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KKR Real Estate Finance Trust (KREF)

Participants
Sasha Hamilton IR
Chris Lee Co-CEO
Matt Salem Co-CEO
Patrick Mattson COO
Jade Rahmani KBW
Steve Delaney JMP Securities
Kelly Wang Citi
Don Fandetti Wells Fargo
Call transcript
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Operator

Good morning and welcome to the KKR Real Estate Finance Trust Inc.’s Fourth Quarter and Full Year 2018 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please also note, today's 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 fourth Real to earnings Finance for Welcome today Chris Nagaty, joined Mattson, I'm by our Co-CEOs; Salem, COO; Patrick our and Mostafa our Lee CFO. and Matt non-GAAP website. figures available to presentation, remind our both the portion which we to the I would on earnings Relations financial to release of everyone on GAAP like measures reconciled supplementary are the our will Investor of that refer which certain in are in call, and This contain performance. not also call future guarantee do will which statements, forward-looking events or factors Please to most refer to recently our statements. filed XX-K precautionary related these

Before an financial error supplementary measures, computational X-K has the with amended we share earnings earnings in non-GAAP earnings information been core XXXX modified. per and this core in and morning annualized found release start, annualized the net earnings we corrected presentation. and filed the numbers other We the No related company's amounts.

file inconvenience We to shortly. an XX-K may intend this also caused. that We amended any for apologize have

I Before to a provide our I'll recap Chris, of quick results. things turn over

million year $X.XX full XX.X income per was million Net $X.XX was per GAAP share. share. net the XXXX, core or our earnings For or XXX

per of net closing were of price per respect yield share. to with quarter stock of the the the our an share January, For or core was Based In as $X.XX a quarter. on paid of $XX.XX. was yesterday's value dividend we dividend XX.X Book Net GAAP X.X%. XXXX, fourth annualized $XX.XX, million XX.X $X.XX million fourth or per share. earnings income $X.XX December XXst reflects

will that, turn Chris call would first shortly discuss With now like quarter meet to to scheduled make Our I Board is to mid-March over thereafter. the dividend announcement we an Lee. to the and in

Chris Lee

significantly full company It year for our calendar for capacity by when Matt fourth loan January our we IPO. up completed in on and highest improved commercial business In XXXX cost X.X the backdrop year provide have quarter we since public for year as We the more the company. our Thank XXXX, our began you structure our a million Good call. senior of $XX shortly. to during end we joining and during in a on was XXXX year loan to and investing thank earnings our December our pipeline The will than and our side fourth three milestone we've originations. XXXX. first activity macroeconomic annual the the the balance marked of billion X.X a second increase built of a off volume XXXX funding closed billion favorable. level right billion morning, total activities us robust crisis. remains our And estate of real times X.X for our times busy operations and of second of record October and transaction increase also you, liabilities, floating-rate the billion. Sasha. a of sheet, the opportunities. increased two as year, global start. financial a investment is an more details reached XX% XXXX XXst, of to from a the originated loans quarter our X.X XXXX, We increase portfolio grew from We since over full

assets support liquid sponsors. lending coming of experienced flows low a in opportunistic to increasing end dry by add out powder on our and institutional in of remained markets of real Overall, larger underpinnings the last XXX financial the We funds of global estate over see XXX compared transitional billion XXX year crisis. the have capital billion demand of value investors and evidenced real real also to as billion estate and estate at continue strong for to strong strategy the by to

our let each. on initiatives me touch and made XXXX, we goals I on XXXX review the Before our progress strategic for

deploy initiative with we first lending the environment, return a manner. parameters we same prudent first had, secure risk a we've competitive consistent was been have to Despite to capital attractive went in to since capital opportunities continue public. invest Our able to

have record the with broadly. most extensive real the the Real and KKR pace in a strength institutional with of high marketplace and estate sponsors Our on We intermediaries with portfolio believe shortly. built originations the Matt our quality Estate and quality discuss platform demonstrates with more sponsors detail our will of owned portfolio liquid a focus by integration KKR we benefit our markets. relationships more defensive in in the

