KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Fourth Quarter 2021 Financial Results Conference Call. All participants will be in a 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.

Great. Thank you, operator. Welcome to the KKR Real Estate Finance Trust earnings call for the fourth 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 Nagati. 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-K 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 fourth quarter 2021, we had gap net income of $35.2 million, or 59 cents per share. Distributable earnings this quarter were negative $2.9 million, or negative 5 cents per share, due to 55 cents per share in realized losses on loan write-offs this quarter. Book value per share as of December 31st, 2021 increased to $19.37, which includes the cumulative CECL impact of $0.39 per share, as compared to $19.09 per share as of September 30th. This increase in book value was largely driven by a CECL reversal benefit along with an accretive equity offering in October of 2021. This is the seventh consecutive quarter in which we have grown book value per share. Finally, in mid-January, we paid a cash dividend of 43 cents per common share with respect to the fourth quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 8.1%. With that, I'd now like to turn the call over to Matt.

Great. Thank you, Jack. Good morning, everyone, and thank you for joining the call today. KRIF delivered record originations this quarter, closing on 18 loans for $1.8 billion, to cap off a record year of 4.8 billion. In 2021, we grew our portfolio by approximately 35% from 5 billion to start the year to 6.8 billion as of year end. I'll highlight four major drivers contributing to our increased activity. First, the size of our real estate credit team is now 53 professionals, an increase from 24 pre-COVID, and our senior investment team has grown. we now have eight senior originators with deep borrower and broker relationships. In 2021, we originated 37 loans, 24 of which were to repeat borrowers. Second, we've grown our suite of CRE lending products across KKR and can offer a host of solutions to our clients, fixed rate, floating rate, and core-to-value add. This broader product suite helped drive over $14 billion in total KKR real estate credit originations in 2021, which has led to broader and deeper relationships. KRF is well positioned to capitalize on this increased connectivity with the first priority in the allocation waterfall for senior floating rate commercial real estate loans. Third, We've leveraged the KKR platform to further diversify our capital base, including upsizing existing facilities, such as our CLO and term loan B, at attractive terms, raising bespoke fully non-mark-to-market financing, and strategically increased our permanent equity base through issuing fixed-for-life preferred shares and raising accretive common equity. Fourth and finally, We've benefited greatly from being embedded within the broader KKR organization. We have unique access to economic views from our global macro team, which are particularly valuable to us in a changing interest rate environment, and real-time market and property-level data from our real estate private equity team. And from an alignment perspective, KKR has been our largest shareholder since inception and owns 23% of our shares today. These factors help drive originations higher than $1 billion in both the third quarter and fourth quarter, and we expect a similar pace of origination going forward. Still, with record growth, our credit DNA remains very much the same. 46% of our portfolio is in multifamily, 28% in office, of which 91% is Class A. We made 18 loans in the fourth quarter, totaling $1.8 billion. Thirteen were in the multifamily segment, representing 64% of the fourth quarter originations. Two were in office and life science each, representing 18% and 14%, respectively. And we originated one hospitality loan for $66 million, representing 4% of fourth quarter originations. These loans were underwritten at attractive, low double-digit weighted average IRR, which is in line with our target returns pre-COVID. In the fourth quarter, we received $680 million in repayments across six loan repayments and three partial paydowns. We messaged to the market that the back half of last year would have higher repayments, and while always difficult to predict, we now expect a more normal repayment rate of around $2 billion per year, with a modest weighting toward the first half of 2022. Since the beginning of COVID, our earnings have benefited from LIBOR floors. However, these floors are transitioning through repayments and portfolio growth. Our new originations have floors set close to zero. In the coming few quarters, we expect income to become positively correlated to increases in short-term interest rates. Additionally, in the midst of the rate environment, we are constructive on the senior secured CRE loan market backdrop. We have already seen robust activity in January and have nearly 900 million of loans either closed or under exclusivity subsequent to quarter end. Multifamily loans comprise much of our pipeline, but we expect to be active in some of the growth segments, such as life science and industrial, which now represent 9% and 4% of our portfolio, respectively. I want to close by saying that in what has been a record quarter and year, our portfolio is stronger than it has been since the start of COVID. The portfolio is 100% performing, 100% floating rate, with a rated average LTV of 68%. At the beginning of the pandemic, we placed seven loans on our watch list. And today, only three risk-for rated loans remain. And each of those has positive momentum. Lastly, on the personnel front, I want to take a moment to thank our CFO, Mustafa Nagati, who will be leaving us in early March to pursue other opportunities. Mustafa has been an integral part of our team and has made significant contributions since joining in 2018. We wish him well in his future endeavors. With that, I'll turn the call over to Patrick.