KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. first quarter 2024 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 first quarter of 2024. 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 first quarter of 2024, we reported a gap net loss of $8.7 million, or negative $0.13 per share. Distributable earnings this quarter were $26.7 million, or $0.39 per share. Book value per share as of March 31, 2024, was $15.18, a decline of approximately 2% quarter over quarter. Our CECL allowance increased to $3.54 per share from $3.06 per share last quarter. In mid-April, we paid a cash dividend of $0.25 per common share with respect to the first quarter. With that, I'd now like to turn the call over to Matt.

Thank you, Jack. Good morning, everyone, and thank you for joining us today. I'd like to begin with a brief update on the state of the market. Despite the latest higher-than-expected CPI print, resulting in muted expectations for near-term interest rate cuts, the commercial real estate market continues to heal with increased transaction volume, price transparency, and liquidity across most property types. Given narrowing views around interest rates and sustained economic growth, combined with valuation stability, we are beginning to see encouraging green shoots. The lending environment is competitive as a significant amount of capital availability outweighs suppressed transaction volumes. Over the last 24 months, insurance companies, foreign banks, and government agencies have been able to meet the needs of the market. In sympathy with broader macro strength, spreads are tightening, with recent lending on stabilized real estate in the mid-100s. With U.S. banks still largely on the sidelines and the increased market activity, our expectation is for this supply, demand, and balance to normalize and potentially reverse, creating an attractive opportunity for KRF to fill this void as we resume lending in the next few quarters. But our team has not been dormant. Given KKR's large and diversified CRE credit platform, we have been actively originating loans throughout this cycle, Our bank, insurance, and debt funds pool of capital across the US and Europe are actively investing with a budget of approximately 10 billion this year. Our own pipeline demonstrates this return of transaction volumes with an existing pipeline of deals in review or in closing of approximately 20 billion, totaling over 100 opportunities. This compares favorably to last year's weekly average pipeline of $14 billion. While we expect CRE lending across the U.S. banking activity to remain muted, we are seeing a notable shift in preference from direct mortgage origination to loan-on-loan facilities to institutions like ourselves. This change is driven by more efficient capital treatment, less intense resources, and relative safety. In terms of property type fundamentals, the office sector remains challenged, though we are beginning to see more liquidity now than six months ago. In KRES portfolio, we continue to feel we have identified the potential office issues within our watch list and do not anticipate further negative ratings migration to the watch list from the office sector. In terms of life science, we remain positive on the sector given the long-term demand from innovations in science and technology, though the market has seen a decrease in funding. We downgraded one additional life science loan to our watch list this quarter as a result of challenges posed by this short-term leasing slowdown. Multifamily fundamentals have slowed given new supply dynamics, but liquidity in the sector is very high. Market research suggests a 50% decline in multifamily construction starts in 2024 versus 2022, leading many investors to look past the elevated rate environment and current rent pressures. Multifamily represents 43% of our portfolio and has performed well, with weighted average rent increases of 3.4% year over year. Turning to KREF's earning results for the first quarter of 2024. KREF comfortably covered our 25 cent per share dividend this quarter with distributable earnings of 39 cents per share. As we stated last quarter, we set our dividend at a level that we can cover with distributable earnings X losses with our performing loan portfolio under a number of different scenarios. Our expectation is that in the near term, DEX losses will continue to be significantly higher than our dividend. With the help of KKR Capital Markets, KREF continues to maintain high levels of liquidity with $620 million of availability at quarter end, including $107 million of cash on hand and $450 million of undrawn corporate revolver capacity. We have diversified financing sources across a number of facilities, totaling $8.7 billion, with $2.9 billion of undrawn capacity. 78% of our secured financing is completely non-mark-to-market, with the remaining balance marked to credit only. KREF has no corporate debt or final facility maturities until 2026. The composition of KREF's financing structure remains a true differentiator. This quarter, we received $336 million in loan repayments, including full repayments of $173 million on our previously four-rated DC office loan and $151 million on our previously four-rated New York City condo loan. We funded $103 million for loans closed in previous years for a net reduction of $232 million. Repayments have now exceeded fundings in four of the last five quarters, and we expect this to continue with aggregated projected repayments throughout 2024 of over $1 billion. TARIF as an externally managed vehicle benefits from access to resources, relationships, and expertise of KKR's global real estate platform that manages nearly $70 billion of assets across both debt and equity. Our dedicated team of approximately 150 real estate professionals has a strong reputation as a full-service capital solutions provider. This integration provides us with an optimal toolkit to implement a variety of strategies and maximize value across our portfolio. In addition, KSTAR, our affiliated rated special servicer with a team of more than 45 professionals and over $45 billion of special servicing rights, representing over 5,000 properties, provides us with extensive access to an expert team with sizable real-time market information. We will continue to proactively and transparently navigate this challenged real estate market. As we mentioned last quarter, we will patiently optimize our REO portfolio, and as we sell those assets, we believe we can reinvest the capital to generate an additional 12 cents per share in distributable earnings per quarter. And with that, I'll turn the call over to Patrick.