improve initiative XX% prudently was approximately of the and the shares accretively. largest shares. is KKR company of and in our liquidity company, owning outstanding the to second Our grow the investor

extremely and long-term focused our are good are aligned with on We capital. of shareholders stewards being

shares and per by shares XX,XXX in growing Given our the approximately end shares from and fund These pace, times our currently. of we XXX,XXX performance investment our pipeline of accretive six day equity volume XXXX the day raised helped twice transactions three-month average trading XXXX. to at daily per increase

diversify liabilities. We an Capital attractively strategic Markets priced help us to KKR, our the engage and cost source this We capital markets $X relationships billion created discussed of improve we leveraging funding exceeded structure capital. broad KKR financing sources, over commercial facility initiative to sources we loan the that our largest its financing, asset provide differentiated Third, our financing expectations. the By volatility. especially specific million reducing of sources one market In managed non-mark-to-market significantly diversified estate decade. and company non-mark-to-market a the term real to XXXX, of CLOs issued facility, exposure non-recourse those our non-mark-to-market another XXX in

As XX% to we our an non-mark-to-market shareholders. In cost that we liabilities, diversifying and sources the spread made far. focus to continue has thus us the of executing seen, XXXX, risk-adjusted same on that compression we've at to return outstanding our we attractive funding deliver of offset compared successful will to were were reducing By of XXXX. of able our borrowings year-end, year-end some our XX% strategy

sources. be strategy balance continue non-mark-to-market to ways our We capital, enhance and out seek financing conservative creative capital will investment continue cost our down our and to drive and increase to sheet further will preserve our of

liquidity continue grow on will accretive. year Overall, of shares company improving at a pleased portfolio company. the we'll look focus positioning, we market alternatives and activity, XXXX for and and our our prudent to are was we Finally, is with our pipeline. when record to our it various origination our our

With We continue call turn forward opportunities our And are about over I'll value growth the look to that, for Matt. to XXXX. the KREF we excited for to shareholders. in create

Matt Salem

originated I'll senior on are XX.X% hotel these million. plus loans, in Palm markets. quarter weighted for by at year. multifamily existing Diego And in These major Fort quarter Lauderdale. in and and and X% located with consistent are properties These Thanks, coupon Chris, and collateralized portfolio. weighted floating which totaling everyone. transitional program respectively. loans XX% light is levered fourth our start and the upscale by by West loans Beach a good The us, institutional seven record loans rate sponsors LIBOR IRR our a York, loans lending XXX for average to spot had basis, an LIBOR, Queens, was our a LTV of Philadelphia, origination of underwritten average our activity. record San We The morning, investment New discussing six capping fit

markets. LIBOR X.X respectively. The and weighted XX coupon weighted we're mentioned, of X%, and and average a located average Chris loans loans of types, origination office hospitality we secured is generate on year. originated a basis. and property billion XXXX to levered LTV originated last volume. Multifamily IRR industrial XXXX, mix loan of major across have including XX.X% XX% of office, plus senior types of to in The XX% property represent billion by a As And multifamily, total compared X.X

XXXX, XXX XX% average compared Importantly, to with last our in average is increasing, up million loan size also an of year.

and competitive through increased improved penetration. has presence and awareness XXXX, in market variables brand around to certainty ourselves speed, led which creativity, market, structuring Our as like this relates we market In non-economic it have complexity. to differentiate

half being and and high to borrowers. have and reputation, quality the loans this driving lending which loans seven XXXX service. face our the across strong in close during experience the post Borrower business our to originated in We portfolio. responsive quarter transitional responsive we providing developed also of partner the on as ourselves borrowers, of is loan, Four being repeat important significant repeat is a were pride

