Thank you so much for joining us this morning. I'm Ricardo Chinchilla. I am Deutsche Bank's Financial and Fintech high yield analyst. Today with me, I have the pleasure of hosting Patrick Mattson, the President and Chief Operating Officer of KKR Real Estate. Thank you so much for joining us in our conference. Thank you, Ricardo. Thanks for having me back. Perfect. I wanted to start, you know, with a quick background of KREF, and if you could also spend some minutes talking about the transitional CRE lending market, that would be great for our audience. Great. Certainly. So from a KREF perspective, KREF is coming up on a 10-year anniversary. Our credit business was started at the beginning of 2025, and KREF was started originating in that year as well. So it's obviously a milestone year for us. KREF is focused in the large loan transitional space. By that I mean loans generally that are $50-500 million in size. Our average balance is north of $100 million. We're focused on institutional quality real estate. So if you look at our sponsors, our assets, they tend to be of institutional quality in the largest markets, predominantly Class A real estate. Our focus is on the asset classes that I think are very much aligned with what our equity business focuses on. So you'll see heavily weighted toward, in particular, multifamily and industrial. Some student housing will also participate on the office and hospitality side. From a profile standpoint, if you look at our assets, you'll see that they're light transition. So by that I mean, generally, the sponsors are focused on transitioning that asset in this pre-stabilization period to stabilization, predominantly through lease up. So there's not a lot of heavy focus on construction or redevelopment. It tends to be more focused on lease up. So the time to execute the business plan tends to be shorter than, I would say, most transitional loans. Within the transitional lending space, we think it's a very interesting time to be active in the space. We've seen over the course of the last twelve months, and I think will continue to persist in the near term. We've seen the banks pull back in some cases in a fairly meaningful way. That's creating more opportunities for non-bank lenders. And so when you think about the type of capital that we have to deploy, we're very excited about the opportunity set. Clearly, values have started to reset. We're in a rate complex that is now a bit more constructive for sponsors. And so we're excited about, you know, the opportunity over the next two, three years to deploy capital. Perfect. I was hoping if you could comment on the benefits of operating under an externally managed model and the KKR sponsorship. It's hard to overstate the benefits that we're deriving from being part of a larger global asset manager. That's everything from sourcing, to underwriting, to how we finance assets and asset management. Each part of our business is impacted in a positive way through our affiliation with KKR. Clearly, we're part of a broader real estate franchise. We're deriving a lot of benefits by working side by side with that team, so whether it's sourcing new deals, getting a look on transactions that might be in the market before some of our peers do, being able to really tap into the knowledge base that we're developing on the equity side of the platform. We've got an enormous multifamily and industrial portfolio. In almost every market that we are active on the lending side, we have some corresponding exposure on the equity side, and that knowledge and information share is really powerful. And I think we do that mind share as good as anyone out in the business, and that's a really powerful tool. The other area where it shows up a lot is on the liability side of what we're doing. We over the last five to six years have really focused on diversifying our liability structure. Clearly, things like the Term Loan B are a part of that, but also a number of bespoke non-mark-to-market facilities that we've created. We've created that by leveraging our KKR Capital Markets team, which we call KCM, and we've been able to create structures that are bespoke in the market, that have allowed us to finance these assets on a non-mark-to-market, match term basis. There's readily available repo facilities in the market, and we do utilize those facilities. We've got a lot of great bank relationships and great bank counterparties there. But having that diversity has been key, and we've seen lots of examples of that, you know, through the onset of COVID up to today, where having that diversified non-mark-to-market financing strategy has really paid off. And the last area I just sort of mention is, you know, on the asset management front and the technology, the information that we're able to bring to bear as a group and the way that we're harnessing that has been an important part of the business over the last couple of years as we further spend a lot of resources to build out this platform and the technology infrastructure to really allow us to, you know, to manage our assets efficiently. And we think over time, we'll lead to, you know, differentiated results. Perfect. I was hoping you could give us some color on KREF's investment strategy and how the company offers value in the real estate lifecycle. Sure. I think the value proposition that we offer to the market is the fact that we have this integrated platform. So as we are approaching our clients, our institutional clients, we can approach it not just from a lending mindset, but really bringing the knowledge that we have around the market, around their needs, from our equity side of the business. And I think that's one of the differentiated outcomes. I think another area is that as we've grown the platform over the last 10 years, we've expanded beyond KREF as the publicly traded mortgage company into capital now that is insurance capital. KKR owns Global Atlantic. Our group is investing on behalf of that capital. We have private debt funds, and so we are very active in the market. And as we're