KKR Real Estate Finance Trust Inc. (KREF) Earnings Call Transcript & Summary

Hi, this is Arren Cyganovich. I'm the Citi research analyst covering commercial mortgage REITs. Thank you for coming to this conference and the session. We're pleased to have here with us, Matt Salem from KKR Real Estate Finance Trust; and Katie Keenan from Blackstone Mortgage Trust to discuss all of the [ phone ] issues that are happening at this conference. This session is for Citi clients only, if media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the EV desk. For those in the room or on the webcast, you can sign into liveqa.com and enter code GPC23 to submit any questions you want or you could just raise your hand. So we'll start off maybe with, each of you could just introduce yourselves and your company, and then we'll get into the Q&A.

Good morning, everyone. Thanks for coming early this morning. I'm Katie Keenan, the CEO of Blackstone Mortgage Trust. BXMT is a commercial mortgage REIT sort of floating rate first mortgage product that we run within Blackstone's real estate platform. We are a $25 billion portfolio roughly, very focused on institutional quality real estate, institutional quality borrowers, and we benefit from all of the information and insights that we have across the Blackstone platform.

Great. Thanks, Katie, and thank you all for coming this morning, and Arren, thanks for having us. Matt Salem, I'm the CEO of KKR Real Estate Finance Trust. And similar to Katie, we are a senior lender on transitional assets, really focused on the institutional segment of the market, whether that's institutional sponsorship or institutional quality real estate and senior loan portfolio, predominantly floating rate.

So we'll just start off with the same question we asked all the managements to start off. What are the top 3 reasons an investor should buy your stock today? We'll start with Katie.

Sure. So I think it's current income, discounted valuation generated from a defensive asset class. This is a really rare moment in time for our companies, which traditionally have traded at or, in many cases, above book value to enter the stock at a significant discount to book value, not something that we love as a management team, but from an investor perspective, I think a really compelling opportunity. The book values reflect significant reserves, reflective of the credit environment and yet still significant discount built in. And we're generating, in our case, and I'm sure similar for Matt, a 12% dividend yield, which for us was covered 140% last quarter. So incredibly compelling earnings picture, very strong current income paid every quarter, well covered by earnings and the opportunity to come in at a discounted value from a portfolio of mortgage loans.

Yes. And I think from our standpoint, obviously, some of the same characteristics. Number one, if you think about the portfolio that we have on the asset side, they're first mortgage loans, senior, they're floating rates, you're benefiting from the rising interest rate environment, which is driving earnings. And then, for our portfolio, it's 60% is focused on some of the growth areas like multifamily and industrial. So the portfolio is strong, senior first mortgage loans. Secondly, just from a balance sheet perspective, we're running near record levels of liquidity. We have almost $1 billion of liquidity in the company right now, and we financed our first mortgage portfolio with really safe liabilities, about 77% are fully non-mark-to-market liabilities. We've got a safe liability structure in place. And then lastly, just value. I mean, I'm as conservative or cautious in the macro environment, I think, as most investors are. But you have to ask yourself the question kind of like what's priced into these stocks. And right now, we trade at a pretty big discount to book value. We have a 12% dividend yield. So the market feels pretty attractive from an entry point.

And the next question is, what's your #1 ESG priority for 2023? I'll start with Matt there.

Yes. First of all, it's really an evolution I think for all of us as we try to understand what our role will be, especially as it relates to environmental. And keep in mind that we're a debt business. So for us, it's a little bit different angle than if you own a property and can actually implement some of these strategies. But this is going to be a big push for us this year, I'd say, really in 2 areas. One, just enhanced due diligence and a lot of that comes down to like the closing process and doing physical climate assessment and basically having our borrowers report and collecting all that information upfront. And then we're going to transition over the course of the year to more of a monitoring and ongoing surveillance where we will effectively build out our technology tools and then implement reporting with our borrowers so that we can capture all that information on an ongoing basis, then report on it. So it will be a big -- I think, a big step forward for us. We really think about this as a -- it's really -- for us, it's just credit, right? It's just a business -- it's a business issue. And these implementation of efficiencies, we think, will create a better real estate value, and more liquidity in the underlying real estate. So for us, it's really a part of the IC process and how do we evaluate whether to make a loan or not.

