KKR Real Estate Finance Trust (KREF)

Sasha Hamilton Investor Relations
Chris Lee Co-Chief Executive Officer
Matt Salem Co-Chief Executive Officer
Patrick Mattson Chief Operating Officer
Ryan Tomasello KBW
Arren Cyganovich Citi
Rick Shane JPMorgan
Call transcript
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Good morning and welcome to the KKR Real Estate Finance Trust Inc.’s First Quarter 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [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 of Trust XXXX. the the call Estate quarter first Real to earnings Finance for Welcome Mostafa I’m Matt Patrick and Salem, today our our joined by co-CEOs; Mattson, Chris our Lee and Nagaty, CFO. COO;

Michael himself. joined are out new Investor be we addition, Shapiro. further by will introduce In Michael to Head our of Relations, shortly reaching

and to This available are to will do financial Relations on or measures release our cautionary the on Before portion we remind these Investor future related the filed to guarantee our contain non-GAAP of performance. like in GAAP which everyone that in statements. our statements, call, both recently certain website. are which refer reconciled presentation, to begin, for most I’d we to call forward-looking Please events figures also XX-K not will of refer supplementary the earnings which factors

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

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

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

Chris Lee

anniversary IPO. then, ourselves of estate call. us in commercial our morning the Sasha. finance established first Good joining our as competitive quarter you, earnings Since second month the pre-eminent and set. This for have our one real thank for you companies we marks Thank of

went share. $X.X billion billion and awareness $X.X we we’ve of the as of billion XXXX. end quarter we increased market our portfolio by from second-quarter Since to penetration Our by $X.X have to funding to XXX% March increased nearly $X.X XX, in our has XXXX, market which the public, capacity grown market the led and improved brand presence and billion

earnings our This invested quarter fully reflected potential.

industry, Of due course, see to capital for and markets continue as closings, to typical activity. fluctuations we of in will the the repayments timing deployment

mentioned, quarter, $X.XX to to will impacted discuss, by core respect earnings our we share Patrick $X.XX positively for As income. our which and backdrop dividend business. per paid continues increased the Sasha as a by favorable The economic covered with of repayment per share, first Matt was be net

demand space see We economy for continue flows and healthy capital to job a driven real market. by robust strong and estate into

of of global Additionally, to experienced the on rate expectations the support recent flattening sponsors. and yield lending our backdrop rate strategy larger in liquid low assets curve, transitional interest markets interest the

have key the last earnings we Before I turn over the made I some initiatives to will summarize which Matt, call. XXXX, discussed on we progress a for few of call on our

invest we continue to competitive by have to capital, markets. by the since was return oriented consistent our institutional-quality sponsors conservative liquid we high-quality investment have lending First, in most Despite capital secured public. attractive estate risk owned lending strategy a we had same first the real environment, with went on parameters, opportunities preservation

in of deployment pace by the of the in we meet XXXX. still impacted market in While to quarter XXXX, track the the at was on volatility closings the timing well end that first saw we’re

Through originated have $X.X April, the loans, rate of the in $XXX approximately For million we over the $XXX including million post floating four quarter million months year, last end. originated the quarter $XXX and we billion first XX first of months.

$XXX respect under activity to closing billion exclusivity to to the side to right $XXX our capacity by collaboration have to will investment corporate increased the conditions. million. of remarks. on of that million in the credit have revolving we we borrowing to the further loans addition, end, robust expect built Markets, customary elaborate of KKR Subsequent facility balance Matt $XX With quarter increased pipeline recent our partners $X.X In and a hand within we close million. currently another with Capital in subject quarter sheet, his we

As of non of borrowings XX% quarter compared market, our mark were to year-end XXXX. outstanding XX% at end, to

Finally, our we liquidity on improving of will continue the to focus shares.

