KKR Real Estate Finance Trust (KREF)

Sasha Hamilton IR
Christen Lee Co-CEO & Co-President
Matthew Salem Co-CEO & Co-President
Patrick Mattson COO & Secretary
Mostafa Nagaty CFO & Treasurer
Don Fandetti Wells Fargo
Steve Delaney JMP Securities
Rick Shane JPMorgan
Arren Cyganovich Citi
Call transcript
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Good morning and welcome to KKR Real Estate Finance Trust Incorporated Third Quarter Financial Results Conference All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Sasha Hamilton. Please go ahead.

Sasha Hamilton

you. Thank KKR XXXX. Trust the the Call Estate quarter third Real to Earnings Finance for Welcome today Christen our joined our I'm by COO Patrick Salem, and Mattson, Co-CEO Mostafa Nagaty, CFO. Lee and Matt

are like Relations statements, in Before forward-looking our contain do also XX-K will we of call to non-GAAP This before turn both the performance. in these to website. reconciled supplementary future our measures guarantee refer for financial our to I or remind portion recap are which things most which events that A the related which our GAAP not filed we'll presentation, their quick call, to available over statements. results, on to cautionary begin, to Investor refer Please everyone earnings factors of recently Chris. on would the I figures release of and

XXXX, yield XX% we the income per million For GAAP per Book X.X%. per CMBS up share, share. a the yesterday's in prior value of our XXXX, October, XX, $X.XX dividend of or B-Piece gain price of quarter. stock sale as closing reflects $XX.XX investments core of quarter. to on In $XX.X $X.XX or earnings annualized share. Net our third were of $XX.X dividend quarter, excluding from million per September billion $X.XX the or respect the an share per second on quarter net with the $X.XX was third share paid Based the $XX.XX, was

would the to shortly dividend, thereafter. Lee. meet now to I quarter the an mid-December discuss announcement in we'll Our scheduled that, turn Chris and call to like to board has over fourth With make

Christen Lee

of originated earnings to another you end. morning third $XXX This us Good $XXX million us total and This brings $X.X an originations senior loans We XXXX. for billion additional and entire post million billion very compared for was Sasha. $X.X to call. joining closed loans the our for year-to-date company. the of quarter quarter you, of Thank thank year for active quarter

of exclusivity to million to pipeline coming robust a under months, another secured we loans expect have conditions. closing currently of $XXX customary We close in subject the that

today, of of and Matt on increase a shortly. when quarter IPO. since of our year XX% details at increase since total a billion, $X.X we beginning completed As the activity the the more XXX% the will stands second portfolio investment XXXX, provide our

facility billion our in This quarter, increased we total improving at non-mark-to-market end, place billion put financing also we progress the and liabilities. new to $X.X and the We subsequent Patrick to compared a our increased $XXX capacity of quarter Including capacity $XXX this structure and our $X.X million in on million made to to year billion. his provide cost the now non-mark-to-market. term is size XX% our by facility details financing remarks. $X end, increase, nearly we of of financing will

to continue Finally, we for quarter since post shares offering follow Increase primary in our million. to book X% this quarter successfully This in to IPO on capital the allowed proceeds billion. X completed $XX net first us by $X.X second pipeline. our of value our robust fund million

aforementioned continues environment remains pipeline, The quarter. investment competitive. opportunities, to be offer repayments attractive of end near-term but we no the Assuming the to the by deployed market with us substantially expect very

assess and the However, credit access our information in and marketplace. are continue brand our with borrowers us awareness to relationships growing differentiate intermediaries to quickly to

reduce have liabilities some to our we been to the able addition, In offset compression. spread of of cost

our to are market in effectively compete model and activity, to create to volatility, has Matt. remains value I'll favorable to pipeline. our continuing on attractive With over for for and market economic cost our origination the to an look believe and Our equity business to allowed our we pleased we shareholders. call shareholders. us price deliver Despite market continue portfolio recent return-on-equity our our capital turn attractive risk climate the positioning, of forward that, with some adjusted the Overall, we

