KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Second Quarter 2022 Financial Results Conference Call. All participants will be in a listening 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. Thanks, Operator. Welcome to the KKR Real Estate Finance Trust earnings call for the second quarter of 2022. 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, Kendra Deschis. 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'll provide a brief recap of our results. For the second quarter of 2022, we reported gap net income of $19.4 million, or 28 cents per diluted share. Distributable earnings this quarter were $33.1 million, or 48 cents per share, covering our 43 cent per share Q2 dividend by over 1.1 times on a per share basis. Book value per share as of June 30th, 2022 was $19.36, a decline of less than 1% quarter over quarter, which includes the cumulative CECL impact of 49 cents per share. Increases in our CECL reserves impact to book value this quarter were partially offset by the 1 million shares we repurchased, which generated 3 cents in book value accretion. Finally, in early June, we paid a cash dividend of 43 cents per common share with respect to the second quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 9.2%. With that, I would now like to turn the call over to Matt.

Thanks, Jack. Good morning, everyone. Thank you for joining us today. KREF is in a strong position to navigate this economic environment of higher inflation and quantitative tightening. Our portfolio is comprised of primarily first mortgage loans secured by Class A real estate owned by institutional sponsors and located in growth markets. The favorable lending market we discussed in our first quarter call continued into this quarter, and we are seeing real estate equity values begin to decline from this higher cost of capital and lower market leverage. Our strong second quarter loan originations of over $1 billion demonstrated our conservative investment selection with 100% of our activity in multifamily or industrial property types and a low weighted average loan to value of 63%. Multifamily and industrial loans now represent nearly 60% of the portfolio as of the second quarter. While we believe this is an attractive market opportunity, as is our DNA, we are currently operating the company at higher levels of liquidity and lower leverage. Since January, we have been front-footed and intentional around increasing our equity capital, liquidity, and non-mark-to-market financing facilities. Notably, we have raised over $187 million of common equity, $150 million of preferred equity at an attractive fixed-for-life coupon of 6.5%, and increased our revolver by $275 million while extending its term to a new five years. One of the challenges in this market is securing senior financing. Our ability to leverage the broader KKR relationships and capital markets team has enabled us to add approximately $1.5 billion of non-mark-to-market financing capacity, including $450 million this quarter. We have many avenues for financing and have historically accessed the CRE CLO market on an opportunistic basis. This diversified approach to financing our portfolio is a strong differentiator in the current market environment. This quarter, we had the opportunity to provide a $500 million loan on a cross-portfolio of high-quality, well-leased industrial properties with 97% occupancy, located primarily in strong California markets with institutional sponsorship. The properties have embedded mark-to-market upside across existing leases as they expire. In a more stable market, the loan would have likely been securitized in a single asset, single borrower, CMBS transaction, but that market is not fully functioning. Our focus on larger loans to institutional sponsors left us well-positioned to step in opportunistically. using its first in the waterfall position, invested 50% for approximately $250 million. Our ability to split loans allows us to originate large loans to high-quality sponsors with favorable competitive dynamics and allows us to finance these loans more attractively, all while creating diversification benefits within our portfolio. In the second quarter, we received $444 million in loan repayments. Given Q2's strong origination volumes and modest repayments, we grew the funded portfolio by $633 million. In the near term, we intend to continue to operate at a lower leverage with enhanced liquidity, so we anticipate matching new originations with repayments. Finally, I'm also pleased to state that CARES' distributable earnings are now directly correlated to and poised to further benefit from short-term interest rate increases. A 150 basis point increase in short-term rates since June 30th would represent $0.30 a share increase in distributable earnings on today's portfolio on an annualized basis. As a reminder, base rates have already increased by approximately 50 basis points. With that, I'll turn the call over to Patrick.