Market program aligned February, being on extremely of issuing we are disciplined In We instituted focused were at are trading and date. a a capital. shares to value, million we premium at no in long-term use to of with the stewards the our Program. good By $XXX book shareholders our

of on is In issuance of accretion. attractive. summary, and We will the on rate with usage the evaluate of to happy while focusing in timing this proceeds, use believe growth our of balance value we’re book and start environment this program We that XXXX. return equity risk-adjusted continue balancing the sheet

that, by are pipeline We our call Matt. to With continue deliver our encouraged attractive I’ll to the turn to and shareholders. to risk-adjusted over returns ability

Matt Salem

$XXX of and Chris, the by in we located senior everyone. of is good a X.X%, have New markets. LIBOR, are morning in and Service are Boston XX.X% program activity. on these Class-A In our start loans XXX-key recent plus loans a lending IRR institutional quarter, These by project Brooklyn, rate Multifamily for coupon our spot collateralized Full and Thanks, weighted sponsors loans and loans portfolio. light floating by consistent million. major totaling These average York. respectively. transitional underwritten Weighted in basis, XXX-unit our discussing XX% to fit investment Hotel levered average first which at two loans originated I’ll And LTV a with the LIBOR existing

originations volatility record months an ending our full billion with originations. Pennsylvania. $X.X the the by portfolio increase the loans, heavily and we secured senior million mixed April, April closed into end mentioned, XXXX quarter. square Through XXXX XXX,XXX we loan in ended in year XXXX, our Chris an foot additional XXXX of April XX, over $XXX weighted at second last same In a Philadelphia, XX line the of XX% originated more As use the period XX,

is forward under approximately within four particularly with Our pipeline loans close the billion to $X.X strong totaling exclusivity quarter.

have conditions. through certainty closing non-economic complexity. structuring creativity subject this to continued around are these and speed, we ourselves relates market, In competitive customary as like variables it differentiate always, to to As

also to responsive created repeat the our like year. across of We to client continue our borrowers being sponsorship. developed a this a the to as business significant have a we highest institutional the base partner quality That highlight phase during we which said, have target our driving relationships I’d and strong few of the post-to-close to add reputation loan, is specifically portfolio.

our $XXX management, a global contributed forward. manager relationships year and assets developer multifamily a bank under recognized flow over new operator We $XXX billion billion million XX,XXX average drive units. in of have These date size with with global relationships closed loan approximately with and our to asset approximately deal cap and going investment $XX should publicly nationally an a of new traded to institutional with market help

had normalize first XXXX the discussed we of beginning As expect to portfolio pickup to second with as half this on repayments would a prepayment previous first and the our in expected we the see were seasoned. to year quarter. in activity half first these we weighted quarter the of calls, Most

$X.X portfolio, million proceeds this repayments loan. loan condo on quarter, $XX.X $XX and million of mezzanine portfolio down the of Atlanta $XXX a multifamily sale senior million inventory from from two-property we our located terms pay Tampa. we million Post our had received five in loans In of of received quarter-end, repayment a and a

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

concentrate plans. shorter and light due the to property office on continue to types We business term, transitional multifamily their

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

focused since positioned we’ve are a portfolio quality. summary, quality yield on for We highest the the progress will credit to and good In continue made year. we maintaining of trading start incremental the target opportunities defensively

with pace over I’ll target call with Patrick. $X.X to in today our originations portfolio. of pending are the of billion of pleased approximately as quality performance that, with of are closing and the we closed loans We line turn or With our and

Patrick Mattson

Thank good everyone. you, morning Matt, and

net positively impacted was closed full an our for we on in This $X.XX repayments, acceleration income. the of deployment, and earnings the core pace quarter taxable As by share. were a OID of both

of on earnings normalize. the repayments in expect closings quarter year first quantum expected that over the second in timing are originations should quarter Given as of the for impact expected subside repayments and originations, the and to new of half some the we quarter

a scale, average end have weighted of Our slight quarter, of at totaled with X.X above X.X on billion the from loans a portfolio, three. five which and end a a point the $X.X risk rating rating improvement we no year at has