Matthew Salem

loan Thanks, activity. secured the loans, months in industrial new a originated of with rate includes we an everyone. totaling quarter, investment $XX located Class protection. in discussing call $XXX our million. Atlanta, In B additional property good start creating four an million portfolio, occupied. existing XX floating Chris Georgia, our XX% third refinance by morning loan, and senior This by the of plus senior I'll an

and of The full of with of LTV near-term multi-family and are XXXX Year-to-date plus sponsors X.X% weighted program office in This portfolio X% and Seattle also markets. originations. levered plus same average is to a by transitional originated Class the XX.X% spot are major a loans respectively. for a for four Atlanta respectively have basis, which year cash These XX% A and loans, institutional occupancy and weighted average a and LIBOR average senior buildings minus located volume collateralized XXXX multi-family located a stabilization. property $X.X weighted light, higher period is XX% A these our properties creates A three portfolio. other XX% billion two of plus average coupon is B in existing XX% higher LTV and Class than on and which lending of The located in Seattle. loans fit Tampa, possibility Class in the our at these we in-place loans flow and IRR with than the underwritten XX% loans LIBOR The consistent coupon LIBOR in

period quarter Also Our responsive relationships is loans important driven three by average to service. also experience are in ourselves is existing our of the borrowers. note, and year. lending. four of with on originated this repeat activity an origination loan year-to-date the as Borrower is pride XXX the and up XX% quality year-to-date, increasing, size loans of high million same from average XX% of We providing transitional being last

reputation. team, and borrowers convert to process speaks existing about borrowers ability volumes Our to repeat our

into has quarter. continued pace origination the strong fourth Our

and secured loans, and loans average properties, multifamily LIBOR Queens We coupon million. in have A XX% and Class LTV X.X% have by and two senior closed of repeat to are already Both totaling loans a respectively. a are Philadelphia. located The $XXX plus weighted borrowers,

pipeline is with close $XXX repeat these forward robust the few to to over Half loans Our loans well next are four million of borrowers. totaling exclusivity under months. approximately as

always, these closing to customary subject As are conditions.

property In reducing in terms properties, of repayments, in we $XXX to had exposure of the income. million resulting prepayment on to two loan quarter, loans repayments million X%. of included repayments retail $X.X that type our These

pay inventory end. loan million $X and had to condo we addition, a the an of down subsequent $X quarter sale additional of In units, down million with quarter, associated our this pay

are a payoff in a pickup and schedule volume, see we seasons, of portfolio first expect to we starting the repayment XXXX. our enter in to half As run rate

September is The portfolio was $XXX of geographically XX% loans XXth, in property performing the with of future Turning expected. of to multi-family diversified And and our invested million across $X.X our types, funding obligations, as loans XXX% securities portfolio, performing. this another and are the billion, portfolio of loans portfolio both of as comprise senior our has is and portfolio. XX%

on discussed due continue light in business office term, to concentrate their property the to the and As multifamily transitional last shorter calls, plans. types, few we we

occupancy average XX%. of As end, was quarter our the the properties of portfolio in office

of for of and positioned and closed $X.X of incremental we will a closing pending And credit creating are continue In ahead performance target of the approximately on originations quality our as our summary, opportunities, target to we of are pleased or portfolio. quality. highest with the portfolio defensively with billion focused pace are yield We trading today. loans we quality

to Patrick. call the turn over I'll Now,

Patrick Mattson

Thank Matt you and morning good everyone.

weighted portfolio, risk the average on which $X.X a scale, a rating quarter. consistent end at has with X.X of Our totaled the quarter, five the point prior billion of

three loans We X the rated off quarter. no rating as X paid in above loan have with our a a

of further as was or XX% of in based which to floating in increases interest benefit term rates. invested us the loans, Additionally, short live quarter from end, positions well rate portfolio

the balance at side sheet, right Looking to our we optimize continue hand financing. the

discussed calls, cost improve funding with our few explore Capital options, to of liabilities. closely As been the on working Markets we KKR and have structure and the last

a million specific $XXX facility, we the mid This one a and funds of which the at financing recourse of plus quarter, is assets partial company, rate and term, match on closed non-mark-to-market hundreds. new LIBOR

we our million to loan billion capacity. facility $X of $XXX total term quarter existing from Additionally, end, financing of post size the increased

this us basis. a match As facility and non-mark-to-market provides term reminder, non-recourse financing, on a

better weighted rate the these credits company. facilities lending and XXth, while average quality facility return Plus term X.X%. compete on opportunities the the highest As LIBOR cost secure of to attractive KREF still an attractive for loan for to the was allows September of The delivering us

is the to manage the balance a In ability improves perspective durable our mark-to-market from addition, on and liquidity risk and sheet. liability structure more

million to total, capacity billion billion today. new our these to as Wells repurchase quarter, Fargo facility $XXX $X.X upsized bringing we committed In also addition from this facilities, financing to of our $X

times X.X from debt-to-equity Turning to ratio. three leverage perspective. and at the the X.X We times a closed total quarter

