KKR Real Estate Finance Trust Inc.

Good morning and welcome to the KKR Real Estate Finance Trust, Inc. Third Quarter 2024 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 third quarter of 2024. As the operator mentioned, this is Jack Switala. This morning, 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 2024, we reported gap net loss of negative $13 million, or negative 19 cents per share, driven by a CECL allowance increase of 52 cents per share, following the additional downgrade of two loans. As a result, Book value per share decreased 2.6% quarter over quarter to $14.84 per share as of September 30th, 2024. Distributable earnings this quarter were $25.9 million or $0.37 per share relative to our Q3 $0.25 per share dividend. With that, I'd now like to turn the call over to Matt.

Thank you, Jack. Good morning, everyone, and thank you for joining our call today. Before going into third quarter results, I'd like to spend some time on a market update. As we enter an interest rate cut cycle, there's increased confidence and growing consensus that lower interest rates will provide tailwinds for commercial real estate property values. We are seeing improved transaction volumes within our own real estate credit pipeline, which currently averages approximately 20 billion a week. up 40% from the beginning of the year. And we have strong conviction that there is a significant lending opportunity ahead of us. From a KKR real estate equity perspective, 2024 has been our most active year investing since inception, with $4.5 billion year-to-date of equity invested in the United States. Within commercial real estate lending, we've seen U.S. banks, continue to shift their preference from direct mortgage origination to financing alternative lenders through loan-on-loan facilities. Given the more efficient capital treatment of loan-on-loan facilities, we believe this will continue. Banks will continue to lend, but our expectation is that their market share will decrease from their historical average of 40 percent. This should create incremental lending opportunities across non-bank lenders and CMBS measured in the hundreds of billions. Turning to KRF, we've reached a point where we believe we have dealt with the majority of our watch list and have ample liquidity. Therefore, as we receive future repayments, we will look to actively reinvest that capital and ramp up originations. As part of our investment allocation, we will also evaluate share repurchases. As a reminder, KREF has brought back nearly 100 million of stock since inception. Turning now to KREF's third quarter results, this quarter represents another significant step forward in addressing our watch list in a proactive and transparent way. As we mentioned on our last call, we've been focused on resolving our last four-rated life science limit. and we are in advanced discussions with our borrower and have accordingly increased our reserves. In addition, we transitioned one of our four rated multifamily loans to a five rating. As a whole, we still feel very confident about our multifamily exposure, but as we have messaged previously, we will have some noise in that sector over time. With those adjustments, book value per share this quarter declined to $14.84 per share, down 2.6% compared to the prior quarter. Importantly, our four rated loans now represent only 3% of our total portfolio, the lowest since the fourth quarter of 2019. KREF reported distributable earnings prior to realized losses of 40 cents, covering our 25 cent dividend. While lower SOFR in our REO portfolio will impact earnings, we expect that DEX losses will continue to be higher than our dividend as we head into 2025. In the third quarter, we received $290 million in loan repayments compared to $55 million in fundings. With full repayments across four loans, including multifamily, single-family rental, and an office loan secured by a property located in Oakland, California. In addition to this, post-quarter end, we sold a $138 million office loan at par. Repayments have now exceeded fundings in five of the last six quarters. Additionally, future funding obligations are now reduced to 8% of the funded portfolio Year to date, we have received over $1 billion in repayments, compared to our original expectation of $1 billion for the full year. KREF, as an externally managed vehicle, benefits from access to resources and relationships from KKR's global platform. We are fully integrated into KKR's broader real estate business, which has assets under management of approximately $75 billion. This integration has been instrumental as we are able to leverage the resources and capabilities of our team of approximately 140 professionals with a reputation as a best-in-class investor and solutions provider. Within real estate credit, we invest a broad range of capital across the risk-reward spectrum. including bank, insurance, and transitional capital. And we've been actively investing this capital throughout this cycle. Additionally, our dedicated KSTAR asset management platform with over 55 people across loan asset management, special servicing, and REO has a portfolio of over $33 billion in loans and is named Special Servicer on an additional $46 billion of CMBS. Overall, we believe we have been proactive and transparent in managing our portfolio and feel confident in how the company is positioned. We are primarily focused on two things as we round out the year and turn the calendar. Maintain our current portfolio size by reinvesting repayments into this attractive vintage of real estate credit. Second, optimize our REO portfolio. As a reminder, as we repatriate our equity in the REO portfolio, we believe we can generate an additional 12 cents per share in distributable earnings per quarter with ample liquidity stronger than expected repayments, as well as our reduced leverage ratio, we're excited about the opportunity ahead. With that, I'll hand the call over to Patrick.