approaching the market, really bring kind of a full, you know, wing-to-wing set of capital. So depending on what the needs of our sponsors are, we generally have a solution that we can provide. That provides a lot of synergies for the mortgage REIT, because it means that while we might be working with a sponsor on something that's a fixed rate financing or one of their stabilized assets, we're building that relationship and able to leverage that when we might want to do, or they might want to do something that is a bit more of a value add or a pre-stabilized transaction. So that connectivity to the broader market that, you know, we're able to derive from the scale of the business has been super impactful. Perfect. You know, at the end of the second quarter, the average risk rating of the company's portfolio was 3.1. These represent actually an improvement versus the first quarter, where it was at 3.2, and the company was monitoring five watchlist loans, right? Including one office asset. What percentage of the CECL reserve does KREF allocate across the five watchlist loans versus the other parts of the portfolio? And when you look at the five watchlist loans and the four REO assets, which of those may have a resolution in the second half of 2024? Okay, I'll try to tackle all of those there. Thank you for the question. As you might expect from a reserve perspective, the reserves are heavily weighted toward our watchlist assets, our fours and fives. The model for the performing loans is just that, it's sort of model based, and the way that CECL works is that every loan gets attached some form of loss, even if our expectation is that these loans will sort of pay out at par over time. But as those loans end up on the watchlist, in particular on the five-rated assets, there it turns into a bit of a more manual control, and we can hone in on what we think value is and take, you know, appropriate reserves specific for that asset. So it's a good majority of our CECL reserve is allocated toward those fours and fives. So it's a big chunk of that reserve. I think in terms of your second question on, you know, resolution timing, all these assets are unique in terms of how they will likely get resolved over the next couple of years. I think we've got a lot of tools at our disposal, again, given our broader connectivity within the firm, to manage these assets to the appropriate outcome. Some of these watchlist loans are going to get resolved through a modification, where the sponsor is putting, you know, additional capital in, and we're modifying the terms of the loan. Others we might see resolved into an intermediate step where we actually take the asset back, work that asset, look to get it leased up in the market, and then monetize it at that point. And so, while I expect that we'll see some resolutions in the near term, other resolutions are going to take out or are going to take several quarters to years to sort of play out. And again, there's different ways to resolve these assets. Our goal in sort of resolving, you know, each of these, is trying to figure out how do we best preserve book value? How do we best maximize the present value of this asset, and that's going to take us down different paths. And so we don't have to just sell the asset at today's spot market. We can actually add value to the asset, improve the real estate, and then monetize those assets, you know, at better times, you know, as we work through the watch list. When you were responding my first question, you mentioned that normalizing transaction volumes and low bank participation would create an attractive opportunity for the company. I was hoping if you could provide more information on how the company would move to offense to make the most of this opportunity. Yes, good, good question. I think the market dynamics are such that they're setting up very well for lenders like us, in the space. And by that, I mean, just to delve in a little bit deeper, we're seeing a pullback on the bank side to making direct CRE loans. I don't think the banks are exiting the business, but given the size that the banks have historically represented, even a modest pullback represents a pretty sizable amount of origination volume in any given year. What we're also seeing at the same time, while the banks transition some of their capital away from the direct lending, is more capital being allocated toward financing of the types of loans that we're making. So we're seeing more interest, whether it's repo or warehouse financing or loan-on-loan structures. We're seeing more interest from the banks to finance counterparties like ourselves. It's better capital treatment. If you look at this past cycle, we're going to see a lot better performance on this book of business on the banks versus some of the direct lending. And so I think there's going to be increased, and we're seeing it today, increased appetite for banks to participate in that form. KREF and a lot of peers that look like KREF on both the public and private side will be a prime beneficiary of that. Additionally, what we're also seeing is historically, that financing came on mark-to-credit or mark-to-market terms. We're seeing more banks provide that capital in a non-mark-to-market term. How are they getting comfortable with that? I think one of the reasons they're getting comfortable with that is if you look at the way these facilities are structured, they're generally multiple assets on the facility. You're not really tied to the performance of one asset, and so they all almost function as a mini CLO or a private CLO for the banks. And like I said, the performance is going to. The performance, along with the credit sheet treatment, should drive increased participation on that front. So KREF is poised to benefit from that shift that's happening in the market. We're also at a point in the cycle of the business where, as we've described it, we may not be out of the woods, but we're certainly on the edge of the woods. And as we think about some of the capital that we're getting back now