We continue we generally loans. senior target as other portfolio and on a a to reminder, the originations balance four the on we fund new of through strong fourth re-leverage leverage three sheet, proceeds. million new up, One times August, issued of ratio to $XX as raising Wrapping we quarter, this net approximately things the underwritten common five quarter. quarter million to solid another start stock and shares an in offering note

robust. Our remains origination pace

your for And financing. Thank performing are now, make us. creating continue to we differentiated take portfolio we is questions. to Our happy and progress, again significant you joining


Instructions] with Thank you. from Rahmani ahead. question The first KBW. Please [Operator Jade comes go

Unidentified Analyst

on Good for actually this morning, is Jade. Ryan

you you the detail mentioned. terms of loans on give represent $XXX us -- the pipeline of mentioned, in that those types million some you you Just can

average the loans, on in the spread four so of think and those markets. properties I maybe, deals types

Matthew Salem

coupons process yet, It's the would I well we you into with we're at. transitional in plan in I last light the those. it's as want on quarters in think Matt. specifics properties largely We're that of on the business what line go as to well Ryan, spreads still as closing Hey delivered originating say don't focusing know we've over both, but that the terms few as of

lot two. the last of complex over this We the or -- in in changes spread haven't seen a quarter

Unidentified Analyst

that follow to do from think assuming you up generally strong do to year-to-date. the then continue And think as its hikes? you there Or the of compress that additional continues for a have path compression spreads, troughed room on seen spreads fed spreads expected is the rate we've that to

Matthew Salem

feel do been spreads the seen like it we’ve mentioned LIBOR. see I the few last there's as we’ve does seen, some compression think, the But over as in stability last increases quarters. in before, or as I you

expectation rates Our that is up. go continue would as

Unidentified Analyst

about And your given maybe approach portfolio. Can how the year-to-date, you you in to about you I the was up large and talk risk average generally loan million think more think $XXX which across mentioned, asset like the a size concentration around that XX%. portfolio management

Christen Lee

look we -- Hey, these a, is a individual at this From we a basis. concentration perspective, an on deals Chris. on take really,

Tampa, For Atlanta the being quarter, loan the this we that a if better think the you in instance, would look as loan actually large cross. loan We up or by the those we're loan actually that broke from in those in made perspective. you fact that not concentration past it's loans into large a it actually risk-reward that getting at actually are

not as think and we sides. made that derisking those don't type. have cross a mentioned larger. on we multifamily and including actually that it think exposure about concentration, property exposure in well, how our we to So any we because the much now, we any Right Matt like office always geography. as a outsized lighter guess have from geographic perspective, remarks, as focus monitor the we actually loans we, I transitional We particular are

From So weightings, and we all go through perspective, fundamentals we we the meet the asset like the we quarterly, take an go we that do clearly the we through make plans. some management think where areas we we -- profile. risk like business do risk all concentration

basis. -- monthly Our on on these team a all focuses loans really a

of went the we've up right these underlying we on. speed collateral progress business to that on plans. portfolio performance the happy now, have with of very the of we're very the And So quality the and

Unidentified Analyst

the a reports are color in but doing not lastly, pre-sell you attractiveness market to just seen CLO? for of on comment, sure behind us wondering CLO are if just the if from to a we’ve you just the guys, you give that? And able Maybe able the rationale any

Patrick Mattson

it’s Good morning, Ryan, Patrick.

on can’t and financing any As any of on we’ll we’re do increase certainly actively looking when previous you diversify we’re so. But to we But kind our capacity. potential mark-to-market non sources position some mentioned a on transaction. developments are to in comment calls, material update

Unidentified Analyst

Okay. Thanks questions. for taking the


from The Wells next Fargo. go Fandetti question comes Don ahead. Please with

Don Fandetti

morning. Good

that deal? little towards a more and bit I maybe of in banks sounds but type can theme it hand won talk So there in a want? on property think Were share. how little the a non-banks Southeast of that the you be think would XXX this criteria met about million that maybe we like then, I bit taking other because that that quarter, or of about was a stabilized are And multifamily wrong, hear it's could bidders? can you highlighting the potentially And Is about that the bank? have taking a of this credit one general if the that banks are what on don't you good non-banks talk loan leaning bad

