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spk02: Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Fourth Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead.
spk08: Great. Thanks, operator. And welcome to the KKR Real Estate Finance Trust earnings call for the fourth 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 COO, Patrick Mattson, and our CFO, Kendra Deschis. 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-K 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 fourth quarter of 2022, we reported gap net income of $14.6 million, or 21 cents per diluted share, including a CECL provision of $21.2 million, or 31 cents per diluted share. Distributable earnings this quarter were $12.4 million or 18 cents per share, including a write-off of $25 million or 36 cents per share. Distributable earnings prior to realized losses were 54 cents per share relative to our Q4 43 cent per share dividend driven largely by the higher rate environment. Book value per share as of December 31st, 2022 was $18. a decline of 1.5% quarter over quarter. Our CECL allowance decreased to $1.61 per share from $1.66 per share last quarter. Finally, in early December, we paid a cash dividend of $0.43 per common share with respect to the fourth quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 10.9%. With that, I would now like to turn the call over to Matt.
spk05: Good morning, and thank you for joining us today. Before turning to the current market and company results, I'd like to reflect on KRES achievements during 2022. Despite a very challenging environment, we made significant progress enhancing our liquidity and diversifying our already best-in-class non-mark-to-market liabilities. In 2022, we optimized and diversified our financing sources, and as a result, sit on record levels of liquidity. Last year, we had a $2.5 billion of non-mark-to-market liabilities. Notably, we increased the borrowing capacity on KRF's corporate revolver by $275 million to $610 million and extended the maturity date through March 2027. This revolver is a key contributor toward nearly $1 billion in liquidity as of year end. 77% of our secured financing as of year end was completely non-marked to market, and the remaining 23% is only marked to credit. In addition, we have $1.9 billion of CRE CLO liabilities that are priced at attractive spreads and still in their reinvestment periods. In 2022, we grew our permanent equity base by 15% to $1.6 billion. We raised approximately $150 million of preferred equity at a 6.5% fixed-for-life coupon. We completed two public offerings of common stock, resulting in net primary proceeds of $188 million. AKR reached its target long-term hold position of 10 million shares, representing 14% of our shares outstanding, resulting in market-leading alignment between KKR and KREF. Equally as important was our disciplined approach to buying back shares when KREF traded below book value. In 2022, we repurchased 2.1 million shares for nearly $36 million. Since our May 2017 IPO, KKR has repurchased nearly $100 million of stock. I cannot overstate the impact of our partnership with our manager, KKR, and the strength of our real estate platform. KKR's integrated real estate business provides us with a robust view of the current operating environment, which has become more dynamic over the past few quarters, as the Federal Reserve has embarked on a virtually unprecedented pace of interest rate increases. This broader real estate platform collectively manages over 64 billion of AUM and has grown by approximately 60% since the end of 2021. For example, TKR's real estate private equity team owns or manages over 90 million square feet of industrial assets in over 30,000 multifamily units globally. We are able to draw on real-time data and market intelligence from this property portfolio, which informs our investment decisions as a lender. The KKR real estate credit business is substantial in its own right, with $30 billion of assets under management and a dedicated team of 66 at year-end 2022. with nine senior investors responsible for over $10 billion in originations. As a reminder, KREF is KKR's flagship senior transitional CRE lending strategy and holds the first priority position within the allocation waterfall. This team originated $2.7 billion on behalf of KREF in 2022 across 25 loans. concentrated our efforts in the growth property types with nearly 70% secured by multifamily and industrial properties and another 22% secured by life science properties. Our focus on lending to institutional sponsors on high quality real estate in growth sectors and markets has positioned us well to navigate the current environment. Our largest property type is multifamily and which represents approximately 45 percent of the overall portfolio we continue to see strong performance across that segment with median same store rental rates up 12 percent in the portfolio fourth quarter of 2021 to the first fourth quarter of 2022 that said and as we discussed last quarter the office sector remains challenged with little liquidity across both debt and equity. Our underweight in office will benefit KREF on a relative basis. We are diligently working through our watch list office loans. Our first preference is to work with our existing sponsors. However, many properties will require additional capital, and sponsors will need to demonstrate commitment to the asset with additional equity. We are not in the free option business, and our mindset is to deal with any issues now and not to kick the can down the road with a sponsor who is not economically incentivized to lease at current market rates. Fortunately, we have many tools at our disposal to optimize these outcomes, including taking title and operating assets until liquidity returns. We are also in a position to be proactive with our borrowers and work towards faster resolutions because we have high levels of liquidity at the corporate level. Turning to earnings, the high interest rate environment continues to be a tailwind for our distributable earnings. In 2023, we expect the portfolio to turn over modestly, and we will continue to match originations with repayments. We expect repayments for 2023 to be approximately $1 billion, weighted to the back half of the year. As we navigate this new year, we are very well positioned with a strong portfolio, best-in-class liabilities, and record levels of liquidity. Lastly, I want to take a moment to thank Todd Fisher, who resigned from the KREF Board of Directors earlier this month to accept a position with the United States Department of Commerce. Mr. Fisher has been an integral part of our team since KREF's inception, and we thank him for his thoughtful guidance in steering the company. We wish him well in his future endeavors. With that, I'll turn the call over to Patrick.