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

business. portfolio volume expanded, hired Christine the estate continue origination across resources team. our In our has real and platform add our quarter, credit we fourth As asset lead management to Patterson to we the to

quarter. pace origination the continued has strong first into Our

XX% We have has XXX York and by key, coupon The loan, a X.X%, closed New and service in already totaling plus loan million. located and LTV is of XX Brooklyn, full secured respectively. LIBOR hotel, average one weighted senior

we in inventory Post down property $XXX million received a repayment In million Brooklyn. in senior office an a had quarter, secured pay million $XX Denver, including and Atlanta property repayments, loan. in end, of terms in an we XXX and by condo our an multifamily multifamily loan, of received of this loan repayment we the office Hawaii, quarter of

XXXX. in previous half in on to volume calls, discussed schedule see As enter of rate more as our first we expect the repayment pickup a we run payoff

and loans is our in loans totaled and funding future XXst, XXX% diversified securities as and and across our types. portfolio X.X portfolio office portfolio. is both with obligations. December our another the portfolio, The portfolio performing our of property XX% to geographically multifamily of XXX performing as is million of invested Turning are of billion senior expected. Notably comprised XX%

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

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

target credit, summary, a and focused and positioned will are have a yield origination we highest credit to activity our to volume and portfolio return. continues meet quality for positioned quality. incremental creating portfolio opportunities, the defensively our In in of terms We trading expectation defensively on we continue

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

Patrick Mattson

Matt you, and everyone. good Thank morning,

the average the billion X.X rating five-point X. risk has scale a the have and we weighted X.X totaled no which quarter, loans portfolio, with a with end quarter on rating of a consistent of at a prior above Our

LIBOR-based XX% was us in invested As which to rates. short-term well of of quarter interest from end, loans, benefit portfolio positions in rate floating increases the

loans decreases. the interest Additionally, generally minimizing our feature LIBOR impact floors, of rate

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

another financing closing of CLO non-mark-to-market total non-recourse As reinvestment with financing Markets amortized running to important us represents Chris fourth closed has The positions an been an and execute company in scale our our managed XX% advance and Capital XXX of before step attractive on The explore provides diversifying feature rate and a of at we million funding cost inaugural of transaction and our improve two-year in sources with at helping is CLO increasing LIBOR the match-term mentioned, financing market It of loan capacity. our in non-mark-to-market a quality the CLO. a the this $X weighted of plus quarter, options billion financing portfolio structure us cost instrumental our capital capital. liabilities. The cost. average basis. X.XX% cost of KKR leading and

in $X billion In place facility. addition capital the we matched to loan non-recourse term, the working in term markets XXXX, financing CLO, with and put team non-mark-to-market

these on for facility. million better revolver. to an We quality And delivering a for to the a unsecured fourth in non-mark-to-market the credits credit also us company. revolving lending secure and new still The financing cost $XXX specific term asset replacing million added secured return corporate closed a various match highest of while funding $XX $XXX the allows attractive we KREF, attractive options facility million opportunities compete quarter,

of In is XX% financing manage to total asset-based on of total a risk non-mark-to-market from our addition, outstanding financing and financing. X.X and balance our durable to improves brought the ability year-end, liability liquidity This perspective activity structure as our sheet. mark-to-market representing billion the more

outstanding credit term Our XX% of the facilities financing. remaining represent

As balance not facilities enhancing markets, our the a further mark-to-market durability capital have reminder, provisions, of these do sheet.

to the leverage X.X and the ratio, times at from year equity closed X.X Turning perspective. total a we debt to times

financing. loans target the on a note reminder, As One sheet. ratio four the on source to a three of on we depending senior balance other generally times new leverage

we quarter, a for a repurchased total repurchases price equity per the share XXX,XXX to million. weighted $XX bringing full shares year market at $XX of $XX.XX volatility million, approximately in fourth Given of the average

repurchases period. below and As is of today, an stock authorization value XX for additional available this XX million is future generally book during million remaining

dividend. Finally, to our discuss

before, our is policy earnings of to basis. annual out all our taxable As we an stated on essentially pay have dividend