Matthew Salem

take one. that I’ll Matt. It’s Don. Hi,

Just of example I a our relationships. is that. through in volume our and think comments one of of sourcing, driving lot in the this heard terms you existing And we’re

So this borrower for repeat us. is a

us. to In of terms directly they sourcing, came

or either weren't debt funds REIT. in on -- mortgage this with banks loan was other or there So competition we

negotiation this direct particular deal. a just its on So

sponsors we the it value they’re value light going terms nature the focus it add XX% the didn't But think still some some keeps on the think to highlights the capital the I couldn’t of of that’s of so where I or plan. bank going banks access asset, largely They’ve add in through a still and like XX% given want away renovated transitional and plan. through there's so business that renovation some asset. probably to

However, think the delivering I they’ve renovations. amenities. full They’re the some don't of realize still

secondly, as in of still our -- delivered, in of collateral was those online. the rents come small still part – recently So next or year expect And packages is then process still the recently component so there's collateral, of increases over sponsors our and constructed was they lease-up. all the

has about XX% the and is its built inventory being certificate leased. lease So around in obviously today a that has been process

points place. and then lease around so, property constructed of drive just component that been our XX% it’s for renovations few up. as newer Properties leasing a in rents more And occupancy today amenity probably on the And are to of the business so got the stabilize the as perspective to packages higher sponsors plan to go continue is it. the especially and put obviously leased

through close So perfect great going to To asset non-competitive that example on still this of some ability an sponsor, basis. is got add, stabilization. a relationship lend a a is to value a we’ve our repeat but on

Don Fandetti

across a continue the on – about the like to behavior expect deal fairly then, flow the guess on continues a changing maybe you you up It of What short commercial from be little do transactions healthy. you worried seen to a today Have you seeing bit. I rates in terms rates? any the or And higher go Okay. mortgage borrowers. REIT and down? are are follow-up, long end space seems velocity And slowing

Patrick Mattson

type I really to I haven't seen that implementing mean, most think strategies. up point rate floating our any And some of are impact. this are borrowers traditionally of we borrowers value-add

look origination few fourth the So had. these most been the over – active are our last course at volumes at we've and quarter quarters and if look origination the you for pipeline

to we impact – think about we’re seeing don’t don’t aren’t and that, So worried I it. particularly any

Don Fandetti

Thank you.


comes ahead. Please The question Securities. with Steve next go from Delaney JMP

Steve Delaney

on out seem we you? rate XX% looking next how Good you you. I quarter XX%, to next to to morning and quarter? for something third were ask like a bit repayments, might over the earnings that assume a $XXX then give to relative like this million little would beat congratulations Thank the Would runoff to third the feel Can about in you realistic quarter. look the fourth us And year year. if quarter. annual

Christen Lee

so – With we your lumpiness repayments. it’s we loans are the question quite have Steve, do in our Chris. some for Thanks to remember, complement. respect Hey, sizable, the

out. hard -- a repayment year, least that to on it's next by half think So do first year of the we project next I But more get schedule. at in normalized we’ll

that loans normalized loans So on less still get the of a most probably vintage basis. we our right of season like than light market. I pretty feels of that runway as into more in once XXXX/XXXX the is a the your Remember, a little book path. get think normalized our good bit that assumption book XX% But competitors the you about once some are on feels that

Steve Delaney

grow you, you facilities see loan Thank billion, today with Patrick core new at this how out you went X.X you’d looking have. you How terms that of in helpful. large this have current through the time the Chris. could then That’s portfolio if way base? lending that some capital of this Okay. that or rather your And get to portfolio, Thanks. just net additional at financing do much capacity

Christen Lee

its Chris again. Steve,

discussed after beginning call, that pipeline we think deployed with So substantially think -- we we base. the this we’ll the of capital be that closes at existing

in and of term portfolio want size company earnings So we set similar get the -- the short team last books season. have to next – the quarter over we've the on we originate of the the the quarters. have last the that in that of we our think given then loans the ability that that size loan to these of opportunity and in But types couple over the have the given the over volumes profile experienced

we’re continue and some to support origination expected database need we’d the and clients to equity our and borrowers. to So, the grow volume continue seeing for base demand our from our product we’ll that our point to

Steve Delaney

that referred that Chris, is that the that million you XXX comment? mentioned his Ryan that is that to pipeline in

Christen Lee

mentioned. we That’s Yes.