Yes. I mean, I would agree with that last point. I think that when we think about the overall thesis of the business, flight to quality, institutional quality real estate, real estate that appeals to users and to capital markets participants, clearly being modern, having the right sustainability factors, the right ESG criteria is a critical part of that from a risk perspective. I think for us, at Blackstone, we've been very focused on this. I would be remiss if I didn't acknowledge, I think we've made a lot of progress this year. We have implemented full training around ESG issues for our team, for our Board. We've collected a lot of the ESG best practices that we use on the equity side and shared that with our borrowers to try and sort of see improvement in their business plans. We've really operationalized our due diligence, screening underwriting and asset management process to monitor these areas, and we've used that to really look at areas of risk and how we can change our diligence factors going forward. And we've made a lot of progress on the diversity of both our management team and our Board. Our Board today is about 45% diverse representation, which we're really proud of. And I think that going forward, very similar, really focusing on taking all of the progress we've made and systematizing it in a way to make sure that we're passing all of that disclosure very clearly on to our investors, the SEC reporting paradigms that are going to come through at some point and pulling it through our portfolio and pushing it out.

How would you describe the CRE lending environment today? And how has it evolved from kind of pre and post-COVID levels. I'll start with Katie.

Sure. I think it's really a lender's market today. There is clearly a dearth of debt capital out there, whether it's because of dislocation in the securitization market, which has eased a little bit but still remains fairly dislocated. A lot of disparate behavior from the banks. Again, I think post the year -- turn of the year, we're seeing a little bit of easing from the banks, but still pulled way back from historical levels. Some of the smaller sort of debt funds in the space having some challenges and not as able to be out there. So less kind of supply, I would say also less demand. I mean, transaction activity is down anywhere from 30% to 50% or more depending on the asset class. So the addressable market is smaller. But the lenders that have capital and interested in lending is still smaller than that. And therefore, the competitive dynamic, the ability for lenders to really name sort of what assets they're interested in, what leverage they're interested in, what pricing they're interested in, I think, is pretty unusual, I would say, quite unusual over the course of the last 10 years when we've been in this business with BXMT. So it's a great time. It allows us to be really selective. Our second half originations were like -- I forgot 60% or 80%, whatever, very significantly industrial and the rest of it was multifamily. Our yields were 100 basis points or more wider. And I think that's just a reflection of what we can see in the market and develop in terms of getting into the portfolio.

Yes. I would totally agree and the fact that it's certainly a lender's market today and probably one of the best investing environments I've seen during my career. We're lending at probably 20% less proceeds than we would have at the peak. Just a lot of that is just value decline, but the loans are more considerably underwritten from an LTV perspective as well. You're getting more call protection, you're getting more of the whistles and bells in terms of debt yield tests and extension tests and cash flow sweeps that you would expect to get in a more lender-friendly environment. And it is really -- I think, in my mind, there's really 2 main factors driving it. One is just conservatism and caution around the macro environment and then, 2, just the banks are a very small fraction of what they were historically, especially the largest banks in the United States. So that void that created allows all to kind of step in and creates opportunity for us despite the fact that transaction volumes are down.

You may have answered that in your responses here, but being a -- more of a lender's market, are you seeing fairly rational behavior from a competitive standpoint from your peers?

I mean on the credit side, for sure. I think it's, like I said, a very attractive market right now. There is liquidity in the market, though, I don't want to make it sound like there's not competition. There is competition. I'd say one of the challenges is that you've got a lot of focus on what we all know as the favored asset classes, right? And so when you have a stabilized multifamily deal, for instance, we have a broader business at KKR. We invest on behalf of banks. We invest on behalf of insurance companies as well as we manage our -- obviously, our mortgage REIT. And you see a lot of -- obviously, a lot of competition, especially on the stabilized part of the market from insurance company capital. But it's not -- I would say, from a credit perspective, everyone is very, very cautious, but there's liquidity out there and for any one opportunity, you can see, I think, pretty good spreads as a borrower. But obviously, all-in yields have changed quite substantially.

Yes. I would say -- I mean it's interesting. I think everyone is acting rationally. The question is just what are their considerations. So if you look at the banks, they're all just acting based on their stress test and their pressure from the OCC and really sort of responding to that more so than responding to whether there's a rational lending opportunity to make. So it makes sense. But I think when you think about it just from the window of our world, would you have expected Wells Fargo to completely pull out of the real estate lending market? Probably not. But it's an indication of what's going on in their stress test. But as I said earlier, sort of also related -- they all got through the year-end test, and now they're acting rationally again, which is opening up their balance sheets a bit.