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

portfolio Additionally, decreases. the floors, minimizing LIBOR interest XX% impact rate of the any of features

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

mentioned, million end, to increased the to first credit As of the and size facility in Chris quarter subsequent capacity to our we $XXX we million borrowing increased quarter the $XXX further $XX by corporate revolving million.

focused with to to capacity. non mark-to-market we Markets addition, term work are additional create In Capital KKR on financing continuing

progress. you keep we’ll make always, As updated as we

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

a loans of three financing. $XX.XX on weighted to average balance reminder, we on times target of $X.X depending on total note shares per for a XXX,XXX approximately a the share senior the As million. times four ratio we other repurchased generally of price at source new leverage a One sheet,

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

outstanding. issue We program just solid and way to the time advantageous and We the capital as quarter. remains great this ATM any pipeline. cost We $XXX full did raising quarter fund ATM under not million capital a program strong another $XXX In view to this quarter. an the start million it tool summary, also our in raise was XXXX, second to a a start to shares implemented efficient

pipeline robust. origination Our remains

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


Thank you.

Rahmani begin go now Please Our session. [Operator question Jade first question-and-answer will comes ahead. We KBW. instructions] from with the

Ryan Tomasello

actually is for Ryan This everyone. morning, Jade. on Good

Just the How and color that’s release. disclosed loans the close types the to equity us is $X.X of you those some types if the billion you of assuming Can $XXX million you of funded in under expect exclusivity XQ. including quarter, spread, give you for the addition received any the first much loans? in that – additional repayments of if the despite property need the types. to just starting to on with in you I’m loans

Matt Salem

Good for Thanks morning, us questions. It’s take a Salem. Matt the and joining of your call. I’ll Ryan. few question those on

toward – transitional it’s see really line XXXs First end. weighted our kind lending off, high loans to subsequent multifamily and looks currently the the pipeline $X.X call close program the portfolio be quarter to terms originating of particular XXXs with in to what’s would say we’ve in where been in we heavily And mid This pretty we I we’re will for billion what light context where where what’s with the is spreads closed currently. the lot announced low what today a the it, in like incremental market of segment. that, quarter of over to

capital equity, to existing have In today enough we of fund terms pipeline the

Ryan Tomasello

pipeline done the need a to forward confidence post just the repayments the your you’ve good that faster you job trade-off the comes commentary like capital seems quality existing this provide on the of with to some credit strong to fully can but ability going which and XQ with portfolio, rebuilding of level invested. the comes it quickly that redeploy and inevitably higher just repayments, balance stay And

Matt Salem


down albeit to ability little a about talked to be for volatility the there pipeline after of picked think how year And I has see to differences ability can in our we the I of the And the target we some the the robust as keep coming still originations really $X.X see our to versus slowness billion. and we time originations. can repayments. second comes and But the reach in think first think quarter think the due I invested, pipeline forward, up. look end portfolio year out portfolio repayments I is. quarter really you the in bit

of quality have I we what think similar that the what pretty today the feel we we very to given keep confident in see can the portfolio we pipeline.

Ryan Tomasello

B add grow diversifying the model those to lease pieces CMBS say over you stay the capital of or considering to base repayments know closings invested you lumpiness fully And mitigate securities repayments, and outside loan as with potentially and you time. help the impact ever would the business consider of the net

Matt Salem

first like a and we it’s think value have – where today of in and area relative it’s to we capital about I different and story credit got and the you accretive foremost, to can it’s commit today. kind story have you feel the return that

that then and considerations I first be and So think deployment duration and would things be And would your you like second know like foremost. things that.

years. has think where sit space, the think pipeline over today. see on again where in I we home focus our and by origination we it will in been the to light few I see driven relative we’re from be so we where continue of last just value, today, the focused our senior that’s where term, transitional the largely near loans

Ryan Tomasello

I last initial the the under exclusivity. it on $X.X loans then just more billion one sure I’m What earlier. not fundings are And if missed housekeeping, expected