spk06: 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 CECL Reserve and Watch List loans. In 2022, with the continued help of our partners in KKR Capital Markets, we added $2.5 billion in non-mark-to-market financing. In the public capital markets, we closed a $1 billion managed multifamily CLO earlier in the year, providing KREP with $848 million of non-mark-to-market and non-recourse financing in a two-year reinvestment period. In the private markets, we closed on a term lending agreement totaling $350 million with an option to increase the facility to $500 million and entered into three new asset-specific financing facilities totaling nearly $500 million. We also increased the borrowing capacity of an existing $500 million term lending agreement to $1 billion. Finally, we increased our corporate revolver by $275 million to $610 million and extended the maturity date through March 2027. Of the $2.5 billion in total capacity added this year, two-thirds is truly bespoke liabilities. The resiliency of our financing structure, coupled with our independence from the public capital markets, is a true differentiator and buffers KREF on the liability side during times of capital markets volatility. KRF is well capitalized today and continuing to preserve flexibility in today's market environment. Our debt to equity ratio was two times and our total leverage ratio was 3.8 times as of quarter end. Our approach to managing the balance sheet allows us to start 2023 with a record level of liquidity in excess of $950 million, including our $610 million undrawn corporate revolver, and $240 million of cash. Additionally, at quarter end, KRF had $180 million in unencumbered senior loans on the balance sheet. We're maintaining our defensive posture with a focus on managing liquidity. This quarter, we recorded a $4 million net decrease in our CECL reserve of $115 million to $111 million, or 147 basis points based on the funded loan portfolio. Similar to our commentary in Q3, nearly half of our total CECL Reserve remains held within our five rated loans. Additionally, as we noted last quarter, the CECL Reserve is unrealized and non-cash. We would recognize a loss through our cash metric of distributable earnings if such amounts are deemed non-recoverable as we did this quarter. Turning to the watch list, in December, we finalized a plan to modify a $161 million senior office loan previously risk-rated afore located in Philadelphia. As part of the modification, KREF agreed to subordinate $25 million of our senior loan in the form of a junior mezzanine loan in return for a $25 million principal repayment from the sponsor. The principal repayment is structured as a new senior mezzanine loan and reduces KREF's mortgage exposure to $111 million. At year end, the loan was risk rated a five. However, following the execution of the modification in January, the new senior loan was upgraded to a risk rating of three. In addition to the $25 million pay down, the sponsor committed to fund an additional $16.5 million for future capital expenditures and leasing costs, which would bring the total senior mezzanine loan balance to $41.5 million fully funded. The subordinated HOPE note is structured as a junior mezzanine loan and does have priority of cash flow once the senior mortgage and senior mezzanine loans are fully repaid with interest. KREF wrote off $25 million of the loan balance in Q4. Regarding our other two risk-rated five loans, there are sponsor-led sale processes in progress, and we are maintaining an active dialogue with these sponsors. For the Minneapolis loan, we executed a short-term extension to facilitate this sale process. And for the other Philadelphia loan, we have an initial maturity date in May of this year. With regard to the broader portfolio, 88% of our loan portfolio remains risk-rated 3, and we collected 100% of scheduled interest payments across the portfolio in Q4 and through the first payment date in 2023. A few final comments. KREF finished 2022 strong with a $7.9 billion total funded portfolio representing a 17% year-over-year increase. We originated three senior loans in Q4 for a total of $370 million in sourced and closed $125 million asset-specific financing. Finally, we repurchased approximately 500,000 shares of common stock in Q4 at a weighted average price per share of $1641 for a total of over $7.4 million. Over the last three quarters, we've been opportunistic in utilizing our share repurchase program with 2.1 million shares repurchased in 2022 for a total of 36 million. Additionally, this month, the board reauthorized $100 million buyback program. Thank you for joining us today. And now we're happy to take your questions.
