KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust Inc. Third Quarter 2022 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.

Thanks, operator, and welcome to the KKR Real Estate Finance Trust earnings call for the third 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 third quarter of 2022, we reported gap net income of negative $48.4 million, or negative 70 cents per diluted share. Distributable earnings this quarter were $34.4 million, or 50 cents per share. The rising interest rate environment served as the primary driver behind our strong distributable earnings. supporting a dividend coverage ratio of over 1.1 times relative to our 43 cent per share Q3 dividend. Book value per share as of September 30th, 2022 was $18.28, a decline of 5.6% quarter over quarter. This was driven by an increase in our CECL allowance by $1.16 per share to $1.66 per share. This increase was primarily driven by higher reserves on watch list loans. Finally, in September, we paid a cash dividend of 43 cents per common share with respect to the third quarter. And based on yesterday's closing price, the dividend reflects an annualized yield of 10.2%. With that, I'd now like to turn the call over to Matt.

Thank you, Jack. Good morning, everyone. Thank you for joining us today. KRF generated another quarter of strong distributable earnings of 50 cents per share, equating to greater than 1.1 times dividend coverage ratio. Our earnings continue to benefit from rising interest rates, and we expect further increases in base rates to serve as a tailwind for KRF's earnings heading into the fourth quarter and 2023. To put this in context, we have stated in our supplement that 100 basis point increase in base rates from 3.04% at quarter end would result in an increase of 21 cents in annualized distributable earnings per share based on our 930 portfolio, with all else being equal. The forward rate curve is projecting more than 100 basis points of increases with 55 basis points already realized to date. The macro environment has continued to deteriorate, which has caused a corresponding negative impact to commercial real estate values. This was further accelerated by the September Federal Reserve meeting. Real estate values are declining in real time as the market digests the higher cost of capital combined with potential slowing demand and a recession. KKR's integrated real estate business, which manages over $60 billion of AUM, affords us a robust view of the current operating environment. While valuations are changing, fundamentals across most of our portfolio remain strong and are characterized by high occupancy and rent growth. Nearly half of our portfolio is secured by multifamily, And another 19% is in the high growth segments of industrial and life science. Over 70% of our originations are secured, of our 2022 originations, are secured by either multifamily or industrial properties. However, 27% of our portfolio is secured by office properties. And this sector has the added risk of uncertainty around long-term tenant demand given work-from-home preferences. Over the past quarter, we have witnessed a significant decrease in liquidity in the office sector, as well as capitulation by owners. In response to this, we have materially increased our CECL reserve and added three loans to our watch list for a total of five loans. In addition, we now have two loans, which are risk-rated of five, and have increased our dialogue with those sponsors. We will use our extensive experience across our KKR platform to optimize these resolutions. I'll conclude my comments by discussing our market positioning. KREF was built for times like this. Our conservative lending strategy is concentrated in growth property types. and geographies, and owned by institutional investors. Our portfolio is financed with best-in-class, non-mark-to-market facilities. Since the beginning of the year, we have been transitioning to a more defensive posture. To highlight a number of these steps we have taken, we raised approximately $345 million of net primary proceeds through common and preferred equity offerings as well as our atm program we increased our revolver to 610 million dollars and extended its term to five years and added nearly two and a half billion dollars of non-marked market financing year to date and we currently stand at 70 76 percent of total outstanding secured financings that leaves us today with over 900 million of liquidity which does not include 370 million of unlevered senior loans on the balance sheet. While this market has a favorable lending environment, as we stated on the last call, we will continue to operate KRF with lower leverage and higher liquidity and anticipate only originating loans to match repayments. With that, I'll turn the call over to Patrick.