Earnings Call Transcript - KREF Q2 2023

Operator, Operator

Good morning, and welcome to the KKR Real Estate Finance Trust Inc. Second Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead.

Jack Switala, Speaker

Great. Thanks, operator, and welcome to the KKR Real Estate Finance Trust earnings call for the second quarter of 2023. 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 Decious. 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 $0.37 per diluted share, including a CECL provision of $56.3 million or $0.82 per diluted share. Distributable earnings this quarter were $33.1 million or $0.48 per share. Book value per share as of June 30, 2023, was $16.38, a decline of 4.5% quarter-over-quarter. Our CECL 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 5 senior office loans as well as macroeconomic conditions. Finally, in June, we paid a cash dividend of $0.43 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.

Matt Salem, CEO

Thanks, Jack. Good morning and thank you for joining us today. KREF generated another quarter of strong distributable earnings of $0.48 per share relative to our $0.43 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, take equity infusions or sell assets as approximately $1 trillion of commercial real estate loans mature in 2023 and 2024. Notably, the CRE lending market is highly competitive for stabilized in-favor assets with insurance capital very active. This environment warrants patience and discipline, with a particular focus on liabilities with duration and durability, considerations we have had front of mind in building KREF. Despite the volatility, we have seen progress on a number of initiatives. First, we're in the late stages of a sales process on our risk-rated 5 Philadelphia loan. Second, our borrowers are marketing a risk-rated 4 D.C. office asset with initial indications above our $162 million loan amount after significant progress on the business plan. The property is near stabilization having signed over 70,000 square feet of leases year-to-date with total occupancy increasing from the low 60s to the high 80s. Third, many of our other office sponsors are signing leases. Excluding the leases I just mentioned, our office assets have signed over 435,000 square feet of leasing year-to-date, including the largest lease in Philadelphia in 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. KREF's steady focus on building non-mark-to-market financing sources and maintaining high levels of liquidity over the past few years has proved crucial in navigating 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 focused on maintaining a robust liquidity position. At quarter end, nearly 70% of our portfolio was comprised of multifamily, industrial and risk-rated 3 office property types. The multifamily portion of our portfolio continues to perform well with weighted average rent increases of 7.5% year-over-year. In the second quarter, 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 KREF, KKR is actively lending across diverse CRE capital base, including bank and insurance SMAs and private debt funds, which allows us to stay active in the market to service our strong client relationships. Our integration with KKR's broader real estate business that manages $65 billion of assets provides us with real-time market knowledge across both debt and equity. Our team of approximately 150 professionals 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 to turn over modestly in 2023 and anticipate future funding should be offset by future repayments for the full year. A lack of capital market security 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 rating of 5 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 3-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 5-rated loans. KREF was built for moments like this. We are operating KREF with $800 million of liquidity. 76% of our secured financing as of quarter end was fully non-mark-to-market. We upsized a master repurchase agreement from $240 million to $400 million, all while succeeding in terming out our debt with KREF having no corporate debt or final facility maturities due until late 2025. And we have a robust real 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 KREF's 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 and KREF. With that, I'll turn the call over to Patrick.