spk02: And our first question will come from Don Fandetti of Wells Fargo. Please go ahead.
spk03: Hi. Good morning. You know, obviously office continues to be a pressure point. Can you talk a little bit on how your borrowers are handling the higher rate environment? Are you making modifications? And, you know, just talk a little bit about your expectations. I would assume that there'll be more reserve building on your office portfolio as we go forward through 23.
spk05: Sure, Don. It's Matt. Thank you for the question today. I appreciate you joining the call. I'd say specifically, let's start at the interest rate environment right now, certainly putting a lot of pressure on the overall system. However, borrowers do have interest rate caps in place. They're not fully exposed to current SOFR or current LIBOR if we haven't converted it over yet. And then clearly as those interest rate caps expire, typically at the initial maturity date of the loan, they are required to re-up those interest rate caps and buy a new one. And that's really when the conversations take place around potential modifications on the loan. It's another opportunity for us to take a look at the credit and understand where we are and add any other structural features that we want. And we've been working with our sponsors in terms of giving them some flexibility on their interest rate caps. So, for instance, if an interest rate cap requires a two-year term or requires a very low strike, accommodating them to either a shorter duration or a little bit higher strike in return for typically cash reserves that we would hold for future interest rate cap purchases, et cetera. So we want to work with them and help alleviate definitely pressure points as it relates to that, but it's typically in return for some type of other consideration within the loan document. As it relates to further buildup on office in terms of our reserves, we go through the portfolio every quarter. And where we stand now, we feel comfortable with the reserves. It is a very robust process. I think we're eyes wide open. You've seen us be very transparent and pretty front-footed as it relates to not only increasing reserves, but as you saw this quarter, modifying loans and and trying to get to the other side and create the right basis for us and for our sponsors so that they can lease in what's a difficult operating market for office. So feel comfortable right now with where we stand on the reserves, and we'll just have to see what the future brings in terms of how we're positioned elsewhere.
spk03: Thanks.
spk02: The next question comes from Rick Shane of JP Morgan. Please go ahead.
spk07: Thanks, everybody, and I appreciate you taking my question this morning. Look, one of the few places where gap and tax diverge is related to realized losses. So to the extent you did realize a gap loss of $25 million, I'm curious if you believe that it's met the threshold from an IRS or tax perspective as well, and then if you could talk specifically about, because it occurred in the fourth quarter, but perhaps the tax loss might be realized in 2023, how we should think about the timing and how that falls.
spk00: Sure. Thank you, Rick. Appreciate you joining and appreciate the question. You asked about the write-off that we incurred in Q4, and that $25 million write-off will be a taxable event in the year the modification closed, which was 2023. Maybe pulling the thread on this a little bit, you know, the sum of our quarterly dividends paid in 2022 plus borrowing part of the dividend that was paid in January 2023 and this throwback dividend concept is a practice that's allowed under the REIT rules and that we've used in the past means that we are fully distributed for 2022, and so there is no special dividend that would be required.
spk07: Got it. No excise tax or anything that we need to think about in that regard.
spk00: That's right. That's right. We met all of those thresholds. That's correct.
spk07: Terrific. Thank you very much.
spk00: Thank you.
spk02: The next question comes from Stephen Laws of Raymond James. Please go ahead.
spk04: Hi, good morning. Patrick, I guess I'll start with, point this to you since you mentioned it in your comments, but, you know, about I think half the reserves are related to the five rated loans. You know, as we think about that and kind of pair it with Matt's comments that, you know, going to focus on resolutions, you know, quickly and not kick the can down the road. How do we think about those moving from specific losses, under realized losses, and running through distributable earnings over the course of this year?