in the form of repayments, that capital we can almost think about as excess liquidity, and we're in a position where we can start to redeploy that capital into this environment, into new loans. So from a mindset perspective, we're certainly geared more toward the offense than we are in defense as we work through some of the watchlist loans. Perfect. We just talked about, you know, the opportunities in the current market environment. Can we please also talk about what is the most significant challenge for KREF in this market? One of the challenges for KREF and for public vehicles like this is some of the procyclical nature of the capital. I think as we look over the next couple of quarters and into the next couple of years, the lending environment looks very attractive. We've seen values reset. We're able to get better structure at lower leverage levels and still generate comparable returns to what we've been able to generate, you know, over the last four to five years. The dynamic sets up well. I think the headlines in the industry in the near term are going to continue to be a bit negative. We're going to see increased multifamily foreclosures. Office is going to continue to be a drag and in the news and in the headlines. And so that's a little bit of the challenge for us in this market. While we might see a very attractive lending market, I think sort of the broader headline or the broader picture on CRE is going to be a bit more mixed. And so I think as investors start to dive into these specific names and the opportunities, I think we're going to see more capital come into real estate credit in general. That is starting to happen, but I think it's still a challenge. I think the headlines are still going to be a challenge. Perfect. I was hoping we could discuss the company's medium- and long-term leverage targets. Certainly. So we've historically targeted three and a half to high threes leverage. That's a total leverage level. We also report a debt-to-equity ratio, which excludes some of our non-recourse financing. But on a look-through basis, we've sort of been at this three and a half to, you know, high threes target. We saw a pick-up a little bit over the last year as we increased reserves, some realized losses. That is now through repayments and some deleveraging, dropped down back below four times leverage. And so we're back into that zip code that we're targeting. I think it's important, as we're looking at these companies, to not only look at that target leverage ratio, but really kind of take one step further and look at those underlying assets. Because if you look at the way that we've tried to position the company, on the asset side, our focus tends to be on a bit lower leverage, on more stabilized type of properties or, or pre-stabilized assets. So we're in kind of a light transitional as opposed to heavy repositioning. And so our focus is to take lower asset risk, but finance that at a moderate but sort of prudent amount of leverage that's diversified, over a number of sources. So we're in that target range, or we're operating in that target range, and would expect over the, you know, over the near term and intermediate term, that we continue to operate, right around that level. Perfect. I was hoping if you could comment on the company's capital allocation priorities? Certainly. So in terms of allocation priorities, clearly we're a lender in this space. Our focus is trying to find good risk-adjusted returns in the direct lending space. As I said earlier, we're in one of those moments. We're in that sort of part of the cycle where you want to be a lender, where values have reset, where you're getting paid well, for the risk that you're taking. And if you look at where the index rate is, albeit sort of coming down, still able to produce a very healthy levered return. So our focus clearly will be on the lending side. The other area that we'll also consider, and, you know, if you look at our history since we've been public, is share buyback. When we've traded at a discount, clearly, at times, that's probably our best use of capital is to buy back shares, but ultimately, we want to expand the company, we want to be able to expand our sponsor base, and we want to service our clients on the lending side, and so we're very keen to, as we're deploying capital, focus on those areas. We'll continue to be focused on those primary areas where we're overweight today: multifamily in industrial, namely, but really, all things on the residential side, you know, look relatively interesting, and so continued sort of focus there. I think opportunistically, we look at things on the hospitality side. We'll look at things in the life science sector where we have some exposure. That market is going through some cyclical challenges, but clearly doesn't have some of the secular headwinds that the office market has. So in the near term, we'll be focused on those, you know, main areas. I think over time, there is going to be compelling office opportunities. I think as a public company, where people look at some of the headlines and look at those exposures, it's hard at this point in the cycle to necessarily increase that office exposure. So, we'll obviously need to be mindful of that. But the market will create some very interesting opportunities in the office segment, which will be really defined by sort of the haves and the have-nots. And so even in the haves section, you'll find some compelling opportunities. But in the near term, I would look for us to do a lot of the same that we've been doing. And as we're looking to grow the portfolio, you know, we'll continue to want to access various parts of the capital market structure. In the past, we've been a convert issuer. We have the Term Loan B. That's an area that we would like to continue to grow over time, and we continue to monitor the unsecured market as well, and think as the company continues to grow, we expect that to be a part of our overall financing strategy. I was hoping if you could give us some insight into, you know, the M&A environment