Bob Foley: I’d like to just add one more thing to Rick’s thoughtful line of questioning, which is that, dividend policy is an important and big linear programming problem or application. And none of us should forget that one of the other overlays or constraints that all REITs operate under is that, in order to preserve your REIT qualification, you need to distribute at least 90% of your taxable income. So the discussion today seems to have been focused on situations where the REIT in question, which I think this morning is TRTX doesn’t have taxable income, but there have been – there are instances where there is taxable income. And so that’s something that every REIT management team and Board needs to consider as well. Thanks, Rick.
Rick Shane: Thanks guys.
Bob Foley: Thank you.
Operator: Thank you. The final question comes from the line of Don Fandetti with Wells Fargo. Please go ahead.
Don Fandetti: Hi. As you look out over the next quarter or two, how are you thinking about the risk of migration from 3 to 4s and also reserve build over the next quarter or two?
Bob Foley: Hey Don, it’s Bob. Thanks for your question. I’ll sort of take those in order. In terms of risk ratings, I would say two things. At the end of every quarter, we carefully scrub all the loans and our risk ratings reflect our assessment of current and expected future macro conditions, real estate conditions and our assessment of our individual loan collateral, loan sponsor and so on. So, our risk ratings at the end of any quarter, including December 31st, are based on both current reality and our expectations of the future. With respect to our expectations for the future, Doug had mentioned earlier that, we are in a period of uncertainty and correction, uncertainty in the broader real estate or in the broader economy and certainly correction of real estate.
And that Fed policy, in particular, weighs heavily on real estate. So, if the actual path of the economy and rates proves to be different than what we currently expect it will be, that could weigh on borrower behavior and consequently on risk ratings to the negative or the positive. With respect to CECL, you mentioned build and build is not the way CECL is structured. So at any period end, the CECL reserve, again, is supposed to reflect management’s assessment of the – it’s a current assessment of expected losses over the life of the loan. So, our reserves at any quarter end are intended to reflect that and do to the best of our ability. I think to-date, our empirical evidence of realized losses in comparison to CECL reserves has been pretty tight.
And so the short answer to your question is, we’re comfortable today with our CECL reserve based on what we see in the future. If the market environment in the future is materially different than our current assessment, then we’ll adjust at the appropriate time. But again, thus far, our reserves have been pretty on target.
Don Fandetti: Thanks, Bob.
Bob Foley: I hope that answers your question.
Don Fandetti: Yep.
Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to the management for closing comments.
Doug Bouquard: Yes. I’d just like to thank you all for joining today, and we look forward to speaking with you again on our next earnings call.
Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