our share taxable earnings For paid shareholders. per the per of net compares of we dividends to earnings. $X.XX per share core year $X.XX to GAAP approximately XXXX. for per This to full net $X.XX XXXX, in income share of share Compared and $X.XX

realized the the included reminder, on CMBS core net quarter. a As in our gain investments the earnings sale of second

earnings aligned. off we strong income, to Wrapping forward, net up, be earnings was our closely year XXXX company XXXX. and core in record Going things to for our a more and another are GAAP taxable expect we would start

robust. pipeline remains Our

Our we're happy progress creating portfolio is we made Thank to now, your today. and you differentiated And questions. for joining performing again significant financing. us take

Operator

And today's first Jade comes of Instructions] [Operator KBW. from Rahmani question

Jade Rahmani

KKR some very you in At can price. clarity its this much. the been how color to gotten have about into is that and noting Thanks constructive interest the KREF potentially be think I give outset, could the investors any questions from some this -- about thinking registered? Have shares stock

Chris Lee

because really about it's it's not We Hey, comment of in management KREF control team. Chris. clearly morning, can't the Jade. investment Good within much KKR's this

position KKR, continues be is, is in prudent a any think say would companies seller I a that of KKR strategic for of portfolio two, have or Number large we we either what any have ceded think it the overtime. shares sponsored I one. number to

and think some shares, of transitioned last look be KKR in perspective. can XX a about can I anything it with from companies a it's we've the KKR although a it So the position, will that you think to is I you a -- outsized the responsible core precedence But a manner position does think, as is that public. to historical years, is it over not

KKR So will prudently discretion leadership -- when be cetera. of and the the et really it's something managed that of it at

Jade Rahmani

trajectory the cycle what estate and commercial they that if if to interest year later out will they're Do real about about thinking you this may respect play any rates concerns how of have influence and with know it?

Chris Lee

of in and real estate No, Real the allocated of is approximately billion $X KKR the broader Estate Yes. one sheet just the terms business to balance very constructive of business. is the firm supporting position this

strategic is of growth any KKR KKR's of that earnings earnings to a the the in listen the call, in you It's strategic business future. if for is So firm. business this a the in outlook terms

will and it So firm the and that continue that resources is allocate the in to to to future. continue a business capital support will

Jade Rahmani

follow-up a on that just And point.

they estate On in strategies did other mention their real credit. launching call,

can play elaborate pieces, you and these may that Beyond that? on KREF in how

Chris Lee

Yes, mean, talk I can't in-progress any fundraising. we about

that I with most products, new would can't likely other or supported doing across likely KKR. existing to real businesses today. think products estate already to that strategies additive is balance will by the anything KKR add that other adjacent we're be say what real that are and that of strategies, synergistic be those be any credit sheet I existing We any in continue will will add and strategies really our continue could talk equity, synergistic than we to estate about

Jade Rahmani

potential out you decline a later in in for terms year? XQ dividend net of that outlook the any year In the and the earnings earnings of spike increase see do the portfolio the and likely, core repayments in seems do with you fully the this earning anticipate dividend

Patrick Mattson

for Patrick. Hey, the Jade, question. Thanks morning. good It's

balance based of on this deployment, the and we've on where But on of that we we're will we've the in and as on at as feel the that our taxable or deploy. a the to in based said, set sheet we that it the dividend, you pipeline. point dividend. look on I the a expect basis on last comment year confident dividend for capital if the additional some increased on be benefit year coverage those as and at kind leverage got think our realize earnings well we assumption we've of as of today, we've pipeline And obviously, where are today, dividend origination a for expectation outlook loans obviously, based we Just a full set

Operator

next JMP our And Please comes Securities. of question go today from ahead. Delaney Steve

Steve Delaney

moved Good the up morning, end. at and from fourth to nicely thanks for taking Leverage X.X X.X the question. in year very quarter

Thank XXXX. to forward, contributed for I Just expect well? going comment robust any go as X.X you. curious that Thanks where comments CLO to that in the move leverage -- might on could if how much you to? higher more assume the you

