KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. First Quarter 2023 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. Thanks, Operator, and welcome to the KKR Real Estate Finance Trust earnings call for the first quarter of 2023. 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 first quarter of 2023, we reported a gap net loss of $30.8 million, or negative 45 cents per diluted share, including a CECL provision of $60.5 million, or 88 cents per diluted share. Distributable earnings this quarter were $33.1 million, or $0.48 per share. Book value per share as of March 31, 2023, was $17.16, a decline of 4.7% quarter over quarter. Our CECL allowance increased to $2.48 per share from $1.61 per share last quarter. The increase was primarily due to additional reserves for two five-risk-rated office loans, where the sponsors have commenced sales processes for the properties, as well as heightened market volatility, uncertainty, and reduced liquidity, particularly in the office sector. Finally, in March, we paid a cash dividend of 43 cents per common share with respect to the first quarter. Based on yesterday's closing price, the dividend reflects an annualized yield of 15.5%. With that, I would now like to turn the call over to Matt.

Thanks, Jax. Good morning, and thank you for joining us today. KREF generated strong distributable earnings this quarter of 48 cents per share relative to our 43 cent per share dividend as our 100% floating rate portfolio continues to benefit from the high interest rate environment. As you have heard us say for the last few years, we have been hyper-focused on our liability structure and liquidity. This focus has created best-in-class, non-mark-to-market financing and very high levels of liquidity. Maintaining KRF's defensive posture remains our primary focus today, given current market dynamics. Rising interest rates and recession risks continue to weigh on real estate transaction volumes and valuations. Beginning in the summer of last year, the largest money-sitter banks were largely inactive. And since our last earnings call, we have seen two large regional bank failures. While KREF does not have any financing or direct exposure to regional banks, we do expect this to cause tightening credit conditions as regional banks take a more conservative posture and regulators increase their oversight. The expectation of tightening credit conditions has weighed heavily on non-bank financial institutions and created a narrative around already declining real estate valuations. In our own portfolio, our asset management focus is on our loans secured by office properties. We have increased reserves this quarter and put two more office loans on our watch list with a risk rating of four. The office sector continues to be challenged with limited liquidity and values down significantly. Given KREF's high levels of liquidity, we have taken a proactive approach in working through resolutions on our identified loans with our sponsors. Our approach has been direct, and we are leveraging the full resources of KKR to optimize outcomes. But to be clear, we are not looking to kick the can down the road. Where we find reasonable liquidity and valuations, we will transact. However, we're not for sellers. So where there is little liquidity, we will take title and manage the property at our lower basis. Patrick will discuss updates to our watch list in detail later in the call. As we signaled last quarter, we expect the portfolio to turn over modestly throughout 2023. In the first quarter, we received loan repayments of 87 million and funded 204 million for loans previously closed in previous quarters, or a net increase of 117 million. Our portfolio is built defensively with focus on resilient property segments of the market. Nearly 60% of our portfolio at quarter end was comprised of multifamily and industrial properties. We had no new loan originations this quarter as we look to maintain a robust liquidity position. Our partnership with our manager, KKR, and the strength of our real estate platform allow us to maintain a sophisticated view of the current operating environment. We have a dedicated team of approximately 60 real estate credit investment professionals. Beyond KREF, we are actively lending for our bank and insurance SMAs as well as our private debt funds. This diversified capital base allows us to stay active in the market and service our strong client relationships. As a result of our defensive posturing, Tariff was one of the first mortgage REITs to begin lending during COVID. And we feel we are well equipped to utilize a similar playbook when the market stabilizes. Also worth noting is our manager's long-term hold position of 10 million shares in the company. We're approximately 14% of KREF shares outstanding today. We believe this is the highest ownership percentage held by a manager in the mortgage REIT sector and demonstrates meaningful alignment between KKR and KREF. As I mentioned earlier, we were operating KREF with a high level of liquidity with nearly 1 billion as of March 31st, including $254 million of cash, and our $610 million corporate revolver, which was undrawn at quarter end. As we have discussed in prior quarters, we added over $4 billion of additional non-Mark-to-Market capacity over the past two years with the support of the KKR Capital Markets team. Approximately $2.5 billion was added in 2022. two-thirds of which was done on a truly bespoke basis with financing providers such as foreign banks and insurance companies and away from public capital market sources. Seventy-six of our secured financing at the end of the first quarter of 2023 was completely non-mark-to-market and diversified across a number of facilities, and the remaining 24% is only marked to credit. With that, I'll turn the call over to Patrick.