Matt Salem

be The of vast that closing. funded will majority at

Ryan Tomasello

questions. Got for taking it. Thanks the


Our Arren go with next Citi. question Please comes ahead. Cyganovich from

Arren Cyganovich


there Just four top about quarter? more the put of kind thinking the what for in in loan be them in the to the current average have now five this size looking upper pipeline the on you out the of all to to at of that you’d come end opportunities you that portfolio, you right Are just size. of seeing happened happened sizes the as the

Matt Salem

increase there of size pretty gravitate Matt you’ve I And number average say of your we somewhat up our would competition size there’s Thanks terms less question. the up for But year-over-year. I loan in It’s in that have consistently of institutional assets the perform we lending and the continued And and seen to the again. more think to better, think and going sponsorship quality the just and downturn. about sponsorship like through feel quality cycle, be it’s to on about through market. real want of we It’s the estate. a yes, quality, the they’re we lenders.

that into of credit up a and gravitating been little of we’ve So because bit area because competition.

our quarter. always was range to you because versus you so quarter You’re can to client have where going in loan average the base responsive our see size can and versus second predict a being what this were you

would move reasons. say it’ll very given So a little around opportunities we I are bit those we larger targeting but are –

Arren Cyganovich

mean, this there. your really had asset Thanks. you portfolio it’s And you small then relative and about you to particular added but pretty loan a that anything yes hotel I there hadn’t the to total drew exposure investment? Is new much make

Matt Salem

Yes. I mean, I’ll talk about the hotels at a higher level first.

years quarter our hotel seen obviously, made fourth in in last sector number loan hotel and then, located So And we another first in of two it’s I years the that New interesting Brooklyn. York done in And the here think we’ve for in we’ve year. of now. a deal opportunities

And over we’ve facilities really can that really you posture has us we in terms I that where the portfolio put that putting And of that by them changed financing add our is think quality to and being mark-to-market terms what’s in quality hotels the those over allow appropriate and these got a time. have Patrick our higher number our described non majority because and liabilities. comfort come to in facilities higher is of we’ve the portfolio putting of of portfolio. is the markets is into today financing a driven see

would stabilized very would that did two very the it’s on mention including, I are we hotels thing quarter. The we say confident, confident other these have These hotels, I the sponsors. this one largely

other we those we kind those portfolio. if continue to opportunities always versus very and look percentages think to available, are to non that continue any in sector, add hotel at smaller component competitors, we the I financing and that we’ll our That here. those a at look will light be what have think doing you and if mark-to-market I of see So said, of we’re

Arren Cyganovich

any the Thanks, not, that’s expect you toward on quarter? into more large. weighted timing lastly then helpful. they are third slip quarter if loans, Do And would four just relatively they of end that Okay. the be and these the the of could

Matt Salem

on close as a those in where to bit, and the that’s what can sit expect this our projection Things the from predicting. timelines going can to quarter. slip little think change statements, we we right now we today, we think be and said second we’re in it’s I quarter but

Arren Cyganovich

you. Thank


we question have Please [Operator follow-up a instructions] And with Jade from KBW. Rahmani ahead. go

Ryan Tomasello

Hey, guys. Ryan again.

there concept guys under this over in repayments? facility them wondering prior similar order if to the of being of deployed was balance what of type your recently Just to to help any closings some peers utilizing possibility sheet to manager you warehouse did from mitigate to incubate moving with of one off

Patrick Mattson

good Ryan, Patrick, I’ll that one. morning, take it’s

noted the we So remarks the the at closed on in of we added quarter. that quarter, materials, and to in in the revolver the second then and quarter we revolver first again end as in fourth a the

manage So revolver we’ve the that to manage plan capacity on and sheet close to it solution. and a balance manner on we gives cash then It as the permanent us really utilize and repayments, got to financing can now ability efficiently $XXX million really timing a move you’re to and more of we them so describing. the that in of is are on loans optimizing the originations financing,