Patrick Mattson, President and COO

Thank you, Matt. Good morning, everyone. I'll begin by providing a CECL 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 CECL 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 rated 5, most notably with the addition of the Mountain View, California office loan that had a principal balance of $200 million at June 30. Approximately 2/3 of our total CECL reserve is held against our two 5-rated loans. The Mountain View office loan was initially placed on the watch list in third quarter 2022. The properties are recently renovated, very high-quality Class A office campus, but are located in a more challenged leasing market. 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 the 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 bifurcated into a $120 million fully funded senior mortgage loan and a $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 as it's one of the best buildings in the market in terms of both quality and location and has leased over 100,000 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. As tenants seek space in well-capitalized buildings that can offer attractive leasing packages, we expect further positive momentum. The loan extension ensures the building is capitalized to fund leasing costs as we feel this approach preserves optionality to optimize the value of the asset for KREF. On the risk-rated 5 Philadelphia office loan, we are working with the existing sponsor on a short sale process in which we will provide financing to a new equity sponsor. If the sale occurs, we'll recognize a loss through our cash metric of distributable earnings. We added one Boston office loan 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, though given our conservative approach to identifying assets of concern, we downgraded this loan, given the elevated loan-to-value ahead of the loan's initial maturity in the first quarter of 2024. Away from the watch list, our risk-rated 3 office portfolio, which equates to just under half of the outstanding principal balance of the office segment, continues to perform well and has attractive credit metrics. In aggregate, the seven properties representing these underlying risk-rated 3 office properties are 93% leased with a weighted average debt yield of 8.9% 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 on our remaining 3-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 3 or better. Our portfolio is 99% floating rate. In the second quarter, we completed our transition to SOFR, and now all our floating rate assets and liabilities are benchmarked to the market convention rate. One of KREF's 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. KREF is well capitalized with a debt-to-equity ratio of 2.2x and a total look-through leverage ratio of 4.0x as of quarter end. As of June 30, KREF 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 KREF on the liability side during times of capital markets volatility. Thank you for joining us today. Now we're happy to take your questions.

Operator, Operator

We will now begin the question-and-answer session. The first question today comes from Rick Shane with JPMorgan.

Rick Shane, Analyst

The one disadvantage of being first is I'm still kind of pulling some data for the background on this question, so if I trip some things up, I apologize. I'd like to talk a little bit about the Minneapolis transaction. Obviously, you cut the spread on the deal on the floating rate portion by about 150 bps. The PIK component on the mezz, and this is, I think, the thing that surprises me, is fixed rate, and it's actually below 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 is the upside for you? What is the optionality that if this is presumably sort of buy the sponsor additional time in order to sell the property, where do you guys participate in the benefit of that transaction?

Patrick Mattson, President and COO

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 that is nearly 80% leased. It's got cash flow that can support debt service and the structuring 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 what's obviously not a great capital markets 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 the sponsor, continue to maintain leasing at this asset, like I said, look for a better capital markets exit.

Rick Shane, Analyst

Got it. Patrick, so two follow-ups to that. One is that you guys have made the comment that it is covered on a cash flow basis, but that's on the senior side at the $120 million. Would it have been covered at the prior coupon at the prior note size or just shrinking the note and shrinking the spread put you in that situation? And then the other side of this is, and this is what I was trying to look up, was the loan on non-accrual before, so you will actually see a pickup in reported interest income because this loan goes from non-accrual to accrual even if it's smaller at a tighter spread?

Patrick Mattson, President and COO

I'll take the second part first, Rick. You're right and observant there. We will see some pickup on this asset as we move it off of non-accrual and this senior now will be a performing loan. And so you'll see that flow through our net interest. The asset prior to the restructuring was very close to a 1x DSCR. Clearly, with the recut here and the senior loan being smaller and at a lower coupon, that allows for excess cash to be captured within the asset and that cash then can be utilized very proactively to continuing the leasing efforts here.

Rick Shane, Analyst

I understand, and I apologize to my colleagues. I have one final question. Will there be a catch-up in the third quarter related to the reversal of non-accrued principal that was reflected in the interest line? I just want to ensure there aren’t any unexpected issues we need to consider.

Patrick Mattson, President and COO

No, there's no recapture.

Operator, Operator

The next question comes from Sarah Barcomb with BTIG. Please go ahead.

Sarah Barcomb, Analyst

So, we saw both the Boston office added to the watch list and the Mountain View office see that downgrade there. Both of those were originated post-COVID. 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 bucket but starting to see some of those issues crop up. Can you talk about how expectations have changed for that group since, call it, early 2021 to now?

