KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust Incorporated third quarter 2023 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 third 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'd 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 2023, we reported gap net income of $21.4 million, or 31 cents per diluted share. Distributable earnings this quarter were $17.4 million, or 25 cents per share, including a write-off of $15 million, or 22 cents per share. Distributable earnings prior to realized losses were $0.47 per share relative to our Q3 $0.43 per share dividend. Book value per share as of September 30, 2023, was $16.29, a decline of less than 1% quarter over quarter. Our CECL allowance decreased to $3.21 per share from $3.30 per share last quarter. Finally, in mid-October, We paid a cash dividend of 43 cents per common share with respect to the third quarter. With that, I'd now like to turn the call over to Matt.

Thanks, Jack. Good morning, and thank you for joining us today. The portfolio continues to benefit from a higher interest rate environment. KRF averaged run rate distributable earnings of 48 cents per quarter throughout 2023, excluding realized losses. KREF benefits from KKR's large real estate team with access to real-time market data across our $64 billion equity and credit portfolio. In addition, KKR has a dedicated, rated special servicer and asset management platform called KSTAR. Started in 2022, KSTAR has over 45 people and $40 billion of special servicing rights which enhances our market connectivity, gives us real-time performance information, and enhances our ability to offer differentiated, high-quality service to our borrowers and to drive asset management outcomes. The rate complex continues to evolve, with higher for longer, now the predominant theory, and the 10-year Treasury closing in on 5% for the first time since 2007. This recent increase will likely lead to further declines in real estate values and create a more cautious market sentiment. Borrowers continue to feel pressure from higher carrying costs, including the need to purchase interest rate caps and near-term loan maturities. However, this is not a surprise for us. We have positioned KREF to manage this market environment with proactive asset management, market-leading levels of liquidity, and diverse largely non-mark-to-market financing. With the assistance of KKR Capital Markets, we have built high levels of liquidity and ended the quarter with $716 million of availability, including $108 million of cash on hand and $500 million of corporate revolver capacity. Seventy-six percent of our secured financing as of September 30th was fully non-mark-to-market. with the remaining balance marked to credit only. We have succeeded in terming out our debt, and we have no corporate debt or final facility maturities due until Q4 of 2025. The composition of KRUS financing structure remains a true differentiator. We continue to proactively manage our current portfolio of $7.9 billion, which remained effectively flat quarter over quarter. We received repayments of 152 million in the quarter across four loans, the majority of which was related to office pay downs. Consistent with what we have previously stated, we expect limited repayments for the remainder of 2023, although we do expect repayments to exceed future fundings through 2024. As we determine the run rate earnings potential of the business into 2024, the main drivers will be interest rates, portfolio performance, and the ability to unlock equity held in our risk-rated five assets. At quarter end, multifamily remains our largest segment by property type. Our multifamily portfolio has performed well, with weighted average rent increases of 4.1% year over year, weighted average occupancy of 91%, and median year built on the multifamily portfolio of 2015. Office assets represent 25% of KRAS outstanding portfolio. And as mentioned last quarter, we feel that we have identified the potential office issues within our watch list and do not anticipate further negative ratings migrations to the watch list from the office sector. Furthermore, in the third quarter, we did not downgrade any loans across the portfolio while we amended the risk ratings of two of our office loans higher. We raised our Chicago loan that had been on the watch list to a risk rating of three following a modification, another example of our proactive approach to asset management. We also upgraded our Oakland, California office loan to a risk rating of two as we received a large partial pay down of approximately 68%. We expect full repayment of the Oakland office loan in mid-2024. With that, I'll turn the call over to Patrick.