You touched on this a little bit before, but what property types are you favoring to lend under today? And which ones are you avoiding?

I think we'll probably have similar answers on this one. But in my mind, it just comes down to growth, right? You've got an increased cost of capital, and we're really trying to lend on either assets or in areas where we see fundamental growth that can help us have that higher cost of capital and have some of those supply-demand imbalances. And so we're really focused, 70% of our originations last year was in multifamily or industrial. The rest was predominantly in life science, which are, I think, for us, like the 3 dominant growth sectors in the market. And we continue to be very big believers that there's real tailwind structurally in all of those asset classes. And then, of course, just from a location perspective, we tend to be oriented towards the growth sectors of the market and the end migration in the Sunbelt. So as lenders, we're not really paid to take contrarian risk that much, I don't think. And so really, we're just trying to stick to what is the easiest part of the market to lend on.

Yes, I would agree. I mean I think that industrial, I think, has definitely risen to the top of the list for us. We see continued very strong, even accelerating rent growth in a lot of industrial markets. And I think it's a factor of affordability and the fact that industrial rents continue to be a very small part of the cost structure for users as well as real growing demand from near shoring, increased inventory, the way some of these retailers' business models have changed. So I think industrial is definitely at the top of the list. And then we agree, multifamily very attractive. I think there's parts of the hotel market actually that are quite attractive. I agree as a lender, we have to be really careful on hotels because they're more operationally intensive, more volatile. But I think there's 50% loan-to-cost hotel loans out there to make right now when you're seeing the recovery of travel that are pretty interesting. But it's going to be -- I think that especially right now, when there's a wide range of outcomes and uncertainty, sticking to where we see the continued growth is critical, multifamily, obviously.

Katie, this one's for you. You have, I think, around 29% of your portfolio outside the U.S. How do you view that opportunity relative to U.S. investing today?

Yes, absolutely. And I think that over time, our global footprint and our ability to look at sort of where risk and return, as a package, is most attractive around the world is sort of a huge benefit in terms of looking at our pipeline and our platform. So we have a lot of U.K. and Western Europe. We also have a large portfolio in Australia. And I think it's really interesting to see right now, although all of these markets are facing similar pressures from inflation, higher base rates, it really is not the same across markets. I mean, the Australian inflation ratings came in pretty low yesterday. There's going to be a different base rate environment there. You have China reopening. All of that is driving very strong demand in Australia. So I think it's actually quite a compelling time to lend there. In Europe and the U.K., interestingly, although they have obviously macro pressures that are really mindful of between the war and energy prices, which turned out to be not quite as much of a pressure over the winter as we might have expected, higher base rates. But the capital markets there are much more functional. It's not as much of a securitization-oriented market, and so it's just not as volatile as the U.S. And so there's more transaction activity there. There's more availability of capital across the spectrum, debt or equity. And so we see that as just a more interesting liquid market right now, and it's historically been a much lower leverage market to begin with. So I think the opportunity there is pretty interesting as well. But we'll continue to source from all of the markets in the world that we see and where we have teams on the ground. But I do think that, especially in moments like now where things are changing rapidly, just having the broadest sort of sourcing pipeline available from which to harvest opportunities is something that we really like to have.

And Matt, you don't really have much of an international piece in your portfolio. Do you have any intention to expand outside of the U.S.?

Yes, we do have intentions to expand. We've built a team out in London that will cover Western Europe. And for us, it's really less -- it wasn't about -- it's not really a relative value decision historically. It's more about how do you go about building a business and building a team and what's the right time line to do that. So we've had a team in place there for about a year now, and we're actively lending in that market. And similar to the U.S., it's fully integrated with our kind of real estate equity team, we've got a global real estate equity business. So we're trying to obviously use the same type of relationships and information to make investment decisions there. And I think that, to Katie's point, kind of having a broader lens and relative value of these markets change at different times, they offer different opportunities. So we're very much looking forward to kind of expanding KREFs portfolio into Europe when the time is right.