Matt Salem, CEO

Thank you for the question and for joining us this morning. I can address that. I don't believe there's a significant difference in the properties or loans whether they were made pre-COVID or post-COVID. The main issue is an overall lack of market liquidity and inherent weakness, along with adjustments related to remote work and the actual demand for office space. This underlying theme affects both pre- and post-COVID loans. Our criteria for lending on office properties has definitely become more stringent in the post-COVID environment, which may be what you're referring to. The Boston asset was not meant to be transitional; it was fully leased, currently at 90%, and is considered a stabilized office building. The current valuation is influenced by market liquidity and changing cap rates. The Mountain View asset, however, is a lease-up project from the start. But given its overall quality, we don't have the same occupancy concerns as we might see with more generic office spaces. This asset will definitely lease in the future; it’s just a matter of how long it takes and what the lease rate will be at that time. I hope this provides more context for your question.

Sarah Barcomb, Analyst

Okay, yes. And then maybe 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 hear at the Fed meeting on Wednesday, just given the amount of office exposure that's still on repo, combined with the growing watch list, especially for assets where we've seen more of a valuation reset and where KREF has lower net equity. And you also mentioned in the prepared remarks that the money center banks are pretty cautious. So, I'm just trying to gauge how you're thinking about your liquidity needs going forward. At what point would you tap the corporate debt markets, the term loan B markets? How are you thinking about that?

Matt Salem, CEO

Yes, I can take that. It's Matt again. First of all, we have plenty of liquidity, so any actions we take would be more opportunistic. We're not feeling pressured to do something immediately. There isn't an urgent need for liquidity, as we currently have $800 million available. Additionally, we will continue to monitor the markets, which have rebounded along with the broader economy. If we identify an attractive opportunity, we may consider it. We recently paid off our convertible debt last quarter; although it was a small amount, it has been cleared. If an opportunity arises to refinance that in the future, we might explore it. Overall, we're observing the market and waiting for a favorable moment, but there's no immediate necessity.

Operator, Operator

The next question comes from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani, Analyst

And good to see some positive updates on the office side. So, the first question would be how far along through the scoping of credit risks do you feel we are? Would you say halfway is a fair assessment or much more long than that? I think you did take pains to mention that on the risk 3-rated office loans, you don't expect any negative surprises and 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 can you just comment on that broad question?

Matt Salem, CEO

Sure, Jade. It's Matt. Thank you for joining. Let's start with the office sector since we're further along there. We believe we are nearing the end of identifying potential issues. I don't expect all the 4-rated loans to transition to 5, and we're still exploring what might happen with these as we proceed. Regarding the 5-rated loans, we feel we have substantial and appropriate reserves in place. We've been fairly transparent about the office sector and proactive compared to some peers in identifying issues and reserving for loans. While we’re not finished, we’ve made significant progress on the office side. As for the other property types, it’s difficult to say since we haven't seen any problems there yet. Real estate values have shifted due to the rising cost of capital, but these valuation changes haven't been as pronounced as those in the office sector, which is facing fundamental challenges alongside increased capital costs and liquidity issues—a sort of perfect storm. We're closely monitoring the portfolio. Beyond our broader portfolio outside of KREF, we manage nearly a $30 billion mortgage portfolio across various accounts, and we haven't encountered issues outside of the office sector. Many property types remain well-positioned, though it’s worth noting that the current high debt burden could affect some sponsors. However, even if challenges arise, I doubt they will match the severity we’re observing in the office market, which has been particularly affected. It's a complex question, but we are actively monitoring the situation, and so far, we haven't seen any issues in our broader portfolio or KREF's portfolio outside of office.

Jade Rahmani, Analyst

And on the multifamily side, you mentioned the rent growth, 7.5%. I mean, we have seen multifamily performance being pretty resilient so far. Nevertheless, for those loans to be able to successfully refinance, we're seeing some interesting dynamics where lenders are providing preferreds in order to have the LTV meet other senior lender requirements because the preferred gets counted as equity. Do you think that the multifamily deals can stomach a 6.5% or 6% type interest rate?

