the cost or the spreads on those too.
Nothing really meaningful Theres always some adjustments you know on almost on a monthly basis, but those are sort of more related to just sort of assets that are that are sitting on this facility, but nothing really material with respect to the extensions are our lenders we've done business of implementing many years.
They remain very supportive they want to do more business with us.
You've heard us say in the past right. We refinanced two of our de Levered CLO with two of our largest banking relationships.
We've just submitted a couple of more covenants without an issue. So we havent really really good relationships with these with these parties and they continue to want to do more business with us which to me says.
Keeps pointing to the overall credit quality of our portfolio and our relationships and our asset management capabilities.
Great. Thank you Marci.
Okay.
Our next question comes from Jade Rahmani with K B W. Please proceed with your question.
Thank you very much when I look across the portfolio.
And thank you for providing the disclosure.
Stratify.
By origination date and original term.
A large share of the portfolio.
It seems to have passed.
Maturity.
You know something around 50 loans.
So I'm wondering could you just provide some some insight I know I know the terms can be flexible and transitional loans and there's constantly modifications extensions et cetera, but just can you talk to.
Maybe.
Aside from the loans that you've called out where you know there's resolutions being sought near time those loans that are past maturity, but not yet in a risk rated four and five.
Sure Hey, Jay Good morning, its Steve.
So look we're we're constantly looking out at loans.
Loans coming up on extensions.
Some loans have gone past lawn on maturity.
We expect that as a lot of these loans will pay off in the normal course.
And other loans will extend as of right.
And then to the extent that loans don't extend as of right. They.
They don't meet the debt yield extension tests, what whatever the condition may be.
We're working as you've heard us say on prior calls you know we're working with those borrowers it's always case by case.
We have a playbook for those are the playbook has been a lot of this is on the office loans, but not just the office loans.
Where if someone comes up on our extension or more recently on our final maturity.
If the borrowers doing everything right, if they're investing more capital into the deal.
That could take the form of paydowns or filling up debt service reserve buckets or additional structure.
We are open to creating a win win.
Loan modifications and extending those out to give <unk>.
It was more time and that has been the general theme that we're seeing across the portfolio.
And then for the smaller cohort of loans that borrowers don't want to put more money in those are the ones that we just finished talking about but yes, we have some loans that are gone.
When we granted an extension in exchange for Paydowns and structure.
And we will.
Likely continue to do that as we work through the next coming quarters.
Yeah.
Thank you for that so we shouldn't be alarmed by.
Necessarily loans, having been passed.
Maturity.
Not necessarily an indication of deterioration.
I think the best thing to look at it is the risk rankings and when we do that when we do the quarterly risk rankings, we looked at a lot of factors.
It's a very robust process, but clearly.
Loan term extensions and maturities is all factored into that.
So I would guide you to or point you to our risk rankings is probably a good a good place to look.
Okay.
And then just broadly speaking maybe.
Yourself or Jack.
I would say that you know reviewing the bank results life insurance and the mortgage Reits this quarter.
The takeaway is probably.
You know credit deterioration is continuing but at a decelerated pace and there've been no big new shoes to drop.
The major losses, we've seen had been.
Loans generally that of that that had been known as distressed.
And the mortgage REIT space. So are you surprised by by that do you agree with that.
And you know overall performance in fact have you viewed it as better than expected.
Hi, Jay This is Jack good to speak with you and thank you for the question.
I would say that.
It's not been surprised and it really is a bifurcation that there is this ongoing stresses in this market induced primarily I believe by the feds elevated level of interest rates and the intentional withdrawal of liquidity and and so.
Though there are secular changes in various property types, including office that I think are over emphasize by the market, but are there and.
So where we are experiencing it and.
Been watching this market a continuation of stress against it but we're not that surprised by some of the improvements if you will or the what I'll call the resilience and durability, particularly in our own portfolio.
We're aware of those assets and what Theyre doing and some of them. You know for example, we have a waterfall are quite aged loans. You were just talking about that we expect to repay in the next quarter or so.
Because of all the things that Steve was Citi, we've worked with them they've paid it down with.
Repositioned it and it's ready to go.
But really I think it is.
Heron and your question is whether or not you're expecting to see further negative credit migration.
I think there will be in the industry as a whole.
Where we were a.
A year into the cycle of increasing rates.
And several years into the pressure on office leasing so hopefully.
As an industry most of the challenges are known but ultimately it's largely a function of the overall economy. The interest rates capital markets leasing market. So we expect to have upgrades and downgrades in our portfolio in the normal course of the business.
And to the extent, we see further pressure, it's certainly possible we could experience further downgrades, but we'll also expect to have upgrades and I'll just remind you that when we went into the pandemic we downgraded.
Almost all of our hotels two of four kind of defensively preferably because of what was going on in many many of those came up too.
Three rating or two rating overtime. So it's part of the normal process, we assess it and I agree with what Steve said, we should guide.
Guide you to look at our risk ratings as our overall feeling about where things are but don't want to say that there won't be in the industry or for us.
Further credit.
Gration downwards, and there will be upwards.
Thank you.
We work.
Made a disclosure about going concern risk in their 10-Q and earnings release.
Quiddity has diminished and they continue to burn through cash so it looks like there's a reasonable probability of a bankruptcy can you quantify if you havent any exposure to rework some of your peers. Yeah. It's about 1% of office square footage not sure what it is for for G. P. M.
T and also if if a failure of we work.
<unk> anything in your mind about office risk.
And the outlook.
Yeah.
Hey, David.
We have a de minimis.
<unk> risk and de Minimis, we working risks.
And I'll take that.
Yeah go ahead, I think I think if they if they fail.
I think it'll have an effect on office just as any major tenant.
First throughout the country.
Wood as well I think both.
Owners have been girding for that if you will and trying to figure it out but it will have some effect and it just won't directly affect our asset.
Yeah.
Thank you very much.
Thank you Jade.
We've reached the end of the question and answer session I would now like to turn the call back over to Jack Taylor for closing comments.
Well, thank you and I'd like to thank everybody for joining us today.
Appreciate your time and attention.
We'd like to thank our team for all the hard work that you've been putting in to maintain our portfolio and the quality of it.
Especially want to thank our investors for the ongoing support you've shown to us.
Thank you again.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.