I'd also say, piggybacking on that a little bit, one of the things we really like about the global presence is not only the origination opportunity is different across markets, but the opportunity to source debt capital across markets is really different. So we've closed a handful of facilities this year with European banks really on terms very consistent with where we were closing with [indiscernible] 2021, and that is different than what we would be able to source in the U.S. today. And similarly, having a footprint on the ground in Australia to access the Asian banks, it really does create the ability to kind of pick and choose where you see the best available sort of debt capital as well as opportunities. And I think that will continue to be a very important part of these businesses because looking across the world to find the most attractive areas of debt capital for us is a key part of making sure that our balance sheet remains diversified, well structured, sourcing that competitive dynamic and trying to find the cheapest best structured capital is really key for our business.

This is an interesting time where you have rising base rates and spreads have also widened out. Maybe you could talk a little bit about the -- how much spreads are generally wider for you versus pre-pandemic? And how much wider are they relative to where your portfolio sits today as well on new loan investments?

Yes. I mean, obviously, there's a range on the spread side. Generally speaking, we're transitional lenders, which means we're playing in a sector or investing in a sector that's obviously wide like the core market or the bank market. However, within the transitional segment of the market, we're really focused on the institutional quality real estate and institutional quality sponsors and we're generally lending at pretty reasonable LTVs, call it, in the 65% area. All that means is that we're effectively investing at the tightest end of the spread spectrum for a transitional lender. One of the predominant themes that we've lent on historically is construction takeout lending on multifamily properties. So there's a newly built delivered multifamily property in its initial lease-up and we will come in and finance that property now that it's been built and delivered and take out the construction loan, a lot of borrowers can pay off that, which typically would have a higher cost of capital and some recourse associated with it. And we're bridging that multifamily property to stabilization. So that's, call it, a 24-month business plan to lease it up and burn off some concessions and then they can sell it or refinance it with a stabilized lender. So we've done a lot of that. And so the reason I mentioned this example is because where I've got the most data points in terms of where the market has gone. At the [ tights ] that loan was priced at probably LIBOR at the time, but let's just use SOFR, SOFR plus, call it, [ 2.65 to 2.75 ] area. And these are all floating rate loans, 5-year terms, which is typically a 3-year base term with 2 1-year extension options. And that loan today is probably SOFR plus [ 3.25 to 3.50 ] area. So, call it, somewhere in the magnitude of like a 50-ish basis point widening in spreads. And as I mentioned, obviously, your leverages come down as well. You're probably lending that 5% less on an LTV perspective. And that's generally like if you -- there's a wide range, obviously, what you're doing. If you're doing ground-up construction, you're going to get a little bit more spread, if you're lending on built multi, it's going to be at the tighter end. But I think that's the most data point to data point -- most information we have.

Yes, I completely agree. And I think that one of the reasons why we see leverage coming down in addition to the fact that we're just sort of picking and choosing what we like is if you think about that spread widening, call it, 75 or 100 basis points in spread, base rates obviously are up 450 basis points. So the borrowing cost to our borrowers, up significantly, we need to lend less to make sure coverage makes sense. But when you think about it from a return perspective for us as a lender, we're seeing wider spreads, but obviously, huge benefit from wider base rates. And it is getting that all to work together where we're thinking that we're in a conservative position from a credit perspective, which is always going to be paramount, but also looking at the ability to make a 7% unlevered coupon from our loans when historically we're making 3.5%. I mean that's sort of the part of the compelling value proposition right now as a lender.

Got it. I think we have a question in the room.

Katie, you mentioned that the ESG practices are pushing down some of your lenders. Can you give some details on some of the things you've pushed down and some ideas?

To our lenders or our borrowers?

Your borrowers.

Our borrowers, yes, so we, at Blackstone, we have an 8 or 9-person full-time team focused on ESG just within our real estate business. And so they're constantly coming through around the world, what can we do everything from LED lights, EV charging stations, solar panels, ways that we can better monitor the efficiency of the HVAC systems within our buildings. And so we just put together a collection of all of those things that we think are most ROI accretive for our borrowers and therefore, most beneficial from our collateral, and also, just contacts. We've used these businesses. We think they're effective in these markets to help you with installing EV charging stations. And we just look at it -- one of the things we think about with our business, we have such a broad reach across both BXMT, but obviously, the broader real estate platform that in areas like this, this is not about competition. This is about how can we all have the best sort of best practices to bring our industry forward. And also from a lending perspective, make sure that our collateral is best positioned to compete. And so if we can share that information and help our borrowers just ease the path to know, okay, I'd really like to do this, but who do I call, how do I do it, we see that as just a way that we can help and try and enhance the value of the collateral that we're lending on.