Matt Salem, CEO

I believe there is a timing issue to consider, particularly regarding the long-term tenure rate. Many sponsors are currently assessing their multifamily assets and looking to bridge the gap until interest rates lower, at which point they would feel more confident about their asset values. The critical question is whether these sponsors have the liquidity needed to cover that gap. Some business plans will fall in limbo due to ongoing renovations and upgrades, and I think this could pose a problem for some. However, for our portfolio at KREF, we feel optimistic. Our holdings largely consist of Class A real estate in liquid markets. I'm often surprised by the level of liquidity within the multifamily sector, both in terms of debt and equity. This abundance of liquidity has somewhat supported asset values and somewhat obscured underlying issues in the market. To directly answer your question, I believe that the current cost of capital is more temporary, and people are viewing it with a more medium-term perspective.

Operator, Operator

The next question comes from Don Fandetti with Wells Fargo. Please go ahead.

Don Fandetti, Analyst

I was wondering if you're seeing any opportunistic capital forming in the industry for office, whether it's on the equity or debt side. I mean, obviously, sentiment has been extremely negative. Is that still the case or are you sort of seeing some green shoots?

Matt Salem, CEO

I can respond to that. I would say it's limited. The challenge with office properties is that they make up a significant portion of the market, and most investors, whether in debt or equity, have considerable exposure to them. Many are focused on their current assets and conserving available capital. Although there should be a unique investing opportunity given the current illiquidity in the market, I don't believe we are witnessing a significant amount of large institutional capital being raised specifically for office properties.

Operator, Operator

The next question comes from Stephen Laws with Raymond James. Please go ahead.

Stephen Laws, Analyst

Patrick, would love to follow up. I think you made a comment on the short sale in the Philly office. Can you maybe help us get a gauge of how much the specific reserve of the reserve is roughly 2/3 on the 5-rated loans kind of applies to that? And is that a 3Q event or sometime over the second half as far as timing goes?

Patrick Mattson, President and COO

We didn't give a specific number there, but if you look at what's implied by the numbers, you're talking about loss expectations that are potentially north of 25% on that asset and the other 3-rated assets. We're obviously still working through that sales process and so I want to be mindful of that. I think in terms of the timing, 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 certainly could be a 3Q event. But in this kind of market for these types of transactions to slip a couple of weeks or a month is certainly not impossible. And so, that's why we're seeing could be a 3Q event, but we would certainly expect it to happen by 4Q.

Stephen Laws, Analyst

Great. And repayments came in a little higher than I was looking for, a bit higher than I was looking for actually. But can you talk to that a little bit? It seems like you reiterated today kind of expect modest repayments over the year, which is consistent with last quarter. But it looks like maybe a multifamily asset in Florida, a small resi condo loan, I think, in Manhattan. But can you talk about what repaid during the quarter and any trends we can read into that?

Patrick Mattson, President and COO

Sure, Stephen. You're right. And we did have our condo asset, which is near Hudson Yards, had its last units sell and that asset paid off. 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, a real opportunity to take coupons that are in the 8% to 9% when you look at the margin plus the SOFR index and refinance at a rate that's closer to 6%. So, we saw some of that activity. And then we had a smaller number of partial repayments on some of our industrial loans, where there were asset sales. And I guess one thing I would just highlight, Stephen, as we think about those repayments, those multifamily loans that paid off were certainly risk-rated 3. But if you recall, at one point, the condo asset was a risk-rated 4 asset and obviously, clearly was paid out at par here. So, a pretty good quarter in terms of repayments. I think as we look forward, we still expect the back half of the year to be muted in terms of repayment expectations. And if we see those, I would think that they're more toward the fourth quarter as opposed to third quarter.

Stephen Laws, Analyst

Great. Lastly, Matt, what are you guys looking forward to think about new originations here? I mean, it seems like you feel pretty good about having identified problems in your office and feel good about what's currently remaining 3-rated. Are you looking for rates to top out? Is it more macro? Or what are the deals look like that you're looking at the past couple of months you've decided not to do? And kind of what do you need to see improve to start doing those?