spk06: Steven, thanks for the question. So if you look at our reserves, as we said, about half of the five rated loans or about half the reserves are attributed to the five rated loans. If you look at the asset where we had the write-down in the fourth quarter, we realized the write-down was about 16% against that balance. And coincidentally, the reserve that's held against those five-rated loans is pretty close to that number. We're obviously working through each of these loans individually. All of the fours and fives that are on there are going to have potentially different levels of loss content. Not every four-rated loan is a loan where we think there's you know, a high degree of loss. Some of the four-rated loans are on there as a reflection of the fact that we think there's a near-term catalyst or a near-term event that, you know, may lead to a modification. So, hopefully that addresses what you were asking.
spk04: Yeah, I guess kind of, you know, to take half of the one where we won $111,000. So, You know, if you're looking at $55 million, you know, will we see all of that run through a loss, assuming you're reserved where you're at the appropriate level for the assets, you know, resolved or monetized? Like, just trying to think about the timing of when that's going to hit. Is that a, you know, this year event? Is it early next year? Kind of how do we think about the timing of those monetizations or realizations?
spk06: Yeah, sure. I think the timing is difficult to, you know, forecast here. And clearly with those five rated loans that we talked about, there's processes in place to get to some form of liquidation event. So not unreasonable to think that we could see some realization over the course of this year. I think the bigger question probably is just related to the quantum there. We feel good about where we're reserved, but clearly in this market, you know, the realized amounts could come in, you know, greater or less than what we've set aside.
spk04: Yep. Thanks, Patrick. And moving to the financing side on these loans, can you talk about how the watch list loans are financed, you know, and if that is financing exposed to credit marks, how those discussions are going with counterparties as you, you know, work through these watch list loans?
spk06: Sure. You know, there's a a little bit of a disconnect between necessarily what's on a watch list and, you know, the loan, whether the loan is performing. As we've indicated, you know, we collected 100% of our interest payments through last year and the first payment date of this year. So, you know, the real driver, especially on these non-market to market facilities is, you know, is the loan current? And in fact, all of these loans are current. So there isn't really much concern in the immediate term as it relates to those loans. Obviously, as we get to maturity dates or we need further modifications or restructuring, that's when we're going to have more in-depth conversation with our lenders. I would say those conversations have been constructive to date as we've worked through some of the loans. The asset that we had a write-off in the fourth quarter, that was not on a financing facility. That was unlevered. But sort of post now the modification that loan, that loan is a loan that we can finance on any number of facilities. So, but I would say that the conversations have been constructive and we have an opportunity to kind of work through and get runway where needed.
spk04: Great. Appreciate the comments this morning, Patrick. Thank you, Stephen.
spk02: The next question comes from Jade Romani of KBW. Please go ahead.
spk09: Thank you very much. I wanted to ask, in terms of your quarterly interest income, do you know what percentage of that is funded out of interest reserves that are structured upfront as part of the loans?
spk05: Hey, Jade, it's Matt. I can jump in there. I don't have that number right in front of me right now. It's not abnormal, obviously, for us to have, you know, reserves or, you know, recourse obligations to, you know, guarantees to, you know, to fund interest payments just given the nature of the business plan and, you know, lease up, et cetera, but don't have the exact number in front of me.
spk09: Okay. But is that an issue in terms of any shortfall in performance and pressure from elevated interest rates, the exhausting of those reserves in coming quarters?
spk05: I mean, listen, it comes back down to value at the end of the day. So, you know, you look at most of our portfolio is in, you know, these growth sectors and And the value there has held up well, and the fundamentals are really strong. So I kind of put this in the same bucket as interest rate cap discussions. As those expire, there's a lot of value behind these loans, and the sponsors re-up and come out of pocket and buy the next interest rate cap. So lots of times our reserves are set to accommodate for interest at the cap, et cetera. But to the extent they're not, I wouldn't expect a lot of pressure there. I would just expect the sponsors to re-up on the reserve.
spk09: Thank you very much. On the multifamily credit outlook, it was somewhat surprising to see the downgrade on the West Hollywood asset. I was wondering if you could talk to your overall expectations for that sector. It's definitely been a resilient sector in past cycles. However, the early 90s did see credit issues, and CMBS throughout time has always had credit issues in multifamily. This time around, we do have a record level of units under construction, disproportionately concentrated in the growth markets, and then a lot of deals done at very low cap rates, which would have pressure from valuation as well as interest rate caps. So what would be your outlook in terms of multifamily credit performance?