We have another question in the room.

Just what should investors expect for delinquency and NPL trends for '23?

Sorry, could you repeat the question?

'23, just delinquency and NPL, like nonperforming loan trends, what do you expect?

I think that it's certainly a different time in the market today than it was in 2021. I think you can see that in the reserve profiles of what we've all done. I think we've been fairly proactive in terms of identifying where we're seeing the most distinct credit challenges where we have specific reserves but also sort of our watchlist areas. I think interestingly, our 4 and 5-rated loans, which is sort of what I would put in that category, that as a percentage of our portfolio is actually down from COVID levels. But clearly, we're seeing a little bit more pressure. And I think that it really comes down to rates, obviously. And I think that our expectation in-house is that rates are likely to stay high for longer than -- I think the market has sort of gotten there now. But when we were sitting here in January, I think the market was overaggressive about how quickly rates were going to come down. So I think you're going to see continued pressure on the market. I don't think it's going to be step function. I think that we'll see some things sort of come out of watchlist area. I think we'll probably see some things slip a little bit under. But I think as we look at sort of the scope of the portfolio, the challenges are pretty concentrated. They're concentrated in office that is more commodity in nature where capital structures need to be rightsized. And for us, it's not a big part of our portfolio, and I know it's the same for Matt. And so when you think about where you might see the pressures, it's sort of a known universe, and you're going to see it in some of those assets, not all of them. And I think that's really what we're tracking. And then I think when we step back, there is -- our biggest focus is maximizing the value of the collateral that we've lent on for our investors. And that may result -- we've seen very little OREO in our portfolio and elsewhere in the space. I think it's important to know that we're all big real estate platforms that have very significant understanding of how to own and manage properties. And if we think that's the best outcome for our shareholders, that's something that we're going to look at. And so I think that there may be areas where you've seen more of that in contrast to historical levels. But I think big picture, when we look at our business, you're coming into this credit situation with such significant current income. So as an investor, I think what you have to think about is how much are these -- the magnitude of these sort of idiosyncratic issues relative to the really outsized current income that's being produced by the 97% of our portfolio that's performing. And those 2 things together are unusual in a credit cycle and really provides a significant amount of cushion for some of these issues that we're going to have to deal with.

Matt, did you have a comment on that question?

No, I would just further emphasize like the bifurcation in the market. And when you're -- for the vast majority of our portfolio, whether that's in multifamily or industrial or self-storage, we have student, we have life science, like those sectors are all doing extremely well. They have growth. They're able to offset this increased cost of capital. They have, I think, really fundamental strength going forward in terms of just supply-demand tailwinds. And so we really have isolated a lot of the issues in the office sector of the market, right? And everyone is going to deal with this and the value declines have been stark. And so that's really where it's focused on and where we'll continue to spend most of our asset management time. But the vast majority of the overall portfolio is pretty healthy right now. But I don't think we're like late innings of the office change either. I think we're middle innings, and we've got to figure out where this goes.

I'm just curious what you're thinking, obviously, the cycle is just getting started in my view on the downside. And are you more likely to be restructuring loans, extending loans or actually working them out? And do you have the time and the expertise? You've kind of hinted that you do, but I'm curious how you're thinking about that.

Yes. I think it's really going to come down to where we see the most value. And an important part of that is opportunity cost, right? We're not going to spend 3 years working out a loan just to get back the same 2% higher than we would get today. We're going to think about if we can invest our capital today at a 10%, 12% ROE and make sure that it makes sense to work through something. But in some cases, it will. And so I think it's hard to answer the question directly because it's different for each asset class. You have some situations or each asset where maybe fundamentally a decent asset that's getting leasing, but the capital structure is just wrong way or in some cases, the borrower or the sponsor is no longer focused, maybe they're in an old fund, they don't have capital anymore, situations where we can bring our capital and frankly, a very strong amount of expertise to bear and really get the most value out of an asset. There may also be situations where selling the loan or selling the asset and just getting out of it is the best outcome. Certainly, many situations where we'll work with our borrowers, if we think they have capital to bring to the table and expertise to bring to the table, we're thoughtful to try and create the most value for our loans. And I think that to -- sort of really important point, making sure we have the infrastructure to do that is critical. And we have, I think, a 35-person asset management team that sits with us in New York, totally integrated with our business. A lot of them came from our investment team, so they really have an investment mindset and we also pair that with a tremendous amount of expertise from the broader real estate platform. We're in constant dialogue with our equity asset management colleagues, with our portfolio companies, Blackstone owns EQ, which is a huge owner and operator of office, and we're very, very integrated with them in terms of thinking about the best business plans for these assets and how to implement them. So I don't think we -- I think we're as well positioned as we possibly could be, and we'll just be really tactical and thoughtful about the best situation for each asset.

