KKR Real Estate Finance Trust Inc.

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

Great. Thanks, operator. And welcome to the KKR Real Estate Finance Trust earnings call for the fourth 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-K 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 fourth quarter of 2022, we reported gap net income of $14.6 million, or 21 cents per diluted share, including a CECL provision of $21.2 million, or 31 cents per diluted share. Distributable earnings this quarter were $12.4 million or 18 cents per share, including a write-off of $25 million or 36 cents per share. Distributable earnings prior to realized losses were 54 cents per share relative to our Q4 43 cent per share dividend driven largely by the higher rate environment. Book value per share as of December 31st, 2022 was $18. a decline of 1.5% quarter over quarter. Our CECL allowance decreased to $1.61 per share from $1.66 per share last quarter. Finally, in early December, we paid a cash dividend of $0.43 per common share with respect to the fourth quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 10.9%. With that, I would now like to turn the call over to Matt.

Good morning, and thank you for joining us today. Before turning to the current market and company results, I'd like to reflect on KRES achievements during 2022. Despite a very challenging environment, we made significant progress enhancing our liquidity and diversifying our already best-in-class non-mark-to-market liabilities. In 2022, we optimized and diversified our financing sources, and as a result, sit on record levels of liquidity. Last year, we had a $2.5 billion of non-mark-to-market liabilities. Notably, we increased the borrowing capacity on KRF's corporate revolver by $275 million to $610 million and extended the maturity date through March 2027. This revolver is a key contributor toward nearly $1 billion in liquidity as of year end. 77% of our secured financing as of year end was completely non-marked to market, and the remaining 23% is only marked to credit. In addition, we have $1.9 billion of CRE CLO liabilities that are priced at attractive spreads and still in their reinvestment periods. In 2022, we grew our permanent equity base by 15% to $1.6 billion. We raised approximately $150 million of preferred equity at a 6.5% fixed-for-life coupon. We completed two public offerings of common stock, resulting in net primary proceeds of $188 million. AKR reached its target long-term hold position of 10 million shares, representing 14% of our shares outstanding, resulting in market-leading alignment between KKR and KREF. Equally as important was our disciplined approach to buying back shares when KREF traded below book value. In 2022, we repurchased 2.1 million shares for nearly $36 million. Since our May 2017 IPO, KKR has repurchased nearly $100 million of stock. I cannot overstate the impact of our partnership with our manager, KKR, and the strength of our real estate platform. KKR's integrated real estate business provides us with a robust view of the current operating environment, which has become more dynamic over the past few quarters, as the Federal Reserve has embarked on a virtually unprecedented pace of interest rate increases. This broader real estate platform collectively manages over 64 billion of AUM and has grown by approximately 60% since the end of 2021. For example, TKR's real estate private equity team owns or manages over 90 million square feet of industrial assets in over 30,000 multifamily units globally. We are able to draw on real-time data and market intelligence from this property portfolio, which informs our investment decisions as a lender. The KKR real estate credit business is substantial in its own right, with $30 billion of assets under management and a dedicated team of 66 at year-end 2022. with nine senior investors responsible for over $10 billion in originations. As a reminder, KREF is KKR's flagship senior transitional CRE lending strategy and holds the first priority position within the allocation waterfall. This team originated $2.7 billion on behalf of KREF in 2022 across 25 loans. concentrated our efforts in the growth property types with nearly 70% secured by multifamily and industrial properties and another 22% secured by life science properties. Our focus on lending to institutional sponsors on high quality real estate in growth sectors and markets has positioned us well to navigate the current environment. Our largest property type is multifamily and which represents approximately 45 percent of the overall portfolio we continue to see strong performance across that segment with median same store rental rates up 12 percent in the portfolio fourth quarter of 2021 to the first fourth quarter of 2022 that said and as we discussed last quarter the office sector remains challenged with little liquidity across both debt and equity. Our underweight in office will benefit KREF on a relative basis. We are diligently working through our watch list office loans. Our first preference is to work with our existing sponsors. However, many properties will require additional capital, and sponsors will need to demonstrate commitment to the asset with additional equity. We are not in the free option business, and our mindset is to deal with any issues now and not to kick the can down the road with a sponsor who is not economically incentivized to lease at current market rates. Fortunately, we have many tools at our disposal to optimize these outcomes, including taking title and operating assets until liquidity returns. We are also in a position to be proactive with our borrowers and work towards faster resolutions because we have high levels of liquidity at the corporate level. Turning to earnings, the high interest rate environment continues to be a tailwind for our distributable earnings. In 2023, we expect the portfolio to turn over modestly, and we will continue to match originations with repayments. We expect repayments for 2023 to be approximately $1 billion, weighted to the back half of the year. As we navigate this new year, we are very well positioned with a strong portfolio, best-in-class liabilities, and record levels of liquidity. Lastly, I want to take a moment to thank Todd Fisher, who resigned from the KREF Board of Directors earlier this month to accept a position with the United States Department of Commerce. Mr. Fisher has been an integral part of our team since KREF's inception, and we thank him for his thoughtful guidance in steering the company. We wish him well in his future endeavors. With that, I'll turn the call over to Patrick.