in this space, and, you know, if the current market conditions could result in, you know, more opportunities out there? I think as we look out over the next twelve to twenty-four months, I do expect we'll see M&A activity. I think we'll see activity for portfolio transactions, which can also be a catalyst for sort of growth in this market. You're already starting to see some bifurcation in the market in terms of where some of the, you know, public companies trade. I think the market probably needs a little bit more clarity on where some of the book values end up and where some of the watchlist loans on various portfolios, how they get resolved before you can really have, you know, good price discovery and see potential transactions, but you know, as a company, we are open to that. And I think as a market, we're going to see likely some consolidation, over time. Perfect. I've been telling, you know, CEOs, these past few days that we analysts, we like to be scared of something, right? We were scared that the Fed was not going to do cuts this year, and that didn't happen, and now we are scared that we are entering into a domestic recession. Are you, you know? Is there something that you are concerned about in this market environment? Is there something that is keeping you awake? How you feel overall? Generally, I sleep pretty well at night, so I don't think there's too many things that are keeping me up at night these days. I think, perhaps an obvious point, but I do think the... You know, as I think about some of the outside risk, geopolitical or otherwise, those are the types of things that give me more concern. When I think about real estate and just the real estate fundamentals, absent, as you said, you know, sort of a major recession, which is not what we're forecasting, I think the fundamentals line up pretty well. You know, this tends to be a cyclical business, and we're coming out of this cycle now. As I look over the next couple of years, there's a lot to be enthusiastic about, both on the credit side, and the equity side of real estate. So I think if there were some concerns, it's concerns that are going to come outside of the real estate market. I was hoping if you could give us some insight on how your discussions with the rating agencies have evolved over the last twelve months, and if you keep, you know, constant engagement with the rating agencies? Great question. Yes, we do have fairly regular dialogue with the agencies. I would say that they have shifted as you might sort of expect, you know, over the last twelve to eighteen months. I think as we sort of started this cycle and as we saw you know some of the default and valuation decline and sort of repayments sort of slow down, I think the area of focus for the agencies was on liquidity, and do these companies have enough liquidity to you know to manage through? And I think that's an area that we've been highly focused ourselves as a company, and this is where we also have, I think, a very differentiated edge. We've got a corporate revolver that's $610 million of capacity, a very unique piece of paper relative to our peers, that we can use for, you know, any, for any general corporate purpose. That's provided us a lot of stability and a lot of liquidity as we've been sort of managing through, you know, what's been, you know, sort of a challenged couple of years. But the shift is focused away from liquidity, I think, to asset performance, and so a lot of focus now on resolutions, getting through sort of the watchlist, what happens to, to book value, and sort of focus on leverage, right, at these companies. I think what we will start to see, and I... And hopefully the agencies will start to take into account is we are seeing real improvement across all of those parts of the business. From a liquidity standpoint, we're seeing repayments that even absent capital markets activity is creating liquidity for companies, certainly for our company. We're seeing improvement on the watchlist and resolutions on these watchlists where, again, I don't think we're out of the woods yet, but it does feel like we're in a bottoming process where as we look at our book, we have our watchlist loans, but we don't see a lot of new stuff that necessarily, you know, is going to make it to the watchlist. So that's encouraging, and I think the agencies will start to take note of that. And then I think lastly, as we start to see redeployment in the space, and we see a return to offense, I think that's going to be a signal in some way, for the agencies to reconsider or reevaluate, how they're thinking about, these companies. Clearly, if you're looking in the rearview mirror, you see a lot of choppiness. But if you're looking forward, actually, it's the seas get a little bit more calmer, and the opportunity set, gets a little bit better. So I think that will start to get recognized, and, I expect that we'll start to see that through their, you know, ratings actions over the next twelve months as well. Perfect. Talking about your, you know, capital structure, do you anticipate any change between the mix of your fixed and variable rate over the next 12 to 24 months? Not anticipating that. Our assets are all floating rate, and so our focus historically has been kind of matching our liabilities, you know, in a floating rate fashion as well. It's not to say that we can't take on a component of liabilities that are fixed rate. And I would suspect, again, as we're able to grow the portfolio and grow the company, that having some fixed rate exposure, you know, does make sense. So it's an area that we certainly will think about exploring. But in the near term, I expect that we'll continue to focus on making sure that our, you know, liabilities and assets match from a, you know, from an interest rate perspective. This has been a great conversation, but unfortunately, we've run out of time. I appreciate that you are coming to our conference, and we hope to see you next year. Great. Well, thank you for having me, and thank you guys for joining. Thank you so much.