KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jack Switala. Please go ahead.

Thank you, operator. Welcome to the KKR Real Estate Finance Trust earnings call for the second quarter of 2021. We hope that all of you and your families are safe and healthy. As the operator mentioned, this is Jack Switala. Today I'm joined on the call by our CEO, Matt Salem. our President and COO, Patrick Mattson, and our CFO, Mustafa Nogati. I would like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release and in the supplementary presentation, both of which are available on the investor relations portion of our website. This call will also contain certain forward-looking statements, which do not guarantee future events or performance. Please refer to our most recently filed 10-Q for cautionary factors related to these statements. Before I turn the call over to Matt, I will provide a brief recap of our results. For the second quarter 2021, we had gap net income of $29.3 million or 52 cents per share, which included a $0.6 million or one cent per share benefit from a lower CECL provision. Distributable earnings this quarter were $30.4 million, or 54 cents per share, driven by the growth of our portfolio, benefits from in-place rate floors, and continued strong asset performance. Book value per share as of June 30th, 2021, increased to $18.91, which includes the cumulative CECL impact of $1.05 per share and 11 cents per share of offering costs incurred during the quarter with our preferred stock offering as compared to $18.89 as of March 31st. Finally, in mid-July, we paid a cash dividend of 43 cents per share with respect to the second quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 8%. With that, I would now like to turn the call over to Matt.

Thank you, Jack. Good morning, everyone, and thank you for joining the call today. In the second quarter, we harnessed the power of the KKR Origination franchise to originate eight loans for $967 million. We have an additional pipeline of approximately $850 million in loans, which have either closed or are under exclusivity subsequent to quarter end. We also delivered another outstanding quarter of financial results with distributable earnings of 54 cents a share covering the 43 cent dividend by 1.3 times. Our earnings continue to benefit from strong credit performance, existing LIBOR floors, and net portfolio growth. In today's active origination environment, KREF is benefiting from its position as the flagship transitional senior commercial real estate loan strategy inside of a global asset manager with an established real estate platform. We have unique access to economic views from our global macro team and real time market and property level information from our partners in the real estate equity team. This market connectivity is supporting a real estate credit franchise that has grown meaningfully. For perspective, at the end of 2019, our real estate credit franchise was comprised of 24 investment professionals, compared to 46 today. This origination engine will be critical as we continue to see good progress on our sponsors' business plans, which we expect to lead to elevated repayments in the third and fourth quarters. Our investment focus remains the same. senior loans on high quality real estate owned by institutional sponsors. Our second quarter originations of eight loans, totaling $967 million, included three industrial loans, two multifamily loans, and one loan in each of the office, student housing, and single family rental sectors. These eight loans were underwritten in an attractive, low double-digit weighted average IRR in line with returns pre-COVID. Net loan fundings this quarter was $288 million, and our portfolio grew to record size, totaling over $5.6 billion as of June 30th. Our pipeline remains robust with approximately 850 million of loans, either closed or under exclusivity subsequent to quarter end. We continue to be active in our historical segments of multifamily and select office. At the same time, our pipeline reflects our desire to capitalize on attractive opportunities in today's market environment. And we are constructive on certain newer segments, such as life science, which has benefited from an increase in tenant demand, driving a need for new lab space. In the industrial sector, we closed three loans this quarter for a committed loan amount of 410 million, secured by Class A properties. Our largest industrial loan this quarter was to a sponsor who has completed over 350 developments. As always, we will target the highest quality owners and operators. Our industrial focus aligns with our activity in real estate equity, where we own 65 million square feet across the industrial sector. Access to their expertise, market knowledge, and relationships creates differentiated outcomes for KRF. With our focus on industrial development, there's more future funding than we have had in the past. Given the simplicity of construction in the industrial sector, We expect those unfunded commitments to contribute to origination volumes over the next few quarters. Our portfolio composition remains consistent with previous quarters and is comprised predominantly of lighter transitional floating rate senior loans. 83% of the portfolio is comprised of loans secured by multifamily or office properties. Retail loans continue to be underweight and represent just 2% of the portfolio. Industrial now comprises 3% of the portfolio on a funded basis. Overall performance remains strong with interest collected on over 97% of the portfolio in the second quarter. To support our growing opportunity set, we raised net proceeds of 167.1 million of perpetual preferred stock at a fixed for life cost of 6.5% in April. This permanent capital allows us to take advantage of current market opportunities, service our institutional clients, and grow the portfolio, which should lead to improved operating leverage over time. Additionally, in early May, we completed an approximately $115 million secondary offering on behalf of our manager, KKR, One of our goals has been to increase the trading volume in our stock and this sale added to the available float. KKR continues to be our largest shareholder with meaningful skin in the game at 26% ownership. This level of commitment is multiple times that of our peers and we expect KKR to remain the largest shareholder in KRF over the long term. In summary, we achieved another strong quarter across originations, portfolio performance, and earnings. Our broader relationship with KKR and our scaled origination and asset management franchise should benefit us in this active origination and repayment environment as we head into the second half of 2021. With that, I'll turn the call over to Patrick.