spk05: Yeah, I think we're still a very favorable outlook on multifamily credit performance. Clearly, values have come down a little bit, and cap rates have increased just to accommodate the higher cost of capital in the current interest rate environment. On the occupancy side, the market's still operating at basically all-time highs. and we're still seeing pretty favorable rent growth, although it's come down a fair amount. As we reported just on this call, we've had about, just in our KREF portfolio, rents were up on a same-store sales basis 12% year-over-year from fourth quarter of 22 to 21, or from 21 to 22, excuse me. And I expect that to continue to come down, and my guess is across a broader set of assets. That's probably in the high single digits today. By the way, which I still think is very, very healthy and is kind of the Fed's activity is obviously having some impact on that, which is probably a net positive for the whole market. In terms of supply, I agree there is a wave coming out right now. And I think that'll impact some of these local growth markets. But at the end of the day, all these markets are underhoused. And so it really is just a short-term phenomenon in terms of the market digesting those new units. And keep in mind, there's very little behind that. There hasn't been a lot of new construction financing available in the market over the course of the last six months or so, and certainly not readily available today either. So you're going to have a little bit of a blip probably as the market goes through that, and then it should be a pretty favorable setup after that with your new supply really tapering off. So I would say overall, still very constructive on that market and haven't really seen any material signs of deterioration there.
spk09: Thank you very much.
spk02: The next question comes from Eric Hagan of BTIG. Please go ahead. Eric Hagan Hey, thanks.
spk01: Good morning. I'm curious how you think your appetite for risk maybe changes as a result of raising your reserve. Like should one expect the parameters for your target assets to necessarily change? And is there a threshold for the reserve where it does begin to change your risk parameters more meaningfully?
spk05: And Eric, you're, you're speaking about this new loans that we're making in terms of how we're evaluating like the current, uh, current market, et cetera.
spk01: Yeah, exactly. Yep.
spk05: Well, yeah, let's just start. Let's start there. The one number one, it's a, it's a very lender friendly market right now. Uh, you've got a lot large participants completely on the sidelines. Um, commercial banks are still not, uh, actively lending in the market. Loan-to-values have come down a fair amount. Obviously, the V in that equation is down with the current interest rate market. So we like the market right now. We think it's very attractive. And, you know, you can see what we did last year. The vast majority of our lending activity was in multifamily industrial sectors, which we still believe in the fundamental backdrop there, as I just described with Jade. So I don't think that really what we're looking at, like reserves or things like that, are really impacting how we're thinking about making a new loan or what we would focus on. Some of it does come back to liquidity. And we are, as you saw in our report, at pretty high levels of liquidity right now. And I think that's more of a function of just the market uncertainty and the the volatility that we're seeing in the market and just making sure that we've got plenty of excess liquidity to deal with any issues that may come up. And I think it's a little bit less about reserves, but one of the reasons why we've been so front footed and trying to work out some of these loans, and you saw the modification we did this past quarter, is once we get through this, there should be a pretty good opportunity to lend on the other side. of that. So probably less about reserves and more about just watching the liquidity and working through a couple of these loans that, you know, we've got five rated loans. And once we get through that, I think, you know, that will really kind of change some of our posture in the market as relates to, you know, taking advantage of the current market opportunity.
spk01: Yep. Yep. That's really helpful. Maybe you can share some of the things that you're seeing from your seat at KKR more broadly about the flows of capital into commercial real estate. how much capital you see getting allocated to the sector this year, maybe even who you see being the incremental buyer in the market with there being this layer of uncertainty that we're all talking about. Thanks.
spk05: Sure. So stepping away from KREF for a second and just talking about what we're seeing broadly in capital flows, I would say that starting on the real estate credit side, I think there is a pretty consensus view, a strong view, really globally, that credit is very attractive today. And within that segment, real estate credit is very attractive. And so while a lot of allocators in the market are experiencing a denominator effect, just given where the equity market is, and so the overall pie might be shrinking in you want to think about the component of that pie being real estate credit is growing. So we're taking market share, if you will. And we're certainly seeing that on the fundraising side with more allocators favoring real estate credit. So that feels like a good opportunity. And on the real estate equity side, I think the market is very much looking at values and trying to understand, okay, where are values today, thinking about their own portfolio. But at the same time, the opportunistic funds, I think, will have success raising capital. First of all, there's ample dry powder available today across the market, almost record levels of dry powder to invest in real estate. And The fundamental setup in many of these property types and markets is still pretty good. So I think you'll continue to see capital being raised on the opportunistic side of the market as well and on the equity side. So it's overall, everyone's dealing, again, with a little bit of headwinds from the denominator effect, but still seeing very good flows across the real estate spectrum.