Matt Salem, CEO

Sure. It's a very 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 these watch list items and just making sure that we get through them, we find a home, we get that equity returning to working. And then, it will come down to that. Outside of that, I think once we're through that moment, then as we get repayments, we can go out and reinvest it. So that's really part of the reason why we have been more aggressive with dealing with some of these issues, identifying them, trying to get through them is because we very much want to make sure that we have the opportunity to take advantage of the current market environment. But it's going to come down really to the existing portfolio because I think what we're seeing in the market today is very attractive.

Operator, Operator

The next question comes from Arren Cyganovich with Citi. Please go ahead.

Arren Cyganovich, Analyst

I was wondering if you could talk a little bit about the West Hollywood loan that you modified in June. And what was the reasoning behind that and the outcome there?

Patrick Mattson, President and COO

Sure. Arren, it's Patrick. I'll take that one. The real starting point here was just the interest rate movement and the cap renewal that had to be executed. 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 cap, they added additional capital to help cover debt service. We agreed as part of the loan structure to 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, 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-80s here. And that's something, obviously, we're watching closely. But at the end of the day, this is a really high-quality asset in a great location, and we feel really good about our basis here.

Operator, Operator

The next question comes from Steve Delaney with JMP Securities. Please go ahead.

Steven Delaney, Analyst

I was prepared when we started the Q&A or actually starting the call to ask you about the three 5-rated loans and if you saw any potential solution short of an actual foreclosure, and lo and behold, you've showed us two of the three, you've worked something out, so congrats on that progress. Just curious if we were to look at this, I know these are moving pieces, right, both on the sale of Philly and the restructuring of Minneapolis. But maybe from a general perspective, as you look at those two transactions and the accounting as you move forward, you have specific reserves, I assume, on all these 5-rated loans. Do you think that your resolutions, as you model them out, your specific reserve will be sufficient to kind of net you out flat once those two transactions are recorded?

Matt Salem, CEO

Steven, it's Matt. Thank you for joining us. I mean, yes, I think that when we look at the sale and the modification, we think these reserves kind of match the current value expectations. I think that's a question you're trying to get through is I think we're appropriately reserved on those two assets.

Steven Delaney, Analyst

Exactly. When considering your reserve and any potential accounting issues, do you believe these transactions will have an impact on the distributable aspect that analysts should consider for modeling? Jack, we can discuss this further later. I'm just trying to clarify if this could present a distributable issue, especially since you're adequately reserved on CECL.

Matt Salem, CEO

Yes. So I mean, if we have a loss, the CECL is going to translate through to DE. 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, our CECL reserve, where we think we're appropriate reserved will flush through, if you will, DE at sale. So, we'll see what we get to. But yes, at some point in time, you'd expect some of these CECL reserves to be realized.

Steven Delaney, Analyst

Great. Now in the case like that, you actually take a property back, let's say, you foreclose on Mountain View. At that point, I assume and you're going to hold it and you're going to operate it, optimize it for a couple of years, that REO would come on at fair value. So if you actually do foreclose, convert it from a loan to REO, is that also a situation where the REO would be booked at current fair value that could trigger a realized loss?

Matt Salem, CEO

Yes, yes. If we went to title, like you said, we would value the asset and we would take a realized loss on the difference between our basis and that value.

Steven Delaney, Analyst

Okay, that sounds good. I have a suggestion rather than a question. As you proceed with the closings of these anticipated transactions, it would be helpful if you could consider issuing an 8-K or a press release to inform analysts and the investment community that the transaction has been completed. Additionally, regarding the timing that Matt mentioned, whether it will occur in the third quarter or be postponed to the fourth quarter, we would appreciate the chance to adjust our expectations accordingly to align with your distributable earnings. Thank you for your insights.

Operator, Operator

We will now conclude our question-and-answer session. I would like to turn the conference back over to Jack Switala for any closing remarks.

Jack Switala, Speaker

Great. Thanks, operator, and thanks, everyone, for joining today. You can reach out to me or the team here with any questions. Take care.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.