Patrick Mattson

it's take I'll Steve, Good morning, that. Patrick.

right. You're

added we've at leverage closer the As CLO, ratio. including of times been financing, we've the a to four non-mark-to-market some borrowing

end us And financing, expect so, these be times to more continue of we as toward non-mark-to-market the in total of we to were ratio -- of X.X gravitate X on at year leverage that north to the more I range. a X

Steve Delaney

your sit look had That's kind given very if balance XXX that, could helpful. you we When new you, at balance tied loans, now, sheet XXX with right the one at look fund and existing into million I as think capacity sheet? Patrick. Thank in or loans you just you the And repayments then the and the of million capacity net come so you in. today, estimate your to

Patrick Mattson

billion Sure. $X about of Estimate new now loans. is right

Steve Delaney

X billion.

Okay.

Operator

question And of comes Wang from today Kelly our next Citi.

Kelly Wang

Could moderation dynamic, broad Thanks we seeing this for taking question. how you it forward? should about about of think going Or compression? my the just just are talk you a

Matt Salem

the on question. terms competitive, to continues It’s as compression XXXX. the Yes. experienced the it for touch in market we disciplined, the of that portfolio. to Hi. just well answer half of and of and seen spread it's Matt. but broader haven't and your market how points I'll maybe Thanks point, be we impacting it, The the is in other couple first

XXXX going In some seasonality terms expect of volumes know think comments in I the and quarter level originations volatility the as a pretty look on of business as there's I been it repayments And to of repayments we line saw out as year. low, last the our due we quarter be really fourth seeing of be and are of last of little around robust. first impact a execute with portfolio higher be that's of as well in seasons competition to couple that we our borrowers year. still some plan. will their to pipeline, in quarter, that in that a We the first but feels

So repayments quarter per of call lumpy, in given repayments loan the be $XXX to per quarter larger year. can $XXX originations size expect quarter and this but we per million both million

Kelly Wang

Great. and where market attractive like see talk most do of you competitive you about terms just and locations And maybe opportunities general property types? in the could

Matt Salem

most as that's well well, competitors. has Yes, at attractive market. the think, highest least and size, we quality of as higher the we in number borrowers say one, same the of part as real estate have I the loan gravitated It offers amount the think time

So I us think this to up loan XX%, to from year in XXX size. over a you grow saw average size perspective, million XXX around --

So think to perspective, move markets to property from really don't or you'll I see perspective advantage think to dynamics. type much. we're those take into us a looking I continue try of higher a change

this of it And will that If you the we year, look top more I as office credit. think want think We will be you look play transparent XX lending out at time origination more at it multifamily to liquid, predominantly focused markets prove over we've higher quarter, and quality light the segment been our on more if the lender. the a always transitional last well. be and in a to

of same. do think a see I perspective, you'll that from us So the bit little just more

Kelly Wang

they in And the they quarter? the the just XQ, throughout weighted terms timing quarter or deals were end Okay. in of of spread were

Patrick Mattson

but the of spread towards out quarter, were they more Patrick, quarter. the end were the is back through they This oriented

didn't get quarter. full those the impact of we first originations until So the

Operator

[Operator is from a Instructions] KBW. of follow-up Today's next Jade Rahmani question

Jade Rahmani

income anticipate XQ the do level Based quarter? the elevated prepayment of on you in Thanks. early first repayments,

Chris Lee

is Yes. Chris. This

little to be bit We expect episodic. it a

is income be we a what any have acceleration unamortized will will We will see associated, of the but sometimes OID. prepayment combination,

or that but to little a expect loan a should like more normal the XXXX. it earlier when will we of you on more will bit get normalized, become be that bit see little tenure size a lumpy, normalized repayment sometimes that the gets in Matt depending repaid, mentioned schedule So become more and on the

Jade Rahmani

XQ repayments Just the were When speaking. originated? generally

Chris Lee

had is XXXX, 'XX... think we I some

Matt Salem

'XX and 'XX.

