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| Statement |
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| Both very nicely, recently renovated, very high-quality assets |
| I think the other very important dynamic is that every [indiscernible] of the portfolio that is performing and that is earning a very strong amount of net income relative to what we expected and relative to the overall portfolio, we continue to see the benefit of that earnings on a quarterly basis, both in terms of the dividends we pay out to our shareholders and in terms of our ability to accrete the excess into our book value |
| First, as a floating rate lender we continue to recognize the pronounced benefit in our income from higher base rates yielding yet another quarter of strong distributable earnings |
| So I would say that Europe, both from a capital markets perspective and from a fundamentals perspective, has performed really quite well over the last year, and we see those dynamics continuing |
| But, with some situations where we just see really continued outperformance strong that -- getting into the zone where we feel very, very good about the execution on the credit, we move those types of loans to 2s, and in some cases, 1s if it's sort of another leg up from that |
| The Spanish hotel market has really recovered very strongly, that particular asset is doing quite well |
| So these are multifamily assets, business plans completed, strong rent growth, strong debt yields, and really just working in terms of their business plans and benefiting from the leverage level that we have on them |
| When tech is working, it's extremely positive for the market |
| While the office headwinds are well established, high quality assets continue to outperform |
| We do feel good about the long-term performance of that market |
| The resulting incremental demand creates additional liquidity for our stock, which we believe will benefit our investors across market cycles |
| Our portfolio is far more awaited towards collateral built or substantially renovated since 2015 than the market, and is therefore well positioned to capture an outsized share of demand today and in the future with very little new office development on the horizon |
| Our $0.62 dividend is well covered by our distributable earnings and provides a highly attractive, reliable income stream for our stockholders, generating a 12% yield on yesterday’s quotes |
| In closing, we remain steadfast in our focus on maintaining a strong balance sheet, finding opportunities to reduce risk in our portfolio, and managing our more challenged credits to maximize long-term shareholder value |
| They're effectively paying off the most expensive part of their debt capital structure, reducing the debt balance, reducing the carry cost, putting the asset on stronger footing in terms of deleveraging the asset going forward and enhancing their return potential |
| Last quarter we highlighted the substantial progress we've made on this front, securing additional capital and improving our credit position |
| There's also one select Service Hotel which I think would -- I didn't talk as much about hotels this quarter, but we have seen continued strength on the hotel side, especially in the sectors that we are focused on |
| For dividend we are able to bolster our book value and significantly offset increasing reserves |
| So I would view the dividend as very solid at $0.62, where it is for the near-term |
| With our robust liquidity and long duration balance sheet we are never a force seller and as the largest owner of real estate in the world we have a deep well of expertise to take ownership and drive value when appropriate |
| But it's important to recognize that our dividend level is very stable and that at the moment, we're well out earning the dividend |
| In the near term a pocket of new supply is tempering rent growth but looking past this year, the supply demand dynamics are favorable |
| As we have highlighted on prior calls, our balance sheet continues to benefit from our stable capital structure with no corporate debt maturities until 2026, no capital markets margin call provisions across our term matched credit facilities, and fully non mark to market provisions on the majority of our liability |
| So on the multifamily really just strong leasing, solid year-over-year rent increases, and basically just achieving at plan or even better than plan expectation |
| This quarter we upgraded six multi loans seeing strong cash flow growth through successful execution of such value add strategies |
| And in the meantime, we're going to continue earning the very strong distributable earnings profile we have from the portfolio that allows us to cushion a lot of the impact here |
| But the combination of robust long-term fundamentals and continued institutional liquidity incentivizes sponsor who have the wherewithal to bridge near term NOI pressures and protect the substantial equity in their deals |
| With a well-structured balance sheet and $1.8 billion of liquidity we are well positioned to capitalize as this opportunity unfolds |
| Rising rates continue to weigh on credit performance, but as a floating rate lender our earnings and dividend coverage also benefit |
| Nearly 60% is backed by new or substantially renovated assets where we are seeing stronger leasing momentum like the Spiral and Hudson Yards, or 545 Win in Miami and another 16% benefits from substantial recent equity investments driven by our active asset management approach |
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| But despite these bright spots office overall remains challenging |
| And of course, liquidity is worse than most in office |
| We believe that higher rates are having the Feds desired impact with inflation decelerating and economic growth slowing |
| Cash flow from operations declined quarter-over-quarter |
| Multifamily housing starts are down 42% year-over-year and home mortgage race are at a 23 year high, significantly impacting affordability for potential home buyers and supporting rental demand |
| But as I think mentioned in the Q&A, tech, which is 40% of the market in San Francisco has just been really challenged in terms of office use |
| And when tech is pulling back, it's an overhang |
| Now, of course, there's also the countervailing factor of return to office, which has marched along sort of slow and steady positively |
| Looking at our risk ratings, as noted we downgraded three office loans to a five risk rating this quarter |
| However, our ability to retain earnings in excess of our dividend has limited our book value decline to about 1% since January 1st of this year, despite a 39% increase in our total CECL reserve over the past three quarters |
| So that's really what was driving most of the challenges with those assets |
| At the same time the sustained pressure of high rates and the attendant capital markets illiquidity is weighing on the overall credit environment |
| In closing there is no question that we are in a challenging period for the real estate market |
| It's by far the biggest driver of negative net absorption across the country |
| These reserves do not impact DE until they are realized, but do impact GAAP net income, which declined $0.42 this quarter to $0.17 per share as a result |
| However, it looks like there was a working capital headwind to the tune of around $21 million |
| We downgraded and recorded impairments on three of our previously watch listed loads this quarter, office assets in the Bay Area at Chicago |
| This quarter we again posted net portfolio contraction and moved in additional three loans to cost recovery status as of 9/30, which we collectively expect will impact our go forward quarterly earnings by $0.03 to $0.05 per share |
| We've increased our office reserve by more than 10X in the past year with marks on our 5 rated loans, implying an average decline in asset value of over 50% |
| But of course, it's still below pre COVID levels, and overall sort of space rationalization |
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