spk01: That's really helpful. Thank you.
spk02: The next question is a follow-up from Jade Ramani of KBW. Please go ahead.
spk09: Thank you very much. You mentioned a billion dollars of repayments this year. Do you know the dollar amount of loans scheduled for initial maturity that we'll have to meet some kind of extension test? And I know you talked about you're not giving away anything for free, so it sounds like you're going to be pretty strict in those discussions.
spk05: Yeah, Jade, I can talk about it, and then I'll turn it over to Patrick to give you the exact number. But a lot of the portfolio was originated post-COVID, and so it is a smaller dollar amount. But, you know, we can give you the initial maturity here and agree. I mean, it's We want to work with our sponsors. We want to be reasonable. However, all those initial maturities or most of those initial maturities have some form of test to get into extension periods. Those tests can be met in many cases. In some cases where they're not met, that's another opportunity to have a discussion and try to better our credit overall. And that's how we approach it. And with that, I'll turn it over to Patrick. You can add whatever, any other comments you want and talk about the numbers.
spk06: Yeah, Jay, sure. I'm happy to elaborate here. So in the supplement, we show kind of our fully extended terms. And you can see that this year, about 6% of the portfolios is scheduled to have a final maturity date. terms of like initial maturity date inclusive of those numbers that grows to about 21% of the total portfolio so about a billion seven in total thanks very much the the West Hollywood multifamily deal sorry I didn't hear before but did you provide any color on that deal and if not could you talk to
spk09: Just some overall statistics or give some sense of what characterizes it. I see that the average unit value is something like $2 million per unit. And if you make some cap rate assumptions, you're talking rents north of $15,000 a month. So, you know, any color you can give there and why that deal was downgraded to risk rating four?
spk05: Yeah, sure. I can give a little bit of color there. And you're right in the sense that it's a very – high-end luxury multifamily property. It was built for condo. So it is basically top of the market and great location in West LA, as you highlighted there. And the reason we downgraded that was really around modification discussions that we were having around interest rate caps and and just try to get to make sure we got to a good place as those discussions were ongoing. And this, again, comes back a little bit back down to, comes back to value. And so I think we feel pretty good about, you know, our basis and the overall value of that asset. But we just downgraded it as we went through modification discussions on interest rate caps.
spk09: Thanks. I have one more. Are there any other questions in the queue? Because I just wanted to ask it. I've gotten some investor questions on this.
spk05: Sure. Go ahead, Jason.
spk09: Just on the CMBS exposure, which is a joint venture, what's the risk of any write-down there? And I believe those positions are B pieces, so there would be special servicing rights. Is that really just a mark-to-model kind of calculation? What would drive any value degradation there that we could see?
spk05: Got it. Yeah, so that's an investment in a fund that owns 2017 and 18 vintage conduit B pieces. The marking process on that is – Same as pretty much everything we do at KKR. That's a third-party service provider that marks that. We don't mark that internally on a model or anything like that. That's a purely outsourced marketing service. And obviously the two main things that could impact that market are, number one, just risk premium increasing in the market, and number two, fundamentals and defaults. You know, what we've seen in our overall CMBS portfolio, I would say, again, keep in mind it's a tiny, tiny part of what's within KREF, so I'm speaking more broadly about funds we manage outside of KREF, is continued strong performance there, especially on the conduit side where these borrowers have locked in 3.5% fixed interest rates for 10 years. The going in coverage was you know, very high, typically over two and a half to three times coverage on those lower interest rates. And they'll enjoy that interest rate for quite some time. So another, you know, called seven years or so in some cases. So I think that, you know, we continue to see strong, you know, performance across that portfolio with really de minimis delinquencies.
spk09: Thanks very much.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.
spk08: Great. Thanks, operator. Thanks, everyone, for joining today. And please follow up with me or the team here if you have any questions. Take care.
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