That being said, if you think about the fundamentals of multifamily away from value and away from cap rates, we’re still seeing a lot of positive trends there. Occupancies remain high. We mentioned some of the rental increases year-over-year in our own portfolio within KREF. And obviously if you go back further over a longer period of time to like 2021, you’re talking about high-teens type of rental increases over that period. So, we’re still seeing positive fundamentals there. It’s still a very liquid asset class. The agencies are still heavily involved from a financing perspective. So, it’s got a lot of positives. But clearly, the rate environment is a headwind there. And we’ll continue to watch our portfolio closely to see if it creates any potential noise there.
But, long-term value, I think we feel relatively good about that sector from our — from a loan basis perspective.
Operator: The next question comes from Jade Rahmani with KBW. Please go ahead.
Jade Rahmani: First one would be a broad question around cash flow from operations, the dividend, as well as attentiveness to covenants. So, in the quarter, cash flow did cover the dividend, which is a strong result. However, considering that the portfolio continues to shrink and with rates there is clearly the risk of further credit migration, the average earning portfolio should be smaller for 2024, and therefore, it would follow that cash flow from operations would be pressured. So, can you give any color as to your thinking around those two metrics? Secondly, as it relates to covenant, there’s two main ones that come out. One is the interest coverage covenant, which is a function of interest income versus interest expense; and then the second would be liquidity as a percentage of loans. How are you feeling about adequacy on both of those?
Matt Salem: Thanks, Jade. It’s Matt. I can jump in for the first one and then maybe Patrick can cover the second — questions around the covenant. I think from a dividend perspective, like you’re highlighting some of the things that we highlighted in our own commentary, just about what some of the big drivers are going to be as we think about the go-forward and over the next handful of quarters. Nothing’s really changed in terms of how we evaluate that dividend and the Board makes a decision every quarter. And we’re really coming at it from a run rate, operating — earnings perspective as you’re identifying, and not really from like a liquidity perspective. So, as we start to go down the road here and understand what the market environment it looks like, then we’ll make a decision that point in time, but this is a very difficult market to be projecting that far out in the future in terms of what things may or may not look like.
So, we’ll take it quarter-to-quarter, and the Board will make that decision.
Patrick Mattson: Jade, this is Patrick, and I’ll follow up on the covenant question. So, you asked the question specifically with regard to interest coverage. That’s something that we’ve been monitoring. Frankly, the whole market’s been monitoring, because it’s so affected by the increase in SOFR. It’s just math, at some point that coverage becomes sort of tighter. But we did proactively this quarter reduce that covenant from 1.5 times to 1.4 times. We — was still cleared the covenant this quarter without that adjustment, but I think just an example of us being sort of proactive around the covenants and that went smoothly with all of our financing sort of partners. With regard to the other covenants, whether it be net worth or liquidity, as we’ve indicated in our prepared remarks, this quarter and past quarters, we feel really good on the liquidity side.
And so, I don’t feel challenged on either of those covenants. So, really interest coverage was the one that was most in focus and we made adjustment this past quarter, just to give us further breathing room.