Ryan Tomasello

level but one know might like post the end XQ? quarter you look the of I repayment what any disclosed full-quarter for And sense repayment

Patrick Mattson


about which but originations, I entering that’s we of it’s think difficult. run lumpy. XXXX, our to think like in feel quarter similar sort very a we that’s rate I have can be We – one Patrick talked early again, any

a back one our about year. in any to pay third expect book We of

feels quarter, look if you outsized. So at first this that relatively

expect we bit beyond, a and of that the quarter second the into forward the course look to over we as little year. so normalize And

Ryan Tomasello

follow-up. the Great. Thanks for


Rick question JPMorgan. Our Please go from with comes ahead. Shane next

Rick Shane

Couple thought actually I and buzzed hadn’t. sorry, guys, in I questions. Hey, I’d

the prepayments contribution prepayment fees and quarter, during the first in was what first strong the from the quarter? Given makehauls

Patrick Mattson

Rick. Mattson. Good morning, Patrick Sure. It’s

in are fees, So that the in $X.X bulk, came the so additional the acceleration from of less $XXX,XXX we million maintenance OID. we disclosed of than spread Note three, sort

see comment that had that we note, just in I you’ll loan. repayments the other one almost driven that one first guess So of on was by the in quarter, the half

we just the little characterize first a again, experienced that the bit just quarter. lumpiness So to in

Rick Shane

getting mean, beats I the alternative. is part back. of Sure. the certainly actually It business look, paid

the fluctuate of talk of maturity guys annualized going we the think You realize, portfolio range the an this normalization but on of quarter-to-quarter, it’s sort point? the to I basis in about in the going portfolio repayments Should of and forward. down again paying of given XX% range at and sort stratifications

Patrick Mattson

I think, at that’s that. I Again, higher. be in mentioned any one higher probably that’s of or little Rick, a it’s a any lower than third. year, sort actually guide we in rate a a could bit quarter, one

percentage at plans are about, look of talked as the to get in so to If just higher was you that XXXX focus prior we’ve we the of portfolio, you initial transitional realize look are as going a originated and their of in Those sort further XXXX. or be the three-year we’ve of are expect executed live types those repayments seasoning generally we originated where But XXXX, on sponsors the assets XXXX, on of got assets the term. back, two-thirds portfolio business plans asset XXXX. and

Rick Shane

it. Got

third-quarter that of muted we if last history commentary of it what at was XXXX of And high on of to terms of QX pipeline don’t we terms actually if and terms Okay. company, call quarter prepping everybody their is watermark models, of conference realistic in it in want providing in originations QX likely at then more ahead record be look originations? – that the new Is our question, going the Is and fourth the the terms to than was originations, look the your sort today. in just get you’re I and models? of ourselves

Matt Salem

million It’s couple dealing I loan quarter-to-quarter, $XXX I which – said times difficult can Yes. think we’re sizes – Matt. skew yes, plus quarterly as with again, predict a like cases, mean, it’s it’s $XXX originations. difficult in we we’ve of million, some to

the quarter. this to mean, third? a hit of big $X.X it’s of things is quarter really, those we predict Most as not. kind originations do that normalized, After a think where really on the going size to to over be I quarter-to-quarter basis. annual quarter, billion likely going quarters. second spread loans that The I in more But for hard predict out are about four

Rick Shane

we again there’s you’re to like the in QX it. understand slip but I high pipeline look, Got something sounds what I that degree it QX, pipeline. said might want around don’t confidence from but of just overestimate a And like to describing

Matt Salem

Yes. those that in the and obviously, we up process today, see are, loans signed what loan are and documentation are From closing. of

Rick Shane

you, Terrific. guys. Thank


remarks. the our no Hamilton Showing over concludes further to to turn for like instructions] questions, question-and-answer session. [Operator I’d any this back conference Sasha closing

Sasha Hamilton

for call joining this you, everyone, morning. Thank the

questions, If feel to you us up have follow any Thank directly. with further you. please free


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

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