Yes. I mean, I think every option is on the table. We have the expertise to own. We have the expertise to manage. We have the expertise to work out. We've got the liquidity to see through whatever workout strategy we want to implement. And so in my mind, it really comes down to like borrower motivation. Do they have capital to put into this asset? And we're not giving out free options here. So can they delever us? Can they commit reserves to help for future leasing? And then we have to get the right basis, too, because our buildings need to be at the right -- have the right economic basis to be able to lease in a market like this. So those are the considerations that we're going through as we approach individual negotiations and each one will be different depending on the facts and circumstances and what our borrower is trying to accomplish. And our first goal is to try to work with our borrower. But unfortunately, that's not always going to be the case, and there'll be times where we're going to have to own the asset and work through it.

I think thus far, we're getting some questions about office online here. Can you talk about -- right now, it seems much more about liquidity and current owners kind of be willing to recognize the fact that their valuation is down quite a bit in the office space, but cash flows have been really still supporting the assets. So would you say that's a fair assessment? And what's your view of that kind of dynamic you're seeing right now?

Yes, I think it's really bifurcated. I think that -- I mean, I feel like a broken record on this. But when you look at what's going on in the office market, there's really a divergence in performance. So in New York and L.A., for example, less than 10% of the stock is 2015 or later vintage. That universe is seeing positive rent growth. It's seeing positive net absorption, vacancy rates across the market that are 5 to 10 points lower than the broader market. Those assets from a fundamental perspective are doing fine. And that's obviously where we've been focused historically, trying to lean into flight to quality. So I think that you'll see continued good NOI trends from assets like that. Other assets, the stuff on the other end of the spectrum, it's a different story, right? There's less tenant demand broadly in the market. That tenant demand is clearly concentrated in the best quality assets. So it's not concentrated in the lesser quality assets. There's also growing concessions, other sort of CapEx needs, ESG is a big cost for older vintage office buildings. All of those areas, I think, are going to impact the P&L -- the cash flows of those assets. It takes some time because obviously, you have relatively long-duration leases. So sometimes it takes the roll off those leases to see it in the NOIs. But I think that if you're an institutional owner, as we all are, we're looking ahead to say, what do we think this is going to look like 2, 3, 5 years from now and making sure that we're making the right decisions today for that. So I think that's -- and the capital markets have been relatively indiscriminate against both of those areas of the market. So I sort of think about it as the capital markets versus the fundamentals, those are different. There's also sort of cyclical versus secular, right? There's cyclical pressures on some of the higher-end office from the [ check ] pullbacks. But that's not a forever thing. That's indicative of what's going on in their businesses right now. That's going to come back. The secular element of just demand for these more commodity offices, I think that's -- we don't really see sort of that coming back out of the cycle, and that's where you've really got to make the hard decisions of -- to the extent that's in the portfolio. Luckily, I think it's a very limited amount of what we're dealing with.

So you may -- because you like this high-quality office, you'd be making new loans to those?

I think we'll certainly look at it. The basis has to be right. And I think that there is still a wide range of views in the market about the right basis for assets. But I think as we look at our themes, our first choice themes are going to be the areas that are a little more obvious, industrial, multifamily, et cetera. But a new build office building at the right basis, we would look at it. I think from a -- it might be in a different fund, I think from a BXMT perspective, we have a fair amount of office. We feel good about it, but I don't know if we're looking to expand that part of the pie right now. But I think from a -- just taking a step back, nonportfolio management perspective as a fundamental investor, there are opportunities in very high-quality office.

All right. It looks like we're out of time. So thank you, Matt and Katie for joining us today.

Thank you.

Thank you.