Chris Lee

’XX.

Jade Rahmani

Okay.

unamortized fees? be on So acceleration shouldn't based much there of that,

Matt Salem

seasoned. That's pretty

Chris Lee

you have terms. initial three-year based No, -- there'll these of some usually some, especially be are XXXX on the because

So some. you'll years will paid over have loan three have in and if the some period two was years, -- you gets the unamortized off amortization

Jade Rahmani

any Okay. Separately, seeing you making and/or fees origination on lenders structure? concessions are that are

Matt Salem

I there. kind hasn't on fee don't seeing any Hey, not don't Jay. really we that the the change material think think start market in side over -- last Matt. quarters. It’s of we're anything been few I there's when the

quarters. will a on fees I and Our more fees and basis XX ranged seeing we last that based light -- the as invest to fee don't that dynamics, it's different but play generally, over of really us, some few part disciplined market. individual from and giving side, point of points origination just loan the determine structure market term -- an range deal range, people our transitional The feels -- longer are upfront the in from the really think again, some we're anything to terms,

the So are largely a of -- stabilized. properties these lot

anything can I see of little say So wouldn't material. that base outside you there's a more terms bit and

Jade Rahmani

any market, that the you a the December impacting Has anticipate any you the Did on in played impact pipeline? that pause, of see been volumes. XQ impacted out there do did volatility

Matt Salem

have the post is and schedules, just that weighted but I end quarter. push this mentioned think I our volume of things bit slowed of slow, down an first quarter. will I the toward little quarter the think always the holidays I think first the and first given quarter I first conference impact a total earlier. origination more some mean, it for do Yes. do towards or clearly

had a see on terms market we in delay stand today that. don't an of spreads a But -- the and outside of slight timing of really material and impact from just I think where our originations, impact I a don't So it delay, see dynamics. do I

Operator

Fandetti of Fargo. question Wells from next our comes And Don

Don Fandetti

buyers as confident? the arguably which Are velocity, sort in good if of are bit volatility, more the could what you side? create what Hi, the of they private terms the more transitional I properties, of by to hearing talk properties? What’s deal in wondering real over dig given estate fed expectation months on, of you the then they spooked still little was Are buyers these could morning. your pausing, from XX a happen? the you next private of mean I large behavior

Chris Lee

Hey, Don, it's Chris.

gave the what a of but end saw we I back tone the I bit at in and of market number sitting think see powder think lot. down it's little the that's pause, space. coming people sidelines amount think of allocated clearly on the to settled I fed, a We, opportunistic year, effectively the one, fair still a dry has change in the value add their and

business in are that We as well.

a who people where buy funds have in have looking sell as second is you are So market of the dynamic I you to legacy people but part well. think properties the properties, need to

whether estate markets very So to then or and the have market, be it's in powder, debt the think expect end about quite and last we on the real space you was this healthy healthy capital transitional you in capital active healthy saw other well. banking year of have when you as a a equity we lending year combination dry sellers

are to be of existing outside over that properties years, the a of last And because have target-rich are owners refinance the a period. spreads comment perspective. this call to deployment we protection So from of expect their have compressed you pretty I'd last looking is couple that say lot year

loan, taking necessarily maybe construction bridge not and our some sometimes to execute are sales of seeing where of risky of stage or the or we a out us we're some another that take the loans take-outs lender, are are loans less So properties, that out safer also but bridge of plan. to someone business making

think year well actually we up quite segment. lending transitional the sets this for So

Operator

turn your over Hamilton concludes the like this any gentlemen, question-and-answer to and Sasha back session. to ladies And for remarks. conference closing I'd

Sasha Hamilton

Thank us joining for call the on you, again morning. this

you out any to Thank questions, me directly. reach follow-up to you. If have free feel

Operator

concluded, Today's thank today's attending we conference you for all And has you. thank now presentation. and

your now have and lines a may disconnect wonderful You day.