Steve Delaney

Okay. much for Thank very color. you the


Please question Rick comes with from Shane The Instructions] go next JPMorgan. [Operator ahead.

Rick Shane

Hey, just a terms bit questions. to repayment. guys. discussing in Thanks little on want was Steve of what follow-up my taking I for

fees to in that million During points the on with you equates quarter $XXX XX basis million, had about associated you cited repayments. $XX.X guys that,

range basis the XXXX into repayment fees? somewhere assume in we As XX to should point you for move XX

Patrick Mattson

fees we difficult model. it’s prepayment are fees spread this those if period. Patrick. good The There to get Rick, morning, maintenance repay repayment borrowers obviously during

this plan and an their open obviously period loan as As hit we they hit season they and collect prepayments. business don't

don't we it. I receive said, forecast difficult to we That it's don't us -- it as future. would income. for past to not receive It expect in sort the model. it we model sort We’ve prepayment any So we would that in quarters. of of uncommon received just

Rick Shane

Sure. business. a recurring the Yes. part of certainly It

opposed more So fair a may spread also it assume is cycle the and alluded a into one sort incentive that go to Is repayment drift normal to cycles to the this of battle as more, abate only as you to a that away? way down. start go that early to think fact of bit repayment slow to tightening early starts repay payments

Christen Lee


statement. I think fair it’s a

Rick Shane

just question, I make bulk exactly sure the other which just million XXX,XXX to income income, Okay. that of help us, through is Last the There's want we of map geography. Can income the X.X you through out? assuming went understand interest that I’m it went line. the where P&L.

Mostafa Nagaty

Good and you’re $X.X interest prepayment $XX quarter. morning, Nagaty. Hope million is the income during of doing income the income Rick. reflected is This as actually well? million interest Mostafa penalties

Rick Shane

that of line? the income interest goes through XXX% Okay. to

Mostafa Nagaty

correct. That’s

Rick Shane

questions. you, guys taking for Thank Great. my

Christen Lee

Thank you.


from comes ahead. on Cyganovich its Arren your Cyganovich, muted question with Perhaps is next The your Citi. open. line Please go Mr. side.

Arren Cyganovich

feel just extra there’s if that. classes the where broadly about geography for have supply those you maybe asset where exposure, about lean know you kind of supply. or better worse and you towards The seeing of Maybe office. financing? any about can multifamily particular you’re talk more areas a Sorry I just talk maybe and about you

Christen Lee

Arren, it Chris Lee.

think very the markets. it’s multifamily space. maybe specific But clearly the the in I lot on focus we on to supply

through anymore for very markets, made our on side. supply. in Atlanta, went constraints. infill multifamily are being off that a certain basis. some from are is our particular perspective in more Sunbelt much cognizant loan we that We deal the part is of markets there the XXX loop its supply of its But and right where just Matt of on of in instance, has That focused our supply Atlanta the we said, very

micro But look basis. So lot. on we markets these focus we the a in at multifamily space more lot in of a on

net factoring and not just of adaptive side how up On similar on if owns and focused our but reusable but think being makes because view going you're borrower plan other the part new to loan track on these our within plans to loan own we’re this or relative as if where we've office, property that supply structure meeting is, lot we important. new could borrower allow on a are renovated business our and spec the basis are buildings the improvement property the that are the is the types, addition supply focus we buildings that future business be that the then many office is, or to and cash And could in et are building the whether because have it off demand to could of turn market us on through that other I sweep of milestones at, making be supply in has that also to planned. absorption deleveraging aren’t I might and the ability a lend is you last have in that and have enter it is supply dynamic we’re undercutting in they supply multifamily, we to then the going cetera also basis lot to sure on. not seeing in the think on sense last seeing market a rehabilitation coming focused And property part end then sure effectively the even that we if this business our mitigate rents plans make that to funding loans underwritten we we and

map our many are Its see question. but So of a we micro going buildings not it’s much more how focus. out. just on nuanced long answer and a Its look

Arren Cyganovich

helpful. Very Thank you.


to for the answer question This to closing I’d Sasha conference concludes over Hamilton remarks. like back session. turn and any our

Sasha Hamilton

joining for us Thank you everyone today.

Thank If you further have you. any after call. questions, me call the please


for now conference concluded. The is today's attending presentation. you Thank

disconnect. now You may